Pandemic-induced work-from-home arrangements gave a lot of airtime to the concept of “autonomy.” Without managers to oversee their every move, employees naturally had to engage in more self-direction. This idea spooks a lot of business leaders, who fear team members will loaf when they’re not being monitored or given detailed instruction.

For the majority of workers, this attitude is misguided. Although some employees are ill-equipped to work without the structure of an office and being told what to do and when to do it, most aren’t. They embrace the chance to prove their ability to accomplish business goals. They may need time to make the adjustment, but they thrive when they’re given a sense of empowerment over their own work.

You may be surprised at how your team ramps up performance when you stop making assumptions and allow them to make significant decisions for themselves. Here’s how you can boost your team’s autonomy and why you should give it a try.

Delegate Better and Lead Quietly

Delegation is a tough act for many leaders. They cling to a belief that their title makes them the boss of everyone in every way. If you want to build an autonomous team, you’re going to have to loosen your grip.

Delegate roles to those team members whose talents, skills and experience seem best suited for them. Give your team the authority to make and execute decisions without requiring them to get your approval at every turn. If goals and assignments are clear, employees should be allowed to take their respective balls and run with them.

Your role as a leader is to give your team the resources they need and to be available to answer questions and provide guidance. Let’s say you want to delegate broader responsibility to the tech lead on your team. That person has been carrying most of the coding burden. You’ll need to work with your lead on finding ways to hand off the coding so they can step into the new mentoring and managing duties you envision for them.

When you delegate authority, you’re giving your team the opportunity to fully invest themselves in their jobs and take ownership of the process and outcomes. Nothing but good can come from that.

Give Everyone Autonomy and Watch Leaders Emerge

Team autonomy can’t be a pick-and-choose affair. You will need to give everyone on the team autonomy to make this work. That includes those members who have hitherto relied more on management direction than independent thought.

The delegation of authority to specific team members doesn’t mean they work in a vacuum. They still need to collaborate with the rest of the team. If you’ve done your job well, those employees you’ve asked to step up will provide the structure some team members need while maintaining the team’s overall autonomy.

For example, if you delegate the responsibility of creating a project timeline to one individual, that person will need to consult with the other team members. The team will discuss factors that affect the timeline and create one everybody thinks they can live with. They’ll then hand off the timeline for you to monitor (not approve).

What happens during this process is the emergence of leaders at every level. Autonomy encourages peer-to-peer learning that organically creates a strong team dynamic. Everyone learns something from everyone else.

Effective leaders build up those around them. If you’re providing the autonomy that allows employees to lead on various levels, you’re building a remarkably productive and resilient team with tremendous depth.

Trust Your Team, and They Will Reciprocate

Trust is a reciprocal proposition, especially when building autonomous teams. You must trust your team to make good decisions when you give them autonomy. In return, your team must trust that you have confidence in their ability to make decisions that lead to strong results.

Employee trust is critical to key factors like productivity, collaboration, innovation and conflict resolution. These are the qualities of a successful team, which in turn translates to a company’s success.

No one said it would be easy to trust your team to make crucial decisions for themselves. This is where your ability to mentor, guide and coach comes into play.

Autonomy doesn’t mean you stand by and watch the team or a project self-destruct. On the contrary, autonomous teams gain confidence from knowing you are monitoring their efforts and that, if they get too off course, you will step in. For example, you’ll take time to discuss possible solutions with emerging leaders who appear overwhelmed or suggest the team meet to brainstorm ideas to resolve issues before they go too far.

What you won’t do is throw up your hands and take over. If you do, you’re telling your team you’ve lost trust in them, and they’ll respond in kind. If you nudge them in the right direction, they can course-correct on their own. That’s what autonomous teamwork is all about.

Lifting Your Team’s Autonomy

Giving your team autonomy doesn’t mean giving up your leadership. You just have to approach it in a different way.

The degree of autonomy you allow and where you apply it are still at your discretion. But even a little of it, done well, will create more constructive collaboration than chaos.

Ashley:
This is Real Estate Rookie episode 260.

Amanda:
The tax benefit of a lease option is that the options money you get upfront, you don’t have to pay taxes on it until later on when the option is exercised. During the lease option term, you still own the real estate, which means you continue to get the depreciation benefits, the write-offs, and things like that. So it’s getting more money upfront, but also retaining the tax benefits because you still are the owner.

Ashley:
My name is Ashley Kehr and I’m here with my co-host Tony 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. I want to start today’s episode by shouting out someone by the username of Leo Zhang, and Leo left a five star review on our podcast that says, “Goldmine for real estate investment. Tons of valuable information and suggestions from real estate investors. You will find the roadmaps to success here”, with four exclamation marks. So Leo, we appreciate you and for all of our rookies that are listening, if you had not yet left us an honest reading review on Apple Podcast or Spotify, wherever you listen, please do. The more reviews we get, the more folks we can reach, the more folks we can reach, more folks we can help. And that is what we like to do here at the Real Estate Rookie podcast. So Ashley Kehr, what’s up?

Ashley:
Well, we are a week away… Well, days away, not even a week away from your short-term rental conference, the summit. And I’ve been nervously checking the weather because each time I go somewhere it’s bad weather-

Tony:
Bad weather.

Ashley:
I did get the email from your event planner today saying there is a chance of rain over the weekend. So I really hope that it’s not me that’s bringing it because I need warm weather. I’m super excited. It does say 80s.

Tony:
Yeah, so hopefully it’ll be warm. Not too crazy Florida. The weather’s always unpredicted. But yeah, we’re excited. We leave in less than 48 hours to take off and we actually almost spend almost a week in Orlando because we’ve got some stuff to do before hanging out a little bit afterwards, going to Disney World with the team and stuff. But we’re pumped. We’re going to have almost 400 people there, so it should be a fun couple of days and I’m glad you’re coming.

Ashley:
And I’m bringing my mom and my kids, so they’re just coming for the weekend. They’re flying down Friday night and then they’ll fly back Sunday night and then I’ll stay for a couple more days. But yeah, it’s just a great excuse to have a family day.

Tony:
We’ve been traveling a ton because we had Rob from the real estate show. He had his short term rental event in Houston last week. So Sarah and I went there and I spoke on stage for a little bit, and then we came home and it was a slew of birthdays, so it was Sarah’s birthday yesterday, it was her sister, my sister-in-law’s birthday two days before that. And it was my cousin, who’s one of my best friends’ birthday in between their birthdays. So it’s just been literally nonstop. So I’m excited after the summer, we’ll get to relax for a couple of weeks before we keep moving.

Ashley:
Yeah. Hey, I have a question for you before we actually get into the episode, what are some of the things you look for when you decide what conferences you are going to attend? Obviously the ones you are asked to speak at, but what are some things you look at?

Tony:
That is a fantastic question, Ashley. I think the majority of the conferences I’ve been to as of late, I’ve gone as a speaker, so that that’s kind of been the main driver. But honestly, as I think about the things that I want to learn, it’s not even necessarily real estate strategies at this point. I think what I’m more so focused on at this point in my career is the business principles to support my real estate business. And those are the kind of things that I’m starting to look for. I haven’t really bought a ticket for any new… But anyway, that’s what I’m looking for. Actually, let me rephrase my answer. There’s one thing that I’m really looking to exceptionally get at in short-term rentals, and that is revenue management. So there’s so much that goes into pricing your properties the right way. And there’s a big conference over the summer that we’ll be going to that has a deep dive into that topic specifically. So that’s the one real estate thing I’m really focused on. What about you?

Ashley:
Yeah, well, my son had his football banquet this past weekend and I had someone come up to me and say they have two short-term rentals and I’ve talked to them about it before, but they’re like, we are just ready. She was an attorney and actually has retired as an attorney to focus on the real estate, and she’s like, I just want to learn more about these short-term rentals we have and how to maximize them and run them better and all these things. And so she’s like, I just don’t know what conferences to go to and all these things. And she’s like, as an attorney, I did conferences all the time. She’s like, I’m sick of them, but I know I should get back into it for the short term rentals. I was like, I know exactly which one you should go to. I was like, there’s going to be one in Austin, I’m going to the one in Florida.
And I was like, when I went to the one that was in Newport Beach, I went on stage and I did a shot of tequila, not you’re normal conference. But anyway, I thought it was such a great question as to, I don’t even know which ones to attend and what to add value. So maybe we can actually do a rookie reply on that as to how to vet your conferences that you’re attending. And I think you made a great point as to figuring out what you actually want to get out of the conference first and then kind of narrowing it down from there too.

Tony:
Yeah, there’s so much information out there. I think most conferences that are put on, you’ll probably get some value from. I think what’s more important is your level of preparation going into that event. Conferences are those things where you get out what you put in, and if you’re in there, you’re taking good notes and then after the event, you’re spending some time to let that information actually percolate in your mind and identify how you can use it. And then you implement that stuff. That’s where you really get the value. But I think the unfortunate truth is that you see a lot of conference junkies who go from one conference to the next, and they’re well known at these different places, but they aren’t actually implementing what they’re learning when they go there is they’re not getting the full benefit from it. So I think the prep beforehand is probably what’s most important.

Ashley:
Yeah, I agree. The one thing I like to do is at the end of the day is just sit down and jot down what I learned or what’s the action I want to take care of. And usually by the end of a conference, I’m just itching to get home and get back to work. Those flights home after a conference are the most productive[inaudible 00:06:38]-

Tony:
Productive[inaudible 00:06:38].

Ashley:
I’m so motivated from all the people I’ve met, everything like that, and it’s just getting stuff done and things I want to do. Yeah.

Tony:
So just last thing, our friend Tyler Madden actually told me that he does this, because he and I, we’ve been to two different conferences together and both times he almost always spends an extra day after the conference in the city and he uses that extra day to really go through everything that he learned over the course of that conference. So I think I might say a lot from our friend Tyler and add a buffer day after each event so I can just sit down and really deep dive, what did I learn, how can I implement it, and so on.

Ashley:
And just to get caught up on work from being at the conference because the last time we recorded, we both had pulled all-nighters, and one reason you had is because you were at a conference all day, so at night you had to do your work. So being able to still be on your trip and to relax, be in a different setting than your house, because when you get home you have to do laundry, you have to unpack, you have house stuff to do, you got kids to take care of, things like that. So having that extra day to get caught up, I think that’s a great point too, is taking the information you learn from the conference and kind of putting it into action.
So with me taking my kids this week, I think it’s a kind of great segue into a guest that we’re actually having on the Rookie Reply. I’m going to a conference. This is a business write-off. My kids are coming with me, my mom is coming with me as a nanny, and they get to hang out at the pool all day and have fun. So that is definitely a great way to maximize business travel, taking your kids with you and turning it into a little vacation for them. So we are bringing on Amanda Han, who we did a full episode with for episode 255, and we are going to have her answer some of your reply questions. So make sure you guys listen to the end to hear Amanda answer your questions.
Okay. Our next question is from Katie. If you purchase a property using personal private money and use personal money for rehab and plan to use the property as an Airbnb, what is the seasoning period before you can go to a bank and refinance it to pay off the private money loan and use proceeds for another investment? This is a great question because it really depends on the bank. I’ve seen it where there is no seasoning period, but very typical is six months to 12 months. So my business partner, he’s purchasing a primary residence that he used hard money, now he’s going to refinance with the bank and the one bank that he’s talking to right now, it’s a 12-month seasoning period. Tony, what are you typically seeing?

Tony:
Yeah, I think it varies as well. So when I first started investing, the bank that I was using, it was no seasoning period. As soon as your rehab was complete, you were able to refinance. However, it was only a rate-and-term refi, so essentially you weren’t able to pull out any additional capital. You were just paying off that initial mortgage that was on there. So for me, I had increased the value of the property by whatever, 50, 70, $100,000, but I couldn’t tap into that equity. I could only refinance up to an amount that was equal to the existing debt. So yeah, like you said, I think it varies by the bank.
In the short-term rental space, though and most banks that I’ve talked to, they typically do want to see somewhere between 6 to 12 months because they need some proof as to what kind of income that property will produce as a short term rental. There are some banks out there that are now doing their own projections and underwriting to say, Hey, we think this property will do X, Y, Z as a short term rental, but most banks still want to see at least six months of actual booked revenue in order to do that refinance as a short-term rental.

Ashley:
Tony, you brought up a great point as, and I think we should highlight this, is that there is a difference between refinancing and doing a cash-out refinance. So how your bank didn’t have the seasoning period, but they would allow you to refinance the property as to what the existing data is. And typically this is based off what the purchase price is for the property, and they’re probably going to give you the same loan to value that the first lender did onto the property.
So that’s one thing my business partner just ran into now, is that he can refinance at any time with this small local bank, but he can only pull out 80% of the purchase price of the property, and that won’t include any of the rehab. But if he waits 12 months, then he’ll be able to pull out whatever the appraised value is, 80% of the appraised value of the property. So that’s definitely something you should be doing before you’re purchasing a property is talking to banks, talking to loan officers and finding out that information before you go ahead and purchase the property so you can kind of have your game plan, your timeline spread out.

Tony:
Yeah, the bank I actually worked with, they were slightly different because it wasn’t just a purchase price. They actually did allow me to include the rehab cost in there as well, but it was only because it was a construction loan that they owned. So they said, here’s a construction loan for you to purchase and do the rehab and then we’ll convert you to long-term debt. But that’s the beauty of it is that there are so many different lending institutions out there, banks, credit union, small, big, medium, and every single one is going to have a different flavor in terms of what they can offer. But Ash, what we didn’t define as seasoning period, so maybe you want to define what that is for folks maybe aren’t familiar with that phrase?

Ashley:
Yeah, so the seasoning period is how long the property is gaining value. So it’s like letting your property set because a bank is looking at your property and if you go and refinance in 30 days, they’re going to say, wait, you just bought it for 200,000 and now you’re saying it’s worth 300,000, 30 days later? So they want that seasoning period for the property to appreciate and for you to add value to it doesn’t make sense. Not really, especially if you’re going in and you’re blowing a hundred grand to appreciate this property, but the seasoning period is where they want to see the appreciation on that property. And there’s not always going to be appreciation there either.

Tony:
And I think what I’ve seen most cases, Ash, let me know if it’s the same thing on your end, is that typically that seasoning period doesn’t start from the day that you purchase it. It starts from the day that the rehab is complete. It’s like if you’re doing a BRRRR and they want to see six months, what I’ve been told from the banks that I work with is usually it’s six months after the rehab is complete. Is it the same for the lenders that you work with in your neck of the woods?

Ashley:
No. If I’m just going to a bank and I haven’t used any kind of existing financing with them, I used hard money or private money or cash to purchase and I’m going to do that refinance, the seasoning period starts the day that you purchase-

Tony:
Purchase it.

Ashley:
… the property. On the residential side, at least. On the commercial side, I’ve seen that you can refinance it anytime.

Tony:
Talk about that then. So you’re saying on the commercial side, as soon as you buy, if you rehabbed it in a day, theoretically they’d allow you to refinance on day two?

Ashley:
Yeah. So to give you an example, this is one of my favorite financing deals ever, and this happened in 2018, 2019 maybe, where I went to a bank and I said, I want to purchase this property, what can I do? And they actually said, we can give you a 90-day unsecured loan. So this was a no collateral and this was what I was going to go and purchase the property for. They wrote me a check for the exact amount to purchase the property and as we closed on the property, and the deal was is that I would go with the same bank to refinance it and put long-term financing on it.
I purchased it with that loan, they gave me that 90-day loan, and then I put in a $800 new fridge of one of the units. I got it rented out, and I think it was within two days of the purchase, we had the appraisal done. I don’t remember the exact numbers off the top of my head, but we bought it for around 35,000 and it appraised for I think around 50,000 and we were able to pull out $42,000. And so we were able to take to pay off that 90-day loan, pay for that $800 fridge, but that was just two weeks after closing and we were able to go and refinance it on the commercial side of lending.

Tony:
I wonder if that was because they maybe took the line of credit more so as a cash purchase and not necessarily a mortgage that was secured by the property itself. Do you think that had anything to do with it?

Ashley:
No, because for this property that my business partner’s trying to purchase now, its was a cash purchase that he’s pay… I think it was maybe a private moneylender, I don’t remember exactly, but on paper it’s a cash purchase and they still want that one year seasoning period. It doesn’t have anything to do with the [inaudible 00:15:50] on it because they’re going off of the purchase price. Where commercial lending, they’re looking at, okay, I put tenants in that property and it’s added value that way. And I do remember the bank being very shocked at how much it appraised for, but that’s also the value of buying under market. I know that we got a great deal on this property and that’s why I purchased it.
And so I think the bank was actually kind of upset that I was able to go and refinance and pull so much money out when I bought it for 35,000 and then two weeks later I’m able to pull out $42,000 out of that property. But yeah, the commercial side I haven’t at least run into any situations where I have to have a seasoning period on the commercial side, and that’s when the property is in an LLC. So in this example that Katie gave us, she has the property in her personal name where you most likely will have to use the residential side of lending.

Tony:
Interesting. Well, Katie, hopefully that that’s helpful for you. I’m trying to think if there’s any other loan products that might be beneficial. I mean, even on the DSCR side that’s what we’ve been kind of exploring for a lot of our short-term rental purchases as of late, if you are doing a rehab or anything like that, they still typically want to see that seasoning period as well. And for us even if we weren’t commercial, they still wanted to see it if you’re using a DSCR for short-term rental. And just to give all the listeners some context, the lending space for short-term rentals is still incredibly new, and the loan products you can get on the long-term rental side haven’t quite all made their way over to the short-term rental side. So you still do see less options, kind of more hoops you have to jump through when you’re trying to get loan products specifically built for short term rental. So keep searching, keep digging, and hopefully you’ll find a bank that can kind of work with you.

Ashley:
Okay. So our next question is from Robin. Good morning. Good morning. So at what points can you raise rents? In Oregon, each year you can raise rents at 9%. I can also raise rent after the lease is up, right? When can I make adjustments to the lease after it’s up? Okay. So we kind of have two questions there on leasing and increasing those rents. So that’s definitely a hot topic I see especially if you are inheriting tenants as to when you can actually increase the rent to market rents or at least bring it up a little bit as to what the rent is currently.
So great question, Robin. The first thing I would say is that you have to know what your state laws are. So if you already know that you cannot raise it more than 9% of the current lease agreement. This is definitely something you want to look into when you are purchasing the property to see how long it’s going to take you to actually bring the rents up to market rent. Where I live in New York State, in our county, I know in New York City there’s some limits on what you can charge for rent, but as far as where I’m currently investing outside of Buffalo, New York, there are no limits as to how much you can increase or what that rental price can be. Tony, did you run into any of that when you were doing long-term rentals in Louisiana?

Tony:
For us, in Louisiana, luckily we didn’t inherit any tenants, so we didn’t have to necessarily worry about increasing rents on anyone. But to your point, Ash, if I were in a situation where I did have inherited tenants, I would want to know what is our current lease state and then what are the local laws and regulations and really lean on my property management company to help give me, I guess, the right information in terms of what that looks like. Because it is super specific and what we do in California and my city is probably super different than what Robin’s doing in Oregon and so on and so forth.

Ashley:
And I think a good resource is to look at your county or your city at some of the nonprofit organizations that, look, they’re housing specialists. So in Buffalo, New York, there’s Belmont, and Belmont actually gives out the Section 8 vouchers in our counties. So look into where people get a Section 8 voucher in your county. And a lot of times these organizations have free or very low cost training as to what these laws and regulations are, and especially teaching landlords how you can appropriately increase the rent or how to handle that. So I recommend looking for some kind of organization like that and taking one of the training classes. A lot of them even provide a book too with the updated tenant landlord laws or if you even go to your local town hall, a lot of times they have pamphlets too. Here’s one for tenants, things you should know, and here’s one for landlords, things you should know.
And then the second thing, you can raise rent after the lease is up. That is correct. When somebody is currently in a lease, you cannot raise their rent until the lease expires. So make sure you’re looking at that information when you’re purchasing the property and seeing when that lease agreement is up so that you can raise rent and then also be cautious of giving proper notification. So in New York state, depending how long the person lived there, you have to give them so much notice that their rent is going to increase.
So they live there less than a year, so their first one year lease is coming up, you have to give them 30 days notice. If it was more than that up to two years, then it’s 60 days and then after that it goes up to 90 days notice. So make sure that you’re planning for that too. And then the last question of that was when can I make adjustments to the lease? And that would be the same period as to when the lease is up. When you send that rent inquiries, you would also make the new lease with the changes in it.

Tony:
Ashley, have you ever purchased a property where there were tenants in place but no documented lease?

Ashley:
Oh, yes.

Tony:
So how do you handle that? Do you come in and do you raise rents immediately if they’re way below market rates or what’s your process to handling that?

Ashley:
Yeah, so I bought a portfolio from an older investor who just had people send him money and it’s kind of a handshake deal with most of his tenants. And so when you purchase a New York state, a lot of times when you fill out the real estate contract, it can have a rent rider addendum to it. And this rent rider basically states how many units there are, what the tenant’s name is, what unit it is, how much they’re paying in rent, and when their lease term is up. So the seller had filled that out for me and then I went and I sent an estoppel agreement to all the tenants with his permission that stated that I was going to be purchasing the property and if they could give me their name, their contact information, what they pay in rent, when’s the last time they paid in rent, things like that.
So I basically took what they were saying and what he was saying, and then I compared it and I had one tenant that was living in a two bed, one bath, and it was a six unit and all the other ones were paying $500 a month and she was paying $300 a month. She had lived there for 30 years and she took very good care of the place. So what I did instead was I increased it by increments. So I think for the first two months it was increased by $25, then the next two months and went up another 50 and we increased it over, I think maybe the course of nine months or something to get her up to that comparable rent. So that’s one way to do it and I always like to include what are the market rents?
So if you were to move to a different unit in that same market, how much would it cost to show that I’m usually still below market rent when doing these increases. Plus you’d have to pay your moving costs, change your mailing address, all the other headaches that come with moving too. And I really have never had an issue of increasing rent and getting a lot of pushback on it.

Tony:
Is that tenant still there? The one that had been there for 30 years?

Ashley:
Yeah. Yeah.

Tony:
Wow. That is a crazy longevity with one person.

Ashley:
Yeah, so now it’s been… I bought that in 2017.

Tony:
That was five years ago.

Ashley:
So longer than 30 years she’s been there. Yeah, so 35 years.

Tony:
It’s also crazy to think, not to go too far off on a tangent, but the people do rent for that long. That could have been a mortgage that was paid off almost. It’s an interesting dynamic for sure.

Ashley:
Okay, you guys, next up we are bringing Amanda on and she was going to answer some of the Rookie Reply questions.

Tony:
All right, Amanda, well welcome back to a Rookie Reply episode. We had you on episode 255, but you provided so much value. We knew we had to bring you back to answer some more questions from the Rookie audience, so thanks for chatting with us again.

Amanda:
Yeah, excited to be here.

Tony:
All right, so we’re going to lob a few questions at you. The first one comes from Greg Carroll, and Greg’s question is, I started on my five-year goals and one of them is to be able to buy houses to put into a trust for my nephew and nieces and kids to pay for college if they choose to go like Brian did for his daughter. Is it possible to do that for someone else’s children? If so, how do you do it?

Amanda:
Yeah, that’s a great question, Greg. So you can put a rental property into a trust and have the beneficiaries be whoever you want it to be. It could be your own kids, could be, like you said, nieces and nephews. Could be my kids too. My kids would love to benefit from that too.

Ashley:
Amanda will provide her kids births and social security numbers for you guys to add them.

Amanda:
And not just Greg could be anybody. But in all seriousness, it also depends on what kind of trust we’re talking about. So in our previous episode that we did, we kind of mentioned it a little bit, there’s various different types of trust in how it’s treated for tax purposes. So what you are describing definitely could be done, beneficiaries could be anyone you want it to be, but I think maybe a better, or maybe a more flexible way to do it is to not put it in kind of a special trust. I mean, could be like your living trust or it could still even be in your name or like your LLC name, but really just earmark for the future cash flow or future equity to go to these various kids and nieces and nephews. The reason for that is if the properties are in your living trust or your name or your LLC, then you continue to get the tax benefits of the rental real estate during your lifetime.
And then at some point in the future, if your intention was pull money out and help them pay for college or just even passing it to them eventually when you pass away, then the people who inherit the properties from you, you could get step up basis, which is a huge benefit. It basically means that they nor you will be paying taxes on the appreciation through your lifetime. But I love what you’re trying to do, but definitely worth a conversation with your tax advisor to see if it should be a trust at all and if so, what type of trust might be best?

Tony:
So what you’re saying Amanda is that Greg might be over complicating it a little bit by trying to set up the trust and there might be some simpler ways to achieve the same goal of using the cash loan equity from this property to pay for his kids and nieces and nephews college?

Amanda:
Yes, you’re exactly right, Tony. I love how you summed up what I said in five minutes, in five sentences, and that’s why you’re the host of the show.

Ashley:
Okay, Amanda, are you ready to move on to our next question?

Amanda:
Yep.

Ashley:
This question comes from Matt. I wonder, my renters want to buy my condo they live in. There are some benefits to it like no agent fees, no repair cost, no grace period when property is empty waiting for purchase, no repair costs, et cetera. What are the best options to sell it? Thinking about doing rent to own, me providing seller financing, how that looks from an operation perspective or just doing a regular sale. Are there any tax benefits versus the other?

Amanda:
Gosh. Well, great question Matt. There’s so many different possible exit strategies. So we can talk through some of the consequences of the ones that you listed. So if you were just to do an outright sale, like you say, you can skip on the commissions and great benefits of doing for sale by owner, that doesn’t change into the tax impact of it. So if you wanted to, you could do a 1031 exchange, which means you’re selling this property and then you reinvest the money into another rental property. And so if you’re following the tax rules of doing it correctly in a 1031 exchange, you can get out of this property and then into maybe a bigger, better property without paying any taxes currently. Or you mentioned maybe rent to own or maybe like a lease option, things like that. What I like about the tax benefit of a lease option is that the options money you get upfront, you don’t have to pay taxes on it until later on when the option is exercised.
During the lease option term, you still own the real estate, which means you continue to get the depreciation benefits, the write-offs and things like that. So it’s getting more money upfront, but also retaining the tax benefits because you still are the owner. And then you mentioned seller financing is another one. So seller financing is good as well. The key difference in seller financing is that when the contract is executed, you’ve essentially sold the property. So you no longer own the real estate, meaning you don’t get depreciation anymore. Now the buyer has depreciation, other deducting mortgage interests and things like that.
But as a seller, there is still a benefit. Then the benefit is that you get to defer the taxes on the gain over X number of years as you collect money from your tenant buyer. So instead of just selling it outright, maybe you have a huge taxable gain. If you do a seller financing, you carry a note for five years or 10 years, you can defer the capital gain slowly over the next five to 10 years as money is collected on your part. So all different possible solutions with differing tax benefits.

Tony:
So Amanda, and me, I just want to make sure I’m following here too. So it sounds like the 1031 exchange could work well if Matt has the desire to quickly acquire another property, but if Matt just wants to take the profits and use it to whatever lifestyle, whatever it is, then probably going lease to own and might make more sense because that’s still going to give him the tax benefits of owning the property and then he’s not getting this big tax bill at the end of the year. Am I following that correctly?

Amanda:
Yep, exactly.

Tony:
Okay, awesome. I actually never really thought about the differences as the seller between lease to own and seller financing, but now it’s almost more beneficial for the owner to do lease to own versus seller finance. So that’s interesting.

Amanda:
Sometimes, and I don’t know if there’s a distinction, a technical distinction between lease to own versus a lease option. I mean lease option, meaning we have a lease agreement and we have a options to purchase agreement. So you’re a tenant, but you’ve given me some money upfront to say, okay, at some point in the future you can buy it at a stated price, and that’s slightly different than a lease to own where you pay after X number of months or whatever, then you own the property. So that’s maybe a little bit more like a seller financing, so not to get into the woods of.

Ashley:
No, that’s great that you broke it down. Yeah.

Tony:
All right, Amanda. So going on to our next question here. This one comes from Amber, and Amber’s question is I’m looking to best leverage $98,000 in profit from a sale into a bigger opportunity for cash flow and equity. I also want to reduce my tax liability on that sale. Right now I have an approval to only purchase a home at a minimum of $250,000 ARV with a $200,000 loan with hard money at $187,500. Since my approval, the interest rate has gone from six and a half to the high eights. So Amanda, just to sum up this question, they’ve already sold the property, they’ve made $98,000 in profit. So my understanding is maybe 1031 exchange is already off the table because they’ve already completed the sale. So what other options does Amber have to get the best tax treatment on that $98,000 in profit?

Amanda:
Yeah, I mean, answer depends on the timing of it, in terms of when was this property sold. If it’s still within the same year of us addressing this question, then even though she can no longer do a 1031 exchange after the fact, she could still do what’s called a lazy 1031 exchange. And that’s just something that we made up. So if you Google it, probably won’t find any definitions about that. A lazy 1031 exchange is basically people who’ve already sold the property but are looking for ways to offset the gain by reinvesting into other real estate. So as long as you’re doing it within the same year, so I sold property one in January of this year, but before December 31st, I buy more real estate. With my new rental properties I can maximize my expenses and write-offs, I can do cost segregation and the loss I create can be utilized to offset the gain on the property that I sold.
Even though they’re two completely different transactions, but that’s just how tax law works. If you have loss on one rental, you offset the gain on the other rental. So definitely still possible to do. I know she mentioned the interest rates are going up, and unfortunately there’s not much that we can do as investors to control what the rate is going to be. You can look for cheaper financing, you can look at partnering with other people to make the numbers work out, or I mean, you find the best deal that you can right now, and you can always refinance when the interest rates decreased again. So yeah, a couple different options there, I think.

Tony:
Amanda, something I learned. Well, first, the big benefit obviously of the 1031 exchange is that you get to defer those capital gain taxes from the sale of that property. But the challenge is that it’s a tight turnaround time. It’s a tight timeframe to identify that next property and enclose on a property. Someone mentioned to me earlier this year, oh gosh, its 2023 now, so last year.

Ashley:
Last year.

Tony:
Yeah. Someone mentioned to me last year about a reverse 1031 exchange. Have you heard that phrase? And if you are familiar with it, would you mind breaking down what it is and kind of how it differs from a regular 1031 exchange?

Amanda:
Yeah, definitely. So in a 1031 exchange, the way that it works is when you sell a property, and this has to happen at the time of the sale, so maybe for someone like Amber who’s already sold, we can no longer do it because you have to have an intermediary involved in the transaction before you sell. So when you sell, you have 45 days from the date of sale to identify which properties you will buy as replacements, and within 180 days you have to close on one or multiple of what you’ve already identified. So you meet those two rules. And there’s other number rules too, in terms of sales price, purchase price and things like that. But let’s say you meet those timelines, then you can defer all your taxes. But yes, what we’ve seen recently when it was a hot seller’s market, that was really easy for an investor to list the property and be sold the next day, but now they’re sitting on this money in the intermediary and they’re trying to replace it a lot more difficult to find the right properties to close on where the numbers make sense.
And that’s why we saw a lot more of the reverse 1031 happen. So reverse 1031 just means that you already have your replacement properties identified and maybe even purchased. So I already know I’m going to buy this property on Main Street for X dollar amount. I’ve identified it, I might have even closed on it. And then you list your current existing property for sale. So that’s really the only difference, and I encouraged a lot of my clients to do it the last year, year and a half for that exact reason. You don’t want to be in a bind where like, oh my gosh, now I have to quickly look for a replacement property where the numbers might not make sense.

Tony:
And the big benefit of the reverse is that it takes away that time pressure because you’ve already identified the property, you already know the property. Obviously the downside is you have to come up with the capital to purchase that new property first and then go back and kind of replace it from that other capital. But I think the ability to search for the property without the pressure of 45 days, 45 days that allows you to find a better deal potentially, and you might get more value out of your 1031 exchange by doing it that way. Well, thank you for bringing that down, Amanda. Something that I learned that was new to me, I figured I’d share with the Rookie audience as well.

Ashley:
And Amanda, if somebody else wants to do that, who should they go and talk to? Is it their CPA or should they go right to a 1031 intermediary?

Amanda:
Yeah, great question, Ashley. So I typically recommend you start with the CPA, and the reason is because your CPA will be able to tell you whether there’s a gain on the sale of the property, and if so, how much is the gain, right? I mean, doing a 1031, whether a regular one or a reverse one, there’s cost associated. It’s not free to do, right? You have to have an intermediary do it. And like Tony was saying there’s kind of the downside of the timelines and the stress of all that. So for some investors, maybe if the gain is small, they don’t care.
Maybe it’s like, Hey, I’m only going to save a thousand dollars in taxes. I’m not even going to worry about it. And you don’t really know what the gain or loss is going to be unless you talk with your tax advisor. Even for someone who like, Hey, I’m selling Main Street property, I know it’s going to be a gain, but I might have other losses from my other rental properties or my other business that I can already use to offset. In which case, maybe 1031 is not really needed. So that’s why I talked to the CPA first. They’ll let you know whether it’s needed, how much it’ll actually help you to defer taxes, and then you can decide, does it make sense for me to hire an intermediary and go through those steps?

Ashley:
That’s such a great point too, as to what are kind of your goals or what are you looking to do within the next year too, because maybe you want to go and purchase your own primary residence where it’s not going to be based off of rental income. So you want a year where you’re showing high income, so you’re actually going to pay the taxes on that profit instead of doing the 1031 exchange to show that to get approved for a loan. So just another great example of why it’s important to do that tax planning with your tax professional. Okay. Well, Amanda, thank you so much for joining us for this week’s Rookie Reply.

Amanda:
Thank you.

Ashley:
Can you let everyone know where they can reach out to you and find out some more information about you?

Amanda:
Oh, yes. Keystonecpa.com is my website. If you want more tax tips and tax strategies, we have a lot of free downloadable resources. And if you just want to follow me personally and see what I’m having for lunch and what I’m doing on the weekend, you can find me on Instagram @qmanda_han_cpa.

Ashley:
I’m Ashley @wealthfromrentals, and he’s Tony @tonyjrobinson. And we will be back on Wednesday with another guest.
(singing)

Often, the leaders we remember the most are the ones who inspire us to take action or to better ourselves and make an impact. To be inspirational in this way is a goal many leaders dream of achieving, yet it’s not a skill that always seems to come naturally to those who try.

Thankfully, there are a few steps you can follow to help put you on the right path. Here, 10 members of Young Entrepreneur Council each offer up one step leaders can take to be more inspirational day to day and discuss why developing this trait will benefit you, your team and your company overall.

1. Radiate A Positive Vibe

Remember to have fun, even as a leader—or especially because you’re a leader. At your next meeting, think “How can we work better together to make this great?” versus “How do we avoid forking this up?” Given emotional contagion, your vibe matters. While there are times when I switch postures to be more direct, in most of our one-on-one interactions, being positive pays off. – Charlie Gilkey, Productive Flourishing

2. Share Your Failures

Your failures make you more human rather than just a leader. Never forget to share your failures with your teams. It’s all about courage and authenticity. Inspirational leaders are not afraid to take risks and stand up for what they believe in. They are authentic and genuine, and they lead by example. Furthermore, they are flexible and able to pivot when needed. – Candice Georgiadis, Digital Day

3. Learn To Be A Great Storyteller

If you want to be a more inspirational leader, your No. 1 skill to learn is storytelling. Every single person loves it. There is something about human nature that makes us drop everything and pay attention when we hear a good story. Learn to weave your messages into well-developed plots with thought-provoking insights and you’ll be able to inspire and motivate people around you. – Solomon Thimothy, OneIMS

4. Cultivate Emotional Intelligence

Emotional intelligence is key. Being emotionally intelligent allows leaders to better connect with their teams, to build trust and rapport and to create a positive and inclusive work environment, fostering greater engagement and commitment from team members. Leaders can practice mindfulness and self-awareness and also seek out development opportunities to enhance their emotional intelligence. – Lauren Marsicano, Marsicano + Leyva PLLC

5. Be Generous And Giving

Be more giving. Be generous. An inspirational leader gives employees what they want (within their capabilities). For example, if your company is doing well, pass along the rewards to your employees. A leader also knows that while money is a motivator, so are recognition, praise and rewards. Even speaking directly to an employee about a job well done is inspirational and a powerful motivator. – Shu Saito, SpiroPure

6. Practice Empathy

Leadership is a skill and it takes practice to develop. One of the most important skills for a leader to have is empathy. Leaders should understand how their team members are feeling and what they are going through. Leaders can also perform better by being aware of how others perceive them. How people see the leader will determine if they are seen as inspirational. – Kristin Kimberly Marquet, Marquet Media, LLC

7. Get Inspired

The key to being inspirational is to be inspired. Develop the hunger to learn from other leaders. They don’t necessarily have to be in business. Pick any person who has left a mark in the world that’s worth emulating. It could be Bill Gates, or it could be the pope. Read and learn about notable figures from different industries, cultures and disciplines. The internet has a wealth of information. – Bryce Welker, Crush The GRE Test

8. Embody Your Company Values

The most inspirational thing a leader can do is embody their company values. In my company, our core belief is “People First.” This means that our employees and customers always come first. We implement this belief every day by listening to people. Leaders can develop this skill by taking small steps and being consistent. It will make an impact as you work at it over time. – Syed Balkhi, WPBeginner

9. Listen To Your Team

If you want to be a more inspirational leader, take some time to listen to your team. Employees appreciate it when their bosses listen to their feedback and take action based on what they learn. You can develop this skill by practicing. Have a biweekly one-on-one meeting with your team members so you can better understand their needs. Take what you learn and find new, inventive ways to improve your business. – Chris Christoff, MonsterInsights

10. Pick Them Up When They Are Down

You are the energy you give to your team. I always focus on having a positive attitude when communicating with my staff. When they are tired and experiencing low morale, as leaders, we must pick up our teams and keep them going with a positive mindset to help move us toward our goals. A leader is nobody without their team. – Alexandru Stan, Tekpon

Dave Meyer:
Everyone, welcome to On the Market. I’m your host, Dave Meyer, joined by Henry, Jamil, James, and Kathy. How is everyone?

Jamil:
Great. Fabulouso.

Kathy:
Doing well.

Dave Meyer:
Good. Well, it’s good to have you all here. Jamil, we missed you while you were gone. It’s great to have you back.

Jamil:
Thank you.

Dave Meyer:
For everyone listening, we’re going to have two parts to this show today. We’re going to play a game called, Hot or Not, where our panelists are going to tell us whether they like certain strategies for this type of market, and then we’re going to go into what we call our correspondent show, where we’re going to be talking about some of the more important, and relevant news stories for real estate investors that are going on right now in February of 2023. Hey guys, ready to play Hot or Not? I feel like this could get mean. I feel like it’s like a middle school game. I have some repressed feelings about a game called Hot or Not.

Jamil:
A past trauma?

Henry:
Flashbacks of rejection.

Dave Meyer:
Yeah, just being notted a lot.

Jamil:
But is that website still up? Should we all put our pictures up on it?

Henry:
Absolutely not.

Dave Meyer:
I am on my work computer, and I’m not going to type in hotornot.com on my work computer.

Jamil:
Do they track keystrokes there on your work computer? Like what’s Dave typing today?

Henry:
Scott Trenches just watching you type all day.

Dave Meyer:
Yeah, sorry [inaudible 00:01:26] .

Jamil:
Although just to say I think if Dave was looking at Hot or Not, in my world, all that would appear would be sexy, or not sexy numbers.

Dave Meyer:
Oh yeah. Yeah.

Jamil:
It’d be like pie charts, versus line graphs.

Henry:
Look at that IRR. Mmm.

Dave Meyer:
It’s true. It’s just data visualizations, and people talking dirty about them. All right, well, enough of that. Let’s get on to our show, where we’re going to be talking about different strategies. I want to hear from each of you, is this strategy right now hot or not? And I guess it’s not like hot, like are people doing it? Is it, would you do it? So let’s start with short term rentals. Henry, hot or not?

Henry:
I’m going with nyet.

Dave Meyer:
Nyet? Okay.

Henry:
Not, not hot. I say that with a caveat. I’m doing it with a couple of deals, but I think what you’re starting to see with the Airbnb kind of slow down, both seasonality obviously is playing a role, but also the increased inventory of Airbnbs is causing demand to go down, which is causing pricing, nightly rates to come down.
And I think you saw a lot of people who had gotten into the Airbnb space because they were just like, “Oh, I can make five times what I’d get long-term rent. I just got to throw some furniture in there, and stick it up on Airbnb? Heck yeah.” Right? So, you’ve got a lot of people in this space who are truly running a business, who are truly looking at the metrics, and setting their properties apart, providing the amenities necessary in their particular regions.
They didn’t do that kind of market research. They’re not true operators. And so I think that if you look at Airbnb from that perspective, in 2023, you’re going to see a lot of those people who just kind of came in hoping to capture a bunch of cash, they’re going to fall to the wayside.
I still think buying properties at deep enough discounts that you can afford to pivot, and you can put those on Airbnb, I still think there’s some benefit there and you can make decent money with Airbnb. But, you have to operate it properly. Do the proper market research, offer the right amenities, have the right business practices in place, be able to do the proper marketing.
You didn’t have to market before, you just had to have it out there, and now you have to market, and set yourself apart. And so, it’s a more… I don’t even want to call it a more difficult strategy now. It’s what it should have been in the first place, is it’s a business, and you should treat it that way.

Jamil:
Hospitality.

Henry:
Yeah.

Jamil:
It’s hospitality. We got to get back to hospitality, right Henry? I mean let’s… There’s a Airbnb here in Phoenix, Arizona, it’s always booked because they have llamas.

Dave Meyer:
There. Everyone go out and get a llama, just go get a llama.

Kathy:
Llama. I never thought about it.

Dave Meyer:
Put a llama on it.

Kathy:
There’s one here that has a giraffe, so yeah.

Dave Meyer:
What? That seems illegal.

Kathy:
It’s a famous giraffe. It’s the one from…

Henry:
It’s the Toys “R” Us giraffe?

Kathy:
No.

Dave Meyer:
It’s Geoffrey? It’s Geoffrey.

Henry:
He retired from Toys “R” Us?

Kathy:
It’s the one from the Bachelor one, the Vegas one. What am I trying to say? The movie.

Henry:
The Hangover?

Kathy:
The Hangover. Yes, yeah, it’s the one from The Hangover. It’s that one. Yep. It’s a rescued giraffe from Hollywood.

Dave Meyer:
Honestly, you know what? I would stay there. I’m curious now. All right, so everyone, it’s short term rentals are hot if you have an obscure farm animal, but if you don’t, be very careful about it, is apparently the lesson. Does anyone else disagree? Anyone else want to give me hot or not for this? Jamil, it sounds like not? Kathy or James?

Jamil:
Yeah, not.

James:
Not.

Kathy:
Not. Not right now. I keep reading stories that actually it’s increasing now, and that vacation properties are kind of back in style, but I could tell you in our own case, we’re down 50% from last year, if not more.

Dave Meyer:
Same. Yeah, mine mine’s down a bit too, and I don’t know, I feel like it was a gold rush, and now it’s back to just grinding it out, like any other business. It’s not like the easy money any more like it once was. But maybe it’ll rise again. We’ll see. All right, let’s move on to buy and hold. Kathy, I’m just going to give you a layup right now.

Kathy:
Hot. So hot. So, so hot.

Jamil:
I mean, can anyone disagree with that?

James:
Yeah, I’m a, I’m going to disagree with that.

Dave Meyer:
You are?

James:
I’m a not on buy and hold.

Dave Meyer:
Really?

James:
But it depends on what you want to buy. Like the BRRRR properties I think are really hot. That’s a hard to buy. But for us, at least in our market, the lower income stable ones where you’re just putting 20% down, like a traditional rental property, and that’s kind of how I’m defining that the, you’re still competing against first time home buyers, and that market is competitive. Yes, the market’s down, but we’re moving stuff, and so it’s hard to get a good, stable, just buy and hold. And again, I’m classifying this as single family rentals. I think there’s a lot of multi family, a lot of BRRRR opportunities, but if you just want that straight base hit, single-family rental deal, not a good yield right now, I would get something else.

Dave Meyer:
Yeah, that’s interesting. So you’re saying basically you like rental properties, but it needs to have some sort of value add component.

James:
Yeah. It needs to have value add. I just don’t think the opportunities are there. If you want your base hit rental deal, 20% down, carpet, paint, release, the margins are not good. Not with the rates right now. And you have to put more money down, and I think you can get into buy and hold, but you got to get the ones that no one wants, or the ones that are a little bit hard, and then those deals are substantially better than they were 12 months ago. So there’s opportunities, and holdings, but just not for your straight base hit deals. This is thought… I think for me, you can get 3x your return in the other spaces.

Kathy:
It’s funny, I would’ve thought that, but I just had a conversation with our Indianapolis team at Real Wealth, and they said the cash flows today are the same that they were before, because rents have gone up so much in those areas, and now there’s more inventory.
Last year you couldn’t even get anything, and if you did you’d have to outbid other people. You’re not having to do that now, but the rents have gone up, and they’re holding. So he said it’s no different, and in so many cases the sellers are actually paying points to bring your rate down, and so you’re probably getting the same, if not better rate than you could get last year. So, I thought that was really interesting, and we had looked at the proforma, and tore it apart, and he was right. It’s similar.

Jamil:
Right now. I like buy and hold as a short term strategy. I know that kind of sounds crazy, but I think that if… Because I’m allergic to holding stuff, and I’m going to continue to be that way, because of past trauma, 2008, and getting my hand burnt when I was trying to buy a multi-family.
But what I’m going to say is, I am still seeing opportunities to buy really, really deeply discounted property out there, and if I can hold it just this period of time of pain where I think things start to stabilize, and once we come around the bend, if I can at least break even between my purchase, until my exit, which I think will be 18 to 24 months from now, I am looking for substantial returns on that. So, I just want to buy, hold. I don’t even care if I cash flow, just break even until I can take my exit, and cash in my chips at the casino.

Dave Meyer:
All right, so that’s like lukewarm, lukewarm, not hot or hot. It’s like-

Jamil:
Yeah. Yeah.

Dave Meyer:
Yeah. Okay.

Henry:
I mean, I agree. I think James and Kathy are both right, honestly. It’s similar to the Airbnb conversation. There was a gold rush when the market was super hot, and you could get 2% interest rates, and things were going up in value so quickly. So, you could buy something at a slight discount, and all of a sudden you’re renting it out, rents were going up, so you can make the cash flow work.
You’re not going to find those easy opportunities as much, the ones James was talking about. You’re not going to be able to make those pencil. But if you can, and are good at looking, and finding undermarket value deals, I mean, the discounts that we’re able to get, and then the rents that we’re able to get from, after we renovate those properties, man, we’re cash flowing just as much as we were before.
And a lot of the times it’s making more sense, because typically in my business, we keep the multis, and we sell the singles, but right now, the way we’re deeply getting the discounts on these singles, it makes more sense sometimes for me to just keep them as rentals, even if I do it in that short term timeframe, like Jamil is talking about, when I can sell them at more of a discount.
So even if it’s not something I want to keep in my portfolio forever and ever, the cash flow makes sense right now, because if I do turn those deals, like for example, I have a deal right now, I’m closing today, I’m going to make a $17,000 profit. It would’ve made more sense for me to just renovate it a little bit, stick a tenent in, and cash flow it every month until the market changed. So, the numbers are just making more sense as rentals on single families, depending on the type of discount you’re able to get, and how much you got to spend on that reno.

Dave Meyer:
For sure. All right, well let’s do one last one. Let’s talk about flipping here. James, hot or not?

James:
I think it’s hot. If you find the right opportunities, but it has to be ones that… Where we’re having success in flips right now is going in the spaces that everyone’s freaked out by. There is a lot of opportunities in there. When we’re buying an average price of seven to 950,000, the discounts are about 15% cheaper than the flips that we’re looking that are 300 to 500 on the acquisition.
And so, it can be hot if you get into the right space. I think the overall investor demand is that the not right now. No one’s really looking for flips, which is another good thing for us. We can go find those opportunities that are there. I mean, I just bought a house, we contracted it yesterday. I would’ve paid 600 for this at the beginning of the year, or at the beginning of 2022. We just contracted over 435.

Jamil:
[inaudible 00:12:08].

Henry:
Wow.

James:
And not only can I flip it, I can also build a daddy with a backyard.

Dave Meyer:
Oh, nice.

James:
But because it was a full permit job and it’s going to be a 12 month project, everyone’s like, “Nah, I don’t want to deal with this right now.” So, the margins have… Starting to really increase on the ones that are tougher. So if you can hang in there, and actually go after… Go where no one else is going, and you can absolutely crush it right now.

Dave Meyer:
Anyone else have thoughts, hot or not, on flipping?

Kathy:
I would’ve said not hot, but James is so hot that it’s making flipping sound hotter. But he makes a really good point that, I mean really, I wasn’t flipping when it was super hot for everybody, because I’m just not good at it, but maybe it’s time to start. But there’s a lot of belief that rates are going to go down in May, because the inflation numbers are going to look so much better year over year, and the average is year over year, and that may is really the month that that’s going to happen. And so, if you were to get something now and try to sell it in May, that could be really good timing, now that you mention it. It makes a lot of sense if you get it now with the discount, and then resell when mortgage rates are better.

Jamil:
Personally, of course I flip houses on TV, and so A, I have to for a part of my life, but secondly, the price point really matters. And for me, I’m staying away from the luxury, or, I’m not super luxury, but that between 750 and 1.5 million kind of price point, I’m staying away from flipping anything in that range. I’m really liking manufactured homes. I’m really liking really, really, really, really entry level fix and flips with minimal repairs, that that product is still moving. It’s profitable, and as long as you can acquire at a good price, it’s safe.

Dave Meyer:
All right. Hot. Enough said. Flipping is hot.

Henry:
Yep. I got two deals. I got two deals I’m going to net six figures on at flips right now, in this crazy market.

Dave Meyer:
Nice.

Henry:
And we’re talking six figures in Arkansas, so the margin is… That’s huge for here.

James:
Yeah. What kind of cash on cash return is that? Is that like two, 5000%?

Henry:
Yeah, well, I literally have no money in either one of the deals, so it’s infinite for me.

Kathy:
Smoking hot.

Dave Meyer:
James, those are the type of numbers I look at on hotornot.com, just those types of IRRs. All right, well we’re going to take a quick break, but then we will come back with our correspondence show.
Okay. Serious time everyone. All right, that was fun. Now, let’s talk about the news. James, you have a story for us about how the housing market is performing. Can you share something with us?

James:
Yeah, so this article is from Fortune Magazine, and it says, “Well, we are in a bifurcated housing market correction. Just look at these four charts,” was the title, and what it references a lot. It talks about how John Burns, which is a great data source in general, was predicting at the beginning of the year, a big decline, versus what they were saying at Zillow, where Zillow was actually predicting a 24% increase this year, year over year.
And John Burns came out pretty negative at the beginning of the year, thinking that there was going to be a fairly big decline, and it turns out he was not wrong in a lot of the major cities, and what it looked like was, in the top 150 major housing markets, 100 of them declined pretty drastically. San Francisco was down 10.5%, Austin’s down 9.5%, Reno’s down 9.3%, et cetera. And then there was 50 that were really just flat.
And what it comes down to, we’ve all been talking about it for the last couple months, is just the affordability in the market, and the markets that have been the biggest decline also had the furthest appreciation, but they were already at the top of the market going into this last… Like in 2018, things were at the top, and people were hitting their affordability. Once rates dropped so low, it spiked everything up again. But once those rates started increasing, it just had to get back down to the affordability.
And so, it really talks about how they believe that rates are going to continue to increase for next year, and that you need to watch, in these… As you’re investing, or how I read it is how you’re investing, you can look at the markets, and where their affordability ranges are, and that has a huge, huge impact on whether that market’s actually going to decline.
It’s not about that fad of a market anymore, or like… Some of the novelty in the markets have worn off, and it’s really just comes down to straight affordable. Can the buyer pay this with what income that they’re making? And so, as a flipper, or an investor, how I kind of read that is we think rates are going to go up, then yes, we could see further decline, like in Seattle. Seattle was a big drop.
I know in Jamil’s market too, in Phoenix, we saw a big drop, and it all had to come in with that top end of the market. And so, if you think rates and affordability are going to continue to climb, that those could actually deflate even further. But, it is talking about how it really just made two different markets. You have your affordable markets, and your expensive markets, and the affordable markets have seen very, very little, to zero decline. Like in Charleston, they were saying, has saw zero, and the expensive markets are deflating down.
And I did think that was the interesting point. Yeah, it comes down to affordability, got two markets, and I actually think there is going to be a third market though. It’s not just going to be two. I think you’re going to have your affordable markets, like tech, and that’s what we’re seeing right now. Seattle, San Francisco, Austin, the markets have deflated about 10% from last year, and I’m seeing it about 25% down from peak pricing.
But now we’ve kind of hit this affordable market, and we’ve sold a ton of houses in the last 10 days. I was running about 35 to 40% pending on all of our… At any given time we have about 60 to 70 listings. We were running about 35 to 40% pending for the last six months, and now we are up to 55 to 65% pending, and I’m getting offers regularly on all product, not just affordable.
We listed our farmhouse flip for $3.25 million. We were anticipating to be on at 60 days. We got an offer in 10 days. And so, things are moving again. So, as a flipper, I’m going, “Okay, well if the rates are going to spike up, I just need to undercut my values a little bit.” But there is this sweet spot where things are trading, and it also leads to big opportunities in these deflated markets.
Because what this is saying, is it’s all based on affordability, if we all think rates are… I think rates are going to drop in the late quarter, that means I’m going to see some appreciation there, too. And that’s what you can check for to get those massive equity pops, and really change your whole trajectory in real estate, for me. So I’m looking for those opportunities that I’m going to see those equity pops, because it makes it kind of more of an equation. Like, “All right, if we know where it’s going to sell on the affordability factor, then we just got to watch rates, and we can run with the rates, and kind of watch those equity positions rise or shrink.”

Dave Meyer:
Are you saying, James, that you think it’s picking up in Seattle because prices have fallen so far that they’re now affordable again?

James:
Yeah, it just got out of reach for people, because there’s still a ton of buyers in our market. We listed a couple homes last week, or we have a listing coming up right now in Mount Lake Terrace. Mount Lake Terrace is… So it’s north of Seattle, good commuter city. We saw massive appreciation in this neighborhood the last two years. I’m talking about 50, 60% appreciation. Huge, because just location, development, and the city also being improved.
And it definitely shrunk about 10% from where it was in the peak, but I pulled up, or [inaudible 00:20:34] get into list, there isn’t one home for sale in the entire city of Mount Lake Terrace that I saw that would be… So I’m going to be the only house for sale.

Dave Meyer:
Whoa.

James:
And what happened is, there was a lot more inventory in the wintertime, which I do think the seasonal slowdowns are coming back. Seasonal slowdowns were always a real thing, until COVID hit. Wintertime, you’re always going to sell your… It is going to take longer to sell, it’s going to sell for a little bit less. And then with rates increasing, it got the inventory increased more. But I mean, we’re talking about, their inventory increased like 35, 40% in these areas, if not up to 80%, and it got absorbed in the last two weeks, very, very quickly.
And we’re actually starting to see some multiple offers again too, where things are getting actually bid up, as well. So, I feel like it had this sudden drop, we’re on the shelf, and now the consumers are… They have to buy it. There is so many buyers in our market, they just can’t get in reach with what’s coming to market. And now, with the pricing getting down to that sweet spot, things are getting consumed again. I mean, there is a substantial amount of buyers in our market, even with the high rates, and no inventory.

Dave Meyer:
Wow. Super interesting. Yeah, I’ve heard a lot of that. I was just talking to my real estate agent in Denver who was saying something similar, and I guess Seattle and Denver are probably those types of tech markets. What you were talking about, that tier of tech markets that are high priced, and have seen some of the furthest drops, peak to current, so far. Jamil, given you’re in a pretty pricey market there, what’s going on with you in Phoenix?

Jamil:
Well, we had a very seismic type report by the New York Post, where Goldman Sachs predicted a 2008 style crash in Phoenix, Austin, San Diego and San Jose, and they’re predicting 27% or greater price decline for 2023. So, this obviously created just a massive ripple effect of conversations amongst the investor community, and real estate agents, and whatnot. So, my phone was blowing up, and so of course I start doing some digging, and looking at how true is this prediction.
And looking at the corrections, of course, each of these markets have seen declines, and what I’ve seen so far, from peak to present, we’re looking at about a 9.9% peak to present drop in Phoenix, Arizona, San Jose. And again, data is varying between different sources, but it’s all relatively close, from in San Jose I’m seeing about 8.9% peak to present, San Diego, 6.7% peak to peak to present decline, and in Austin, 14% peak to present decline, which is… I mean that, to me, if I’m looking at a possible market that could have that type of depression, or that type of crash, it could potentially be Austin.
But again, the fundamentals in each of these markets are really strong, and you still have very, very strong lending criteria. Days on market on average is like 30 days, or less in each of these markets. You’re also seeing these surges in first time landlords, which is an increasing thing, which is an interesting thing to think about, because people who have cheap debt in these markets, rather than just go and throw their house on the market, and sell it at a steep discount, they’re deciding to turn into landlords, and they’re going to hold that house, and keep that cheap debt, and possibly remove that from creating inventory increases.
The other interesting piece, because I have KeyGlee in my world, we’re in one of the nation’s largest wholesale operations, and I’m looking at buying, and what the institutional buyers are doing, and it’s just interesting timing that we see a report like that come out, and the institutions that we’re working with are all turning up, they’re buying in those markets.
And then when I say turning up, I mean they’re reaching back out to us. They’re emailing saying, “Hey, send us everything,” but our buy boxes have changed dramatically. So now, they are decreasing substantially where their offer number would’ve been. And so, it’s like they’re looking at a report like that as their justification for coming in, and trying to purchase that 25% below where they would’ve been purchasing, say, three or four months ago.
So it’s like this, is report creating movement which will actually fulfill the prophecy that this situation could potentially occur? So, that’s interesting. But, on the other side of that, after the holiday season, we looked at our pendings, just here in Phoenix, Arizona, and I mean, it’s spiked, just like James was reporting, in the last little while his flips, he’s at what, 50 or 60% pending, where normally he’d be at like 35, 40% pending.
We’re seeing something very similar here in Phoenix, Arizona as well. So, how does that happen? How is a 30% decline supposed to occur, when we still have low inventory, when building has screeched to a halt, when we’ve got home locked buyers, because interest rates were low for all that time, and they do not want to let go of that asset?
I mean, I don’t know. I don’t see it. I don’t see it. I don’t see it naturally happening. But again, everything that we’re looking at, and working with right now, are not natural real estate cycle phenomenon. This is all manipulation. It’s all so many different factors, and agencies, and institutions, and doing things. I’m not a conspiracy theorist, I’m just looking at the writing on the wall and I’m like, “Who’s controlling? Who is the puppet master here, and how do I become friends with that person?”

Kathy:
I could tell you one of the puppet masters is the one we’ve been talking about for a year now, and it’s the Fed, and what they’ve been doing. And this isn’t my article, but it’s an article that’s really good, and I’ll just share it really quickly. It’s from National Association of Home Builders, and I think you guys also saw this, how many households were priced out by higher mortgage rates in 2022.
And it shows these graphs of when interest rates went from 3.25%, to percent to 7% in a matter of months. I mean, what a shock to the system. This is doubling the payment in just a matter of months. And in that process, it went from 44 million people who could afford to buy a home, down to 26 million in a matter of months. We’re talking 15 million people priced out, boom, just like that, in a matter of months. I’ve never seen anything like it.
Now, recently, we went from that 7% rate down to about 6.4%. So this article is basically saying in the last few months that brought 2.6 million people back into the market. Now, as over the next few months, most people are assuming, and seeing that with inflation going down, so will mortgage rates, mortgage rates follow inflation, and that we will probably get into the high fives. And that brings in a whopping almost 8 million more people who can afford to buy.
So, a lot of what, again, James was saying earlier, and what you are saying now, Jamil, of like there’s this change, it’s because now there’s more people who can come back in, and they’re learning, and they’re being educated by their mortgage broker that, “Hey, you’re going to pay a little bit more to get your rate down maybe to the fives, maybe a point or two.”
I just talked to a mortgage lender yesterday who said, “It’s just like a point or so to get you into the fives.” And again, that’s bringing in 8 million more people, and paying that one point is a lot less than the higher prices that they were paying before. And you have a lot of people who are sitting on cash, ready to buy, and suddenly couldn’t, but had the down payment. So, it’ll be a lower down payment, but the difference goes towards paying down the rate. So, that may be one of the reasons you’re seeing more people coming back in, and sales picking up.

Dave Meyer:
And people are coming in with FOMO. They missed the opportunity.

Kathy:
Yeah.

Dave Meyer:
Because rates spiked, and now they’re back in it, and they are moving right now. They are really jumping on stuff. They don’t want to get priced back out again.

Kathy:
Yeah.

Dave Meyer:
When you put it that way, Kathy, it’s pretty amazing. The housing market has been as resilient as it is.

Kathy:
Yeah.

Dave Meyer:
The fact that we’re seeing, I think the Kay Schiller came out the other day, in a seasonally adjusted manner. It’s just 2.5%, peak to trough, to peak to current is 2.5% declines, and that’s with what, 30% of buyers being priced out? It is pretty remarkable, and I think why, to your point, Jamil, 30% declines. Maybe in a few markets, who knows, but it just seems unlikely, especially with what’s happened in the last couple weeks with there’s a lot of activity going on.

Kathy:
Yeah. And it’s important to note that with sales down, sales down 30%, you’re getting a smaller pool of properties to even look at, and averages to even look at. It was kind of like in 2009, when everything was a foreclosure that was on the market, then prices seemed really low, but it wasn’t a real price, it was just foreclosure prices, because that was the main what was on the market, and that’s what we’re seeing. What’s on the market is maybe being discount, but that doesn’t really state the whole, it’s sales are down so low, it’s just a small percentage of what’s out there.

Dave Meyer:
Yeah, absolutely. Well it’s interesting what you said Jamil. I’m curious to hear how it evolves with these institutional buyers, because you’re sort of at the forefront of it in Phoenix. I think it would be interesting to know, in some of those other markets that you mentioned, you said like San Jose, I don’t think that’s a big institutional buyer area, or San Diego, it’s so expensive.

Jamil:
Not a huge institutional buyer area, but they do buy there, and it’s some of the… Also those smaller portfolio buyers, which are still… It’s still in the hundreds of millions of dollars when we’re talking about access to capital, and their ability to purchase. So, I mean, they’re still buying, they’re turning on the taps.

Henry:
I am with you Jamil. I get it. I also, not a conspiracy theorist, but I mean, you can put pieces together of a puzzle, and if it makes a picture, it makes a picture. But what you’re saying is echoed in my market, it’s also right in line with the article that I brought to share, which is that mortgage demand has jumped 28% in one week, as interest rates are now at their lowest point in months.
And so, the highlights of the article are just saying that the average interest rate for a 30 year fixed is around between 6.2 To 6.4, and more people are applying for mortgages. It’s up 25% week over week. Now, putting that into perspective, that’s still down 35% from 12 months ago at this same time. But when you look at rates being at their lowest point since September, that’s significant.
And I think what you’re starting to see is that people are realizing that the two and 3% interest rates, that ship has sailed. I think people are finally starting to get it. We’re not going back there. We’re not going to get that low again. I mean frankly, a lot of people don’t want to get that low again, because what does that mean for what’s happening in the economy, if we have to get there again?
And so, people are just starting to realize that this is what you pay for an interest rate now. Life happens, and things move on. Yes, people are… There is a subset of people who are priced out of the market, but that’s going to happen, no matter what interest rate you’re at. So, there are some people that can afford to buy, some people that can’t. I think people are starting to… I think the sticker shock is wearing off, and it’s just now this is what rates are, and life continues to move on.
People need to move for different reasons. People want to move for different reasons. And when you have two income households who have stable jobs, and are making a decent salary, it’s easier for them to afford homes. And what I’m seeing in my market is echoing that. It’s echoing what you’re saying as well. We listed a flip, which would be considered for a luxury flip in my market, and that’s a “risky” strategy right now unless you’re James Dainard. So, those luxury flips, we put it on the market, we had it on the market for 24 hours, had 10 to 12 showings, and got four offers, all over asking price.

Jamil:
Over asking.

Henry:
Over asking. One of them… We listed it at 550, and we are under contract at 570.

Dave Meyer:
And what’s the median home price in your area, Henry?

Henry:
The median home price in my area is like 300.

Dave Meyer:
Oh, so this is really upscale.

Henry:
275 to 300. Yeah.

Dave Meyer:
Okay.

Jamil:
I think I want to move to northwest Arkansas, man.

James:
Yeah, I think we all should move there.

Dave Meyer:
We keep saying that, but I don’t even know if they have an airport. How do you even get there?

Henry:
We have an international airport. You have to remember-

Dave Meyer:
Sure.

Henry:
That the Waltons funded this place. Do you think the Waltons aren’t going to have an international airport built here, where they can get in and out?

Dave Meyer:
I think they have an airport that they use. I don’t know if we’re allowed to use it.

Henry:
Private.

Jamil:
Henry, was that 20% spike in mortgage applications national, or just in the-

Henry:
National.

Jamil:
Region… That’s nationally?

Henry:
Yes.

Jamil:
Guys.

Henry:
Mortgage applications are up. More people are entering the market because I think they feel a little more comfortable that these are what the rates are going to be, and people are applying for home loans. And also, to echo what Jamil was talking about, the money is starting to be in demand again.
I’ve had two conversations in the last seven days. One with an institutional buyer, just like Jamil was talking about, called me and said, “Hey, send me anything. Send me what you have, we want to buy.” And one a bank, yesterday, a banker, small local bank literally reached out to me and said, “Hey, we need your business. I can still do loans with a six in front of them,” which is, when you’re talking about commercial lending, we’re usually paying a higher rate, so that’s solid. So he’s like, “Bring me what you got. I can do loans with a six in front of them. I’m willing to be flexible with the rates and terms.” So, they’re wanting to lend, more people are buying, and so I kind of see what you’re saying, Jamil. I see what you’re saying.

Dave Meyer:
I like it. All right. Well, that’s super interesting. I mean, I think that we’re in this really odd spot with mortgage rates, where people don’t know if they’re going to go up or down. And so, anytime there’s this… Like over the next year or so, where if there’s these short term fluctuations where they go down, people are jumping in.
And I think this just goes to show something that people overlook from a housing market perspective, is just demographics. There are just a lot of people who want to buy homes, and they are willing to wait for a little bit for a mortgage rate, but most people aren’t like us, where they’re sitting around looking at the interest rates, and forecasting what they’re going to be in May, and then October, and thinking about their strategy. They’re like, “I want a house. It went down half a point, and I’m going to jump in now.” It just goes to show, that’s how homeowners who make up 70% of the housing market make their decisions. It’s not what we’re talking about. All right, Kathy, let’s round it out. What do you got for us?

Kathy:
Well, this is actually a blog from the JP Morgan website. It’s JP Morgan Chase. The Economic Outlook for 2023, Trends to Watch. This was actually written in December, but I really think they’re pretty spot on so far. They said, “The US economy likely will slow this year, but the economy will grow.” So, it’s like half a percent to 1%. So, super slow growth, but that’s not a recession. That’s important, I think, for a lot of people who are hearing… I mean, all you have to do is type in recession on Google and you might want to get a handkerchief, and just cry a little bit.
But yes, the economy is slowing, but it doesn’t really look like a recession is coming quite yet, and they kind of predict it would be maybe towards the end of the year, or 2024, but mild. So, we shall see. It depends a lot on what the Fed does. Now the Fed just raised rates another 0.25%, and it looks like they’re going to do it again probably in their next meeting, another 0.25%.
And they’ve been saying for a long time they’re shooting for about a 5% fund rate, Fed fund rate, and they’re almost there. So, it could just be one more. A lot of people are in agreement that it would just be one more quarter percent rate hike, and then it just holds there for a bit.
And based on what we’re seeing, where we keep seeing job growth, and we keep seeing jobless claims declining, in spite of everything that’s happened this year, that could be true. That could be true that it’s a very mild recession at the end of the year. So those thinking that it’s going to be a 2008, it’s different. It’s different. Totally different dynamics this time around.
And then, as far as the housing market, you guys all said it all, I think we know it may be better than JP Morgan. I don’t know their lenders. They might probably need to know what to expect too. They’re expecting residential investment could be down 10 to 12% in 2023.
So again, that’s not a 2008 housing market crash, and that’s an average, meaning that some areas would do worse, and some areas would do better. And that’s what we were talking about, these different markets. I’ve been following John Burns Real Estate for many, many, many years, and that was always his message is that every single market is different. And there, again, no national housing market, and some are going to be more affordable, some are going to be less affordable, some are overpriced, some are underpriced. You’ve got to know your market in the end, when it comes to housing, but the overall economy really doesn’t look as bad as some people want to tell you it will be.

Dave Meyer:
I’m so glad you brought this up, Kathy, because I think that there is this overwhelming media narrative that there’s going to be a recession, and I think that is very unclear still. Economists, I just saw this poll by Bloomberg that said, I think it’s like 65% of economists think there’s going to be recession. So two out of three, that’s not a sure thing.
Goldman Sachs is the first bank that just upwardly revised their forecast. So, now they’re feeling more optimistic. They just said there’s going to be no recession in 2023. So, there’s some really interesting stuff here. The labor market is holding up surprisingly well. We just saw that GDP grew almost 3% in the fourth quarter. There’s interesting stuff here.
But I do want to say, that for the housing market in terms of appreciation and prices, narrowly avoiding a recession could be the thing that pushes housing prices down further, because that’s probably the only scenario I see where mortgage rates actually go up from where they are right now. Right?
Because if there’s a recession, that pushes down mortgage rates, and the only way I think mortgage rates go up is if the economy, if the yield curve kind of normalizes, and bond yields go up, and then we start to see mortgage rates closer to seven again. So, I don’t think they’re going to be crazy, but it’s just interesting that the overall economy doing well might be the thing that makes the housing market do worse.

Kathy:
Well, it wasn’t saying that the economy’s going to be robust, or again, growing. Normally you’d want to see a two or 3%, or 4% growth, and they’re saying maybe a 0.5% to 1%. So, I’m kind of still in the camp that mortgage rates are going to decline this year, based on the fact that the economy is slowing.
But this is, again, these are the headlines people see is, “Oh, the economy is down,” but oftentimes what they’re not seeing is, it’s the rate of growth that’s slowing. And that’s the same with housing prices. Like, “Oh, it’s down.” Yeah, the rate of growth is down, and that’s good compared to last year. So, again, read articles fully, because the headlines are meant to scare you, and unfortunately, too many people only read the headline.

James:
Does anyone else think that this is more of a slow squeeze, rather than a… It kind of had its jolt, now it’s like this slow squeeze that we’re going to be in for the next 12 to 24 months, but also, this slow squeeze could actually make rents go through the roof. As housing is just kind of out of reach, because if the economy’s not growing rapidly, that’s what we also saw. It wasn’t just rates, of why the housing market exploded. That was a huge portion of it, but it was also stock growth, investment growth, where access to liquidity was through the roof for people.
People were just printing money, and they could put money down. It’s like, “Oh, the house is up at 200 grand. Well, I’ll just put that down as by down payment.” And so the liquidity’s been squeezed, and so, right now, the cost of housing and the rent, it’s still a way out of whack. And so, I’m actually really starting to dig into some of these rental markets like, “Hey, I still see… Whereas I thought it was going to be stagnant, I’m actually starting to think that there could be some growth in some certain neighborhoods for sure.” Because the cost to own is just so out of whack still, and the slow squeeze is just going to make it harder to absorb that. Things will sell for pricing, but it’s going to be slower. So, in my opinion, rents are going to climb at that point.

Dave Meyer:
Interesting. Just because in markets, especially like in Seattle, just does not make sense financially to buy a house.

James:
No. Or like in Newport Beach. I mean, my rent payment’s a third of what my mortgage payment would be.

Dave Meyer:
Wow.

James:
No, it’s My rent payment is 50% less than my mortgage payment, if I put 50% down.

Dave Meyer:
What? That’s crazy.

James:
Oh, it’s crazy.

Dave Meyer:
Wow.

James:
I’m like, “It doesn’t make any sense to me. I’ll go buy an apartment building instead.” I don’t know. It just doesn’t… But yeah, so I could see some growth in that sector. The slow squeeze will actually, I think, get runway on the rents.

Dave Meyer:
All right. Well, I think that’s great advice. Don’t assume, just because people are saying that there’s a recession, and it’s a foregone conclusion that that is true. It’s actually a much more complicated, and nuanced economic situation, and that’s why there’s not really a real definition of recession. We’re just in this gray area.
I think Mark Sandy, the guy at Moody’s called it like a slow session. It’s like, it’s just going to be slow, and the economy’s going to be lame, but it’s not actually going to go backwards. So, there’s some nuance to it, and listen to shows like this, so you can understand it.
All right. Well, thank you all for being here. This was a lot of fun to have everyone back together. If you guys enjoyed this show, we would really appreciate some reviews. We get tens of thousands of people listening every week, but we only get like one review a week. All it takes is what? Five seconds. Go, give us a five star review on Spotify, or Apple. We really appreciate it. If you enjoy this type of show, and this type of content, it would mean a whole lot to us. Thank you all for listening. We’ll see you next time for On The Market.
On The Market is created by me, Dave Meyer and Kailyn Bennett, produced by Kailyn Bennett, editing by Joel Esparza, and Onyx Media, researched by Pooja Jindal, and a big thanks to the entire Bigger Pockets team. The content on the show On the Market are opinions only. All listeners should independently verify data points, opinions, and investment strategies.

By Nilay Mehrotra, founder and CEO at Kindly (YC W22).

The stock market peaked in February 2020 before the outbreak of the Covid-19 pandemic. As many of us know, the pandemic ended up having a significant impact on the world economy, leading to unprecedented volatility and uncertainty that lingers to this day. It is undeniable that a few key trends and developments have emerged as a result.

One of the ways in which the Covid-19 pandemic has impacted the stock market is through dramatic fluctuations in stock prices. Despite best efforts, it has been difficult time to predict market trends.

My company was one of many that had to leverage its online presence and adapt to the changes in the stock market during the pandemic. By pivoting to offering online consultations, home delivery of supplements and at-home diagnostics, we were able to continue serving customers and generating revenue. This focus on online services can help you weather a stock market dip and reach your revenue targets.

Background On Covid’s Effects

The S&P 500 index, which is widely regarded as a benchmark for the overall performance of the stock market, fell more than 34% between its peak in February 2020 and its low point in March 2020. The Economic Times of India reports that traders are now losing hope after suffering a year of rolling losses and a situation that could end up worse than the economic climate of 1977.

When governments and central banks worldwide took steps to support their economies, including through the implementation of massive stimulus packages, stock prices began to recover. The S&P 500 index eventually recovered much of its lost ground, and by the end of 2020, it had reached new all-time highs only to slip into losses in the current year.

Effect On Various Industries

Despite the overall recovery, Covid-19 has also led to significant sectoral shifts in the stock market. Some industries, such as healthcare, technology and e-commerce, have thrived during the pandemic as consumer behavior was altered and more people turned to online pharmacies, home-based diagnostics and online shopping over traditional stores. As a result, the stock prices of companies in these sectors have soared.

On the other hand, industries that have been hit hard by lockdowns and other pandemic-related restrictions, such as travel, hospitality and retail, have seen their stock prices suffer. Many companies in these sectors have been forced to lay off a vast number of their workforce, while others went bankrupt, leading to further declines in stock prices.

Stock Culture And ‘Meme Stocks’

There have also been major changes in the way that stocks are traded. In the early stages of the pandemic, as markets became increasingly volatile, some investors turned to “safe haven” assets. This shift in investor sentiment also contributed to the decline in stock prices, yet in many respects, these safe havens didn’t provide investors with the buffer against beat-up securities that they expected.

However, it goes without saying that as the pandemic dragged on, investors have become more comfortable with the idea of a “new normal.” In particular, the popularity of “meme stocks,” or stocks that have gained attention on social media platforms such as Reddit, surged. This trend was partly fueled by retail investors who were attracted to the stock market to try to make money during the pandemic. It is now being said that meme stocks are soaring again.

In addition to these trends, there have been some critical changes in the way that companies communicate with investors. Since more executives and leaders work remotely now, many earnings calls and other investor relations events have moved online. This has made it easier for investors to access information about the performance of the companies that they have invested their money, time and effort in. It has also led to some challenges, though, including technical difficulties and, in some cases, lost nuances from a lack of in-person interaction.

Effect On Daily Business

Transformations in the stock market affect daily business dealings through changes in access to funding, consumer behavior and competition. As already described on a larger scale, it also makes forecasting more difficult.

To mitigate these impacts, I believe companies should monitor the market, diversify revenue streams and focus on building trust with their customers, partners and employees. It is more important than ever to find ways to build resilience and adaptability and to show how you are building these things with shareholders as your company responds to inevitable stock market changes.

During times like this, business leaders must also focus on maintaining a strong financial position. This may include implementing cost-saving measures, diversifying revenue streams and investing in new technologies. Building a strong, resilient and adaptive culture will help you face the challenges and uncertainty of today’s stock market.

Overall, it is undeniable that the Covid-19 pandemic has had a significant impact on the stock market. It has led to unprecedented volatility and changes in the way that stocks are traded across the globe. The past few years have certainly been a wake-up call for anyone who was conditioned to the success strategy of buying in the dip and selling in the rip. As the world continues to grapple with the pandemic and its economic impact, it is likely that we will witness the stock market continue to be affected in a variety of ways.

Before the pandemic, co-living as a housing solution was already gaining popularity as urbanization caused rents to rise in major cities. Now, the concept of living in accommodations with communal spaces is making a comeback after the pandemic left a rental affordability crisis and loneliness epidemic in its wake.  

Early this year, the largest co-living operator in North America, Common, announced a merger with Habyt, the largest co-living operator for Europe and Asia. The result is a global leader in co-living that will operate 30,000 units worldwide, many of them co-living spaces. It is estimated that there were 74,000 total co-living bedrooms either for-rent or in development in the U.S. in 2022. At the end of 2019, real estate investment firm CBRE found that there were about 5,000 beds in only about 150 co-living communities around the country. It’s a rapidly accelerating trend, and research shows it may have staying power.

What Is Co-Living? 

Co-living has always been a way to save money on rent—groups of friends, especially young single people, often rent shared spaces to save money on their monthly housing costs. But modern co-living spaces are different. Buildings constructed or renovated with the intent of unrelated individuals sharing the same living space often come with top-of-the-line amenities. Think of higher-end decor and furnishings, fitness and yoga studios, expansive co-working areas, and perks like cleaning services and high-speed WiFi. People typically live in individual, furnished bedrooms but share common areas like kitchens, bathrooms, laundry facilities, and living areas. 

There are variations in how these spaces are operated. Some companies, like Outsite, use a membership model, where digital nomads can book spaces for as few as three nights. Others, like Bungalow, work as a tech platform that connects roommates seeking housing in major cities and subleases homes to them. Companies like Common offers a combination of private units with co-working spaces and shared units with private bedrooms. 

The rising popularity of co-living spaces has also created a market for co-owned units. For example, the Co-Own Co. in Denver allows homebuyers to purchase a share of a unit with a private bedroom and bathroom. It’s a way for individuals to start building equity for a fraction of the typical cost of buying a home in the city. Some developers are also applying the co-living concept to single-family homeownership by building communities with a common house and other amenities and providing programming designed to foster community. 

A Solution to Two Distinct Problems

Skyrocketing rents 

The rent-to-income ratio in the U.S. is now 30%, an increase from 27.2% in 2019. In some cities, the problem is far worse—in New York, the ratio is 68.5%, and in Miami, it’s 41.6%. High rents are making it difficult for residents to afford elevated prices on gas and groceries and to stash away enough savings to hope for homeownership. 

The surge in rental prices, which hit 17.1% year-over-year growth at its peak in February of 2022, was mostly due to limited inventory and high demand for more space during the pandemic. In some pandemic boomtowns, such as Austin, Texas, rents more than doubled within a year. 

The rental market is starting to cool—national average asking rents are declining, according to Zillow. Multifamily inventory is forecasted to increase in 2023 as well. But rents remain elevated at 8.4% higher when compared to the same time last year, and apartment homes are still out of reach for many residents of urban areas. In 2022, there were 16% more chronically homeless individuals than there were in 2020. Since limited space relative to the number of residents seeking apartments is a significant part of the problem, co-living is a natural solution. 

Even before the pandemic, local governments were examining the prospect of shared living spaces as a potential fix for unaffordable rents. Through SharedNYC, New York City’s Department of Housing Preservation and Development selected three proposals for shared housing developments with various models designed to provide housing to low-income residents. And in San Jose, California, lawmakers adjusted the local zoning code to include co-living, allowing a new development with 800 units to begin construction. 

For decades in the U.S., boarding houses prevented homelessness for low-income urban workers. In the 1960s, it’s estimated that there were about 2 million “single room occupancy” units, similar in concept to modern co-living units. The National Alliance to End Homelessness sees the return of shared housing as a solution that would end homelessness for most people. Most modern co-living spaces rent for just slightly below market rate, but there’s an opportunity for multifamily developments that use a co-living model to bring even more affordable units to market. 

The epidemic of loneliness

Renters who choose co-living may get more bang for their buck—luxury apartment amenities at below-market rental prices—but that’s not the primary reason most people rent a modern co-living unit, according to a survey co-organized by IKEA’s research and design lab. Respondents said the best benefit of co-living was the opportunity for social interaction. 

Co-living spaces offer numerous opportunities for community building through both incidental interactions and intentional programming. Digital nomads can take a moment to socialize at the “water cooler,” just like employees who work in offices. Families can get support with child-rearing. Solo seniors can gather for meals. And everyone can have someone to call if they’re injured or need help. There are additional benefits for transplants who may need to move quickly without support—not only does co-living offer easier access to furnished spaces, but it also delivers an instant social circle. Some co-living companies even work to place roommates with common interests. 

That’s kind of a breath of fresh air for the astounding percentage of Americans experiencing “serious loneliness.” A report from the Harvard Graduate School of Education puts the figure at 36% of all Americans, including 51% of mothers with young children and 61% of young adults. Social isolation can increase your risk of several serious health issues and is a risk factor that rivals even smoking when it comes to premature death. Loneliness is correlated with higher rates of anxiety, depression, and even suicide. 

Issues with the Co-Living Model

Some co-living companies have yet to work out the operational kinks. For example, residents of Common’s co-living spaces complained of unsanitary conditions, poor security, hostility among roommates, and poor communication from the support team. Residents of Bungalow properties in New York reported finding strangers in their bedrooms, which were kept unlocked due to local law. They also complained of poor communication and sudden lease terminations, calling the operation a “scam.”

The complaints are drawing the attention from local lawmakers, who could respond by cracking down on this form of rental housing rather than relaxing regulations to make it more viable. For example, allowing locks on individually-rented bedrooms in New York might solve the problem in part, but if tenant complaints point to other unfair practices, the co-living model might be banned in the city altogether. 

But in some cities, like Philadelphia and Minneapolis, lawmakers are embracing the idea of “single room occupancy” rentals, bringing legislation to allow the units in multifamily and commercial zones. 

A New Asset Class for Investors

Co-living isn’t just a solution for loneliness and unaffordable rents. It’s also an emerging asset class for real estate investors. Despite some problems with the co-living business model, co-living companies generally report the higher rental income per square foot than traditional rental models. For example, in New York, earnings for co-living units are reported to be 40% to 50% higher than traditional apartment rents. 

A report from students at MIT also suggests that co-living buildings should be more resilient during an economic downturn than traditional multifamily housing. Indeed, during the COVID-19 pandemic, co-living spaces continued to earn a 23.2% premium per square foot over rents per square foot for traditional studio apartments in comparable markets, according to research from real estate services firm Cushman & Wakefield. 

The MIT report also indicates that co-living is on the verge of becoming more widely accepted, both among lawmakers and the general public. Early signs show that co-living will become a “fundamental asset class within residential real estate,” the report states. While the model is still in its infancy and comes with some potential headaches, it may become a welcome alternative to traditional long-term multifamily rentals for some investors, especially in urban areas where housing prices are making it more difficult to yield positive cash flow.

New! The State of Real Estate Investing 2023

After years of unprecedented growth, the housing market has shifted course and has entered a correction. Now is your time to take advantage. Download the 2023 State of Real Estate Investing report written by Dave Meyer, to find out which strategies and tactics will profit in 2023. 

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

CNBC’s Robert Frank joins ‘Power Lunch’ to discuss why New York rents are remaining high even as rates in the rest of the U.S. drop, increases in the flow of people moving into New York City and the housing deficit there.

With advanced technology like virtual reality (VR), it can sometimes be difficult to fathom all the potential applications it can have in the business world. However, nearly every day there seems to be new and exciting innovations in the VR space that can impact both businesses and their customers.

Below, several members of Young Entrepreneur Council discuss some of the cool, unique ways they’ve seen virtual reality being used recently—from immersive training experiences to global collaboration—and how these use cases might inspire any entrepreneur to leverage virtual reality for their own business.

1. For Mental Health And Wellness

Virtual reality has been slowly making its way into the mental health and wellness sector. Recently, employers investing in the mental health of their employees have been in the spotlight as well. There are businesses today using VR to help people with anxiety, PTSD, depression and other mental health ailments. Through this type of therapy, people can work through trauma and train their minds by utilizing guided VR meditation. Businesses often offer benefits to aid in their employees’ physical health; however, I’m sure all places of work would be able to utilize these kinds of mental health benefits. – John Hall, Calendar

2. For Immersive, Interactive Training Experiences

Using virtual reality to train first responders is one of the most interesting use cases I’ve seen for virtual reality. It’s hard to mimic a situation where you’re being put in harm’s way. Virtual reality allows you to adjust a simulation in ways that you may not be able to in real life. Plus, it is less dangerous than other methods of training. Organizations issuing the training are then able to capture relevant data about the progress of their candidates and make more informed training decisions. – Michael Fellows, Solidity Beginner

3. For Collaboration On A Global Scale

The pandemic has ushered in a new era of digital events, conferences, training and meetings. With innovative VR platforms and applications such as meetingRoom, it is now possible to bridge time zones and collaborate with global clients or teams just like you were all together in the same room. Presenters can give presentations in a simulated environment, which can be helpful in training or coaching sessions with clients. The capacity to hop on a call with someone in London and collaborate as though I am in the same room opens doors for better training with my coaching and digital marketing clients, not to mention better workflow with our global team. VR could also be used for team-building exercises, market research, sales presentations and product demonstrations. – Tonika Bruce, Lead Nicely, Inc.

4. For An Enhanced E-Commerce Experience

Virtual reality is transforming the way customers explore and compare products. Some e-commerce shops today are utilizing this technology to allow their shoppers to get a better sense of what the product will be like in person by exploring it virtually first. This technology presents a valuable opportunity for brands to create an even more rewarding, one-of-a-kind experience for their customers. In addition to enhancing their experience, it also has the potential to significantly reduce the costs of more traditional methods. For example, the more shoppers can take a look and explore a product before purchasing it, the less likely they will be dissatisfied, need customer service and initiate a return. – Blair Thomas, eMerchantBroker

5. For More Enticing Marketing Efforts

The most popular way to market tourist sites is through videos showcasing the beauty of the areas. Companies that use VR take the experience to the next level by giving potential visitors the chance to visit a place virtually. The excitement of the people treading on white-sand beaches or walking around magnificent structures is incredible. It’s astonishing that not all travel and tour companies are doing this now. Lowe’s too is utilizing VR well with the Holoroom How To experience. More people prefer DIY home improvement projects to save money and personalize designs. The AR/VR experience at Lowe’s gives DIY homeowners the confidence to start a project. There is so much potential in VR in marketing that it’s surprising it isn’t mainstream yet. – Bryce Welker, Big 4 Accounting Firms

6. For Bringing Fantastic Experiences To Life

The Franklin Institute and other Philadelphia museums allow visitors to immerse themselves in historical settings using virtual reality. A child can explore a shipwreck underwater without ever getting wet, or walk around Impressionist art exhibits. They will engage their senses and remember the experience. Entrepreneurs, especially those working with children, could use VR to bring fantastic experiences to life. When you create such an experience, you also build positive associations within the brain and customers will remember your personal branding. For example, if you are selling a B2B service about team building, you can use VR with remote team members so they can engage better than they would on a video call. You have multiple possibilities for engagement. – Duran Inci, Optimum7

7. For Speeding Up The Sales Process

One of the coolest and most unique ways I have seen virtual reality used recently is by a company that makes manufacturing and material processing equipment. A significant challenge this company faced was the extremely long lead times their clients encountered during the sales process. This was due to the complex nature of the quotation process, not to mention the inability to accurately demonstrate the end product to the decision makers. To overcome these challenges and drastically reduce the length of their sales cycles, the company chose to leverage virtual reality software displayed on tablets. With this software, they could demonstrate their products to clients remotely and quickly create configurations for quotes, cutting sales cycle times dramatically. – Richard Fong, Trustable Tech