It’s finally over! The crazy, unpredictable, and just plain weird housing market of 2022 has ended. Though analysts like me will likely be studying the 2022 housing market for years to come, we can finally take a quick look back at what happened this year and infer what might be in store for the year to come.

2022 was a tale of two halves. January through May/June was one type of market, and July through December was a very different market. It’s not possible to determine the shift’s exact date, but it was within this timeframe.

The First Half

Through the first half of 2022, we saw a continuation of the wild appreciation that defined 2021. Every major variable that influences housing prices was putting upward pressure on the market. There was strong demographic demand fueled by millennials reaching their peak home-buying years. A decade of underbuilding contributed to a nationwide housing shortage. Inventory was almost non-existent. And, of course, mortgage rates were historically low. 

But then, things changed. In March of 2022, the Federal Reserve started raising the federal funds rate, pushing up bond yields and mortgage rates. The change of policy actually spiked demand as homebuyers and sellers rushed to transact before the full impact of higher mortgage rates were felt. This, combined with normal seasonality, allowed the party to continue and for prices to continue going up for a few extra months.

The Second Half

Eventually, the impact of skyrocketing mortgage rates took hold. Already facing ultra-high home prices, higher mortgage rates priced many homebuyers out of the market, and demand fell. When demand falls, inventory tends to rise, which is exactly what happened.

As inventory rose, sellers who were drunk on power over the last several years started to lose their leverage. Slowly, buyers started to have more options, and a bit of balance returned to the market, pushing down prices.

Some of the decline since June is seasonal, but as of December 2022, prices are down almost 10% off their May peak, and a typical seasonal decline is 5%-7%. The descent from the summer peak was deeper in 2022. 

It’s worth noting that although prices are declining, they are not in free fall. Prices remain up year-over-year, and inventory has started to moderate. Mortgage rates have come down from October to December, and there are signs that the drop-off is becoming less steep. At this point, we remain in a correction, but not a crash. 

What Will Happen In 2023?

Will we see a continuation of the downward trend we’re in now? Will things get worse? Or could the market reverse? 

To me, it will again be a tale of two halves. I believe in the first half of 2023, we’ll see a continuation of the market we’re in now: sellers don’t want to sell, and buyers don’t want to buy. Of course, deals are still underway, but I expect sales volume to remain well below what we’ve seen for the last 7-10 years. Even though inflation is moderating, there remains too much uncertainty in the economy for the market to stabilize fully.

Hopefully, during the first half of 2023, we will see inflation come down and get more clarity about what is happening with the global economy. But what really matters for housing volume and home prices is about one thing: affordability. If housing stays as unaffordable as it is now, sales volume and appreciation will stay low. If affordability recovers, I expect the housing market to stabilize and perhaps even see a modest recovery in the second half of 2023. 

It sounds overly simplistic, but housing is just too unaffordable in current market conditions. Some estimates say that housing is the least affordable it’s been in over 40 years. Until this changes, the housing correction is here to stay. The housing shortage and demographic demand haven’t gone anywhere. As soon as affordability improves, I think housing market activity will resume.

Will Affordability Improve? 

Affordability is made up of three factors: 

• Real wages
• Home prices
• Mortgage rates

Affordability can improve if wages go up or home prices and/or mortgage rates decline. Let’s take a quick look at if any of these things can happen. 

Real wages

According to the Bureau of Labor Statistics, real (inflation-adjusted) wages are down about 2% year-over-year but have ticked up about 0.5% since September. Nominal (not inflation-adjusted wages) is actually up a lot, but inflation is too high and wipes out all of those gains.

Although it’s a positive sign that real wages have ticked up a bit, it’s very modest. It is possible that, as inflation moderates, real wages will go up—but I find it unlikely that that will happen in a meaningful way. To me, concerns about a slowing economy will slow the pace of wage growth alongside inflation. Therefore, no real progress on real wages will be made. 

Housing prices

One area where affordability is likely to improve is home prices. Residential real estate prices will likely see year-over-year declines nationally, making homes more affordable. For affordability to really improve, we’d probably have to see prices drop more than 10%, and it’s very unclear if that will happen. If prices drop at all, and by how much, it will depend very much on mortgage rates.

Mortgage rates

Mortgage rates can be confusing, especially recently. The Fed continues to raise the federal funds rate and has signaled they intend to keep doing so into 2023. Yet, mortgage rates are falling. What’s going on here? 

Mortgage rates are not directly tied to the federal funds rate. Instead, it is very closely tied to the yield on 10-year treasuries. So, in a way, mortgage rates are more influenced by bond investors than by the Fed (although bond investors are highly influenced by the Fed. It’s confusing, I know).

Over the last several weeks, bond yields have fallen for two reasons. First, inflation is moderating faster than expected, which tends to cause a rally in bonds, sending bond yields down. 

Secondly, there are fears of a global recession. These fears tend to prompt global investors to seek the safety of U.S. Treasury bonds, which pushes bond prices up and bond yields down. When bond yields fall, mortgage rates also tend to fall, which is exactly what we’re seeing. So, mortgage rates may fall next year and end the year somewhere between 5.5% and 6.5%, down from the most recent peak of 7.23% in October 2022. 

Conclusion

If my premise that the 2023 housing market hinges on affordability is correct, then there are two plausible outcomes for the second half of 2023. 

First, mortgage rates fall, along with modest price declines (less than 10%), combining to increase affordability during the second half of 2023. This would likely cause a bottoming of the housing market in Q1 2024, and we’d start to see growth in the market again come early 2024. 

The other option is affordability doesn’t improve in 2023, probably due to persistently high inflation and mortgage rates. If that happens, the second half of 2023 will look like the first half of 2023, and we’re likely in for a longer correction. In this scenario, we will probably see housing prices drop 10-20% over the next two years, and we won’t see a bottoming of the market until late 2024/early 2025. 

It’s tough to know what will happen, given the amount of economic uncertainty. As of this writing, I think the first scenario is more likely given the recent trends in inflation and bond yields. But both options are reasonably likely at this point. Unfortunately, the next twelve months are cloudy at best. 

What do you think will happen in 2023? Let me know in the comments below. 

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Ashley:
This is Real Estate Rookie, episode 247.

Lindsey:
And there’s a program that was recently released called the 2-1 buydown. It’s not an adjustable rate mortgage. Basically, it’s saying, “Hey, rates today are 6%,” which do 6% for easy math. For the first year that you own the property, you’re going to have 4% interest rate. The second year you own the property, you’re at a 5% interest rate. Year three, you go to 6%. There’s no pre-payment penalty and it’s not an adjustable rate where you’re subject to the market rate at that time. So in three years, if rates are 10%, 11%, 12%, we can’t even fathom that, right? But rates have been there.

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’ll bring you the inspiration, motivation, and stories you need to hear to kickstart your investing journey. And I want to start off today’s episode by shouting out Nick Halden 5621, who left us a five-star review on Apple Podcasts. Nick said, “I recently started listening to podcasts and I really like the way both of you conduct the show, the way you ask questions, the way you share your experiences, it really gives a lot of insight and knowledge to someone like me who is planning to buy his first investment property. Keep up the good work.” Nick Halden, we appreciate you, brother.
And if you’re listening to the show and you have not yet left us an honest rating and review, please do on Apple, Spotify, whatever platform news you’re listening to. The more reviews we get, the more folks we can help. And helping folks is what we do around Isn’t that right, Ashley?

Ashley:
Yes, it is. And speaking of all of our wonderful listeners, especially the ones that leave us five-star reviews, we are going to be in Denver on February 23rd, with almost all of the podcast host from every bigger pockets podcasts, and we’re going to be having a meetup in Denver. So make sure you guys go to bigger pockets.com/events to check out what we have in store for you in Denver. And if you guys want us to come to your city, send a DM to the Bigger Pockets Instagram account, or to myself or Tony at Wealth Firm Rentals or at TonyJRobinson and let us know where you guys want us to come.

Tony:
Well today we’ve got an amazing episode. We have someone who’s somewhat connected to the Bigger Pockets ecosystem. We got Lindsey Iskierka and she works with David Greene. Some of you guys may know that name from the other Bigger Pockets Real Estate podcast. But Lindsey comes on, and she’s just a wealth of knowledge, both as an investor and as an agent. And we talk about both sides of that equation as we go through the episode.

Ashley:
Some of my favorite lessons and takeaway from this episode are talking about different markets, 1031 exchanges, and then also the current market, which we had this drastic change from high housing pricing, low interest rates, and now it has shifted to high interest rates and lower prices. And Lindsey, I think explains why this actually can be an advantage to you as an investor and just a buyer in this market today.
Lindsey, welcome to the show. Thank you so much for joining us. Can you start off telling us a little bit about yourself and how you got started in real estate?

Lindsey:
Yeah, happy to. First off, thank you for having me. It’s a pleasure to finally talk to you guys and connect here. So my name is Lindsey Iskierka and I’ve been in real estate since 2015, got my real estate license, bought my first investment property in 2016 and since about May 2021, I have served as David’s partner and lead real estate agent for the Southern California real estate sales team. So, help investors buy, sell, invest, house hack, short-term rentals, mid-term rentals, long-term rentals, we do it all. And real estate’s my life and I love what I do.

Ashley:
And that is the David, David Greene that you are talking about.

Lindsey:
Absolutely right. For clarification

Ashley:
You probably don’t need to say his last name, but just to clarify. So Lindsey, when you got your license, this was before you actually started investing then,. That came first?

Lindsey:
Fully after I knew I wanted to invest in real estate, but we just didn’t get started quite yet. But I have an interesting story as to how I even got into it and I’ll probably go into that, but-

Ashley:
Let’s hear that right now. I would love to hear it.

Lindsey:
So I don’t recommend my start to real estate to anybody, but it is my story and here we go. So after grad school, I met my now husband and he had an interest in real estate investing. Real estate was not on my radar. No one in my family invest in real estate, owns properties. I have one memory of my parents buying a house when I was seven and they still live in that house today. Real estate just really wasn’t even on my radar or a wealth building strategy I had heard of. After grad school, I was making 14 bucks an hour, thinking there’s got to be a better way here. And I met my husband. And at the time, he had an interest in real estate investing but hadn’t gotten storage yet. [inaudible 00:05:02] of course. And then we went to one of those free seminars that’s supposed to teach you everything you need to know about real estate investing.
One thing led to another. Next thing we know, we were $40,000 in debt. We had bought one of those guru programs. And while I’m grateful for that experience and what it made me do, it was, they promise you the world, they promise you they’re going to teach you everything you need to know. And in reality, it wasn’t. We were just so far back in terms of our goal. So we had to get real and paid this debt off. And a way that we decided to do that, moved in with my grandmother. We rented a room from her for a year and a half. And so we got married during that time. So newlyweds going back to grandma’s house, you can imagine.
But we had a goal in mind, and I got my real estate license at that time. So, then within a year we were able to pay off that $40,000 in debt and save up reserves to buy our first house hack. And so, while I don’t recommend those programs to anyone, it served its purpose for our story and I’m actually really grateful for that experience. I don’t know if I would be where I am today if we didn’t endure that. So that’s how I got started. And so getting my license was a way to help pay off debt. But I had grinded, I worked really, really hard, built my business over five years before meeting David Greene. And so that was how we got started.

Tony:
So Lindsey, first thank you for sharing the hard part of your journey in terms of getting started. And a similar thing in my journey as well where my partner and I, we spent not quite $40,000, we spent $20,000 on a program like that. The program was more so focused on teaching you how to become an apartment syndicator, do commercial real estate. And after we, joined, we did zero commercial deals. And I always think, man, was it a waste of $20,000? But through that program, I became really good friends with the guy who introduced me to short term rentals. And it’s like, had I not done that program, would I have found this asset class? Would our portfolio people we’re at today? Would I even be on this podcast?
Even though it’s always super crappy to have to go through those situations, it’s like if you can find that silver lining and use that as your motivation to keep going forth, and there’s maybe still some value in that. So I just want to know, how did you not get discouraged? You invested all this money, you had these big dreams of everything that was going to happen, didn’t turn out the way you wanted to, you moved back in with your grandparents, it’s almost like a worst case scenario. So how did you, even with all that happened, stay motivated to continue moving forward and really still take your start in real estate investing?

Lindsey:
Really good question. I think we had a powerful why. We were already planning our feature together and I thought, “Okay, what I’m exposed to, it makes sense.” I know this can work and this wasn’t it, but here’s what we’re going to do. And when we lived in southern California, so it’s very difficult, very expensive market to start investing. And we thought, “Okay, if we’re going to own a home, we have to house hack.” There’s really no other way to get started. And we just had a strong enough conviction that he and I can do it together. This program wasn’t what we hoped it would be, but like you said, I did end up having some relationships with people that I don’t know if I would have if I didn’t go through that program. And opportunities came from there and it gave me hope that there’s a better way and I knew this could work and I just hadn’t found it yet.
So put my head down, I realized, and I fell in love with real estate. That was another thing too. I loved it. And that level only grew stronger as I saw the potential for it. So I knew the path that we were going on before was not the right path, and we hit a speed bump here, but what can I learn from this? I would argue that also is what makes a successful investor. Because you’re going to make bad choices, you’re going to make bad decisions or you’re going to have to pivot and say, That didn’t work. Now what.” But you can always find the lesson and the blessing in everything. So we are blessed that we also were put in a position as a newer couple to have conversations about money. We had to have real talks about how we’re going to pay off this debt, what are we going to do? How are we going to come together and do it?
So talks about money weren’t taboo to us, it wasn’t a fighting point, it wasn’t a difficult point for us. And I’m grateful for that very early on. So, several combinations and just his support. He was so supportive of me and he believed in me that I could do this. Because he was in law enforcement, and so he was really the steady, W2, not many flexible hours. I had more flexible hours and I was set off to go into this real estate thing. And he had such belief in me that I thought, I have no other choice. I have to make this work. So how am I going to make this work? And ultimately, we knew house hacking would be the best way to get started. And in paying off that debt, I built a pretty good real estate business for my first year being an agent. So it just all started to come together with consistent action.

Tony:
I love your story so far, Lindsey, and I can just see the motivation coming off your face, but I want to, before we go too far, I just want to, if you can let the listeners know what does your portfolio look like today? How many units do you have? Where are those units spread out? Because a lot of real estate agents, even though they might do a ton of transactions a year as a real estate agent, they might own zero real estate themselves.

Lindsey:
Yes. But they’re investor friendly, right?

Tony:
But they’re investor friendly. So what does your portfolio look like today?

Lindsey:
Sure. So we have sold a few of our houses this year. We’re in the middle of our second 1031 exchange right now. But as it stands today, we own four properties. Two of those are short-term rentals. One is a long-term rental that we’re actually going to start renovating and turning it into a midterm rental for better cash flow. And then we have a primary. So that’s where it is right now. But we’re actively buying, looking for more deals and really wanted to, probably more than double that next year.

Ashley:
Lindsey, can you explain real quick what a 1031 exchange is?

Lindsey:
Absolutely. So 1031 exchange, it’s a tax deferring strategy for real estate investors. So anytime you sell a property, it’s an investment property, meaning non-owner occupied, you don’t live in it, you’re a subject to capital gains tax. So what investors do, and it’s a great way to scale a portfolio, is you take the income from selling that property, you immediately roll all those proceeds into the purchase of another property. And so you avoid the capital gains tax.
And it’s a great way to scale. It’s a great way to buy a bigger asset or get into a new asset class and it’s used by investors to scale a portfolio more quicker and you avoid taxes. So, it’s our second one that we’re doing. First one worked out well too. That was from our house hack that we did. And if you want to do a 1031 exchange or thinking about doing it, you need to make sure you have a QI, qualified intermediary, to help you with that transaction. Really important piece of the puzzle. And then an agent that knows what that is and knows what is needed when you get into escrow to make sure that it actually goes through. And you can save tens of thousands of dollars in taxes if you do this correctly.

Ashley:
Lindsey, I want to talk about and start getting into some of your deals. So what markets are you currently investing in for those properties that you have?

Lindsey:
So personally, our first house hack was in Long Beach, California. So coastal town in southern LA County. Right on the border of LA Orange and County right there. That’s where I started. And then we thought it was a good idea to 1031 exchange that property into three houses in the Midwest. And those cities that we invested in were Kansas City, Missouri, Birmingham, Alabama. And so we were in those two markets for a little bit. We also now own a short-term rental in Kalispell, Montana. It’s right near Glacier National Park. I personally love national parks for short term rentals. I just think it’s always going to be a market or a key component of the market that I want to choose for my own investments. So we have that, but we still own one property in Kansas City, Missouri. And then we’ve sold the other ones. And I own again in Joshua Tree, is my other short-term rental.

Ashley:
With the 1031 exchange, so when you sold that one property, you bought those three with the funds from that first property. So what made you decide to, how did you even begin to find those three other markets? Can you walk us through that process?

Lindsey:
I can, definitely. So it was an interesting time in our life. So I would’ve house hacked longer. And that’s something that maybe we’ll get into in a little bit as well. Our family was growing, we were expecting [inaudible 00:13:45] and I thought we are out of space where we currently are at. And so we moved out of our first house hack, rented it out. It was cash flowing, but it needed some major repairs. We didn’t have the capital at the time to replace both roofs and redo the plumbing. It needed a lot of work. But we had equity and we thought, okay, we want to scale. How can we make this property work for us? A cash-out refinance did not work. We did a VA zero-down loan on it, so just a [inaudible 00:14:13] and cash out refinance. Ultimately, just really didn’t leave us with enough equity to really do much with. The only option was to sell it.
And I wanted to keep that property, but just at the time we had to make a decision. Made sense to sell it. When you do a 1031 exchange, you have a very quick timeline in terms of when you have to identify the properties that you’re going to buy. At the time that we were doing this, I had a newborn and an 18-month-old and did not really have a ton of energy or knowledge about other markets where I could manage renovations, I could do all of the different facets of buying several properties. So we turned to turnkey. We’ve been Bigger Pockets listeners for many years already. I’ve been listening to Bigger Pockets since 2015. So we had heard about turnkey investments, the pros and cons. At that time, turnkey properties made the most sense for us in that life stage. We were able to see the properties on a spreadsheet and say, okay, where’s the best ROI? What are the best neighborhoods that are available that we can identify within that 45-day period to meet the goal that we had to have for the 1031 exchange to go through?
So not to get too complicated with 1031 exchanges, you have to meet a certain property value limit and you also have to breach your proper loan amount limit. So all the pieces of the puzzle made it so that we were looking at turnkey properties and what available inventory they had for us to meet those requirements. We chose Kansas City, Missouri because my husband’s sister actually was in medical school in Kansas City, Missouri. And she was able to tell us in those suburbs of Kansas City where the better areas were. She said, “Oh, you want to go over here, go over here, avoid this area.” Thought great. And then Birmingham, Alabama actually had some really great ROIs according to the spreadsheet we’re looking at it. It was right next to downtown Birmingham. That was the best performing property that we had. So it was on a whim. We knew we wanted Kansas City out of the choices that we had based on the boots on the ground knowledge that we had access to. But other than that, it was just, “This’ll work, this’ll work.” We have to choose the markets.

Tony:
Lindsey, I just want to circle back really quickly on that decision you made about refinancing versus selling the property. You said that doing a refinance, you wouldn’t be able to tap into all of the equity. Can you just elaborate on what you mean by that? Why can’t you access all of the equity in a cash-out refinance?

Lindsey:
So we were going to do a cash-out refinance, we could only pull out 70% of the LTV. At the time, we had about, or that’s loaned to value. So we had bought the property for 750 in 2016. By the time it hit 2018, early 2019, it was worth 950. So we had 200,000 inequity. And if we’re going to do a cash-out refinance after doing all the math, we were only left with $65,000, $70,000 that we could actually put towards a purchase of another property because we put zero down.
So when you have equity, you have to also think about how much did I put into the deal? And with this one, since we didn’t have any, it really ate away at that plus. So we were doing the math, it didn’t make sense for us to let this property go and we really couldn’t do much more to it. And we had some hard tenants that gave us the idea that, let’s just get rid of this one. It’s served as purpose, let’s move on. So if we were refinance, we had wonderful tenants, it might have been a different story, but still, the money that we had access to after the refinance, was not enough for us to feel like we could fix up the property to hold onto it long term and to scale.

Ashley:
I think that was a great explanation because I think we get a lot of questions like that and we see people post in the Real Estate Rookie Facebook group as to here are my two options, which one should I do? And I think you did, the thing that everybody should take away from this is, you ran the numbers on both, what’s going to, the outcome, if you go either path, what are you going to be left with?
So, if you are going, say you have this amount of capital available, are you going to put it all into one house? Are you going to spread it out over several houses? We’ll use those scenarios and run the numbers, and what’s it going to look like in a year? What’s it going to look like in five years? And that’s what you did with either refinancing or selling and you looked, what capital do you have left and what can you do with it? So I think that was a perfect example of how running the numbers and just doing that analysis on those scenarios instead of just like, eeny, meeny, miny, moe, catch tiger by the toe, I’m going to go refinance.

Lindsey:
We had to. Funny thing too is, this is something to note is that at that time we wondered if we were at the top of the market. We had $200,000 in equity as new investors. That was pretty attractive. And we thought, gosh, what if the values do go down? This is in 2018, early 2019, pre pandemic. We thought we were at the top of the market or there was chatter about that. So I had to take that into consideration. If we don’t sell it and I refinance, can we make these repairs on the property, have it still cash flow? Because we had a great interest rate, and rates were up at that point. So can we make this work? And ultimately, it just didn’t. And we thought, “Hey, we have to make a move here. Here are the options that we have.”
So we at least made a move. And I think that’s something I really want the rookies on here to pay attention to is, taking action, even though it’s not the absolute best action, it’s better than not taking any action at all. I think people are so afraid of making a mistake and that’s inevitable. You’re going to make some mistakes and that’s okay. But the important point is to take consistent action with the available information that you have at hand with your trusted team, your advisors, and move the needle forward, however that may look in that situation.

Ashley:
You hit it right on Lindsey, that, so focused on making the right decision. But sometimes either decision can work out for you. Don’t get so focused on maximizing the cash flow. That’s why there’s more deals to be done, especially your first deal. Don’t waste time actually taking action by getting into that analysis paralysis of what’s the best way to do this? I want to maximize and pinch every single penny, but just getting started, that’s going to give you the momentum to go and give more deals. And that’s going to end up giving you a better return starting now than waiting until you’ve finally decided this is the route you’re going to take.

Lindsey:
Now you can no longer afford that property.

Ashley:
Yeah, that’s a great point

Lindsey:
Because you waited to long.

Ashley:
And how you were talking about the market, how you were thinking maybe it’s the top of the market, we should sell it now too, is something if, you went and refinanced and you pulled out that equity and then all of a sudden values did drop, but something comes up where now you do have to exit the property and now it’s not worth what you had drawn out in equity too. So there’s always that risk and that’s something, you know guys did a great job of foreseeing if those things were to happen along with running the numbers too.

Lindsey:
Thank you for that.

Tony:
Lindsey, you also mentioned that part of the reason you sold was because of the, not issues, but maybe the tenants weren’t your ideal tenant. Were you self-managing this property or what did that relationship look like with those tenants?

Lindsey:
Ooh, really good question. So partly yes, we did a property management for the back house. So just to give you a quick layout, it was a front house, a little craftsman house in the front that we lived in. There was a duplex in the back, the duplex in the back had sets of tenants and we had property management for that. Part of it was because, like I said, my husband was in law enforcement, he wanted safety, he wanted people to not bother us if they had concerns, they want us to see us as the bad guys. We wanted to act like, “Hey, we’re tenants too. You go talk to the property manager and not think that we’re the ones raising rent.”

Tony:
They didn’t even know that you guys were the owners. No.

Lindsey:
Oh wow. The first set of tenants did, because they saw us moving.

Tony:
So they’re moving in, you’re like, man, those landlords, they kind of suck guys, watch out for them.

Lindsey:
I know. [inaudible 00:22:18].
We had to play it up and it worked. Because we were the same age group, roughly, and they believed it. And it wasn’t until we had a main waterline backup that one of my tenants saw me walking the property with a contractor and she’s like, ‘Wait, are you paying for all this?” I was like, “Okay, fine. We own the property.” They caught me at that waterline to take care of. So that part was property management. We cut that as property management.
When we moved out of the front house and we bought another primary residence, when we moved out of that front house, we decided to do section 8 and we used a VA program actually called the VA VASH program. And essentially, a section 8 for veterans. So we wanted to do good with our housing. We had this wonderful house in a great part of Long Beach and we thought, “Okay, we may not get maximum rent here, but how can we use this house for good?” So we put a military family in there where they were trying to go through school, they couldn’t really afford rent in the area. And so that made us feel good by putting military housing, providing housing for veterans, which is very close to us. My husband’s a veteran too, obviously we used the VA loan, so we wanted to do good with the house that we had. So we did that. But things just turned a little sideways with some of our tenants, and it’s okay, we learned lessons, but they were not that ideal.

Ashley:
I think this is the first time anybody’s ever talked about this program. Can you maybe explain it a little more?

Lindsey:
It’s a wonderful program. I’m so glad we found it. Basically it’s sponsored by the VA and they work right alongside HUD. And essentially, it works just like section 8. Your unit is valued by the zip code and number of bedrooms, just like section 8 is. And it’s given a market value for that area. And it goes up little by little every year. So you get the benefits of section 8, where you do have guaranteed income coming in, which is really nice. Is that during COVID, should any tenants not be able to pay their part of the rent, HUD stepped in and paid the full rent amount, which was nice. So we didn’t run into that issue, but it was just another perk of that program.
So you have guaranteed income and you get to choose the background that you’re comfortable with. We really wanted a family in there because we had two bedrooms. We brought our daughter home in that unit. We really wanted to help out a military family. So we did that. So you can choose if you want a single person, a family, if you want no history of substance abuse or evictions and things like that. So you can set your criteria as to what kind of tenant you would accept and then they get the application process. You have a rep from the VA that works with the family or the tenant works with you and it’s very, very similar to section 8, but it’s only for veterans. So it was a great program.

Tony:
What was it like for you as the landlord to get added into that VA VASH program? Was it a long process? Was it pretty quick and easy? What was the vetting process for you to get onboarded?

Lindsey:
Probably depends on your perception of easy and quick versus difficult. It wasn’t bad. It wasn’t bad. The property had to meet certain criteria for inspections, but we took great care of that property. We had renovated it during the time that we lived there. And it wasn’t that long. Maybe it took six to eight weeks I want to say, for our application and inspections to be done. So it did sit vacant for a little bit and that was okay, but it felt good to know that we were going to do, like I said, we really wanted to do good with the property that we had. Six to eight weeks I want to say, with inspections and everything. And then we got tenants in there pretty quickly after that. So it wasn’t very quick. It wasn’t super easy. There were a lot of trips back and forth to the HUD office. So if things like that stress you out, just be prepared for that. But in hindsight, it really wasn’t that bad.

Tony:
And the quality of tenants that you got, you said that maybe you wouldn’t do it again, if I heard you correctly? what were some of the lessons there?

Lindsey:
I would do it again, just these, I would do it again. I think part of it too, and this is a dynamic that house hackers have when they move out of a home that was an investment property, but also primary residence. You put your blood, sweat, tears into those properties. So when you go back and you see tenants not taking great care of the home, smoking in it, grease stains all over your kitchen, they were damaging our doors and our brand new windows. So it’s rough to watch someone not beat up your house a little bit, when you’re like, “I brought my daughter home in that house, can you not?” So that was just a more emotional thing. But they were complaining quite a bit. They were not supposed to be smoking in the house. They would blame everybody for certain problems and they called us certain names when things didn’t go their way. So I would do the program again. Just at that time, the tenants were stressing us

Ashley:
Lindsey, when you did that program, did they pre-screen these people for you? And then did you do any additional screening on top of that too?

Lindsey:
They did pre-screen the tenants to make sure it fit the criteria that we wanted and then they presented their application to us and we can approve it or deny it. If I recall, we weren’t able to meet them in person, but we could deny their application if we wanted to at that time. It may change since then, but at that time we were able to approve or deny them as tenants as they came through.

Tony:
Well, thank you for introducing us to VASH, Lindsey. I’ve never heard of that. Ashley had never heard of that. And part of the reason this show is so cool is because Ashley and I can learn new things and selfishly take them into our own business. But obviously so many folks in the Rookie audience are going to be benefit from hearing about this program as well.
I want to transition just a little bit because you are in a unique, I think, viewpoint or vantage point as opposed to most of our guests, because not only are you a real estate investor, but you also see a ton of volume as a real estate agent. And there’s been so much uncertainty this year around whether or not people should get started in real estate investing. If I’m someone that’s sitting on the sidelines that has zero deals, is now the right time to buy? There is a bunch of price competition earlier in the year and then as that slowed down you saw interest rates climb super, super fast. So from your perspective as both an investor and as an agent, what are your thoughts on whether or not right now is a good time for new investors to get started?

Lindsey:
Really good question. Of course, this is a common conversation that we’re having and it goes back to what’s more important to you. So we had people, like you said, there was prices getting bit up through the roof. It was so hard to get an offer accepted. People held off. Okay, once interest rates started going up, prices came down, competition ceased, but people are holding off because now interest rates are too high. The fact of the matter is, we’re never going to have the perfect storm of a market where interest rates are low or good, prices are stable, there’s less competition, you have negotiating power. Something has to give. So the wonderful thing about real estate investing is that it comes back down to the fundamentals. Does a deal work today? Yes or no? What’s great, an advantage about people who do want to get started or continue their portfolio in today’s market, they are forced to underwrite the deal better.
People could get away with buying not such great deals earlier this year and in 2020 because they were saved by low interest rates and by prices going up. They’re just grateful they got a deal, because it’s so hard to lock one in. Today, you really have to make sure that the underwriting is solid, that the monthly payment, that the cash flow, that whatever metric you’re tracking makes sense with today’s interest rates. If rates go down, fantastic, you’ll refinance. You won’t then be having to jump into the market when everyone else is now going to jump back into the market. Because then if rates drop, I ask clients to sell the time. If rates drop, what do you think is going to happen? Oh, maybe prices will go back up. Yeah, exactly. And then we’re going to be right back to you complaining that prices are too high, it’s too competitive and you want to wait till it cools off. It’s cooled off.
So you have to decide what makes more sense for you. And what I think is great is that if you lock in a property at today’s interest rates, it can only get better. Because if rates drop, you’ll refinance. If you bought when rates were 3%, two and a half percent, if you need to refinance right now for whatever reason, you probably can’t afford that mortgage payment. And you’re stuck with that. And maybe the property is lost value right now already. And now you can’t sell that in scale. So I think you’re actually more at a better advantage right now than people were eight months ago, nine months ago, because that market is gone. You’re back to the fundamentals of real estate in this market. So there’s me buying opportunities no matter what market we’re in. If you’re an investor, you’re investing, no matter what the market’s doing. You’re finding opportunities in that current climate and taking advantage of it.

Ashley:
I saw someone post that on Instagram a couple weeks ago, maybe a month ago. And probably was you if you posted, but it was a real estate agent. And it seriously hit me, like, oh my gosh, that is so true, is your, whatever you pay for a property, you’re stuck with owing that dollar amount.

Lindsey:
Yes.

Ashley:
You owe that. So if you’re paying $300,000, no matter what the interest rate is, you’re going to have to pay that at some point or sell the property and cover it. But that debt or that cash has to be provided to pay for that property. But if you get that interest rate, that can change, you can change that interest rate. So whether rates are dropped and you go and refinance, you find a private money lender or you do something, you do creative financing, things like that.
But it just really, it was like an eye-opening thing for me is, you’re paying a lot, you can pay a lot less now and then, especially if you’re holding the property, a couple years down the road or however long down the road when rates do drop is going and refinancing and you’re going to be a lot better off because you purchased that lower price. So I am so glad we touched on that because I think that is such a valuable tool lesson that everybody can learn from this is that, the market was hot, it’s cooling off and interest rates are high, but how long do you, and that’s the thing nobody can predict is, how long do you have to cover that high mortgage payment until rates do drop-

Lindsey:
And don’t buy if you can’t afford it right now. And we’re also getting the sellers to buy down the interest rate. We’re negotiating killer deals right now. I just negotiated 2-1 buydown, we got $50,000 in credits. So the buyer can take, I think they’re doing a 3, 2, 1 buy down. They’re getting a crazy good interest rate and this property, they easily would’ve paid over 150 grand more for it eight months ago.

Ashley:
Can you explain that? If somebody’s agent isn’t doing that for them, how would they, what’s that process look like?

Lindsey:
Well, first call us, I’m just kidding.
But honestly, so basically, it’s a lot more likely because sellers are very fearful right now that they just want their house sold. And so they’re willing to, you’ll see some marketing that says like seller willing to buy down interest rate, but if they don’t, then you can find a way for the buyer essentially to get their interest rate buy down paid for by the seller. So when you go to buy property, in any case, there’s always interest rates that you can lock in. There’s par pricing, meaning this will cost you zero extra points. You can use lender credits to have less closing costs out of pocket, but have a higher interest rate or it can buy down the interest rate and have a lower rate that’s going to cost you more money. Right now we’re able to get the seller to pay it down.
And there’s a program that was recently released called the 2-1 buydown. It’s not an adjustable rate mortgage. Basically it’s saying, hey, rates today are 6%, we’ll do 6% for easy math. For the first year that you own the property, you’re going to have 4% interest rate. The second year you own the property, you’re at a 5% interest rate. Year three, you go to 6%. There’s no prepayment penalty and it’s not an adjustable rate where you’re subject to the market rate at that time. So in three years, if rates are 10%, 11%, 12%, we can’t even fathom that. But rates have been there. Rates were at 18% at one point. But so it’s not an adjustable rate mortgage, but you are essentially having the seller pay the interest upfront for you to have a lower interest rate for the first two years that you own the property. Really powerful.
So you have to qualify for the loan at today’s interest rates. It’s not a way for the buyer to be able to buy more or qualify for it, which I think is a really important point to distinguish. It’s not like, “Oh, I can afford this at 4% interest rate if we get the 2-1 buydown.” No, you have to qualify for the loan at today’s interest rates. You have the benefit of having a lower mortgage payment because you have a lower interest rate for the first two years that you own the property. So it’s great for short term rental owners because this only works for primary home buyers and second home loans. So if you’re doing a second home loan for a short-term rental, you essentially can have two years of a lower interest rate, paid for by the seller, again. And you can withstand, maybe if we have a downturn or market slows a little bit, you got your listing up and running, you can probably improve your cash flow for the first couple of years you own the property by having this program.
So we’re getting this paid for by the seller and we’re getting a lower price than list price. A list price is no longer a starting bid. List price is a suggestion now. And we’re saying, okay, is there a number that you have to hit to make this deal work for you? Let’s offer that. Let’s not be offensive, but let’s see what they come back with. And now we have healthy negotiations going on again. I love this market because we have negotiations. Both buyer and seller have to compromise and give a little bit. No one’s really having the full advantage right now, which I think it means a healthy market.

Ashley:
Lindsey, how much does that buy down typically cost? Have you seen that it’s, I’m sure it probably varies from the lender, but is there a typical percentage of the purchase price or what does that cost actually look like?

Lindsey:
Typically, what we’re seeing, and I’m not a lender. Talk to Dave’s lending team. The one brokerage, they’re fantastic at this. But typically we’re seeing anywhere from two and a half to 3% of the purchase price be enough for the 2-1 buydown.

Ashley:
Awesome.

Lindsey:
So it’s hefty. Sometimes we’ll work that into the sales price if it works. We’ll tell a seller, Hey, we’re going to take a chunk of your profit for the closing cost credit, but we’re going to add that back in to the purchase price in some way to make it a win for everybody.

Ashley:
It’s amazing to me how creative you can actually get with just your regular on the market bank financing deals. I mean, you hear creative financing a lot, but that’s usually off market seller financing, different things that are done with the creative financing. But there really are so many ways to get creative with traditional bank financing too. It’s always great to hear.

Lindsey:
It’s fun.

Ashley:
And learn more about.

Tony:
Well Linda, you’ve been like a wealth of knowledge and I’ve really enjoyed this conversation, but I would love to get us to our Rookie request line. That way our listeners can poke into that brain [inaudible 00:37:38] of yours and get some more information on how I can keep moving. So awesome. So if you guys are listening, you want to get your question featured on the Real Estate Rookie podcast, give us a call at 8885 rookie. And if the question is a good one, we just might use it on the episode. So Lindsey, are you ready for today’s question?

Lindsey:
I’m ready.

Tony:
All right, awesome. So today’s question comes from Schmidt, just the first name, like Oprah. I can’t find a deal anywhere. I do live in North Carolina, probably one of the hottest markets. I guess my question is, how should I start? Should I try to get a condo that is overpriced and has an HOA restriction on renting and just start there so I can start building equity and then move forward once the market cools off in a couple of years? I’m 30, so I want to get started sooner rather than later. But also my question is, do you guys think I should up and move? I work remote so I can move to a rural town that has an up and coming market, and start somewhere with lower prices. I have funding, I’ve been saving for years, but my comfortability is extremely low. I do plan a house hack and would love to hear your response. So what’s your advice, Lindsey, for Schmidt?

Lindsey:
This is a great question and immediately halfway through the question as it was going on, I’m thinking, you need to be able to make some adjustments and sacrifice. So I love that he is open to moving. I don’t know if you necessarily have to. I think it’s going to depend upon what he thinks is going to be a better “deal” for him. Is he looking for cash flow when he turns this into a rental or is he looking to let this stop the bleeding of rent and scale with equity, build quicker? If it’s equity position, then I would suggest staying where he is and buying the condo that he feels is overpriced. You could probably get a good price right now. And if realtors are telling you that, “No, it’s too hot,” find another realtor that’s a really good negotiator. Skills guys, is going to be more important in this market than ever.
You need to have someone representing you with the skills to get the negotiations done. So really be mindful of that as you’re searching for someone to help you. But if he is looking for equity, I would suggest staying where he is and find the best deal that he can. Suggest living in something that needs some work, add value to it over time. Don’t be afraid to get your hands dirty. You don’t have to live in the nicest and best unit and the best part of town. You want to live in a good part of town, have a unit that you can add value to over time that’s going to maximize the equity potential that will put you in a position to scale down the road. Either it be another house hack or buying more rental properties or what have you. If he is looking for less out of pocket, also depends on his budget too. So it’s going to be another situation that I don’t have information on.
But if he is wanting to be more cost conscientious and buy at a lower barrier to entry, then moving for a short period of time in an area that is growing, area that has population growth, job growth opportunities, something that he can do if it’s near a university, if it’s near a hospital where you have multiple extra strategies for that property in the future to hold onto as a rental, long-term rental, midterm rental, short-term rental, that’s going to be another great avenue too. So it depends upon what he wants to get out of this first deal and where he wants to be the next three to five years. I don’t have that from him. I would need a deeper conversation, and your realtor should be asking you the same thing.
But I hope that at least gives him a bit more of an idea on which direction to go. But I love that he’s open and not saying, “No, real estate doesn’t work. I’m going to keep on renting and I’m just going to hold off until the market goes down or what or whatnot. I was just getting in now, negotiating a great deal.” And just deciding what you want this deal to work and how you want it to work for you.

Ashley:
And you know what, I do love the questions too, where somebody has options. What’s a better position you could be in than having different options? So, congrats to Schmidt for wanting to get in, started in real estate investing and having those options. So you’ll have to write for us in the Real Estate Rookie Facebook group and let us know what you end up doing. Okay, Lindsey, are you ready for our rookie exam?

Lindsey:
I think so. I haven’t studied, but I think I’m ready. I’ll be okay.

Ashley:
What is one actionable thing rookies should do after listening to this episode?

Lindsey:
Oh, I have a two part to this and so I hope that I don’t get disqualified here. So part one of this, I want everyone to really take an honest inventory about where they’re getting their information from. There is such a hype of spreading fear, spreading the headlines that elicit a response and people are making decisions on their investing and their long-term goals based on these headlines. And so, if someone’s listening to you guys, if they’re listening to Rookie, Bigger Pockets, they’re involved in these kind of discussions, they’re already a step ahead, which is great. But just be mindful of where you’re getting your content from right now and who you’re allowing to influence your decisions on investing. Because these news articles, these sources, they want to make you feel a certain way. They want you to think a certain way. So almost try to think about when you read something, have some discernment.
Is this benefiting me? How are they benefiting from sharing this information with me? And just making sure that you’re not making any emotional decisions on your investing based on mass media. I think that’s a trap that I can see a lot of people who are nervous about getting started in investing falling into. I’m not saying don’t be prepared, don’t be well-informed, but just really try to have some discernment when you’re deciding who you’re going to allow to influence your decisions moving forward into 2023. Part two to that is also to evaluate your circle. I know from personal experience. I’m partnered with David Greene. That has done wonderful things for me in my journey. And I know that if you took an honest inventory of who you’re allowing to spend a lot of time with you, whose influence, whose opinions and is influencing you, really try to think about, are these people serving me?
They may be well intended, they’re probably very well intended, but maybe they just don’t get it right. Maybe they just don’t have the same goals or vision that you have. So really evaluate who you’re allowing to also influence you personally and look to elevate your circle in 2023. Meetups are great. I just recently joined GoBundance Women. I’m super excited about that. I know I need to elevate my circle of people that I look to for inspiration. So two parts to that, just be mindful of who you’re allowing to influence you and be intentional about that in this year.

Tony:
Absolutely love that answer. I love that answer. Your circle and the people you surround yourself with have such a big influence on you both consciously and subconsciously. So I think all of us should be more intentional about who we let into our lives and who we allowed to influence us. So love that. All right, question number two, what’s one tool, software app or system that you use in your business?

Lindsey:
Something I should use better as my CRM? You know, as you’re getting leads, whether that be for deals for clients, you really need to keep track of everything. And typically, us entrepreneurs are not very organized. And we hear CRM and we just, I avoided it. I’m like, “No, my notepad and paperwork’s just fine.” But we use a CRM called Brivity, and I don’t use it to its potential, but that’s at least helped me stay organized and focused. And then in terms of short term rentals with automation and analysis, I love PriceLabs and I love, PriceLabs, I think is what I use to analyze deals. And then Guesty for automation and taking that off my plate so that things don’t slip through the cracks and my Urban B guests don’t feel as accommodated because I didn’t message them right away or things like that. So those two, I gave you three, I’m sorry. I’m hoping for extra credit here. I’m giving you [inaudible 00:45:44].

Tony:
That’s fine. Totally fine.

Ashley:
Lindsey, with your CRM, what are some things you track in it besides just the person’s name and phone number? I’m just curious because my birthday was a month ago and I got a text message from this loan officer that I’m using that told me, “Happy birthday, I hope you have a great day.” And I was just like, okay, this is super random. Is this something he tracks and texts all of his clients or that, I’m just his favorite client and he happened to see it was my birthday today on a loan document.

Lindsey:
Maybe send me a copy of that text and I can say if it’s a template or not.
So really good question. I track important milestones and I track what they tell me. If they tell me that they’re going on vacation, if they tell me that they have big goals to renovate the house that they’re in, or this is where they want to be in a year from now, I track what’s important to them in the conversation. There’s a note section for every call that you make to prospects or a client. And that way, when I follow back up with them, I can relate to that. I can ask them a follow-up question so they feel, and they can see that I cared enough to remember that.
And I get pulled in so many different directions. My brain is always going a million miles a minute with our team and everything. So having those trackers about points of the conversation that I want to refer to later, next time I call them again, is really important. And then any objections that they have, I like to share that so I can make sure I address their personal objections and fears and not just blanket them with everyone else’s concerns too, so I can speak to them more on an individual basis.

Ashley:
I think that’s really awesome right there. And I think this doesn’t even just apply to clients, it’s just networking in general, is going to conferences, events, and writing those notes about somebody. What did they talk about? What made them light up, what excited them? So keeping track of those things so that when you do follow up with them or see them again, you’re going to be, they’re going to remember you because you remembered something about them too. And it’s going to make you stand out to them compared to somebody who’s just, “Oh hi, nice to see you again. Do you remember me from this conference?” And then somebody else who’s going, “Oh, how did your daughter like that car she ended up buying?” Or something like that.

Lindsey:
Or who are you looking to meet? I love asking people, who are you looking to meet? Who can I introduce you to?

Ashley:
That is another great point, that connection, being the connector. The matchmaker.

Lindsey:
Yes, absolutely.

Ashley:
Okay, so last question. Where do you plan on being in five years?

Lindsey:
I love and hate this question so much because if you told me five years ago I would be partnering with David Greene and running this big real estate team and having a portfolio, I’d be like, “You’re nuts. You’re crazy.” So I love this question, but I’m also like, “I have no idea.” So if I had to guess or goals that I have for myself and our family, I want my real estate team to be thriving. We would love to hit 200 million every year. We’re serving so many people. Our mission is to help everyone build wealth through real estate. Simple. So I really want to maximize that and grow and opportunities that come with that.
Personally, for our portfolio, I want to get into other asset classes. I’d love to get into self-storage. I’d love to get into other commercial spaces that are going to have more and more opportunity as things start, continue to shift. And I’m open to receiving leads or whatnot for those different ideas. I want to have a medium size rental portfolio. We’re more simple. I don’t want a huge portfolio. I’d rather have a handful of good performing properties and pivoting as necessary to keep that going. I don’t want to over complicate my life looking to simplify it. So I’d love to have a good handful, maybe 10 to 15 properties that are performing and performing well and now getting into other types of businesses and commercial asset classes.
And then I’d love to, this is silly, and you guys might laugh, but I would love to live on a farm. I want to buy land and we want to build a forever home, and I want to have the chickens and the goats and all the things, and just a simple life. I would love that. So if I can do that in the next five years and teach my kids how to grow their own food and be self-sustainable, I would love that.

Ashley:
Well, I can’t laugh because I live on a farm.

Lindsey:
I’m jealous. I love that life.

Ashley:
It’s a very, very working farm. We just have dairy cows. There’s no chickens, there’s no pigs. My nieces will sometimes raise a pig and we keep them at our barn. But it’s not the hobby farm, I guess, where you have all the cool animals and things like that.

Lindsey:
I would love that though.

Ashley:
No garden, really. Just crops to feed the cows.

Tony:
I’ve never felt more left out for not living on a farm in my life.

Ashley:
But you live near the cows?

Tony:
I do live near. There are some dairy cows that are near me. I’m not too far.

Lindsey:
Hey Tony. I’m from California too, so you never know. You may get exposed to farm life and be like, “I like this.”

Tony:
Fall in love with it.

Lindsey:
Exactly.

Tony:
Well those are great answers. You passed the exam with flying colors, Lindsey, as I thought you would. So as we wrap things up, I do want to give a shout-out to this week’s Rookie rockstar, which is David Long, and David says, ‘Seven years ago today at age 25, I bought my first rental property. It was four units full of drug dealers, which I didn’t know at the time. Right after closing, I drove down to the building filled with drug dealers, collected all the rent and cash, but it changed my life forever. I quit my job at 30 and never looked back. Now I make my own schedule. I started doing social media content creation, which I had no idea how much I liked or how lucrative it can be. Real estate opens so many doors when you can take chances that wouldn’t be possible being stuck at a desk all day. I now own 11 buildings with 31 units.” So David Long, congratulations. That is an amazing story. Love hearing the success.

Lindsey:
Why we do what we do. That fuels me, that gets me so excited. I love stories like that, and anyone can attain it. It’s not out of reach, really, and I love that.

Ashley:
Well, Lindsey, thank you so much for joining us today. Can you let everyone know where they can reach out to you and find out some more information about you?

Lindsey:
Absolutely. So I’m heavy on Instagram. That’s probably the best way to get to know me a little bit better. I put out a lot of content. I’m not great at reels. Tony and his team are just, you guys are all wonderful at the fancy reels. I just, I do stories and I share a lot of stuff with what I shared here on the podcast today, I like to share almost daily on my Instagram, so find me there. My handle is lindseyiskierkarealtor, and I’m also on Bigger Pockets, so you can reach out to me there as well. But I’m really heavy on Instagram. It’s probably going to be the best way to get ahold of me. If you guys want to talk to me and our team at all, you can go to [email protected] and we’ll make sure you guys get set up with a great agent to help you accomplish your goals.

Ashley:
Lindsey, thank you so much for joining us. We really appreciated all of the value that you had for us and to our listeners. We definitely learned some new things today and we really appreciate you taking the time to share that with us.

Lindsey:
Oh, this was fun.

Ashley:
I’m Ashley at WealthFromRentals and he’s Tony at TonyJRobinson. And thank you guys so much for joining us. We will be back on Saturday with a Rookie reply.

Andy Walden, Black Knight VP of enterprise research, joins ‘The Exchange’ to discuss the health of the housing market and headwinds the sector still faces.

David:
This is the BiggerPockets Podcast, show 706.

Rob:
In my opinion, real estate should… It’s fun making money, but real estate should never be fun because you should never be making that money and using it. You should be reinvesting it. And that’s not fun, that’s actually discipline. It’s like, “Yes, I like making the money, but it really hurt.” I’m like, “Oh, I felt like I could just use that $5,000 I made this month on this tiny house.” That would be really fun, but I have to force myself to say, “Well, sorry, Rob. Got to put it into the next property or into reinvesting in that property.” And it’s fun.

David:
What’s going on, everyone? This is David Greene with my co-host, Rob Abasolo who you just saw trying to match me with the 706, which is harder to do than you would think. And one of the reasons I’m the host of the show because nobody could get the hand gestures right. That’s right. You’re here at the best, the biggest, the baddest real estate podcast in the world for a pretty cool show. It’s going to be Rob and I solo today talking about what we would do if we lost everything and had to start over with no money and no houses in 2023.
Today’s show is very fun, very insightful, and very thought provoking, if you will, and hopefully very inspirational for you. Rob, how are you today?

Rob:
Good. As you were saying all that, it made me think of a show idea. You know how you do the Seeing Greene? What if I did my own version of it called the Robert Abasolo solo show? The solo-solo BiggerPockets show. Solo two.

David:
So you’re trying to get rid of me is what you’re saying?

Rob:
No, no, I’m just saying you do Seeing Greene. I think it’s time for the solo-solo show, the solo two.

David:
Abasolo show?

Rob:
The Abasolo solo show. But maybe you can still be a part of it. I just really like the name.

David:
Yeah, I just want to hear you talking solo that I don’t have to hear you and we’re going to be good. Right?

Rob:
Okay. Let me do this.

David:
Make sure I don’t like…

Rob:
The solo, solo, solo show where I have to talk like this the entire time.

David:
That would be really good. It would only be like a four-minute show because your voice couldn’t handle anything longer than that. That’s good.

Rob:
Not really, no.

David:
All right. Before we get into today’s show, a quick dip. What if I had to do a whole show in the Batman voice? That’d be something else. You’d really think about your words a lot more if it took that much effort to say all of them.

Rob:
Welcome. Welcome to the BiggerPockets show 710.

David:
And had to wear a mask the whole time as if you didn’t know who it was. Quick tip for today, what are your challenges? Write them down and think through solutions for them. You’ll quickly see avenues that you didn’t think about. I want everybody here to actually stress test their own life. What would I do if I lost my job? What would I do if I lost my spouse? What would I do if I lost my money? What would I do if the investments went bad? What would I do if we didn’t have food I could go get at the grocery store? This stuff is scary and cause some anxiety, but that’s okay because coming up with solutions will help build your confidence and help you be prepared for situations that we don’t know could be coming.
We’ve been lucky and blessed in this country to have a long run of a very, very healthy economy, but nothing’s guaranteed. If we learned anything from COVID, it was that. So take some time to stress test your life, your portfolio, and your goals and make sure that you feel good about them if everything doesn’t go perfectly. With that, let’s get into the show.

Rob:
All right. Welcome back to part two of the demise of Rob and Dave. Episode one. That’s right. Hey, you’re doing the mirror thing on the… Okay. I like it. You’re pulling a Rob. I like that. So in the last episode, just to recap everybody and level set and get everyone on the same page… Don’t make my hands…

David:
Kind of fun.

Rob:
Don’t take away my thunder here. So to quickly recap. Last episode, we talked about how our portfolios could basically crumble into oblivion. We talked about the ability to triage, which is a very fancy word of saying, could we sell off part of our portfolio if needed, or how liquid are we in our portfolio if we really needed to exit that? And then also how to actually assemble the architecture of our portfolio and how to strike a good balance between things like cash flow, debt, scalability. Dang it. I already messed up your-

David:
Ease of ownership?

Rob:
Ease of ownership. And then is there anything else?

David:
And liquidity.

Rob:
And liquidity. See, I knew that. I just wanted to throw you a softball. So today, we’re going to be picking up that conversation and talking about part two. What if we lost it all? What if we went down to zero? How could we actually rebuild our entire portfolio? We’re going to set some ground rules here. We still have our mind. We have our current knowledge. We’re still ourselves, but if we lost everything and it was just stripped away from our empires, how could we get back? How could we go from zero to Rob built and David Greene hero? So I’m excited, Dave.

David:
Yeah. This is one of my favorite things to do. I’ve often asked myself the question… You know that show Naked and Afraid? You’re dropped off in the middle of a jungle or something. You have no idea what you’re going to do. I’ve asked myself, what would I do if I had all the knowledge I have now, but none of my resources and you just dropped me into the middle of some city that I’ve never been before. I’m homeless, I don’t have any friends there. Would I be able to build wealth or would I just become addicted to drugs? So these exercises are kind of fun. And so now we’re going to do it with our portfolios.

Rob:
Yeah, man. So let’s get into just the first aspect of this and we’ll build to it. But I wanted to just start today’s show with just asking what are the biggest challenges that you’re facing right now, both emotionally, but specifically from a real estate standpoint, and is there any pitfalls that you’re currently encountering that that might lead to something like this?

David:
Well, this could easily turn into a therapy session for me if we’re not careful, so you’ll have to cut me off. But as far as the pitfalls that I’m going through, we have the market changing incredibly quickly. So pretty much almost all of the sources of income that I have come from some form of real estate. So my real estate sales team not selling nearly as many houses because the market has turned around. Rates are super high. A lot of buyers are wanting to wait to buy and a lot of the investors can’t make deals work because with the rates being high.
Even if you could get in contract, you can’t make a cash flow. Then you got the mortgage company, that’s the same thing. You can only qualify to buy a house off the debt to income ratio. So as rates are going up, it becomes harder to get people to be approved to buy the level of house that they have to get a seller to sell it. So income is going to be down there too. Well, all my employees are now making less money, and as you can imagine, people are not super happy about working harder and making less money.
So a lot of the character flaws that are present and all of us tend to not get exposed until times get hard. That’s one of the quotes that Warren Buffett has. When the tide goes out, you see who’s been swimming naked. So you’ve got all the personnel issues that you’re dealing with as the tide has gone down, the market is not doing good. Then I’ve talked about the 1031 that I was kind of forced into in a very quick timeframe. So I bought almost 20 properties. Maybe there was 20.
At the end of the day, almost all short-term or mid-term rentals across the country, massive problems with the rehabs employees that I had to let go of that quit that were managing these things that weren’t. I had to switch my CPA in the middle of all of this and my bookkeeper. So I’m every single week having to meet with bookkeepers to try to figure out what properties are profitable and what are not. Getting my taxes ready for the next year, and creating equities to hold all these properties in. Those mortgage payments still have to be made over and over and over. Then you throw in neighbors that are complaining about the construction that’s going on or that don’t want a short-term rental next to them. So they keep on calling the city to complain about nothing, which just means we have to now deal with more and more headaches.
And there’s more than that that’s going on as well. There’s a lot of things that are tough in life right now. So this is the perfect time for us to get into the fact that making money, especially making money in real estate is not always fun. In fact, it’s not often fun. It’s not glamorous all the time. You will hear the glamorous side of it when you’ve got a slick marketer trying to convince you to follow them on social media.
They want your attention. They want your subscribes. They want your follows. They’re going to tell you about the part of real estate that’s great. And then people get into it assuming that’s always the way that it works. And then when it doesn’t work that way, they think there’s something wrong with them or they think they weren’t meant for this and they get discouraged. But that is not the case. Even the people that are the best in the world are constantly sloughing through problem after problem to get to that cherry at the top of the sundae.

Rob:
Yeah. I mean, like you said, in my opinion, real estate should… It’s fun making money, but real estate should never be fun because you should never be making that money and using it. You should be reinvesting it. And that’s not fun. That’s actually discipline. It’s like, “Yes, I like making the money, but it really hurt.” I’m like, “Oh, I felt I could just use that $5,000 I made this month on this tiny house.” That would be really fun. But I have to force myself to say, “Well, sorry Rob. Got to put it into the next property or into reinvesting in that property.” And it’s not fun. It isn’t. But in 65 or when I’m 65, I should be having fun on my jet ski and realize my life dream of owning a jet ski on the beach, David.

David:
That’s exactly right. We talk about money being energy or really a store of energy. Energy that you’ve already accumulated from work that you did or previous investments that you made. The more of that energy that you can keep in your portfolio, the faster it will grow. The more of it that you pull out to fund your lifestyle, the slower that wealth will build. Now in your world, Rob, tell me about some of the pitfalls that you’re having with your real estate business.

Rob:
Yes, okay. A lot. I would say right now, this is being solved for thankfully, but a big pitfall that I’ve had is just not having cohesive bookkeeping in accounting. Now we had Matt Bontrager from TrueBooks on. He is my accountant and they are now doing my bookkeeper. That is solved. They’re doing really great. But actually last year for 2022, I had three… Oh, sorry, for 2021, I had three separate CPAs filing all of my taxes. I actually had four technically because I had all these different business partnerships and all of the partners were the ones that handled the taxes.
So my main tax accounting firm needed the taxes from everybody and they needed the tax. Oh, it was a big mess. But I have now fired all of them and Matt is now my sole CPA at TrueBooks. Now, they’re doing all my bookkeeping. So that’s going to solve a lot of the questions that I have day to day on what’s the true profitability? Because the way some bookkeepers track your accounting is just different than others. So that’s a big one. Another one is, this is probably the biggest problem that I face in my entire portfolio and it’s that I don’t have enough people on my team.
I’ve been very, very, very conservative and very slow to hire and that’s probably a good and a bad thing. But it’s been a bad thing for me because it really does slow down how quickly I acquire things. I’ve got a lot of plans to acquire properties and I see properties come across my desk all the time, but I honestly turned them down almost automatically whenever I think about the logistics involved with actually setting them up, just because I’m so busy with all the other miniature empires that I’m working with.
So on the real estate side, we’re a very slim team. On the content side, I’m a very, very, very scrappy team. It’s me and my editor. All the content that you’ve ever seen me post is just two people. It’s me and my editor for the most part. I write my own captions. I make my own Instagram reels. I do all my own posting. I respond to all my DMs. And some people at home might say, “Hey, how is this relevant to real estate?”
Well, my YouTube content, all my content fuel a lot of my real estate because that is my funnel for working with investors that approach me to invest half a million dollars. They find me off of YouTube. So that is a big fuel source for the acquisition part. But then I run into, “Okay. Well who’s my team?” I’m just now finally realizing that the thing that I’ve really needed to come to grips with is I need to force myself to make less money in the way of hiring more people.
Because hiring people are going to… It’s going to cost me a lot of money to hire them, but by that costing me money, it will actually make me a lot more money because I can scale up much, much, much faster. And so the big problem with my empire right now is that if I have a sick day, everything shuts down. If I were to die, it all crumbles. And this is actually a big stress point for me because if I were to not be around, not to get too morbid here, but we should probably talk about it a little bit. My wife doesn’t really know the inner workings of my portfolio and there aren’t that many people to run it.
My wife does not want to run my real estate portfolio where things to go that way. And so I’m having to now really focus and restructure my company to place more, I don’t know, more generals if you will, to run it for me so that if I’m sick I can actually take a sick day. Because right now if I’m sick, I don’t take a sick day. It’s even so bad now that when my wife is sick and I have to take care of the kids, for example, because she watches them on Tuesdays and Thursdays. That’s really tough for me in the business because then there’s no one to answer all the… It’s just a whole thing.
So I’m staffing up. I’m actually hiring a five-person content team. I’m going to have two full-time editors. My full-time editor now I’m promoting him to content director. I’m hiring a social media manager and a content writer. I’m doing that. And then I’m going to have acquisitions people on the real estate side. I’m launching a fund where I’m basically going to have seven to 10 people running the empire for me. It’s a whole thing. I feel like I just rambled here for five minutes, but it is a very real pitfall that I’m facing right now is just scaling and being able to hire and having the confidence to do so.

David:
Okay. So if this is your plan, tell me about some of the ways that this could go wrong and could all crumble around you.

Rob:
Well, I think for me, the reason I’ve been so nervous about hiring is I’m always… I have this very prideful and stubborn thought that I cannot hire someone to do a job that that will be better than me. Right? Because I’ve really good at the things that I do. And so it’s hard for me to hire someone even though I know that there are millions of people out there that are way smarter and more capable of doing the job than I am.
So I think my big fear of something going wrong is hiring someone that will not be able to pick up the slack and carry the torch forward and then that will effectively just cause structural issues within the business, if that makes sense.

David:
Okay. So what about the properties that are going to be buying for you? What are some areas where you think your acquisition team could make some mistakes or the operation side could let things slip to the point that you lose money?

Rob:
Okay. So I will say that for 2023 I am going to be more aggressively purchasing properties. I know a lot of people right now want to take the conservative route on that and that’s totally fine and commendable for those people. I see things a little differently right now. I think that we’re about to see some really huge discounts. I was very busy this year and I did buy properties, but not as much as I wanted to. And now it works out because now I’m seeing all these discounted properties and I’m going to go in and snap them.
So I think probably the pitfalls of this are going to be that I need my team and the acquisitions team that are running this for me. I need them to be really good at comping conservatively. I’m actually comping out all of my properties in an incredibly conservative manner that leaves a lot of room for error basically. I didn’t used to do that. I’ve always been very aggressive with my analysis. Most of the time I’ve been actually relatively correct, but now we’re sort of switching it over. So I’m just more right now weary of trusting the acquisitions team to be as conservative as I want them to because I think we’re actually in a time where we have to be the most conservative we’ve been in probably the last 10 years is my guess.

David:
Yeah, that makes sense. I mean, I wasn’t as upset with people that were riding aggressive offers the last six to seven years as others were because it was pretty clear to see that prices and rents were going to continue to rise. I think that you probably lost out on more gain than you protected yourself from loss if you were riding very aggressive offers when there was this much inflation happening. If you go back five or six years ago, someone would write an offer that a conservative guru could call a fool who made $200,000 and 80 grand a year on that property because they wrote aggressively.
But it’s difficult to see that trend continuing from this point forward with how concerned the government is with trying to slow down inflation. So as long as rates keep going up or stay high, they’re trying to push the cost of assets down versus where they were trying to create to print more money, which makes the cost of those assets go up.
So I do think you got to be able to pivot. You got to be able to be understanding that you need to stay high volume, you need to stay aggressive, but a conservative approach makes sense in this market. You’re not leaving money on the table anymore, being conservative. So I think that’s wise. Do you have any concerns about turning things over to other people in your business as far as who’s going to be doing the acquisitions?
Are you still going to be looking at every single deal before it’s bought and reviewing what they put together? Are they going to have some authority to make moves without running it by you?

Rob:
Yeah, that’s the hard part, honestly. I think I’m probably going to still be relatively involved because like I said, I’m launching Robuilt Capital, my big goal, my stake in the ground or the line that I’m drawing in the sand, I want to raise a hundred million dollars in the next five years. I’m dead set on that. I want to do that. I’m going to do that. And what I plan to do with that $100 million is I want to go and acquire campsite, RV resorts and basically remodel them and juice them up, if you will, to be like high-end glamp sites and unique stays.
So I just don’t think I can turn that over quite yet because I’m still not the RV park glamping assassin that I’m going to be. I’m very good at it, but I’m not good at good enough at it to just hand it over and direct. I think I still need to be in the weeds of this a little bit. But with that said, now that I’m hiring an acquisition person, possibly launching a property management company, I’m going to have the actual, I don’t know, the project manager, the investor relations person, the COO of the operation.
I’m going to have seven to 10 and most of these are already filled, but I’m going to have seven to 10 people that I’m having to actively train. It’s already hard to hire one person and train them for the role. I hired my first COO two or three months ago to run host camp for me and I’m involved. We talk every day. I have not been like, “Oh, here you go.” And I haven’t disappeared.
I’m in the trenches with him to train him to do that. So doing that with five to seven to 10 people at once, that’s going to be a real adventure that I’m a little nervous about, but also really excited about. So I’m looking to basically take an old school traditional approach to funds where you go and deploy them in multi-family or mobile home parks and put the Robuilt spin on it where it’s a little bit more of a glamorous, upscale experience.
I’m really excited to pioneer that. Because my intent is to pioneer that and be the number one fund that does that, then I’m sort of assigning myself sort of the trench digger, if you will. I’m going to be in the weeds of that, but I don’t know if that’s the healthiest approach, but that’s the approach that I’m going to take for now.

David:
I like you going big on something that’s unique. So you’re not saying, “I’m going to go buy a bunch of multi-family apartments that everyone else is buying.” You’re really banking on uniqueness. I’m going to do something other people aren’t doing. If I’m going to scale, if I’m going to be aggressive, I’m going to go big. I’m going to do it in a way where I don’t have as much competition as a form of risk mitigation. I think that that’s pretty wise.

Rob:
I mean, ultimately that’s my dream. I want to go heavy into unique. I think there’s the conservative layer that I’m placing on how I model all these things out. But then there’s also the extremely conservative layer that I’m now going to be working with investor money. So as a fiduciary, I don’t know, intermediary for my investors, I have to be even more conservative than how conservative I am now.
So a lot of is changing about how I’m investing and I’m curious, what about on your end? Is there any change in your risk versus your conservative approach to actually getting into properties now that you’re sort of in the trenches of all these remodels and all these short-term rentals that you’re about to launch?

David:
What I don’t like about the path that my choices took me is there’s a very long period of time from the point where I bought the house to the point where I’m going to get data back to see how the investment worked out. Takes a long time to do the remodels. The cities and the neighbors are causing a lot of problems. Then you get the property up and you don’t know when it’s going to start booking. You got to tweak with it like the different pictures or different design ideas.
It takes a little while for a short-term rental to pick up at speed. So it could easily turn into 12 to 24 months before I have solid data that I can say this strategy worked. And that’s a long time to go without actually having some input to be able to say, where should I pivot? So I’m kind of flying blind for a while.
I don’t love that. So during the period of flying blind, I really just focus on things other than acquiring more real estate. I’m either going to go back to an asset class that I already understand very well that’s much more predictable. This could be a long term rental, an apartment complex, putting money in with somebody else, flipping a house, something like that.
Or I put that energy into business. So it’s very difficult when things change this fast for people who are doing new stuff to figure out if they should scale or if they should go slowly. And I can definitely recognize that’s a challenge a lot of people are having. What are you doing to pivot right now?

Rob:
Oh, man. A lot. I’m a relatively diversified investor in the short-term rental space, but I actually want to do a lot of things in real estate. I have big aspirations. BiggerPockets has always been the golden handcuffs of investing because I’m really good at this one thing and I want to double down and niche down, but I see how many people in the world are crushing it in real estate and I’m just like, “I got to try all these different things.” So that was just me as a listener.
I’m like, “I want to try it all.” And then we interview so many people on the podcast that are amazingly talented and brilliant people that it inspires me to try new things. So I’m actually going to be doing quite a few things. I am going to probably not do so much short term rentals the way I have been where I was buying the one-off homes. But I’m actually going to be doing, like I said, the fund where I’m acquiring a lot more short-term rentals at mass.
I’m going to be doing a lot more medium term rentals. That’s my big push right now. I have two medium term rentals now. I have three and I love them. They’re super easy. I just locked in my biggest reservation ever on Airbnb for 33 grand for a six-month rental on my house in LA. I haven’t even heard from the guests since they checked in. It’s amazing. I absolutely love it.
So I am going to be focusing on getting more medium term rentals and focusing on developing contracts with medical agencies and different people like that. Because I know a lot of people that are crushing it in that space. Oh man, this is a really big pivot for me, but I’m actually going to be doing a little bit more rental arbitrage. I have a few reasons for it. We don’t have to get into it now, but I’m going to be doing a little bit more of that from an exploration and education side of it.
I want to be able to teach people how to get into it like zero money down. And then I want to actually get into reverse arbitrage, which is a new thing that I just thought of two nights ago. [inaudible 00:24:10]

David:
Where You would buy a house and let somebody else do the arbitrage so you don’t have to deal with all the headaches.

Rob:
Dude, you got this instantly. Everyone that I’ve talked to about this, they’re all, “I don’t get it.”

David:
Yeah. You’re getting rid of the worst part of being a short-term rental person. All the emotional ups and downs, the spikes, the headaches, the bad reviews, and you’re getting to own the actual asset, which is where most of the money comes from.

Rob:
Yes. And you get to charge a markup. So if I buy a place that’s 2,500 bucks market rent, I can tell an aspiring host, “Hey, I’ll let you rent it out on Airbnb, but you got to pay me $3,000 a month.” So not only am I ditching the low long-term rental returns, but I’m actually getting a premium on it. I don’t need a property manager. I can just rent it to an aspiring host and let them run their Airbnb journey and I get all the tax benefits.
I was in bed so excited about this two nights ago ’cause I was like, “Why isn’t this talked about more?” Long-term investors should be renting out their places to Airbnb hosts at a premium and you could double your returns.

David:
Yeah. That’s a way that when we talked about in the part one of this episode, how you can diversify risk and how portfolio architecture can help. Having a couple properties like this where you get to own a highly appreciating asset, that’s the market will work best in and it’s going to have to have a lot of meat on the bone for someone to make it worth their while. You’re not going to pull this off in Wichita, Kansas or Toledo, Ohio where the stuff is renting for $80 a night or something. It’s going to have to be a decent amount.
And the operator, it has to be worth their time to do it. But dude, if they’re going to absorb all of the worst parts of the business and pay you higher than market rent and you can own the property without having any of the headache, this is a great way to add some safety and some equity to your property without taking on the ease of ownership issues of a whole bunch of short-term rentals, which is kind of trying to babysit 25 toddlers all at the same time.

Rob:
Yeah. So to sum it up, I’m going to basically be doing long-term rentals, medium-term rentals, short-term rentals. So I’m going to diversify there and then acquiring large 50 to a hundred door properties that will eventually become glance site. So I wouldn’t say I’m necessarily… I guess it’s all pivots. They’re all small pivots, but they’re all pivots in my wheelhouse. That way I can at least still be in my element in some capacity.

David:
I asked you previously about your concerns with some of the mistakes you could be making, but now you have a little bit more clarity on the direction you’re going to pivot to. So do you have any more clarity on the types of mistakes you want to avoid going forward?

Rob:
Yeah. I’m trying to mistake proof myself right now like the way I am with recession proofing myself. All right. So I think the big mistake is the shiny object syndrome of trying to approach everything. I think that becomes a problem whenever you try to approach everything out of your wheelhouse. But everything I just talked about, the reverse arbitrage, medium-term rentals, short-term rentals and glamping, all of those are just different forms of short-term rentals in my mind. Things that I’m actually good at.
And so while I am spreading myself thin on the execution of how I’m doing it, it’s all within my expertise and knowledge. So I’m not super worried about the mistakes of the actual execution of those models. I’m just more nervous about, like I mentioned, not having the team to be able to execute them because I have three… I guess I’m more nervous about the mistakes at scale.
I’ve got three mid-term rentals right now. I don’t know what it’s like to have 30. That’s a lot different. I have 35 doors right now that are effectively all short-term rentals. It’s very different to manage 35 than it was to manage two. So right now, the only mistakes I’m nervous about encountering are going to be the scaling mistakes that I make with scaling like purchasing reverse arbitrage units at scale or medium term rental stuff.
But because I’m already doing most of this, I’m not super worried other than… I think, “Oh, you know what? Personal mistake, I think.” I think I’m going to make the big mistake of putting everything I have into this and that will bleed into family life, dad life and husband life. If I’m just going to lay it out there, I could see that being a big mistake that I make is not prioritizing what actually matters over this thing we call real estate.

David:
That’s very easy to do and it’s very wise of you to be planning for that ahead of time. And even if someone doesn’t have a family like me, sometimes those issues bleed over into just your… I don’t want to say your personal life, but your emotional wellbeing. When you’re up at night worrying about what’s going to happen or you borrowed money from investors and it’s not going as well as you thought, it can have a very big toll on how you’re feeling, the confidence levels you have.
Your mind can easily start to look for an escape and it can tell you crazy, terrible things to do to get out of those scenarios. So I think it’s wise to be considering what could go wrong so you can prepare mentally for how you’re going to handle those types of situations when they come up.

Rob:
Yeah, for sure. Well, what I’d like to do now is assume that we made all the mistakes and everything crumbled, we lost it all, and we went to zero. I want to talk about now how we would go from having $0 a net worth back to where we are today. You cool to jump into that idea?

David:
That’s a great idea. Let’s do it. The broken afraid version at BiggerPockets.

Rob:
All right, Dave, let’s fast forward. Okay. Let’s just say you make some crazy mistake. You’ve lost it all. You’re back to zero. David Greene is no longer green at all. He’s David eed.

David:
Yeah, the red.

Rob:
You’re in the red. Now you got to rebuild and start from square one. How are you going to get started? What’s your first step?

David:
First step? All right. I am probably going to do more than just investing in real estate. I’m going to look to diversify the way that my income is coming in because I’m at lost at all. I probably had too many eggs in one basket. I probably quit my job. I probably got super into investing, maybe one asset class like short-term rentals or something a little bit more risky. And then I had a bad couple months and boom, it was all gone.
So the first thing I wanted to do is to establish a much more solid base. So I want to scale horizontally before vertically. So I’m going to look for an industry where I can make money, where I’m still involved in real estate, which could be being an agent, being a loan officer, working for a construction company, being a contractor, consulting, working for a 1031 company, being a CPA. Anything I could do where I could help other people in real estate while helping myself.
Second thing, when I’m looking for properties to buy, I’m going to look for this stuff with the highest days on market in the best areas, especially if it’s more expensive real estate. Now, I realize this may come as a counterintuitive statement. You’re thinking, “Hey, the market is slowing down. Buy the cheapest properties you can find.” But that’s not what you want to do. That’s actually increasing your likelihood of losing them. I want to go for the stuff that used to sell for a million when the market was at its peak, and now that rates have doubled, it’s going to sell for maybe 650,000.
And it has the potential to go back to the million when the market does turn around and rates come back down. So I’m going to play the long game, not the short, fast game, which is probably what I did that caused me to lose that money in the first place. Is that making sense?

Rob:
It does. I want to ask you how would you choose your market? Is there a strategy for the market entry point that you want to get into?

David:
I want high days on market and I want an area that I believe in the next five to 10 years, more people with higher net worth are going to be moving into. Okay? So I don’t want to go invest in the part of town or the city where newlywed couples that have no money are going to go buy their house. You want to be where, all right, the wealthy people in California, in New York, in the northwest, in New Jersey, in these areas that were traditionally where wealth was gathered, where are they going to move to?
When they want to get out of there for whatever reason they have, high crime, bad weather, whatever it is, where are they going to go? That’s the place that I want to be investing in. Right now a lot of people are moving into Texas. That’s one market I’d look into. A lot of people are moving into Florida. They really liked how things worked out after COVID in Florida and the weather is better than where it is in Maine. That’s where I’m going to be looking into.
You and I bought a property in Arizona in the nicest city in all of Arizona where the wealth goes. You’re probably not going to crush it right off the bat investing in a market like that. You’re going to be like the tortoise coming out the gates. The hair is going to pass you up. The hair of cash flow, they’re going to go buy in Wichita, Kansas or Birmingham, Alabama. Some of these markets where the price points are lower, the price and rent ratios are more solid.
But wealthy people aren’t going to be moving into those spots. I’m going to be playing the long game because there’s opportunity there that I didn’t have when the market was hot. Now that the market’s cooled down, I’m not competing with as many other investors to get into these markets. They’re all doing the opposite. They’re all going after the cheapest property with the highest cash flow possible, not thinking about the future.

Rob:
All right. So if I understand this correctly, you’re going for the highest day on market. That’s going to be a strategy for acquiring good properties at a discount. You’re going to be looking for areas where a lot of people are moving to because of the tax savings, but also people are just moving out of California and going to certain areas. You want to pick up that incoming traffic basically, right?

David:
Before everyone else does. That’s exactly right. I don’t think other people are looking for opportunities there because they’re thinking, “Oh, that’s an expensive property. I want to buy a cheap one at this time. I’m going to be looking at the weather. I think that really matters.” Most people live where they live because that’s where their job is. But as work becomes more and more remote, you don’t have to live in North Dakota. People are going to start to figure that out.
Why am I in Fargo? I could be living in Miami. I could be living in Tampa. I could be living somewhere like Corpus Christi where it’s beautiful outside and I can still make money. So I’m going to go invest in those locations. The other thing I’m going to do is I’m going to utilize all the tools at my disposal when it comes to funding.
So I’m definitely going to use FHA loans. I’m going to house hack a house at least once a year. I’m going to try to do it more if I could get away with it. If I could convince a bank to give me a loan, I’m going to get a primary residence, live in it for nine months, rent that out and move into another one for whatever reason. Maybe my job moved or I had a sick family member, I had to go somewhere else. But I’m going to try to get away with as much 5% down properties as I possibly can in the best areas that I can justify so I can keep more money in reserves because I’m less likely to lose my portfolio again like I did hypothetically last time if I keep more money in the bank. So I don’t want to put 20 or 25% down if I have to.

Rob:
Okay. All right. Al good answers. Last one. How are you going to go about rebuilding your team? Because theoretically, all your current team, they’re gone. They’re out the window, they’re bitter that you lost everything, they lost their job. Now, you got to build a new team. How are you going to assemble those Avengers?

David:
I’m going to look for a property manager in the area that I want to buy the houses first because I don’t like managing property. And to me, that’s the hardest piece in the whole puzzle. This is why so many people manage their own properties. It’s very difficult to find a good property manager. It’s easier to find a good contractor or a good handyman than it is to find your own property manager that’s good.
So that’s the hardest piece. I want to get that first. When I find that property manager, I know they’re going to have contacts around town. They know the good handyman. They know the good contractors. They know the pieces that I’m going to need because all their other clients are sharing that information with them.
I frequently would say, “Hey, talk to my property manager. I don’t want to deal with it.” And then I would find that the property manager is now in cahoots with the rockstar realtor that I was using because when they met them, they realized they’re better.
Or I’d have a property manager that wasn’t that great and they would get me a bid and I didn’t like it, so I found my own person. And I was like, All right. Talk to the property manager. They’ll let you in the house.” So now the property manager is like, “Oh, this person is great.” We’re getting them as our referral person. So the better that you are, the more exposure you have to other people, the higher quality of referrals you start to develop.
From there, I’m going to ask about the top rated agents in town. I’m going to go and I’m going to find the people that either own real estate there themselves or sell a lot of houses. They’re going to help me find the deals. Those two people are going to help me find the loan officer, which is one of the easier spots to find. And then from there, I just need the contractor and I’ve got my core four and I can start buying in that market.

Rob:
All right. Now I want to fire around what you would do with certain amounts of money.

David:
Okay. This is interesting.

Rob:
You ready for this? Okay. So what would you do with a thousand dollars? You lost it all. You got a thousand dollars to your name.

David:
With a thousand dollars, I would probably host a meetup for as cheap as I possibly could. I would definitely cater it with Chipotle because there’s nothing that’s going to get more people to show up for a meetup than having Chipotle. It also shows that you’re a classy person and you can be trusted. Those are all qualities that Chipotle lovers enjoy. I’m going to have as many people come and I’m going to make as many contacts as I can and make as good of an impression as I can. I can probably stretch that thousand dollars into several of these and I’m going to have emails and phone numbers and names of all the people that came. That’s my new database.
I’m going to start off by just pouring into those people, building relationships, finding how I can help them and earning their trust, which I’m then going to turn into revenue through whatever real estate business I developed. If I became a loan officer, an agent, a contractor, a handyman, even, those are people that’s going to fuel my business by saying, “Hey, this guy David over here is a handyman. My buddy needs a new door hang at his house. My buddy needs a leaky pipe fix.”
I’m going to start creating revenue off of those relationships. And now every time I go meet somebody to fix something in their house, I’m going to let them know, “Hey, I’m looking to buy real estate. Let me know if you know anybody who’s looking to sell it?” I’m going to try to get some owner finance deals, some creative financing going on because I don’t have a ton of money, which means I need a ton of people in the network.

Rob:
Okay. How about $10,000?

David:
$10,000 is getting better. Now, I’m in a position I can probably get an FHA loan and I’m going to look for something right around $300,000 where the seller is going to pay the closing costs on that. I’m going to tell my agent they need to write the offers that way. I’m going to try to get the biggest and the best house in the best neighborhood possible that’s as ugly as I could possibly find.
If it’s ugly and it’s big and it’s in a great location, I’m going to want it and I’m going to just house hack that sucker with a grassroots campaign. I’m going to rent the rooms out if I have to rent the rooms out., I’m going to turn rooms into rooms that can be rented out. I’m going to have a person who’s got a trailer that they’re not using parking on my property and I’m going to rent that out to somebody else.
I’m going to scrape and claw to figure out a way to build up some cash flow from that first property that will keep my mortgage as low as possible or maybe even put some money in my pocket to help buy the next house.

Rob:
Perfect. How about $50,000?

David:
50,000, I’m starting to feel really good. I’m still going to house hack and do everything I said, but I’m going to have 30 to $40,000 left over after that to be able to buy another property. So maybe I take some of that extra 30 or 40 and I use that to improve the property I bought. Now, I can house hack a real fixer upper. I can get something that needs a lot of work and I can make it worth more which increases the equity. And then 12 months later I can refinance and hopefully pull out more and turn that initial 50 into more like 80, 90, maybe $100,000 after the refi.
So I’m not going to be able to buy something turnkey. I’m going to have to be very, very clever and put a lot of work into finding the property that needs a lot of work but has the highest upside. Okay? It’s a 2,800 square foot house in a neighborhood with other houses that are also big. But this is the one with the green carpet and the ugly wallpaper and it smells bad. Everybody walks into it and just turns around and says no, because they want something turnkey in that neighborhood and they can afford it. That’s the house that I want to go buy and.
I’m playing the long game. So 12 months later after I fixed it up and I put a little bit of money and some sweat and some tears into it, its values increase the most because the comps were much higher than the price I pay. There’s a bigger spread in the high to the low than some of the other neighborhoods with cheaper homes where the spread just is not that significant. You don’t have as much meat on the bone.
After that refinance, I’ll be able to repeat the same thing again, and at the same time I’ll be able to house hack. So if you do this right, you’ll have one house hack every year and then one fixer upper property like this, and you work those at the same time for several years in a row.

Rob:
No further questions, your Honor.

David:
Thank you very much. All right. If you don’t mind, I’d like to cross-examine the witness.

Rob:
Allowed.

David:
I’ll allow it.

Rob:
I’ll allow it.

David:
Sustained.

Rob:
There you go.

David:
You were going with court language, but you went with The Office’s Michael Scott. That’s what was so funny about that. All right, the year is 2023. You have lost your entire short term rental portfolio, yet you have not lost your fighting spirit. What is the first step that you’re going to take in rebuilding your empire?

Rob:
Well, there’s one thing that I’m really good at and it is marketing, sales and content. So I am going to be rebuilding my content system and ecosystem and platform to just make myself an authority again and really talk about the demise and the mistakes that I made and how those mistakes are going to make me wealthier and richer as a result. So I’m going to get out in front of the bad press of all the mistakes that I made with losing everything. I’m going to own them and I’m going to make really inspiring content that shows anybody that you can build from zero to hero all over again. Okay?
So I’m going to use my content as an opportunity to raise money. There’s no reason for me to scale slowly and build back from zero if I already have my knowledge. I think when you’re starting out in real estate, you have to go very slow because you just don’t know anything. I still retain my skills and knowledge. Right? So theoretically, if I lean on the mistakes that I made, I can go and I can raise money from an investor and use that to get into properties that are going to cash flow.
Now, I want to make money as quickly as possible. I need to be cash flowing. I actually need to make money. So I want to figure out how to get into different properties that make me money right out the get-go. And on top of that, I want to prove a little bit of credibility and reestablish a new track record. So I would probably actually start a property management company and I would manage Airbnbs for other people.
I would help them make a lot of money and I would try to get to 20 as quickly as possible so that I could go to an investor and say, “Hey, look at these 20 properties that I manage. I make all this amount of money for these 20 owners. I can make you that amount of money.” I’m going to do the sweat equity in exchange for equity in that property.
Now, probably what I’m going to do is put in no money, have the investor fund it, have the investor finance it, and I’m going to do everything. I’m going to source the deal. I’m going to work with realtors. I am going to furnish the place. I’m going to manage it. I’m going to do everything. I’m going to work my tail off so that this investor knows that I’m putting everything I have into this house.
Hopefully a strategic investor that will reinvest with me 2, 3, 4, 5, 6, 7 times. That’s going to get me some cash flow, but I also want to be working on appreciation at the same time. So through my different content, through everything that I’m doing, I’m going to do my best to join other syndications and other funds as a general partner, as a small role, whatever I have to do to get into a syndication so that I can have a small little piece of a pie of something that will eventually be a lot bigger.

David:
What role do you see yourself playing in that syndication? How are you going to bring value to them if you don’t have a ton of money?

Rob:
Probably the actual investor relations. I’m going to be the one meeting with the investors, walking them through everything. Not necessarily the number crunching. I’ll let the financial modeler do that, but I’m going to be in charge of the marketing. I’m really good at funnels. I know that I can create a funnel system that effectively reaches a large audience, and then from that funnel, that audience starts going down the funnel and eventually gets to the fund.
So between fundraising and actual marketing, I will be in charge of lead generation effectively for a fund and that will take care of my appreciation. So I want to try to get back appreciation and cash flow as quickly as possible. Equity and cash flow fuel, because those are the two components that are needed for hopefully a relatively sustainable lifestyle in real estate.

David:
Yeah. What I like about this is you’re not just relying on investing, you’re relying on your skills as a human being that you developed over time to give you that little push, that boost to help your building wealth. A lot of the people listening to this have skills they’re not even thinking about. They’re in marketing and they don’t realize that they could be helping a syndication with raising money or putting out better content. Right?
They analyze things for a living as maybe an insurance adjuster or something like that, and they’re not thinking about how they can help analyzing properties for a fund. So that’s very, very clever. Now it sounds like you’re not picking a market to rebuild, right? Because you’re going to link up with someone else who’s already done that.

Rob:
I’m trying to join other ecosystems and build it that way. I mean, if you think about Elon Musk, for example, when he wants to start a company, he’s not the one that’s actually doing it, right? He knows his skillset. His skillset is finding the right team, delegating it, providing the vision and kind of assembling it that way. But he’s never the one that’s in the trenches actually building that company from the ground up from a day-to-day tactical side.
So I don’t want to do that. I don’t want to be the person that’s doing a live-in BRRR and starting that process. I think marketing can solve a lot of those problems for me and get me back to where I was within a year if I really put a lot of time and effort into it. So from a market standpoint, I’m a big fan of national parks. So a lot of what I’m going to be proposing to investors into the people that I’m working with are to heavy up into some of these more recession resistant areas.
National parks are mother nature’s Disneyland, as I always say. So anything that falls within the Grand Canyon, Smokey Mountains, Yosemite, Yellowstone, I know that those are always going to be really rock solid properties and that that’s where I would probably heavy up is if I was going to start somewhere.

David:
All right. Now, if you’re going to source a team here as far as who you’re going to link up with, what are some things that you’d look for in the syndicators or the partners or however this is being structured that would make you think that’s the person I want to hitch my wagon to?

Rob:
So it kind of depends. If we’re just talking about me partnering up with an investor, I want a silent investor to just let me do my thing. I want a silent partner like, “Hey, I know you’re good at this. You’ve wined and dined me. I don’t want anything to do with this. I just need time to work that money, do my thing, embrace my mistakes, and go all in. So from an investor standpoint, I’m always looking for a silent partner. From the team standpoint, that’s a good question. I knew this was coming and I probably should have prepared for it.

David:
Well, you probably haven’t done this before, right? You haven’t found a syndication to throw yourself into?

Rob:
No, it’s just my syndicate. I started it. I started my own fund. I did that today. So I’m probably going to be working. I know what I’m going to do. I’m going to find a project manager type of person. Someone that’s very analytical, someone that’s very driven by logistics and details. That’s probably going to be the first hire on my team because I’m terrible at that. That is not my gig. I’m not good at that. I’m a visionary. I’m not good at detail oriented things.
So I need a counterpart that’s going to keep me on task, keep me on the path to where I want to go. So probably somewhat of a project manager or like a COO who’s willing to start from the ground, from the foundation and build up. Someone that’s like, “Hey, I’m down to be broke with you for the next couple of years. Let’s do this thing.” Someone that’s not focused on the cash flow benefit immediately.

David:
Wonderful. Okay. Let’s say you have a thousand dollars. What are you going to do with it?

Rob:
I’m going to invest that in some kind of course or some kind of education that is going to make me smarter, that’s going to make me money. I’m going to invest in that, or I’m going to change my personality type and I’m going to invest in $1,000 worth of books and read them. I’m going to use that thousand dollars to make myself smarter in some capacity, because you can’t do much with a thousand bucks in real estate. That’s always the advice. “All right. If you have a thousand dollars…”

David:
A thousand dollars gets you a lot of knowledge and wisdom through books.

Rob:
Yes, I agree.

David:
Brandon Turner had a point about this. He talked about how someone could have 10 or 20 years of life’s wisdom condensed into a $10 book and we just dismissed that like it’s not a big deal, but how valuable that actually is.

Rob:
Yeah. I mean, you can infinitely become smarter with one book, right?

David:
Yeah.

Rob:
So whether it’s that or some kind of little curriculum, something that teaches me. I just got to figure out how to make myself know something that I don’t already know.

David:
You also got to figure out how to make yourself spend more than four seconds doing one thing without having something else pop up that you have to go do. Because it’s going to be tough to read these books in your current state. I like that.

Rob:
Yep. Well, theoretically I won’t have a lot to do.

David:
Well, that’s a good point. Yeah. Maybe some of the money can be spent hiring virtual assistant to read you the books or you buy them on Audible. I suppose someone’s already taken that.

Rob:
Audible. Right.

David:
Yeah. All right. Same question with $10,000.

Rob:
$10,000. Like I said, I want to get cash loan as soon as possible. So I’m probably going to do a rental arbitrage deal or some kind of rag tag glamping operation, get into an apartment, pitch a landlord, beg them to let me release it on Airbnb. If they say no, I will say, “Hey, how about this? Let’s rent your apartment on Airbnb and we’ll split the profits that way they get some of the upside as well.
So I’m going to use $10,000 to go out and basically pay my deposit, my first month’s rent. About, let’s call it six to $8,000 on furniture and get it listed on Airbnb as soon as possible. Make some money. That’s option one. Option two would be like buy a $3,000 tent. Go find a property owner that has 50 acres, say, “Hey, can I put my tent on your property? Give you 25% of the cash flow that I make, and basically listed on hip camp Airbnb. I know that this is possible because my $3,000 tent grossed me $142,000 over the three and a half years that it was running.” So 10,000 bucks and get a couple of those, I hope.

David:
Glam pack. I like it. Okay, last question. Now you have $50,000. What are you going to do with that?

Rob:
That’s a really good question. I think I’m going to just go… You said the house hack. So I’m not going to do that because that would be a lame answer, but that was a good answer and I’m jealous that you said it first. I am probably going to try to get a second home loan and rent that property out on Airbnb. So I’ll try to get a 250K, $300,000 property in one of those national parks that we talked about. Probably not the Smokies. I’m going to be pushed out of there, but probably somewhere like Hawking Hills, Ohio.
I’m going to buy a property there and I’m going to get it set up so that I can make some cash flow. Because I lost everything, so I need to pay the bills. I got a family, they’re hungry. I want to make sure that everybody is okay. Equilibrium can be met as soon as possible.

David:
There you have it folks. That’s wonderful. Rob, this is our plan. If you dropped us into the middle of nowhere, broken afraid, without our portfolio, but with the knowledge we have now, what we would do to start over. Rob, anything that you thought of when you were hearing me talk that you wouldn’t have thought of or heard yourself say ’cause you had no idea what you were going to say when I asked you this question that you thought like, “Ooh, that’s really good. I want to hammer that point home”?

Rob:
Yeah. All of it really. But I’ll say this because my immediate thought was, “Oh, I’m going to make content and I’m, I’m just going to raise money that way. I’m going to do the thing that I’m good at and just get people to believe in me via social media. Because I’ve done it before. I do it every day now, right?” However, the thing I hadn’t considered is you’re doing the grassroots approach and you’re going to use your a thousand dollars to hold different meetups and get people there, get their emails, get their contacts, connect with them, network with them, see if you can partner with them, see if they’ll invest in your first deal. They’re exactly the same thing. They’re just different versions of each other and I like that.

David:
Well, I don’t have your rugged good looks so it’s harder for me to create as much attention and content on social media, but if you get me in front of somebody in person, I can work my magic. So I wish I could do what you were doing. You’re going to be holding a meetup in front of like 90,000 people because that’s all the views you get. If I made a video, it’d probably get 14 views.

Rob:
No, you just hit 10,000 subscribers. You’re moving on up in the world, my friend.

David:
How many do you have?

Rob:
550.

David:
That’s the same thing Brandon does. Brandon is like, “Good job. You got to a hundred thousand followers on Instagram and he’s at like 300,000. All right. So if people want to see, if people want to become one of those 200 something thousand subscribers that you have on YouTube, where can they find you?

Rob:
Look, they can find me on the Robuilt YouTube channel, R-O-B-U-I-L-T. I also recently did two videos for the BiggerPockets YouTube channel. So go check out the BiggerPockets YouTube channel. There’s some of the best videos I’ve ever made. I’m really excited about them and I want to make more. What about you?

David:
You can find me @davidgreene24 everywhere, even on YouTube. So if you want to be one of those 10,000 people, which is actually, if you think about it, they’re getting a bigger share of my attention than yours because you’re already so big.

Rob:
That’s true, that’s true.

David:
I’m just this little tiny guy in the space. So you want to go get some individual attention, check me out at youtube.com, @davidgreene24 or whatever your favorite social media is. You can follow me there. You can also check out my website at davidgreene24.com. That kind of shows all the stuff that I can offer you, ways that I can help you. There’s a lot of different things we do, so it’s good to kind of follow us there. And then Friday nights I go live on YouTube where people can come and they can ask questions and they can learn. This is just the best time ever in the world to learn stuff.
If you don’t like learning, this is a crappy time to be alive because there’s no benefit to it. But if you enjoy learning, you could just be learning almost the entire day every single day. Can you imagine living 1400 years ago and just being in the middle of the woods with you and your closest neighbor was God knows how far away and all you had was maybe your spouse to be there with you and you had to learn by doing versus now like the wisest philosophers in the world, the smartest people, the people that have spent years dedicated to just studying one tiny element of life like psychology and then one tiny element within psychology, like cognitive psychology, you can get all of that information basically for free if you just put the time into.
It’s kind of crazy how much information we have access to. I want to encourage everybody to take advantage of that because your life really does change as you learn more stuff.

Rob:
Well, I will say this, the thing that always trips me up about people 1,400 years ago, really up to 100 years ago, they didn’t have AC David. They didn’t have AC. They were just hot all the time. No, thank you. I like 2023. And with that, let me just say if you guys like this episode, if it was a nice twist, if you like the parallel universe of me and David losing it all and we proved ourselves to you on how we could rebuild our economical status, do us a favor, leave us a five star review on the Apple Podcast app or wherever you’d listen to your podcast. It helps us quite a bit. It helps us reach the top of charts. When we are at the top of charts, then that gets served up to new people that maybe wanting to get into real estate.
And if we’ve ever said anything that may have changed the trajectory of your life in a good way, we can do that for other people. If you help us with a little tiny five star review.

David:
We also get better guests for the shows if we’re at the top of the rankings and so we can make better content for you. Thank you very much, Rob. I appreciate you sharing everything you did. Your insight is brilliant as always. I’m going to get us out of here. This is David Greene for Rob “no AC8 for me” Abasolo signing off.

Sheryl Palmer, Taylor Morrison CEO, joins ‘Squawk on the Street’ to discuss housing data projections for forward demand in 2023, the mortgage transparency available to consumers, and takeaways from homebuilder sentiment numbers.

Mindy:
Welcome to the BiggerPockets Money Podcast where we catch up with The FI Couple.

Josh:
So we’re really excited because the things that we started doing four years ago are really starting to pay some pretty large dividends so that in July of next year when we welcome our daughter to this world, we will have the thing that we set out to have, and that was the power of choice and control over our time. And that will be the biggest investment that we’ve ever made.

Mindy:
Hello, hello, hello. My name is Mindy Jensen and joining me today is the She-Wolfe of Wall Street, Amanda Wolfe. What’s up Amanda?

Amanda:
Hey, how you doing? Excited to be here.

Mindy:
I am doing great. I’m so excited you’re here. It has been a minute since we’ve talked. Anything new and exciting in Amanda world?

Amanda:
Just traveling the world, trying to see all of it.

Mindy:
So where are you headed to next?

Amanda:
I’m actually going on my honeymoon, so I’m-

Mindy:
Yay.

Amanda:
Yeah, so we are going on a safari in South Africa. So really excited to get away from the cold and see all the animals and all the adventuring.

Mindy:
That sounds super awesome. I’m jealous. Okay. We should finish up this intro. I didn’t even start with the Amanda and I are here to make financial independence less scary part, so we should do that. But I’m just super jealous of your warm weather Southern Hemisphere trip.

Amanda:
I’m very excited. It’s a bucket list item for sure.

Mindy:
Ah, super jealous. Okay, well, Amanda and I are here to make financial independence less scary, less just for somebody else to introduce you to every money story because we truly believe financial freedom is attainable for everyone. No matter when or where you’re started or what kind of fun trips you have on your bucket list.

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

Mindy:
Amanda, I am super excited to bring Ali and Josh back on the podcast. We haven’t talked to them in a while and their lives have changed a lot in the last two years. They are living the FI dream, having quit full-time employment and generating income in different ways so that they can live their best life.

Amanda:
Yeah, I’m so excited to see them thrive because I remember when they joined social media, it’s kind of a tight-knit community and they had all of the student loan debt and they were working toward financial freedom and now just seeing all of that play out, all their hard work play out for two really good people has just been really fun.

Mindy:
They’re a great example of the FI journey. You can do this. It is possible to become financially independent even if you have massive student loan debt, even if you have seemingly insurmountable odds. They’re not insurmountable, you can do it. And what are the ways that they did it? They lowered their expenses, they increased their income, they put their nose to the grindstone, and they ground it out. That’s how you do it. There’s no secret sauce. There’s no easy button. I have an easy button.

Amanda:
There is an easy button.

Speaker 4:
That was easy.

Amanda:
It’s not easy. It’s work, but you can do it. Anybody can do it. You just have to actually put in the work. So before we bring in Ali and Josh, let’s take a quick break. We want to welcome back Ali and Josh. When we last spoke with The FI Couple on episode 167, almost two years ago, they were both working full-time, had $30,000 in student loan debt and owned two rental properties. Fast forward and things look a little different or a lot different. Ali and Josh, welcome back to the BiggerPockets Money Podcast.

Ali:
Hey, Mindy and Amanda, thank you so much for having us back. We’re really excited to be here.

Josh:
Yeah, this is the best.

Mindy:
So we’ve got a lot to talk about. Things look way different than the last time we talked. Can you give us a high level overview of what has changed for you guys?

Josh:
Yeah. So when we were last on the show, we were both working full-time still. We still had a lot of student loans. We had just recently purchased our second rental property, which was also a house hack. And since then, we acquired another off-market property. We both left our full-time jobs and now work part-time. We have, what started off as kind of a passion project that has turned now into a really nice online business.

Ali:
We also officially paid off our a hundred thousand dollars of student loans and I am pregnant.

Mindy:
Woo. Yay, babies.

Ali:
Yeah.

Mindy:
And I mean, yay, student loan debt too. I mean, yay, no student loan debt. Yay, babies. Well, congratulations. Wow. Okay, so well let’s talk about the baby first and get that out of the way because that’s the most exciting one. Congratulations. When are you due?

Ali:
We are due in July. We’re going through IVF. We actually have been trying to get pregnant since May of 2020. So this is 30 months in the making. We were very fortunate that our first embryo transfer stuck and we are having a little girl and her name is Zoe and we are very, very excited to be parents.

Mindy:
That is so awesome. We just did an episode about having a baby, planning for a baby episode 357 with Jen Narciso from Investor Mama. All the things you need to know about babies and also Costco baby wipes are the best.

Ali:
Well, we’re going to have to listen to it to get all the tips because we are really a little overwhelmed with all of that. But know that we’ll plan and develop systems like we do for everything else. Between having The FI Couple and our rental portfolio, I’m like, “We’ve had multiple businesses together.” A baby is just the next group project that we have to tackle. So we’re going to be just fine.

Mindy:
Okay. Well let’s hit up on that rental property. You said it was off market. When did you purchase it? Because the market has been a little nuts this whole year.

Josh:
Year. No, it’s been crazy. We actually combined two strategies on this. This was our first year ever using private money to acquire real estate and it was a BRRRR property that we acquired back in April before interest rates really took off.

Ali:
We found the deal in February when interest rates were still relatively low, but then we ended up closing as Josh said in April.

Josh:
Yup. And then we’re not overly handy people. So the property was actually in pretty good condition. We’re big problem solvers and we found an owner who really needed to sell quickly so that they could go on to a new phase of life.

Ali:
It was an owner occupant triplex, so it was in really great condition.

Josh:
Yep. So we had found a private money lender two years ago, stayed in touch with them. They saw everything that we were doing online. And so when the time came to buy the property, they walked it with us and they were happy to be the private lenders. We bought it in April. We did some paint, we changed out the locks and then we steadily leased out the property. At that time interest rates really started going up quickly. And so instead of waiting maybe five or six months after closing to refinance, we decided to do it in July and we completed our first successful BRRRR.

Mindy:
So you refinanced in July? That’s right when rates started going up, up, up. What rate did you get?

Josh:
Yeah, so we ended up locking in a 7% 30-year-rate and when we began the refinance process, we were closer to about a 5.5. We thought we had a little bit more time and then everything started going up quick. So we refinance a little bit sooner than we had originally planned.

Mindy:
So you’re locked in at 7% now?

Josh:
Correct, for a 30-year loan.

Mindy:
Okay. You said you found this off market? How did you find it? So everything that we own so far has been off market. We live in a relatively small city and once you get to know maybe six or seven people in this market who do a lot of the real estate, it makes finding off market deals a little bit easier. So we’ve never been people who had a lot of money or a lot of experience and so we’ve always had to be problem solvers. And so I am constantly networking with small business owners and local investors finding ways to maybe solve problems for other people. And that’s how we both found this deal and the private money to buy it.

Ali:
I think for us it’s always just telling people who we are and what we do. So “Hey, we’re Josh and Ali, we invest in this city. We’re small potato landlords. If you know of anyone selling a property, please keep us in mind. And actually a local landscaping company that we met years ago just messaged Josh on Facebook and was like, “Hey, I know someone that’s selling a triplex, would you be interested?” And we’re like, “Yeah, we’re interested.” We met the guy. It was actually really funny because we’d been featured in our local newspaper about The FI Couple and he’s like, “Oh, I know you guys.” And that name recognition was really helpful too because I think it just solidified credibility because we already had that rapport with the person.

Mindy:
Is this another house hack?

Josh:
No. So this is actually our first time not house hacking, which felt kind of foreign, but it was also relieving to not have to move in the middle of winter.

Mindy:
Yeah. That is quite nice. I’ve done that many times.

Ali:
We house hacked the first one, we house hacked the second one, and then it got to the point like, “Are we just going to keep house hacking here? What’s going on?” We knew we wanted to scale our rental portfolio and house hacking felt really safe because you need a place to live. You move into a property and there you go. But we decided that we really needed to advance our strategy and level up a little bit in order to consistently scale the way we wanted to.
So it was definitely a little overwhelming to not only buy an investment property by using private money, but I think it taught us so much really, really good lessons throughout this. So now it will definitely feel less daunting the next time we do it.

Mindy:
So rates are still really high. Are you looking for your next property or are you pulling back?

Josh:
Yeah. We’re always looking. There’s a little bit of the be greedy when others are fearful kind of approach. So we actually have found technically, or I should say tentatively our next two deals. They’re both duplexes side by side. And this time we’re actually making use of seller financing, which we’re really excited about. And again, it’s a retired couple who has a relatively large portfolio.

Ali:
That they own free and clear.

Josh:
And they really want to start enjoying retirement a little bit more and not managing rentals. And so that’s a problem that we’re happy to help them solve early 2023.

Ali:
Yeah.

Amanda:
I love that. Can you talk us through the seller financing?

Josh:
Yeah. We’re very familiar with the properties. We’re very familiar with the people. They also happen to be our private money lenders. And so kind of finding different ways to work with people. So we are going to be setting up terms. So maybe what people are accustomed to is going to a bank and then having a 30-year loan. The bank basically determines the interest rate. With seller financing, you can get pretty creative. And so we’re in the process now of actually negotiating the terms.
What’s nice too is maybe traditionally you go to a bank and you have to put down say 25% down. On our most recent property, we’ve put down 5%. And right now it’s looking like we’re probably going to put down about 10% on a seller financed four unit.

Ali:
So we’ll put down very little on this property. And the cool part is that the seller is the bank. So we’ll be making monthly payments to the seller until we get to the point where we eventually refinance it on a bank loan. But it benefits in two ways. It benefits us because we’re able to get a rental property with very little money down in a creative way where we don’t have a lot of competition like you would on the regular MLS.
But in addition, it really benefits the seller because they have all of this real estate that they own free and clear and if they were to sell it tomorrow, that would be a really big tax bill. So by doing seller financing on their part, they’re lowering that tax obligation, which helps them as well.

Josh:
And it gives them a nice monthly fixed income so that they can-

Ali:
Without having to manage tenants and toilets.

Josh:
They can enjoy their retirement.

Ali:
Right.

Mindy:
You quit full-time work, which is awesome. Congratulations on your unemployment for part-time employment. What do you do all day long? Because part-time, take that much time. How many hours a week are you working?

Ali:
That’s a great question. I mean last November, November of 2021, I quit my full-time work as an elementary school social worker and I actually dropped down to part-time as an elementary school social worker. We made this move not necessarily for the income, but really for the health insurance benefits, especially going through fertility treatments which are very expensive. I was able to find a part-time job where I work Mondays and Tuesdays school week, school year hours, but it covered three full cycles of IVF, which was incredible. So we have amazing benefits through that job.

Josh:
And then I was a full-time consultant the last time we spoke and since then I have been whittling down my clientele quite a bit. So right now we both work about two days a week, anywhere between 12 to 14 hours. When we’re not doing that, we are very busy with our online brand, The FI Couple with managing rentals and planning to onboard for more units so that we’ll be even busier with that. But admittedly, instead of just trying to fill our time with more work, which almost defeats a little bit of the purpose of why we were so aggressive with paying off debt and achieving financial freedom, we also spend a lot more time, at least when it’s warm out, hiking, traveling, visiting family, kind of all the things that we wanted to do more of back when we had a ton of debt and worked full-time.

Ali:
I think when we first quit our jobs, the expectation was we worked 40 plus hours a week. We’re just going to fill that with 40 hours of new work. I think it took a real mindset shift of real realizing we’re building a lifestyle here and we’re building a lifestyle business. And that doesn’t mean 40 hours of work. It doesn’t translate to just replacing what we already did.
So for us it’s like, “Yeah, let’s go get lunch at 2:00 on a Thursday and hang out and let’s go visit family and help friends when they need help with different things.” So it’s really been powerful for us because we’ve been grinding for so many years. Just grinding it out, busting our butts, and we’re finally, especially with the debt payoff, increasing our incomes, getting rid of full-time work. We’re starting to see those lifestyle benefits of having the real flexibility and time freedom.

Amanda:
So what are some of the benefits of still working part-time? Obviously, you guys have found lots of ways to fill your time, but why work part-time still?

Josh:
Yeah. So I think both of us really enjoy the work that we do. It’s both in the human services profession, Ali being a school social worker and me being the consulting work I do is actually career counseling for workers with disabilities. So we both enjoy it. We just didn’t like doing it as much as we once did it. And then admittedly for me, my job involves going to different locations in the city that we live and inevitably in between appointments, I’m looking at real estate. I am walking neighborhoods and it just helps me get out and about too. So those are some of the benefits.

Mindy:
Does working part-time allow you to qualify for bank loans as well?

Ali:
Yes. Although that number is getting smaller and smaller in terms of the income that we bring home. And it was very interesting to qualify for this most recent bank loan because I’m working part-time. Josh’s Hours were reduced and we had The FI Couple but it wasn’t a two-year old business yet, so we couldn’t count it towards our income. So I think moving forward, it will be a little easier because our business is now two years old, but continuing to work at a W2 is really, really a huge strength and asset for people as they work to scale their real estate portfolio ’cause it’s just much easier to vet that income.

Mindy:
I will say too is originally I think we thought we’re both just going to quit our jobs. We’re just going to do entrepreneurship and real estate. And then we started exploring not only health insurance but health insurance for expecting parents. And the numbers were a lot higher admittedly than we had initially planned for. So by Ali working part-time, not only does it help in terms of qualifying for bank loans, it’s also a more affordable healthcare for us and our growing family.

Amanda:
I love that. So did your student loan final payments, the big hurrah play any part in going part-time?

Ali:
So actually yes and no, but I quit my job a few months before we paid off our student loans. And our initial plan, we have all the plans in the world. We have dozens of whiteboards. We have Excel sheets. We have all of these plans. And the plan was very simple, pay off the debt, buy a certain number of rental properties, then quit the job. But it didn’t transpire like that. 2020 and the entire pandemic was really brutal for a lot of industries and I was feeling really burnt out physically and mentally in my role.
We were going through fertility treatments and I was in situations with students that were not safe. I was getting punched in the stomach as we were going through fertility treatments and it was really to the point where it was my mental wellness and my health or my job and our financial goals. It felt really scary to have to pick, but luckily we didn’t have to because we had set ourselves up in such a position with all of the work that we did to bring our cost of living down to live really frugally and aggressively pay off the debt. So we were able to quit ahead of schedule and then we paid off our loans three months later, which was really cool.

Josh:
I think sometimes when people think of financial freedom, they think of it as a singular thing or some mile marker that you run through, but there’s a lot of checks along the way and there’s a lot of opportunities and benefits along the way. And so while we weren’t financially free at the time that Ali quit her job, we had far more financial freedom than when she started. And so we kind of got back the power of choice. So she was able to step away with confidence.

Ali:
It was a massive privilege to be able to quit my full-time job. It’s not something that most people can do and it’s a direct byproduct of all of the crazy choices we made and all of the sacrifice we made to be able to do that without the real worry of what’s going to happen. We knew we would be okay.

Amanda:
Yeah. I mean, thank you so much for sharing that and congratulations on paying the $100,000, being able to do what was right for you. I mean that’s huge. One of the things that I really like about you guys is that you’re always able to just figure it out. You didn’t have backgrounds in real estate or how to pay off debt and do all of this. So another thing that you’ve been able to just figure out is how to build a business. So how did you grow your online social media from 10,000 to 150,000 followers so quickly?

Josh:
Yeah. So we started The FI Couple in 2020 and it was at that point in time… So I am a voracious reader of books, all things BiggerPockets. If there’s a podcast from BiggerPockets, I’ve listened to it probably twice. And the more and more that we were listening to podcasts and reading books, we were hearing all of these awesome success stories from people who had reached the mountaintop, if you will, of financial freedom. But sometimes you were hearing their story when they had already gotten there, which is really, really inspiring. But for us, it was kind of like we wanted to hear stories of people who were maybe 50% of the way or there, if you will.

Ali:
People that we could relate to. People that were still struggling and maybe making some mistakes along the way.

Josh:
And we weren’t really hearing it as much. And then so Ali had the idea. She’s like, “Well, why don’t we start sharing our story?” And I was like, “Ali, we don’t know social media. We’re not very active on social media. So I don’t know if that’s necessarily a good idea.” I was wrong.

Ali:
Do you want to say that again louder for the audience?

Josh:
So we started sharing our story and admittedly we didn’t really know what we were doing. We just figured you know what we’re going to tell people some of the stuff that we’re up to and maybe our moms will follow and stuff like that.

Ali:
I wish I could say we were tech savvy and had this whole business model planned and knew exactly what we were doing, but we were flying by the seat of our pants. We had zero clue how to do everything. We felt really silly making videos and putting ourselves out there. We got really ridiculed from friends and family, “What are you guys doing? This is stupid.” But we just continued and I think in the beginning, it was not a business, we weren’t making income, but the community that we built of meeting other people that thought like us and made choices that we did, it helped us in our personal life beyond belief because we said, “We’re not the weird ones. We can rely on other people and connect with other people and make real friendships with people that get what we get.”

Josh:
And we didn’t really understand real estate, but that wasn’t going to be an excuse for us to not understand real estate. So we found ways to bring value to people who knew a lot more than us and we took the next step forward and we learned real estate. And social media was no different. So what’s awesome has been a lot of the people whose stories we’ve heard over the years who now also have blogs or Instagram pages or different websites, we’ve now been able to connect with sometimes in real life and then sometimes just on Zoom calls.
They’ve been more than happy to just talk to us about how to actually turn something that starts off as a passion project online into something that’s a viable business. So that has been huge, both in terms of being able to make a living, doing something that we love, but then also creating actionable content, growing our brand and now having, gosh, 150,000 followers is just a really crazy number to say out loud.

Amanda:
It is crazy. But I think to your point, just the relatability, the vulnerability that you brought to your page brought together that community. Right? So I think that’s awesome. So let me also ask though, how is leveraging social media a catalyst to help you quit your jobs or go part-time?

Ali:
Absolutely, yes. So I think that again, when we started social media, we knew that people made income on social media, but I genuinely feel like a social media business is the wild west. There’s no paid transparency. People have no idea how you generate income. People ask us all the time, “Do you make income from just having a page or making videos?” No one knows. So we certainly didn’t know when we first started. So we figured out along the way the different ways that you can generate income from having a social media business.
I remember in the spring, we had made a little ebook. It was a 53-page book about how to start learning about real estate beginners in real estate. I remember before my school year was about to start, we were selling the ebook and we had made more from that ebook sale than I made it a full month of work.
That was the lightning bolt of like, “Wow, we can generate money online that could have the potential to replace my full-time income that is really stressful and challenging and not really filling me up anymore.”

Josh:
And so we kept learning and kept growing and connecting with other people who were doing incredible things. It got to the point where we had a couple months where The FI Couple had made more than what Ali’s job, but without a fraction of the physical and emotional stress. And so even though, again, we still had debt and it was still very early on, we were like, “You know what? I think we have something here and I know how unhappy you are. We’ve done all of these things over the years to give ourselves some flexibility to take a chance on something that we really like doing.

Ali:
It was an unexpected decision for me to quit my job and do all of that before the loans were paid off. But it was very calculated because, again, we had several months under our belt of consistently outearning my job and that told us, “We’re going to be okay. We’re going to figure it out.”

Amanda:
I love that. So you guys have so many different streams of revenue coming in right now, which has allow you to reach financial freedom so much sooner. So do you have any tips for our audience on how they could grow their own social media or grow their own business? Are you just on Instagram? Are you on TikTok too? What platforms are you using?

Ali:
I think in terms of ways to grow and develop revenue, one of the biggest takeaways, I remember someone said it to us, “Don’t start a social media page just with the immediate goal of trying to make money.” Because if it’s really simply for that and you’re not looking to add any value or contribute, I don’t think you’ll have success. So for us it was always like what are the things that we wish we knew that we want to share with other people to help them? So for a really, really long time, it was just like, “What value can we bring? What connections can we make? How can we partner with people on similar shared goals and tasks?”
I think by doing that we developed really organic relationships and a lot of trust within our community. I think that that really helped us with our success. And then once our business started growing and we had more followers and we had more connections, then it shifted of, “Let’s continue to provide educational content, but is there a way that we can get paid for all of the time we’re investing in this?” And then from there it was developing those different streams of income.

Josh:
I always tell people is just figure out what your circle of competence is. There’s a lot of things out there that Ali and I just have no understanding of. And so we stay in our lane. We talk about the basics, fundamentals because I think-

Ali:
Of what we know.

Josh:
Exactly. And they’ll never go out of style and they’re always something that people need to learn more and more every year. So it doesn’t have to be overly complicated. You don’t have to talk about things that you don’t understand.

Ali:
We shouldn’t.

Josh:
We just basically said, “What did we need to know more of two to three years ago before we started this journey?” We started creating content for those people because we figured if Ali and Josh needed to know that maybe 100 people or 1,000 people or 100,000 people would be interested as well.

Ali:
We started our social media journey using one platform. We started with Instagram. We learned the ins and outs of that and felt more mastery level experience at that before we transitioned to other platforms. So that was the strategy that was most effective for us. We have Instagram and Twitter. We have TikTok, which we still don’t know what’s happening there, but we post the videos on it and that’s kind of it.

Amanda:
I love that. So then let me ask you one more question. How do you get over the vulnerability of just putting yourself out there on social media? Because so many people have the vision and the drive to do something like this, but it can be uncomfortable. So how did you get over that?

Josh:
I could tell you. Honestly, it is scary sometimes being vulnerable, sharing all the areas that we’ve made mistakes and there’s just so too many to count. But I’ll tell you sometimes the power of community is incredible because some of the best performing content we’ve done is when we’ve made mistakes. And then we will see in the comment section people being appreciative of being vulnerable and being transparent and not just showing all of the highlight reels and the wins and stuff like that. Because for all of the wins, if you will, we’ve had, there’s probably 10 times as many times as we flat out failed and just said, “What the heck were we thinking?”

Ali:
I will also say, and this is pretty raw, but I feel like there were many times where it’s like, “Oh, this is so stressful. The thing that we have to do.” We have to make a lot of content, or I have to put myself in front of a camera and I feel really embarrassed or were public speaking right now. And then I think, “Do you remember yourself, Ali, when you were a school social worker and the things you were doing then?”
Yeah, that was really hard. And this isn’t. You’re really privileged to be in this position where you can make money from your phone at your home in your sweatpants every day. I never want to take that for granted. I think that we didn’t know the income that we were capable of generating, but we knew that we really desperately didn’t want to be in our full-time jobs.
So we were willing to get so uncomfortable and give it our damnedest even if we failed. It was like, I’m going to try so hard that if I fail, it’s embarrassing. And that was the biggest thing. We had so much to lose. We were trying to build a family. We were trying to build a rental portfolio, all of these things. We had so much to lose that I didn’t care how embarrassing or vulnerable it had to get to be able to find success.

Josh:
I guess the last thing I’ll say too is that we started thrusting ourself into hard situations back in 2018 when we were just completely broke. I had been fired and we had a ton of debt. We saw the decisions we made to get us there. So we said we have to live radically different. And it’s kind of working that muscle. And day after day, week after week, year after year, we choose to lean into hard things because so often on the other side of those hard choices have been some of the best life experiences we’ve had so far.

Ali:
For sure.

Mindy:
One of the things that really helped me was I really like to talk, which is super, super helpful, but also I looked at what other people were saying and I’m like, “What’s the worst that could happen?” I come out here and I talk about real estate because in my real life at the time when I first started here, in my real life, nobody else wanted to talk about real estate. Now everybody wants to talk about real estate and it’s great, but seven years ago I didn’t know anybody who wanted to talk about real estate and I really did.
I thought to myself, “What is the worst that can happen?” Nobody is going to drive up to my house and throw rocks at me because I flubbed a line or I said something wrong. People will either be okay with it or not be okay with it. And if you want to make online content, don’t read the comments. That’s my biggest tip for you. Never ever, ever, ever read the comments because they’re either going to be nice and that’s going to make your day or they’re going to be mean and that’s going to ruin your week. So just assume everybody’s nice and everybody wants to keep watching and don’t read the comments ever.

Ali:
Yeah. I have a folder on my phone of some of the historically meanest comments that people save. I read them, I laugh, I smile.

Josh:
We’ve actually-

Ali:
It’s been very hard to see some of those comments, but ultimately mental health, someone that wants to be mean through the internet, it is what it is.

Josh:
We’ve actually made content out of the meanest comments.

Ali:
Yeah. But ultimately I agree with you, Mindy. What’s the worst that can happen? We have to go back to full-time work. That’s it. And you know what? I’m really not keen to do that. So I’m going to do everything I can to build our portfolio, continue to live, lean, and continue to build our business.

Mindy:
Yeah. What’s the worst case scenario? I go back to work. Your worst case scenario is everybody else’s everyday life. Joel from FI 180, that’s not me. That’s Joel. Give credit where credit is due.

Ali:
Absolutely.

Mindy:
Okay. So you talked about living on 20% of your income. Is that your current part-time income and you’re living on 20% of that?

Ali:
Yeah. So right now between The FI Couple, between our part-time work and between… We have some profit from our rental portfolio, but because we house hack it kind of limits the profitability of it. So we save about 80% of the income that across all of those income streams and we spend about 20% of it.

Mindy:
So what tips do you have for listeners for saving and budgeting?

Josh:
I know for us, when we began this journey four years ago, we were thinking… So we started off kind of on the Dave Ramsey path and teach their own nothing wrong, so on and so forth. But we started off cutting out Netflix and the coffees.

Mindy:
The small things.

Josh:
The small things. We would never go out to dinner and so on and so forth. And that was the year we got married. So that wasn’t too fun. We gave that, the old college try for about three months. But then actually, conveniently we found the book, Set for Life and that’s actually where we discovered the whole concept of house hacking. When we read the book and then we read the book again, we said, “Well, if 65 or so percent of our money is going towards rent, the car payment, which we used to have and then dining out and stuff like that, if we just focus on the big things instead of nickel and diming our way to try to be financially free, we might move a lot faster.”
And so for us, we reference using spoons to get out of debt or save money versus shovels. And for us, finding creative ways to reduce our rent and eliminate car payments, that gave us the shovels. And then from there, oh my gosh, at one point I think we had four or five side hustles between the two of us as well as full-time jobs. And so it’s all well and good to reduce your spending, but you can only save so much. There’s really no limit to how much you can earn.
So we started finding creative ways to make money. We were doing life coaching, driving for Uber, catering weddings. And so that grew the gap and it was that gap that steadily grew and that’s what allowed us to pay off student loans and buy more real estate.

Ali:
I would just say though, for everyday people that are looking to improve their finances, so a lot of the things that you often hear is reduce your expenses, increase your income, grow that gap in between. I would add to that, know your numbers. We were floating around having no idea how much we were spending, how much debt we had. And there’s real power in understanding the numbers of your situation because we talk to people all the time.
Oh yeah, I spend $50 a month on dining out. Actually, track it and tell me if that’s true ’cause I think you’re a liar. I think that our brains have a funny way of rationalizing and compensating things. So it’s like the numbers do not lie, they never lie. So know the numbers and keep track of them and really learn to identify needs versus wants. Because I think we live in a society of I see it, I want it, I like it, I got it. That’s Ariana Grande, right? And you see it, you want it, let’s get it. We have Afterpay. We have credit cards. You can get a personal loan.
I think that that instant gratification society is very, very, the total opposite of budgeting and eating your cereal before the marshmallows. So I think it’s really, really important to say, “Yeah, I want to have a cleaner in my house. That would be a really nice luxury or I want to get my nails done every three weeks, or I really want that fancy car.” But do you know what does your financial situation say that you can have those things? Not always. For us, it meant cutting out a lot of the wants to get us to the point where we were able to integrate them back in a way that didn’t totally screw us.

Amanda:
Yeah. Having an understanding of what’s coming in and what’s going out and just facing the numbers is definitely going to help you get ahead. But you guys had a hundred thousand dollars worth of debt. What would you say to somebody who just feels like they’re drowning in debt so bad that they’re just paralyzed with fear to even look at their numbers? Do you have any tips for those types of people?

Ali:
Absolutely. I think that that was us. We were like the ostrich in the sand. We knew we were living paycheck to paycheck. We knew our finances were good. We knew we had a ridiculous amount of debt, but we didn’t want to acknowledge it. ‘Cause if I don’t check my bank account balance, I don’t know if I’m overdrafting. So I think the thing to really recognize though is that you’re hurting yourself.
It’s shortsighted and it’s a temporary choice to alleviate the anxiety, but the long-term anxiety and just making your life not an easy one, it’s better to make your life a little harder and face the music than to ignore it for a decade. So for us, that’s exactly what we had to do.

Josh:
And then there’s an expression that I’ve always really liked and resonated with and it’s eat the elephant one bite at a time. When we sat and we thought about $100,000 of student loan debt, not including car loans and personal loans, things of that nature, it was overwhelming and it left us feeling paralyzed. What direction do we go in? So it was when we took 100,000, we don’t have 100,000 of debt, we have $500. We have 1,000. And we lived in increments of 500 and 1,000. It felt really slow, but psychologically it was actually really powerful.
It started giving us momentum and so suddenly we started living in $1,500 increments and $2,000 increments. So it was just taking something that felt really big and daunting and zooming in a little bit and saying, “Okay, how can we chunk this out a little bit and still make progress?”

Ali:
If you have that big goal, but then you reduce it and chunk it out, whether it’s paying off debt or saving for a house or wanting to buy your first investment, if you put it into manageable steps and then you celebrate every time you hit that step or that accomplishment, it just really boosts morale and keeps you motivated. That was huge for us.

Amanda:
I love that. Thanks for sharing. So right now you’re living on 20% of your income and then you’re saving 80% of your income. So what are you doing with that 80%? You’re not just sticking it in a savings account, are you putting it toward house hacking or the stock market or what does that breakout look like?

Josh:
Yeah. So it’s a little-

Ali:
Gutters.

Josh:
Yeah, it’s a little bit of everything.

Ali:
Home repairs. We have a 130-year-old homes, so we have had some updated renovations, but I’m being silly. We definitely have a really healthy spread of allocating between different financial goals that we have.

Josh:
So we use a variety of buckets. As long as our personal checking and our personal emergency fund, our rental emergency fund, we have a small account now for our business in case for something happens in our business. As long as all of those buckets are checked, everything else we are putting into. We have a Roth IRA, we also have a taxable brokerage account, which is just filled with index funds and exchange trade funds or ATFs. And then we also saved up for the upcoming real estate acquisition.
So it’s kind of like the surplus that we have every month. We check all of our boxes and as long as our bases are covered and that we’re protected, anything above that, we first prioritize buying more real estate. And then once that account is where we want it to be, which it is now, pretty much everything just funnels then into the taxable brokerage. And then anything beyond that is just kind of like, “Hey, if we want to take a trip or something like that, then we plan for that accordingly.”

Ali:
This comes back to knowing your numbers though, and I really want to emphasize this because we have our buckets. We have our personal, our business and our real estate bucket. We know the number that needs to be in order to be full. So as soon as those buckets are full, we don’t let ourselves have money floating around because that’s how people get into trouble.
So if those buckets are full, the money is immediately invested or it’s in our investment savings account for our next deal. And sure if we have an upcoming trip, as Josh said, we’ll allocate for that and we’ll make that happen. But I think when you start to see more money in your bank account, it’s like, “Oh, that’s free money. I can buy this or do that.” I think that we’re so focused on our goals that, that mindset is eliminated when you just have the systems in place for your buckets.

Amanda:
It seems like you guys are so intentional about every single dollar that comes into your life. Right? So let me ask you then, as far as real estate goes, do you have a goal for a number of doors or total properties?

Josh:
Yeah. So right now it’s 15 units and it kind of goes a little bit against traditional real estate advice if you will. But we’re actually probably, once we get there, we’re probably going to pay off our first rental property pretty aggressively. It will give us about 10,000 to $11,000 a year of more cash flow. And while the math says well that money may otherwise better be utilized in the stock market where you can get say, I mean not 2022, but long term you can get eight to nine, maybe 10%. We’re going to be paying off a property with only a 4.8% mortgage. But for us that’s going to be an extra 10 or $11,000 that we’ll be able to use to cover our expenses, especially when we have a family.
So 15 units, one, maybe two properties paid off, but at least the first one paid off. And then at that point, I don’t know if we have any visions of having this big portfolio where really the small mighty landlords. From there we might explore things like syndications or other avenues because we do really like real estate.

Ali:
We’ll have our stock portfolio.

Josh:
I’m just not sure we want to have some big portfolio per se.

Ali:
People often ask us, why not go bigger? Why not have a big portfolio? And there’s definitely nothing wrong with that. But I think our biggest thing is we want to have just enough to support what we need because we don’t want another job, right? We have a lot of jobs. Our lives are really busy. I don’t need to feel cool by having hundreds of units. That’s not that exciting to me personally. I don’t think that that’s why people do it. But I think that for us, it’s like what fits our life? What fills our budget? What gets our needs met? And then that’s it. That’s all we need.

Josh:
We have a lot of mentors who have a lot more experience from us and we’re learning from this every step of the way. A lot of them have shared with us that they got to a certain point and it became this Frankenstein portfolio that they weren’t really sure of why they built. And so that they’ve spent the last five or 10 years kind of deconstructing it, if you will, to get it to a place that was conducive to the freedom that they started in real estate in the first place to get.

Mindy:
Okay. I didn’t want to interrupt but I wanted to interrupt. Yes, yes, yes, yes, yes. I talk to a lot of people about real estate now and I hear this, “I want to just keep buying forever.” Why? You know that’s a job. Even if you’re managing the manager, you still have to manage the manager. It just seems like there’s this score keeping. It is score keeping. It’s absolutely I want to more and more and more and there’s no rhyme or reason for it. It’s like it comes to a point where you have enough. What is your enough number? Figure out your enough number and then be happy with that. I love that you won 15 units. That’s great. That’s enough. That’s enough. To live off of, that’s enough to give yourself a whole lot of freedom.

Ali:
I think for us too, I think often when you hear about real estate or you see it on social media, it’s like, “The rent checks and I just did this really sexy flip.” It’s just very glamorized and I think, “Okay, but have you turned over an apartment? Because that can be a real process and I don’t want to be doing that all the time. Have you had a tenant call you in the middle of the night because their ceiling is leaking? That’s a process. Well, we love real estate and it’s an amazing wealth generator and it’s going to help us the rest of our lives.” It’s work and sometimes it’s no work and I really don’t think about it unless we’re getting a rent check. But sometimes it’s like there’s stuff going on and you’re solving the problem.
So I think more units, more problems and yes, you can get a property manager, you can outsource. But you’re right, Mindy, you’re always managing something. And I think for us, I want to clear up as much mental bandwidth so that I can spend my life with this person and our aging parents and the people that we love and I’m not constantly spinning a to-do list of things I need. That’s our life now. We’re busy, but we’re slowly trying to distance from that lifestyle.

Josh:
We didn’t know how long it would take, but four years ago we knew one day we wanted to be parents and we wanted to have the flexibility and freedom to be as present for that child or children.

Ali:
No, one and done.

Josh:
when it happened.

Ali:
It’s a hard no for me.

Josh:
And so for us real estate or stocks, they’re not the end. They’re a bridge towards a greater cause, our why if you will. And so we’re really excited because the things that we started doing four years ago are really starting to pay some pretty large dividends so that in July of next year when we welcome our daughter to this world, we will have the thing that we set out to have, and that was the power of choice and control over our time. And that will be the biggest investment that we’ve ever made.

Mindy:
Ali and Josh, this has been a lot of fun and I really appreciate the time that you shared with us today. Do you have any last tips for our listeners before we go?

Josh:
Yeah. I would just say whatever the thing is that you are afraid of starting or seems really scary, just understand that there’s probably hundreds or thousands or even maybe millions of people who are doing it, have done it. I’m so grateful that we live in the time that we do because 50 years ago, Ali and Josh want to learn real estate. That’s going to be really hard. Whereas now, biggerPockets.com is free real estate knowledge.
I’m just really grateful for the internet. So if there’s something that feels really daunting, one, go to Google or go to BiggerPockets, but two, build a community. I mean, I’m so honored and excited to see Amanda there because Amanda has been someone we met two years ago and she is a huge part of our community of people who we’ve met and learned through social media. And so find your community. It makes things a lot easier, especially when times get tough.

Ali:
I would say too, I never think it’s too late. If you’re not happy with your life or the trajectory that you’re on or there’s an area that’s really stressful for you, it’s never too late to make changes. I think we often see pieces of people’s lives. You’re hearing from us today and you’re like, “Wow. Look at what they’ve accomplished. Yeah, it’s five years in the making and we’re still working towards it.”
So I think it’s important to give yourself grace and know that small steps can make really profound changes over the time. We did nothing fancy. We did nothing sexy. We just stayed consistent and dedicated to our goals. So if it’s just remembering I want something to be different, it’s not, “If we did it, you can do it too.” But you do have power to make changes and if you don’t have a circle that supports you with that, grow your circle. As Josh said, “We’re very fortunate to be in the time that we are and there’s so many resources at your disposal.”

Amanda:
I love those last tips and this has been so fun. This has been so fun. So where can people find you?

Ali:
Yes, absolutely. On the internet. With all of these resources at your disposal. We’re on social media. Our handles are The FI Couple everywhere. So we have Instagram, Facebook. People can email us if they have specific questions. The email is [email protected] and we’d love to connect with folks. I mean, BiggerPockets was the catalyst to our journey and we feel forever just grateful and indebted to you guys because it literally transformed and changed our lives in so many ways. So if you’re listening, you’re doing the right thing by tuning into BiggerPockets Money. It’s one of our favorite podcasts and we’re just really grateful to connect with you guys today.

Mindy:
Thank you, Ali and Josh. This has been a lot of fun and we will talk to you soon.

Ali:
Thank you.

Josh:
Thank you.

Mindy:
That was Ali and Josh. Amanda, I really love their story. Like I said in the beginning of the show, there is no easy button. There is no secret sauce to this. It is simply putting in the work. And Ali and Josh I think are a shining example of when you put in the work, you will see the results.

Amanda:
I absolutely agree. When you put in the work, you see the results and then when you work together as a team, to me they are just a shining example of teamwork, really, really working, and really coming through.

Mindy:
Having your partner on the same page financially is a superpower. I wish everybody listening to this to have that same superpower. It is the number one thing couples fight about is money. And when you can remove that from the situation, your life just improves so much. So talk to your spouse about money, get on the same page and put your nose to the grindstone, get all the work done and you will have the same results that Ali and Josh do. Should we get out of here?

Amanda:
Yeah, let’s do it.

Mindy:
That wraps up this episode of the BiggerPocket’s Money Podcast. She is the She-Wolfe of Wall Street, Amanda Wolfe and I am Mindy Jensen saying, see you later, alligator.

Dave:
Hey everyone. Welcome to On the Market. I’m your host, Dave Meyer, joined by Henry Washington.

Henry:
What’s up buddy? Good to be here. Good to see your smiling face.

Dave:
Oh yeah. It’s all fake right now. I’m sick as I told you before, but I’m faking it as much as I can.

Henry:
Hey, well you’re doing a fantastic job, Dave Meyer.

Dave:
Oh, thank you. Well, no one’s going to hear the times during the interview with Amanda where my brain just melted down and I couldn’t speak. Thankfully they’ll edit all that out and it’ll maybe sound good during this episode.

Henry:
Absolutely.

Dave:
Well, it was a fun episode. This is a really cool episode because tax is not always the most fun, but I feel like this was actually a very entertaining, enjoyable conversation where I learned a lot.

Henry:
I totally agree with you and you’re right. The fact that it’s typically not a fun topic is the exact same reason why most people don’t think about it until they have to. And we talk exactly about why you should not do that in this episode, and it was really both and helpful for me.

Dave:
Yeah. I think most people, we talk about this a little bit during the interview, start to pay attention to their taxes on April 11th or whatever, a couple days before. But I think one of the main points that Amanda brought up is that tax planning is perhaps most beneficial around this time of year. You should be doing it year round, but there are a couple tips she gives that you can do even before the end of the year. I know this episode is airing with five days left in the year, but there’s still some things you can do to improve your tax situation by the end of the year.
And starting in the beginning of the year, starting 2023 off right is the best way to maximize your tax position because you have a full year to think of new ideas and implement those ideas to improve your tax situation. This is a really good timing and really important for you to start thinking about these tax strategies that Amanda shares either for this year and going into next year.
We are going to take a quick break and then we’ll be back with Amanda Han. All right. Well, let’s welcome Amanda Han, who is … I don’t know. CEO, Founder of Keystone CPA? What’s your title there?

Amanda:
I don’t really know. I kind of do everything here. I’m technically one of the managing directors.

Dave:
Okay. Managing Director of Keystone CPA, and author of two excellent textbooks, which I’m holding up here, which are books I have been reading over the last couple of weeks, perusing as we get into tax planning season. Amanda, thank you so much for being here.

Amanda:
Yeah, I’m so excited to be here. This is my first time on this show.

Dave:
Well, thank you for joining us. We know that we don’t have the same cachet as The Real Estate Show, but we’re glad that we were able to book you finally.

Amanda:
Oh, I hear this is the show to be on actually. I’m really starstruck to be here with you guys.

Dave:
Oh, well hopefully we live up to that, Henry. I don’t know.

Henry:
It’s definitely you. It’s not me, Dave.

Dave:
I don’t know. Well, hopefully we’ll ask some intelligent questions and impress you, Amanda. Well, thank you again for being here. Realistically, you are one of the most prominent experts on real estate tax in the entire industry. As we come to the end of the year, we thought it would be helpful to help our audience understand if just any, first and foremost, what they should be thinking about as real estate investors right now. Then we’re going to talk about some of the changes that did and wound up not happening in the tax world in 2022. Amanda, I’m going to just ask you a couple rapid fire questions so that everyone who’s dreading doing their taxes next year has some inspiration for actually doing this properly. When do you recommend real estate investors start their yearly planning for taxes?

Amanda:
Oh, that’s a great question. Tax planning really should be happening all year round. The earlier you do planning, the more options you have. Before the end of the year definitely is kind of the last point in time when you can do planning. My husband, Matt, and I like to joke that tax planning is sort of watching sports. When you’re playing a basketball game, one team might be up in the scores, the other one might be up at different times during the quarter, but what really matters, the winner of the game is determined by where the score is at the end of the game. And that works exactly the same way for tax planning and numbers. Where your income and expenses are on December 31st is going to determine how much or how little taxes you pay. All year long is good for tax planning, but year end is a huge … You want to end up on a high note.

Dave:
All right. Well, this show is coming out with five days less than the year. Everyone who’s listening to this. Cancel all of your holiday plans-

Henry:
Go, go, go, go.

Dave:
… and just spend the next five days doing everything Amanda says for the next 45 minutes.

Amanda:
Yeah, look me up on social media, YouTube, watch all that, do everything in a couple days. But I think even knowing that, right? If you don’t have enough time for strategies in the next couple days, it’s still a good idea to take some time to plan ahead, right? Because if you didn’t do things right already this year, we still have all of next year to plan, especially as you do more real estate, make more income. I mean, we’ll continue to have taxes and pay taxes, that’s not going away. The planning is always going to be beneficial. Still do it for next year if you haven’t done it already this year.

Henry:
I mean, at year end, is it really tax planning or is it more tax damage control?

Dave:
Tax scrambling?

Amanda:
Yeah. Yeah, I like the way you put it. I just put it a little bit more nicely, I guess. But yes, I mean, there’s still things that could be done before the end of the year. I mean, not for every single investor, but certainly for some investors there are things, and I mean, there are also things you can do after the end of the year to save on taxes, but those are just a lot more limited. When we start planning in January, there’s maybe like 101 ways you can reduce your taxes. Halfway through the year there might be 30, 40 ways to do it. In the next couple days before year end, there might be, I don’t know, five, six things you could consider. But even then those might be very powerful too.

Henry:
Well, it’s kind of like you’re a savant because that’s exactly what we were going to ask you for the next question, is what are the things investors can be doing to minimize their tax burden for 2022 with 10 seconds left on the clock?

Amanda:
Yeah. I mean, I think a couple major things for investors, major ones for year end planning. We’re looking at how do we shift income so that we pay the least amount of tax? If you’re having a big taxable event, and we’re talking with real estate investors, so if you’re potentially selling a property or getting a large amount of income from tenants and things like that, if you can defer it by even just one day from December 31st of this year to January 1st of next year, that could significantly defer your taxes for one whole year. Whatever income you make now, you’re going to pay taxes on it possibly in April, but if you delay it into January now you don’t have to pay the tax until January … I mean, April, 2024. You have a whole year to be happy and invest your money, more time with your money, but also just a lot more time for you to strategize.

Henry:
Give it a little hug.

Amanda:
But just a lot more time to strategize, right? Because we’re talking about okay, so this year if I’m going to sell a property, I’m going to have a huge gain of, I don’t know, a hundred thousand dollars. I have four days on how am I going to offset it? But if I just waited until January to sell, then I have all of next year to think about 101 ways I can defer taxes on the sale of that particular property. That’s one thing. Then I think on the flip side, we look at accelerating expenses.
That’s looking ahead at what are some of the recurring expenses that you have as a real estate investor and can I prepay for some of those before the end of the year to get a tax deduction? Whether it’s marketing or software, computers, any of those things that, or even repair costs, appliances for your properties, things that you know will have to spend in early next year, why not prepay for that before year end so you can get a tax deduction? And I think what people don’t know too is you don’t actually have to pay cash for a lot of those things. If you charge it on your credit card, a lot of times those are deductible this year as well.

Dave:
Oh wow. Well, I think this was strategic of us. We didn’t want to overwhelm you with advice for taxes in this year, so we gave you just five to do in 2022. But for those of us who are going to try and be more diligent next year, what are a couple of the strategies that people should be considering? Like we’re at the turn of the year starting in 2023, how do you get off on the right foot into the next year?

Amanda:
I think the way I look at tax planning, it sort of follows what your investment plan is. I think if as an investor, well hopefully you’re doing some goal setting, right? 2023, here’s what I want to accomplish. I’m going to buy X number of long-term rentals, or short-term or midterm or whatever, subject two deals. Then from there is having that conversation with your tax advisor and looking at what types of strategies would make sense in those scenarios. For example, if you are a short-term rental investor or you plan to buy a lot of short-term rentals, then looking at where are the properties that will give you the best maybe depreciation? Obviously we want cash flow and depreciation, but which properties will give you the best tax depreciation and what do you need to do to get enough hours so that you can actually use all those tax benefits to offset not just your rental income, but maybe income from your W-2 job or some other business you might be running. I think that the tax planning should follow whatever your investment goals are going to be for next year.

Henry:
That’s super cool. People have a general understanding of writing off helps me save on taxes. But I think when people think of tax write-offs, everybody thinks of the same things, right? What are some of those tax write-offs that real estate investors can do that maybe aren’t so common, or things that investors just forget about or miss completely that they’re not typically writing off that you see as a big miss?

Amanda:
Gosh, that’s such an interesting question. I’ve never been asked that before. It’s funny because I feel like people know what they can write off, but then it’s a little bit different when it comes to actually writing things off or actually tracking it. I always tell people like, “Hey, when you go to these real estate conferences or meetups,” right? You can write off all those expenses, your travel costs and hotel and meals. Then what happens is when I’m actually talking to the investors at tax time, I don’t see those things. I don’t see it on their financial stuff. And I’m like, “I know I saw you at BPCON. Where is all that stuff?”
I think it’s more important than just understanding what you write off, but also tracking it and making sure you give it to your tax person when they’re doing tax returns. But yeah, it’s all those things that are like we all know we can write off property specific things like repairs and insurance and property tax, but it’s all those kind of what I consider overhead, things that I got some personal enjoyment out of doing it. It’s not really for my property on Main Street, those are also deductible too, as long as it’s related to your real estate activities. There’s like a hundred different write-offs that fall into that category. Like cars and home office and travel, education, all that good stuff.

Henry:
No, you’re 100% right, because it really comes down to being diligent in the moment when you are thinking about your taxes. I think we as normal people, I think we want to think about taxes only one time a year, right? But to truly get the most benefit, you have to be thinking about it and be taking action on it throughout the year. I’m 100% guilty of that, of knowing that, “Hey, I can write this trip off” and then not being diligent about keeping track of expenses or receipts and things and then come tax time, I’m trying to dig back through emails and receipts to make sure that I can get that write-off. And I probably don’t realize the full potential of what I could have written off by not being diligent. That’s a great point. Thanks for sharing that.

Amanda:
I feel like I struck a chord with you when I said that too. Your reaction.

Henry:
I feel like you were talking to me, so thank you.

Dave:
That’s so true though. And it really is a mindset to start thinking in each interaction, everything that you do as an investor about how to create tax advantages for yourself. And it does seem like it’s the last piece of the puzzle for a lot of investors. You try and learn how to analyze deals, you get your deal flow, you work on operations, and then once you start having checks to the IRS that are big enough to start hurting, then you’re like, “Okay, now it’s time for me to start adopting the proper mindset.”

Amanda:
Yeah. I think I have two things to add to that. Henry, for you, one simple thing you can do is if you have a credit card or a bank account that’s dedicated to your real estate stuff, again, it doesn’t have to be for a property, but having that one bank account, one credit card, and you use that, it’s always in your wallet, you’re using it every time anything is business related, that will help a lot. And because then you know, you download all those transactions, those are just your business stuff, and you don’t have to go through your emails and calendar and try to figure out what this was.
And I think the other thing you guys said, taxes, the last on our mind, Henry only wants to think about it one time a year. But really what you want to do is just have it in the back of your mind every day. Whenever you’re spending money on something, ask yourself, is this reasonable that it would be a business expense? Am I doing it to better my real estate? And if so, charge it on that card. Not that you have to become a CPA or anything, but just always ask yourself that little question when you spend money. I think that’s going to go a long way. If you’re in a 30, 40, 50% tax bracket, a hundred dollars in expenses, it’s going to save you 30 to 50 bucks of cash.

Henry:
You know Amanda, I thought we agreed in the pre-planning for this that we were going to say I was asking for a friend. I feel like you just [inaudible 00:14:42] me out. But it’s cool. I appreciate it.

Dave:
You were talking about Henry and Amanda, about people who forget about this. Amanda, I’ve been wanting to ask a CPA this question for a long time. Does anyone actually keep track of their mileage when they’re driving around? I just feel like that’s a myth that people are able to do that. Because who has the discipline to keep track of everywhere they drive?

Amanda:
Yeah, I guess-

Dave:
You do it, don’t you, Amanda?

Amanda:
I have to say yes [inaudible 00:15:11] I tell people to do that. There’s great technology now, right? In the olden days, you have to write it down in a little notebook, which my father-in-law does. But no, there’s so many apps now that you can track it where you just turn it on and then it’ll do all the tracking for you. Just say, “Okay, this is business, this is personal.” MileIQ, there’s a lot of different ones out there that people use. But to answer your question, I mean, I hope people are tracking it. At least my clients tell me they are, but yeah.

Henry:
I cannot confirm nor deny. I use Everlance, which is a similar tool to what she talked about. It kind of tracks it in the background using the accelerometer on your phone and then you can just swipe whether it’s for business or personal.

Amanda:
Yeah. Yep, that’s exactly what I was saying. It’s just easy. You’re swiping on your phone all day anyways, guys, I’m sure you’re doing that. You just do it now for tax purposes.

Dave:
Okay. All right. Well, I just have one more tax 101 question for you. Then let’s move into some of the changes and updates about the tax code. What is one or two sort of more advanced strategies that most real estate investors overlook that you think they should be considering?

Amanda:
Gosh, advanced strategies. It’s hard for me to kind of determine what’s advanced for one person might not be advanced for another person.

Dave:
Well, one that’s from your book on advanced tax strategies and not from your one just for regular tax strategies.

Amanda:
Oh, thank you. Thank you for the plug of the books. Advanced strategies, one that we’ve been kind of talking a lot more about and hear a lot more about on social media recently is the concept of home home/rental. For newer investors, right? Where you have a primary home and then you are house hacking. Whether that’s turning later living there and then turning it to a rental, or you have a duplex where when you live in one and you sell the other one, that’s a rental. One of the strategies, there’s two separate things. One, we all know that if you live in a primary home for at least two out of the last five years, you can exclude up to $500,000 tax free. And as investors, we also know that when you sell a piece of rental property, you can 1031 exchange and defer the capital gains taxes.
Those two are somewhat simple strategies. But what I love about house hacking, if you’re doing it correctly, is that you can actually combine the two strategies. What that means is you can possibly sell, so if you have a home, you turn it into a rental and then later sell it, it’s possible for you to get up to $500,000 of gain tax free. And if your gain is beyond that, you can use a 1031 exchange to defer the rest of that gain too. I really like that because we’re seeing a lot of investors doing house hacking, whether it’s … I think a lot of people think house hacking is for newbie investors, but I have a lot of clients that are very experienced and they do house hacking because it’s one of the few ways that you can get tax free money, just a rehab and move every couple years. But that’s a really great one that you can combine two different strategies into one to get a really significant tax savings.

Dave:
Good idea.

Amanda:
You want me to do another one, right? Because you asked for two advanced.

Dave:
Take whatever you got. I’m writing notes right now.

Henry:
We’re going to let you talk about tax strategies as long as you want to.

Amanda:
As long as I want.

Henry:
Go on.

Amanda:
I’ll just share a client example, okay? This is a good one because we’re talking about year end and we’re talking about more advanced strategy. I have a client who is going to come across a big windfall. This happens to be a dentist who’s going to sell his dental practice. We’re working with them to try to delay the closing of that sale. Everything’s moving forward, all the due diligence, everything’s moving forward, but we are trying to help him to delay the sale until January of next year. This is a couple million dollars worth of gain and taxes that they’re looking at. By delaying it to next year, the two benefits. One, we’re delaying the taxes, but two, it’s going to give him all of next year to help plan for ways to offset that couple million dollars of gain from taxes.
The significance for this particular person is that this year they’re still working full-time, right? They have their dental practice, there’s no way for them to use rental losses to offset all that huge gain, but next year they’re going to be out of the dental practice, they’re going all in real estate. They’re going to have a bunch of properties, active real estate, passive syndications, and we’ll be able to use that to offset all this significant amount of capital gains tax. Just the power of how proactive planning across multiple years can really make a huge tax difference.

Henry:
That’s super awesome because again, selfishly, I’m getting so much value out of this and I think people should really be taking notes on some of these advanced strategies because you’re right, you want to be as proactive as possible. And one thing we do know about taxes and tax laws and rules is that they change. Can you give us some insight as to what’s changing for the upcoming tax year so that we can start to be proactive about how we plan for those changes?

Amanda:
Yeah. Well, I think for real estate investors, there’s two major things. The one is the good news that I wanted to share, which is in the last couple years we heard a lot about Washington DC trying to punish real estate investors. The landlords are big bad wolf and we have all these unfair tax advantages. Really trying to take away some of the benefits of investors, whether that’s depreciation or writing off interest or 1031 exchange, that was something that was always on the chopping block. The good news coming into this next year is that a lot of those things that we had been monitoring are kind of at a standstill. Right now as a stands, we’ll be able to do 1031 exchanges going forward with no limitations. You can sell millions of dollars of real estate and pay no taxes if you’re doing the 1031 exchange correctly.
Those are all the good things about real estate. I think the one change that is not as good specifically for when we talk about real estate investors is the change in depreciation that’s coming up. Right now for this year, we have what’s called bonus depreciation where we can write off certain things at a hundred percent. Before the show we were joking about cars and things like that, right? If you did buy a large truck or SUV over 6,000 pounds this year, you can write off up to a hundred percent of that purchase price. If it’s used, primarily used for your real estate business of course. And also other things within real estate like the furniture, fixture, things you’re putting into your short term rentals. A lot of those right now, we can get a hundred percent bonus depreciation. The change that’s coming up for next year in 2023 is that 100% immediate write off a little bit to 80%.
The example will be if I spent a thousand dollars buying some furniture from my short-term rentals, instead of writing off a thousand immediately, I’ll be able to write off 800 bucks of it immediately. The other 200 bucks I’ll get to write off still over the next five, seven, or 15 years. It’s not like we’re losing out on the benefit, we’re just getting it a little bit delayed. That’s kind of the major change coming up and a reason why you’re seeing a lot of investors aggressively trying to close, buy assets and put properties into service before the end of the year.

Dave:
Amanda, could you tell us a little bit more about what bonus depreciation is? Because this is a relatively new thing, right? And how is it different from regular depreciation?

Amanda:
Yeah, so regular depreciation, so the way depreciation works in the tax world is you have a specific asset and let’s say it’s furniture for your rental properties or appliances. The IRS says, “Okay, you can write that off,” let’s say for over five years. Whatever the cost of that appliance was you, you’re deducting it over the next five years. Bonus depreciation basically says you don’t have to wait five years to write it off. I’m going to let you write off all of that first in the first year or in the current year that you’re putting into service. It’s not creating new deductions. It’s just saying, “I’m going to let you write off more of it upfront.” And obviously the significance of it is, as a real estate investor, if I can write off a bunch of things this year and save on taxes or get a refund, then that’s great because I have more money to invest rather than having to wait on that tax benefit over the next couple years

Dave:
With regular depreciation, right? It’s not actually you’re not paying taxes, it’s a deferral of tax, right? Is that the same with bonus depreciation? You still have to do a depreciation recapture when you go to sell?

Amanda:
Yes, yes, that’s correct. The way it works and recapture basically is just saying, “Hey, you bought something,” let’s say you bought something for a thousand dollars and then you wrote it off, right? And then later on down the road you’re going to sell it for 1200 bucks. Well, you already wrote off that thousand dollars, so the whole $1,200 is going to be taxable gain. You don’t get to get a benefit again for what you already wrote off. And yes, you’re right, that is the same whether it’s regular depreciation or bonus appreciation because you can’t write off the same thing or you can’t benefit from the same thing twice.

Dave:
Yeah. I think this is super important and something very misguided people ask me because as Amanda knows, I know nothing about taxes. We’re learning a little bit right now, but people are always sort of the same question comes up, which is like, why do I care about depreciation or deferring taxes if I just have to pay it anyway? And that’s true, but if you think about it as an investor, so much of how you generate returns is by having as much money invested into an interest bearing or return generating asset as possible, right? It’s like this compound interest machine. And what Amanda’s saying is that basically you’re going to be able to keep more money earning you money for a much longer period of time. You’re still going to have to pay taxes for it eventually, but it means that your principal, the amount of money that you have in your investments that are earning you money can be higher for longer. Is that a good way of describing it?

Amanda:
Yeah, I mean, I always say if-

Dave:
No?

Amanda:
No, that’s the perfect way to say it. If I give you the choice, right, Dave? If I said, “Hey, you’re going to have to owe the IRS a hundred thousand dollars, do you want to pay for that now? Or do you want to pay for that five years from now or 10 years from now?” Right? Of course, I want to pay it later. Like we were saying earlier, right? I want time with my money, want time with my money so I can grow it, I can nurture it. When I pay it in taxes today, my ROI is zero, right? I mean, my ROI. Of course, I know the government is doing wonderful things with it, but my ROI on that money is zero. Because I gave it to the government.

Dave:
Absolutely. You pay it in deflated in money as well, and you get to invest it. There’s all sorts of benefits to it.

Amanda:
Yeah, and I say too, also, I know you mentioned people are concerned like, “Hey, I’m going to take all this tax benefit on depreciation, I’m just going to have to pay it back later anyways.” But that’s not always the case, or it doesn’t always have to be the case. Let’s say you have a property, you do depreciation, you sell it in a couple years. If you 1031 exchange it by buying more real estate, which most investors, that’s what they’re doing. They’re growing their portfolio. If you’re doing that, then you might not have to worry about depreciation recapture because you can still defer the taxes down the road over and over and over again. Then ultimately when we’re all super old, you pass away with the property and that property goes to the next generation, to your beneficiaries. And it might be possible that nobody pays taxes on any of that appreciation.

Henry:
Awesome. One question that I … Well, I’m sorry, asking for a friend.

Amanda:
A friend.

Dave:
Yeah. Your friend. He’s got a lot of questions.

Henry:
Hypothetically speaking, let’s say you’re a real estate investor and you have heard of this concept of depreciation, right? And you just talked about accelerated depreciation, but as real estate investors, we can also leverage what’s called cost segregation studies in order to help save on some taxes. But I think there’s a lot of either misinformation or people are a little bit confused about what exactly that is and what it means. Would you mind shedding some light on the cost segregation and how it benefits real estate investors?

Amanda:
Yeah, yeah. Cost segregation is basically a way to accelerate depreciation even more. Earlier we were talking about buy this appliance, I write it off over five years. Cost segregation does the same thing except on a larger scale. It’s not looking at appliances, it’s looking at the building that you just purchased. If you spend $1.2 million on a acquisition and it’s a million dollars worth of building, normally what’s going to happen is your tax repair is going to say, “Oh, there’s a million dollar building. I’m going to write it off over 27 and a half years,” right?
It’s a very small and slow depreciation. But what you can do is you can get a cost segregation study done. And what happens is that the cost segregation firm will look at the building and break out that million dollar building into different components like flooring, appliances, specialty plumbing and all that. The goal in breaking out those appliances and the various components is then you can get faster depreciation. Instead of maybe a small depreciation, you might get $300,000 depreciation in that first year. That’s the reason people utilize that as a strategy.

Henry:
Awesome. Thank you so much.

Dave:
All right, Amanda. I would like to ask you a little bit about something you mentioned earlier, which is that some of the proposed changes to tax law that were rumored in 2022 didn’t happen. Do you think there’s a chance that anything big is going to change in 2023? I know you’re not a politician, but from what you’re hearing, do you think there’s anything coming down the pipe we should be aware of?

Amanda:
Not really. I mean, not at this time for real estate investors, but like you say, yeah, anything could change. But right now there’s not a whole lot of talks about continuing forward with some of those things. Yeah, I think we’re probably in a good spot for now.

Dave:
Oh, great. Thank you. That made me feel a lot better. Good. I feel like sometimes I start to get a grasp on tax stuff and then everything changes and I’m like, “I just give up. I don’t know anything.” At least for one year now maybe I’ll have some understanding of what’s going on with the tax code.

Amanda:
It’s funny because I think a lot of investors or just people in general hate taxes or hate tax or fear taxes, hate taxes. This is so boring and complicated. But actually I think a lot of my clients who have really benefited from tax planning, I find that they’re always talking about taxes. Sometimes I have to stop them. I’ll find my clients on social media or other people’s podcasts and just talking about like, “Oh, I saved so much in taxes doing this and this.” I mean, it’s definitely a good place to be where it’s like once you see the benefit, it becomes such an exciting thing to plan for and a good asset to help you grow your wealth rather than something to be really fearful of.

Dave:
That’s a very good way to put it. I do want to ask you a little bit about how to find good tax advice, but before we do, I have one more strategic question for you. Something you taught me about. Can you tell me a little bit more about short-term rentals and how they have this special position in being able to help you write off some of your taxes?

Amanda:
Yeah, yeah. Oh, I’m so glad you were candid. You didn’t say it was a friend, a question for a friend, like somebody.

Dave:
It was a friend and it was you who told me that.

Amanda:
Okay. Yes. For short term rentals, we refer, myself and a lot of other CPA colleagues, we refer to as the short term rental tax loophole. The reason we call it have tax loophole is that it’s a loophole for people who are still working full-time maybe at a W-2 job and have a high W-2 income. The reason it’s a loophole is because if you are investing in long-term rentals and you have all these losses, and assuming your income is high income, so over $150,000, your losses from your real estate can only offset taxes from your rental income. It’s not really able to offset taxes from your W-2 income.
That’s a little bit of a limitation for people who are still working full-time and have high income. Short-term rental loophole is treated completely differently. The way it works is even if you’re working full-time at a job, if you have short-term rental properties and you’re using all these other strategies like writing off your car or your depreciation, all that good stuff, if you create a loss, you might be able to use it to offset taxes, not just from the short-term rentals, but also your W-2 and your other business income as well.
The reason for that is because short-term rentals, just the IRS treats it differently. They don’t care that you’re spending more time in that than your job. You just have to meet a couple hours requirements. And once you meet those hours requirements, what we call material participation, so if you meet one of the material participation hours requirements, then you can use those short-term rental losses to offset all types of income. We really see that as a huge benefit for high income people who are doing real estate on the side, not being a full-time investor yet.

Dave:
And how much can you offset if you use that strategy?

Amanda:
It depends on the type of income you have. Let’s say you are a business owner, you have a corporation that you’re flipping or wholesaling or whatever, there’s no limit in terms of how much those short-term rental losses can offset income from your other businesses that you’re involved in. But if we’re talking strictly about W-2 income, there is a limitation. It’s around 540 for this year. Meaning if you even a million dollars of W-2 income, you had a million dollars of short-term rental losses, you can only offset up to about 540,000 as a married couple.

Dave:
It’s pretty good.

Amanda:
Yeah, that’s still really, really good, right?

Dave:
Not earning a million dollars a year, but I would love to have that problem where it was too much. Amanda, this has been super helpful. Before we get out of here, for people who are new to tax planning and want to get started in some of these strategies in 2023, what are some things that they should be looking for in a tax strategist or a CPA and if they’re trying to find some outside help to assist them with their tax?

Amanda:
Well, I think it’s really important to find a tax advisor who specializes in real estate. Preferably they also invest in real estate because real estate people, we probably don’t even feel it because we’re always around real estate, but there’s like a whole different language and lingo and the way that we kind of talk that not everybody understands all that. Definitely someone who understands real estate and invests in real estate. I think a mistake that I see people make all the time is they’ll contact a CPA and say, “Do you work with real estate investors?” The answer is always going to be, “Yes, I work with real estate investors,” right? Because maybe I have one client who invests in real estate. That’s not really a good question, it’s not very powerful because that’s kind of a canned question with a canned answer.
I think a better question might be like if they say they work with real estate investors, kind of probe a little bit more, “What type of real estate are your clients doing? Are they doing subject two deals? Are they doing wholesale?” See how in depth they can go with you on that conversation. Or also, what are some of your successful clients doing in real estate to save on taxes? Just very open-ended questions. Are they talking about cost segregation? Are they talking about what kind of things are they sharing with you? I think those will help you figure out if that’s someone who understands. And of course, Bigger Pockets forum is a great one. There are a lot of other CPAs on there who specialize in working with real estate people, too.

Dave:
Henry, I was just wondering if your friend had any other questions for Amanda?

Henry:
No, no, no. But I did want to highlight that that was a phenomenal tip. You guys should write that down. Being able to ask open-ended questions so you can gauge what they truly know. Because you’re right, we speak a different language. We do things that a lot of people in other businesses think are crazy. Having that, asking those open-ended questions, seeing if they speak your lingo and truly understand what it is that you do is a phenomenal tip. Because I’m sure when I got started, I was guilty of the exact same thing. I asked if you work with real estate investors, and I 100% got a yes answer, and then we worked with somebody that probably wasn’t the best for our business right away. Thank you for sharing that.

Amanda:
And Henry, your friend can always contact me anytime if they have more tax questions.

Henry:
I will be sure to let them know.

Dave:
All right. Well, thank you Amanda, so much for joining us. We really appreciate your time. Where if people want to connect with you, should they do that? Or Henry’s friend, where should he connect with you?

Amanda:
Yes. Yeah, I mean, if you guys, for any of you who want to know more about ways to save on taxes on my website, my firm’s website, we have a free downloadable tax savings toolkit where we talk more in depth about how do you pay your kids to get a tax write off? What’s the best legal entity for your real estate? All those things that we didn’t get to talk about today. You can download those at KeystoneCPA.com, and on social media, I can most frequently be found on Instagram. I am AmandaHanCPA on Instagram.

Dave:
All right, awesome. Thanks again, Amanda, who is the Managing Director of Keystone CPA and the author of two Bigger Pockets books. The Book on Tax Strategies for Savvy Real Estate Investors and The Book on Advanced Tax Strategies, Cracking The Code for Savvy Real Estate Investors. Amanda, it’s always a pleasure. Thanks again for coming on.

Amanda:
Yeah, thanks for having me.

Dave:
Man, your friend really knows nothing about taxes.

Henry:
Absolutely. But hey, we’re in a better place now because it was a mindset shift for me. And it’s just like anything else, right? With investing or getting into investing, you’ve got to change your mindset before you can truly find success. And I never even thought about having a tax mindset, and it will just help you make sure you stay prepared throughout the year because man, there’s definitely things I’ve dropped the ball on that when I heard her talk about it, I was like, “Oh yeah, I should be better at that.”

Dave:
Yeah, I feel like the path to being good at taxes is blazed with terrible mistakes and regrets. You just have to learn sometimes the hard way that there’s better ways to do it. Honestly, I was working at Bigger Pockets when Amanda’s first book came out and I was like, “Tax strategies, what does that even mean? You just pay the amount that your CPA tells you. What strategy is there? You just pay it.” But she has taught me a lot. Not just now, but she is super smart and a very generous with her time and knowledge, so very grateful to have her on. All right. Well, thank you so much for being here, Henry, as always. Appreciate your insights and help, and where should people connect with you if they want to learn more from you or your friend?

Henry:
Yeah, I’m @TheHenryWashington on Instagram. That is absolutely the best place to reach out to me and my friend Harry, he doesn’t have an Instagram yet. Just message me and I’ll make sure he gets it.

Dave:
Yeah, you got to be the intermediary. You can find me either on Bigger Pockets or on Instagram where I’m @TheDataDeli. If you have any questions about this, you can also reach out to Amanda. But for that, thank you all so much 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.

Audio:
Come on.