Logan Mohtashami, HousingWire lead analyst, joins ‘The Exchange’ to discuss his 2024 housing outlook, the state of existing vs. new home sales, and more.

Do you want to get started in real estate investing but don’t have the funds to purchase an entire property? Fractional real estate investing may be the answer you’re looking for. Fractional investing offers lucrative opportunities to own part of a property rather than an entire one.

Fractional real estate ownership can be affordable for startup investors who want to enter the real estate market. But what is fractional investing? And is this the right investing model for you? 

This article is a comprehensive guide to fractional property investing. You’ll also learn the pros and cons of this investment strategy. You can then decide if it aligns with your financial goals.

What Is Fractional Real Estate Investing?

Fractional real estate investing involves several investors owning a portion of one or more properties. With fractional ownership, you can invest in real estate with lower capital. It’s a strategy to own a portion of one or more properties, giving you partial ownership rights and a share of financial returns.

7 Ways to Invest in Fractional Real Estate

Fractional real estate investing has gained in popularity. Online platforms and real estate marketplaces make it easier to find investment opportunities. You can diversify portfolios and manage investments more easily. Fractional investments also offer liquidity by enabling you to buy and sell fractional shares.

Here are seven fractional ownership models to consider.

1. Create a partnership

Creating a partnership is a common fractional investment model. This method involves individuals pooling resources and skills to purchase an investment property. Each partner contributes resources such as capital and expertise. They also share the risks, responsibilities, and rewards of the investment.

A real estate partnership typically involves creating a limited liability company (LLC) or a limited partnership (LP). Depending on the structure, partners can have an active or passive role. Also, the liabilities of limited partners depend on their involvement and investment. The general partner is responsible for the everyday operations of the investment property.

2. REITs

Investing in real estate investment trusts (REITs) is popular in fractional property investing. These investments give you real estate opportunities without high initial startup costs. REITs also allow you to develop a diversified portfolio across several property types. Buying shares in a REIT can be a good option if you want a passive investment.

How do REITs work? Fractional investors purchase shares or units of a REIT. A team of professionals manages the investment trust. You receive dividends from rental income, interest, or capital gains of the REIT properties. Publicly traded REITs offer liquidity because shares are bought or sold on stock exchanges.

3. Real estate syndication

Real estate syndication is a way to get started in fractional property investing. Syndication involves multiple investors pooling their resources to invest in property. You get the benefits of owning real estate without much capital or expertise in property management.

The syndicate sponsor is the general partner who oversees the investment strategy. Investors contribute capital and take on a passive role. 

The biggest benefits of syndication include:

4. Crowdfunding platforms

Real estate crowdfunding platforms make investing in property markets accessible to more investors. Crowdfunding platforms let you pool capital with other investors to buy shares in real estate projects. You can spread investments across multiple asset classes, property types, and regions.

Crowdfunding platforms are often an affordable entry point for smaller investors. They give you access to real estate investment opportunities. This way, you can build a portfolio and enjoy financial benefits like passive income and property appreciation.

Here are some popular crowdfunding platforms for fractional real estate investing:

• Ark7: This real estate platform lets you buy shares for as little as $20 and receive regular dividends from rental income. However, Ark7 fees can be higher than other platforms.
• Arrived: This real estate investing platform is popular for rental properties. Individual investors can start investing from $100. However, you must hold assets for at least five years, which may be too long for short-term investors.
• Concreit: This crowdfunding model lets you invest in real estate with a minimum investment of $1. It allows non-accredited investors and pays weekly dividends. However, it only pays 5.5% returns and only has one investment option.
• Fundrise: This real estate investment platform offers access to equity and debt investments. It has a small initial investment—as little as $10. It also invests your balance based on your financial goals. However, quarterly returns are not guaranteed.
• Lofty: This fractional ownership platform lets you access real estate markets for as little as $50. The platform offers tradable, blockchain-based tokens and pays out regular rental yields. But some investors don’t like dealing with crypto-based tokens.
• Yieldstreet: If you are looking for alternative investments, this crowdfunding company is a good choice. You can buy shares in various industries, including real estate, legal, and art. However, it’s more suited to accredited investors.

5. Vacation home rentals

Fractional ownership of a vacation property is a way to diversify your portfolio. Buying a portion of a vacation home gives you the benefits of ownership with access to a vacation home. You get access to the property for a specific number of weeks each year.

Fractional ownership of vacation properties shouldn’t be confused with timeshares. When investing, you own a portion of the property’s equity and become a co-owner. Unlike timeshare properties, you can sell your fractional ownership, gift it, or place it in a trust. Additionally, you can stay in your luxury resort vacation home or rent it out when you don’t use it.

6. Tokenized real estate

Real estate tokenization allows for fractionalized property ownership using blockchain technology. Several real estate platforms offer property tokens representing part of an investment property. Investors can purchase property tokens, taking on partial ownership for as much or as little as they can afford.

Benefits of tokenized real estate assets include:

• Low minimum requirements
• Better liquidity
• Access to global markets
• Investment opportunities for small-scale investors

That said, tokenized real estate investing can be more volatile and suffer from a lack of transparency.

7. Real estate exchange-traded funds (ETFs)

Exchange-traded funds (ETFs) can make investing in fractional ownership properties easier. These funds are typically invested in REITs and traded like stocks and bonds. ETFs aim to replicate performances in a specific real estate index or sector.

Investing in ETFs has diversification benefits. For example, if you invest in several companies that own investment properties, this reduces risk. Additionally, dividend payouts tend to be high, and you benefit from increased liquidity. However, interest rates can affect the performance of ETFs.

Benefits of Fractional Real Estate Investing

Fractional real estate investing can give you easy entry into property markets. With minimal upfront costs, partial ownership of vacation properties can be within your reach.

Here are five benefits of fractional investing:

1. Lower barrier to entry: If you have limited funds, fractionalization lets you enjoy the benefits of property ownership. Purchasing fractional shares is more affordable than buying an entire rental property.

2. Diversified real estate portfolio: It is easier to diversify your investment portfolios by owning fractions of multiple properties. This gives you access to various markets and property types. Additionally, spreading investments across multiple properties reduces risk compared to investing in a single property.

3. Increased liquidity: Online investment platforms generally let you buy and sell fractional shares. This allows you easier access to cash and more flexibility than traditional property investments.

4. Professional management: Fractional ownership eliminates the day-to-day stress of managing rental properties. You don’t need to screen tenants, deal with maintenance issues, or lose rental income from vacancies.

5. Earn passive income: Fractional ownership in rental markets lets you earn regular income from rent payments. Additionally, you benefit from potential property appreciation when the asset is sold.

Risks & Considerations

Like any type of investment, fractional real estate investing has some risks. For example, you have less control over assets and investment strategies. And real estate markets can fluctuate.

Here are some risk considerations before starting in fractional property investing:

• Housing market risks: Investing in fractional ownership properties is subject to market risks. Factors affecting the performance of real estate investments include:
  • Fluctuations in property values
  • Market demand
  • Rental income
  • Vacancies
  • Economic conditions
• Lack of control: Fractional real estate ownership means you share control with several other investors. While being a passive investor is attractive to some, it’s not ideal if you want control over decisions. The more stakeholders, the less say you have in property management and investment strategies.
• Potential conflicts: Partial ownership of properties means you will probably deal with unknown co-owners. This situation can result in conflicts regarding financing, maintenance, and exit strategies.
• Lower returns: Returns may be lower than traditional real estate investing. Property management and crowdfunding companies can charge fees. Also, you must share returns among multiple investors.
• Limited exit strategies: Not all investing platforms offer liquidity options, and you may face heavy fees if you want to exit before a certain time. Also, selling fractional shares through secondary markets may have associated costs and complexities.

Who Benefits from Fractional Real Estate Investing?

Buying fractional property ownership may or may not be your best strategy, depending on your financial goals.

Typically, investing in fractional properties suits the following investors:

• Individual investors with limited capital: You can get started in real estate with limited financial resources.
• Beginner real estate investors: These investors can enter the real estate market with smaller investments and less experience in property management.
• Diversify your portfolio: Do you want a diversified portfolio? If so, you can spread investments across different properties and locations.
• Passive investors: Earn regular income from rental units without stressing about property ownership.
• Access to luxury properties: Get a foothold in the luxury property market and own part of high-value real estate or a luxury resort vacation home.

Final Thoughts

Fractional real estate investing can be an excellent investment strategy. This is especially true if you want to enter the property market with limited cash. Investing in a portion of an investment property rather than buying the entire property is more affordable. You can benefit from increased liquidity and professional management, and earn passive income through rental payments.

Before venturing into fractional real estate investment, it’s vital to consider your long-term financial goals and risk tolerance. Consider the pros and cons of fractional ownership of properties. That way, you can make informed decisions as you start your journey to build wealth.

Invest passively with syndications

Want to invest in real estate but don’t have the time? No matter your level of experience, real estate syndications provide an avenue to invest in real estate without tenants, toilets, or trash—and this comprehensive guide will teach you how to invest in these opportunities the right way.

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

Dave:
Hey everyone, welcome to the BiggerPockets Podcast. My name’s Dave Meyer, and today I’m going to be sharing with you a recent webinar that I gave about making 2024 the best year ever for your real estate portfolio. I actually gave this webinar a couple of days ago, right around the new year, but it went really well and it seemed to really help a lot of investors, whether they were brand new or a seasoned veteran, get ready and get kick-started for what could be a great year for real estate investing.
In the webinar, I sure address the elephant in the room, the housing market, and whether or not it’s a good time to buy for real estate investors. I also talk about building the right systems and processes that are repeatable and can help you land good deals regardless of what market you’re in or what macroeconomic conditions change over the course of the year. There’s tons of great information, there’s tons of great tools that you can use to build your portfolio, so you’re definitely not going to want to miss this webinar.
So that’s it. It’s a great webinar and I really think it’s going to help you start taking action towards your real estate goals in 2024. So without further ado, let’s jump into the webinar.We’re going to be going through nine powerful tips that will help you do just that. So first things first, again, thank you for joining. You guys could be doing anything with this time, but you’re spending it here with me and this whole community of BiggerPockets people trying to improve their financial situation, and that is really special. It means that you’re ready, you’re willing to take action on your goals for 2024, and that makes this the exact right place that you should be.
Hey, guys. It’s only the 4th of January, right? That means you’re probably doing better than like 95% of people on whatever resolutions or goals they have. So congratulations on being here. So let’s just start with a question here, and this might sound like some big hypothetical question, but I’m actually asking you this right now. Are you looking to make a change this year? Are you thinking about 2024 and hoping that you’re going to buy perhaps more real estate or generate more passive income with working not as much, or maybe you are really into the big equity injections that flipping houses can get you? Or maybe you’re like me and you really invest in real estate for things like spending more time with your family and friends or sort of, again, like me, again, I made this deck to travel.
Traveling is one of my personal passions. It’s one of my personal goals, but I put that as an example. This doesn’t have to be travel. It’s really about whatever you’re hoping to get out of real estate investing, whether that’s time for a hobby or just reducing your financial stress and anxiety or just generally more freedom.
Are these things that are appealing to you? If you’ve answered yes, and I’m guessing you have because you’re here, then ask yourself one more question. I know I’m asking a lot of questions right now, but ask yourself, could this be the year of your pivot? Now, if you haven’t heard this term pivot before, a lot of people use it in business to describe a shift. It’s like a change in direction. If you’re familiar with basketball, you probably hear this all the time.
It’s not like totally upending and changing your entire life. You don’t need that for real estate. It’s just a bit of a refocusing, a shift of priorities, and it’s like a pivot, a move towards your long-term, financial stability and goals. We’re going to talk a lot about this today because I think this idea of pivots is really important. People often think that they need to get into real estate, they need to make some drastic shifts, but that’s honestly just not the case.
All it takes is these small shifts sustained over a long period of time, and that’s what gets you to financial freedom. It’s not a get rich quick scheme. So if you’re looking for that, I’m sorry, it’s probably not going to be the right webinar for you. This is more about pivoting your mindset, implementing a proven system, sustaining that over a long period of time. I know that sounds boring, but that’s the thing that actually works. If this sounds good to you, this pivot, this idea, then think about whether 2024 could be the year of your stack.
So we’ve learned what the word pivot is. Now, we’re going to talk about stack. And the stack is the system that you use to sustain these pivots over time. It’s not like you have to make all these decisions on your own. Today, I’m going to show you a system that you can use that hundreds, honestly, literally tens of thousands, hundreds of thousands of people have used before and you can use too.
And the basic idea behind the stack is that to achieve financial freedom or to achieve a considerable amount of wealth, it takes multiple properties. I hope every property you buy improves your financial position, but one is just not going to cut it. So the stack is this proven, scalable and honestly relatively low risk approach to growing your real estate portfolio to the necessary size to unlock those goals we just talked about, whether that’s financial freedom, time with friends of family, all that stuff.
So the idea here is simple. It’s like start in 2024. Just come up with a modest goal, buy one unit. Then in the next year, maybe two years from now, maybe you need to save up some money, buy two units. Then in the following year, buy four. And that might sound like this huge ambitious things, but it’s not because once you buy that first one, you’ll see that it’s not that hard and you’ll see that buying two is actually not that much more work than buying one.
Same thing goes with going four. And you keep going and you maybe buy eight or 10. This isn’t some magic system. Once you learn how to buy these properties, you can scale it to really any size and you may think that you need a huge amount of time or money or skills, and we’re going to get to that. But I just want to make clear upfront that you don’t need it all today. That’s the whole point of pivots. That’s the whole point of stacks. And I’m telling you this upfront.
So you remember that your pivot for 2024 could be to get just one single property, one single unit. That in itself is enough to set you on the right course to reach financial freedom. All it takes is just a few pivots, like the ones you can be making today. I put a quote in here from Jim Rome, which I love. It says, “Life doesn’t get better by chance. It gets better by change.”
And this is important because you can’t just wait around for these pivots to happen to you. No one is going to go and tell you how to make that small adjustment that’s going to help you get that first real estate deal. You actually have to proactively go out there and make those pivots that you want to see in your life. So today, yes, it’s about real estate investing, it’s about pivot, but it’s really about change. Today, I am going to work hard to provide you with the tools and confidence you need so you can make that change.
I realize this isn’t… Again, it’s not a short-term thing, but the life you’re dreaming of may still be three, four, five years down the road, but the decisions you make today will determine if you’re going to get there. So this is what we’re going to be talking about today. Today is about change and making it your best year ever. So commit yourself to that. That’s going to be our goal today. It doesn’t mean you have to buy the most real estate this year. It could just be one. It just means that you’re going to start making those good decisions.
But change like we’re talking about today is not easy. Sometimes it’s really hard to change. Change is hard, and that’s because their resolutions don’t necessarily work that well. I think that there’s nothing wrong with them per se, right? We’ve all got them. But I think the real challenges are, one, usually they’re not specific enough. Like someone just say, “I want to get wealthy”. That’s not super specific. That’s really big.
The second is that they lack a plan. You have this big ambition, but you don’t actually have the steps together to figure out how you actually want to get there, and there’s no way to force action. So those are some problems I think we all see with resolutions. So the question is what’s the alternative to a vague resolution?
Well, I call it the shift change formula. We’re not going to be talking about resolutions today here. If you want to use them elsewhere in your life, you can, but we’re going to talk about a proven system to achieve whatever goals you want in life, and that means you need to have the right goals. So you need to set specific goals, and that’s what we’re going to be talking about today. They need to be specific.
We’re going to [inaudible 00:07:21] with the right plan, which is a system that you can copy from other people and we can also talk about right actions. So those three things together, if you combine your goals, your plans, and your action, you can make the changes, you can make the pivots that we’re talking about. And by the end of this webinar, you will, I assure you, you will have a day-by-day plan for actually achieving your goal.
So this is not some vague resolution. You’re going to actually know what you should be doing tomorrow or you should be doing the rest of this week and you should be doing the rest of this month. That’s what we have on the agenda today. So on the agenda, like I said, I’m going to just explain some things about BiggerPockets. Then I’m going to talk a little bit about today’s market, which if you know me at all, that’s kind of my thing. Then I’ll get to the nine steps to make you 2024, incredible. And then we’ll do some real live deal search and analysis to show you that real deals do exist today.
Now, if you don’t know anything about BiggerPockets, I’ll tell you quickly, but you’re on this webinar, you probably know about the stuff we make. We have podcasts, we have a website, we have all these amazing things. But I also want to tell you about what we believe in. I’ve been working at this company for eight years, and the reason I stay is because BiggerPockets has beliefs in a mission that I truly believe in. And the first one is that real estate investing is the single greatest tool on the planet for the average person to build wealth and passive income. Truly believe that, and you’re going to see this for sure through just in this community that we’re showing here today that average people, normal people can do it. If you’ve ever BPCON, you’ve seen this in action.
Second, I’ve said this a few times, but real estate is not a get rich quick scheme. I’m not here to tell you that this is going to happen overnight. I’m going to teach you a system that you can follow overtime to achieve sustainable wealth. The third is that the goal of wealth building is not necessarily money for money’s sake, it’s to live life on your own terms with the freedom to do whatever you want. For me, that’s spending time with friends and family or traveling, but for you, that could be something totally different.
But what I love about real estate is that the financial freedom it gives you, allows you to unlock all these other amazing parts of your life that aren’t necessarily financial. And then the last one is that anyone can invest no matter how much money, experience or time, and we’re going to get into that. I mean, I know this might sound like pie in the sky and not as realistic, but this is what happened to me.
If you don’t know me, I started investing, like I said, just a year out of college. I was waiting tables. And I’ll get into the details, but I basically saw real estate as an opportunity, but I didn’t really know what I was doing. I literally all the cash I had in my life was in my bedside table. I didn’t have a bank. But I started going out and I looked for deals. I was very young. I was about 23 years old, but I made so many mistakes. I bought my first deal. I was a terrible property manager. I almost gave up. I started to spend money on the wrong things. I didn’t know what deals to look for, but I kept buying. I kept going with it. I didn’t realize for a long time that my problem was that I was just going by the seat of my pants.
I was just making these instant decisions about what to buy and I didn’t follow this system, but I hustled. And those two things combine I think is what really got me to where I am today because my slow start, some things went wrong, but ultimately things went right. I started being a bit more proactive and being a little bit more deliberate about the things I was doing. Rather than just buying random deals that came across my computer or my desk, I started setting very specific goals. I defined the processes that were going to get me those goals, and I just started hustling my butt off.
So those are the things that I think really differentiate people. It’s not necessarily your background or your experience level. It’s following those goals and then putting in the effort. What I’ve also learned that I want to share is that it doesn’t take that many properties to achieve financial freedom. I know this is probably not that common something people say on Instagram or whatever, but it honestly doesn’t. I don’t own thousands of units. I’ve just been very deliberate about finding the deals that work for me and my personal plan. And it’s really not that hard. It just takes, again, the right goals, the right plan, and the right action.
With that, let’s jump into the keys to success. We are going to talk about the nine steps it’s going to take you to succeed in real estate in 2024. But actually guys, I kind of lied. I said it was nine steps, but I added at the end, the 10th one, and that is the elephant in the room. So this isn’t actually a step, but it is something I wanted to talk about before we get into the nine steps and it’s probably on everyone’s mind. Can you invest successfully in 2024? And tell you that you can invest in any market?
That is something almost every investor I know knows. Should you change your tactics based on the market? Yeah. You need to be maybe a little bit more conservative in this kind of market. Maybe certain strategies or certain decisions might not work as well on this market, but there is always an type of investment that works. Just for example, interest rates are higher right now, but there’s way less competition. There is no such thing as a perfect market. You just have to adapt. And we’re going to talk about that today.
The second thing is timing the market as possible. Guys, take it from me. I literally analyze the housing market for hours every single day, and I don’t try and time the market. It is not possible. And so you need to really focus on the long-term about the housing market in the long-term, the appreciation, the cash flow, the loan pay down because those are the things that are going to matter to you in five, 10 years, not what happens in the next six months.
Okay. So that’s number two. And then the third one is that every investor I know is still active and investing right now. And this is cool, right? Because I think a lot of people think, “Oh, real estate, it’s really hard right now.” But what experience investors know is that this isn’t a get rich quick scheme. I’ve said that before. It’s about setting yourself up for the long-term. Short-term conditions are just not as important. They are important, and I’m not saying buy anything. You need to be able to spot a good deal, especially in this market, and we’re going to talk about that.
But trust me, by the end of this webinar, you’re going to know how to find good deals and you’ll see how great investors can grow in any market and you can too. So we’re going to talk about that. So with that out of the way, I just wanted to address the elephant in the room. Now, we can get to the nine steps to succeed in 2024. And as a little bit of a preview, the steps are going to follow this funnel pattern.
So they’re going to start really broad with the biggest goal, and then they’re going to narrow down to very specific actions. So just remember that as we’re going through the nine. They’re going to start broad and get a little bit more. And also remember, this webinar is about making your pivots. So this steps are what can make this your pivot year. These are the steps that I recommend you take for the pivot so we’re going to start at the biggest one, and then we’re going to get down to the things that you can do today or tomorrow to start growing.
So number one is define your why. We talk about this a lot in real estate investing. And what it says is, “Do you know why you’re actually investing in real estate?” I know a lot of people say, “Oh, I just want to be rich. You’re financially free.” But there’s got to be more to it. Right? You have to have an idea of why you want money. Is it to spend more time with your family? Do you want to be a mogul and own thousands of properties? Do you want to just move up your retirement date?
Maybe you just want more spending money. All of these are worthy goals, but the point is not what the goal is, it’s that you have a specific goal because you can’t pursue someone else’s dream, right? That’s not motivating. You can’t just take my why and use it for yourself. You need to know what you’re in it for because real estate, it’s not really that complicated, but there are tough days. There’s going to be challenges. And knowing exactly why you’re doing it is going to help you keep you motivated over the long run and keep that goal in mind.
So this is the most broader things I’m seeing. So to sort of hammer this point home and all the other nine points, we’re going to actually follow this fictitious, but hopefully relatable investor we’re going to call Harold. Now, Harold has his goals. His why is he’s tired of working his nine to five. He wants to spend more time with his kids. He wants to see his kids grow up and he wants to travel the world. I think these are relatable goals. I mean, maybe do you like these goals? I don’t know. Hopefully you do. Hopefully you relate to it. Whatever yours is, I recommend you try and visualize it. Something like this, right?
It’s not necessarily complicated. It doesn’t have to be some big matrix, beautiful mind thing. Just write out a couple of things that you want. For me, my why, I’ll just tell you, mine has always been a dream of balancing financial freedom and having fun. When I was 21, I really had a lot of financial anxiety and I really wanted to build a name for myself and build up some wealth. But at the same time, I was young and I wanted to have fun, and I saw all of my friends making trade-offs.
Some of them would work really hard and build up that financial strength, but they would sacrifice time with friends and family. On the other hand, some of my friends would prioritize experiences. But that came at the expense of building wealth. And I just had a dream to marry those two things, and that has always been my why, to be financially stable, but to enjoy my life as much as possible. And that’s what I think about every time I make a decision when I’m talking in real estate investing.
So that is step number one. Number two is commit. So this is something that’s really important and it’s a little harder. It’s a little less tangible. But commitment is super important because there is a difference between wanting something and being committed to it. Who here has wanted to learn another language? I’ve lived in the Netherlands for four years. I’ve been saying I’m going to learn Dutch for four years. I speak probably four words of Dutch.
So there’s clearly a difference between wanting something and being committed to it. I’m sure we all have these things and you just need to translate those desires into action. Being into real estate, it’s a common desire. Most people want more money, but how do you know that you’re actually committed to something? It’s when you dedicate time to it. So you dedicate your time and your actions start to match your desires. That’s how you know that you’re committed, and it’s something that I think you should be really focused on because if you find yourself not committed, maybe you need to revisit your why because it’s not motivating enough to you.
Because if your why is true and you really feel motivated by it, you’re going to be committed to it. So that’s step number two. And for Harold, he embodies this in a way where he’s not just desiring it. It’s not something he just talks about randomly. He is really committed to it and he sees no other option to doing it, to achieving that financial freedom. I encourage you to do that. But also want to commend you all for showing up today because this is a good first step.
You are taking action and that is true commitment. And lucky for you, I’m going to give you seven more steps that you can keep those commitments. So number three here is define your five-year vision. So figuring out your why. Again, that’s the broadest. We’re doing this funnel thing where you start with the why and that’s where you want to be specifically. That is what motivates you, but the vision are the specific outcomes that you’re looking to achieve.
So let’s just take a minute and imagine where you want to be. It’s 2029. That’s five years from now, right? It’s 2029. Imagine where you want yourself to be. Do you want to be retired? Do you want to be spending 10 more hours a week with your family? Do you want to be doing two vacations a year? These are the type of things that you should be thinking about, and I recommend that you balance them between things that are financial and supporting your why.
So if you want to say, “I want to take more vacations every year,” how much does that cost and how much cash flow or wealth do you have to build to get that? So I’ll show you an example of this in a second, but I just want to explain why we’re doing this because I think this is where a lot of people get lost. You ask people where they want to go, they know their why and they’re just like, “I want to be rich or I want to be retired.” But that’s really hard.
If you don’t know exactly what you’re doing it for, if you don’t know what those numbers are for, you can’t chart the path forward. I actually put this in my new book, Start With Strategy. There’s a great quote from Alice in Wonderland. I won’t get into the whole thing, but Alice basically goes and asks the Cheshire Cat like how does she… What path to take? She gets to a fork in the road. And the Cheshire Cat says, “Well, where do you want to end up?” And Alice says, “Well, I don’t know”. And the Cheshire Cat says, “Then it doesn’t matter which way you go.”
I love this quote because if you don’t have a destination in mind, the path you take is completely irrelevant. So I really encourage you to think about your why and then come up with a specific five-year path. Does it have to be money? Is it passive income? Do you want free time? Don’t just write a million lists of things. I know it could be tempting to put down 20 things, but be realistic. I think come up with a couple of things that are really important and start with the end and why.
So let’s get back to Harold and talk about him. He says in five years Harold wants to be, one, generating $5,000 per month in passive income from rental properties and, two, doing two flips per year for a total income of a hundred thousand dollars per year. That’s an amazing goal, right? Personally, I would take that, right? Five years into my investing career, if someone told me I was generating five grand a month and making a hundred grand a year, I would take that all day long.
And this is an awesome five-year vision one because it improves his financial situation, but it’s more about how specific this is. This directly supports Harold’s why, why he’s doing it, and it’s specific enough where he can say, “These are goals that I can see in my mind, I can envision them and I can work towards them.” To be on track, when you think about this for your five-year goal. Then the next step after you’ve done this five-year goal is to figure out what do you need to be on track?
And so again, we’re basically just going down this funnel. So you can probably guess we’ve gone from why, to commitment, to five-year goal, to one-year goal. Not super complicated, but this is really important because you have to go in this order to build out this plan. So next step is to narrow it down further to a one-year goal. If you haven’t invested yet, you have not invested your first goal, you know what you should goal be, just get in the game. Do one deal. Maybe you get two that would be great, but you can say one goal, that would be an awesome first-year goal.
You do not need to hit a home run. You do not need to hit a grand slam. When I think about my first deal, it was nothing close to a home run, but remember this is about making pivots. It was about starting to build momentum. And so when I first got started, my goal is to get in the game and I did that and that enabled everything that came after. So think about a goal that is achievable and is going to help you. Doesn’t have to be complicated, just get your first deal.
So for Harold, his first deal, you remember his five-year goal is to get 5,000 in cash flow, flip some deals. But for Harold, his first deal is just buying a single family property. And honestly, I love this because it’s not a home run. He’s just making the pivot. I’m not saying he should just buy anything and neither should you. You shouldn’t just go out and say, “I had said I was going to buy a deal, so I’m going to buy anything.”
But just focus on a deal that is attainable, and I think Harold is doing this perfectly. I put a lot of quotes in here, but this one I love. “A goal is a dream with a deadline.” We’re going to talk about that a lot today. We already are that a lot of these things, it’s different to actually do something than it is to desire something. And make sure that that goal has a deadline. So it has to be by the end of the year. That is the timeframe here.
So you can’t make it so big that it’s like, “I just want to be rich, or I’m going to get 12 rental properties and you haven’t done one yet.” It’s got to be something specific and that you’re going to hold yourself accountable to by the end of the year. So now that we’ve done five-year, one-year, we’re going to narrow it down a little bit further and go to quarterly goals. Guys, this isn’t rocket science. Remember, we’re just doing the funnel. So now that we have a year, narrow it down to orders. And I really like orders because it just helps you stay on track for your one-year goal.
A year from now a lot of things can happen. So you have to break down your goal into further parts. And I think a quarter is a really good time horizon because it’s short enough that you can see the finish line. You have an idea of what you’re doing in 12 weeks. You probably have plans in 12 weeks so you can see the finish line, but it is still long enough to get stuff done, right? It’s not like next week I need to buy a rental property. That’s not going to happen.
But 12 weeks from now, you can get a lot done and you can sort of chart out what you’re going to do in those 12 weeks. So I really like that. I actually do this every quarter. I do this planning process where I go through my entire portfolio. I look at what deals are working, what plans are working, what I need to change. Do I need to redistribute my resources?
So I do this on a whole portfolio level every single quarter. This is actually a tool for my new book that you get for free if you buy the book, but it’s something that I’ve been using for years and I think it’s really helpful. Whatever stage you’re in, I just recommend it’s the beginning of the year. What are you going to do by the end of the first quarter? What are you going to do by the end of March that is going to move you towards that one-year goal, that’s going to move you towards that five-year goal?
If your goal is to buy a property by the end of the year, educating yourself right now is an excellent goal, and then maybe the next quarter you start offering on property. So for Harold, for example, his end of Q1 goal is to put one property under contract by the end of the year. We’ll talk about how we’re going to get to that, but I just wanted to show you that how this worked for Harold, his one-year goal was to get a property, but he’s broken that down into a little micro step that is achievable in 12 goals, in 12 weeks, excuse me, which is just getting this under contract.
So this is what I mean when I say at the beginning that it only takes small pivots, like, “Yeah, you made a big goal. And yes, your why should be ambitious and be super motivating to you.” But right now you only need to get one property under contract. That sounds doable, right? You’ve gone from this wildly ambitious thing and just in five or six steps. Now you’re like, “Okay, I can do that in the next couple of months. I can actually go put a property under contract.” So that’s the next step.
Now, when we get to number six, I really like this one. This is a really important one, which is about real estate process. So far, most of the goals have really been about defining what you want, but this one, number six, defining your real estate process is really about how to go about doing these things. How do you get a property under contract? A lot of this is about habits, right? A process is something where you can follow it and you don’t actually have to worry about each individual outcome, and you have trust that if you follow this process that you are going to get your achieved result, your desired result over time.
And Hal Alarati is a great speaker, talks about this a lot. And I think this is super important in real estate because not every property you look at is going to be good. Not every offer you submit is going to be accepted. You need to follow this process to keep doing it. So what I recommend, everyone has a different process, but the one that works for me is, again, it’s another funnel. Sorry, I really like funnels. So we have this funnel and basically it goes in four steps. Starts at the top. Again, the most broad thing that you need to do to acquire real estate is to get leads.
And a lead is basically just a property that you’re considering buying. So you need a lot of those. You need to be able to look at a ton of different properties. Then the next step is to analyze those leads because not every deal is going to be good and you need to be able to sort which ones are good and which ones aren’t going to work. And that is you do that during deal analysis.
So you start with all the deals you can find and you analyze them. Then maybe one out of 10, maybe one out of 20 of the deals you analyze are ones that you’re actually going to make an offer on. That’s the pursue step. And then the last one is success. So just as an example, say you need a hundred leads. You start with a hundred leads, then you’re going to analyze 30 of them because 70 of them, you look at them, you’re like, “This is garbage. I’m not going to do it.”
Then you look at 30 of them and after you analyze them, maybe one in 10, three of them look like good deals. You offer on three of them and you just get one. That’s it, right? That’s all you need to do is to follow this process. I know it sounds like that’s a lot. I’m going to show you that doing this is actually not that hard. We’re going to get to that in just a minute. But remember that this is a repeatable process. Remember, if you’re trying to get your first deal, your 10th deal, this works. What you have to do is expose yourself to as many leads as possible, analyze, pursue success.
Just as an example, guys, I’ll just tell you, I spent the day before New Year’s Eve and New Year’s Day looking at properties the last couple of days. I know it’s wonderful. New Year’s Eve, right? I spent and I looked at maybe 19 properties and I hated all of them, but one. That’s fine. That’s all it takes, right? Because you just need to find that one deal if that’s your goal. And it’s just a numbers game, finding a lot of leads and analyzing them.
So this is the process that I recommend you follow to actually go out and acquire the deals that are part of your quarterly goal, your one-year goal, your five-year goal, all of that. So for Harold, the way he does this and makes a process goal. It’s not his one-year goal. It’s not his quarterly goal. What he’s doing is making a goal about the process he’s going to follow. So what he says, he’s going to connect with five investor friendly agencies chosen. BiggerPockets can help you with that. Just go to biggerpockets.com/agent.
Then he is going to send each of those agent his buy box, the things that he’s looking for in his next deal and help work with them to scour the MLS for leads. That’s how you mostly get leads. I know a lot of people talk about off-market deals. Those can be great. Invelo is an excellent source for off-market deals, and you get that part of BiggerPockets Pro. So that’s great. But you can also use MLS. Both are possible. You don’t have to go off market. You don’t have to go on the MLS. It’s up to each individual investor how they’re going to source their leads.
The important thing is that you get those leads. Remember, that’s the first step. And so this is what Howard is committing himself to. In addition to that, he’s also going to commit himself to analyzing five real estate deals that he gets from the MLS and making offers on at least one of those. Now, if all five are bad, he shouldn’t make an offer on that, but I’m just sort of giving you an example that hopefully one out of five hit. And as we talked about, he’s also going to educate himself by listening to two podcasts per week and maybe he’ll even read my new book, Start With Strategy.
Great job, Harold. Thank you. I just want to remind you the reason you need this process and the reason that you need to LAPS is because that 99% of properties out there are not good deals, and that is okay. Do not get discouraged, right? You have to look at a lot of stuff to find good deals and you just need to learn how to analyze them. The next step after analyzing and doing the laps, you have that LAPS process now is to actually get out there and do it.
So I put a quote from one of the great books, one of the best business books out there right now, Atomic Habits by James Clear. And basically he says that the ultimate form of intrinsic motivation is when a habit becomes part of your identity, right? It’s like I’m the type of person who goes to the gym. I’m the type of person who analyzes deals. And it starts to become this thing where it’s not necessarily even about the specific deal that you’re doing, but it just becomes this part of your life that becomes who you are.
I know not everyone is there yet, but I encourage you to just try and do this for two weeks, right? Do the LAPS funnel for two weeks and it will start to become a habit. You’re going to get good at it. And so I promise you if you just follow that for a couple of weeks, it’s going to become second nature for you and you’re going to get better and better at the LAPS funnel.
Now, for Harold, what this looks like is on every Sunday night he’s going to spend 30 minutes looking at his calendar and time blocking his weekly process. He ends up analyzing two deals per day. That’s a great goal and that’s more than his goal requires, and he submits offers every single week, sometimes just verbally, but he tracks his progress. And remember, this process, habit, these are what gets you through the challenges. These are the little pivots that you make that ensure your success.
But ultimately it really comes down to being persistent. All of these things that I’ve shown you are really good examples and tools that you can do, but you have to stick with it. You have to keep going. And there are a couple of different things I recommend for that. You’ve probably heard of mastermind groups or accountability groups. I personally love them. I love a to-do list. I can’t go to sleep until my to-do lists are done. So that’s why I’m up at two in the morning right now giving this webinar because my to-do list isn’t done. But I also love accountability. I love to tell my wife or my friends what my goals are. So self peer pressure basically, but it was.
Number seven, guys, sorry if you’re writing this down, was plan your week and execute daily. That’s basically trying to do some time blocking for laps. Take that lap system, break it down into what you’re going to do each week. And then again, number eight is just to be as persistent as possible. Now, for Harold, he joins a small mastermind group of four peers working on the real estate investing business. And every single week they meet, every week they meet for 60 minutes to outline their goals, they set their commitments and encourage one another to be persistent.
So it’s funny. I actually was talking to someone about the real estate, the BPCON today and he told me a story about how this group of people met at BiggerPockets Conference in 2022, and they met every single week, every week without fail between 2022 and 2023. And then they all met up again in Orlando for BiggerPockets Conference 2023 and all had really progressed in their investing and grown their portfolios over the last year. I think that’s a great example. It’s honestly what BiggerPockets is for. You can go on the forums, meet all those excellent people out there trying to accomplish some similar goals from you.
Real estate, it’s really not competitive. It should be collaborative. You should be working with each other. And for Harold, because he’s persistent with his actions, he finally gets his first offer accepted. Congratulations, Harold. It’s a single family home that he estimates will produce $300 a month in positive cash flow. And just remember, maybe it takes Harold analyzing 10 deals, or it could be 20, it could be 50, but his persistence pays off. And guys, Harold is fake but I’ve seen this so many different times. This is a real representation of literally hundreds, not thousands of people. And this is how it works. You do it and you are persistent.
And the $300 a month, that is momentum. That is something to ignore. It might not be your long-term goal, but Harold is making the pivot. He’s not going from zero to a hundred. You need to crawl before you can walk. And if you are persistent and follow these things, you can make those steps right now. And then the last step number nine is to use BiggerPockets to help fill those gaps. As I’ve said before, listen to the community that’s here and talking right now. All of you are coming from all over the country, all over the world, all different experience levels, and there are millions of other real estate investors waiting to help on BiggerPockets.
We honestly have everything you need there to become successful. The ability to be a successful real estate investor, you guys have that already. Everyone can do it. It’s not rocket science. We just have some extra knowledge. We have some extra tools that will help you on the way to help you avoid some of the mistakes I know I’ve made and other mistakes that other investors have made. So go and use those tools to help fill any gaps in knowledge or information that you need.
Now, for Harold, although he didn’t… Let’s just finish up the example with Harold. Though he didn’t know exactly what he was doing, he used BiggerPockets, he met local investors, he networked, he met vendors, he analyzed deals, and ultimately he was able to use a lot of the tools that are available to everyone on BiggerPockets to find that first deal. So congratulations to fake Harold, but I hope you all understand that this is exactly what tons of people have done and could do.
Now, just to recap, I know some people were asking for some of the steps. Just remember the nine steps are, one, to define your why then commit to that, translate your desires into action. Number three, define your five-year vision. Set a one-year goal then narrow it down even further to that Q1 goal to find your real estate process. Then plan your week, be persistent and use BiggerPockets. So those are the nine steps to make 2024 great.
Now, let’s wrap up with two simple questions before we go. The first is similar to what I asked you all in the beginning. Do you want to make 2024 the year that changes everything for you? Is this going to be where you make your first pivot? That’s the first question. I’m seeing everyone, “Oh, wow.” I’m so excited I’m knocking my microphone out. So here’s the second question. Do you believe that if you have the right why, we talked about that, if you are fully committed, if you have the right goals, the right plan and the right action, that you will find the success you want?
I hope you think yes, because that was my goal today was to show you that these steps that tons of people have done are the same steps that you can do. And if you answered yes and you are ready to get started on that 2024 journey, I want to just show you a couple of the tools that we have here at BiggerPockets that can help minimize risk, increase your confidence and get you to that one-year goal, that five-year goal and help you pursue your why.
The main tool that I’m going to talk about right now is BiggerPockets Pro. It’s basically a one-stop shop to start scale and manage your entire portfolio. It’s basically, we’ve built this over years BiggerPockets has been around a long time and we’ve designed it to give you everything you need to succeed in real estate investing. And you might be wondering, how can one subscription, how can one tool provide all of that? Let me show you how you can help make 2024 that year.
So BiggerPockets Pro, it’s got those investment property calculators that we’ve been talking about and that’s super important for the LAPS system. No matter what you do, you have to get good at invest and analyzing real estate deals. That is a requirement for real estate investors. And so that’s one of the cornerstones of pro. You’ve already seen how powerful that is. You can actually go test it out for free yourself as well.
You’ve also seen the Rent Estimator, which is one of the hardest parts of analyzing deals if you don’t have a data-driven tool like the one that we provide at BiggerPockets Pro. We also have landlord forms so that you can download… No matter what state you’re in, you can actually just go download all the legal stuff that you need. I spent so long on this the first year of my investing career. It’s crazy. And now you can just download this.
So hopefully you guys see what I mean, right? Everything you need to successful investing. You need to know what rents are. You need to analyze deals. You need a lease, we got it all, but we also got way more than that. If you want property management software free with Pro. Do you want to find portfolio tracking? Free with Pro from Stessa. What a great partner.
So all of these things together, when you look at them all together, it actually provides a ton of value. We have all these negotiated exclusive discounts and we can offer you amazing networking tools like your Pro badge that actually lead to three times more connections than regular free members. So if you’re looking to network looking for tools, we literally have all of this together.
So last thing here, in addition to all the things I also showed you, if you want Pro exclusive videos, workshops, webinar replays, 50% off all the boot camps taught by amazing teachers like Henry Washington, Matt Faircloth, Ashley Care, you can get all of those things. And those are amazing features. But the number one reason to consider going pro is honestly, it works. I have worked at this company for eight years and in that time, one of the greatest joys I’ve had is to see literally tens of thousands of people use BiggerPockets and BiggerPockets Pro to become successful investors.
It is a real thing. Take it from Aaron who said, “The BiggerPockets calculators or go-to for analyzing properties. There’s no way I could analyze the volume of properties I do without being a Pro member.” And think about that because you have to do the volume like Aaron was talking about. So how much is BiggerPockets Pro? It’s $390 for Pro, but for the New Year’s crowd, we are going to knock 20% off of it down to $312 for a year full of pro, which is an amazing discount.
All you got to do when you go check out for Pro… But guys, I’m feeling especially generous. I’m in a New Year’s mood. Maybe I’m a little slap-happy because it’s the middle of the night right now, and I’m also going to give you my book for free. It’s a gift for all of you if you go Pro right now. You can get my book, Real Estate by the Numbers. I wrote it with the incredible J. Scott. It teaches you all the numbers in math. It’s really not that hard to analyze deals successfully and it comes with all this other bonus content, property analysis tools, finance templates, all these great things.
So that’s the deal. I know you guys were saying, “I want all these amazing deals.” So this is amazing, awesome. People are saying it’s an amazing read. So if you want BiggerPockets Pro, you got all of these bonuses that we’re giving out today are worth $750. And just remember, we want people who are Pro to actually use it. If you go on try it, test it out, and it’s not for you, within 30 days, we’ll give you a hundred percent of your money back guarantee. Just email [email protected] because we are that confident that you are going to like BiggerPockets Pro and it’s going to help you get to your first deal, your quarterly goal, your yearly goal, all of those different goals. So check it out biggerpockets.com/pro.
I’ll leave you with some parting words. If you really want to do something, you’ll find a way. If you don’t, you’ll find an excuse. And I hope you guys take that to heart with your real estate investing. Any other goals that you have for 2024, it really comes down to you taking action and hopefully have helped you narrow down how you can actually take action today, tomorrow, and into the rest of 2024. All right. Thank you guys so much. I really appreciate your time. This has been a lot of fun for me. I always enjoy doing this webinar and I really hope that this is a start for an amazing 2024 for you.
Guys, if you have any questions, you can hit me up on Instagram where I’m @thedatadeli. You can also of course find me on BiggerPockets. Guys, I hope you have a wonderful year. Thank you so much, and let me know how I can help. Have a good night.

Blackstone Group chairman, CEO and co-founder Steve Schwarzman joins ‘Squawk Box’ to discuss the real estate market, doing business in China, 2024 election, and more.

In my previous article, we delved into the essential elements of development zoning. We explored key zoning designations such as R or C, critical parameters including setbacks, FAR, and building heights, strategies for enhancing density via affordable housing, the role of neighborhood ordinances, and the distinctions between by-right and discretionary review processes.

In this article, we’ll delve into the crucial task of determining the development zoning for your project—an essential step to undertake before acquiring any development project. Mastering the intricacies of development zoning necessitates a strategic methodology, and we’ll unveil three pivotal strategies.

Online Platforms and Geographic Information System (GIS) Mapping

Digital tools can really simply your investigative efforts. Utilize online platforms and geographic information system (GIS) mapping to access invaluable data. Websites such as this one from the city of Los Angeles serve as exemplary resources. By simply entering the street address, these interactive zoning maps can help you visualize zoning boundaries, overlays, and specific stipulations with ease.

GIS websites offer a wealth of information detailing zoning designations, height categories, and occasionally density incentives linked to transit proximity. Additionally, they may encompass neighborhood ordinances associated with specific lots, although accuracy is not always definitive. 

However, while GIS provides valuable insights, it doesn’t prescribe the precise scope of permissible construction. Determining the feasibility of your project hinges on interpreting the zoning designations in conjunction with the city’s zoning guidelines, thereby synthesizing a comprehensive understanding tailored to your development objectives.

Let’s illustrate this with a hypothetical city. Consider a project labeled R3-2. Consulting the zoning handbook, you discern that this designation signifies a residential zoning classification. The “3” indicates a density allowance of one unit per 800 square feet (sf) of lot area. Thus, for an 8,000 sf lot, you can construct up to 10 units. 

Additionally, the 3 mandates specific requirements, such as allocating one parking space per unit and maintaining a 10-foot setback from the property line on all sides. Depending on the jurisdiction, the 3 may also convey additional stipulations.

Meanwhile, the 2 following the R3 designation signifies the height category. In our hypothetical city, this translates to a permissible building height of 45 feet and a floor area ratio (FAR) of 3:1. In alternative jurisdictions, you might encounter a designation like R3-45, which straightforwardly indicates a maximum building height of 45 feet.

Navigating density incentives can be intricate. When exploring GIS platforms, focus your search on terms like “transit orientation incentives” or “density incentives” to uncover potential bonuses. 

If your search proves unfruitful, consider examining state-level incentives. For instance, a specific state might offer incentives for projects situated within a half-mile radius of a metro station, enabling a 60% increase in both unit density and FAR upon allocating 10% of the units to low-income residents. Furthermore, state incentives could potentially reduce parking requirements and permit higher building heights.

In the context of our example project, by designating one unit for low-income housing, you’re able to construct up to 16 units. It’s worth noting that calculations typically necessitate rounding up to the nearest whole number. Thus, if your base unit count is 11, a 10% allocation would equate to two affordable units.

Contacting Local Planners

Engaging directly with city planners responsible for urban planning is a good alternative. While digital tools offer initial insights, consulting municipal offices provides a tailored, authoritative understanding, complementing your GIS-based research. This approach not only validates your findings but also uncovers any local ordinances potentially overlooked in GIS data.

When reaching out to local authorities, furnish specific details about your property or project, including address, lot size, and intended use. This facilitates accurate identification of the relevant zoning designation, enabling officials to outline associated requirements or restrictions. Proactive dialogue with city planners fosters collaboration, giving you invaluable insights into zoning dynamics and navigating development opportunities or constraints effectively.

Furthermore, consider scheduling an in-person meeting or consultation with zoning officials to discuss your project in depth. This personalized approach facilitates a comprehensive review of your plans, enabling authorities to offer tailored guidance and clarify any ambiguities related to zoning designations. By fostering an open, collaborative dialogue with local authorities, you can navigate the complexities of zoning regulations with confidence, ensuring your project aligns with the applicable zoning designations and regulatory frameworks.

Responsiveness can vary among planners. To expedite communication, I recommend employing multiple contact methods simultaneously, such as initiating phone calls, sending emails to both the general email address and a few individual planners, and securing an in-person appointment. This multifaceted approach increases the likelihood of a prompt and comprehensive response, facilitating a smoother progression through the zoning process.

Asking Consultants

Engaging the right consultants can be very effective in navigating the complexities of development zoning, but it could cost you a few thousand dollars. These experts bring specialized knowledge and experience, offering invaluable insights that complement your understanding of zoning regulations. 

Not all consultants will give you good service, so be careful whom you ask for help. When selecting consultants, prioritize individuals or firms with a proven track record in your specific area of interest, whether it’s residential, commercial, or mixed-use developments. Alternatively, you could also reach out to local developers who have a proven track record if you’re interested in a joint venture.

When approaching consultants, articulate your project’s objectives, scope, and any preliminary findings or challenges you’ve encountered. This foundational information enables consultants to tailor their expertise to your unique needs, providing targeted guidance and solutions.

In the preliminary stage, the main consultants needed are architects or land-use consultants. If the site could be contaminated, hire an environmental consultant to do a Phase I assessment, which typically costs a few thousand dollars and takes a few weeks. 

Additionally, it’s crucial to define clear expectations regarding deliverables, timelines, and communication protocols upfront. For questions limited to zoning parameters, which typically take only 10 to 20 minutes, consultants may offer their insights at no cost. However, for comprehensive feasibility studies encompassing design options and floor plans, these services should be anticipated to cost several thousand dollars.

Some Worthy Tips

As a bonus, here’s a look at some other factors to consider.

Escrow timeline

Extending the escrow period is essential for securing development rights, especially with challenging zoning regulations. I recommend at least a 30-day contingency period, but for larger projects, consider a three-to-six-month escrow to do a thorough feasibility study and get some feedback from the planning department. 

Power

During escrow, consult with the local power department or a dry utility specialist to determine the power supply options for your site. Larger projects often necessitate transformers and underground conduits, both of which entail significant costs and time. If securing power is projected to span two years, you must factor this into your project schedule.

Other utilities

While utilities such as gas, water, and sewer typically present fewer challenges, their installation can become complex and costly in rural areas. Thus, conducting thorough due diligence on utility provisions is essential to mitigate potential delays and budget overruns in your development project.

City timeline

Every city possesses its own unique timeline for the entitlement and permitting processes, reflecting varying regulatory frameworks and administrative efficiencies. In some cities, such as Seoul, Korea, the permitting phase can be done in a few months. Conversely, cities like San Francisco exemplify a more protracted timeline, where both entitlement and permitting processes need to be done sequentially and usually take three years. 

In cities where parallel entitlement and permitting are allowed, developers gain a strategic edge. Initiating the permitting process before full entitlement completion can expedite the timeline by six months or more, a benefit of this concurrent approach.

Final Thoughts

I hope these strategies serve you well on your next development project. If you have other tips or questions that you wish to share, feel free to comment below or reach out to me.

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David:
This is the BiggerPockets Podcast show 873. What’s going on, everyone? This is David Greene, your host of the BiggerPockets Real Estate Podcast, joined today with my buddy, Rob Abasolo.

Rob:
On today’s show we’re going to be talking to a real estate investor named Kate Lynch about her journey from a Wall Street investment banker to a real estate professional in her 40s.

David:
This is a great show to listen to if you’re a working professional wondering how you could spend more time with your family, your children, and those you love, and also get the largest return on your investment.

Rob:
After this interview, we’re going to be answering an audience question in our Seeing Greene segment, so you’re going to want to stick around for that.

David:
That’s right. You’re going to love that question. Rob and I answer one of the most commonly asked questions right now, very hot topic on if you should rent a property out as a short-term, a midterm, or a traditional rental. And without further ado, let’s get to Kate.
Kate Lynch, welcome to the show. How are you today?

Kate:
I’m great. Thanks for having me.

David:
All right, Well, thank you for that. First question, when and how did you become an investment banker?

Kate:
Oh, gosh. I was just your stereotypical overachieving undergrad, straight-A student, really hustled my way into a job on Wall Street, I wanted to be doing the best in anything that I could do, and that was the crème de la crème for people interested in finance. So after I got an MBA, I just worked my tail off until I got there.

Rob:
Is it true that investment bankers work 100-hour weeks? I’ve always heard this from every investment banker that I’ve ever met.

Kate:
It was when I was on Wall Street. We literally would work from probably 9:00 in the morning until… Well, you had to work until your job was done, and that often meant you were there the next day. If it’s not done, you’re still working the next day when people show up for work. I probably had a dozen or so of those all-nighters when I was living in New York. But yeah, it was 9:00 AM to between midnight and 3:00 AM on a regular basis.

David:
Did it look like the show Billions?

Kate:
It was intense. It was amazing and fun and it was the best thing I’ve ever done in terms of my career, but it was hard.

David:
I’ve always wondered if those New York stereotypes actually play out because I’ve never been there, if it’s like you’ve got people screaming at you like Boiler Room, and then papers are flying up in the air, even though we don’t really use papers now. And someone’s showing up with a hot dog or a slice of pizza that they just got off because that’s all you could eat.

Rob:
Wait, hold on. You’ve never been to New York?

David:
Let’s not make this about me, Rob.

Rob:
We’ve got to go to the Spotify Studios and do some shows out there, man. You’re missing the best pizza in the world.

Kate:
It was intense. We were working from 9:00 in the morning until 3:00 in the morning, we ate every meal at the office. And I used to tell new recruits that were asking, “Oh, how do you get a work-life balance?” And I was like, “Your work-life balance is you’re friends with people sitting next to you because you don’t leave the office ever. And if you don’t like those people, your life sucks.”

David:
Was there a lot of forget-about-its going around?

Kate:
There were a lot of F-bombs.

David:
Yeah, I can see that.

Rob:
Different F-word, yeah. So obviously, this is a lucrative career from my understanding, and lots of hours go into it. What did this allow you to do financially, working in investment banking?

Kate:
Yeah, I was probably making, when I was living in New York City, between 400 and 600 a year.

Rob:
Wow.

Kate:
Yeah, and that was at a junior level. The senior level bankers are one to two million. And what’s funny though is that New York is just so ridiculously expensive that you don’t get that much for the money. So when I was in my late 30s I decided to move home to Cleveland, and I took a little bit of a pay cut because of that where I was making 300 to 400 a year, but you can get a house literally 10 times the size of what you get in New York for the same price. We have a house on Lake Erie, we have a swimming pool, we have a beach, we’re 10 minutes from downtown, we can see the skyline.
It’s ridiculous what you can get in Cleveland versus what you get in New York. People making one to two million a year, I would say, they take more expensive vacations but they spend way less time with their family, and it’s just not, I think, a great trade. You add a couple of zeros, but you’re not getting anything more.

David:
So was there a point where you realized, “I’m good at doing this, I’m making good money, but it’s a hamster wheel I’m never going to get off of”?

Kate:
Yeah, I mean, yes and no. So, my job was advising the CEOs of banks on buying or selling banks, and raising hundreds of millions of dollars of capital debt and equity to support their growth. That’s pretty exciting stuff, and it was fun, and I love the financial analysis, I loved the fact that I was giving advice to CEOs of banks around the country. It felt pretty cool to do until… well, obviously I didn’t have much of a social life when I was working those kind of hours, and so I didn’t get married until I was about 40.
And at that point I didn’t have much of a window to have children, even though we wanted to have kids. So we decided just to have kids if possible, and we had three kids in the four years after we got married. And then I was still expected to be on the road two to three days a week. Because I was living in Cleveland, I was driving to meetings around the Midwest. So I would leave the house at 5:00 or 6:00 in the morning, drive four or five hours to meetings, try to bang out two or three meetings in that day, and then get home between 7:00 and 10:00 PM.
So I had three babies at home who I wouldn’t see two or three days a week. I was pumping milk in the car and then turning it over to my… I had both a full-time nanny and an au pair living in our house who were taking care of my kids. And so that was the point when the job turned from awesome and fun and lucrative to, “What the heck did I get myself into.”
And just to give you a sense for my mindset prior to having the kids, I actually told my boss before having the first baby that I was not going to take maternity leave. I thought that, “I’m used to working long hours and little sleep and I can handle this.” And I really had no concept of how hard it was going to be to take care of one newborn, much less three of them. And so then I just had that moment or a feeling that so many people, I think, in your audience have, which is, “I’m in a place in my life that I need to make some changes,” and it’s really hard.

Rob:
Yeah, I think everyone would hear how much one can make in this industry and be like, “Oh, yeah, with the money, that buys happiness.” But I think most people that have been there probably understand that there is a moment where money maxes out on the happiness scale, and you really start missing all the things in your life that you had to give up to even get there.
So you’re at this point, I think you’re starting to make that realization. What was the exact moment where you felt you needed to make a change?

Kate:
Well, so we had a lifestyle that required the income that I was bringing in. And I kicked around like, “Do we sell the house and the boat, and give it all up and go live in the middle of nowhere?” But I just didn’t think that having built this life over the last 25 years that we would be happy living off the grid somewhere, living off the land. And I had a growing sense that I needed to do something else, and that searching phase, where you’re trying to say, “Well…” Listening to podcasts, and what’s out there, how can I achieve this financial level without this job? But it wasn’t until actually the podcast you guys did with Ashley Hamilton that I-

Rob:
Oh, nice. Yeah.

Kate:
Oh my gosh. So I was literally driving home from a meeting at probably nine o’clock at night, it’s dark outside, I know my kids are going to be asleep when I get home. And I listened to that podcast, and it just changed my mindset 180 degrees because she was in her early 20s, she had two kids, a single mom making $20,000 a year as a waitress. And when I heard her say that she has acquired 10 properties and is home with her kids, it was like, “Oh.” That hurt so bad. I worked on Wall Street, I have an MBA in finance, I had more than a million dollars in my 401(k), and here I was getting home after my kids went to bed, not seeing them for a whole day. It just felt like, “I messed this up,” or at least, “I can do better than this.”
And I thought, “If I can help a multi-billion dollar bank figure out how to not fail through my financial skillset, surely I can figure out how to get myself to a place of financial independence, especially if somebody like her can do it. Why should I not? And I really owe it to my kids to go from thinking about it and wishing I could do it, to just getting it done.”
And that literally, after hearing that podcast, I was committed, “I’m going to make this happen and I will find a way, or at least I’m doing something about it, I’m not just going to keep wishing for it.”

David:
That’s amazing. Well, for anyone that hasn’t heard that podcast, I can attest to how amazing it was. Before I was ever on the show, I remember listening to that as a listener, and that’s episode 331. So go check that out after this podcast.
But I want to ask, Kate, because obviously you’re feeling all of these… I guess the wheels are turning, you’re listening to this episode, and you get into real estate. Do you feel like you had any advantages getting into real estate, coming from investment banking? And if so, what were they?

Kate:
Yeah, certainly my ability to run numbers is relatively good. But running numbers in real estate is not all that complicated, it’s just how much do you invest and how much you get back. Maybe just the willingness to crunch numbers over and over and over again until I find the answer that I’m looking for. But yeah, I started looking into every possible avenue, listening to the podcast and reading the books, figuring out where can I get the most bang for my buck?
Like I said, I had about a million dollars in my 401(k), that I decided I was going to use, and I wanted to get as much as I could from that. And so is it commercial real estate? Is it storage facilities? And just running numbers and numbers until I found a path that I thought would maximize the cash flow for the amount I had available to invest.

David:
So you had been exposed to real estate, you liked it, you just wanted to figure out which type of real estate that you were going to get into?

Kate:
Yeah, my exposure purely came from BiggerPockets, right? It wasn’t like I had zero experience with real estate before. And listening to some of your podcasts with other guests, I often heard people telling a story of they were trying to replace 30,000 or $40,000 of income and so they could get into a property that was earning them $1,000 a month. And I was like, “If I have a property that makes me $10,000 a year, I literally need 30 to 40 of them in order to replace my income.” So initially I thought, “I don’t know if residential real estate would get me there.” Ultimately, as I continued searching, I figured out that I could make it work with primarily triplex in Cleveland using a short-term rental strategy.

David:
I always think it’s funny when people say, “Oh, I’ve got 55 units somewhere.” And you’re like, “I really love real estate.” I’m like, “Well, you can love cats, but you don’t need 55 of them. That’s not always the best way to go.”

Kate:
My goal is having time, right?

David:
Some people need 55 cats.

Kate:
If I want to have time with my kids, 40 properties doesn’t seem like the right way to get there.

David:
Yeah, that’s a great point. You’re just jumping out of one problem into the next one. So, awesome, we’re going to get into how Kate built that small and very mighty portfolio that replaced her investment banker’s salary right after this quick break

Rob:
And we’re back. We’re here with Kate Lynch, a former real estate investor who made a change later in life to go all in real estate. Kate needed to replace her huge W-2 salary with real estate income in order to gain back time with her family, and we’re going to break down exactly how she did it.

David:
How did you go about creating that plan to invest in real estate while you’re still working this full-time demanding job?

Kate:
Yeah. So I just was at night on Zillow, and like I said, listening to everything I could online because I was driving so much, I had a lot of ability to just listen to everything I could. Certainly, Rob and his channel teaching people about using Airbnb, and how much more lucrative that was, was a big factor for me. I wanted to get into real estate in a way that felt less risky. So obviously, David, you wrote the book on the long distance real estate investing, but I wanted to do something, or at least I would say I spent more time analyzing opportunities closer to home because it felt like a lower risk approach to me. And I found that you can buy a triplex in Cleveland for about the same price as a single family home, but with way better cash flow.

Rob:
So I have a question, I think there are probably a decent amount of people that have some liquidity or some amount of money in their 401(k) in the stock market. You said you had about a million dollars, which is obviously a very healthy start for anyone. But what was the actual process? How do you leverage money? If you have a million dollars in the stock market, how do you get that money out and then apply it towards real estate? Is there a particular process? Is it a self-directed IRA? Tell us a little bit about the movement of funds there.

Kate:
Yeah, I’ve heard about people using processes to keep their money in a 401(k) and invest in real estate, but I couldn’t do that because I wanted to live off the cash flow. So for me, I just liquidated it. And there’s a 10% penalty, and you have to pay tax on the income, but as you guys know, the benefits on the tax side from the real estate I was able to use to offset a lot of that income that I had to report. I was lucky enough to be able to… [inaudible 00:12:55] my husband qualifies as a real estate professional, so I was able to take a big advantage of that tax benefits in order to not have a huge hit on the tax side.
But I liquidated it. And it felt scary to close out my 401(k). But if you think about it, it’s really supposed to be a retirement account, and I was using it to retire at 45 instead of 65, so I guess I did use it as a retirement account, I just had to pay the fees for doing it too early.

Rob:
Sure. Yeah, no, I love that. I love that the actual answer is like, “Oh, I just took the hit.” Usually there’s always some secret answer, or someone’s got some strategy that no one understands, but I love it. Obviously, you put money in there, you got it to a million bucks, I’m sure you made a good return there. Can you talk a little bit about the return profiles that you were getting on your investments in stock market versus your real estate investments? How does the ROI compare with both asset classes for you?

Kate:
Yeah, so the long-term returns in the stock market are around 10% per year. There’s certainly great years and there’s terrible years in the market, but over the last 80 years, it’s been an average of around 10% per year. And my return, I wasn’t a phenomenal investor. As an investment banker, I was advising companies on buying other companies, I wasn’t doing individual stock trading. But I had decent performance just like anybody else who invested over the last 25 years, mostly in index funds.
But in real estate, I’m getting, I would say, around 45, 50% return on the cash that’s invested in my portfolio, which is obviously a huge win and certainly worth paying a 10% penalty to get there.

Rob:
Yeah, there’s a delta there. Well, that’s amazing. Okay, so I guess I have to ask because obviously I like short-term rentals, and you said very nice things, so I appreciate you watching the channel. You mentioned you decide to get into the real estate game, the short-term rental game, and you’re like, “Do you know what? I’m going to do this. I’m going to get into short-term rentals in Cleveland.” That is not typically a market that I have my eyes… If someone came to me and they said, “Hey, I want to want to start here,” it’s not necessarily where I’d point them. So what about Cleveland appealed to you? What was it about that that made you go all in there?

Kate:
From a starting point, I live in Cleveland, so it always helps to know the market and what the opportunity is there, and what the neighborhoods are that are good to invest in. But I think it really comes down to something David talks about all the time, and that’s the… you have that inverse relationship between appreciation and cash flow. And I think that when you talk about that, most people probably… If you were to draw a graph of that relationship, you would probably start your appreciation at zero and up.
The Cleveland market, interestingly, I think you actually blow well through the zero metric on the appreciation side and you have actual negative equity going into the property and incredible cash flow. So I think you get way out there on both parts of the spectrum. And the reason for that is properties in Cleveland, you can buy a triplex for between 200,000 and $300,000. And the long-term rent value on those is around 1,000 a month per floor, so a normal investor is getting 3,000 a month.
Because of that, the market is one where the renters don’t really expect you to update the house, they’re fine with living in a place that hasn’t had the kitchen or bathroom updated in 40 or 60 years. They’re also okay with the fact that they have a window air conditioner and you have to turn it off when you blow dry your hair if you don’t want to blow a fuse in the house. So when we started buying properties, we knew we would have to do renovations. They ultimately were far more expensive than what I thought it was going to be going in. So I thought I was going to go in [inaudible 00:16:28]. Yeah, right.
I thought I was going to go in with a burst strategy. The first place that we bought, we just bought for 180,000 of cash, and we spent about a hundred thousand dollars to renovate. We had to renovate three kitchens, three bathrooms, all new appliances. It’s about 5,000 square feet of hardwood that we had to refinish, and it’s gorgeous, but that’s a lot of square footage to refinish. After spending around $280,000 on the house, I was ready to get a loan on it and it appraised for 235,000. So that feels like a loss except that… so I was able to pull out 180,000 from that loan, so I had net 100,000 in the house. And the first year that I put that on Airbnb, I made $50,000 profit.

Rob:
Wow. Okay. So let’s recap that a little bit. So you wanted to do the burst strategy, which is where you buy it, you rehab it, you rent it, and then you refinance, and hopefully you get the ARV, the after repair value, so high that you’re able to get all of your money back out. In this instance, you were able to get 180,000 out of 280,000 out, and you left $100,000 in the property. Most people see this oftentimes as they failed at the task, that they didn’t really perform it. But David actually talks about this quite a bit in BRRRR, his book, go check that out, and talks about… David, your philosophy here is even if you have to leave some equity in the house, it’s not really a loss because equity does actually exist if you were to go and sell it, right?

Kate:
But not in my case because I can’t sell it for 280.

Rob:
Because it appraised for 235?

Kate:
Yeah.

Rob:
But that’s okay because then in a year of renting it, then you made that $50,000 differential?

Kate:
Yeah. So from a return on investment standpoint, I’m making $50,000 a year on $100,000 investment, that’s a phenomenal return. That’s why I said, it is negative appreciation. And the long-term rental market in Cleveland is fine with having terrible plumbing and electric. But the short-term rental market, as you know, Rob, they’re not going to put up with a nasty old kitchen, they’re not going to put up with gross rugs and scratched up floors. The place has to be gorgeous to get on the first page of Airbnb. And I was buying houses that are 120 years old, and absolutely beautiful, but they’ve never been renovated, I literally have 120-year old bathroom.
So to get that plumbing, that electric, and all of that taken care of, it just costs more than what the thing is going to be worth after you renovate it. And for me, like I said, I was looking for the maximum cash flow for every dollar that’s invested. It would’ve been great if I could really do a BRRRR. In this case, I have about 30% cash in the house. A traditional house you’re trying to put down 20%, in this case, I’ve got more than 30%.

Rob:
David, how often did you run across this in your BRRRR journey? Did you ever come across, I guess, negative appreciation the way that Kate’s talking about here? What’s the solution? Is it just usually time and waiting it out?

David:
Well, we’re saying appreciation. Does that mean equity in this case? Because appreciation would be the value of the property going up over time, but in this case, we’re talking about the appraisal coming back for less than what we thought, so that would actually be equity, right?

Rob:
That’s what you mean, right, Kate?

Kate:
Yeah, I have less equity in the house than I invested in it. No doubt.

David:
That isn’t common, but it did happen. Over 40 BRRRRs, that probably happened two or three times, I would say. And a lot of that is just appraisals are not a science like people think. It is a measurement of value, it is not the actual best measurement of value. The best measurement of value is what someone’s willing to pay for it, but there’s no way to put that into an Excel spreadsheet, so we come up with an appraisal as some type of method of feeling like we have some idea of value.
And I found a lot of things impact appraisals. One appraiser could think it’s worth more than others. One appraiser could choose comps that are better than others would be. Sometimes you get an appraisal, and as odd as this is, that comes in less when you’re refinancing, but if you were selling the house, the appraisals come in higher. I’ve seen this many, many times over in my career. So that does happen, but that’s okay, that’s why we have different strategies within real estate.
So like Kate had just mentioned there wasn’t as much equity in the property as she thought, but because there is usually an inverse relationship between equity and cash flow, now Kate’s cash flow in $50,000, which I think almost everyone listening would happily take that over the equity. And in four and a half years, you’re just going to pay the whole thing off, and now it doesn’t really matter if you lost the 50,000 equity because you’ve gained 200,000 or $250,000 in equity over that period of time, and you can put a HELOC on it or you can refinance it and hopefully repeat it.

Kate:
Yeah, I wouldn’t say that I would argue with the appraisal. I know what other houses are selling for. And in this market, the long-term rent customers aren’t going to pay for the kind of renovations that you have to do to make a good quality Airbnb. And my contractor on the one house kept telling me, “I think you’re making a mistake, you’ve got to stop.” And I was like, “No, no, I think this is the right path.”
And almost all of these properties are on the first page of Airbnb in my market, and they’re renting for $100 a night for a three-bedroom, 2,000 square foot place that with a huge porch and a garage and laundry for free, and close to the Cleveland Clinic. And so it’s so much cheaper than a hotel where people can stay, I have cribs and rocking chairs in them. But $100 a night is $3,000 a month, times three units.

Rob:
All right, now that we know how Kate developed her strategy, we’re going to dig into her costs, exactly how much money her properties are netting, and how she’s doing this in of all places, Cleveland.

David:
I want to ask, not a lot of people, me included, immediately think of Cleveland when we think about short-term rentals. So what was it that stood out to you that made you think, “I think I can do a short terminal and compete with hotels here,” as opposed to the traditional vacation market that most people think about?

Kate:
Yeah, I think primarily the Cleveland Clinic. So as I was listening to podcasts, a lot of your people on the Airbnb side or even the mid-term side talk about being close to hotel. And Cleveland has a phenomenal world-class medical services center here where I have guests coming from Pakistan who are getting procedures done at the Cleveland Clinic, and their whole family comes with them, and they’ll stay for two months. And so I think that that is a huge draw. And all of our properties are relatively close to the Cleveland Clinic, and that, I think, is very impactful in terms of… Like you said, I’m competing with a hotel, but for people who are traveling with their family and want to stay together and not in hotel rooms.

David:
Yeah, and I suppose you had the backup plan of, “Well, if for some reason it doesn’t work, I can rent it out as a long-term rental, and I just have the prettiest long-term rental in the world.”

Rob:
Well, on the note of having a property that does stand out a bit, maybe, from a hotel, whether it be price or cost or whatever, you’re furnishing three units, which is pretty expensive to do at once, so what is the average that you’re spending to typically furnish your short-term rental units, especially in a triplex situation? Because it’s very different for furnishing a three-bedroom home, for example, where you’re just buying the sofas one time, you’re buying one TV for the living room. You’re buying everything three times for every single unit, so surely it’s got to be expensive.

Kate:
It adds up, I have a lot of points on my Amazon card. Yeah, well, I will say the first house I bought, it was all Facebook Marketplace. And listening to you, Rob, talk about buying, what you say, buy nice not thrice, I learned my lesson with buying some sort of cheap stuff the first time around because you’re so scared getting into it the first time. I try to buy high quality stuff that will last because it’s going to get a lot of abuse. But yeah, I think I’m probably around $10,000 per floor, which is, I think, in the range for any two to three-bedroom space.

Rob:
That’s actually not bad at all. And now that you’ve got it running, what are you making in general on your entire short-term rental portfolio, and how does that compare to your job in investment banking?

Kate:
Yeah, so we closed on the first house in July of 2021. At that point, my kids were two, three and five years old, and that’s when I decided, “I’m going to make this happen.” As soon as that first one started running, and the dollars were bigger than I even expected it to be in terms of the… I had a sense for what the rates would be, but the occupancy… They stay really full, so the income was really strong, and I just said, “I’m going to hit this as hard as I can.”
In particular, I was lucky because rates were still low at that point, so I bought three more houses that first year. I had four in the first year, and then a couple of weeks before the kids’ school let out for the summer in 2022, I gave my notice at work. So I quit that job about a year after I started down this path. At that point, I only had the four houses making around 200,000 a year, but I could see that the strategy was working, and I was going to get there, and I wanted to be home with the kids that summer. So I spent that summer with them, then over the next year and a half, we bought three more properties and we now have seven investment properties, and we are making around 350 to 400,000 a year.

Rob:
Net or gross?

Kate:
Gross. Oh no, that’s my profit. Yeah, that’s what I’m taking home.

Rob:
You’re making 350?

Kate:
I’m making 50,000 per house times seven, yeah.

Rob:
Oh my goodness, you’re living the dream. That’s amazing.

Kate:
Granted, that’s seven properties, it’s like 16 units. And yeah, the power of, I think, the automation in the short-term space, so I try really hard to automate it. But yeah, I get my share of the phone calls at night from people telling me that, whatever, the power is out or they can’t get into the unit.

David:
See, that’s a great segue into my next question. Running a, what’s it, 14 or 16 unit short-term rental portfolio is not without stress. How does it compare to the stress of being a full-time investment banker?

Kate:
So in investment banking, when you’re at the top of the food chain, it’s a commission job. So the stress there is you’ve just got to find another deal, and you’re competing with the other investment bankers to win on every deal. And you don’t have control over the outcome. I think that the stress in that industry was big stress. Here, it’s a lot of small things. So when somebody calls you and says the heat’s not working and it’s 10 degrees outside, you have to solve that problem, and I guess the…
But the worst-case scenario is you just have them stay at a hotel and it sucks, but you suck it up and you’ve got to pay, Airbnb makes you pay for the hotel. And that’s happened a couple of times, but the dollar amount of the impact on that is 300, $500, I would say, versus investment banking. You’re winning deals that are 300,000, $500,000 of revenue that either going to make or break your year.

David:
All right, so I’ve got a two-part question. First part, how much more time are you getting with your kids now than before?

Kate:
Oh, it’s night and day. They wake up every morning, and I’m able to wake up with them, hug and kiss them in the morning, and they go to bed every single night with hugs and kisses from mom. And both of you were influential in me achieving this, and I know that probably that my children will never say thank you to you, but they have their mom at home in a way that is just so special, and I appreciate that from you guys, that you guys were able to put that content out there to make that happen.

David:
Did you hear that, folks? BiggerPockets making sure kids get good night kisses since 2013.

Kate:
But what’s interesting is, so my youngest is in preschool now, and I’m with them, I drop them off at school, I pick them up. But now during the school year, I have a fair amount of time, and I wanted to talk about on this podcast… because when I was making the decision to leave my job and go into real estate, I felt like I was walking away from the career that I had built over 25 years and I felt like I had to make that choice, it’s either this or that. And so I made the choice to walk away from it because my kids are worth it.
But what I didn’t realize is that once you get to the point where you’ve established financial freedom and you have a functioning portfolio that’s relatively stabilized, you also open the door to other professional opportunities that you could never have been part of before that. So I’ve been having people reach out to me, not every day, but once or twice a year, somebody will say, “Hey, would you be interested in this or that?”
My brother actually is an entrepreneur, he started a bunch of businesses. One of them that he owns is a bourbon distillery, and he called me a few months ago and said he can buy wholesale barrels of bourbon at 50% of the value that he can sell them at after two years. And he said, “Do you think we could raise a 10 or 20-million fund around this bourbon arbitrage opportunity?” And because my kids are in school right now, I was able to say, “I’ll look into it.” We did some research, I did some financial modeling, and ultimately said, “This is a phenomenal opportunity. Let’s get it done.”
And now being able to work on something with my brother, and seeing him go into investment meetings and crush it, it is so much more rewarding professionally in a way that I had no idea these kinds of things were going to come along. And I think that there are probably a lot of, probably men and women, but more so women, who are doctors or lawyers and have succeeded in their career, but still feel this pull to be at home more with their children.
And what I found is that once you get that financial freedom, you can still use those skills in other ways. Somebody who’s a doctor could consult with a hedge fund that’s investing in medical technology. There’s other ways to use those skills that aren’t a W-2 job. And it’s funny that I went down this path thinking I was leaving a job I loved, and now I’m at a point where I love the professional aspect of it so much more because I don’t have any of that pressure from the W-2 job, and I can accept opportunities that are on my terms in the hours that are available.

David:
All right. Second part to my question, have you considered carving out a chunk 50,000 to 75,000 a year of that $350,000 income to hire a property manager to screen a lot of the stuff before it hits you so you have more time and energy to put towards some of these other professional endeavors?

Kate:
Maybe someday. I think, like I said, my income that I was trying to replace was 300,000 to 400,000, and that’s where we are right now, and it feels like a comfortable place right now. Obviously, in this interest rate environment, it’s harder to get the kind of cash flow that I was getting initially. So once you start buying real estate, it’s hard to stop. So I imagine that we will at some point be buying additional properties, and so when the cash flow is at that point, then that is something that I would be open to, but for now it’s working the way it is and we’re not-

Rob:
Yeah. I think you’re at that inflection point where 14 to 16 units, that’s about as much as one person can handle. I think 20 is really the max. How long did it take you to do this? How long have you been investing in short-term rentals to build what you’ve built so far?

Kate:
I got the first four in a year, then I left the W-2, and then it took another year and a half to get the other three. Less than three years in July of 2021.

Rob:
You’ve built an income of $350,000 a year in two to three years when most people spend an entire career in real estate trying to make $10,000 a month in, quote-unquote, “passive” income. So you’ve done something that 99% of people don’t do, so congratulations, and thank you so much for sharing your story. That’s just kudos to you. You’ve done it, you’re living the dream, and it’s a perfect success story for what’s possible in this industry.

Kate:
Thank you. And I really want to make sure that I’m sending that message to other people who have that same angst, that it’s possible, and it’s possible to replace a high income job with real estate if you’ve just put your money in your 401(k) over your career, you can get there.

David:
Amen. Thanks so much, Kate, we appreciate it. Thank you very much. I hope we have you back on again, and things continue to grow.
All right. Welcome to the Seeing Greene segment of the show where we take questions from you, our listener base, and answer them for everyone to hear. Today’s question comes from Katie M. in New Jersey. Katie writes, “I’m at an inflection point with work. My job is being restructured and I’m being offered one year’s salary as severance. I’ve been climbing the corporate ladder since college, but now that I have a little one at home, I’m reevaluating everything. I’d like to ultimately build a real estate portfolio that could replace my W-2 income of about $150,000.
“My husband and I bought a duplex in New Jersey with train access to New York City, and about a block and a half from shops and restaurants in New Jersey. We plan to BRRRR and house-hack the property. We will rent out the upper unit, a four-bedroom, three-bath. My husband and new baby girl and I plan to live in the downstairs for the next three years.
“Ultimately, my question is what’s the best way to determine if we should rent out the upstairs unit as a long-term rental or a short-term rental? The upper unit would rent for 5,500 to $6,000 a month as a long-term rental. And I assume that a short-term rental would be more attractive, but not sure how to assess that. We’re hesitant to potentially have new short-term rental guests every few days while our family is downstairs, but the potential extra income is enticing, especially with me likely leaving my W-2, and losing the $150,000 a year.”
Rob, pretty good, straightforward question here. Lots of information. What are you thinking?

Rob:
Well, I will say that running a short-term rental that you live on site for is not for the faint of heart because you’re going to have the crutch of being next door, which is really great from the standpoint that you can address problems really quickly, but also not great because you can address problems really quickly and you’re always going to feel obliged to just go walk over and fix things. Whereas, whenever you live a little bit further from a property or in a different state, it forces you to create systems where you don’t have to rely on yourself to go and solve problems.
So I think if she’s developing her family, she’s talking about and they’re kind of getting in the groove of things, I think short-term rental is going to keep her pretty busy. Now with that said, 5,500 to $6,000 a month as a long-term rental actually seemed… that’s crazy, that’s a lot.

David:
Yeah, I thought that was going to be the short-term rental income, and I was like, “That’s pretty good.”

Rob:
That seems like that’s already going to be a somewhat profitable unit, 5,500 to 6,000, so I would probably run your numbers, and if the property is closer to 8,000 to $10,000 a month on Airbnb, then it’d probably be worth it. When you get into this territory of 6,000 to, I don’t know, let’s say 8,000, 8,500, compared to the long-term rental, I just don’t think the profit’s going to be all that much more, and I don’t know if it’ll be worth the hassle.
So I would say really consider what your profit is. If you’re going to make 9,000 to 10,000-plus as a short-term rental, it would probably be worth it. If it’s less than that, I’d probably just rock it as a long-term rental just because it’s a set-it-and-forget-it type of situation. What do you think?

David:
I was thinking similarly that I don’t know how you would make significantly more than $6,000 a month as a short-term rental, and you’re taking on a buttload more work here as well as some more risks like now you’ve got to furnish it. People don’t think about that, that’s a lot of money that you’re putting into this thing, and those things are going to break a lot of the time, versus a long-term traditional rental, they bring their own furniture, and if they break their own stuff, they’ve got to replace it.
Part of her question there, Rob, was, “How would I assess?” And I think what she means is, “How would I determine what it would rent for as a short-term rental?” Any advice for her there?

Rob:
Yeah, so you’ve got to go and you run your comps. I use the AirDNA for this. And basically you’ll go to AirDNA… Actually, what you can do is you can go to biggerpockets.com and go to the tool section. And in that section, there is a little tab called Airbnb. You go and you click on that, and it gives you access to the AirDNA Rentalizer. And you can put the address in there, you can put the bedrooms, the baths, all that stuff, and it’ll give you a projection of what you could possibly make as a long-term rental. It is not something to live or die by because it is just like an initial gut check, but it can at least give you an idea of what’s possible. And if it seems appealing to you, if it’s high enough from a yearly standpoint, then you can go and get a subscription, and run your comps a little bit deeper.

David:
That’s the first step. The second step I’d recommend is find another short-term rental operator in that area and ask them, “What does yours get? How much vacancy are you having? What are you making in a year? What are your challenges?” Most real estate investors are very generous with their numbers. We’re not a group of people that tends to hide stuff from everybody else. I think you can get a really good idea of what it would be like to operate it by asking someone else.
Last question, Rob, do you think that there’s any benefit in her looking into a medium-term rental here?

Rob:
It is really hard to say because a medium-term rental is going to fall right smack dab in terms of revenue standpoint. So if we’re looking at like 5,500 to 6,000 as a long-term rental, I’d say a mid-term is probably going to be like 7,500 to 8,500, and then a long-term rental would probably be like nine to 10.
Really, based on my calculations, I always say mid-term rentals make twice as much as long-term rentals, and short-term rentals do three to five times that. But with these numbers, I just have a really hard time believing that she’s going to do 15K a month. You still have to buy all the furniture though and-

David:
That’s what I was thinking too.

Rob:
Yeah. With a four-bedroom, three-bath, she’s going to spend, at a minimum, 20K. She’s probably going to spend 20, 25K, which is $2,000 a month, if you were to extrapolate that over the course of a year. I would say my favorite strategy is a hybrid, you do short-term rentals as much as possible, and then mid-term rental when you can.

David:
All right. But in this case, we’re both on the same page, that probably isn’t necessary because the traditional rents are so good. You probably don’t have to deal with any of the headache, just rent it out traditionally, make it very, very low work for you, and then look for another property that you could short-term rental that one.
But, man, when the real estate gods bless you with rent that high, take the blessing, don’t be greedy, don’t try to milk out another $1,000 a month. Just take it and then put that energy and time towards your next deal where maybe you don’t have the long-term rental option and you have the short-term rental, and then you get two of them.

Rob:
And you’ve got a new baby girl, maybe get through that stage, it’s very hard to raise a newborn and get into the Airbnb game. So maybe just simmer on that, let it marinate for a bit, and then once you’re ready to do more, make a little bit more money, then you can transition into STRs.

David:
The Airbnb method is not recommended, don’t combine the two. All right, Rob, thank you for joining me on Seeing Greene. And thank you for the submission, Katie M., hope that we could help. And if you would like to have one of your questions answered on the podcast, go to biggerpockets.com/david, where you can submit it there. I’ll get us out of here. This is David Greene for Rob my Airbnb Abasolo, signing out.