Mindy:
Today’s show is about a 36-year-old online entrepreneur who started his entrepreneurial journey after amassing $150,000 in savings in his 20s working in the gaming industry and as a financial advisor.

Scott:
You are going to learn the power of what a baseline level of frugality coupled with using that frugality to empower you to take calculated risks, also known as testing hypotheses, what that can do to turbocharge your success and allow you to build a business that reaches millions of people.
And while you might not be able to become the next YouTube star, you can certainly replicate our guest Humphrey’s formula for success. And we hope that you come out of this with some ideas for hypotheses that you can and will test in 2024.

Mindy:
Hello, our dear listeners, and welcome to the BiggerPockets Money Podcast where we interview Humphrey Yang and talk about his path to over a million YouTube subscribers and a successful content business. Hello. Hello. Hello. My name is Mindy Jensen, and with me as always is my “makes money both on and off the internet” co-host Scott Trench.

Scott:
Thanks, Mindy. It’s great to be here with my “always has a World Wide Web of opportunities to make money” personal finance co-host Mindy Jensen.

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

Scott:
That’s right. Whether you want to retire early and travel the world, go on to make big-time investments in assets like real estate, or start your own nine or 10 businesses, with most of them failing and one succeeding, we’ll help you reach your financial goals and get money out of the way so you can launch yourself towards your dreams.

Mindy:
Without further ado, let’s bring in Humphrey. Humphrey Yang is a former financial advisor turned YouTube financial superstar. With over 1 million subscribers, Humphrey shares video explainers breaking down complex financial concepts and telling stories about the tech and finance worlds. Humphrey, welcome to the BiggerPockets Money Podcast. I am so excited to talk to you today.

Humphrey:
Awesome. Thank you for having me, Mindy and Scott. How are you?

Mindy:
We’re doing good. I’m doing good. Scott, I shouldn’t talk for you. How are you doing, Scott?

Scott:
We’re doing great. Humphrey, we’d love to start off with hearing a little bit about your upbringing and what your family’s relationship with finances was like growing up.

Humphrey:
Oh, yeah. So I got a lot of my personal finance, I guess, interest from my dad. My dad grew up very poor in China. And my dad’s really old also. So this is a fact that some people know maybe from the channel, but my dad’s in his 90s now. And so he actually grew up during a really rough time at the time that was in China, and he grew up very poor, without any money to even buy food some days.
And so for him, I think he immigrated to the United States when he was in his early 40s, I believe, after a stint in the Air Force and flying for some airlines. Excuse me. And money has always been an interesting subject because I feel like my dad views it in terms of a scarcity mindset. So in his view, having money meant safety, which meant he never had to go hungry again. And he didn’t want his kids to experience that.
And so throughout my entire upbringing, money has always been a pretty central topic in just conversation, like this is why you need to save all your money. This is why you should not spend money frivolously. This is why you should be frugal. Because you never know what’s going to happen. This is why you don’t really want to get into debt because debt can erode your money. And if you make a few mistakes, you could lose it all.
And so for us, growing up, me and my siblings, it’s always been like we view money from a scarcity mindset. And I’m now trying to reprogram myself to more of an abundance mindset if you will, because I also am probably more risk-averse than your average 35, 36-year-old because of what I’ve been taught from my parents.
I feel like money is usually a subject that you learn from your parents and your family. So for me, I need to break free from that mindset in particular.

Mindy:
Do you find yourself being more frugal because of your upbringing or more spendy because of your upbringing?

Humphrey:
Definitely more frugal. So, usually, if I’m going to buy something, I always think about do I actually need this item? Will this item actually fulfill my needs in some sort of way?
And if the answer is even a shadow of a doubt a little bit no, then I might hold off on that purchase, at least for 24 hours, sometimes up to a week. And then I see if I still want it after a week or maybe even a month. And if I ultimately still want that thing, then I will go and buy it. But if it’s not a huge necessity, I oftentimes just don’t. I just opt for not buying it.

Scott:
Humphrey, did this mentality around frugality translate to a rapid accumulation of wealth in your college years and right afterwards?

Humphrey:
Yeah, I would say compared to my peers, yes. I always think I could be better, obviously, and it also depends on how much money you’re making. But that’s all wealth is; it’s just the difference between how much you spend versus how much you make. And if you’re able to accumulate a big difference of that and invest it accordingly, then you are going to become wealthier than someone else might be if they’re spending the majority of their income.
So I would say yes, I think that… I still go into it these days with… If I make $10, I try to only spend $2 to $3. Obviously, that’s sometimes not very realistic because rent is so expensive, food is so expensive, and all these things.
That’s my goal, that’s my ultimate target, but oftentimes it plays out a lot higher. I might spend seven of those 10 dollars. But the idea is that at least a 30% savings rate is still way higher than the average American does. I like to view any savings percentages over 15% as a win. And so if I’m overshooting my target, I’m going for eight and I can only save four, it’s not the end of the world. Right?

Mindy:
So do you feel like you’re depriving yourself of things? Do you wish you could spend more and feel guilty when you do? She asked as though that was her exact same story.

Humphrey:
Yeah. There’s a lot of things that I could spend money on. I’m going to Phoenix this weekend. I could have bought a first-class ticket, but I decided to choose economy instead.
Or I can eat a $30 lunch every day if I wanted to. I’ve done the math. I can spend $30 on lunch every day and not have to worry about it, yet I go to Chipotle or I go somewhere that’s really cheap because I know it’s easier, or I make food at home because it’s going to save me X amount of money.
Sometimes it’s just like, I like to not spend money because it’s more fun that way. I don’t know why, but that’s the deal, I guess.

Mindy:
It’s a game. It’s a game, and you’re like, “Ooh, how little can I spend today? How little can I spend this week?” You play these games with yourself because when you’re saving money, then that’s better, according to these frugal rules that we tell ourselves and that our parents tell us as they’re raising us in frugality.
Because I’m a grandchild of the Great Depression, so kind of a similar situation with your dad. I also don’t spend the money that I could spend because why would I? I could just save it instead.

Humphrey:
The other thing is that sometimes you have to think about why you’re saving. And so sometimes I’m irrationally frugal. It’s like, okay, I’m not going to take it with me when I pass away, so what’s the point half the time? But I feel like I still have so many more years left in my life, knock on wood, that I’d rather save it for now. So let’s see where I can get to.

Mindy:
Okay, so how do you break out of that mindset? Have you tried to break out of that frugality mindset and spending on things? This is a work in progress for me too.

Humphrey:
Yeah. I think a really good exercise is to… I put in a Google Sheet or a spreadsheet what my dream spend is per category. So if I didn’t have to worry about money at all, how much would I love to spend on every single category?
Do I want a $7 coffee every day? How much is that going to cost me? Do I want a $30 lunch every day like I just talked about? How much is that going to cost me? Dinner, I do the same thing. How much money do I want to spend on clothes? And oftentimes what you’ll find is that you don’t actually need that much money to hit your dream spend, or it might be closer than you think.

Scott:
I try to spend a percentage of the passive income that I’m generating and save essentially all of the active income. That makes me feel good and sleep well at night. That probably resulted in way too much sacrifice for the first 10 years of that journey, but that’s because I’m very hardcore and have that kind of mentality.

Humphrey:
That’s amazing. So, basically, you’ve gotten your passive income to a point where… Is it your fund money or you’re just completely living off of your passive income now?

Scott:
I spend less than my passive income, the passive income that I generate. I just also work this full-time job many hours a week because I love it here at BiggerPockets, perhaps like you with your business. You’re a highly successful entrepreneur.
And one of the reasons why I wanted to ask about the frugality and spend so much time here on this is because I believe, I have a hypothesis, I like to test, and you can tell me I’m wrong, that there’s a huge interplay between this long-term habit of frugality and discipline with your spending and the opportunities that have been presented to you in the twists and turns in your career. Can we hear about it and let me know if that’s close?

Humphrey:
Are you saying that the long-term compounding of frugality leads to better opportunities or are you saying that it affords you better opportunities in a way?

Scott:
Both. I think it allows an opportunity, for example, to start a YouTube channel to be an opportunity and not a risk.

Humphrey:
Yeah, I definitely agree. All the risks I’ve taken in my life are due to a safety net that I’ve accumulated over time, and knowing that my cost of living is so low that I don’t need that much to survive. And I’d like to keep my means, or sorry, my cost of living… I’d like to keep the amount that it takes to run my life as low as possible in order to take more risks in the future. Yes, definitely.

Scott:
Well, can we hear about your career and the college years and what you’ve been up to in order to get to this point?

Humphrey:
Yeah. So I didn’t know what I wanted to do in college. I went to the University of Washington for two years, and I was kind of depressed up there because it’s so rainy. And so I actually transferred to a school called Loyola Marymount University in Los Angeles when I finished up.
And I finished up at the end of the financial crisis of 2008. I actually graduated in 2009, so jobs were hard to come by at that time. I spent some time in Asia for six months afterwards on a study abroad program just trying to strengthen my Chinese. It’s a very procrastinating thing to do.
And then I came back to America and lived with my dad for a long time. And I just didn’t know what I wanted to do, but I was interested in a few things. I got my degree in finance, so I was interested in finance. I was also a big video gamer growing up, so I also wanted to try a career in gaming.
And my first job out of college was customer support for a Facebook game company. They made Facebook games similar to FarmVille if you remember those. I did customer support there for a year or year and a half. And then I ultimately didn’t like that job because it’s customer support.
I was interviewing with Merrill Lynch at the time, at the same time, and I got a position as a financial advisor. So I was a financial advisor for about a year to a year and a half as well. I got my Series 7 and 66 while I was there. And then after that, I practiced for about six months.

Scott:
Was the financial advisor role… Sometimes those can be very high-commission roles and sometimes those are salaried roles. Which one of those was it for you?

Humphrey:
They gave me a base salary of $49,000 a year, I believe. This was in 2012, 2011/2012, with the expectation of it transitioning slowly over the course of four years into a commission-only salaried role. And I think a large portion of the role was to prospect your network and try to get assets under management for Merrill, and that was basically their program.
It was called the PMD program. In exchange for the Series 7 and 66, the expectation was you’re going to be prospecting clients after you’re fully licensed, and you might work on a team, and you might help some of the more senior advisors.

Scott:
What happens next?

Humphrey:
Yeah. What happens next? A lot of uncertainty. I wasn’t sure what I wanted to do. I definitely wasn’t happy at the financial advisor role. I just realized that a lot of these… not Merrill in particular, but a lot of these big banks and their financial advisory programs, what they do is, in terms of investing, they just put you in standardized products that are approved by the big firms.
And so a lot of these big products are typically some sort of fancier ETF or a mixture of ETFs that are low-risk, predictable for their clients. And a lot of the financial advisory business was managing the relationship.
I think we had one advisor who was very successful who said, “I don’t actually manage money. I manage relationships. I manage expectations and I manage relationships. And people are happy. And that’s who they call. They call me when things are not going well in the market, for example.”
Obviously, I still think financial advisors are good for certain use cases. For example, if you need estate planning, tax planning, certain college fund planning, if you have specific situations, then you might need a financial advisor. That’s what I tell my friends that are looking into one.
However, if you’re just looking for investment returns, I’m sure you guys have heard that active fund managers don’t ever beat the market or most of them don’t beat the market, so you might as well just invest in a low-cost S&P 500 index fund. I still believe in that. And it was reinforced to me that way when I learned about that at the job.

Scott:
I always wanted to be a financial advisor. That was one of the things that I was really… Because I’ve always loved personal finance if you can tell from this podcast here. But I realized pretty quickly into the first year of my career that becoming a financial advisor was doing that kind of stuff.
It’s almost a little disheartening, isn’t it? A lot of people love talking about this, help people build wealth. It’s a shame that such a huge percentage of the industry monetizes with those AUM fees or, you didn’t even mention this, but life insurance products for example, and not the nitty-gritty helping people actually plan their estates and do that kind of work. That is really where I think the real value is added to the clients’ lives.

Humphrey:
Yeah. I definitely agree with you. I think there are definitely some advisors that are doing, I don’t know, God’s work, and they’re actually helping people with their finances. But a large percentage of the industry is just, “Yes, let’s get your assets under management, let’s charge you a fee, and let’s put you in some products. And we’ll have a call once a quarter, and hopefully, that’ll be that.” Yep, so that’s that. And then I guess you wanted to know what I did after that, I suppose?

Scott:
Yes, please.

Humphrey:
Yeah. After that, I did an investment banking internship for six months because I thought it was better finance if you will. I don’t know if that meant anything. But at this point, I was kind of lost in my life, I suppose.
And then I decided I wanted to go back into video games. So it was like 2014, I find a new company that a friend refers me to, it’s called Machine Zone. And I start off there as a quality assurance specialist, but then quickly I get a job helping them with monetization. So I’m about six months into this job, into the quality assurance, and I get a job switch to monetization.
And Machine Zone was a really interesting company. Machine Zone was Y Combinator-backed, and they had just raised a bunch of money because their games were monetizing very heavily. Their flagship game was called Game of War, and their second flagship game was called Mobile Strike. And if you remember those two games, they had Super Bowl commercials back in 2015/2016.
Arnold Schwarzenegger was in one. Kate Hudson, not Kate Hudson, Kate Upton was in another one. Mariah Carey was in one. This was the rage back then.
As a monetization specialist, what I was doing was I was designing in-game packages, in-app purchases packages for people to buy whenever they logged into the game. So whenever you log into the game, you would get an offer thrown at you like, Hey, do you want to buy this package for 50 bucks? These are all the in-game items you get.
You had to manage it a little bit. You want to make sure you’re not putting too many great items in the package so that it’s ruining your in-game economy. And you also have to title it and make a cool piece of art. You want to make it look as beautiful as possible.
And so I did that for two straight years, and that was a pretty grueling job. It was almost like a trading desk because we got real-time stats of how much money was being spent in the video game every single minute. And there were hourly targets and there were daily targets, and there were monthly targets of how much money we needed to make every single month in order to continue our upward growth trajectory.
And this game was pulling in a couple of million dollars a day. This thing was crazy. At one point, this company was valued at $5 or $6 billion in its heyday. And I helped sell these in-ad purchases.
So I got a lot of real-time feedback, real-time data. I learned how to A/B test really well. I learned how to look at this data and make experimental inferences about what was going on. And I would say this period in my life, which was two straight years of almost 24/7 all the time, really taught me a lot about just marketing, psychology, data analytics, A/B testing, everything that you could think of to grow a business, I would say.

Scott:
Awesome. And so what years were you there and then what’d you do next?

Humphrey:
Early 2014 to late 2016. So it would’ve been two years and change maybe. In 2017, I started a business called YourOwnMaps. I wanted to sell posters online. I don’t know why. A friend of mine came to me and said, “Hey, we should sell some posters online.” I’m like, “Okay.” Well, I quit my job and I wanted to start my own business.

Scott:
Okay, perfect. I want to ask about this transition. So you’ve been working for a couple of years. Is this the point in your journey where the frugality that’s an underpinning behind all of this career progression begins to pay off and affords you the opportunity to take a risk on a business?

Humphrey:
Yeah. Yeah, it definitely did. I think I had at least $150,000 saved up. I was living at home too, which was great because I’m not spending any money on rent. I have $150K saved up. And I’m like, “Okay, I can quit my job for a few months. I can think of something.”
I wanted to start a business, and I didn’t know what to start. So, January 2017, a friend of mine comes to me. He had just came from Europe and he was working for Facebook. And he was like, “Hey, I’ve seen this business model in Europe do really well where they sell these custom posters of these maps, and we could do that here in America.” I was like, “Okay, great. Let’s do it.”
And so I didn’t know what I was doing, but I knew that I could do… I’m always a big believer that I can learn how to do anything. And so we spent a few months developing the website and what it will look like.
I spent a couple of months looking for a supplier, so someone to print the actual product and then ship the products to end customers. I guess I’m kind of fast-forwarding a little bit, but it was a tough time of six months of not sure what to do. I spent about $20K on the website initially of the $150K. I still had $130K.
Of course, I was still spending money eating food and seeing my friends and doing entertainment stuff. But because of the frugality, that definitely afforded me that opportunity. And I could have done it for another year or two without making any money at all and been totally fine.
And so that’s what I tell some people who want to do something entrepreneurial on their own. It’s like, you need at least a good nest egg of six months to a year of living expenses for a real shot at these things. Because my own business wasn’t even successful until maybe month nine. And so if you’re thinking… And that’s good, by the way. A lot of these businesses don’t break even until year three.
And so, for me, I was lucky in that we started to make some profit right away and see some success there. I still wasn’t drawing that much money from the business. My first year salary was maybe $35,000, 38,000. And then the next year was 40, 45. It showed me that I could do it, but it showed me that I also needed to think of something different if I wanted to make more than $40,000 or $50,000 if that makes sense.

Scott:
You were mapping out the journey to financial independence.

Mindy:
Oh, Scott, what a terrible pun.

Humphrey:
Yeah.

Scott:
Sorry.

Humphrey:
Good pun.

Scott:
Thank you for the groan. I appreciate it, guys.

Humphrey:
Yeah. So I did this business from 2017 to middle 2019. And at the same time, I’m trying all these other different types of things. I tried to create a budgeting app. I hired someone on Upwork. I’m trying different things. I wrote an E-book on how to email market, and I tried to market that on Twitter. And then I also tried dropshipping, which I failed at. Dropshipping was way harder than actually starting a real business, in my opinion.

Mindy:
Wait, but the guys on the internet say that you just start it and you make all this money. What do you mean? That’s not true?

Humphrey:
I think it’s a really great way for people to get into online E-commerce for a very low price point, but it comes with a lot of risks, and I think it’s more of an art form to do it right correctly. And what’s funny is that if you become really great at dropshipping, you actually just want to create a white-label business or a real E-commerce business.
So it’s like you’re doing all these steps to just get to where I already was at. So for me, I was happy doing just the straight-up E-commerce business. But dropshipping is hard, definitely not easy. And I think it’s hard not because of selling the product. I think it’s hard because of the logistics behind the scenes.
The products are coming from China. If they’re coming from China, it’s like a three-week ship time. And so now you have to deal with customers that are pissed off at you because of the three-week ship time. And then you have to deal with the payment processors that are getting charged back from those customers because the product’s not coming in time.
And then you have quality issues, and you have all these… It’s just not the best model if you want to have a great experience for the customer. But it’s a good model for those entrepreneurs that are trying business for the first time and they don’t have more than like $3,000 to spend.

Scott:
So you tried an E-book, we have a dropshipping business, we have a map business. What else is going on here? And how many of these initiatives go on until you settle on making videos?

Humphrey:
Yeah. I probably had four to five different initiatives from 2017 to 2019 that I tried, some with other friends, some by myself. I also did some consulting on the side just to make an extra income.
I would consult for this one marketing company. It was, at the time, called MarketerHire. And so other E-commerce businesses would hire me to help them with their email marketing or their marketing in general. And all these principles I learned from the video game business, by the way, just marketing and psychology.

Scott:
A/B testing, right? That seems like that’s a huge competency.

Humphrey:
Yeah. And it’s actually not too hard, but then it’s understanding if the data that you have is statistically significant and making hypotheses about the next test and next iteration. So it was about middle 2019 that I was like, okay, maybe I should try making some videos on YouTube.
Because I’d just listened to a Naval Ravikant podcast, and he was all about scaling yourself through either code or media. And I was like, okay, let’s try some YouTube videos. I really believe in what he says there.
So I tried three YouTube videos, they went nowhere. I had 10 views on each one because I sent them to all my 10 friends. I kind of gave up on it, to be honest. I made three. I was like, “Okay, that was a good try. Whatever.” It was just another initiative at the time.
But then I caught myself watching TikTok in 2019, and this was at a time when people my age weren’t watching TikTok. It was mostly teens, I would say. And I would watch it every night before bed. I thought it was pretty funny and I was pretty addicted to it.
And then at some point that fall, it kind of dawned on me like, hey, I should check if anyone’s making personal finance videos on TikTok. And nobody was. There was one video. I searched #PersonalFinance. There was literally one video. And there was one guy making videos about stocks, and they weren’t that good.
So I said, okay, if I can be first to market on here, maybe I can get some traction and get people over to my YouTube channel. And then eventually, I can make YouTube videos. That was my whole goal. And so towards the end of 2019, I decided to have a goal of making 30 straight TikToks in a row, 30 days.
I think on day 11, I had a video that got 100,000 views on day 11, and that got me like 1,500 followers. And I was like, “Wow, that’s cool. That’s way more than I’ve ever gotten on YouTube.” And I think on day 17, I had a video go viral and get 3 million views, and I got 100,000 subscribers, sorry, 100,000 followers on TikTok at the time from that one video.
So by the end of 30 days, I had 120K followers on TikTok. And I was like, all right, well, I’m going to keep going because clearly there’s demand for this type of content. And so by the time the pandemic actually started, I already had 350,000 followers, which was great.
And then I had nothing to do because it was COVID, there was nothing to do. So I was like, oh, I might as well just keep making a video every day because it’s like, dude, I’m already here. There’s nothing else to do. It’s easy to make a video. It gave me some purpose throughout COVID.
At that time, I started to slow down on the maps business because it wasn’t doing that well anymore. And so it just was a slow shift towards video creation. And then at the same time during COVID, I started to make YouTube videos again, and I’ve just been going ever since.

Scott:
They say that nine out of 10 businesses fail, and so your approach is to start 10 businesses.

Humphrey:
I probably tried 10 different initiatives, for sure, throughout my life. And they might not have been great initiatives, but at least a month here and there, a couple of months here and there, etc. Yeah.

Scott:
I mean, if you think about it, it took you three years to find what worked for you with these things. You kept your expenses really low. You applied a skillset and the scientific method to a variety of different businesses. And when you hit one, you went all in, and you love it, clearly, with it, and it’s been super successful.
I think that should be inspiring to folks. If you can actually commit the capital and have the time and space to try these initiatives, you can fail six, seven, eight, nine times over a two or three-year period and hit a winner on that. That’s not unachievable for a lot of folks, I think, listening to this.

Humphrey:
Yeah. I definitely think it takes more than one shot. I have friends that take one shot at something and they give up. But I also think I had an unfair advantage because I was able to live at home. Not many people can live at home for free in the Bay Area. I was saving $2K, $3K a month on rent.
And I was okay living at home. That’s another thing. And some people in their early 30s might not want to live at home because of embarrassment or whatever, and it didn’t bother me. Before the podcast, Mindy asked me if I was married and have kids, and the answer is no because I probably spent four of my prime years living at home and not really dating.

Scott:
Well, let’s get into your processes for making these videos. What was it? You just stick a camera, take a look at it? How did it start and what is it like now?

Humphrey:
Oh, yeah. It’s way different now than when it started. When it started, I’m literally making a video about any topic that comes to mind that I think is remotely financially personal finance-related. And there’s no thought behind the topic. It’s just like, “Hey, that sounds interesting. Let’s make a video about that.”
Or, “Airbnb is IPOing this week. Why don’t we make a video about that?” Or, “The presidential election is here. Why don’t we make a video about that?”
Some of those topics could be good, but I was literally just turning out… There was one video I made that was comparing the difference between Bitcoin and Pokémon cards as an investment, and it was just a bad… That’s such a bad topic, but I thought it was great at the time.
So in the beginning, it was very much like, let’s just make whatever and see what sticks. And I still think that’s a really great method. You’re testing all these different things and seeing what sticks and what doesn’t.
But as I’ve gotten better at YouTube over the years, it’s definitely more methodical in terms of what topics we choose. And topic selection is, I think, one of the most important things on YouTube because it determines your market size. If you make a topic about coconut water from Bali or something like that, the ceiling for that might be 100,000 views.
But if you made a video about the toxicity of carbonated water, I don’t know, I just saw you drinking a bubly, you might be able to get 2 million views on that because it’s a way wider, broader topic. I always think about market size now when I think about making a YouTube video.

Scott:
I have a mini fridge with nothing but cherrybubly in it right next to my office. That’s not a joke or an exaggeration.

Humphrey:
Well, there you go.

Mindy:
If somebody is listening to this episode right now and thinks, “I want to be the next Humphrey Yang,” what is your advice to somebody who wants to start making money online?

Humphrey:
Yeah. So if you want to do YouTube videos, my advice is always make searchable content in the beginning. Have a library of 50 to 100 searchable video topics at the beginning because that builds you a strong base.
You know that certain topics are always going to be searched. For example, what is asset allocation? That is a great video that you can make that’s four to five minutes long, talking about what it exactly is. If you think about it, if you have 50 different topics like that, like what is asset allocation, what is risk, what are some of the index… what things should you look for in index funds? All these searchable-type topics, eventually, every one of those videos is going to start compounding for you with views over time, and you’re going to build a nice base of views on your channel over the course of a year or two.
And then that’s when you can start to play around with the types of topics you can do to try to hit more trendy type of topics and try to capitalize on high viewership. It’s like, imagine you had a channel with 50 of those financial explainers. I’m just talking about finance because that’s what I got.
And then all of a sudden, Silicon Valley Bank crashes, you can make a Silicon Valley Bank video which would’ve gotten you an outsized number of views, and then people would be interested in all your other topics because it’s financially adjacent. And then you can build your brand that way. I think too many people just give up on their YouTube videos.
I was about to give up after video three, but I think Ali Abdaal says this, he’s a productivity YouTuber, he says it takes 50 to 100 videos. And I think even Mr. Beast has said, “Hey, if you’re trying to become a YouTuber, make 100 videos and then talk to me. Don’t talk to me before 100 videos.” So I think it takes a long-term mindset of let’s do this for a really long time and see what happens, and then adjust.

Mindy:
Is this just you doing this or do you have a team? Is there a bunch of people behind you helping you out?

Humphrey:
It’s mostly me and an editor. So my editor has been with me since November 2020, and he actually reached out to me in June of 2020. This was very early on. I had no YouTube presence. I had 500,000 people on TikTok maybe, and he just DMed me cold and said, “Hey, I’d like to edit for you one day.” And I kind of ignored him for a few months, and then I needed one in November.
I edited my first 100 videos myself probably, and then I hired him. And then he’s been working with me since. And he’s actually improved his editing skills so much, and he definitely wants to learn. He’s someone who’s entrepreneurial as well, so we get along really well.
And a huge reason why we have so much success is because of his animations on the channel. If you notice, a lot of our videos are animated quite well. And he’s an editor plus animator, which is hard to find. Usually, you have to find two different people that are editors plus animators. But he taught himself animation throughout the last three years. So, very thankful for him.
So it’s just me and him, and then I have a guy that helps me make thumbnails, and that’s it. And I’m trying to find another editor so that I can come out with more videos next year.

Mindy:
Okay. Well, that leads me to my last question. What is the future of your content and your financial journey? Where are you going next year? What are you focusing on?

Humphrey:
Yeah. I have a lot of financial YouTuber friends. They make a lot of money. And sometimes I feel bad because I don’t make as much as them. And I think they make a lot of money because they’re hyper-focused on their niche. They might sell a product or they might offer a service, or they might offer a course or something like that, and they’re able to capitalize on that. They might have better affiliate links for the certain niche that they’re in.
I still don’t know how I feel about selling a course. I don’t love it. I think a lot of the information that you can get online is free anyway, so what would my value of a course be? Maybe it would be to concisely condense everything so it was just really easy for you and really easily served.
But right now, I don’t think I have a product or a service or a course offering that really fits my channel perfectly that I could offer to my audience. So right now, I’m not creating a side business off of the audience right now, off of my channel.
And so my goal is still to do YouTube in five, 10 years. And so I really want to continue to grow the presence that I have online, continue to grow viewership. And I think sometimes just making videos is all I need to do. I think that all the biggest YouTubers, if you look at Marques Brownlee in the tech space, he’s been doing YouTube videos for 15 years.
He hasn’t really sold a product or a service too hard either. He has a merch line ish, but it’s not like he’s got a flagship product or a flagship business that he runs on the side. His main business is videos. And for 15 years, it has worked. So, clearly, there’s that business model that works. It’s like, let’s just make great videos, and I just want to keep doing that.

Mindy:
That’s fantastic. You need to protect your audience. You’re not selling anything right now, and that’s what your audience loves. You’re giving them great content without just bombarding them with stuff. You’re genuine in your delivery.
And when somebody is trying to sell something and be skeezy, that comes across. It oozes out of every pore that they have. And you’re like, “Nope. Next.” I don’t know if you know this, you’re not the only guy on YouTube. There’s no shortage of guys on YouTube. So they’ll just go find somebody else that they connect with better.
On the other hand, you have an audience, and they watch you because they like you. They want to learn from you. So if you have something that aligns with what they’re looking for, even if it’s all over the internet for free, there is a value for somebody whose voice that they appreciate gathering it all together in one place for them to find this information.
If you do do a course, give them $200,000 worth of information for 20 bucks, not 20 bucks worth of information for $200,000, because there’s no shortage of those guys either.

Humphrey:
Yeah. I think it’s just I haven’t found something that aligns with me perfectly just yet, and I’m definitely searching for something like that. I know it’s part of my longer-term vision. But for now, I don’t feel an immense pressure to do that right now.

Mindy:
Yeah, you don’t have to. How about just a T-shirt with Humphrey Yang’s face?

Humphrey:
I don’t know if anybody’s going to buy that.

Scott:
Humphrey, before we adjourn here, is there a place where people can go find out more about you?

Humphrey:
Yes. Please subscribe to my YouTube channel, it’s Humphrey Yang. And then I also have a newsletter, it’s called Hump Days. It’s on Substack. So we come out with business news twice a week for free, Wednesdays and Fridays. Humpdays.substack.com. That’s perfect. That’s where you can find me.

Mindy:
Humphrey, thank you so much for your time today. This was so much fun. And we will talk to you soon.

Humphrey:
Cool. Thank you, Mindy and Scott, for having me on BiggerPockets.

Mindy:
All right. Scott, that was Humphrey Yang, and that was super fun. I love his story. I felt a kinship with him with the whole growing up frugal and now saving everything you have. Yeah, we both need to work on that a little bit more. What did you think of his story?

Scott:
I thought it was dangerous because I have a clear and obvious bias for how I think is a really good formula for building wealth, and he largely fit right into that bias by spending so little, finding opportunities to increase his income, saving a bunch, and then trying 10 entrepreneurial journeys, which is my dream blueprint for success. If only he’d house hacked as well, but he got to live for free, so I guess that’s part of it. But yeah.

Mindy:
He kind of house hacked.

Scott:
Yeah.

Mindy:
He hacked his housing by not paying anything.

Scott:
Yeah. It does not make a rule, but I just think it’s such a high-probability path for success. And you can swap out the living with the parents with a house hack, for example, and have many of the same opportunities there in many parts of the country, probably not San Francisco where he’s from, but in many parts of the country.

Mindy:
Yes. And he mentioned unfair advantages. I think that everybody has an advantage. I don’t like the phrase “unfair” because everybody has an advantage. Take advantage of your advantages. There’s a lot of people who have advantages. They don’t take advantage of them. They don’t use them at all. They just let them sit. And then it’s just a waste.
So if you have an advantage, use it. Use what you have to further… Scott, you have a big brain. You use that in your day-to-day life. You use that in your job. That’s giving you an advantage over anybody else that was going to be CEO. They didn’t have the same brain that you had. And therefore, they’re not CEO. It’s just what you have. You use the tools in your toolbox to further your career, to further your steps. So yeah, when you have something that you can use, take advantage of it.

Scott:
Well, thank you for the big-brain comment, Mindy. I really appreciate it. I also have incredible admiration for your enormous brain and the ways that you put that to use. And I’ll throw in another one for you, which is your community. You’re an incredible community builder, and you use that advantage in a lot of “unfair” ways to bring happiness, joy, and business into your life, and business opportunities. So, love that in so many ways.
I do want to throw out a question here. What hypothesis, Mindy, are you going to test in 2024?

Mindy:
I am going to test… Wow, Scott, put me on the spot. What are you going to test while I think of one?

Scott:
I am going to test the hypothesis that there are a large number of people who are losing money investing in passive syndications at this point in time because of the market dynamics and unfortunate realities of higher interest rates, and that those folks are going to take this opportunity as a lesson and spend a large amount of time learning how to run the nuts and bolts of analysis on passive investment opportunities like apartment complexes and syndication deals like self-storage, like debt funds, and that there’s an opportunity for BiggerPockets to provide an educational platform that does very rigorous analysis on those types of deals and helps people make really highly informed decisions about what the bet they’re actually making is in those types of things.
So we’re going to call it Passive Pockets, and we’re going to launch it sometime in 2024. That’s my hypothesis.

Mindy:
My hypothesis that I’m going to test throughout the entirety of 2024 is that spending on things that bring me joy or that make my life easier is not going to hurt my overall financial position and will, in fact, make my life better. So I am going to do that. And I have started and stopped and started and stopped. And I’ve got a list of things that I want to accomplish next year, and spending money to get them done is now going to be the way that I go, as opposed to doing it all myself.

Scott:
Those who are listening here, thank you so much for joining us today. We’d love to hear what your hypothesis that you’re going to test for 2024 is. Please share that with us in the Facebook group at facebook.com/groups/BPmoney, and we’ll be looking there.

Mindy:
All right, Scott, should we get out of here?

Scott:
Let’s do it.

Mindy:
That wraps up this episode of the BiggerPockets Money Podcast. He is Scott Trench, and I am Mindy Jensen, saying toodles Goldendoodles.

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

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

Ashley:
This is Real Estate Rookie, episode 355. My name is Ashley Kehr, and I’m here with my co-host, Tony J. Robinson.

Tony:
And welcome to the Real Estate Rookie podcast where every week, twice a week, we bring you the inspiration, motivation, and stories you need to hear to kickstart your investing journey. And today, we’ve got another amazing guest, Dayna Hicks. And I love Dayna. Great, great, great guest, just a lot of good energy and her motivations for getting into real estate are so pure. And so just, you guys are going to see why we love her story so much. But also want to give a quick shout out to someone that left us a five star review on Apple Podcast. This person goes by the username of HammondsFam, and this person says, “I have deep dived into real estate investing for the past three years and I’ve been listening for years. And this podcast always has great info that I can leverage in my life and in my real estate journey.”
So if you are part of the Real Estate Rookie audience and haven’t yet left us an honest rating or review, please do, only takes about two to three minutes, but it does have a huge impact on the show. And we just might read your review on the show like I did for this one.

Ashley:
If you are interested in joining a boot camp with BiggerPockets, you can go to biggerpockets.com/bootcamps. Okay, well today joining us on the show is the incredible Dayna Hicks, a shining star in the BiggerPockets multifamily boot camp. We are so excited to have Dayna here to talk about her experience and her journey and dive into the exciting world of multifamily investing. So Dayna, welcome to the show.

Dayna:
Thank you. Thank you very much.

Ashley:
Let’s start off with telling us a little bit about yourself and how you got into your real estate journey.

Dayna:
Well, a little bit about myself is I was in high school and in Seattle, Washington. That’s where I spent most of my years, and that’s where I say I am from Seattle, Washington. I ended up getting pregnant very young age, 18, and right out of high school. And just decided that all the hardships that I had growing up that I wanted to help people. And I started very young. I was the youngest foster parent in Seattle. I think I was 21 when I started doing fostering. Started with relatives first and then getting into the actual foster care system. At 23, I think I was on a board, a foster parent association board, which is a very big… Washington is very big now, but we started it back then and I just got to wanting to advocate for youth in foster care as I learned more and more about it.
So my life has been, over the past 40 years, has been always involving foster care while I’m doing my regular work. I’ve always had kids, usually five to seven kids at a time.

Ashley:
Oh, my gosh.

Dayna:
… plus my own kids. So I had five natural kids and in between all my kids, I had foster kids. So I’ve always had kids in my house. And just a funny thing about that is I never wanted any kids, not even my own kids. I never even babysat as a teenager. But these guys kept flocking. And so I always learned in church when you’ve got one finger pointing at another problem, you’ve got three pointing back at you. What part of that problem can you solve?
And so that’s kind of how I got into foster care and working with youth. And so getting into multifamily was trying to provide affordable housing for these young people that couldn’t get it. And I figured most of it, because they didn’t know the obstacles. And so if I could help them get through the obstacles, then they could eventually get the affordable housing. And then also it was a nice way to have a kind of slow and steady income too.

Ashley:
Dayna, what an incredible start to your story here. That is amazing, providing that to your community. So along that journey, was there one moment in time where this was your aha moment, “I need to change. I need to change my life. I am going to change other people’s lives.” Was there any moment like that where you realized you needed to get onto this financial freedom journey?

Dayna:
I can’t tell you exactly what year that was, but I remember just reading it in church. When you go through your spirituality during your 20s, it changes to your 30s, your 40s, your 50s. So it gets deeper and deeper. But at one point I remember thinking back like, “Hey, back in the biblical times, everybody handed their kids down something.” My generation, we didn’t have any parents that had anything to hand down. And I said, “Well, I got to do this for my kids. I’ve got to pick this back up. We got to start this.” And so I wanted to have something to hand down to each one of my kids at my demise. They would have something that would perpetuate them forward.

Tony:
I love that Dayna. Family’s a big motivator to try and get us to build something because when we’re gone, we’re gone, but we can leave those things to kind of help our family. And Dayna, there’s some similarities between your story and mine. I had my first son when I was 16 years old and funny enough, he just turned 16 yesterday, so he’s at the age now that I was when I had him. But I remember, gosh, my son might’ve been two or three years old and I’ve shared this story before, but he had gotten super sick and I had to rush him to the doctor’s office.
My bank account was in the negative and it was a $15 copay for him to get seen by the doctors and they turned him away because I couldn’t cover the $15. And for me, that was a moment for me where I was like, “Holy crap, I really need to figure things out and make sure that I’ve got a good financial foundation for him moving forward.” And that’s really played into all the decisions I’ve made after that point. So for you, I mean, did you have one of those moments where like, “Man, this can’t be the life that I’m going to live for me and my child?”

Dayna:
I think that was a lot of my life, just growing up not having money. My mom didn’t have money, I didn’t have money. We just worked, lived paycheck to paycheck, but always having to count pennies that if I write this check, is it going to clear? If I put my bank card in this thing, am I going to have enough money? My calculation says I should have $10 over, but I might only have two. So I think that, coming through my 30s and I’m saying, “Hey, we got to do something different and figure out what that difference is.” And some of it was just doing a self-assessment. And I didn’t really start doing that till my mid-40s, the self-assessment like, “You know what? I’ve been at this job and they offer a 401k plan and I never bothered to invest in it because that was more money out my paycheck that I didn’t have.”
So there’s actually a moment when I was young with my baby and going to a welfare office to get money to be able to survive and I met this older lady. And one of the things she said to me was, “After you had this baby, you are not going to be able to do anything and you’re not going to amount to much because you made this choice to have this baby and you’re so young.”
And I just remember staring at her and not understanding what that meant and why she told that to me. And I came back and told my mom and just didn’t know what to do with that. But that stuck with me for a… It still sticks with me. I can say it [inaudible 00:07:11] and I can see her face. Don’t remember her name anymore, but just remember that. Anytime I came up against the obstacle as I… Was this the hill I was going to die on and she was going to win.

Tony:
Yeah, it’s such a crazy experience having a kid young Dayna because it really does change your perspective on life. And what I’ve found is that there are typically two types of people when it comes to teenage pregnancies. There are those who use the teenage pregnancy to become an excuse as to why they can’t achieve certain things, and then there’s a group of people who use the teenage pregnancy as the motivation to say, “Well, no, I’ve got to achieve this because I became a parent so young.”

Dayna:
Yep.

Tony:
And I get everyone listening isn’t going to go through that same experience that Dayna and I went through, but we probably all have something that’s happened to us in our lives where we get to make that decision, is this going to be the excuse as to why I can’t achieve what I want achieve or will this become the reason that I have to achieve those goals in that situation we always get to make within ourselves?

Dayna:
Yeah. One more piece to that is, I went on to go to the University of Washington and was able to go up for about two years, two and a half years, but this was that motivation. She said I wasn’t going to be anything and I went on to university, had my own apartment, able to make it through school with a baby.

Ashley:
Well Dayna, thank you so much for sharing that story with us. We are going to take a quick break with our show sponsors, but when we get back I’m going to talk more about your why and dive into your first deal.
Okay. Welcome back from our short break. We are here with Dayna and she’s going to talk to us a little bit about her why, the reason for her to start real estate investing, to build this financial foundation for herself. So Dayna, you talked a little bit about your welfare story, being in that office at that time and how that was a huge motivator. Along your journey, were there any other things that kind of highlighted you as to like, this is what I want to do. You had mentioned previously you wanted to help people. So talk a little bit about how multifamily and investing journey started out with creating that why.

Dayna:
So I needed to create something to leave as a dowry for my kids, should something happen to me. That was the first part of it. Nobody in my generation, in my family, who has done that. So I had to kind of create that, because we didn’t know what that looked like anymore. I only could read it in stories and say, “Why don’t we do that?” And so pick that up and try to do that. The second part of it is that I have been truly involved with foster care since I was in my very young, early 20s, 21, and I’m still currently involved and have recently just adopted a set of brothers in order for them to stay together.
But wanted to make sure that these young people as they venture out past 18, that they have a place and a path to go and affordable housing. And I thought I could provide some. If each one of my apartments could be an affordable house for a teen, then that was still me giving back.

Ashley:
Can you tell us what are some of the resources that you used to find out about real estate investing? Did somebody tell you about it and why did you specifically choose real estate along your journey?

Dayna:
I don’t remember the initial part, but I remember hearing Rich Dad, Poor Dad. And I had that book in my library for years. It’s just one of those books that I went and pulled it out. Like I’ve got this book, maybe I should read it. And so I started with reading that book and it kind of opened my eyes to, hey, I can do this a little bit differently. I don’t have to have a PhD. I don’t have to have a master’s degree. I can do this.
So I read that, which led me to follow another writer, which was One Rental at a Time. Someone told me about that and brought me that book and I read that, which led me to BiggerPockets. Then, I kind of dinked around in BiggerPockets for a little while and I said, “Well, I’m going to actually join this, just jump in and join this.” And when I did, I saw the multifamily part and I said, “This is exactly where I want to be.” And so I joined that group and man, it’s been awesome. It has been so awesome.

Ashley:
Just to clarify, did you join the boot camp before you got your first deal or was this after you had gotten a deal?

Dayna:
I joined the boot camp after. I was in the middle of a deal, but I had already had two apartments by then.

Ashley:
Okay, cool. Yeah. So getting the knowledge for that first two apartments, that was just from being on the BiggerPockets website. Were you in the forums? What are some things that a rookie investor can do if they’re trying to take the same path as you? What are some of those steps that made you feel comfortable and confident to actually take action?

Dayna:
Be prepared to jump off the cliff and just go with whatever goes. I think if they were to do it again, I would make sure that they definitely invest in their education piece. Read. Get something that makes you want to say, “Oh, I can do this,” or, “This is what I want to do.” It doesn’t have to be multifamily. It could be single family, it could be commercial, it could be whatever it is that you want it to be.
But make sure you find something that you are excited about because then you’ll continue to invest when it’s not so exciting, that you’ll continue to invest that time to get to the next exciting spot. And get with a group of people. That has been the most awesome piece that I ever learned is [inaudible 00:12:39] was an accountability group and I have an awesome accountability group.

Tony:
Yeah, I think surrounding yourself with other like-minded individuals, especially at the beginning of your journey is so, so important because the chances of you having someone in your life, in your close personal circle that’s also investing in small multifamily is probably pretty small for the average person, or that’s flipping or wholesaling or short-term rentals, whatever strategy it is you want to go after, the chances of you having someone is probably pretty small.
So when you can tap into these online communities, whether it’s BiggerPockets, Facebook groups or wherever you want to go, now you’ve got a sounding board, right? Now, you’ve got a group of people that you know who have already achieved what it is that you want to achieve, and that makes the goal seem more realistic to you.

Dayna:
It does.

Tony:
When you can shake hands with someone, when you know someone personally that’s already done it, gives you the confidence that you can do it as well. But Dayna, I want to set the table a little bit. I just want to make sure that I’m understanding the timeline here. So when did you get that first piece of real estate and just kind of walk through the timeline from there.

Dayna:
So I started this all pre-2016. It started with me purchasing my own personal property, kind of lining up like a year and a half before that. I lined up some things was doing with Rich Dad, Poor Dad, and I was able to get into my personal property. And it’s a blessing story along the way too. I refinanced and paid a bunch of things off. Then I came back on 2020 and got a HELOC because now I was ready to buy something. And I didn’t even know I could get this money without learning from my BiggerPockets group.

Tony:
Wait, so what year did you buy the house, the primary residence?

Dayna:
My primary house was bought in 2018. I refinanced in 2019 and paid off everything.

Tony:
And then you did a HELOC in 2020.

Dayna:
Did a HELOC in 2020.

Tony:
Wow, that is crazy. So I just want to pause here for a second just to make sure that our rookies are tracking, right? So you bought this home and within a year you were able to refinance to pull cash out, to pay off whatever it is you need to pay off. And you still had enough equity left in that property so that a year later you could go out and get a HELOC, which I’m assuming you then used to fund your real estate investments.

Dayna:
Correct.

Tony:
God. So guys, you hear people say that your primary home isn’t an investment and for some people maybe it’s not, but look at what Dayna just said. She very much leveraged her primary residence to fuel her real estate investing and I’ve met tons of other investors who have done the cash out refinance, who have done the HELOC to go out there and fund the purchase of their real estate business. So it is possible if you do it the right way. So Dayna, man, I love that. What a crazy three years for you, that was.

Dayna:
Then I turned around and used a small amount of that money to purchase my first triplex and I closed that deal on December 31st, 2021. So that was a triplex, two bedroom, one bath, with people already in it, paying rent. And then four months later, I took the other part of that HELOC and I fell into this duplex that we ended up making a triplex right near La Salle College. It’s a half a block away and it was also two bedroom, one bath and we built in the basement so it was a studio. And closed that in 2022.

Ashley:
So Dayna, let’s start with that triplex and kind of break down the numbers and dig into that. Maybe I’ll throw some rapid fire questions at you and we can kind of go into a deal dive here. But where was this located? Was this in your market? Where was the deal located?

Dayna:
The deal was located in my… My market is my home area, Philadelphia.

Ashley:
What is the purchase price on that property?

Dayna:
The purchase price was 253K.

Ashley:
And how did you finance it?

Dayna:
Regular mortgage in my name with 20% down.

Ashley:
Okay, and then that 20%, was that cash you had saved up or was that from your HELOC?

Dayna:
The cash was from my HELOC.

Ashley:
Okay, and what did you do with the property?

Dayna:
It was already fully rented, so I just did nothing.

Ashley:
Awesome.

Dayna:
I raised the rent. I think I raised it up $100 to get them, because they were below market rent, so they were all seniors in there, so I knew I couldn’t just jump all the way to the top or they wouldn’t be able to afford it. Once again, it was back to affordable housing and I got to really like my tenants. And then every year, I do something for them. So I rehab one area in their apartment and I raise the rent up 100 bucks. So I’m slowly bringing it up, but I’m also bringing my apartment up and they’re taking care of it and they love it.

Ashley:
What a great strategy, and let’s talk about that a little bit more of, you find great tenants and what you’re willing to sacrifice to keep them instead of raising the rent to get that max cashflow that you want, but instead of the longevity of having somebody that’s going to stay for 5, 7, 10 years is worth it rather than having a turnover every single year because you’re trying to really max out, or you get somebody in there who destroys it. So can you tell us how you approach them with this small rent increase and why you decided to actually keep those tenants in place?

Dayna:
Well, how I did it is I decided… After having conversations that I decided what my budget was going to be and there was the three apartments, so I said, “I’ll just invest $10,000 into it. That will be basically 3000 per unit.” And then I divided that in half. I said, “1500 is going to be for labor and whatever I can get done for the other $1,500.”
They were kind of small. So we started in the kitchens. Oh, and these ladies were [inaudible 00:18:07]. We didn’t do a complete remodel. We did a refresh. Some of it was painting the cabinets, replacing oven hoods, adding lighting, adding some extra sockets, painting walls, and one kitchen needed a new floor and we put in new flooring. So it was just little things that just brought into a new kitchen. They were so ecstatic.

Tony:
I was just going to say, right, they’re probably so appreciative of that, right, because whoever this last landlord was just collecting the rent checks and not really worrying about their quality of living.

Dayna:
Correct. Correct.

Tony:
But to your point, if they’re good tenants, you want to try and keep them. Ash, it makes me think for you, right, because obviously you’ve got a lot of long-term rentals as well, and I know some of yours are affordable housing. How do you strike that balance between trying to maximize rents versus maybe keeping them a little bit lower, but having that tenant that you know is going to be a good tenant, how do you strike that balance?

Ashley:
100% would rather get less rent and have a better tenant that is going to stay a long time, not have to deal with the turnover. Even if somebody keeps the apartment in perfect condition, we just had a police officer move out of one of our units. She had only lived there for nine months. She had signed the lease month to month because she was trying to buy a house and she took wonderful care of it. Well, she put holes in the wall and at the time that she moved in, there was a third party property management company managing the property. And they had told her, “When you leave, you have to fill the holes with mud.” Well, she did that. She followed the rules. Well, it has made it worse for our contractor because now he’s trying to sand them down. The paint didn’t match. All this horrible stuff has happened and it was just like, “This was supposed to be the perfect turnover, ready in a day. Here we go, next person in.”
But because there’s always these little things that can come up with any turnover, so I would rather eliminate turnovers and just getting a good tenant in that’s going to stay long and that’s going to not trash the place and that continues to pay. They are worth keeping and not increasing the rent. It was probably like my third rental maybe, and it was the house that I used to live in before we built our house. And Dave had come to me and he was so excited. He was like, “I rented out the house. You don’t have to worry about it. I took care of it, everything. They’re going to pay $700 a month.”
My jaw dropped. I’m like 700, we could get $1000. Utilities are included. And I just was like, “Are you kidding me?” And I was so devastated. That was in 2016 and they are still there. We have not had one turnover in and they take great care of the place. They never need any maintenance done, anything, they take care of it. And so looking back at it now, I would way rather have that than have somebody new in every single year.

Tony:
Yeah, it’s weighing that balance, right? Now, Dayna, I’m curious for you, because you jumped right into multifamily. I think a lot of working investors who are listening feel that maybe they need to start with a single-family residence first, but your first purchase was a triplex. What made you feel that that was the right strategy for you and how did you build that confidence to start with three units from the very beginning?

Dayna:
I think when I was in my reading, I was understanding this concept that you could start single family, but it’s either 100% rented or a 100% empty, and that just weighed in. I said, “Well, that’s not good.” But if you had a multiplex, your vacancy is a lot lower. The chances are them both being empty at the same time are not there. And also, you always have some income coming in. In my area, because Philadelphia is a pretty populated city, duplexes and triplexes are common. They were in the same price as a single-family, small row home. So I was getting more bang for my buck for the amount of money by going into a triplex.

Tony:
Well, let’s talk a little bit about that, Dayna, because you said that they were common in your area, which is the opposite of where I’m at. There’s no small multifamily where I live in California. But how did you come up with your buy box? How did you know what type of multifamily was the right type of multifamily for you, location, size, all those things. What was your buy box? How did you come up with it?

Dayna:
Well, I started with just what my pricing range was. I didn’t have a whole lot of money, so I wanted to put like $50,000, $60,000, my 20% down. So they kind of told me what my range was, 250, 300. So it was enough money for any small row house, but then I saw triplexes and duplexes in the same amount so I just became a little greedy and just said, “Okay, if I could do this, if I could do this and get it, would I be willing to pay a little bit extra?”
Because it wasn’t that much. We’re talking about $10,000 or more to get into a triplex versus a single family home. So I said, “Well, let’s go for the triplex. You want to get there, why not?” Then, there’s three people paying and for sure I won’t have to pay the mortgage because somebody will be there to be able to pay it. And that’s kind of how I got there.

Ashley:
When you were looking at markets and the location of finding multifamily, what were some of the factors you considered? Did you hone in on a specific zip code or area code or neighborhood when you were searching?

Dayna:
I did. So one of the things when they’re teaching you about finding your market, first thing I needed to do is make sure that it was like in 30 minutes of me, because I knew that we were going to have to be hands-on with this. Well, 30 minutes is still inside of the city in Philadelphia, unfortunately, so you can’t get out of Philadelphia in 30 minutes. So it just made sense to find an area that was really close. I didn’t necessarily have a particular neighborhood. There was just some that I was going to stay out of, but I just looked around and then I found some not too far from my house, and I still look around all of Philadelphia, but I just kind of look at my buy box now and what the area in the neighborhood. So Philadelphia is my market.

Tony:
Did you ever look outside of Philadelphia or were you committed to just investing in your backyard, and if so, why?

Dayna:
I have glanced, but I’m not there yet because when I go outside of Philadelphia, the price starts to go up. So I’m just not there yet.

Tony:
Gotcha.

Dayna:
And I want it to be close where I can still have hands on. Since I’m just starting, I just needed it to be close that I can shoot across town if I need to or not, didn’t want to be too far.

Ashley:
Dayna, how many times have you had to shoot across town to take care of your property?

Dayna:
Not very often.

Ashley:
Yeah.

Dayna:
Not very often. I’ve got some good tenants.

Ashley:
Good.

Dayna:
I’ve got some good tenants. Now, they’ve had some issues, but I also learned about my vendors in my boot camp, and I already had that, but I didn’t have everything organized, so they helped me organize that. So I have some vendors that, when they call me and tell me something’s going on, I call them and tell them, “Go check it out. Let me know what we need to do.” They give me the rundown of what we got to do, and most of the time, they can take care of it and it doesn’t require me.

Ashley:
I think that’s a common misconception with a rookie investor is that it’s, you have to invest near you and it’s scarier to invest out of state. But ultimately, most of the time, you are not going to be going to your properties anyways. You’re going to be having a handyman go there. In some circumstances, maybe you’ll go and you’ll assess the situation, but there’s nothing you can do anyways. You have to call the plumber, so you might as well just send the plumber in the first place instead of going there.
One thing is definitely convenient if you do have a turnover, being able to show it yourself, things like that. But the difference between having a property close to you and a property out of state or out of your market that’s farther away, it can be exactly the same as far as finding those people who are boots on the ground. And a lot of times, you don’t even need to go to the property at all. You will learn and realize, and sometimes you just go because you’re curious.

Dayna:
My other two choices that I haven’t… I just look, but I’m not there yet, is in North Carolina around the Charlotte area and Atlanta, Georgia. And that’s because I have some friends and families around that area too that I can kind of… If I need to pop in there, I have a place to land in and some confidence that they could help me in an emergency.

Ashley:
Dayna, when you were searching for properties, what was your buy box? What is your list and has it changed? I mean, the first property you bought was during COVID and after that the market has definitely changed. So could you go through what your buy box is and how you’ve had to maybe pivot or change it since your first investment?

Dayna:
My buy box was small, multifamily, two or three. I figured I could handle that. Somewhere under 300K initially. Now that I have two of those, then I went into, I’m going to call it [inaudible 00:26:50] it’s a transitional house, and that’s something that’s very different and I needed to purchase that, and that’s part of my why. We can get into that in a little bit.
But my box is changing. Now, as I’m getting more confident, I want to go into a bigger unit. I always like to go really small, but sometimes the big things land in my lap. So I say like four to eight units, but I’m looking at a 16. So that’s huge, huge, huge. But it changes when I get to those next levels and the next level gets bigger and bigger.

Tony:
So as you talk about leveling up, have you only used the HELOC as your debt, like 20% down HELOC to fund the purchase or have you evolved into other types of debt and funding as well?

Dayna:
Well, I did use other funding. So the first triplex of course was 20% down, HELOC, my money, and then a regular mortgage in my name. The second unit, I used a hard money loan and I got money back to actually do the remodeling, and then I refinanced that out into a regular mortgage, and that’s under my LLC.
And then the third purchase was really, really creative. Really, really creative. But I got a multifamily, residential commercial home [inaudible 00:28:07] because it’s all of that. It’s a home that’s under residential. It has 13 bedrooms and 13 bathrooms. It is my transitional home. And so that was creatively getting that financed under whatever title somebody wanted to put it under, but we got that and I got that under a 30 year also.

Tony:
Okay. So the second property, the second triplex, that was a rehab project for you?

Dayna:
Yes, it was.

Tony:
Gotcha. Had you ever managed a rehab before that?

Dayna:
Nope.

Tony:
So walk us through it quickly, Dayna, what was that process for you like managing a rehab for the first time? Let’s just start with the first question. How did you come up with your scope of work? How did you identify, here’s what I want to be done inside of this house from a rehab perspective?

Dayna:
Well, let me tell you, at the beginning, I didn’t even know what a scope of work was. So they had to explain all these things to me really quick. I said, “Okay, I can do this.” So basically, I had to list out what I wanted and I had a friend who’s been my main contractor for my house, go through the house with me, tell me what it needs. I’ve been through a lot of projects on my house with him, so I’ve learned how to start picking up some of the things that he needs up front. And we listed it out. I found another contractor group who was local and told him this is what I needed. He needed to start and I needed to start.
And so he agreed for the money I had and said, “This is what I got and this is what needs to be done and can you do it?” And he said, “Yeah, we’ll get it done.” So that’s kind of how we did it and got everything listed that we needed. Unfortunately, here’s one of the failures in that, is that I didn’t realize how much I needed to manage them. So things didn’t get done exactly the way I wanted and things didn’t get completed. So I had to end up letting him go in the midst of it and then rehire somebody else [inaudible 00:29:57] threw me out of budget a little bit and get that done.

Tony:
First, let me say, Dayna, totally normal to have to fire a contract in the middle of a job. I think every real estate investor who’s done enough rehabs has probably done that before. But how did you find that contractor initially, the one that you had to fire, and then how did you find the replacement for that person?

Dayna:
Initially, I found it through a friend who had a friend who was a contractor. So it was just kind of word of mouth and then came over and had him scope out, have a conversation, seemed like we could make it work, had enough connections between the friend that we thought it ought to work.

Tony:
And then the final contractor who finished the job?

Dayna:
I went back to my same guy who does my house.

Tony:
[inaudible 00:30:35].

Dayna:
I said, “You need to finish it for me.”

Tony:
Man, managing a rehab is definitely a big experience, especially when you’re doing three units. I guess what advice would you have to rookies who are looking to start that first rehab project, knowing what you now know?

Dayna:
Make sure you are checking your property at least every other day to make sure that you’re seeing the progress that you want. Also, make sure when they need purchases, that you understand what the purchases are for. Because when you get groups in there, they like to spend money at Home Depot just for everything, but when they walk away, they take everything that you bought. So just managing that and how much stuff you can take back and not let them walk off as you paid for that plus services, plus they took all the supplies.

Ashley:
Yeah. As detailed as you can be into what your agreement, your arrangement is, and I’ve learned that lesson the hard way too. And building out that really detailed scope of work and who’s responsible for what. I mean even delivering the materials, do they have to go and pick up the materials? Who’s paying for the materials? And then I saw someone had posted on Instagram, I can’t remember exactly who it was, but they had posted a scope of work that they were building for a project, and they said, “My first scope of work I ever did, it said new kitchen cabinets, and now it says, demo existing cabinets, new shaker style cabinets. There’s going to be four uppers and five lowers that assemble cabinets attached to the wall. Add hardware onto cabinets, put countertops on.”
It was very, very detailed as to every single thing instead of just installed new cabinets. And then they even said like, “See attached layout for the cabinet design,” and things like that. So you’ll learn more and more as you go on, and unfortunately, you’ll pay for that learning experience in mistakes. But definitely follow other investors that are doing rehabs, watch their Instagram stories. So many people share just their project management screens as to, here’s the things that I’m doing, here’s what my scope of work looks like, here’s the checklist that I’m using.
And I have found that to be a great resource along with even signing up for different softwares. So different softwares will send out newsletters. They spend so much money in research where these newsletters will give you like, here’s our checklist for doing a rehab. Here’s our checklist for a turnover. Here’s our checklist for a lease agreement. The property management software companies do really, really great newsletters with a ton of these checklists and information and things to help with your systems and processes too.

Dayna:
Yep, I agree.

Ashley:
Before we wrap up here, you did touch on the transitional housing and I’m very, very curious as to what that is, if you could describe that more for me, please.

Dayna:
So the transitional housing, like I said, it was a box building. We’re not sure-

Ashley:
What do you mean, it’s a box building?

Dayna:
It looks like a house, but it’s a real huge building. So like I said, it’s 13 bedrooms and 13 en-suite bathrooms.

Ashley:
Wow.

Tony:
It’s almost like a hotel.

Ashley:
Or like a boarding house.

Dayna:
It looks like that and it had been used for a boarding house at one time. But I didn’t want to buy it as a boarding house because those are hard to get licensed. So I couldn’t buy a boarding house. I had to buy a residential house and it couldn’t be commercial. So it was really interesting how we were going to use this. So based on how we were going to use it, that it was going to be for a foundation I’ve called Envision Success.
It was going to be a program house. So it’s still under residential, but it’s kind of used commercial where this is going to take in transient young people, 18 to 24, who have aged out of foster care or the juvenile system, something like that, out of DHS, but need a little bit more support while they’re trying to get on their feet to get their own housing.

Ashley:
Wow, that is super cool. How did you even find out about an organization that you could work with to do this?

Dayna:
Two things. One, it’s my organization. And two, the teens would age out of my care at 16, 17, hitting the streets. And they’re just kind of so tired of the DHS. I call it the ankle bracelet. They’re just so tired of one more social worker, one more case worker, one more house to go to. And they would just hit the streets unprepared. And then at 18 when there was no more funding, they would like… We don’t have any way of getting help. And so there was an act that was done about five or six years ago that allowed funding between 18 and 24 if they come back to DHS. So now they had to find housing for these people and couldn’t find it. Well, now we’re here.

Ashley:
So now your organization connects with the funding and now you’re trying to purchase this property. So how did you end up to get the finance for this?

Dayna:
We got it as a residential home, not commercial, and we went through several different people that I’ve found on BiggerPockets.

Ashley:
Wow.

Dayna:
Different brokers. Some tried this, some tried that. Somebody else in the back pocket could do this, and we got it together and it closed September 25th, 2023.

Ashley:
Wow. Congratulations.

Tony:
Congratulations [inaudible 00:35:54]. Dayna, I think you illustrate something that we’ve talked a lot about here on the Ricky Show is that oftentimes new investors make the mistake of going to a bank, going to a lender and saying, “Hey, I need a 20% down loan to buy this thing,” which isn’t the correct approach. The correct approach is to say, “Hey, I’ve got this property. It’s 13 bedrooms, 13 en-suite bathrooms. What’s the best loan product for me to buy this property?”
Because your goal isn’t to pay 20% down. Your goal is to get the best loan product for that property. So it sounds like you went to all these different lenders, brokers, banks, et cetera, explaining your situation, and then they were able to give you the best loan product for you. So I just want to get a little bit of clarity on the loan product, Dayna. So what was the down payment?

Dayna:
It was still 20%.

Tony:
20% down. And it was a 30 year loan?

Dayna:
Yes, under my LLC.

Tony:
Under your LLC. Interesting.

Dayna:
Yeah.

Ashley:
What was your interest rate?

Dayna:
8.6.

Tony:
That’s actually not bad. 2023, on a commercial loan. My last short-term rental I bought was at like 8.7 on a single family that was under our LLC as well. So the debt is under your LLC, so it’s not even going against you. Did they look at this as like an income generating property or how did you get qualified for it? Are they looking at the potential rents to underwrite it that way?

Dayna:
It was confusing, yes. In the long term, yes, they did look at that, but it took a lot of convincing. Everybody had to see the vision, and when they saw the vision, people started jumping on it. But I will tell you from the beginning that banks aren’t the number one place to go for your funding. I found that through BiggerPockets, if you work with one of your brokers, someone’s going to give you a bigger picture of how to do it.
I do get some things through banks, but it didn’t come I walked into the door of the bank. It came from my broker that says, “Try this particular bank because we have this relationship and they do things this way.” Not for me walking in the door saying, “Hey, I want to apply for a loan for a house today.”

Ashley:
That’s almost like an insurance broker. Instead of going to a State Farm agent, you go to insurance broker who can shop your insurance out to multiple different companies. Yeah, that’s a great advice for doing that for your mortgage too. Dayna, let’s talk about the numbers on this building. What was the purchase price?

Dayna:
Let me tell you the first, it’s real interesting. The listing price was 575, too high for this neighborhood. Way too high for the neighborhood. Couldn’t figure out why, but after negotiating, we got it down to where I was willing to get it at 395.

Ashley:
Oh my God.

Tony:
Whoa.

Ashley:
You’re a great negotiator.

Dayna:
Yeah, yes.

Tony:
Yeah, I want you on every deal that I’ve got moving forward, Dayna. I’m not buying a single deal until I run it past you first.

Dayna:
Yeah, yeah. And then we put 20% down, and then it just seemed like there were blessings along the way. Wanted to get it down there [inaudible 00:38:44] then we had to come up with almost a 100K. And my first silent partner is my mom, and she invested with me.

Ashley:
Shout out to mom.

Dayna:
Shout outs to mom. Yeah. And so we came up with the money together, and then it seemed like when we struggled to get all this money together, we had it, but then different things came back and we ended up getting refunds back. They didn’t need this amount of money, didn’t need this amount of money. So it was actually a blessing on how we got it.
But we got into it for 395, 20% down, and yeah, the building is ours. And we’ve got a decent mortgage on it, and we have 13 rooms to use. We’re going to start off with just 10 initially because we’re going to use one as an office, and then two in the basement needs some work on their emergency egresses before we can use those. But for right now, we have 10. 10’s plenty.

Tony:
Yeah, 10’s a lot. But Dayna, I’m sure the question that’s on everyone’s mind right now is how the heck did you negotiate almost a $200,000 discount? What did that conversation look like? What’s your advice for the rookies that are listening?

Dayna:
I think, I’m not sure of the grades. They talked about different neighborhoods being A, B, C, and D grades. So mine would’ve been in a D area if there was, or E. The price was way too high for that. Okay? It’s next to a house that might be 100K. It just doesn’t work that way. There was nothing else comparable like that in the area. So I did know my comps for that. Then, the fact that nobody in this particular area… Well, when I was trying to finance it, it’s not going to be an Airbnb. It’s not going to be a vacation home because this is not the area those people were coming for vacationing. Not at all. So there was no one coming for this.
So if you want me, these are the things. And I walked through all the things that were wrong with it. One, that it needed the HVAC to be fixed. It had a fire in it. Their windows were boarded up. There was no emergency exits. There were a lot of things. So I said before I could even look at it, some of these had to be taken care of. So he was taking care and said, “Well, how about we just wheel and deal and go down?”
My number was like around 425, but he had already dropped it down to 495 without me getting there, so that if you take it for 495. And so then I started giving him my long list of stuff, and then I just said I would do 380. And that’s my magic number. That’s where I came up my house. I just picked 380 because I know he was going to work me up. And he said 395 is where he could go. And I said, “Okay.”

Tony:
So Dayna, two super important points to call out there. So first, the listing price is just a suggestion.

Dayna:
Correct.

Tony:
And just because someone lists something for a certain number doesn’t necessarily mean that either, A, it’s actually worth that or B, that that’s the only number that they’re willing to take. And you don’t know what they’re actually willing to take until you start talking with them. Every property has a number where it works, and it’s up to you to try and figure out where that number is, and then to communicate to the seller why the number they have doesn’t make sense and why the number you have does make sense. So kudos to you for sticking to your guns and not, I guess, giving up just because the number was so far off from what you wanted, right? We’re talking a $200,000 difference almost. It’s a big difference.
A lot of investors would have just… They wouldn’t even have looked at that deal because it was so far off from where they needed. So kudos to you for doing that. And then second, I would assume that part of the reason that that seller was maybe so flexible was because of where we’re at in the market cycle right now. With interest rates in the eights, right, like what you got on this property, there’s less buyers out there right now.

Dayna:
Correct.

Tony:
So the seller probably knows that. So it makes them a little bit more willing to sell this property to you. So even though you’re buying this at an eight, Fed just said yesterday, I saw a bunch of stuff floating around the internet, that they’re going to start doing rate cuts again next year, right? So imagine what happens if you can take this 8% interest rate and you refinance down to a six. How much more juicy does that cash flow get?

Dayna:
Right.

Tony:
So for all of our rookies that are sitting on the sidelines waiting for that perfect moment, don’t do that. Do what Dayna did. Go out there, hustle, find that right, deal, negotiate. And if it cash flows at an 8%, imagine what it’ll do at a 6%.

Ashley:
I think that’s a common misconception of what you explained right there, Tony, as to now can be a great time to buy because you’re getting stuff at a better price, and you can always go and refinance later. I was at a kid’s birthday party on Sunday, and there was a mom talking about how they wanted to buy a house, but it made her sick to her stomach about the interest rates. And she just could not pay the interest rates, and they were going to wait until they were lower.
But what that means is you’re going to pay a higher price later on, even though you’re getting that lower rate, where someone could buy it now for a lower price and then go and refinance when the rates do drop. So I think that’s a huge misconception that people don’t understand, and they’re not doing the math on it, I guess. And I mean, you are taking a chance. There is the chance that interest rates just continue to go up and up and up, but hopefully you bought the property, that it is cash flowing and it’s a deal as it is. So if rates do drop, it just becomes a juicier deal, and that’s more fat on the steak for you.

Tony:
And say, the rates do go up, say rates go to 10%, now you’re going to be kicking yourself that you’re paying 10 instead of paying eight. So it’s like either way, if the deal makes sense today, you should move forward with it.

Ashley:
You know what, one more rant on that, Tony, real quick. As I was listening to a podcast today, this morning, taking the kids to school, and it was talking about sub to and how there was somebody who went and purchased a property for 850,000, and they were so caught up on the fact that they were getting it sub to, where they were getting this low mortgage payment, this low interest rate, and they were so excited that they paid the 850, what that person wanted.
The same day they closed, a house next door to them, which was a comparable property right next door, sold for 650,000. That’s a 200,000 difference that they overpaid for their property just to get that sub to financing. So I feel like it gives you something to really think about as to, are you really overpaying? I mean, you’re going to owe 850,000 on that property until you pay it off, where if you get it for 650, and even though you have an interest rate, it’s still less that you have to pay on the property or have to owe on the property. Okay, I’m done with my rant. Back to you Dayna.

Tony:
We need a new segment. We got to call it the Rookie Rant, and then Ashley, you can just go off the rails for a few minutes at a time.

Ashley:
Okay. So Dayna, to kind wrap this up, what are you going to be cash flowing on this property? What is this grant going to be paying per a bed for this property?

Dayna:
Oh, boy. Okay. Numbers here. Okay, well, so to make the numbers easy, we’ll just stick with the number 10. Basically, right now we can command for… We’re just opening it up actually this month. So the rents will command… The money for the program will command anywhere between $2,200 and $2500 per room.

Tony:
Wow.

Dayna:
And that’s because there’s a service that comes with the place.

Ashley:
Okay, I’m not even doing math in my head, but I’m thinking, “Okay, you got the property for 395. You’re getting $2,500 a month-

Dayna:
[inaudible 00:46:07].

Ashley:
… times 10.”

Tony:
Per room.

Dayna:
Per room, yes. And then my mortgage right now, currently for that is 2790, I believe. 2790.

Tony:
What the heck?

Ashley:
So almost one room will cover your mortgage payment, and then you’re most likely paying utilities for the property.

Dayna:
Right.

Ashley:
Yeah.

Dayna:
So there’s a couple of things going on in there. There’s a little split between businesses there. So for my part, for the real estate, I’m renting it to the program for 4,500, and then the program will do their existing part of that, and they have expenses. But to pay to my real estate side, they’re paying $4,500.

Tony:
Yeah. But you own the program as well, right?

Dayna:
I’m a part of the program. I don’t own it. It’s a nonprofit. So I’m a part of the program, yes.

Tony:
But it just goes to show, right? Like, man, when you find the right deal, you’re talking a 395 purchase price and you’re renting out each room for almost what your mortgage is, and there’s 10 of those rooms. That’s a pretty good spread.

Dayna:
Yes.

Tony:
It reminds me of, we had an episode a while back with DeVonna Reed and her and husband focused on sober living facilities. And same, she would go out and buy a single family home, five bedrooms, and she was renting out by the bed. Not even by the room, but by the bed, and that allowed her to really juice her returns. And that was episode 265 if our rookies want to go back and listen to it. But Dayna, I’m sure everyone listening to this episode right now is on Zillow, on Redfin searching for boarding homes for sale in Philadelphia to see if we can do the same strategy. And just quick tidbit, there is one for sale right now. I just searched boarding on Zillow.

Dayna:
Of course you did.

Tony:
And there’s one for sale right now, $350,000. And it’s got six bedrooms, 3000 square feet, commercial kitchen so there you go, guys. When this episode comes out, go check that one out.

Ashley:
The next question to follow up to that is Dayna, does your organization go nationwide, do you help connect all the dots to provide for this?

Dayna:
We are planning for that. So it’s also pretty young too. So we are planning. We’re just starting in our backyard and then those cities where we have connections. But yes, that will go also. So it’s kind of a takeoff. It’s going to take more than just me to do all of that, but that is the plan. But the next thing is, like Tony has said, is that I want to get another building for my senior home. That’s the same thing, the same concept.
And then the final one would be for, it’s called a forever home, because I also have special needs kids that come through foster care and sometimes as I’m getting older, my kids don’t want to always take on the burden of the kids, but they don’t want to see them go into foster care or some other type of care. So providing a forever home for the kids will be my final goal.

Ashley:
Well, Dayna, what an exciting way to wrap up this show here. Helping people, providing a service to your community, and also cash flowing-

Dayna:
Yes. Yes.

Ashley:
… a great amount. Yeah. Well, Dayna, thank you so much for joining us on this week’s Real Estate Rookie podcast. We really enjoyed having you on and learning from your story, and thank you so much for providing such incredible information for us and our listeners.

Dayna:
Thank you.

Ashley:
If you want to connect with Tony or I, you can find our social media handles below in the description. And if you want to learn more about Dayna or connect with her, you can also find that information there. I’m Ashley and he is Tony. And thank you for listening to this week’s Real Estate Rookie. If you haven’t already, join us on Facebook in the Real Estate Rookie Facebook group. (singing).

David:
This is the BiggerPockets Podcast Show 869. What’s going on everyone? This is David, your host of the BiggerPockets Real Estate Podcast. Joined today by the Quaff Crusader himself, Rob Abasolo. Rob, how are you today?

Rob:
Fantastic, man. I’m really excited to get into today’s show. We’re calling it “Why Buying Season is Now.” And I think we’ll really dissect some of the psychology and some of the watchouts and some of the things you should keep in mind if you want to buy a property today. We’re speaking with Caeli Ridge, who’s a nationwide lender, who specializes in lending to investors. We’re also talking to our good friend, Avery Carl. She’s a friend of the show. She’s a real estate agent who specializes in working with investors. Who would’ve thought?

David:
We’re going to be talking about seasonal strategies, if now is a better time to buy than waiting until spring when all of the other investors tend to hit the market and we see blood in the water.

Rob:
Before we jump into it, I did want to mention that if you’re looking for a lender or agent, we actually have a matchmaking service that you as investors can use to find investor-friendly agents and now lenders. We’ve already done the hard work of finding qualified agents and lenders, so you don’t have to worry about that side of it. All you have to do is the fun part of taking action and making deals happen. So if you’re interested in that, head on over to biggerpockets.com/agentfinder and biggerpockets.com/lenderfinder today. After we speak to Caeli and Avery, stick around for a special Seeing Green segment where we answer a listener question about buying in a hot market.

David:
Avery, Caeli, welcome to the BiggerPockets Podcast. Caeli, let’s start with you. How many markets are you currently in as a lender?

Caeli:
We are in 48 markets, David. We are in all but New York and North Dakota currently.

David:
Okay. And Avery, how many markets are you in as an agent?

Avery:
20.

David:
Okay. What markets do you two see are most active for real estate investors right now?

Avery:
I’ll go first. So we see right now our most active markets being our lowest price point markets. Typically, we see that because the difference in interest rate is a lot smaller on a $250,000 property than on a $1.2 million property in terms of getting into it. So we’re seeing our lower budget markets be a little more active than our higher ones.

Caeli:
I would say I’ve got maybe a slightly different lens coming from a lender perspective. And I think it’s going to largely depend on the individual investor’s core strategy. So short-term rental might, for example, be Florida. Florida’s laws are a little bit more lenient for short-term rental. The longer term rental, if the cash flow is the primary objective versus appreciation, they’re probably going to be in a landlocked state versus the sun belt states for that. So I think really, David, the answer for me is going to be most of them depending on what their individual strategies are and within the diversification that they’re going after.

Rob:
Sure. I have a follow-up question for you, Avery, because you mentioned some of the lower price point markets are where there’s a bit more activity. Can you give us a few examples of some of those markets?

Avery:
Yeah, So Branson super active right now, Myrtle Beach, and the Western North Carolina Mountains.

Rob:
Now I know both of you work with mainly investors, so I’ll start with you, Avery. What are you seeing from an investor’s sentiment at the moment?

Avery:
We’re seeing a lot of, “Well, let me wait and see.” So I think there’s a lot of people on the sidelines that are ready to buy, that maybe have come into our system and have been kicking around talking with our agents and things, but not pulling the trigger because they just are waiting to see what interest rates do, or really anything to shake loose, whether it’s interest rates coming down some or prices coming down some.

Rob:
Do you think if interest rates dropped, let’s say, 1% tomorrow, that would completely change the outlook or do you feel like investors at the moment are still a little bit scarred from the past year?

Avery:
It’s difficult to say. I think it would definitely make a big difference because something like 91% of mortgages right now, at least according to Redfin, are under the 6% marks. So as we’re recording this, they’re right around a little over 6.5%, like 6.4% I think was the last that I saw today. So we’re getting closer to sellers wanting to make some moves, but right now there’s just not really any inventory because when sellers list their properties, they then turn around and become buyers usually. So a seller doesn’t want to list a property when they have an under 6% mortgage to then jump to being a buyer at 8%. So it just doesn’t make sense. So I think if they went down a percentage point at this point, we would see some things start to move.

Rob:
Interesting. Yeah. So we’re a bit of a stalemate because you sell your property, where are you going to go? You’re going to then turn around and effectively have to buy a cheaper property at a higher price point to get something similar, is what I’m hearing. Caeli, what about you? What investor sentiment are you seeing right now?

Caeli:
Well, if I might, Rob, if it’s okay, just to interject, that when we talk about interest rates, and I spend a lot of time obviously talking about interest rates. In fact, that’s usually investors’ first question, “Where are the interest rates?” And I feel like there’s a real psychology attached to rates as it relates to real estate investing, and I know that it’s going to be far different if it’s their owner occupied, but we’re here to talk about investors. And the psychology is that they aren’t doing the math and they just hear the numbers and they’re listening to the soundbites on whatever their predilection for Fox or CNN or wherever they’re getting their information.
And if they were to take the time and do the math, I’m always trying to educate our investors to say, “Listen, the difference in an eighth or a quarter or a half or a full percentage point in rate, depending specifically on the loan size, might only be 50 bucks a month.” So just make sure you’re doing that math. It’s so, so important than just to be on the sidelines listening. But to answer your question specifically, Rob, I would say that, sentiment, investor sentiment, I think that I would differentiate two buckets here. I would say brand new investors are going to be more tentative in that higher rate environment and investors that invest and have been investing, they understand that the market is cyclical and rates will change and price points will change, and then they change their strategy accordingly, they’re going to figure it out.

Rob:
Yeah. Do you feel like investors right now in the market are actively looking for deals and transacting on them?

Caeli:
Absolutely. Honestly, our volume, well, yes, for sure there has been between 2023 and let’s compare it to 21, for example. Certainly there has been a dip in activity in acquisition and refinance, but I wouldn’t say that for us it’s as much as maybe owner-occupied transactions. Like I said, investors are looking at it from so many different facets, and if they’re doing it right and looking at it holistically, they’re not just looking at an interest rate of 8% and cashflow has to be three, four, $500. They’ve reset their expectations. They’re looking at short-term or two to four units. Maybe they’re looking at being private note holders, private lenders. The investor that has been investing or has been educating themselves is making their way through.

Rob:
Avery, do you have similar thoughts or sentiments on that?

Avery:
Yeah, yeah. So I do think that the people that we’re seeing transacting right now are typically going to be the more experienced investors. And I think that we are seeing a lot of people still have, being a little traumatized from 2021 and ’22. So I think one of our biggest coaching points for our clients right now is saying, “Just make an offer that works for you. Just offer at the number that works for you.” Because people are still feeling the pain of 2021 and ’22, where you had to offer asking price, you had to offer over-asking price. So what they’re doing is they’re just swiping left on all these properties because the asking price doesn’t work. And we’re like, “No, no, wait a minute. You can offer low. Offer as low as you want to go. You do not have a lot of competition right now. Let’s see what happens here.” And we are seeing people get some really good deals that way.

David:
Avery, as a real estate agent, when do you tend to see more listings hit the market?

Avery:
We usually see more listings start to hit the market in January. So March is when you really start seeing a lot more closings. As you know, David, with your team, January and February will be a little slow on the closing side, but March is when things really start to pop closings-wise, which means all the movement is starting to happen in January. A lot of people hold off during the holidays ’cause they’ve got a lot to think about with family and gifts and getting through all that. And then they start to either look for properties or list their properties after they get over the big headache of the holidays. So I think, at least with our clients, we are really trying to encourage our past clients to list right now if they have any interest in 1031 exchanging or trading up. We’re trying to get them to do that now because a lot of the analysts predicted that we wouldn’t see the interest rates that we’re seeing now until the end of next year.
And we’ve had a really good several week run of interest rates dropping sharply. And I think that if that continues, of course I’m not an economist and I can’t predict the future, but I think it’s probably going to continue on a downward trend, who knows how quickly, but to be prepared for this, we have a surge of buyers every January, just that’s how the cycle of the market works every year. So that coupled with this interest rates coming down faster than we initially thought, I think is going to be even a bigger spring than what we’re typically used to because there’s just so much pent up demand in the market right now.

David:
What are you seeing, Caeli?

Caeli:
I think Avery is right, and I think that myself included in the data, and I’m looking at this all day long, I don’t know that I would have predicted that, and I won’t get too technical, that the PCE that came out on November 30th would have promoted the rate reductions that we’ve seen for the last couple of weeks. So we are pleasantly surprised, I think, as a result of that inflationary metric. PCE, for those of you that are not familiar, personal consumption expenditures, that’s the one that the Fed Reserve focuses on most.
It came in favorable for inflation is on the run, rates are going to start coming down. The bad news is that rates fall a lot slower than they go up. So maybe we did get to see some boon or an incentive here as a result. I don’t know that I would say that I’m going to see them falling off a cliff, but I do think that that trajectory is on the lower slant. But remember, I said earlier, an eighth of a point or a quarter of a percentage point on $150,000 is 10 bucks. So put it into perspective and one more time for posterity, do the math.

David:
All right, so we’ve reviewed some cautious investors sentiment out there and some potential good news with future rates. We’re going to get into what that might actually look like in 2024 right after this break.

Rob:
We’re here with Avery Carl and Caeli Ridge to get both the agent and the lender perspective on if now is a good time to buy and what we expect to see play out in the 2024 market. It’s a very interesting psychology that y’all are both nailing both sides of it, which in my mind what I always see is, when interest rates are low, everyone is buying, everyone is putting in offers over asking, and thus everyone is discouraged and they don’t want to get in because competitive. And then now interest rates are high and competition is low, and those same people are complaining about interest rates being too high. So it’s always funny that there’s this flip flopping. And if you go back to the math and you math it out, yeah, it’s like it could be 10 bucks, it can be 50 bucks.
I feel like probably where a lot of the, I don’t know, some of the fear that’s coming in, Caeli, is that a lot of it comes from one eighth doesn’t make a big difference, but over the past year we’ve seen it go up quite a bit and so I think people are used to rates being in the threes or the fours and now the fact that they’ve doubled does have a pretty significant impact and I feel like we have to see those rates continue to come down before people are comfortable entering the market again, or I would say the masses.

Caeli:
Okay. And I don’t disagree, Rob, but here’s what I would say, a couple things. First, people have short memories. I’m in that grouping, okay? I can call myself out on that. The average interest rate and investors didn’t just start investing in 2021, ’22, ’20, right? That’s not when this happened. When rates were low, we got an amazing opportunity to get some great cash flow, but prior to that, the average thirty-year fixed mortgage rate is in the high sixes, historical average. So we have that. And then let’s not forget that as we move forward, and in talking about diversification and investors, looking at their portfolio, if they’re smart, they do have some diversification in their core, they’re going to have their core philosophies, but then layering in some other forms of real estate investing because the markets are cyclical and because they’re going to change is going to be very, very important.
And going back to, I know I’m beating a dead horse with the math of all of this, but remember if they’re doing it correctly, they’re not only looking at it from the monthly or annual return, what about everything else? All the other very tangible benefits of real estate investing, you’ve got your tax benefits if you’re doing that right, that should offset quite a bit of the interest rate because remember, at a higher interest rate, what happens to the interest deduction that you’re taking on your Schedule E? It’s going to be a lot higher than if it were a 4% rate versus a 6% or 7% rate. Appreciating rents, et cetera, et cetera.

Rob:
I guess with that, I’d like to turn it back to you, Avery, because obviously lots of changes happening, lots of sentiment from differing groups of people. And by the way, Caeli, I do agree, I do think our memory is short, but there is such a large group of people that broke in 2020 and 2021, they do remember the 2.75% and the 3.25%. It’s hard to forget. So with that said, Avery, as we move into Q1, tell us a little bit about what you’re seeing inventory wise and how are things sitting on the market at the moment?

Avery:
So I’ve been jokingly calling this year the great stalemate because buyers aren’t buying as much because interest rates are almost double what they were a year ago, and sellers are not listing because they don’t want to turn around and be buyers in a high interest rate environment. So what we’re seeing is incredibly low inventory. I think what a lot of people don’t realize is that, they keeps saying, “Oh, I’m waiting for the crash. I’m waiting for the crash.” It happened. It happened right underneath everybody’s noses, less houses were sold, fewer houses were sold in 2023 than in the past 15 years. Nothing has been sold this year. So as interest rates go down, I think that sellers are acutely aware people who might need to list, who are ready to trade up, get into other markets, other asset classes, things like that.
They’re really, really paying attention to the media and this interest rate news. It’s almost more important what the media says about it than what’s actually happening in terms of buyer and seller psychology. But I think as things continue to take down, assuming that they will, again, nobody knows the future. I’m not trying to instill any FOMO here. But I think as rates continue to take downward, we’re going to see sellers start listing and it’s going to be back to multiple offers again because again, there’s so much pent up demand that at least temporarily things are going to be really, really crazy. Maybe not 2021 crazy, but it is going to go back to a multiple offer situation until things even out a little bit.

Rob:
Yeah, it’s pretty interesting how some of these changes are pretty fast. I have a house listed in Houston and the moment that they announced that they were dropping interest rates, they did go down a little bit and my realtor was basically like, “Man, it was instant here.” And the amount of calls I got on this property just from the announcement, from investors really who are like, “Oh, rates are moving down, jumping in on it.” Clearly that’s anecdotal, but I’ve spoken to a few people who feel like, yeah, as rates go down, desire and demand go up.

David:
There’s a pattern there that you can recognize when it comes to real estate investing and it tends to be that the crowd moves as a flock of birds. I’ve always been of the opinion that buyers drive markets. What the buyers are doing depends what type of market that you’re getting. Sellers will typically be reacting to whatever buyers are doing, and buyers tend to move as one big flock. When rates go down, when you hear about other people buying houses and everyone thinks, “Okay, I need to get in there and buy a house.” And when nobody else is buying, it’s very easy to pull back and say, “Okay, I don’t want to buy because nobody else is buying.”
There’s this feeling of security that you get from following the crowd, which is how the normal casual investor is going to make their decisions. But when we interview people on this podcast and we talk to people that own real estate, they’re almost always contrarians. They bought when other people were not buying and maybe they sold when everybody else was buying. You see some of that. What’s your thoughts ladies on if people should be moving against the crowd or if it’s wiser to follow the crowd?

Caeli:
I would say that against largely is going to be more to their advantage more often than not. And not just for those two perspectives, David, but I get to see, because we’re licensed in forty-eight states, I do get to see the trends and there’s a lot of activity in this particular market, for example. As an investor, well, if there’s an opportunity there and the deal works, it works, but I may focus my sights on a place that has equal returns or better because I’m actually doing the legwork and the due diligence and the math, but I’m not oversaturated with competition in offers and I’m sure Avery’s got some insight about that too. So I would say that I would be going against the flock.

Avery:
I would say it really just depends on, the favorite phrase in real estate investing is, “It depends.” It depends on what each individual investor is looking for and needs. So I’ve seen great deals happen in environments where everything’s getting a thousand offers. I’ve seen great deals happen when there’s not a lot of activity going on in the market. So it really just depends on you as the investor and you just keeping on putting one foot in front of the other and keeping following that thread to find the deals because I think it’s when people just stop and say, “I am going to wait and not do this right now”, that they might’ve been one step away from actually getting that deal. And that can happen in any market. It’s just the key is just to keep going.

Rob:
Yeah, it feels like in general the crowd is always a little delayed. If you’re following the flock, the flock is usually following the front runner. So it makes sense that you probably don’t want to be with the crowd, but I do think it’s not the worst idea to stay a little cautious right now. I’m not waiting things out per se. I’m trying to get better deals, a little bit more scrutinizing the types of deals I was taking on two years ago. But with all that said, Avery, I mean we talked about the competition side of it. Do you think it’s a competitive, I know overall we said competition is low, but for investors, do you feel like the competition has leveled out? Because the way I’ve experienced this is people who are really serious about real estate and have been seasoned veteran investors didn’t really slow down too much over the last year.

Avery:
Yeah, I’d agree with that. The ones who are seasoned and understand what they need out of a deal and that it’s not their first one, I think are definitely have been keeping a more steady pace over the last year than some other ones. I mean, I know myself, we’ve bought significantly fewer deals this year than in previous years, and it’s not because what’s out there doesn’t make sense, it’s ’cause there’s nothing out there. There’s 10 deals on the market, in the market that we buy in and nothing has hit the market in two months. And I’m checking every day and waiting for something to come on that fits our buy box, and it’s just that there’s so little inventory coming on. So I think that the experienced investors are keeping going, but again, it’s still an inventory issue at this point.

David:
What do you guys think about springtime? Do you think that you’re going to see more houses hitting the market? Do you think you’re going to see more buyers coming back in?

Caeli:
I think naturally spring is where we start to see things pick up high rate, low rate, whatever particular lending environments. I think spring is always going to be where things start to catch a little bit of steam. Avery, wouldn’t you agree?

Avery:
I agree. March is always one of our biggest months. So March is typically the month where we see the most closings, and that’s every year. Every year spring is a great time to sell because things pick back up after the holidays like we talked about earlier. So I think we have a little bit of a unique situation and a perfect storm coming into this spring in that we’ve had very, very, very negative rhetoric in the media about interest rates and the economy and the Fed. I’m so tired of hearing the Fed, as I’m sure everyone is. And just now,, right before the spring listing season starts, we get the first kind of good news that we’ve had in a while, the first dovish meeting from Jerome Powell.
It’s, I think, going to accelerate that typical cyclical thing where we see a lot more houses come on the market in the springtime, so I think that, plus positive rhetoric in the media, which again I think is sometimes more important for just the psychology of the masses than what the actual rates are. Plus as those people start to list because of this psychology going on and the actual rates being lower, I think that we’re going to have a bigger spring than what we’re usually used to seeing.

David:
Yeah, I can see that happening. I think as odd as this sounds for every year that I’ve been in real estate, and you notice it more when you’re an agent, people always underestimate how powerful the seasonal changes are. It’s always like, oh, the market’s so slow, I don’t know how we’re going to get by. And then springtime hits and escrows go through the roof and there’s so much demand and all this product hits the market and it gets snatched up and it turns into a feeding frenzy and people go, “Oh my God, the market’s back.” As if we can’t expect that to happen. I feel like it’s always more significant than we expect it to be, even though we know this is going to be the case.

Rob:
All right. We expect to see a surge of supply and demand in the spring, but what are we going to see with mortgage rates and prices? What guidance are these experts giving their clients? We’ll hear from Caeli and Avery on all of that after a quick break.

David:
Caeli, what do you expect to see for mortgage rates in 2024? Do you think that investors should be holding out, waiting for rates to drop to jump in, or do you think that rates are going to stay steady?

Caeli:
I think that depending on the individual investment, there may be reasons to pause, but 9.9 times out of 10, no. I think that loan size is going to dictate the final answer to that. But as I keep repeating, the difference in payment between 6.75 today and 6.5 or 6.25 and six months or eight months or 10 months, whatever, is negligible and it should not preclude someone from taking advantage of the opportunity today and the inventory today and all the other benefits that the asset’s going to produce.
So no. In terms of where rates are going to go, I am like-kind in the opinion that I think that they’re on the run. They will come down slower than we see them go up as just historically what happens to interest rates. But guys, rates are fluid, rates are not a straight line. They’re going to go up, they’re going to come down and I really try to do my work and job to educate investors that you need the rate to work the deal, but stop fixating on the rate. The rate is not as relevant as so many other variables of vetting the transaction.

David:
So let me run a hypothetical situation by you two. Let’s say that springtime comes and rates come down at the same time. That is going to make investors feel much better about buying. Most people that are listening to this or waiting for some scenario like that before they jump in, what can we expect to see prices do if that does happen?

Avery:
I think in the short term they are going to go up. As things even out once we get more of an equilibrium with inventory in the market, I think that that will even out too. But I think in the short term, I’m not sure how long, I mean, by the short term, but I think they will go up at least for a while.

Caeli:
And in the meantime, I would just offer as an extra to that, whether it’s now and they’re taking advantage of whatever opportunities are available to them today versus in March or later in the year, they need to be ready, they need to be prepared. And if they just make a decision in March, “Oh, I’m going to get in now,” and they’re not ready, they don’t have their capital ready, their credit is maybe there’s some X, Y or Z that needs to be looked at or fixed, whatever it may be. If they’re not prepared, then they will, they’re going to be trailing, especially if we all agree that March is going to be bigger than I think the last year’s March in particular is because the deeper psychology from March of ’23 versus what I think we’re going to get in ’24 because of the new language about rates. So if you’re not ready, you’re going to be at a huge disadvantage.

David:
So we all agree that there is a potential that kind of the stalemate that we’re in right now that higher than previous rates and lack of inventory has created this pressure where there is significant demand, but there’s also low supply, and rates are staying steady, but it doesn’t feel like it’s because of lack of interest. It feels like there’s very difficult market forces that are pushing together. With that in mind, how are you advising clients to buy? The people that are buying right now, should they be thinking of having multiple exit strategies? Are there certain areas that you feel like are primed to explode or going to be better positioned for investors to be in than others right now, Avery?

Avery:
So again, I think that’s dependent on what the individual investor is looking at. We keep telling our clients like, “Hey, offer low. Just come in low, come in where you think it makes sense and let’s see what kind of a deal we can get you here on the purchase price.” But I want to be careful before I say this next thing ’cause I know a lot of agents have been saying all year, “Marry the house, date the rate,” and I hate that. I think that encourages people to invest irresponsibly.
So I think what people need to do in order to make sure that they don’t over-leverage themselves in that way is make sure that the numbers work at the interest rate you’re able to get it for now. Let’s beat them up on the price as much as we can. Make sure they work at what you’re able to get now interest rate wise and then later if and when rates come down, which could be next month, it could be 10 years from now, but if and when that happens, then any refinance room that you find to refinance into a lower rate is just extra. So make sure that, that refinance part is extra and not necessary when you’re investing right now.

David:
Do either of you have a market or several markets in mind where you think that we’re likely to see rents go up more than the surrounding areas or values go up faster? What are your thoughts on that?

Caeli:
I will just offer that for rents going up. I don’t know that, I think, Avery, you can handle that, but in terms of home prices, et cetera, generally speaking, historically speaking, the sun belt states are going to offer. There’s exceptions to every rule. But the higher the appreciation, the lower the cash flow, higher the cash flow, the lower the appreciation on let’s say a single-family, long-term rental. So for appreciation, typically those sun belt states are typically where you’re going to find the price points increasing at a greater clip than in Indiana, for example, or certain markets in Indiana.
On the rents, Avery, you probably have that better than I do in terms of specific markets where we see rents really on the rise. Actually, let me say one thing, there is a website that might be useful. I don’t know if you guys want to keep this in here, FHFA, Federal Housing Finance Agency. It’s a government website. Obviously, it’s free. But I mean they put a lot of money into it and you can go in there and look at the different data and metric. They’ll go pass, present, and even futuristically where it’s not rents, but it will be appreciation in markets for housing. You’ll be able to get that data.

Avery:
Yeah, I think for the rents rising, I don’t think any are necessarily about to explode, but same answer as the past few years. I think Southeastern states really are, especially the areas where the medium-ish metro areas like Charlotte for example, where a lot of people from California, New York are moving into those smaller metro areas in Southeastern states. I think those are areas where it’s looking pretty good to me.

David:
Okay, so if you had someone listening, they’ve got some capital, they’re ready to rock, but they don’t have to rock. Are we in general advising people to buy now and try to avoid some of the competition coming in spring or are you on the side of, “Well, wait to buy and see what rates do”?

Avery:
So I never necessarily tell people to wait to buy because we just don’t know what’s going to go on and what six months from now looks like. And I know when I first started investing, I had to save up my first $25,000 to buy my first long-term rental. And over the course of time, it took me like a year, my husband and I, a year to save that up. Our original target price was a hundred thousand dollars house. That same house was $140,000 by the time we saved up for it.
I would recommend buying what you can find that makes sense now just because it is such an unknown, especially now in the future. If you can find something that makes sense now, I think go ahead and buy it. I mean I know there’s one market that I’ve been trying to buy in for the past probably three or four months. And when I saw that interest rate drop the past couple weeks, I remember to myself, I thought, “Oh, man, texture agent before everybody else jumps in.” So I felt like, “Oh, my god, I got to do this before everybody comes back.” So it definitely, it affects me too.

Rob:
Yeah, I was wondering the same question because it is an interesting dance where things start to pick up in January, but the competition is lower in January in theory than in March where everything is going in. So it seems like what you’re saying is basically like, “If you find a good deal, jump on it because we don’t know the level of good deals that we’ll have in a quarter or two quarters or for the rest of the year,” right?

Avery:
Yeah, that’s how I feel. And then I also have this level of not saying, “Oh, yeah, you need to buy now,” ’cause everybody is like, “Well, she’s a real estate agent. Of course, she’s going to tell you to buy now.” But that’s how I feel is, that we don’t know what’s going to happen, especially in the near term. Things have been really volatile the past couple of years, so if you can find a good deal now you need to jump on it.

David:
That is the joy of being an agent. That is absolutely right. When you don’t tell somebody that they should push forward and prices go up, they’re mad at you. I’ve literally had people say, “I said I didn’t want the house, but why didn’t you change my mind?” My own brother has said that. “Why didn’t you push me harder to write a higher offer on that house? I definitely should have bought it. I lost it by $7,000.” And then obviously if you tell people, “I think you should buy the house,” and the market goes down, everyone’s going to be mad at you. It is very difficult when you’re judging your portfolio by how it does in the near term, which is why we try to tell people you should be putting a strategy together to build it over the long term.
And what’s funny is 20 years down the road, no one even remembers what their real estate agent said or what was going on at the time of that one specific deal. But I’ve yet to meet the investor who says, “The house that I bought 30 years ago is a mistake.” In fact, what they always say is, “I wish that I would’ve bought more.” So the trick is how do you survive for 30 years in this market? So for people that are looking to buy in the near term, they know that they want to get in the game. Do you have any advice for that person of what they should be cautious of and what they should be looking for? I’ll start with you, Caeli.

Caeli:
I would say, again, be prepared, right? Get prepared, start talking to your support team, get your finances in order, et cetera. And it’s going to be a matter of individually, and we look at it very individually where they are right now, where do they want to be in a year, where do they want to be in five years. So it is very individual, I think, the answer to that question. But I agree with the last sentiments in that now is the time. Rarely will I tell someone to wait on interest rates. There’s too many variables that none of us can predict for. And we haven’t even talked about what could be changing in their own individual lives that could preclude them or make it more advantageous. That would be my advice is be prepared and take advantage when you can.

Rob:
What about you, Avery?

Avery:
I definitely agree with Caeli. You definitely want to be prepared. Make sure you have all your financing in order. And definitely when you’re looking at deals, especially if you’re looking at on MLS deals, just sort by days on market, because I’ve seen this even with my sellers, where I’m the listing agent, where people will make low offers and make low offers and they say no a hundred times. And then one person comes along, makes the same low offer everybody else has made on the hundred first try, they’re finally fed up with it and they sell it to them. So high days on market is a really great thing to start with, if you’re looking to really try and get a deal in this market.
It doesn’t always work. Some people are just overpriced and they’re stuck on their price and that’s what it is. But if you make enough offers, you will find that person that finally says, “Okay, fine. Let’s just get rid of this.” Don’t hesitate to offer low on things. Just make the offer that makes sense for you. Start with high days on market. And also, terrible listing photos are a favorite way of mine to find good deals.

Rob:
Okay. With the sentiment of like, “Hey, just make a low offer,” is it working? Are people taking lower offers?

Avery:
Yeah, it’s happening. I mean, it’s not happening every time. I don’t want to set unrealistic expectations, but we’re definitely seeing some deals happen. So if you just keep in the game, eventually you will get one. So it is working.

Rob:
Someone at BP con accosted me and was like, “Rob, have a solo high. I had a listing that you lowballed by $200,000.” And I was like, “Oh, sorry, it only penciled out at that price.” And then she was like, “If it was $10,000 more, we would’ve taken it.” And I was like, “That doesn’t sound like I lowballed you that much then if you were close.”

Avery:
And why didn’t you counter me?

David:
Yeah, exactly.

Rob:
Yeah. It was a little bit of an awkward confrontation at the buffet, but it does feel like it is more plausible these days than it was two years ago. So there’s a little bit of encouragement there. You can come in a little lower and at least you’ll be heard. That’s what it sounds like to me.

David:
There was a time where just getting an inspection contingency in your deal felt like a huge win. So let’s not forget it wasn’t that long ago where you were just going in blind and hoping that things worked out, competing against 15 other people. That yes, it is harder to get casual than it was, but you’re getting longer to make those decisions, you’re getting to investigate the property much more thoroughly than you were before. There’s always something when it comes to real estate investing to focus on that can be problematic, but there’s also benefits to every single market. So let’s not throw out the good while trying to avoid the bad. Ladies, thank you so much for joining us here. If you would like to get in touch with either Avery or Caeli, their information will be in the show notes along with Rob’s and mine’s.
Let us know what you thought of today’s show. And if you’ve got a second, please take a minute to leave us a five star review wherever you listen to your podcast. Those help us out a ton. I’ll let everybody go. It’s been great having you all here, and thank you for sharing your knowledge, your heart and the information. All right, it is time for our Seeing Green segment, where Rob and I take current questions from you, our listeners and hash them out on a mic, so you get the confidence and clarity that you need to move forward building your own portfolio.

Rob:
Today’s question comes from Steve, who is already feeling the heat of buying season.

David:
Steve writes, “I am a new investor trying to purchase a property out of state. The area I am focusing on has a very small supply of property, so the landscape is very competitive and I’m outbid on every offer even if I go way above the asking price. I like working with my real estate agent, but do you think I’m at a competitive disadvantage compared to investors who work directly with a property owner or a seller’s agent? This leads to my second question. What can I do to stand out from the crowd besides paying in cash or throwing too much money with every offer I write?”

Rob:
Okay, so Steve really broke it down for us. Can working with your own agent be a disadvantage? And how can you get your offer accepted besides more money?

David:
Okay, let’s get into this. The first approach here would be, if you’re buying in a competitive market where there’s going to be several offers on every property, there’s probably not a secret formula that you can use. You tend to get the best deals when you’re not competing with other buyers. I’ll say that again. When you’re buying real estate, if there’s only one person trying to buy it, namely, you are competing with the seller and negotiating against them. The minute you try to buy a property that has other interested buyers and there’s other offers, you are no longer competing with the seller, you are competing with the other buyers. So there is nothing that you can do when you’re trying to buy into the best markets where everybody else is trying to buy other than write the best offer possible.

Rob:
I think that makes sense. I was going to ask, I mean, is it advantageous to go directly to the listing agent like he’s asking and saying, “Hey, we represent me as well.” I personally think that would give you more leverage, but I think it’s always best to have your own realtor because at the end of the day, I mean the listing agent, they represent the seller first and foremost. I always think it’s hard to get any information from the listing agent when I’m working with them. Has that been true in your experience?

David:
Yeah, and I’ve been on both sides of this. I’ve been the listing agent that as people come directly to me and I’ve been the buyer’s agent that’s trying to buy the property for my client, representing them. When I’m the listing agent and someone comes to me and says, “Hey, I want to write an offer through you directly, what kind of a discount can I get?” I always say nothing. But I might say, “Hey, rather than going a hundred grand over and not knowing if you’re going to hit, if you come in here, I will tell my client that this is the offer that should be taken ’cause it’s literally the best offer.”
So one of the benefits that you can get is if you’re like, “I don’t know if I need to go 50 grand over, a 100 grand over, a 150 grand over,” going directly to the listing agent, they may say, “Well, here’s where the other offers are.” You got to be higher than those because that still fulfills the fiduciary duty to the seller. They are getting the seller the most money possible. They’re just not getting you, as the buyer, the best deal possible. If you want the best deal possible for you as the buyer, you’re going to want to ride a lower offer, but then you might not get the deal at all. So my advice to people is if you’re in a multiple offer situation, just accept you’re not going to get a great deal.

Rob:
No, the logic makes sense. Also, the leverage that you have going to the listing agent is that they make more money, they’ll make a bigger commission. So there’s a little bit of motivation to make it a win-win for everybody. Is that true?

David:
Most of them are just trying to make their seller happy. Most agents are just, “Whatever it takes to make my seller happy, that’s what I’m going to do.” So they’re going to present your offer that came directly to them, and they’re getting paid on both sides, and they’re going to present the offer of the other people, and the seller is just going to say, “Which one makes me more money? Which one’s most likely to close?” Now, what usually happens is the seller says, “If I go with the one that came to you, you don’t get paid that commission. The commission comes back to me.” That’s almost always how it goes down. The seller says, “Well, I’m not going to pay you the buyer’s agent commission if you’re representing both sides. So you have to credit it back to me.” And now your offer isn’t better than the other ones.
The agent isn’t going to be making more money because they had to credit the money to the seller to make that the sweeter deal. And now the listing agent usually goes, “Yeah, it’s not really worth it. Just take one of the other ones ’cause I don’t want the additional risk.” In my experiences, an agent I haven’t seen going directly to the listing agent work when there are multiple offers. I have seen it work when there’s nothing on the table. There’s nothing coming in, and you go directly to that listing agent and you say, “Hey, here’s my offer. Present this to the seller,” and they’re getting paid twice, then they’re more likely to present your low ball offer in a very positive light to the seller. They’re not going to say, “Yeah, this guy’s lowballing us. We should kick rocks.” You just don’t have that advantage when there’s other buyers and other offers on the table.

Rob:
I think there’s a little bit more of 4D chess you can play when you have your own realtor that’s going up to bat for you, right? So if you don’t have this realtor yet, always remember you can go to biggerpockets.com/agentfinder to look up an investor-friendly agent that can go up to bat for you. So let’s get back to Steve’s question here. How can your offer get accepted besides more money? And honestly, I just think with the current climate and the amount of options that are available, the answer is relatively simple, just keep making more offers. I wouldn’t overpay for a house just because you really want to get into this specific market. We have your price point settled. We know that you’re for a certain amount.
I might consider just making more offers or finding more properties where there might be a little bit more pain from the seller. So that might mean filtering out on Zillow 90 days, 180 days and seeing what’s been sitting on the market a little bit longer and going for some of those where you have less competition clearly based on the fact that they’ve been on the market so long. How do you feel about that?

David:
I think it’s good. And I also think that in the best markets, you just don’t find houses with high days on market ’cause there’s not a lot of product, and so they just sell. There’s nothing wrong with continuing to take action, looking at properties, writing offers, and just not getting one in contract and just sticking with it. At a certain point, markets do change, more inventory will come on the market. It will work. Sometimes you just get ants in your pants and you really want to get something because you’re tired of putting all the work in and not getting the result.
But to us, success is doing the work. It’s not necessarily getting a whole bunch of houses in contract at prices that you don’t like. So take a little bit of pressure off of yourself, Steve. If you’re writing offers that aren’t working, knowing that you writing them at the right prices is free. All right. If you’d like to have your question answered on Seeing Green, and we’d love to have it, please head over to biggerpockets.com/david, where you can submit your question and hopefully have it answered on the BiggerPockets Podcast. Rob, thanks for joining me today, both with Seeing Green and with our show. This is David Green for Rob “Won’t steal you girl, but might steal your house” Abasolo, signing off.

Lee Dong Wook, president and CEO of HD Hyundai XiteSolution, says it’ll be watching India’s elections, which bring “lots of uncertainty right now.”

Investing in real estate can be a great way to generate wealth, but it isn’t for everyone. For one, the term ‘‘passive income’’ really does not describe real estate investing accurately. 

Becoming an investor is a much more hands-on process than just buying a house and renting it out. All the maintenance and potential issues with tenants will become your responsibility. And if you want to grow your portfolio to multiple properties, the responsibilities will grow exponentially. 

The time and effort required simply isn’t realistic for someone who already has a full-time job, for example, or existing family commitments. On the other hand, some people would like to invest in real estate but just don’t have the cash.

Does this mean you have to give up on your dream of financial independence? No—there are other options that can help you generate substantial wealth, some of which don’t require you to be nearly as involved as real estate investing.

In a December episode of our podcast, Scott Trench and Mindy Jensen named the top five ways to get rich without investing in real estate. Here’s a look at each one. 

1. Index Funds

Obviously, one form of investing or another had to make this list. As Mindy points out, ‘‘When people think investing, they typically think of two schools of thought: real estate or stock market.’’

There are many different types of stock market investing, but investing in index funds is often recommended to the average or beginner investor. Why? You’re basically investing in the economy as a whole on the assumption that it will perform well over time. This is usually a less risky strategy than investing in just one segment of the economy or a single industry or product. 

Scott admits he’s ‘‘a big index fund investor” and has faith in the U.S. economy, which keeps growing and evolving thanks to the continuous introduction of new technologies such as the internet and artificial intelligence (AI). These make the economy more productive in the long term, and Scott thinks it’s ‘‘a very reasonable long-term assumption’’ that an index fund investor will get a 7% to 10% annualized return. 

Mindy adds that she, too, is a big index fund investor but tends to pick more ‘‘tech-heavy’’ indices. She also has VTSAX shares, which come with greater risk, ‘‘but also there’s a greater chance of reward.’’ 

Ultimately, the great thing about index fund investing is that it’s almost totally passive. And you don’t have to have a lot of cash to invest. You can put in as little or as much as you can afford—it’s completely up to you and your current financial capabilities. 

The downside? Index fund investing is a long-term game. You can sell at any time, but Scott warns investors against it: ‘‘I believe you should invest for a very long period of time.’’ 

In fact, both podcast hosts agree with Warren Buffett’s statement that his favorite holding time for investments is “forever.’’ The best mechanism here is repeatedly reinvesting the dividends you get, as this will yield you much higher returns over the years. 

And when is index fund investing not for you? According to Scott, it’s all about belief. If you think that the U.S. economy actually will shrink over time, with less GDP and less productivity across the economy, you may not feel so confident putting your money in the stock market.

2. 401(k)s and IRAs

401(k) and IRA investing is another way of saying that you’re investing in retirement accounts. 401(k) plans involve paying into pre-tax retirement funds, whereas the IRA method involves post-tax accounts and is more suitable for people with incomes under $100,000. 

If you’re going down the 401(k) route, you can contribute up to $23,000 for the 2024 tax year. The money comes out of your paycheck before taxes, also called a tax-deferred contribution. 

You will only pay tax on your investment when it comes to withdrawing dividends. You can withdraw early, preretirement, but this will come with a penalty. Employers can contribute to 401(k)s, but they’re also available to the self-employed.

Investing in 401(k)s can be ‘‘a super-powerful tool” for wealth building, as Scott explains: ‘‘If you take that $23,000 that you can invest in 2024, for example, and you get an 8% return by investing in things like stock market index funds, what we just talked about, you get to a million-dollar balance in that 401(k) in under 20 years.’’ 

The other option is the IRA route or paying into an individual retirement account. It has lower contribution limits: $6,500 in 2023 and $7,000 in 2024 ($8,000 if you’re 50 or older).  

3. Job-Hopping

There’s another super-effective way to improve your financial prospects, and it doesn’t require you to invest in anything other than advancing your own career. And the best way to do that these days is to switch jobs. 

The days when sticking with the same employer for decades yielded substantial promotions, and well-rewarded seniority are gone for most of us. Mindy points to a very important reality of the current job market: ‘‘There’s more money in the hiring budget for most companies than there is in the retention budget.’’ 

As an employee, you’re always in the strongest position when negotiating your salary before starting a new job. In 2022, 49% of job hoppers got inflation-beating raises, as opposed to only 42% of those who stuck with their employer. 

And if this makes you feel like you’re somehow being disloyal to your employer, don’t worry: Job-hopping is very normal now. As of January 2022, the average amount of time a U.S. employee stays with any one employer was just over four years. 

Scott and Mindy advise focusing on adding value to your resume with each new job, whether through upskilling or taking on new responsibilities. You then stay in your current job so long as your new skills (and added value) are being appropriately rewarded. Once you’ve plateaued at your current company, it’s perfectly fine to move on.

Scott does offer a word of caution about counting potential bonuses when job-hopping. Sure, a job may promise you $90,000, where 50% of that is a bonus, but you need to be able to afford the risk of not getting the bonus. If you’re living paycheck to paycheck, you need to concentrate on jobs that may offer you lower salaries, but the income is steady. 

4. Boring Businesses

Doesn’t sound too attractive, right? Actually, boring businesses are some of the most lucrative investment opportunities around. What do we mean by boring businesses? Scott gives a few examples: HVAC companies, dry cleaners, small trucking businesses, sanitation and plumbing businesses, and even asphalt paving businesses. 

Why are these unglamorous ventures some of the best ways to generate wealth? There are several reasons. One is that these types of businesses are surprisingly lucrative—they can generate $300,000 to as much as $750,000 a year. Given that a business typically sells for twice the amount of its annual cash flow, you could easily get $600,000 or more when it comes to selling the business and then reinvest that money into, for example, real estate. 

One thing potential investors will need to remember is that businesses are a lot of work—‘‘this will probably be a full-time job for at least six months to a year, maybe several years,’’ says Scott. Your job as an investor will involve systematizing and modernizing the businesses, as well as improving marketing strategies and reputation building. 

Remember, a lot of these businesses are owned by baby boomers and don’t even have websites, so “[there’s] tons of opportunity in this space and not enough competition from buyers at this point,” emphasizes Scott. This is definitely a less competitive investment space than real estate, but it can give you a great leg up to real estate investing in the future.

You also will need substantial amounts of cash to buy even a tiny business—in the hundreds of thousands. However, you may need a bit less if you manage to get a business association loan or seller financing to help you. 

If you’re interested but daunted by having to navigate an industry you know nothing about, consider buying a franchise. This type of business investing gives you a playbook, as it were, Scott explains. You don’t need to know as much about the ins and outs of running the business because the template is already there.

5. Side Hustles

Finally, the wealth-generating possibilities of side hustles should not be underestimated. These come with varying degrees of hands-on work and responsibility. Incomes also vary a great deal, depending on product and location, from $25,000 to as much as $100,000. 

Mindy recommends being mindful of ‘‘the location, the community needs, and the business viability.” That statistic about 90% of small businesses failing in the first year? It’s ‘‘not completely accurate, but it’s not completely inaccurate,’’ Mindy says. 

You need a plan and a buyer for your product, so do your research and make sure what you can offer will find demand. Scott also makes an important point about being honest with yourself about just how passive your side hustle will be. If you end up spending all your free time basically actively producing something for your new business, it may not make sense financially. 

Ideally, a side hustle should eventually take on its own momentum without you needing to put a ton of time and effort into it. ‘‘I think people fall into the trap of their side hustle not being as lucrative per hour as their day job in many cases,’’ warns Scott.

And if you do fail? Try something else. In fact, most successful side hustlers try out a few things before they strike proverbial gold. Keep trying—just choose wisely, and choose something that could one day allow you to quit your day job instead of having to work two jobs indefinitely. 

Final Thoughts

This is by no means an exhaustive list of ways to build wealth without investing in real estate. As Scott and Mindy admit, there are a ton of other ways, cryptocurrency and horse breeding among them. 

The point is to choose something you’re interested in and comfortable pursuing over a period of at least a few years. Remember: Most successful investing requires patience; some of it requires dedication and hands-on work. 

Who knows? It could even land you in an alternative career one day, so why not give it a try?

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

Things are shaping up for homebuilders. In fact, one big name in the industry is projecting that 2024 will mark the “golden age” for homebuilding, thanks to falling mortgage rates and frozen existing home supply, among other factors.

David O’Reilly, CEO of megalith developer Howard Hughes Corp., told CNBC last week, “We’re going to have the golden age of new home construction” in 2024, even calling the new home market “extraordinary” in its current form.

He’s not wrong: Homebuilding activity has surged in recent months. In November, single-family starts jumped 18% over October.

Starts have now increased steadily for four consecutive months, and experts are predicting further increases in new home construction in the new year. 

Why Homebuilding Will Surge in 2024

The National Association of Home Builders projects a 4% increase in starts across 2024, while Lawrence Yun, chief economist for the National Association of Realtors, is calling for a 13.5% increase in new home sales in the new year. 

The bump largely boils down to mortgage rates, which have fallen quite a bit from their near-8% peak in October. Now at just 6.61%, average rates on 30-year mortgages are at their most affordable point in over six months. 

The problem? It’s still not enough to spur existing homeowners to put their homes on the market. According to Zillow, as of July, about 80% of homeowners have an interest rate of 5% or less—so most property owners are not looking to trade in those low rates for today’s much higher ones (unless they absolutely have to). This constrains the supply of existing housing and pushes more buyers toward new construction instead.

There’s another perk buyers get with new homes, too: builder-offered buydowns. According to NAHB, 29% of homebuilders offered mortgage rate buydowns to buyers in October, and another 21% absorbed financing points for buyers, allowing them to essentially get lower rates completely free of charge.

O’Reilly told CNBC: “Not only can you pick size, location, but national homebuilders have been able to buy down mortgage rates and offer a lower mortgage rate for buyers.”

According to O’Reilly, builder buydowns range anywhere from 150 to 200 basis points, essentially letting buyers drop their rates from today’s 6.61% to a rate closer to 5% or below. On a $400,000 loan, that would mean a difference of about $500 in monthly payments.

A Continued Upper Hand

These aren’t flash-in-the-pan conditions, either. In fact, builders are likely to keep the upper hand as we move through 2024.

While the Federal Reserve is largely expected to cut rates next year—meaning mortgage rates will likely follow suit—most experts don’t expect rates to drop by any drastic amount. The Mortgage Bankers Association (MBA) currently predicts an average 30-year rate of 6.1% by year’s end, while Fannie Mae sees a 6.5% average at the close of 2024.

Even at the MBA’s more optimistic number, most existing homeowners would remain locked into their current low mortgage rates, squeezing existing housing supply and pushing buyers toward new construction—and the potentially lower rates they can offer. 

As O‘Reilly puts it: “That supply-demand imbalance [in the existing home market] should get worse into 2024, driving demand for new home construction.”

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