Blog

Is New Business Creation Still Setting Records? What Might That Mean For The Economy?

Is New Business Creation Still Setting Records? What Might That Mean For The Economy?


One of the biggest upside surprises of the pandemic years was an explosion in the number of new businesses being created by Americans. That “startup surge,” as the Economic Innovation Group (EIG) labels it, has persisted past the formal end of the pandemic. As shown in the chart above—from the Census Bureau’s Business Formation Statistics (BFS)—the initial spikes upward and downward in the second half of 2020 have since moderated. Yet business creation in the aggregate remains well above pre-Covid levels, a “new, significantly higher baseline,” according to EIG.

Before proceeding, some definitions:

  • “Business formation” or “business creation” is defined by the Census Bureau as an application for an employer identification number (EIN) with the Internal Revenue Service (IRS). These “business applications” are sliced and diced in a number of ways.
  • “High propensity” business applications are EIN filings that, based on various Census criteria, are deemed to have a strong likelihood of hiring employees. All the other business applications could turn into employer firms; most of them, however, are likely to remain nonemployers for some period of time, if not permanently.
  • “Projected business formation” is a projection by the Census Bureau of how many employer businesses will “originate” from business applications within four and eight quarters of the application.

Let’s start with the basic numbers.

The Facts on Business Creation

From 2005 through 2016, the average annual number of total business applications was 2.6 million. In no year during that period did the annual total surpass 3 million. Toward the end of that timeframe, as can be seen in the Census BFS chart above, total business applications began to rise. From 2017 through 2019, the average annual number of business applications rose to 3.4 million, a 23% increase. Then, the surge.

In the three-year period from 2020 through 2022—even including a drop in the early pandemic months—the average annual number rose to 4.9 million. That represents an 89 percent increase compared to the 2005-2016 period.

On its website, the U.S. Chamber of Commerce has a slick interactive map using BFS data that includes useful comparison of business applications—and, importantly, projected business formation—by sector. Even though the Construction sector, for example, has had about half the total number of business applications as Retail Trade, it has a slightly higher level of projected business formation.

The reason that Census tracks business formation and projects future business formation is that not every business application will become an actual business, let alone one that has paid employees. The number of “high propensity” or “likely employer” business applications has also risen well above pre-pandemic levels, albeit at smaller scale.

The monthly average of high-propensity business applications between June 2020 and January 2023 was 36% higher than between July 2004 and May 2020. That’s a lot more employers: 1.2 million more, to be exact, relative to the pre-Covid trend.

The 2022 Business Openings Report from Yelp corroborates the overall trends tracked by Census and offers, based on data from its platform, additional insight into the micro-dynamics. According to Yelp, new business openings “reached an all-time high” in 2022, “largely driven by new home and local services businesses.” Other types, such as new restaurants, were still lower than pre-pandemic levels. New business openings, per Yelp, were 12% higher in 2022 than in 2019. That’s a more modest increase than shown in Census data, where high-propensity business applications were 28% higher in 2022 than in 2019. But it’s a useful reminder of what the Census data show: applications versus actual business openings on Yelp.

Why Is It Happening?

That’s the immediate question presented by the entrepreneurship data. And, what explains not merely the spike in 2020 and 2021 but the persistence of the surge through 2021 and 2022?

Various explanations have been put forth. It’s possible that the owners of the millions of small businesses that closed in the early months of the pandemic in 2020 started totally new businesses later that year or in 2021. This would basically be “replacement” entrepreneurship. Layoffs in the spring of 2020 may have shoved many toward entrepreneurship. As the Chamber puts it: “Many individuals laid off as a result of pandemic shutdowns turned their ideas and hobbies into a business that could be run from home.”

More broadly, the Chamber posits: “Entrepreneurs solve problems, and when America experienced huge problems in a concentrated time frame during the COVID-19 pandemic, entrepreneurs rose to the occasion. New economic needs and changing consumer preferences created more circumstances for new businesses to start.” This seems true regarding changing consumer preferences, as non-store retailers (read: e-commerce) have dominated the business application increase.

The Yelp data point toward more prosaic but no less insightful explanations. In its data, sectors such as Hotels & Travel, Automotive Services, and Event Services saw lots of new business openings. E-commerce businesses may have driven business creation in 2020 and 2021, but new business creation in 2022, at least according to Yelp, was driven by everyone’s desire to get back to those things we missed during the pandemic.

We also know that venture capital investments into startups hit all-time highs in 2021 and early 2022. While the Census BFS data don’t allow us to qualitatively distinguish VC-backed startups from other types of businesses, it does break out business applications from corporations. Those also spiked in 2020 and have remained at an elevated level, though they’ve fallen in recent months back toward pre-pandemic trend. Some researchers have used the fact of a business being a corporation as a mark of quality and economic impact, so an increase in corporation formations could be positive. Interestingly, however, the spike in high-propensity business applications has been mostly driven by “other” applications, not those from corporations.

(Here’s another question for contemplation, by the way: why were high-propensity business applications (including those by corporations) so high between 2005 and 2007? They were a much larger share of overall business applications than in recent years. One answer is the housing bubble, but that wouldn’t necessarily solve the higher share puzzle.)

Another way of putting the “why” question is through a geographic lens. It’s one thing to look at sectors and sub-sectors; the surge in non-store retailers would strike most people as completely unsurprising. But take Mississippi, which has experienced a huge spike in business applications. In 2019, according to the EIG analysis, the state ranked 22nd in likely employer business applications per capita; in 2022, it ranked 7th. The Chamber highlights Hinds County, the state’s most populous and where the state capital Jackson is located. Hinds had the most business applications (of all types) in Mississippi. So let’s refine our why question: why did so many more people in Hinds County, Mississippi, file new business applications compared to 2019?

(According to the Yelp data, Home Services and Local Services drove new business openings in Mississippi.)

New Entrepreneurial Hotspots?

The state-level data from Census and analyzed by EIG, the Chamber, and others provides a good way to explore some of the nuances of the business application surge. While every state experienced an increase in business applications (total and from likely employers) from 2019 to 2022, the surge has been far from even. In some states, business applications in 2022 were 10-20% higher than in 2019, a respectable increase. In others, the difference was much larger: South Carolina, for example, saw a 51% increase in likely employer business applications. (It should be noted, however, that in Yelp’s report, seven states saw fewer new business openings in 2022 than in 2019.)

If we cross-reference the Census BFS data with other Census data, the state-level picture gets murkier. Take Mississippi, again. According to the Chamber, Mississippi ranked 9th in the country in 2022 in business applications per capita. Iowa, by contrast, ranked 50th. Yet Iowa can boast a higher number of projected business formations than Mississippi because it has a higher rate of business applications becoming employer businesses. Just because a state experienced a surge in business applications doesn’t mean it’s the new entrepreneurial frontier.

A comparison with the Kauffman Indicators of Entrepreneurship, also based on Census data, provides useful nuance into thinking about both the macroeconomic impact of the business application surge and how it may play out differently across the country. Take the top five states in business applications per capita in 2022: Wyoming, Delaware, Florida, Georgia, and the District of Columbia. Let’s remove Wyoming and Delaware because, as EIG observes, they “have long been preferred states for business incorporation” so the high growth rates there may not tell us much about potential economic impact or local context. The next states up are Colorado and Nevada. If we look at these five states’ data on other entrepreneurship indicators, we see some differences. Let’s look at just Florida as an example.

  • Top state in Kauffman’s “rate of new entrepreneurs”
  • Above average “opportunity share of new entrepreneurs”
  • Top state in “startup early job creation”
  • Below average “startup early survival rate”
  • Low relative rate of business applications becoming employer businesses
  • Above average growth in new business openings (Yelp).

Thus, Florida has a high rate of actual business creation and jobs immediately generated therefrom, but many of those business won’t survive (relative to other states) and, compared to others, a lower share will become employer businesses. Similar discrepancies are seen in other states.

Is Business Creation Permanently Higher?

According to some, yes. EIG, for example, says “the durability of the surge suggests that it is capturing a true renaissance in entrepreneurial activity across the United States.” Its analysis helpfully scans research on the utility of business applications as an indicator and what other datasets show about changes in the business landscape. Their conclusion: “the available evidence suggests that these trends [in business applications] are indicative of genuine entrepreneurial activity.”

John Dearie, of the Center for American Entrepreneurship, is more skeptical. In a recent interview, Dearie reminds us that, prior to the pandemic, new business creation in the United States was in “precipitous decline.” The average number of employer firms created each year had stalled and rates of entrepreneurship had dramatically decelerated. Regarding the pandemic surge, Dearie said his “instincts tell me that we haven’t seen enough to declare that the kind of entrepreneurship America needs—disruptive, innovation-driven, productivity- and growth-driving entrepreneurship—has really turned the corner.” In fact, Dearie is “somewhat skeptical about the longer-term significance of the spike” because of the sectoral composition of new businesses. Many e-commerce businesses don’t necessarily fall into the “disruptive, innovation-driven” category.

Some of the data certainly support Dearie’s points. A surge in automotive repair shops may not scream entrepreneurial resurgence to those looking for “disruptive” business creation. The large share of business applications from those that are unlikely to be employers also weighs in his favor. At the same time, however, we know that a large share of employer firms each year transition from nonemployer status. That’s why the Census Bureau projections business formation: some of those non-high propensity business applications will become employers, too.

And what about all that venture funding? One can certainly quibble that the wisdom of VCs shouldn’t necessarily be equated with “productivity- and growth-driving entrepreneurship”—witness the billions in crypto venture funding that has effectively gone into an incinerator—but it should indicate something, right? In the last three years, for example, about $30 billion each year has been invested in biotech companies through VC deals. Surely some of that is “innovation-driven”?

EIG’s perspective that the pandemic surge in business applications marks a “renaissance” of “genuine” entrepreneurship is also persuasive. Certainly the persistence through 2022 of high levels of business applications from likely employers demonstrates that something is happening beyond just the short-term effects of the pandemic. Yet we also know that, prior to Covid-19, some of what contributing to the long-term fall in business creation were factors such as changing demographics. The U.S. population is growing slowly and getting older; that long-term trend has not reversed.

What’s your vote? A new, permanently higher level of entrepreneurship? Or, a temporary blip that will sooner or later subside?



Source link

Is New Business Creation Still Setting Records? What Might That Mean For The Economy? Read More »

Making K/Year with Just ONE Rental by Combining Compassion and Cash Flow

Making $90K/Year with Just ONE Rental by Combining Compassion and Cash Flow


Investing in sober living facilities may not be the first thing that comes to mind when we talk about building a real estate portfolio. But if you knew how much they made, you might take a second look. We often focus on short-term rentals, long-term rentals, or fix-and-flip properties. But one of the best things about choosing real estate as an investment medium is its wide range and opportunities for creativity. People out there are house hacking, wholesaling, investing in mobile homes, and buying up parking lots. The options are truly endless.

So, where do we start? Sometimes, the best real estate investments are the ones that mean something more to us than cash flow. Devana Came and Reid Stadelman saw a gap in their community, and they filled it. They turned their real estate investment into a sober living facility to help people in recovery, and gave them a safe, structured place to stay while earning (mostly) passive income and building their investment portfolio.

In this episode, this husband and wife dynamic duo tells us all about their creative real estate investments that cash flow like nothing else. We talk about what a sober living facility is (hint: it’s not a rehab center), how and why they built theirs, how to find and screen tenants, and tips for reducing tenant turnover rates. These things don’t just apply to sober living facilities. Devana and Reid offer advice that applies to any real estate investment journey.

Ashley:
This is Real Estate Rookie, episode 265.

Devana:
I also reached out to the Sober Living Coalition in our area, and then, we started going to their meetings. And they gave out kind of a packet, I guess, of some sorts that had some intake papers. And then, Reid and I really sat down and thought about what our why was, how we wanted people to feel in our house. And we started structuring our paperwork off of that and off of experiences that we knew people had in other sober livings, like, well, how could we make it different? And we just kind of formed it from 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 bring you the inspiration, motivation, and stories you need to hear to kickstart your investing journey. And today, I want to start out by shouting out a special person in the Rookie audience that goes by the username Smiley21. And Smiley21 left a five-star review on Apple Podcast that says, “A must listen as a newbie. I’m so happy to have discovered the Real Estate Rookie Podcast. Ashley and Tony do a great job of breaking things down while keeping the show entertaining with their banter and jokes. I hope to begin my journey this year in real estate and this podcast has been so inspiring.” So Smiley21, we appreciate you. We also hope this year is super successful for you and thanks for supporting the podcast. So if you haven’t yet, please leave us an honest rating, review on whatever platform it is you’re listening to. The more reviews we get, the more folks who can reach, the more folks we can reach, more folks we can help.

Ashley:
And let’s be clear about that review, it’s my jokes, because I think there’s been two times, in the history of this podcast, where you cracked a joke. I remember typing to you, “Oh my God, that was somewhat a good job.”

Tony:
That’s true. That’s true. But they also love the banter, which is awesome. And it’s so funny, Ash, because I’m in Houston right now, so if you guys are watching on YouTube, I’m like in an Airbnb in Houston, and I’ve had so many people come up to me, it’s actually Rob from the Real Estate Podcast, Rob Abasolo, he’s been out here, and I’ve had so many people come up to me and say, “Tony, I love yours and Ashley’s banter, please don’t ever stop it. Forget the haters that are saying that the banter is boring.” So I appreciate you guys for having our backs.

Ashley:
Yeah. Yeah. We really do appreciate it because I can’t take any constructive criticism. But Tony, how is the conference going? And you also have your own conference coming up too.

Tony:
Yeah, it’s conference season right now. So, Rob has his event called Host Con, that’s obviously about investing in short-term rentals, some amazing speakers coming out. So I was on stage with Rob and our buddy, Kai Andrew. We did a live YouTube thing and did some Q&A with the audience ant that’s super cool. Rob’s obviously an amazing host and so much good content coming up. And then, literally in nine days, I will be leaving to Orlando for our event, the STR Summit. So we’ll have almost 400 people all gathered in Orlando to talk short-term rentals for a few days. So it is definitely a busy couple of weeks for us, but we’re excited. The events in person are always fun.

Ashley:
By the time this airs, both of those events will be long gone. I think this comes out March or so.

Tony:
Yeah. But if you want to go to the next one strsummit.com or hostcon.com for Rob’s event. You guys can hang out with us in person.

Ashley:
Yeah, I am attending Tony’s event in Orlando, and trust me, I’m really, really hoping for warm weather.

Tony:
Yeah. I’m almost nervous that you’re coming because you bring bad weather everywhere you go, so hopefully, we break that streak.

Ashley:
I know it. Like December when we went to Phoenix, it was freezing. I brought my bathing suit, everything. It’s like, “No.” I almost DoorDashed a sweatsuit to the Airbnb because that was so cold.

Tony:
So hopefully we get a better luck in Orlando.

Ashley:
Okay. So the main point of this episode this week is not only to learn from some great investors, but to learn also how much of a creepy neighbor Tony is as we bring on two people who he drives by their house, and when he actually met them at a meetup says, “I actually know where you live. I know where your house is.” So we’ll get into that story. But Tony, do you want to introduce everyone to your neighbors?

Tony:
Yeah. So today, we have Devana and Reid, they’re a husband and wife duo, and they actually have a very unique niche, which is why I was so excited to get them on the podcast. But they invest in sober living facilities, which is something that I’ve actually never met anyone else that does. So in today’s episode, we break down exactly what a sober facility is, like a sober living house is, the steps you need to do to get folks into the home, they talk about how they manage the properties, they talk about how they screen the tenants, and they also talk about why these types of investments are so important to them. And they really caution everyone at the end of this episode that once you hear the tremendous returns that they get, don’t just start chasing the strategy just for the returns alone, but make sure that your heart is in it as well. So I thought that was a really important thing to call out for our listeners as well.

Ashley:
Yeah. I love the part about just their business model because no matter what real estate strategy you’re doing or whatever business you are in, having the right business model and structure and your mission statement really can help you increase the actual profit that you’re bringing in. So listen to how they developed, how they run their properties and how that is impacting the success that they have in these properties. And when you listen to them talk about their turnover rate, I think some of you are going to be very jealous that you don’t have that right now in your long-term rentals. And then, when you compare it to Tony’s short-term rental turnover rate…

Tony:
Devana and Reid, I am so incredibly happy to have you guys in the Real Estate Rookie Podcast. Before I even let you guys get into your story, I just want to let the entire Rookie audience know that I basically had to beg you guys to come on to this podcast. So as a quick backstory, we host a monthly real estate meetup here in SoCal, me and my wife do. And Devana and Reid live in the same city as me, they came out to the meetup. And I chat with folks at the meetup all the time, and after hearing their story and the kind of unique niche in real estate they’re operating in, I said, “We got to get you guys on the podcast.”
So what’s even more weird is that I actually knew where Devana and Reid lived before I even met them. So again, we live in the same town, and every morning when I drive my son to school, I saw this ADU being built at one of the houses on the corner, and it’s super unique as in our city there are no ADUs anywhere. And me being a real estate investor, I was like, “That’s pretty cool, someone’s building an ADU in the city that I live in.” So when I was talking to them and they were telling me their story and they do this thing, but then they were also building this ADU, and I was like, “Wait, is your house on this street and this street?” And they were like, “Yes, that’s our house.” So we became fast friends after that. So anyway, Devana, Reid, thank you both so much for coming on to the podcast. We’re super excited to have you here with us.

Reid:
Thank you very much.

Devana:
Thank you.

Tony:
So I’ve already given everyone a little bit of background. Right. Obviously, you got the ADU coming on, but if you can take it all the way back, what was the starting point for Devana and Reid as real estate investors and what kind of led you all into the niche that you currently kind of specialize in?

Devana:
So I’ll start with that. I have background in addiction. I’m not personally in recovery myself, but some close people that I knew in my life were struggling with addiction and alcohol. In 2007, I lost a really close person to me with a heroin overdose, and that kind of started my brain going, like I’m angry at addiction, but what could I do to not be angry anymore? Could I do something to help instead of sit in that anger? So my kids were too little at that time, but my head started spinning about stuff. So I came to Reid one day and said, “We’re looking for something else to do with investments and stuff, why don’t we buy a house and turn it into a sober living?” And he looked at me and said, “Okay,” but I had no idea what I was about to get him into.

Tony:
And Devana, just for those who don’t know, define sober living. What is a sober living home?

Devana:
A sober living home is a structured home that has accountability and structure for somebody who is in recovery from drugs and alcohol. So a lot of times people will leave a 30-day treatment center and then instead of going back into their toxic environment or maybe back into a house where their spouse is still drinking or something, they’ll come to sober living where they have, like I said, the accountability, the structure, and they can get their life back on track with a fellowship of people who are in the same place they are really, it’s a lot of support for them.
So right away we started looking for a house. And he’s more the numbers guy and the construction and I’m more the vision and oh, it’ll all work out. “Let’s just do it.” So we did, and to be honest with you, I didn’t really know what I was doing, I just thought, “I’m going to just do this and it’s going to work.” And so, we did, we went in and we built it and we thought of all the things and how we can get beds in. And then, once it was all done, that’s when we took pictures and I started, not really marketing it, but going to the rehabs and introducing myself.

Reid:
We had no idea what we were getting into. We had no idea.

Devana:
Oh, it’s been an awesome journey.

Reid:
It was awesome.

Devana:
So the first two weeks were really stressful because this was in 2014, so I wasn’t really on social media and all that stuff back then either, so I just did the footwork and went into rehabs to introduce myself. And after the first two weeks, when we got our first client, it’s like I can never look back. We’ve been filled with the waiting list ever since.

Ashley:
Well, that’s really cool. The first question that I have about this is this is actually a business, you are operating a business out of this. This isn’t a long-term buy and hold where you get the tenant and then you leave it be and they just pay their rent, there’s actually some sort of operation that goes into that. So how did you learn about this? As you were building out this property, how did you know somebody would be looking for sober living, how to attract them, and then, also, how to build out the operations? Do you have any employees or team members that help you with this project?

Devana:
Yeah. So the strange thing is, growing up, my grandma actually had a sober living. I didn’t really understand it when I was younger or know…

Tony:
Had you ever gone in to it or?

Devana:
I maybe drove by, didn’t even go into it, I mean, I was young. So I had heard the term before. And then, growing up with some close people to me that were an addiction, I actually had to bring people to sober livings before. And I would always walk in and I would leave crying sometimes because they just were not a place I wanted to leave somebody. So I had in my head that I wanted to do it different.
And then, I also, reached out to the Sober Living Coalition in our area and then, we started going to their meetings and they gave out kind of a packet, I guess, of some sorts that had some intake papers. And then, Reid and I really sat down and thought about what our why was how we wanted people to feel in our house. And we started structuring our paperwork off of that and off of experiences that we knew people had in other sober livings, like how could we make it different? And we just kind of formed it from there.

Reid:
Well, and Devana, being or going to sober living homes before she would tell me stories about how horrible they were. And it was the living environment. The landlord wouldn’t put money back into the home so they were dirty or things weren’t working and electrical outlets weren’t working or different things. So she’s telling me the stories and I’m thinking, I have background in construction, and I’m like, “Well, let’s make this awesome. So I know exactly what to do. We can put electrical outlets on each side of the bed instead of behind the bed and we’ll make everything super convenient for everybody. And I can do all that kind of stuff.” I mean, you can give a better example of what you saw before, but it was about how do we make this a place that we would want to live in?

Devana:
A high quality.

Reid:
Like why is a landlord skimping on their tenants living space? You want your tenants to be happy and you want them to be there, they want to want to be there. And I think that was where the struggle is. We saw an area that we could really help.

Tony:
Well, first, let me take a few steps back. Right. I love the approach that you two are taking because it shows that there are people who genuinely care about the folks that are staying inside of their properties. When there are landlords that don’t take care of their properties, don’t make repairs, don’t do CapEx, it gives all landlords a bad name. And that’s why when you talk about being a real estate investor in some circles you are immediately a bad person because you own investment properties. And I think if more people took the approach that you, Devana and Reid are taking of coming from a place of caring and actually worrying and working on the experience that people have when they come into your homes, it makes it a better thing for all of us.
But before we go too far, I’m loving this conversation, if we can just zoom out for a second. What does your current portfolio look like today? How many of these homes do you have? What other type of real estate investments? Just give us the 30,000-foot view.

Devana:
So we have three sober livings currently with a total of 47 beds, 48 because I have an emergency bed. So it’s kind of an interesting thing because I have those three houses, but I actually have 47 paying people, so it’s a little apartment or complex or something?

Reid:
Yeah, they’re single-family homes, they’re not anything special, but-

Devana:
So there’s not really a term, like a strategy, like you hear all the time, like short-term or midterm or whatever. I don’t really know. I’m almost bed hacking instead of house hacking. I don’t really know how else you would say it. So we rent the bed out instead of just the room. So there’s shared bedrooms. So we have three of those and then we have one longterm and we just built our first 1200 square foot four-bedroom ADU in the back of our house. So with a total of 52 paying tenants in all of those.

Ashley:
That’s awesome. Congratulations you guys.

Devana:
Thank you.

Reid:
Thank you.

Tony:
I just wanted to ask one followup question, and maybe we’ll get into this, but how are these tenants paying for their beds? Is this a county-sponsored program where there’s some kind of funding that they applied for that’s something like Section 8 or is this a self-pay program that every person is kind of paying for their own bed?

Devana:
Personally, we do private pay, so everyone’s private pay. I do know of some houses who do county beds because there are state and county programs that do pay for sober livings. I just personally don’t because I really like to have the control over who comes in and who doesn’t and I think that’s part of why we have a very low turnover rate. I mean, my average people who stay in our houses are one to six years. I literally have people who are there six years right now. And so, I don’t have that every two weeks somebody turned around and leaves. I have people who I offer quality soberly so people don’t leave. I maybe get a bed open every few months, so my wait list is hard, I feel like I have to turn a lot of people away.

Ashley:
Let’s kind of talk about that, like having a wait list. So you mentioned that you guys go above and beyond with these properties. Are you guys the only ones having a wait list or did you do some market research and see that there’s actually a big demand for this type of housing and there just wasn’t enough supply in the area or is it because of your model or maybe a mix of both?

Devana:
Yeah. I think a mix of both. There is a very high demand, but the other houses have such a high turn up that people go there and then, something happens and they leave. So they’re searching for that good home to stay in. So they will go to those other houses, but they’re not staying, you hear lots of stories about it. We just haven’t had that experience because when we get the people, they’re like, “Wow, I feel home. I feel comfortable here and I don’t want to leave.”

Reid:
We’ve heard of other owners of sober livings say, “Well, how are you staying full right now?” And we haven’t had the issues that other sober livings have had. Now, there’s obviously some good sober livings out there, there’s just not very many of them, there’s a lot of bad ones.

Ashley:
So along those lines, what’s the average rent you charge per bed? And then, what would be the difference if they were to go and rent a studio apartment or a single-family apartment or a single bedroom? I’m just trying to look at the difference in cost and to show what that motivation is to pay to have that kind of environment around you.

Devana:
So it all depends on the area. We’re in California, we’re in Riverside County, so we charge 700 a bed for our men’s homes and 650, I think we’re at 650 for our women’s house. If you go down to Orange County in California, I mean, a cheap bed is 1500 for like, I don’t know what you’re getting, but 2,500 a bed is average. If you go into LA, 2,500 to 5,000 a bed is average. I mean, they go up to $35,000 a bed if you’re in a really nice place in Malibu. So I’ve seen sober livings down to three… Nowadays, probably 450 is like a lower end, but that’s like-

Ashley:
So the ones that you have that are 650 to a 700, how does that compare to if they were to go and rent a studio apartment in that same market, that same area, what would the rent be for that?

Devana:
In California, a studio apartment probably would be 1200. Okay. Do you have that Tony? I don’t know what a studio… I mean, a one bedroom probably would be 1500 for a one bedroom apartment in California.

Tony:
The last time I had an apartment in California was six years ago and I think I was paying $1,800 for a two bedroom. So somewhere around there probably seems right in today’s market. I guess one followup question for me. So what are the responsibilities? Actually, before I ask that question, let me ask this, how do you guys set your prices? So you’re at 650 versus 700, is there a process for comping other sober living homes in the area so you know how much to charge?

Devana:
Yeah, to be honest with you, I could charge way more because we have the quality that we’re giving compared to what other sober livings are, I could. But this is my philosophy, I’m making money, I’m making good money, and I want every single person that comes into my house to be able to do it on their own because by the time they get to us, they have exhausted family, they’ve burnt their bridges. And so, I want them to gain that self-respect. So if they had to go get an entry level job at McDonald’s even, they would be able to pay their own rent and feel good about themselves and save some money and be successful in life.
So I could ask more, but I feel like I’m in that really good balance where we’re still making good money, but we’re also helping people. If our houses were in Orange County, they would be going for on the very high end of rent. We’re comparable in Riverside, so maybe that’s also why we have a wait list because they’re like, “Well, I could pay for the House of Courage this much and I’m going to go other places for pretty much the same and I’m not getting nearly the quality of life.”

Reid:
Well, I think to go back on what Ashley had asked earlier, so that $700 a month, that includes all the utilities, we’re paying for toiletries, cleaning products, cable TV, air conditioning, heating to whatever temperature, no matter how hot or cold it is, so we have all of that incorporated into that dollar amount. If you’re going to go rent an apartment at, let’s say, $1,500, 1,200s, 18, whatever, you’re also paying for utilities and the other things. We have Netflix included and certain things included. So a lot of people are leaving the sober living home and going to get their own place and realizing, “Wow, I thought it was just the monthly rent of the apartment, no, there’s a lot more to get the same quality of life that I had at the House of Courage.” So, that’s part of the benefit of going into sober living and paying that amount. But you do have to live in a room with somebody else, so-

Devana:
Like a bedroom in our city, they’re just going to go rent a bedroom out of somebody’s house. They’re going for like 950 to even a thousand dollars for just a bedroom in somebody else’s house. But I think more so what they’re looking for, it’s not just that they need an inexpensive place to stay, but they need the structure. People come to me and say, “I need the accountability because if I’m in a bedroom by myself, I might use or drink and I want to be surrounded by people that go to meetings that I can come home to and talk about my day and I’m getting that support.” So they’re actually looking for the accountability part of it.

Tony:
So now, say that I’m someone that’s brand new and I’m looking to start my first sober living facility, and I know you said that you kind of undercharge a little bit, but is there a tool or a website or what should my process be if I wanted to understand what is the going rate for bed in my city?

Devana:
So I would start at who you’re looking to attract. So if you’re looking to attract more a professional that wants to have really strict anonymity, maybe a police officer or a lawyer or something like that, they don’t want to share rooms with people, you could do more of an exclusive sober living and charge a higher rate and maybe do a private room type situation. If you’re looking just for the average person, I think checking other sober livings and what they offer, there’s not really a book or a thing to go by, I know people who charge a little bit more than me, a little bit less, it’s just kind of what you feel like you’re offering.

Reid:
You can find the sober livings that are in an area through a couple different websites and you can just call them up and ask.

Devana:
“What are you guys charging? And what do you offer? What are your amenities?” We have a lot of amenities.

Ashley:
Yeah. And that’s so interesting to me because I think of rehab, you watch movies and there’s people going to rehab and it’s like it’s so expensive, we can’t afford it or whatever and that’s why I was curious as to how that rental price compared to having your own apartment where really it is more affordable and it’s a great option, plus you’re getting that structure and that accountability of the sober living. So can you talk more about that actual operation? Is there somebody that lives there full-time? Do you have people, employees that come in and out and kind of monitor if someone has abused a substance?

Devana:
Yeah. So we have managers that live in all of our houses, they live there 24 hours. They’re allowed to have their own jobs outside, so they kind of come and go and they monitor, they check chores that have to be done every day, they make sure everybody’s in on time. They pretty much make my life so nice. They do all the day-to-day operations, they do the disciplinary stuff, unless it’s something that I have to step into, which I haven’t had to do in a really long time, they just run the house for me. So how we structure it with them is they live there for free and they get the manager’s room and they collect the rent for me if anybody pays, if they don’t pay. Some people don’t have bank accounts yet and that kind of stuff, so if they have to pay in a different way than Venmo or another way, then the manager would collect that and I would pick it up. But they pretty much do everything for me.

Tony:
So one followup, when you’re looking for these managers, are you looking for someone with specific training or qualifications or is it you, Devana and Reid that are finding just people that you feel are good people and then you’re training them up how to be managers in that house?

Devana:
So this is a really important fact. I think that they have to understand addiction because they’re dealing with… A lot of things come with addiction, there could be manipulation, old behavior and how they used to work when they were in their addiction. So the hardest part to find a manager is the first manager because you have to find somebody who’s been in recovery to do that. Once you have a house full of people, I pull from the house. So if my manager were to tell me they were moving out tomorrow, I have 19 other guys that have been there for three years that know how to run the house, they’ve done everything, I know they’re responsible and whatever. So I usually go and pick somebody who would like to have that position. So we usually have a manager and an assistant manager so that there’s always kind of eyes and ears if one’s working, one’s not, and he might get half off.

Tony:
So then, just to clarify, so your managers and assistant managers are people who came into your sober living home to stay there and then they’ve kind of leveled up to become your management team, I am understanding that correctly?

Devana:
Yeah.

Reid:
Correct.

Devana:
Yeah.

Reid:
Yep.

Tony:
That is fantastic. That is fantastic.

Devana:
And it gives them something to put on their resume. It gives them responsibility and purpose, which most of them want just to help to give back to the community that helped them.

Reid:
Yeah. And you have people living in the house and they have pride in where they live, and so, they want to keep that running the same way that it’s been running. If they have a great manager that’s been overseeing everything and that person leaves, there’s usually a lot of people that are interested in stepping up to make sure that the house stays the quality and level of management that they’ve seen. So we usually have a lot of great people to pick from.

Tony:
So you guys have talked a little bit about the amenities that you offer and kind of what that community looks like. Are there any certain boxes that you have to check to be considered a sober living home like you have to offer this or you have to offer that? And if so, what are those requirements?

Devana:
So there’s no requirements in terms of amenities. I mean, I’ve seen basic where they don’t even turn the air conditioner on in California because they don’t want to have the air conditioning bill.

Reid:
Unfortunately, yeah.

Devana:
It’s pretty sad. To be a sober living, the qualifications, I guess, if code enforcement were to come to your house, we do random drug testing and alcohol testing and my managers do all that, so they log that. And then, our people do some sort of self-care, like either AA or NA meetings, therapy, not in our house, this is outside. We don’t provide any services. So we require, it’s three to five times a week that they do something, an outpatient program, an AA or NA meeting, something like that. And then, we keep their logs. So if somebody were to come to the door, we could say, “Nope, look, here’s their stuff and here we drug test them.” And they sign something saying they are in recovery from drugs and alcohol, but we’ve never had an issue with having to prove it to anybody or anything. You can just buy a house and start a sober living, there’s no license because we don’t provide any service really, it’s just like-minded people living together, really, if you want to break it down.

Ashley:
So how are you finding these people? You’re going to the rehabs and you’re giving them the information, then they must refer people to you. And then what does the screening process look like?

Devana:
This is another interesting thing. I mean, we pay for our domain names. I don’t know, what is that? A hundred bucks a year or something. That’s the only money we’ve ever put into marketing.

Reid:
Ever.

Devana:
Ever. Not a single penny in marketing. Our people in our house are best marketers, so when they go to their meetings and back to their rehabs and wherever they go, people are like, “Oh, what house are you in?” It’s like this whole community. And then, we get 90% of our calls just from word of mouth, I guess.
The screening process, I still do all of that. To me that’s really important. I haven’t given that over to the managers yet. And I just go through a series of questions. And I don’t know if I’ve been doing it so long, I just know. Like in the first three seconds of the phone call, I know if it’s somebody I’m going to continue with or not. And I’ve just gotten kind of good at that process.
So that my life isn’t super chaotic getting a thousand phone calls a day because I could probably get a hundred calls a day on my phone, I just kind of go through, I screen them first because I don’t have any open beds. So then, I’ll go through my voicemails and get back to them or give them a text message quick or a response like, “No, we don’t have a bed open. I’ll put you on the list.” Or something like that. So it used to be in the beginning, I wanted to talk to everybody and I had to, I’ve learned how to simplify my life a little bit and not have to talk to every single person that calls, but still get a good quality person in. Having good processes and procedures in place has made my life so simple around this. I don’t think it takes any more time for me where I’m at in my stage than it would with a mobile home park or I think even a short-term rental probably would be more work for me than what I’m doing right now.

Ashley:
Well, especially with your low turnover too with having people stay for so long, it’s not like every month you’re having a new turnover.

Tony:
Our properties in Joshua Tree turn on average 12 to 15 times per month, so to have someone staying there one to six years is crazy.

Devana:
And when I get the call, then I just set up the time, I text my manager and say, “Somebody’s coming in for the intake.” They do all the intake paperwork, they get them in. I don’t have to go over and do all of that, they do all that for me.

Tony:
Yeah. I guess let’s talk about that process. So someone, a lead comes in, is it typically that they’re filling out a form on your website or how does that person typically come to you?

Reid:
There’s no background check, by the way.

Devana:
It’s so different than any anybody.

Reid:
Just like anybody else.

Devana:
Does, yeah.

Reid:
Not completely.

Devana:
We don’t do a background check, we don’t do a credit check because they all have past, they probably all have back credit. I don’t really know how I can explain this, it’s like a gut feeling or just how they answer the question. Then I’ve just had a really good experience.

Reid:
Well, I think you can tell when you’re talking to somebody on the phone, you can tell whether they really want to be in recovery or whether they’re being forced to be in recovery. And that’s a big factor. We want everybody to want to be there. If you have people that are mandated by the state to be in a sober living or something like that, that’s not always bad, they may be mandated, but you can tell if they really want to be there. And that’s who we want as a tenant. That’s what makes everybody in the house like-minded. When you have people that are like, “Yeah, I just have to be here, but I can’t wait to get out,” and do whatever negative things, that just doesn’t help the house.

Devana:
So to go back, I don’t remember if Tony or Ashley asked me the question, but there’s about, I don’t know, seven questions that I ask that I can tell right away.

Ashley:
Can you give us an example of a couple of those, just maybe two or three?

Devana:
Yeah. So the first question I ask is if you’re a 290 registrant, which is a registered sex offender. And let me just throw this out there, these questions just aren’t to protect my house or myself, it’s also to see if this is the right fit for them because I want to set them up for success. And I know some people sometimes have a child that comes to visit, so I don’t want them to get in trouble for being around a child in a certain vicinity. So I always ask that.
My second question would be, how long have you had clean and sober? And that’s where it gets a little tricky, you got to kind of experience. They’ll tell you something, but you’re like, “Hey, when’s the last day you used? Don’t tell me two years ago when you got clean, but did you relapse?” You kind of ask those questions. “Yeah, what’s your why? Why do you want to be in sober living?” If it’s, “Oh, my mom’s kicking me out and I have no other place to go and I need to do this for a month,” or “I really want to do this. I want to do this for myself, I want to do this for my family,” whatever, you can kind of just tell how they answer the questions. Another one would be, “Do you have any violent offenses or any arson? Are you registered arson?” Certain things like that.
Now, there are some sober livings that don’t ask any of these questions and they just let whoever. If they have an open bed and you want to come, you can come, that’s the ones that have the turnover rate and have some crazy stories because they just really… I do ask about mental health because again, I want to set them up for success. So I only take a certain level of mental health and it has to be secondary so they can’t be bipolar and because of that, they drink once or twice. Drugs and alcohol have to be their primary issue.
And then, a lot of times, some mental health will come with that just because of the drug and alcohol use. So if it’s a higher level of care, then I want to refer them out because I don’t want to set somebody up in my house that has schizophrenia that we’re not capable to handle and I don’t want them to fail in my house. So just certain questions like that and then, I can move them to give them a phone number to where they need to look or say, “Sure, show up on Tuesday, the manager will meet you.”

Tony:
So is there an ideal property type that you all look for when you’re kind of scouting for new locations for your sober living homes?

Reid:
For us personally, yes. And this goes back a little bit onto what Devana was saying earlier, it depends on the type of tenant that you want to have. So for us, we have multiple tenants per room. We don’t want to have a single tenant per room. We’re not looking for a higher end price range. So we want to figure out how many people we want to have. For us, we’re looking around 16 to 20 people per home is our range. Now we do have a home that we have 10 people in, but we have some others that have more people, and we just found that’s kind of our sweet spot. So the size of the home is really important. How many bedrooms and how many bathrooms is really important. Bedrooms, not as much because with my construction background, we can always make bedrooms out of certain living spaces, but bathrooms are a little bit more expensive to build, so we want to have the appropriate amount of bathrooms for your tenants.

Ashley:
Reid, one question real quick. Is there a certain law or regulation as to how many people per a bathroom at all? So do you have to work around, okay, if you can fit six beds in there, you need at least two bathrooms or anything like that?

Devana:
It’s six people to a bathroom.

Tony:
And sorry, is that based on city regulations?

Reid:
Yeah.

Devana:
Four people to a refrigerator and six people to a bathroom, so we have five refrigerators.

Ashley:
Okay. So that’s great advice right there. If someone is looking to do that makes you look into your city regulations. I never even would’ve thought a refrigerator at all is something that you would have to be careful of how many people you have on the property. Okay, sorry, go ahead. Continue, Reid.

Reid:
Outside of the size of the home and the bedrooms and bathrooms, we’d prefer to have a corner lot because we’re going to have a lot of cars parking, so we want to make sure we have enough area for people to park on the street. And a cul-de-sac would not work, there’s not enough parking space there. And then, we want the location to be kind of central to the recovery network.
I mean, there’s a large city and there’s usually like a smaller hub of where recovery and meetings are taking place, so you want to be closer to that because not everybody has a vehicle. So public transportation’s really important for us. We need to be close to a bus stop and easy to get to close meetings and that kind of stuff.
Another important point for us is we need to be close to entry level jobs, so usually next to large retail areas, or maybe lots of industrial areas. The types of entry level jobs need to be fairly close for people as well because 95% of the people coming in they don’t have a job, they’ve lost their job, they’ve been in rehab for a long period of time, and so, they’re coming out, they have to start fresh. Those are some of the biggest things. I miss anything?

Devana:
Yeah. I would touch more on the reason why we like corner lots too is because sometimes the guys will go outside to smoke and so, my thought process is, put the table on the side where the neighbor’s not just so don’t have… We all know about NIMBYs, right? So you could have a NIMBY in your backyard. So I try to be a really good neighbor and think of those little things to not irritate a neighbor as much as possible.

Tony:
Since you mentioned neighbors, let’s talk about that a little bit. How receptive is the neighborhood to having a sober living home in their community? And do you feel that there’s a stigma at all around the home? What’s the reaction, typically, when you move in?

Reid:
I did forget to mention that you need to check your city ordinances, wherever you’re looking to start your sober living or group home, you need to make sure that… Some cities have ordinances or anything that can make it more difficult to operate. But-

Devana:
Yeah, I will say this, they are illegal ordinances, but it’s just how much time do you want to push back on that? How much money do you want to spend on a lawyer to push back on that? Our city doesn’t have any ordinances that continue, but San Bernardino County has some ordinances. So for the ease of your life, I would check ordinances first.
And oh, the NIMBY stuff, so we had an issue with one of our neighbors at our house number two, and he saw a lot of guys and he questioned it and I told him it was a sober living. For me, I feel like it’s more education. When they hear a sober living, they think, “Oh, there’s 20 drug addicts living next to me. It’s going to be this crazy, wild house.” And when I educate them and say it’s going to be the quietest house on the block, they have to be in a curfew. They’re not even drinking a glass of wine at night. There’s like no parties, there’s no anything. Then after a couple of months he was like, “Wow, this is like…” Where our house is by University of Riverside, so there’s a lot of student housing nearby. So they’re like, “Oh, here we go, another party house” or whatever, but he’s like, “Wow, this is the nicest house.”
And we make sure that our outside is kept up really nice, so you wouldn’t even be able to tell it was a sober living by driving by. And now he actually is really close with some of the neighbors. They help him unload his truck at night. They’ll take his garbage cans in for him. And now, there’s no problem. But I think the stigma at first is like, “Whoa, what is this?”
But I think educating people about what’s happening and then they kind of back off. Now, it also depends on the community. If you’re in an HOA, you might get some pushback because it’s not legally allowed to be because they are protected against the Federal Fair Housing Act. Nobody can say they can’t be there, but you could get pushback. If you’re in a really exclusive neighborhood, you might get more pushback than just a working family neighborhood.

Reid:
We also want to be the best looking house on the block. We take a lot of pride, not on just the interior of the house and the operations of the home, but looking presentable on the exterior. So we’re putting money into the exterior and we truly do have the nicest house on the block everywhere we’re at with the landscaping and the care and everything that goes into that. And the neighbors know pretty quickly, “Okay, this is not what I thought it was.”

Ashley:
Would you guys want to go into one of the numbers on one of those properties for us and kind of walk us through the purchase price, any rehab you did and then, what you’re bringing in?

Reid:
So I can do that. I’ll give you a just quick backstory on some of this to try and understand some of the numbers. So I’ll give our second house that we purchased as the example. So we found this property on the MLS and that’s where we’ve bought all ours. We haven’t had any special real estate.

Devana:
Freedom.

Reid:
Anyways, we found the house on MLS. It was a five-bedroom, three-bathroom house. It was 2,800 square foot when we bought it. The purchase price was $415,000.

Tony:
Which is pretty good for Southern California.

Devana:
Yeah.

Reid:
That was 2015. We weren’t completely out of the recession yet, so it was a little cheap. So we just did with the conventional loan route, 20% down on that. And we ended up putting a lot more into construction than we originally thought we would have to. And the quick backstory on that was our realtor made us aware that there was an additional structure that was on the side of the house or on the back of the house that was attached that was not permitted. And we were under the impression, well, it’s not permitted, it doesn’t count as square footage of the property and all that kind of stuff. So we bought the property not needing that, but we went to get permits on doing construction work. We repiped the house with new plumbing and did some electrical work, got permits for all that.
And what we didn’t realize, the city knew about the unpermitted structure and they said, “Okay, yeah, here, here’s all these permits.” It was super easy to get permits. And then, as soon as we got the permits, I went for our first inspection, an inspector comes out and says, “Yeah, I’m not going to give you an inspection until you tear this structure down. And that totally disrupted the backyard. So we ended up adding 600 square foot to the house to cover that whole area. Without going into all the details, it was a really ugly part of the property that, after you tore it down, it was just a mess. So we ended up putting in $97,870 in construction costs to the house. So a lot more than we planned on.

Ashley:
But that was the interior, adding three bedrooms and then, the 600 square foot?

Reid:
Correct. Yeah.

Tony:
And you guys have to furnish these as well, right?

Reid:
Correct. And we’ve always done it on a very creative way on furnishing. So we only put $9,000 worth of furnishing in this house, but yeah, we-

Devana:
But it’s done nice.

Reid:
Really nice. But yeah, we’ve used reclaimed wood and just painted things and we do a lot of the decor and furniture stuff ourself. So we had $83,000 down on the conventional loan for the 20%. We had 97 and change, 97,000 and change for construction, 9,000 for furnishings. And so, all in, we were like 189,000, almost $190,000 in on the property. So that being said, we have a total of 20 tenants, 18 and a half of those are paying because pro rata for the assistant manager and the manager don’t have any payments or contributions. The mortgage is $3,500. Utilities are around 1800 to 2000. So our net monthly profit is $7,580. Cash on cash return, everybody gets nervous about the almost $200,000 you put in cash on cash return, we’re at 48%. So it took us just about two years, just a little over two years to-

Devana:
Pay ourselves.

Reid:
… pay ourselves completely back. So it was a lot to put in. It was more than we thought. We thought we were going to have a better cash on cash return, but-

Devana:
We’re happy with 48%.

Reid:
We’re happy.

Ashley:
Yeah, that’s incredible.

Tony:
My mind is blown right now. That is phenomenal numbers. Congratulations guys. That’s fantastic. You’re going to have so many people after this podcast reaching out to you asking you how to get into this space. It’s going to be crazy.

Devana:
I don’t know, BiggerPockets, maybe there needs to be a book in the future, How to start a Sober Living.

Ashley:
That’s the worst part about being the host of this podcast is that we immediately get Shiny Objects’ Syndrome. It’s like me and Tony like right when this ends, he’s like Googling stuff and be like, “Did you even see this?”

Tony:
Do I have the time of my calendar to start another business? We’ll see.

Devana:
I want to say this because there’s really good money to be made in sober living, I don’t want everyone just to get Shiny Objects’ Syndrome and just go start it and then not have their heart in it too. Right. So there has to be a good balance of I want to help people and I’m making money because they are humans and just because they’re on drugs and alcohol doesn’t mean, first of all, that they don’t deserve a good place to live, but second of all, that they’re just looked at as like, “Oh, cash cow.” Right?
And that being said, I’ve seen a lot of people try to start sober livings, and I’m sure Tony, you guys probably have had the same thing in your spaces where people get the shiny object and they go, “I can do this short-term rental,” whatever and then, they kind of fade out because they don’t have that heart or that passion for what they’re actually doing, it’s just about the money. And then, I feel like 90% of the time, that doesn’t always just work out for people if it’s only for the money, you have to have some heart in what you’re doing. That’s just my perspective.

Ashley:
And you guys really touched on that too throughout this whole episode as to how you go above and beyond. And one thing that really impacts that is how you’re not having turnovers, you’re getting people that are staying for six years. And having turnover so frequently really can hurt your bottom line, so you’re not going to see that huge cash cow if you kind of just wing it and do mediocre and just be like, “I want to just get cash out of this. I don’t care about the tenants or the residents of the property or what the property is like.” So I think you guys did a great job of showing that if you are going to get into something like this and you do really want to turn it into that cash cow and make it profitable, you really have to have that balance to keep your residents, to keep your clients staying in the house.

Devana:
Yeah.

Reid:
Definitely.

Devana:
And touching on that, Ashley, I look at other sober living homes and sometimes I’ll even go in them because I have to inspect them for if they want to be in the Coalition because I sit on the board of the Sober Living Coalition in Riverside, and I think, “Wow, it’s just interesting. Why wouldn’t you replace those dish towels?” It’s probably 10 bucks or something. Overall picture, I’m still making a good amount of money if I go put new dish towels in. But my turnover rate, if it’s junky and ugly, it’s going to be so much more that, it’s going to be so chaotic for my life. Just to go above and beyond, those are the little extras that make people feel special and you’ll get better clients and keep your tenants longer.

Ashley:
Let me ask a question about that. Are you doing inspections every so often on the properties or do you have your manager just report to you like, “Hey, we need new dish towels”? Is it kind of up to them to bring it to you if there should be something that’s replaced? How does that work?

Devana:
Yeah. So we have a list of everything we have in the house that’s like laminated. And every month when they give me their supply list or what they need, there’s a place that they could put like I need light bulbs or the dish towels, whatever, and they can just put dish towels or whatever, and then, I’d go get supplies. When I go visit the properties, I used to go a lot more often than I do, now, I go maybe twice a month, I could go more if I wanted, but I’m I’ve been so busy lately, when I pop in and I notice something, like the other day I noticed these cabinets are looking a little funky, so I had my handyman go out there and paint them. I see things they don’t see for sure, but for the most part, they’ll let me know if the rugs or little things need to be replaced, they’ll let us know every month.

Reid:
But you did have to kind of teach that because a lot of people don’t even realize how worn things get, they’ve just been using it and it’s acceptable to them, so you kind of go over and say, “Look guys, when it looks this bad, we need a new one.”

Devana:
We need a new rug that doesn’t have stains on it. We’re okay with that. But I think they’re also so used to other sober livings that that’s just the standard. Yeah, I had to teach them like, “We’re okay with replacing these and I want it to be nice for you guys.”

Reid:
Yeah, the tenants, like we said earlier, they’re the ones that are selling the house, they’re marketing it for you and so, if you are not constantly keeping it updated and doing more than others… We’re just doing more than everybody else. And so, they’re letting everybody else know that. And so, that marketing, for everything we’ve put into it, they let everybody else know, yeah, “We got this and we got new whatever. We didn’t even have to ask for it, it just comes.” So that’s how we keep-

Devana:
Also though, when I first started this, I kind of got a few mentors that I was like, oh, let me ask them how to do it. And their advice to me was, “Paint it all beige. Go to the thrift store and buy everything, because they’ll thrash your house.” And I was like, “Really? That sounds so depressing. I wouldn’t want to live it else like that.” So I did just my life, it’s like what I do in my whole entire life, I do the opposite of what everyone tells me to do. It’s a little rebel in me.
But I did the opposite. I bought everything new. I did it all nice. I painted the walls, it looks like a Joshua Tree, like one bright thing, paintings. And they come in and they’re just like, “Oh my gosh, this is amazing.” They feel so good when they walk in. And I’ve never had one person in the nine years I’ve done this thrash my house, maybe they’ve broken a cup on accident or something or dropped a plate or something, never one time have I had somebody thrash one single thing in my house, ever. So it just worked out good for us.

Tony:
I love the story that you guys have to share because… And it goes back to your point earlier, Devana, about these are still people and folks in sober living facilities, much like people that are on food stamps or they’re Section 8, they get a bad rap because there’s a minority of folks that don’t treat the properties well. But in reality, these are people who are almost your best in this because they need this just as much or if not more than you need them as a tenant. So I love that you’re able to share that.

Devana:
Having that mutual respect with each other, like they know that I respect them as a person, they are so loyal to me, I’m telling you, if I pull up and I have supplies in my car, I have 10 guys unloading my… I mean, they’re so nice to me. And some of them have a tattoo over their eye, they look like they’ve been in prison, they don’t even understand what they do to my life, like how much they teach me in my life too. So without getting emotional, I love… They’re my best tenants. And because they’ve burned so many bridges, they don’t want to leave a good home. They don’t have anywhere else to go. They’re either going to go back on the streets or junkie sober living. So they’ve been really good.
And you would think with 20 guys in the house or 17 girls in the house, that it would be like, oh, when you walk in, but I’m telling you, the way I have my chores and stuff, I tell them, every single day, a mother or a parole officer or anybody should be able to walk into this house and be proud to look at this house and go, “Wow, this is clean.” And when I walk in, it’s always clean. And we have AM and PM chores, so it never really can get that dirty. And they do, they do their little chore and it stays clean for that many people.

Tony:
Well, Devana, you guys have shared so many golden nuggets about how this not much talked about niche has been successful for you guys and for the people in your home.
Before we wrap things up, I do just want to take a question from the audience. So this is a Rookie request line. Typically, we pull a voicemail. Today we decided to pull a question from the Facebook group. But if you guys do want to get your voicemail played on the show, give us a call at 8885ROOKIE, leave a voicemail and we might use it on the show.
So today’s question comes from Sarah L. And Sarah’s question is, “I work in housing for the city of Boston and I’m looking to open a trauma, sober or domestic violence house of some sort for females. I see firsthand the need and the funding available, but I’m having trouble finding a mentor and or advice on the topic. I’ve tried to reach out to the state, et cetera, and keep getting redirected. I want to start buying rental units and would love it if I could open up a nonprofit. Even if you’re not familiar with nonprofits, I would really appreciate any advice.”
So here’s kind of the second part of her question. “Should we use all 100K to put down on another property or try and buy two?” Her and her husband both still work W2 jobs and they have a few young children. So what’s your advice to them? They’re looking basically for advice on how to break into the space and get some better information.

Devana:
Yeah. So looking for a mentor, should I talk about that real quick? Looking for a mentor, there’s a couple of national organizations that somebody could go to to just even Google and look up information on sober livings or domestic living. There’s also a really big need for women and children and men and children like single fathers that have children that need a safe place. So there’s a lot of different little niches inside the sober living housing thing.
Should I give the…

Reid:
Names of the-

Devana:
No. So NARR is a really good national organization. It’s [email protected], N-A-R-R, .org. And then, thehouseofruth.org is really great for domestic situations. They’ve done a really great thing with how they help women with domestic violence. So those might be two places people can go and look for information or even find mentors. In terms of the putting all hundred thousand dollars down-

Reid:
I’ll speak to that. If you are starting in this space, a niche of whether it’s sober living or domestic violence, help or whatever, I would suggest not going to two locations at the same time. I think you really need to get your processes and everything figured out. We didn’t go into too much in the rest of the podcast, but the beginning of our journey with our sober living, I would say the first six months to year a was pretty hectic. It wasn’t just an easy jump in and we got it figured out, we had to create our processes over time. And I wouldn’t want additional levels of stress with multiple locations, that’s just me.

Devana:
When you don’t know what you’re doing.

Reid:
Yeah. There’s not like a standard way that you have to run your location, specifically in the sober living, there’s a lot of different ways, a lot of different rules and processes that other places have, we had to figure ours out and we had to figure our niche within the niche of how to manage and how to get our backlog. So I would suggest picking one location. And the idea of putting all hundred thousand in or not, I’m not sure on what size location-

Devana:
Yeah, it depends on the number, the house.

Reid:
Yeah, that’s a tough one to ask. I mean, the case that we brought up where we put almost 200,000, that was almost double what we put into one of our other homes. So it just depends on the project or the location and what you think you can get out of that. I think that’s all I got.

Ashley:
Well, for our Rookie exam today, because we have both of you on, we are going to kind of tailor it to you guys. And we want to know, what is your next step with investing? Where do you guys want to take it?

Devana:
So we’re looking always for another house, for another sober living. Right now, in California, they say the prices have come down, but these big houses we’re looking for are still really high. So we’re constantly looking. If another good deal comes up, I would jump on it.
We’re also going to start, a little nervous, out of my comfort zone, but I think we’re going to start looking for out of state, something out of state with maybe another midterm like what we’re doing with our ADU. And we already have all of our plans to start building another ADU on one of our other properties, so that’s something we’re deciding right now. We’re in that beginning of the year phase, we’re like, “Okay, what direction should we go? We have all these different options.” So yeah, we’re kind of really trying to decide. Do we build the ADU right now? Do we buy something out of state? Do we get another sober living? But those will all be something, I think, we focus on this year, just I don’t know what order they’ll come in.
And then also, we have another property we bought this year that is right here close to eastbound, but it’s an acre property and we kind of bought that more of a personal property, even though it has a house on it for a long-term tenant. We’d like to build a big shop for, we have a 1948 travel trailer that we love, so just to house our stuff, extra tools and things. And so, it’s a little bit more of a personal project. We’ll probably build an ADU on that one as well. So we’ve got all these little things, we just don’t know what order we’re doing them in quite yet.

Tony:
Well, we appreciate you guys for sharing your story. Before we wrap up, I just want to give a shout-out to this week’s Rookie Rockstar. This week’s Rockstar is Emily Murray. And Emily says, “We are newbies and proud to have bought four properties this year. I just hit my 10-year anniversary at my hospital. It’s a well paying job that I’m thankful for, but my 10-year bonus was $100. After I fumed for hours, I decided to turn that into a positive and donated the bonus to a fund for patients with the financial struggles.” So congrats to you, Emily, and the goals to buy four more properties in 2023.

Ashley:
You guys, thank you so much for coming on to the podcast, we really appreciate it. Can you guys let everyone know where they can reach out to you and find out some more information?

Devana:
Yes. So my Instagram handle, I have a couple, but Investing Mama is my one for investing. And then, the one that I love to travel and do my investing on is Bee Organ Mama, like the little insect, bee. My email is devana, D-E-V-A-N-A, that’s how you spell my weird, crazy name, so [email protected] or [email protected]

Ashley:
Devana, we didn’t touch on this at all, but I had seen it in the show notes, is that you, actually, part of the reason you wanted to start this because you wanted to be a stay-at-home mom too, so that was a big why for you, right?

Devana:
Yeah. I was a stay-at-home mom and I wanted to continue. I wanted to find something that I could continue to do with my kids. And my son, he got dragged and had to rip open houses, and he goes over with me all the time. And it’s such a good experience for him too, such an eye-opening experience for him to meet these people too and understand that there’s diversity in the world. And-

Ashley:
Thank you guys so much. And we really appreciate you coming on and sharing so much value with everyone. And hopefully, there will be some people that have a passion for it and really want to help people that continue to make this great business model that you guys have made where it’s cash flowing and also helping other people.
I’m Ashley at Wealth Firm Rentals and he’s Tony at Tony J Robinson and we will be back on Saturday for Rookie Reply. (singing).

 

??????????????????????????????????????????????????????????????????????????????????????????

Interested in learning more about today’s sponsors or becoming a BiggerPockets partner yourself? Check out our sponsor page!

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



Source link

Making $90K/Year with Just ONE Rental by Combining Compassion and Cash Flow Read More »

There was no safe asset for investors in February

There was no safe asset for investors in February


People walk by the New York Stock Exchange (NYSE) on February 27, 2023 in New York City.

Spencer Platt | Getty Images News | Getty Images

This report is from today’s CNBC Daily Open, our new, international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.

What you need to know today

  • Goldman Sachs will pivot from its consumer push to focus on asset and wealth management, CEO David Solomon said. He added that the bank was weighing “strategic alternatives” for its consumer platforms — suggesting a possible sale or restructuring. Goldman shares dropped 3.8%.
  • Global Times, a Chinese state-run newspaper, issued a warning to Elon Musk after he responded to tweets that asserted the Covid virus originated in a Wuhan laboratory. “Elon Musk, are you breaking the pot of China?” the newspaper asked — a saying similar to the idiom “biting the hand that feeds you.”
  • Target’s earnings and revenue beat Wall Street’s expectations for the first time in a year. However, the retailer’s margins were lower than it had promised, and it gave a conservative outlook for the year as U.S. consumers cut back on discretionary items.
  • PRO The 10-year Treasury yield is hovering close to 4%, a level that strategists say could give investors a fright. “When [yields] rally, the equity market doesn’t like that,” said Katie Stockton, founder of Fairlead Strategies.

The bottom line

In this turbulent market, investors seem unable to find safety in any asset.

Markets in the U.S. closed lower on the last day of February. The Dow Jones Industrial Average lost 0.7%, the S&P 500 fell 0.3% and the Nasdaq Composite dipped 0.1%. The Dow shed 4.19% for the month and has lost 1.48% for the year, which means it gave up all the gains it made in January. The S&P and Nasdaq fared slightly better. Though they lost 2.61% and 1.11% respectively in February, the two indexes are still holding onto some gains from their January rally.

More worryingly for investors, the inverse relationship between stocks and bonds — which proved fallible last year — has not yet reestablished itself. Bonds are typically seen as a hedge against stock movements; that is, when stocks drop, bonds tend to go up, which is why we hear so much about the merits of a diversified portfolio comprising 60% stocks and 40% bonds. Well — perhaps not so much these two years. Inflation has wreaked havoc on this relationship, causing the assets to move in tandem.

Yesterday, the 10-year Treasury yield briefly hit 3.983%, its highest level in three months. That’s dangerously close to 4%, which analysts say is a key psychological level for investors (if only for the fact that it’s a whole number that seems to present a new threshold). Bond prices are falling — as are stocks. Until inflation is under control, markets feel like a no-win scenario for investors. (Even gold, an asset that investors run to for shelter, fell 5.58% in February.)

There may be some hope: U.S. home prices in December were 5.8% higher year over year, an increase, admittedly, but down from the 7.6% gain in November. High mortgage rates, rising in tandem with interest rates, slowed the increase in prices. Big-box retailer Target warned in its earnings report that consumers are paring back on their discretionary spending. Inflation may be slowing — it’s just not as quickly as we had hoped.

Subscribe here to get this report sent directly to your inbox each morning before markets open.



Source link

There was no safe asset for investors in February Read More »

3 Real Winning Deals in 2023 (and Where You Can Find Them!)

3 Real Winning Deals in 2023 (and Where You Can Find Them!)


The housing market is heating up as homebuyer season comes back in full swing. For the past few months, most real estate investors have assumed that high interest rates and low inventory would stop first-time homebuyers from making offers on houses. But, most of us assumed wrong. At the start of this year, demand started picking back up, causing investors to pivot to get offers in quickly. So, if you’ve been waiting to buy your first or next deal, now may be the perfect time to start analyzing properties, sending in offers, and getting your property portfolio started. But you can’t do it without an elite agent!

We brought in three of the nation’s top agents to tell us what’s happening in their markets, what types of deals they’re doing, and how you can make the most off your next purchase. We first welcome back Dahlia Khalaf from ASN Realty in Tulsa, Oklahoma. She’s recently helped a client get into a “double dip deal” that resulted in tens of thousands in profit on a deal that almost any beginner investor could do. But they had to get creative to find it! Next, we bring back Rob Chevez from Washington, D.C., who’s worked out an interestingly debt-ridden real estate deal to help his investor client pull in some SERIOUS cash flow from short-term renting.

And lastly, who could forget about our own David Greene? He’s California’s favorite real estate agent, and his team has been using the house hacking strategy to help first-time homebuyers subsidize a SIGNIFICANT portion of their mortgage. Even better? This deal required no money down and allowed his clients to lock in a low mortgage rate and a low cost of living while in one of America’s most expensive cities, San Diego.

If you want a home run deal like any of the ones discussed on today’s show, head to BiggerPockets’ Agent Finder to find an elite investor-friendly agent in your area.

David:
This is the BiggerPockets Podcast Show 733.

Rob:
I’m looking forward to the spring market. It’s already heating up. We’ve been helping a lot of first time home buyers house hack and that’s been big for us in this market. I think there was a lot of fear towards the end of last year and that fear is now broken and we’re seeing a lot of those buyers coming to us, so we know it’s going to be a good time for first time home buyers that are interested in house hacking to take that step forward.

David:
What’s going on everyone? This is David Greene your host of the BiggerPockets Real Estate Podcast, joined by my co-host today, Dave Meyer, as we get into a special episode for you all. In today’s show, me and two other real estate agents that you can find through the BiggerPockets’ Agent Finder system are sharing deals that we helped clients buy, getting into the nitty-gritty, the details, how we found them, what we’re doing, and why these strategies worked today’s market. Mr. Dave Meyer, welcome to the show.

Dave:
Thank you. I’m excited to be here. This was a fun show.

David:
Yeah, this was a really fun show. So if you’re trying to figure out, “How do I work with an agent, how do I find a really good agent to work with me and what strategies are actually working in this complicated crazy market we’re in today?”, this is a show for you. Dave, what were some of your favorite parts of today’s show?

Dave:
I think the most important takeaway for me is that there’s good opportunities right now. Our guests show that if you’re patient and have a good understanding of your local market, there’s great stuff to buy. I know, David, you talk about this, I talk about this, that there are opportunities, but sometimes it just sort of seems theoretical. And today we really sort of put the numbers behind it and show how people are finding deals, what kinds of deals are working in today’s market. I think I was pretty inspired by it and I think our listeners will be as well.

David:
That’s exactly right. The goal of today’s show is to show you practical steps that you can take to get a great deal under contract and then turn it into an even better one. So before we get into that, today’s quick tip is brought to you by Dave Meyer himself.

Dave:
Thank you. Well, our quick tip today is to use the BiggerPockets Agent Finder. If you want to meet investor friendly agents like my friend here, David Greene, who is the friendliest of all real estate agents… Look at that smile right now. If you can’t see right now, he is cheesing it up right now. But if you want to meet people like David who are experts in their field, experts in their local markets, and know how to work with investors, BiggerPockets has a completely free tool that you can use to match with investor-friendly agents. You can find it by going to biggerpockets.com/agentfinder. It’s completely free, it’s easy, and it’s biggerpockets.com/agent so go check that out.

David:
And then check out our show while I work on continuing to improve my smile. My goal for 2023 is to give the girl from the Orbit’s gum commercials a run for her money.

Dave:
You’re going to have that little like ding when it goes up? Well next week… So everyone listening to this, next week we’re going to be in Denver doing a little podcast host retreat. I think we have a photo shoot that we need to do. So I’m ready to see you smiling and doing the professional head shots over there.

David:
I’ll be hitting the arm curls as well as the lip curls.

Dave:
Oh, okay. Nice. I’m really looking forward too. I don’t know if they make you do this too, the really stupid YouTube faces, like how everyone’s YouTube thumbnails are now hands on the face or shock. So that’s what David and I are going to be doing next week.

David:
All right. Let’s get to our first agent.

Dave:
Okay. Well, Dahlia Khalaf, David Greene, and Rob Chavez, welcome back to the BiggerPockets Real Estate Show.

Rob:
Thanks for having us, Dave.

Dahlia:
Thanks for having us.

Dave:
All right. If you all didn’t listen to episode 697 where we had this group of three real estate agents on to talk about their different markets, we compared and contrast them, if you weren’t here, just so you know, Dahlia is in Tulsa, Oklahoma, David is all over the California region, but we were specifically talking about the San Diego market, and Rob is in the DC area. We had a great show. It was a really popular show where we talked about the different benefits to each type of market, what pros and cons there were, and so we wanted to follow up on that episode and actually talk about the specific deals that are happening in each of these markets right now. So we’re going to go through each of the markets and our guests are going to share with us deals that they are working on right now with their clients.
Dahlia, we’re going to start with you. So can you tell us a little bit about a deal that you’re doing right now in Tulsa?

Dahlia:
Absolutely. So it’s actually not a deal that I’m currently doing. It’s a deal that closed on last month.

Dave:
Great. Congratulations.

Dahlia:
Thanks. I would say this was kind of a double dip in terms of the numbers being great on both ends of it. It was what I would consider a wholetail. The buyer approached me about a property in his neighborhood that had been sitting for a long time, owned by an older couple that was moving on and wanted something that was easy, had been sitting, not a whole lot of traffic just because the property was really needing too much work for someone who wanted to own or occupy the property, but too expensive for an investor. So it was in that spot where properties don’t move when they fit into that spot.

Dave:
What was the list price?

Dahlia:
The list price when we offered on it was 295,000. I’m sure it had been more than that at some point. It had been dropped but still was too hot. It’s just too much work for an owner occupant to… It was super dated, needed a lot of work. So my buyer approached me and said, “Hey, this property happened to be in his neighborhood,” so he was keeping an eye on it, seeing that there was no activity, been sitting forever and wanted to try to make a significantly lower offer on it. So we went in at 210,000 with cash offer, can close as fast as titles ready and as fast as they’re ready to close and no inspections. So that really helped it. They accepted, so we closed at 210,00. This was actually back in October.
He wasn’t sure exactly what he wanted to do with the property yet. He thought, “Maybe I’ll flip it. Maybe I will make it a rental. Maybe I’ll tear down and build new construction” because it’s happening a lot over in that area. Then he told me, “I’m seeing there’s not much inventory in my area. What is coming up is moving pretty well. What if we just clean it up and put it back on the market and see what happens?” So that’s what we did. We put it back on the market, got under contract within a couple weeks. We ended up closing at 297,00 on that one actually back in January. So within a couple months I think he spent maybe 10K just taking out some trees, cleaning up the yard. That was it. Nothing was done to the interior. And so made a nice little chunk of change there in a couple month period. I’m not going to lie. I was jealous.

Dave:
Yeah, I am too. There’s a bunch of stuff in there I want to jump into. So you said that when you first offered on it, list price was 295,000. You got it for 210,000, which is nearly 30% below less price, which is remarkable. How did you do that?

Dahlia:
This doesn’t happen all the time, but sometimes you get into a unique situation where you have a seller that just needs to get out and they want something quick and easy and that’s what this was for them. Especially when you remove your inspection contingency, and I’m not recommending that people always do that, but this was a situation where the numbers made sense where he could do that and felt comfortable with it. So this fit all those elements that the sellers were looking for. We did negotiate back and forth a little bit before we leaned it on the 210,000 and that being our final number we closed with.

Dave:
Wow. And how, as a real estate agent, did you advise your client in this situation? Did you come up with the 210,000 number? Where did that come from?

Dahlia:
Well, we took into consideration what comms were and what we estimated rehab would be if he was going to flip, and that was how we came up with that number. And then obviously you’re just always trying to get the best price possible. So that’s where we landed at based on those things.

Dave:
Great. And so it sounds like he thought about flipping was… What went into the decision then to do a minor cosmetic repair, which you called the wholesale? So maybe actually can you just… Or wholetail, excuse me. Can you explain to the audience what a wholetail is and why your client decided to go with that strategy?

Dahlia:
Well, wholetail is when you basically get something under market price and you basically don’t do anything, barely anything to it and then put it back on the market. I don’t think he initially had that plan, but because of the lack of inventory and what was coming up moving well, he thought, “Why not try?” And obviously it’s a lot nicer to be able to do no rehab and make money versus the time and effort and expense of doing a full-blown rehab.

Dave:
Yeah, well it sounds like he netted, I’m just trying to do this math in my head here for a second, netted something like $87,000 off of it must have been probably 50K investment for a very short hold period. So that’s an excellent ROI there. Is this a common strategy used in Tulsa?

Dahlia:
Not necessarily. I think it just depends on if everything makes sense to do it. If you have enough equity play there in the deal and if you feel like… Especially when you have low inventory, it just opens up the options for a lot of things. But it’s not necessarily super common, but it’s great when it happens.

Dave:
Yeah, absolutely. Do you think there are other opportunities like this? You said it was sort of an older couple they had been, it had been sitting on the market for a little while. But you’re also saying that in Tulsa, generally speaking, there’s not a lot of inventory. So do you think other people are finding deals like this?

Dahlia:
I mean, it’s still possible. The big thing is focusing on those properties that have been sitting on the market for a while and a lot of times overpriced. That can be a hidden gem. People will overlook a property because it’s priced too high. Well, it’s been sitting on the market for two months, try giving them a significantly lower offer and see what happens. The worst people can do is tell you no.

Dave:
Yeah, absolutely. And so then you re-listed the property and you said it went quickly. How fast were you able to move it once you listed it?

Dahlia:
Yeah, just within a couple weeks. I think the thing that worked to our advantage too is at that point the property was vacant so it could be shown as much as possible versus before that they had really limited the showings, they didn’t want a lot of people coming in, so that helped us as well.

Dave:
Wow, that’s great. Can you just tell us a little bit, since we last talked, I guess that was maybe November, how has the Tulsa market changed at all? Are you still seeing good deals, low inventory? Or how would you describe it right now?

Dahlia:
We’re still low inventory. The good thing is we can negotiate more versus we couldn’t do that before. So we have more negotiation room so you can make deals happen, especially for properties that have been sitting. It’s not multiple offers and bidding wars every deal like it was before. The biggest thing is just battling the interest rate, but what I like everyone to know is you can refinance, you can’t change your purchase price. So be patient, get the deal. And then down the road when the rates are better, you can refinance.

Dave:
Yeah. You said something about being patient and I really agree with that. When you’re looking at a market like the one we’re in now where prices are falling in certain markets, are you advising your clients to continue to buy at list price? Are you offering under list typically?

Dahlia:
Yeah, I’m always offering under list. If there’s no other offers, I’m offering under list. Now, it’s one thing if the property just came on the market. Then you know you don’t have that strong negotiation tool. But if it’s been sitting, I’m offering under list. Absolutely.

Dave:
And has there been a uptick in the success rate of offering under list price?

Dahlia:
Absolutely. Yeah, there has. Especially properties I’d say in that over 200,000 price point, those properties have definitely began to sit more. So 230,000 and up, we have a lot of negotiation room and there’s just a lot more inventory in that price point.

Dave:
Awesome.

David:
That’s a good point to notice that different markets have sort of an equilibrium price point where properties below that number tend to sell quicker, properties above that number tend to sell over more time, right? I break it up into three categories. I say every market has starter homes, step up homes, and luxury homes. Luxury doesn’t mean extravagance, it just means a price point that is so high, a smaller percentage of buyers can afford to get into that. Step up homes tend to be something you had to sell a starter home to get enough money to buy it. You’re not going to save up the down payment for that on your own. Starter homes will always be the first ones to sell. So when that isn’t explained, people use some of the strategies that work on luxury homes and they try to apply it to a starter home that has a lot of competition. Or they assume luxury homes you have to pay over asking price just like you had to on a starter home. And that’s not the case.
So I love your point there that 230,000 is your breakeven level, right? And beneath that, certain strategies work. And above that, different strategies work.

Dave:
Yeah, I’m sure Rob and David would both love their breakeven point to be $230,000, but… Well, it sounds like a real home run, Dahlia. It’s an awesome deal. Thank you for sharing that. Let’s move over to Washington, DC. Rob, thanks for coming back. Can you tell us about what deals you’ve been working on?

Rob:
Yeah, the DC metro area, which is where I’m at, it’s a huge market, Dave. There’s so many different pockets. One of the areas that we’ve been focused on a lot for our investors is kind of like this Airbnb game. One of the things that we’ve been doing recently because there’s not a lot of inventory on the market is marketing for off-market properties, to identify off-market properties.
And so we started these postcard campaigns looking for properties and we had somebody raise their hand that was behind on their mortgage payment. So their first and their second were both behind. Believe it or not, their second had not been paid on in five years, right? Five years. Don’t ask me why the bank had not foreclosed, but they hadn’t, right? It was originally a $30,000 lien and it now had ballooned up to 75,000, right?
And so this seller was at a point where she just wanted the problem solved. This had been an investment property with her and a business partner. The business partner had passed away and she wasn’t able to manage it from afar. I think maybe her business partner had been local. So I entered it with my buyer. My buyer, we looked at the asset itself, we said, “There’s a lot of work that needs to be done to this thing. There had been a lot of deferred maintenance.” With that second note that was on there, it was still a decent deal with that second note that was on there. So I’ll give you the numbers. The fixed up, it’s worth about 350,000 with the first and the second totaled about 170,000. Somewhere around there, 170,000, 175,000. But that second lien, he now made it… He still had to put another 50,000 to 60,000 to extract the value, right? It kind of made it difficult to make it just a complete home run deal.
So back in the day, Dave, I had done a ton of short sales and I said, “Well, there might be an opportunity for us to short the second position note. And it doesn’t hurt just like it doesn’t hurt to try.” And so what we did was we talked to the seller, we negotiated a price on that property. The price essentially was making all the back payments up on the first and gave a little bit of equity on the front end to that seller because she was mentally already gone. This thing was going to go to foreclosure in 25 days. We then proceeded to take that contract to the bank and we were able to get that $75,000 lien to $7,500, right? So think about that. We offered it just one time, right? We thought that they might go back and forth, they accepted. They knew that the bank was going to foreclose on the first, and so they were like, “Hey, we haven’t been paid on this thing for five years. We’re going to get somebody $500.”

Dave:
Rob, can you just explain that for a second for everyone listening who’s not familiar with the difference between a first and second position lien and what you did basically to convince the second position lien to short sell?

Rob:
First position lien was the original mortgage that they took out on that house. Somewhere along the way, they had gotten an equity line on that property because there had been some equity in that property. So they’d gotten an equity line against that property and had tapped it for $30,000. So now it was in a second position under the first position note that they had originally gotten the first loan that they’d gotten. And for whatever reason, they stopped paying on the second, long time back. Now there was motivation for that second position loan to take something less than what had originally been taken out on, because the first position was now foreclosing. So five years later, she had also fallen behind on the first position note. So that prompted the second position to say, “You know what? We need to do something.”

Dave:
Just so people know, the difference between first position is like, the way it works is first position gets first access to the benefits of a sale. So basically what happens if there is a foreclosure with the first position loan, then the person who has a second position loan is at risk of not getting any money out of the deal, right Rob? So that’s why they’re motivated because they’re all of a sudden thinking, “They’re going to sell this house. First position’s going to foreclose and I’m going to be left with nothing.”

Rob:
I’m left with nothing, right? Or very low. Thank you, Dave.

Dave:
No, of course. That’s what I’m here for.

Rob:
And so the second was highly motivated to do something. They knew that they were going to get stuck with it if they didn’t. So hence the reason why they took what was owed, the $75,000 total owed to them, why they only took $7,500, right? Which you’re like, “Why would they do that?” Well, because like you said, Dave, if it went to auction, they may not have done better. Maybe they would’ve done better, but maybe not, right? And so this way they knew exactly where they stood. They wanted it, the debt, off their books. More than likely, Dave, that second position note had been sold to a creditor for pennies on the dollar and that creditor might have made money on that, right? That’s a whole different thing we won’t get into. But more than likely, that’s kind of what happened. And so it took a good deal and made it a great deal, right?
Now there was another element to it. The other element to it was we realized that the first position note had a 2% interest rate. 2%, right? That’s value in itself. And so I just happened to mention to my buyer, I said, “Listen, there’s this tactical subject to. You essentially get the deed subject to the existing first loan that’s there.” I worked through the mechanics with him, wrapped his mind around how that looked. We were able to purchase that property subject to the existing note that was there. There’s always a risk that I warned him of the risk, that loan could get called, that could get called because there is a due on sale clause. Now it was only $90,000, right? So we were like, “Okay, well if it does happen, we had the ability to get them access to the money in order to get that covered.” But we said, “Well, let’s try it” because again, it doesn’t hurt to try.
We essentially shorted the second, took over the first, made all the back payments for the first loan, settled on that property, in it completely for about 120,000 after all cost. The way it sat, just like David and I had talked about this, we bought the equity because when we shorted that second, well it was now probably worth about 170,000 sitting the way it was. And now we’ve got it for 120,000. So we got that 50,000 in equity. We created that, right? Now we’re going to put in 50,000, which he’s in the process of doing. It’s going to be worth… We might be into it for 60,000, 65,000, but it’s now going to be worth 325,000, 350,000. He’s going to Airbnb it. The payments, he’ll probably collect somewhere around $3,500 a month, maybe as much as $4,000 a month. It just is a great little deal, right?
Like Dahlia had said, these don’t happen all the time. There was just a lot of different circumstances, but because we understood the different moving pieces that we could put together in this puzzle, we were able to help structure this deal for our buyer in a way that was just a complete home run for him, right? And so the points that I want to bring on it, it was an off market deal and it took some creative thinking on how to structure it. And then we also helped him raise the capital to help renovate the property, which is one of the benefits that an agent investor brings to the. It’s just our contacts, our resources in order to put these things together to help our buyers build wealth in that process.

Dave:
That’s awesome. I mean, it sounds like an incredible, incredible deal and sounds like you added a tremendous amount of value to your buyer. I do want to just say to everyone listening that not every agent has off market deals and sub 2, and that does take a good deal of effort to find and they’re not all like that. But that’s a remarkable deal. Sounds like a great one. Is this a buyer that you’ve worked with before?

Rob:
It is. It is. We work a lot together, and so we understand the market that we’re going after. I know exactly what he wants. We have a great relationship. That’s actually one of the benefits, is these clients become our friends. They become sometimes our business partners. We have the ability to understand what they want, so I could pick up the phone and say, “Hey, this thing just came across my desk. I think it’s great for you.”

Dave:
Yeah, it definitely makes a huge difference. I’m going to crash at my real estate agent’s house for three nights next weekend, so it’s true. Rob, can you just give us a little update on the DC market too? And as you said, it’s huge. But just generally speaking, is this representative of deals that you’re seeing, like a lot of distress in the market? Or how would you characterize the majority of the deals you’re seeing right now?

Rob:
It’s interesting because I was so wrong about like, there was a lot of doom and gloom last September, October, November. The beginning of the year literally it opened back up in our market and we started seeing multiple offers in our market again. I was shocked, to be honest with you, Dave. It just goes to show you the resilience of the market that we’re in. Yeah, so there’s still low inventory. Number one, inventory’s low. Buyers don’t seem to be deterred. They’re out there and they’re actively looking. I think people wrap their mind around the new reality, “Hey, these are the interest rates. I may have to shift my expectation of what I’m able to buy, but I think that that’s now occurring.” And the beginning of the year was a good time for our market for sure.

Dave:
I’ve been hearing that across the board. I mean, not everywhere, not Phoenix, but a lot of markets were hearing people saying that beginning in the year it corresponded with low a bit lower interest rates and not that much lower, but it shows, like you said, the real resilience. I think it peaked at 7.4% for the average 30-year fixed rate mortgage. It dropped down to low 6s, still double where it was the previous year and people were still just jumping back into the market. So super interesting to see that. Now, they’re going back up again. So we’ll see how it goes, but glad to see that there’s a little bit of thawing in the market. From just the deals you and Dahlia have shared so far, it shows that if people are committed and patient and willing to think creatively, that there are absolutely still good deals in this market. So thank you for sharing that.

Dahlia:
I have a question for Rob. So in your market, are you seeing people able to cash flow right now? Because that’s the biggest thing. The biggest question I get asked all the time is, “Can I buy and cash flow?” And I tell people it’s possible, but it’s tight. So I would love to hear how it is in DC right now in your area if you’re seeing that.

Rob:
Yeah. Our area is not a cash flow market unless you’re going to a house hack or you’re going to do something in some of the outer areas of the DMV area when it comes to vacation rentals, right? So otherwise the answer is absolutely no.

Dahlia:
So people are just banking on appreciation?

Rob:
Well, they’re either house hacking and they’re playing that game, or they’re buying vacation rentals, which you can absolutely cash flow on. So you just got those two. But if you’re looking to cash flow in a single family house or a townhouse in the DMV area, that is really tough at today’s prices in today’s interest rates.

Dahlia:
Okay. I was just curious.

Rob:
I’m sure it’s like that for David.

Dahlia:
Oh, I’m sure it is.

David:
Yeah, I think part of the cash flow versus appreciation debate that always goes on, we’re always having to deconstruct that and then re-understand it under different concepts. Appreciation used to be like speculation. You are just speculating that the price will go up and you’re losing money every month. With as much as inflation as we’ve seen, it’s just kind of wrecked havoc in the markets markets and we’re all trying to understand how do we make sense of the new rules that have been created.
One of them is that appreciation actually affects cash flow just as much as it affects the value of the asset. So you’re seeing that you bought a property, like for me I bought a property five years ago, six years ago, and it rented for $1,400 a month and now it rents for $2,200 a month. So it’s not cash flow or appreciation. It’s appreciation within cash flow, if that makes any sense. You sort of have to think a little more… It’s like, now we got to play chess when real estate used to be checkers. I missed those days. I liked it much more when it was like, run your numbers, see the ROI, put your money towards that, buy the house, you’re done.
Now we’re sort of having to think several steps ahead and use more complicated strategies, which is why podcasts this become more important because it’s not as simple as, “Oh, I read a book, the book on buying rental property by Brandon Turner and I bought a house and I’m done.” Now we’re constantly evaluating this stuff and trying to figure out what markets is the demand going to be flooding into, where’s the money going to be going, where are the job going, what can I expect my cashflow to look like in five years and do I have enough to get me to that point.

Rob:
That’s what makes it so much fun, right? That’s what I love about it.

David:
Yeah, if you love it, that’s right. But it’s not for the faint of heart. This isn’t like the people that buy stocks, they just put money in their 401(k) and they let it sit and they look back 20 years and “Oh, I have a bunch of money.” The market fluctuates so much more. You really have to pay attention to your investments. It’s becoming something that takes more attention than just the pure passive income that it was when we first started talking about this even six or seven years ago.

Dave:
But it offers better returns than the stock market. Just throwing it out there.

David:
That’s the thing. It offers better returns than everything. It can offer better returns than your job, right? It just isn’t passive returns. Like Rob’s point that cash flow will come from a vacation rental, yeah, but vacation rentals are more work. It’s not the same as just set it and forget it, right? So that’s what I mean by we have to reanalyze what we’re getting into. You have to count the cost going into this to know “Do I want to do this? And what is it going to require of?”

Dave:
Being an entrepreneur, it’s not just sitting back and doing nothing. All right, well David, I’ve hogged the microphone on your show long enough. Tell us about your deal in San Diego.

David:
So our deal came in the San Diego market, which is one of those markets that is very hard to get into. You are all but guaranteed to make money over the long term. It appreciates quickly. Rents go up, values go up. There’s a limited supply in that market, so it’s constricted. And so you’re likely to see increasing demand there. If you’ve ever been to San Diego, if anyone went to BPCON, you see why. It’s just gorgeous. Every time I go, I’m like, you talk about San Diego as being nice, but it’s underrated how nice it is when you actually go. It’s like I call it the Bermuda Triangle. You never want to leave. You just go there and you’re like, “I’m never leaving this place ever.”
But it is a notoriously hard market to invest in because you’re competing with primary home buyers. Everyone wants to live there. The people that are moving there have good money because it’s an expensive place to live. So as an investor who’s on a budget, you’re trying to make a dollar out of 15 cents, you’re competing against people that have a dollar and they’re fine to get only 15 cents in return as long as they can live in San Diego.
So what we did was we’re targeting short-term rentals because obviously the cash flow is bigger there. You’re going to need that to make sense in this market for our clients. But there’s a tier system in San Diego where they only issue so many permits to do short-term rentals because all the investors flooded in there and started doing it. So then people who live there go put pressure on the local politicians who say, “We’re going to limit how often this happens. Now we got to be creative to figure out how to make it work.”
Well, one loophole that we found on the David Greene team, specifically representing clients in San Diego, is if you own the property as your primary residence, you jump to the top of that permit system. You don’t have to go to the bottom and wait. So what we’re doing is we’re looking for properties that either have or we can develop a small ADU for this young married couple to go live in and then they rent out the main house, right? So it’s almost no different than if you were an investor and bought the main house to then go use as a short-term rental, but you’re getting to live in part of it and you’re also putting less money down. You can get in for 3.5%, 5% down and you have to put the 20 or 25% down your competition does. Or in this case, no money down.
So we’re actually working with the VA buyer, which to be honest with you, there was a time maybe just a year ago, trying to be a VA buyer in San Diego, don’t even try. Which is funny because it’s military town, but you don’t have a chance to use a military loan to get in.

Dave:
Because the sellers just didn’t want it, right? They were just looking for cash? Yeah.

David:
No, the sellers had 12 other offers and they could be cash. The minute they see VA, it’s just, “No, thank you.” It gets thrown out. But in this market, we’re seeing some opportunity. And so we found a property that was listed at 925,000, but they really listed it too low. Now, this is usually the job of a good listing agent. This is like a smart agent who didn’t price their home too high and then have to chase the market coming back down. But what happened is they were expecting a bidding war that didn’t come because everyone’s sort of hesitant right now, like, “I don’t know.” So we were able to get in there early and no other offers came. So now VA doesn’t look bad, it looks good. They’re comparing us to nothing as opposed to comparing us to 12 other buyers.
It’s not a situation where we have tons of competition. There’s a couple other buyers sniffing around. They didn’t want to go take our asking price offer. So what we did is we negotiated a higher asking price, 940,000, but we have the sellers paying for 100% of the closing costs as well as buying down our client’s rate. So they’re getting a lower rate and they’re saving a bunch of money they would pay in closing costs. And for almost a million dollar property, those closing costs get pretty high. We’re not talking about some change here. We’re just borrowing the extra money from the lender because my borrower doesn’t have to put any down payment. So they’re getting to borrow 100% of the money from the lender. They’re giving that to the seller to lock this thing up at what really it could have been at the peak, it could have been listed at 1,000,050. If they really wanted to go hard, that’s where they would’ve listed it. They were much more conservative.
So we’re still getting a deal that’s going to appraise for less than what we’re buying even though we went over asking price. The benefit here is our clients are getting to save more capital to put in towards improvement of the property rather than throwing it at closing costs that you get no ROI on. So even though we’re paying over list price, the property’s going to appraise for more than the price that we’re putting in under contract for.
So the plan here is to take a two-car garage and convert that into an ADU using about… It’s going to be around 80 grand we think, and so probably 1/3 of that money is going to come from closing costs that the seller is contributing that we don’t have to. It’s budgeted for something else. And then they’re going to put the rest of the money into that garage, which they don’t have to put a down payment on the property. S.
O even though they’re spending money on the rehab, they’re still coming out of pocket for less than they would have if they had to come in with a down payment because they’re getting to use this VA loan. They’re going to convert that two-car garage into an ADU. They’re going to live in it, which makes it a primary residence. And then they’re going to rent out the main house. They’re just going to do some upgrades in there. Things like making the bathroom nicer, adding some new countertops, adding some new cabinets, stuff that isn’t super expensive, but that’s why the property was available at that 925,000 price when it could have been listed for more, because it’s outdated and it’s kind of not at the top of the other buyers who were looking for homes list.
San Diego is going to let them jump to the front of the line to get short-term rental permits because they’re going to be living in the house. So this is sort of like… What’s that Disney line fast pass thing that you can get where you don’t have to wait on the lines? It ticks off everybody else who doesn’t have it, but it’s nice when you do. The money that they think that they’re going to get out of the short-term rental is going to cover about 85% of what their mortgage is going to be when they start off. So they’re going to be living in one of the most expensive markets in the country where wages are very high and they’re going to be paying about 15% of their mortgage in year one, which I mean a lot of people mess up house hacking because they expect to cash flow and live for free. I just think that’s unrealistic expectations unless you’re in a very cheap market.

Dave:
Saving money is the same thing as making money. Keep more of it.

David:
It’s even better because you don’t get taxed on money that you save. When you make money, you still got to pay taxes, right?

Rob:
I love the whole ADU game that you guys are playing. I’m actually in Anaheim for our Keller Williams National Conference and I’m staying in an ADU right now. It’s awesome, right? Found her on Airbnb and they’re making some extra cash doing it. It’s just phenomenal.

David:
That’s what we say you can’t find a good deal in today’s market or it’s much harder to, but you can make a good deal. It’s learning to look at these properties and seeing what they could be. Kind of that cheesy, highest and best use stuff that you hear about in the appraisal game that everyone used to make fun of, but it now actually makes sense, like, “What is the highest and best use for this property? Why do they have that huge detached two-car garage when no one even puts their car in it anymore?” It should be converted into something that could be useful. And we can do that because we’re not putting a down payment on the… So they saved all this money for their down payment. They don’t even have to use it. They get to immediately improve the property, add square footage to this 1,100 square foot house, which is going to make it worth a whole lot more. At some point, they could refinance if they wanted.
There’s so many benefits here. Part of the reason that we were able to get this property is we move faster than everyone else did. When it came on the market, we saw this could be listed for much higher. We know what they’re normally worth. You never see something at 925,000 that’s in this neighborhood in north San Diego. Jumped on it right away and then we made rapport with the seller. So when our agent was walking the house with the client, they noticed that the seller had a lot of University of Wisconsin memorabilia hanging around, and our buyer had moved from Wisconsin. So when we set up the next showing we had them wear Green Bay Packers Gear and the seller was at the house, it’s like, “Oh, what do you know? We’re also Wisconsinites” and that’s a game that, as the agents on this thing know, we play that game for everything that it’s worth however we can. And then we played up the whole… This is a military family and it was an older lady who owns the house, so she was excited about the fact it’s military.

Dave:
That’s awesome. I love that trick. I’m going to just start researching everyone and wearing their team colors. But I did want to ask you something, David. With these permitting systems in San Diego and they’re popping up a lot all over the place, it seems to me that it’s daunting, but if you get one of those permits, it’s actually kind of like the best case scenario, right? Because are you seeing average daily rates and revenue potential for the people who do have permits hold steady, go up, or are they performing pretty well?

David:
This is something important to notice across the country. I recently stepped into a big pile of doo-doo when I bought my 18 properties over 60 days. A lot of them were short-term rentals and I got into the short-term… I only bought in two previous to this. They were both in Hawaii. They were both pretty simple. I didn’t realize how incredibly complicated and slow the permit process had become specifically with short-term rentals. And then when you amplify that by adding in construction permits, it’s been hell for me with these properties just sitting there in the city. I almost think the city is purposely taking a long time out of spite because all they get is complaints from the Karens, the neighbors, the NIMBYs that call in to yell, and so they start to hate investors too. And if they have an opportunity to push your file off for a long time, I think that’s happening sometimes.
I didn’t realize how bad it was. So to your point, Dave, if you can get a permit, there’s actually value in that permit itself because what’s hurting the short-term rental market is how much inventory is flooding in a lot of these places where they’re popular. You have investor inventory flooding there and you have people who live in these homes instead of selling them. They just turn it into a short-term rental, let a property manager take it over and then they just move. They don’t even sell their house and then go move somewhere and they end up making more on that short-term rental than two of their mortgages on the house they move into. It makes more sense to do that than it is to sell their house and put the money into a lower mortgage, just a better use of capital.
So you’re seeing a flood of inventory in these short-term rental markets where you analyze the deal, it makes sense, you go off the numbers you have, you buy it and then a year or two years later, you’re dropping your price every month because there’s so many other people that are competing. So in the cities where they make it hell for you to get the permit, it is like you mentioned, Dave, an upside because it restricts how many other people can come, and that buried entry actually protects your investment.

Dave:
Yeah, I know someone who has a short-term rental in this kind of rural town and has no intention to buy more. It’s like sort of a use it for personal use, rent it out sometimes. They’re trying to stop all new permits for short-term rentals, but he would be grandfathered in and he’s kind of like up in arms. He’s like, “Oh my God, they’re trying to come after our business.” I was like, “That’s kind of the best possible thing for you. It’s like they’re just going to stop all of your competition and you still keep getting to do it.” So I’m just saying I know the regulations are a little bit daunting, but if there are ways like David is suggesting to sort of get in when there’s going to be limited supply, it could be really powerful.
So unfortunately, we do need to get out of here, but I would love to just part with one question, or two questions actually, I’m going to pose to each of you. One is what’s something that you’re looking forward to in the housing market or your specific market in 2023? And then where can people listening to this connect with you? Dahlia, let’s start with you.

Dahlia:
I would say the biggest thing that I’m looking forward to is just being able to continue to get more and more deals. That would probably be the biggest thing. As the rates come down, I’m sure we’re going to start seeing a spike in buyers again as long as this inventory stays on the low side. So hopefully in the meantime, just continue to get more and more deals and we’ll see how 2023 goes. I feel like it’s been hard to predict these last couple years, but excited to see what happens.

Dave:
I like the sound of more deals. Where can people connect with you if they want to?

Dahlia:
Yeah, absolutely. My website is asnrealty.com. They can find me on Facebook at ASN Realty, and then of course on BiggerPockets.

Dave:
Great. All right, Rob, what are you looking forward to?

Dahlia:
I’m looking forward to the spring market. It’s already heating up. We’ve been helping a lot of first time home buyers house hack and that’s been big for us in this market. I think there was a lot of fear towards the end of last year and that fear is now broken and we’re seeing a lot of those buyers coming to us. So we know it’s going to be a good time for first time home buyers that are interested in house hacking to take that step forward. The market feels good. So I’m feeling good about it. I’m feeling good about it.

Dave:
Great. And if people are also feeling good and want a house hack in DC, where should they connect with you?

Rob:
They can find me on Agent Finder, right? They can find me on Agent Finder or @robchavez on Instagram.

Dave:
Yeah. If you want to find what Rob is talking about and identify a investor friendly agent in your area, you can do that completely for free at biggerpockets.com/agentfinder. It will match you with investor-friendly agents completely free. It’s a no-brainer if you’re looking to get into the market right now. David, take us away. What are you excited about?

David:
I think this spring we’re going to see, like I mentioned, the three tiers of how most markets are broken up. I think luxury markets are still going to stay a little bit slower. I think some of that money is, they don’t have to buy a house, they wait. They time it right and they’re going to be a little scared. And the higher priced homes, the higher interest rates affect them asymmetrically more than lower priced homes. So I think starter homes, you’re going to see a lot of turnover, a bit of a frenzy like you normally see in the spring to get them. The step-up homes, less. And the luxury homes probably aren’t going to look much different than what they look like right now.
If people want to find out more about me, they can listen to this podcast. By the way, you guys are doing a great job of that right now. Or they could go to my new website, davidgreene24.com. I’m pretty much @davidgreene24 on every social media, whatever your favorite is. But check out the new website. See some of the stuff that I have going on. I’m putting retreats together now. We do Friday night YouTube lives as well.
So the market’s changing really quick. Here at BiggerPockets, we’re putting out as much information as we possibly can for you guys. Now is the time to be consuming more real estate information than ever. This is not our grandpa’s real estate where you could buy a house, forget about it for 20 years and then hand it to your grandkids.

Dave:
All right. Well, thank you all so much for being here. This is super fun. I really like doing these kinds of deal analysis. Hopefully everyone listening to this is inspired by the types of deals that all three of these agents have brought to us and seeing that even though that this is a different and challenging market, as David just said, there are still great opportunities out there. Thank you all again for being here.
Everyone should visit the Agent Finder at biggerpockets.com/agentfinder to connect with David and our guests on today’s show, Dahlia and Rob, as well as other investor-friendly agents who can help you take the right steps to close your next deal. It is fast, it is completely free, and it’s super easy to use. You can search for a market like San Diego, DC, Tulsa, or any other market that you’re interested in. You enter your investment criteria and then you just connect with the agents that you want to connect with. So check it out biggerpockets.com/agentfinder where you can match with experts in their market just like Dahlia, Rob, and David, or an expert in your local area.
All right, well thanks again everyone for listening, for Rob Dahlia and David, the friendliest of all investor-friendly agents, Greene. We will see you next time on the BiggerPockets Real Estate Podcast.

 

Help us reach new listeners on iTunes by leaving us a rating and review! It takes just 30 seconds and instructions can be found here. Thanks! We really appreciate it!

Interested in learning more about today’s sponsors or becoming a BiggerPockets partner yourself? Check out our sponsor page!

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



Source link

3 Real Winning Deals in 2023 (and Where You Can Find Them!) Read More »

Eight Tips For Approaching Your Boss With A Difficult Conversation

Eight Tips For Approaching Your Boss With A Difficult Conversation


No one enjoys having difficult conversations—especially with their boss. However, whether it’s about a problem with a co-worker, a mistake that’s been made or a disagreement on a project, difficult conversations are often necessary in the workplace and can help you and anyone else involved move forward and grow as a professional. But, that doesn’t make approaching your boss with a problem any easier.

To help you learn how to do it right, eight leaders from Young Entrepreneur Council offer their advice. Here, they share tips from a leadership perspective for how to approach your manager or boss with a difficult conversation in a way that reduces your anxiety and allows you to succeed.

1. Write It Out First

If you aren’t sure how to broach a subject, it can help to write it out as a letter first. That way you can organize your thoughts and order them by which one you most want to communicate. If you’re concerned you’ll have trouble communicating your needs in a meeting, you can just turn the letter into points and send them within the email requesting the personal meeting. – Matt Doyle, Excel Builders

2. Focus On The Problem And Not The Person

The most effective way to approach the conversation is to focus on the problem rather than the person. Instead of making it personal, it is better to express how the problem affects the work or the team and propose a solution. It can also be helpful to have an objective, third-party perspective, if possible, to provide a different view of the situation. It’s also important to be open to feedback. – Kazi Mamun, CANSOFT

3. Stay Calm And Composed

Maintain composure and remain calm when approaching your boss with a difficult conversation. That’s all there is to it. Respecting your manager or reporting authority is a good thing, but that doesn’t mean that you should be intimidated by them. Just stick to the agenda and be transparent with what you say. Recommending potential solutions that can fix the concern under discussion would be great. – Stephanie Wells, Formidable Forms

4. Come Prepared

These conversations can be challenging, but they are a necessary part of any successful working relationship. Employees should prepare ahead, schedule a meeting, be specific and respectful, focus on finding solutions, listen actively and follow up after the conversation. Approaching tough conversations in a prepared manner helps alleviate anxiety so you and your boss can process effectively. – John Rampton, Calendar

5. Be Direct And Succinct

Be direct and to the point with just the specific information that the conversation needs when you communicate with your boss or manager. Learn to value the time you are investing in that conversation. Being a leader, I always hate difficult conversations with my employees. But, I always like a genuine conversation that is essential for both my employees and me. – Kelly Richardson, Infobrandz

6. Leverage The STAR Method

When approaching your manager or boss with a difficult conversation, try the STAR (Situation, Task, Action and Result) method for a positive outcome. First, discuss the situation followed by facts. Second, describe your role in the scenario or how the situation affects you. Third, come up with suitable recommendations to address the situation. Fourth, share expected results. – Jared Atchison, WPForms

7. Stick To The Facts

It’s critical to avoid blaming others or being defensive. Instead, prepare yourself in advance and figure out what you want to say. When it’s time to have the difficult conversation, talk about facts rather than highly charged emotions. It is possible to express discomfort without being hostile. By staying positive, you can also win your boss’s trust and have a productive conversation. – Syed Balkhi, WPBeginner

8. Admit Your Discomfort

Try to focus on the reality of the situation and what you hope to achieve from it. If you’re nervous or angry, this will only make it harder to communicate clearly. If you’re feeling stressed about an issue, you could start the conversation by admitting your discomfort. Your boss is human and has had similar feelings, so they will be more likely to empathize if you’re up front about it. – Kalin Kassabov, ProTexting



Source link

Eight Tips For Approaching Your Boss With A Difficult Conversation Read More »

THas the Housing Market Already Bottomed?

THas the Housing Market Already Bottomed?


The housing market crash may be over already. With mortgage rates steadily dropping, buyer demand picking up, and competition creeping back in, this housing correction could have been one of the fastest and least severe downturns we’ve ever witnessed. Top forecasters have hinted at the housing market bottoming out, with some claiming that the “thawing” has already begun—but the data may point to something different. While there are signs of improvement compared to where we stood just a few months ago, some glaringly obvious data points could make this a much closer call than mainstream forecasters think.

Dave Meyer, your sandwich-eating, data-delving host, wanted to know precisely what would cause the housing market to hit its floor. He looks at both the demand and supply side of the housing market, touching on the variables that genuinely make a difference. We’re talking about mortgage rates, housing affordability, loan applications, housing supply, active listings, and more. But you don’t need a degree in Data Science to understand what’s happening behind the scenes.

Dave will explain exactly what is (and isn’t) impacting the housing market, what changes led to the state we’re in, and four scenarios that could play out in 2023 that might put a nail in this theory’s coffin. Betting on the housing market bottoming out? We’d suggest hearing the full story before you make your next investment.

Dave:
Hello everyone, and welcome to On the Market. I am your host, Dave Meyer, and today I am doing the show alone. We’re going to be doing a deep dive into a question that has been coming up on my newsfeed like crazy over the last couple of weeks, and I’ve been kind of surprised by it. And so I decided to look into this topic, and I’m going to share what I’ve learned about it and my opinions about it over the course of this episode.
Now the question that I researched and we’re going to talk about today is, has the housing market already found a bottom? And honestly, for the last couple of months I didn’t really think we were going to be talking about bottoming out of the housing market until at least the second half of 2023, maybe into 2024. But there has been a rash of headlines from reputable organizations talking about this. Just as an example, Mike Simonsen, who’s the CEO of Altos Research, a pretty prominent, very reputable real estate data firm, put out an article called Has the Housing Market Already Found a Bottom, pretty straightforward. We also saw The Wall Street Journal run a headline that says The Housing Market is Showing Signs of Thawing. Yahoo and Fortune ran headlines asking if demand has already hit bottom in November, and Goldman Sachs, one of the largest banks and most prominent economic forecasters in the entire United States, actually upwardly revised its housing market forecast for 2023.
And that’s really noticeable, because most forecasters, at least in the second half of 2022, were making their forecasts go down. Zillow kept adjusting their expectations downward. We were seeing other big banks, other real estate firms downward. We were seeing other big banks, other real estate firms downward. So this question is something that sort of fascinated me. Are we close to the bottom? I looked into it, and what I’m going to do today is share with you the data that I found. This way, you can decide for yourself whether you think that the market has already bottomed, if it’s going to start growing again, if there’s much more downside risk, and I’ll share my opinion with you at the end, but for most of the show what I’m just going to talk about is why these businesses, why some of these reputable firms are saying that the housing market may have found its bottom.
And you don’t have to agree with that. I’ll let you know my opinion at the end. But I will just say that there are fundamentally sound ideas why they’re saying this. It’s not just fanfare and cheerleading for the real estate industry. There is actually economic and real estate data that has come out recently that has suggested that maybe the worst is behind us. I’m not saying that’s true, I’m just saying there are some indicators that are pointing in that direction, and therefore it is worth understanding. Things are shifting and I want to help you understand what has shifted, and then you can decide for yourself if you think that means the housing market has bottomed out at all. And again, at the end I will share my opinion and let you know what I think is likely to happen.
Okay, so that’s what we’re going to talk about today. But before we get into that, I do want to thank everyone who wrote us a review on Apple or Spotify recently. We asked people to write reviews because it really helps us a lot here at On the Market, and we got some amazing reviews and I’m really grateful for everyone who took the time to do that. We appreciate it. We read every single one of them. We appreciate your feedback. And if you haven’t given a review but you love the show, we would appreciate even more of them. So thank you all for being listeners, members of our community, it is a huge help to us when you do something like that. So again, thank you. Secondly we do have to take a quick break to hear from our sponsor, and then we are going to get into our topic, has the housing market bottomed out.
All right, so when I started to look into this question of has the housing market bottomed out, I basically sorted my research into two different sides, demand side and supply side. As with all things economics, it really comes down to supply and demand. Let’s talk about demand side, because I think first, because I think that is sort of what has driven market behavior over the last six months or so. Basically since May or June, when interest rates and mortgage rates start to skyrocket, we’ve seen the housing market enter a correction. And that is basically because rising mortgage rates has reduced demand. People were happy to buy homes even at elevated prices when mortgage rates were 2%, or 3%, or 4%. Fast-forward to June when they went up to 5 or 6%, people could no longer afford it, and so they drop out of the housing market because they’re no longer looking for a home. That reduces demand, and that puts downward pressure on housing prices. That’s basically what we’ve seen since May, June of 2022.
And just to give you an anecdote here, at the beginning of the pandemic, housing affordability was one of the highest it’s ever been back in 2020. It was easy for people to buy homes, because prices hadn’t gone up that much but mortgage rates were super low, and that’s what sort of started this frenzy that went from 2020 to the middle of 2022. Now, in the second half of 2022, we actually saw that housing affordability, and there are different ways to measure this, but by one of the more reputable ways to measure it, housing affordability reached a 40 year low. And what happens when that happens, when affordability goes down is pretty obvious right? People just back out of the market. And so again, that is what we have seen.
But an interesting thing has happened since November, and that is affordability has actually started to improve because mortgage rates have gone down. Mortgage rates, the average for a 30 year fixed rate mortgage actually peaked for, so far, it definitely could still go up but so far in this tightening cycle, it peaked at around 7.4% back in November, and recently in January, it was down as low as 6%. Now, that’s still double where we were a year ago, so it’s not like we’re all of a sudden at great mortgage rates again relatively speaking. But in the context of understanding whether the housing market has bottomed, some of the pressure from the housing market has been taken off because mortgage rates have come down. And we’re not going to get super far into this, but just so you know, some of the reasons mortgage rates have gone down is basically because the pace of inflation has declined a bit, and people basically don’t think that the Fed is going to keep raising interest rates that much. And there’s also a lot of recessionary fears, and when recessions come, mortgage rates go down.
And so there’s a complex factor of things going on, but what you need to know for this conversation is that they are now sitting in about the mid-six percents, still super high, double where they were last year, but lower than where they were in November. And that has helped take some, not all and not even close to all, but some of the pressure off of the housing market in terms of affordability. Now, we’re going to talk about this a little bit later, because of course this whole context of this conversation is about whether the housing market is bottomed. There is absolutely, and I just want to be clear about this, there is absolutely no assurance that mortgage rates won’t just go back up in the near future. I’m going to talk about some different scenarios in a little bit.
But I just want to say now, TLDR, skip forward to the end, there is a very reasonable chance that mortgage rates go back up. So the is something to factor in when you’re thinking about if the market has bottomed. But just know that right now, houses are more affordable in January and February of 2023 than they were in October, November, and December of 2022. So that is something that suggests, and probably one of the main reasons all these companies are thinking perhaps the housing market has bottomed.
Now, just to supply some more evidence about how impactful just this modest decrease in mortgage rates is, there is something called the Mortgage Banker’s Association Mortgage Purchase Index. That’s a mouthful, let me just say that again. Basically there’s an organization called the Mortgage Banker’s Association. They send out a survey every single week to figure out how many people are applying for mortgages, both refinance and new purchases. What I’m talking about here is new purchases, and there’s basically an index. And so it doesn’t give you the exact numbers, it’s all relative to each other, but the index has been sitting between 185 and 205 over the last few weeks.
That probably makes no sense to you unless I give you some references, so let me give you those references. It was at at 160 at the end of October. That’s the relative number of people who are applying for mortgages in October was 160, now it’s 185 to 205. So that’s like a 10 or 15% increase in the number of people who are looking for mortgages. And if you’re wondering what this all means, it means that if more people are looking for mortgages, that means more demand in the market, which could have upward pressure on prices. Again, one reason why the housing market could have bottomed out. Now on the other side of course, a year ago it was sitting around 300, and we’re at 185 to 200, so that’s significantly down from where we were a year ago.
But nonetheless, demand has picked up in 2023. We’ve seen increases in the Mortgage Purchase Application Index five out of the six weeks in 2023, and no one’s saying… I don’t want you to think I’m saying there’s a lot of demand compared to last year, but what we’re talking about here is not, is the market as robust as it was last year. We’re talking about whether it has bottomed out, and the fact that it has grown five out of six weeks in 2023 is significant. So that’s just something that you should know, is that we have seen mortgage rates come down, that has actually gotten people back into the real estate market, more demand is entering the market right now, and that is probably one of the main reasons why some companies are forecasting that the market has bottomed and is likely to grow over the next couple of years. Again, I am not saying that personally, but that is one of the reasons, one of the sound fundamental reasons why people might be saying this.
And I just want to be clear that what I’ve been talking about is that demand, talking about demand, and some of these companies like Forbes and Fortune specifically said that they think demand has bottomed, but that prices might not have necessarily bottomed. And we’ll talk about that in a little bit, but that could be true, that more people could be getting back into the market, but if inventory goes up, prices could still go down. We’ll talk about that in just a minute.
So let’s actually just talk about inventory and the supply side, because that’s sort of the counterforce here. We’re seeing that demand has gone up, nowhere close to where it was last year, but has gone up a bit since October. And to know if the housing market is bottomed, we need to know if supply is rising in a corresponding way, or if that’s still down, or what’s going on. So I’m going to go through a couple of supply side metrics here, and you can decide for yourself.
So the first one is active listings. This is basically just how many listings are on the market at any given time. And according to Redfin, active listings are up 20% year over year. That is a pretty significant increase in the number of active listings. They’re still below 2021 levels, and they are far below 2020 level. So just for context, that means that we’re nowhere near active listings during pre-pandemic times, or even the first few years of the pandemic. But they are up from their lows in 2022, which is really significant. We just talked about that demand is about half of what it was a year ago, and even though it’s going up a little bit, it is still really far down. And then we’re also talking about how supply has gone up. And this is basically the argument counter to what these companies are saying. The argument that housing prices are going to continue to go up is that even though demand might be ticking up a little bit, that inventory is just too much. And when there’s too much supply relative to demand, that means prices are going to go down. So that is one thing that you should take note of, is that active listings are up year over year, but still far below where they were pre-pandemic.
Now there are two other measurements of supply I want to share, and those are days on market and months of supply. These are both other ways of measuring inventory. If you want to figure out how to calculate months of supply yourself, it’s basically inventory, the number of houses that are on the market in any given month, divided by the total number of home sales. That’s what months of supply means. In other words, it’s basically like how many months would it take to sell all of the houses on the market right now? And just for context, we have seen months of supply go up pretty consistently over the last couple of months, and we are nearing, at least this is according to Redfin, three months of supply. Now, for some context, this is up a lot from where we were in 2021 and 2022 when we were at about a month or month and a half of supply. On the other hand, we’re still below where we were in 2019 where it was above 3% months of supply.
And the reason I like months of supply and I think it’s such a key metric to watch is it measures the balance between supply and demand, right? So it doesn’t just say, this is how many properties are on the market, or this is how many people are looking for properties. It shows how quickly those properties are actually finding buyers. And it is still below the 2020 levels, the 2019 levels, but if you look at the graph, I’ll just describe it to you. It is almost directly shooting up. It is going up very, very rapidly. And to me, this is a very important metric to watch, because even though, again, even though demand may have bottomed, we don’t know, but there’s some evidence that it might be improving.
If this trend of supply and inventory is going up, I think there’s still a lot of downward pressure on pricing. Right? Months of supply have gone up from about 1.5 to almost three. It’s almost doubled in about six months, and there’s no sign yet that that has slowed down. If you look at days on market, which is a very similar metric to months of supply, they both measure how quickly things are coming off the market, you see basically the exact same thing. It has shot up rapidly over the last six months, still below pre-pandemic levels, but we’re seeing very significant increases to inventory.
So when you take all this information together, basically what you have is evidence that demand may have peaked, may have hit bottom in November or December. We don’t know. But there is some signs that we’ve hit the bottom at least for now. But on the other hand, when you look at inventory which is an equally if not more important metric right now, it is still going up at a rate that suggests to me that the housing market has not yet bottomed.
So I personally believe that it is way too soon to call a housing market bottom. I said this at the beginning, I kind of wanted to go into the data before I shared my opinion, but I think it’s kind of crazy honestly to start saying that the housing market has bottomed with all the economic certainty that still remains out there, right? We still don’t know how many more interest rate hikes the Fed is going to do, we don’t know what the “terminal rate” is. Terminal rate basically just means the federal funds rate that the Fed holds interest rates at for a while. We don’t know what that’s going to be. We don’t know if we’re going to go into a recession. We don’t know how quickly the economy is going to grow or shrink. There’s just so many questions that to call the bottom of the housing market right now seems extremely premature in my opinion.
Now, I get what they’re saying, and that’s why I sort of dug into this is like, I get that if mortgage rates have in fact peaked, and that’s a big if, but if they have in fact peaked, there is a case that people will jump back into the housing market in 2023, maybe inventory will level out, and the housing market is bottomed and we’ll grow. That is possible, but personally I don’t think it’s the most likely scenario. And I get in trouble for not explaining this enough when I’m forecasting, but when you’re forecasting stuff, you really need to think in probabilities. There is a case that the housing market has bottomed. I’m just going to say that maybe that’s a 20% chance, maybe that’s a 25% chance.
I think the far more likely scenario is that for the remainder of 2023, we see downward pressure on housing prices, and maybe that’s a 50% chance, and maybe there’s a 25% chance that we enter a full-blown crash where it’s 15% declines year over year in housing prices or more. So those are all possibilities. But I will just say that I don’t think that the housing market bottoming is very likely at this point. To me, there are really different scenarios that we have to think through, and you for yourself can decide whether you think which one is the most reasonable. So I’ll just lay out three or four scenarios, and you can decide for yourself. Because basically, I think the real big variables, the two things that we need to understand, is one, what’s going to happen with inflation and what’s going to happen with a recession.
So scenario one which could happen is that there is lower inflation. We’ve seen inflation fall five, six, seven months in a row. And so if inflation stays on that trajectory and there is also no recession, those things are independent. They don’t necessarily have to go together. But scenario one is there is lower inflation and no recession, which is probably the best case scenario for the economy as a whole, for the country as a whole, because people’s spending power gets preserved, and there’s no recession so less people lose their jobs, there’s more economic opportunity. That’s probably the best case scenario for the economy as a whole. But in that environment, rates could actually go up. Mortgage rates could go up, because if the inflation is lower but there’s no recession, the Fed could keep raising rates. Because if the economy is growing, they have more leeway, they have more cushion basically to keep raising rates without breaking something.
So without a recessionary environment, you could see bond yields rise. That could take mortgage rates up higher, and perhaps go above 7% again. I personally have a hard time imagining them, get above seven and a half percent, let alone 8%, but I’ve been wrong about interest rates, mortgage rates quite a few times in 2022. So take that all with a grain of salt, but because I’ve been wrong I’ve really been studying this a lot, and I think this is probably the case that the worst case scenario for mortgage rates in 2023 is that they go up seven and a half, maybe 8%, but that is accompanied by relatively good economic situation where there is lower inflation and no recession. So in this scenario, I don’t think the housing market will have bottomed right? Because if mortgage rates go back up, that’s again going to damage affordability, which pulls demand out of the market. And so scenario one, which is lower inflation no recession, although good for the economy as a whole, I do think could keep downward pressure on housing prices for the foreseeable future until mortgage rates come back down. So that’s scenario one.
Scenario two is lower inflation but with a recession. So again, we’ve seen inflation come down, it’s on a trend where it is declining. And again, I want to make clear to people when I say inflation is lower, that doesn’t mean prices are declining. It means that they are going up less fast, but that’s what the Fed cares about. Other people might want prices to go down, but what I’m talking about here is trying to predict Fed behavior, because mortgage rates are so important for the housing market. And what I’m saying is that what they want to get to is a rate of 2-3% inflation. And so if inflation gets lower and there is a recession, which to me is a relatively likely scenario, this is the best chance for mortgage rates. So unlike scenario one, this isn’t a great situation for the economy as a whole, because we go into a recession.
But this puts downward pressure on mortgage rates for two reasons. One, because there’s lower inflation, this will slow down the Fed’s rate of hikes. And also, recessions put downward pressure on mortgage rates. I know this is kind of hard to understand, but basically mortgage rates are based on bond yields. And when there is a recession, people want bonds. And when they want bonds, that pushes down the yield on bonds, and that takes down mortgage rates. I’ve done a couple of episodes on this, I’m not going to get too into it right now. But what you need to know is generally speaking, when there is a recession, mortgage rates go down. And so if we see the combination of lower inflation and a recession, this is likely to get mortgage rates down into the mid-fives by the end of the year, so it could go down even further.
So this scenario, I think this is the scenario that people who are saying that the housing market has bottomed are envisioning. They see inflation going down. They also see a recession coming, and that means that they think mortgage rates are going to go down even further, and that’s going to add more fuel to the fire for the housing market, and prices are going to have bottomed and go back up. Now, I think that is a very reasonable situation. I’m not saying it’s the most likely situation, but lower inflation with a recession, those are two things that a lot of people think are going to happen. And so I do think there are fundamentally sound, very reasonable ideas that the housing market could have bottomed. I personally just think it’s way too early to make that call. I’m not ready to say that there’s going to be a recession, or that there’s going to be lower inflation well into this year. But people who are forecasting that out, there are fundamentally sound reasons why they are saying that.
Okay, so that’s scenario one and two. Scenario three is higher inflation with a recession. So remember, scenario one was low inflation, no recession. Scenario two, low inflation, yes recession. Scenario three, we have higher inflation with a recession. Now, this will probably keep mortgage rates in my opinion close to where they are right now, because higher inflation means that the fed will raise interest rates higher. That puts upward pressure on mortgage rates. But a recession, as we just talked about, puts downward pressure on mortgage rates. And so these might in my mind cancel each other out depending on the severity of the recession, depending on the severity of the higher inflation. You could see mortgage rates stay sort of close to where they are.
Now, scenario three could happen, but the trajectory of inflation does not make it look like this is one of the more likely scenarios right now. We’ve seen inflation drop several times, seven months in a row or something. And so I think personally it could go back up, inflation, but it would take another geopolitical shock. Like a year ago inflation was starting to look like it could go down, and then Russia invaded Ukraine. That sent inflation up way, way higher on top of all the other causes of inflation. That was just sort of one more catalyst. We’re now seeing the supply side shock, a lot of the money printing has slowed down, and so we’re starting to see inflation get under control. But there’s a lot of geopolitical turmoil right now, and we’re seeing balloons, they’re shooting down stuff left and right. Who knows what’s going to happen, and if that continues that could put other inflationary pressure and lead to scenario three, which again, is higher inflation with a recession, probably keep mortgage rates close to where they are now.
So I think those are the most likely scenarios. The three things that could happen. I don’t know which one’s going to happen. I personally think one or two are the more likely ones, because inflation has shown signs of coming down. I just don’t know if there’s going to be a recession or not, but I just want to be clear that if there is a recession, there is a good chance that the housing market will rebound relatively soon, because mortgage rates will probably go down. And I know some people think, oh, when there’s a recession people don’t want to get into the housing market. I personally believe that the housing market is really about affordability right now, and that if mortgage rates make it more affordable for people to buy, even in a recessionary environment, we will see demand go back up.
So that’s just, those are three scenarios. You can decide for yourself what you think. There are probably other scenarios, those are just the three that I think are the most likely. There’s obviously a fourth scenario here which is higher inflation without a recession, but that to me just seems very unlikely. If inflation starts going back up, we’re almost certainly going to go into a recession. I could be wrong about that, but I think that is much less likely. So to me, I still think that it is possible that the housing market is bottomed, but unlikely. I think personally, I’ve been saying this for a while, but I think the first half of 2023 is going to be more of the same. We’re going to see a lot of mortgage rate volatility. We’ve already seen it come up a little bit off of where it was in January, and I think with that volatility, people are not going to jump back into the housing market as enthusiastically as they may in the second half of 2023, depending on what happens with inflation and recessions.
So I still think the most likely scenario is that housing prices fall in 2023 but don’t crash, but that’s just my opinion. As things develop, we’re seeing new data come out every single day. And as things develop, I am going to continue to share with you what is going on so you can make decisions for yourself, and I’ll share my opinion. Hopefully I’m right, a lot of times I’m wrong. But my goal with these types of episodes and sharing this information is to help you understand the different scenarios that could happen. You may think scenario one is the most likely, or scenario three is the most likely, or whatever it is. My hope is that you can help understand some of the macroeconomic, some of the behavioral elements of what’s going on in the housing market and the economy right now, so you can make your own informed decisions.
With that, I am going to get out of here. Thank you so much for listening. If you have any feedback or questions about the show, you can always hit me up on Instagram where I’m @TheDataDeli. We will see you next time for the latest episode of 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 Puja Gendal, and a big thanks to the entire BiggerPockets team.
The content on the show On The Market are opinions only. All listeners should independently verify data points, opinions, and investment strategies.

 

Interested in learning more about today’s sponsors or becoming a BiggerPockets partner yourself? Check out our sponsor page!

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



Source link

THas the Housing Market Already Bottomed? Read More »

Post-pandemic, A-list designers offer virtual help for much less

Post-pandemic, A-list designers offer virtual help for much less


A renovated apartment in New York City after The Expert consultation sessions with designers Jessica Gersten and Athena Calderone.

The Expert

Aside from bingeing Netflix, creating the picture-perfect home may have been the pandemic’s most popular habit.

Whether it’s organizing a pantry or adding on a home office, gym or spa-like bathroom, homeowners have been upgrading and expanding their spaces at record rates for over two years

Although Americans are no longer sheltering at home, the recent rise in mortgages rates has encouraged more people to stay put and renovate rather than relocate.

Even in the face of inflation, ongoing supply chain issues and other factors, the vast majority of homeowners are proceeding with their planned home improvement projects in 2023, according to a Houzz survey of nearly 4,000 homeowners conducted in October.

More from Personal Finance:
How to figure out what you can spend on rent
What is a ‘rolling recession’ and how does it impact you?
Almost half of Americans think we’re already in a recession

At the same time, Instagram and other social media platforms have raised the bar by presenting an endless array of covetable spaces.

For most people, decorating is a daunting task, yet hiring a pro is out of reach.

Few Americans can afford the high-end look depicted online, which often comes with the help of an A-list designer and hefty budget. The average cost to hire an interior designer can vary greatly depending on the region and scope and whether it’s based on a flat rate, hourly fee or percentage of the project, although well-known designers easily charge in the five or six figures.

“It’s a time-consuming and overwhelming process for a lot of homeowners,” said Wayne Gao, co-founder and CEO of Australia-based Furnishd, which offers virtual consultations for $850 per room or $3,250 for the whole house. “It also costs a fortune.”

Virtual design services offer real-world pricing

That’s where virtual services can add value at a fraction of the cost, added Leo Seigal, co-founder and CEO of The Expert. “It’s almost like insurance to make sure you are making the right decision.”

The Expert was started by Seigal and Los Angeles-based interior designer Jake Arnold in early 2021. The service offers one-on-one consultations with over 150 big-name decorators including Arnold, Martin Brudnizki, Brigette Romanek, Ashe Leandro and Rita Konig. Prices range from $250 for a 25-minute call to up $2,000 for an hour.

Of course, online design help is not new. Even before 2020, there were services like Havenly and Homepolish. Retailers such as West Elm and Restoration Hardware offer those services, as well. However, now A-list decorators are getting into the game.

“The pandemic turbocharged interior design and created the environment to get the designers to do this in the first place,” Seigal said.

Inside a renovated $155,000 old mansion in North Carolina

Americans are also prepared to shell out more based on what they see on sites like TikTok, Instagram and Facebook. Consumers are now conditioned “to believe they can get whatever they want, whenever they want,” according to an analysis by McKinsey & Company.

However, home upgrades are another level of spending altogether.

“Any renovation has the potential to get really expensive,” Seigal said. “You can’t really afford to make a mistake.”

For consumers who want help but may not have the means or access to a full-service design firm, “we are bridging the gap,” he said.

The pandemic turbocharged interior design and created the environment to get the designers to do this.

Leo Seigal

co-founder and CEO of The Expert

Other top designers, too, have spun off their own virtual consulting service to meet the demand for a less expensive and more accessible option.

Marianne Brown, the principal designer and owner of W Design Collective, also now offers virtual design help starting at $500 for a one-hour call, in addition to the high-end remodels and full-service projects she’s known for, which cost substantially more.

“I couldn’t even afford myself,” she said, referring to the latter.

More recently, however, Brown said she’s wrestled with the effect that the constant stream of home upgrades on social media has on homeowners and women, in particular.

“At least when Vogue tells you your skinny jeans are ‘out’ you are only donating a $50 pair of jeans to Goodwill,” she said. “But when Architectural Digest tells you white kitchens are ‘out,’ you are hiring a painter for $8,000 to repaint your kitchen cabinets.”

Brown advises homeowners to resist the urge to keep up with the Joneses. Rather, she says consider how you will use the space and make sure it reflects your personality. “What have I always loved? Where do I come from and where have I traveled? Stay true to who you are.”

Subscribe to CNBC on YouTube.



Source link

Post-pandemic, A-list designers offer virtual help for much less Read More »

Side Hustles, Syndications, & Escaping a W2 with Real Estate

Side Hustles, Syndications, & Escaping a W2 with Real Estate


Want to quit your job for real estate? Not so fast. Trading your steady W2 for rental properties could be a risk that isn’t worth taking in 2023. But why? Isn’t the point of property investing to reach financial freedom and leave your W2 behind? Stick around for the full perspective from expert investor David Greene. His advice could save you money and time when deciding whether or not staying at your job is the right move to make!

Welcome back to another episode of Seeing Greene, where your favorite agent, broker, Batman-voice-impersonator, and podcast host, David Greene, answers your most-asked questions on real estate investing! This time around, we hear from a new investor who wants to know the best real estate side hustles, a mid-career worker who’s undecided on how he should best use his cash to invest, and we even receive a call all the way from New Zealand on how to pick the best real estate market. David also goes deep into why outsourcing is SO challenging (at first), where the BRRRR method WON’T work, and the problem with coaching programs.

Want to ask David a question? If so, submit your question here so David can answer it on the next episode of Seeing Greene. Hop on the BiggerPockets forums and ask other investors their take, or follow David on Instagram to see when he’s going live so you can hop on a live Q&A and get your question answered on the spot!

David:
This is the BiggerPockets Podcast, show 732. I don’t want you to ever compromise on excellence. I do want you to think about where excellence is being applied within the goals of your life. You can continue to do the work yourself and run a great business and get a lot of dopamine, but as you recognize, if you want to scale, if you want to build wealth bigger, you need to be excellent at different things, and this is the struggle many of us get into. Once we get good at something, we don’t want to let it go.
What’s going on everyone? This is David Greene, your host of the BiggerPockets Real Estate Podcast here today with a Seeing Green episode. You’ve never been to one of these. They’re pretty cool. We bring in listeners just like you to ask questions, sometimes verbal and sometimes on video about struggles they’re having with real estate, knowledge they want to gain, or what they can do to make more money as a whole, and I’m passionate about helping y’all make some more money. So let’s get into it.
Today’s show is fantastic. We had really, really good questions. We talk about picking a market and the order of operations, like what should you look for when choosing a market. We talk about when it’s better to pursue equity and turn it into cash flow and when it’s better to just start with cash flow. We talk about insecurities, when they show up, why they show up, and how to deal with them for different parts of real estate. And we talk about how to make a BRRRR work in this market or an individual market where it just doesn’t seem like they’re making sense. So we get into some brilliant advice from me if I do say so myself. If you’ve been a BRRRR investor and you’re being frustrated, you might like where we go with this one. Want to thank you guys so much for being here. I know you’re going to like this episode. I’m excited to get into it.
Before we get to our first question, today’s quick tip is BiggerPockets is a website, not just a podcast. And on this website there are many things that you can do, one of which is how the website was started. We call it the forums. You go to the forums and you will find more investors than you could possibly imagine, asking really good questions that you’ve probably thought of yourself. You also can ask questions of your own and you’ll probably be amazed at how many members jump in and answer them. And this is all for free. Highly recommend you getting a membership set up with BiggerPockets and checking out the forums because there’s so much you can do. Calculators, networking, finding real estate agents, learning more about me. You can look up my profile on BiggerPockets and send me a message. All right, hope that happens and let’s get to our first question.

Johnathan:
Hey David, thank you for taking my question and appreciate what you do for the BiggerPockets communities with the Seeing Green. My question is what real estate side business should I start based on my background, my strengths and the current market? I just bought my first duplex in the Raleigh Durham area as a house hack living in one side, and I’m currently working as a railway design engineer and I’m also a United States Air Force Reserve as a aircraft mechanic. I was considering doing home inspections as I think I have a skillset that would be work towards attention to detail as well as following standards, but I’m curious about what you would recommend in this market with you having multiple businesses in the real estate industry. Appreciate you.

David:
Hey there, Johnathan. That’s a pretty cool question. I appreciate you asking that. I would probably like to have a little more info on what your skillset is. You mentioned you’re aircraft mechanic, so obviously you have mechanical aptitude. I do think a home inspector would be something you could pick up pretty quick. That’s a cool side hustle. I don’t know what’s super lucrative. So if that’s something you enjoy doing and you’re just looking to make a little extra coin, I do think that’s actually a great idea. It might have been one of the things that I would’ve recommended. You may also, it sounds like you’re a pretty intelligent guy. It may be worth looking into architecture, maybe becoming an architect or some form of engineering within real estate if you were designing plans for homes.
I know one problem that I’m having right now is submitting plans to the city and they’re frequently saying, “You need to have an architect draw this up. You need to have an architect draw this up.” And it’s very hard to find architects. So I think that there is a need for that, especially if you were able to do it remotely. If you could find a person that you could send to the site of different states and have that person go take measurements for you and then bring it back, put that into a software and draw that up. Not sure if that’s something that you have experience with, but that could be a pretty cool side hustle also.
And then if you’re also good at being a handyman, I think that there’s money to be made in being a handyman. Every investor I know is always looking for someone that can show up and fix things. The people that manage properties are always looking for someone that can show up and fix things. Most of the time we don’t want to pay a licensed contractor to go and tighten a pipe or fix a door that’s hanging wrong or repair some dry rot or even put down flooring. So if that’s something that you’re skilled at and you very well likely could be from the job that you have right now, I think that that is another opportunity you could get into.
But yeah, you mentioned you’re a roadway engineer. I think that if you could look into real estate engineering, that would end up much more lucrative for you than just becoming a home inspector. Although being a home inspector might still have some value if you really like real estate, I think it’s a cool thing to pursue. But I think if you’re looking for a new career, becoming an engineer within real estate would probably be more fulfilling and you’d make more money.
Thank you for this question, Johnathan. Be sure you follow up and let us know what you ended up deciding. This is cool stuff.
All right. Our next question comes from Alan in Indianapolis. Alan says, “I understand that most people get into real estate investing as a way to build wealth and get out of the rat race. I have a lot of liquidity available and I want to find a better place to invest it. I don’t qualify as an accredited investor, but I’m fast approaching those qualifications. My high-earning W-2 will make it difficult at this point in time to replace it with REI. So I want to get some direction on what is a good place to get started. I have over $400,000 in a 401(k) that can be rolled into an SDIRA. I also have about 30K in cash and expecting another 40 to 50K in performance bonus coming. If I can grow efficiently, I would entertain the idea of leaving the W-2 in the future. Where should a mid-career high-earning W-2 person with liquidity get started in real estate?”
All right, this is cool. We got a little puzzle to put together here. Thank you very much, Alan.
First off, with the way the economy’s looking, I would not be in a huge rush to get out of your W-2 job. We don’t know what the economy’s going to do, but it very well could get worse before it gets better. And so, one of the things I learned when I was a police officer working overtime in the last recession, not only was I able to stay employed during a recession, but I was able to make more money than other people. So making more money than other people is always going to be great, but it’s extra great in a recession when everybody else is making less because you have access to opportunities and deals that other people don’t. So I really like the idea of keeping a high-earning W-2 when we’re going into a bad economy. I’m more open to the idea of leaving it and starting a business or quitting and getting full-time into real estate, whatever that might be when the economy is doing amazing because you catch some of those tailwinds that are going to kind of propel you forward.
As far as what are some ways that someone with good money could get into real estate investing if you wanted to quit your job, it would depend on what your skillset is. I’m very big in not saying real estate itself will sustain you, but what do you do within real estate? Are you incredibly analytically sound? Are you someone that could start a fund and you could start looking for commercial or multifamily property to buy? Do you have a really strong construction background? Could you literally start a business in construction doing rehabs of properties?
I really think you and other people need to look at what is your skillset, what are you good at? And then ask, how would that work within real estate, as opposed to saying, “I want to quit my job and I want to replace it with real estate.” If you have a lot of money, you could consider private lending, but you probably wouldn’t have to quit your job just to do that. You could do that while working the job, but again, you don’t want to get into it if you’re not good at analysis, if you’re not good at underwriting, if you can’t look at the risk associated with private lending and make sure it’s something that you want to take on.
The other obvious answer could be home flipping or wholesaling. So if you’re good at sales and that’s why you’re making so much money, which is a possibility because you mentioned a performance bonus that’s often associated with sales, you could start a business of sending out letters, making phone calls, getting the word out, getting motivated sellers putting properties in contract and either flipping them, holding them, or assigning the contract to other people as a wholesaler.
So congratulations on the position you’re in a financial strength, that’s awesome. I think you got some opportunities that should be coming in the future. If you can, write us back again or send us a video and let us know what your skills are and I will dive deeper into the advice I give you on what different positions you could take to get out of your W-2 job.
Oh, one last thing I’ll say. Not everybody gets into real estate investing as a way to get out of the rat race. I got out of a rat race, but I’m in a different race right now. I’m not working as a law enforcement officer. Now I’m working as a business owner, but I’m still working. And I don’t know that real estate investing is intended to get you to never work, especially because you often need to get approved for loans based off income that you have and because things go wrong. You have problems, things break that you weren’t expecting, you get vacancies that you weren’t expecting. Unexpected expenses pop up all the time. It actually works better when you’re still making income. I look at real estate investing more as a way to grow wealth that you’ve already created and to prepare for retirement not to immediately replace income that you’re currently making. Like some people do; I’m just saying my perspective is a little bit different, and today we are Seeing Green, so I’m going to give you the green perspective.
Our next video clip comes from Ryan Spearman in New Zealand.

Ryan:
Hey David, thanks for taking my question. Thanks for all the education over the years. It’s been amazing. I live and invest in New Zealand on the other side of the world from you guys. I’ve got a portfolio of small multifamily properties which I’m looking to expand upon. I want to try and increase my cash flow, so I’m looking to invest in the states. I’m in a unique position of not being tied anywhere so I can invest anywhere, which takes me to my question.
You have always sold the idea of starting first by finding the market that suits you, working your way down, finding a team, and then finding the property. What I want to know is how do I find the market? How do I do that research? I’d love a systematic approach to look at all the markets and figure out which one suits me best before I drill down and find myself a team and then find myself a deal to get some more larger multi-families and exchange some of the equity I’ve built up for slightly more cash flow. Any information or advice, I’d love to hear it. I listen to it all and like I say, it really helped me and my family and our journey towards financial freedom. Thanks. See you.

David:
All right, Ryan, another great question. You guys are crushing it today, asking really good questions. So looks like I see my book, Long Distance Real Estate Investing, I think it’s right there behind your left ear. You have some other books on your shelf that I have too. Extreme Ownership, The Millionaire Real Estate Investor, some Cal Newport works there. So good that I can’t ignore. He’s one of my favorites. So well done.
All right, let’s talk about choosing a market because that’s what your question is here. The first thing that I advise everyone to do that I do myself is I look into the strengths of different markets. So if someone said, “Should I invest in Miami or Dallas or the Bay Area, California?” Each of those markets has a strategy that will work good in that market. The thing that I want you to start with is just asking, “What am I looking for?”
Now, you mentioned something else that’s worth highlighting that you’ve built up equity. Now you’re looking to exchange that for cash flow. My opinion that is generally a superior approach to building cash flow than just focusing on cash flow right away. And I’m actually writing a book right now and I’m giving an example about this. It’ll be called Pillars I believe, and in that book I talk about how there’s one example of a person that chased after a Midwest turnkey property and they make $600 a month, so that turns into $7,200 a year. It’s a 12% return and they’re really excited. The other person goes and buys a property in South Florida and he sees above average growth and he does a value add on the property and he gets it below market value and he uses a lot of different strategies, builds up about $350,000 worth of equity, exchanges that for only a 6% return, even if he can’t get the 12% return and still makes three times as much as the person that chase cash flow in the beginning.
The goal is definitely cash flow, but the order of operations can be different. And you have more control over building equity than you do over actually building cash flow because cash flow only increases when rents go up and we don’t control that. So good on you for getting to this point where you’ve got that equity and you’re looking to invest it.
You’re probably going to be looking for either a cash flow heavy market with a lot of opportunities for cash flow, or maybe you’re looking for another equity run. You’re going to invest that money into a market that gets more cash flow than you have now, but still has a lot of growth. And what I’m getting at here is every market has their own strengths. If you’re going to go invest in South Florida right now, you’re probably going to see continued growth over time and continued rent growth, but you might not be crushing it in year one on the cash flow. Conversely, if you want to go invest into the Midwest, there’s probably a lot of places where you can still get cash flow, but you’re probably not going to see nearly as much growth. That’s one thing to look at. Is this market more likely to experience very solid cash flow in the beginning or above average growth over the long term? And if the answer is neither one, probably not a market to invest in.
Another thing that you want to look at is how much competition is in this market? So you want to go buy properties in Malibu, California. They’re probably guaranteed to do well over a period of time, but you’re going to be fighting with a lot of other people to get those properties. It’s very difficult. On the other side, you can go invest into Indiana where there’s tons of properties everywhere and it’s super easy to get them and they’re not very expensive, but they don’t have as much upside potential. So you want to be looking at competition within a market. Am I okay with a lot of competition if the upside is better, or do I want to avoid competition and just have an easier way to enter into that market?
What you’re telling me is you’re pretty experienced at investing. So I would be looking for markets that were a hybrid market. Dave Meyer and I talked about this on an episode we recently released on our State of the Market Podcast. Dave defines hybrid markets as markets that will cash flow but are also likely to have higher growth than normal. Denver, Colorado was one example of that. When you’re looking to pick a market, the first question that I think you should be asking is where are people moving to? Where are the populations going and where are they leaving? Okay, so San Francisco was red-hot. There was a point in my career a couple years ago, you couldn’t get somebody a property in San Francisco. It was impossible. Couldn’t happen.
Well, COVID came, everything shut down in San Francisco. People started leaving San Francisco and all of the demand that was in SF moved into the East Bay. At that point. It was very easy to get anything you wanted in San Francisco, but it became almost impossible to get any of these bigger single family homes in the East Bay where everybody wanted to move to. Same is true of New York. New York had red-hot real estate for a very long time. It’s been struggling since COVID. Political decisions, the weather and then the overall value that that location offers have decreased because there’s not as many people that want to live there. There’s not as many thriving businesses and a lot of the Wall Street opportunities that drove people to New York in the first place have moved where? South Florida. That’s why that market’s exploding and it’s becoming harder and harder to buy real estate.
So if you wanted to get ahead and buy in these markets that were going to go up before they went up, you got to look at where people are moving and then you got to look into why. So it’s not so much as doing research and just trying to find the website that’s going to predict where things are going to go. It’s more looking at the news overall.
Did you know that Hollywood has been slowly moving into Atlanta, Georgia for the last eight, nine years? You’re seeing a ton of movie production that moves there. I believe that the Entourage was filmed in Atlanta. All that stuff used to be done in Hollywood, not the case anymore. If you knew that, you would not have been surprised that Atlanta real estate prices soared. And if you’re paying attention in the last five to six years, they soared. Atlanta became every investor’s dream. Everybody was putting money into there, and many cities have had their runs. Memphis, Tennessee had a run for a long time that everybody was buying there. Birmingham, Alabama was the flavor of month for a little bit. Also, what happened with Austin, Seattle, San Francisco? They had huge runs. Now they’re cooling off. Phoenix and Las Vegas have their ups and downs too.
So what I want you to do is to start pay attention to where are people moving in the states? What states are they leaving? What states are they going to? Once you identify where people are headed, ask yourself, what is the strength of that market? How do you make money there? Is this a long-term buy and hold for rent increases? Is this a long-term buy and hold for the value of the asset increasing? Is this an area that has a lot of homes that I can add value to? Is there a big discrepancy in the sale prices? Do an ugly home sell for 600,000, but a gorgeous home sells for a million where you can go in there, do some construction and add a lot of value to the property? Or is every house somewhere between 120 and $140,000? That would be much harder to add value to, but it might be easier to find more cash flow.
Last, ask yourself what type of people are moving here? Just because humans are moving there doesn’t mean it’s automatically good. You’re hoping that humans are moving there to experience higher wages. If industry is moving into an area that pays more than other areas around it, you can be sure that rents will eventually increase. So if you’re looking for cash flow right away, you’re going to look for a different market than if you’re looking for cash flow over the next five years.
In general, my strategy is always to delay gratification. If I have an opportunity between a place that will pay pretty good right now or a place that will pay really good in the future, I always push it down the road and I take that gain in the future and I’ve never regretted. I’ve made much more money in my real estate that I made less money on the first couple years, but did way better on later than the people that took the opposite approach, which was like the tortoise and the hare, where they got cash flow right out the gate year one, but then they stayed there forever and eventually that tortoise passed them up. So hopefully this advice helps you to pick some different markets. I’d love to see you continue to delay gratification as well. Buy into areas with the population moving into, buy into areas with rising wage growth, and start looking at real estate from a deeper overall level as opposed to just an individual property that you’re running through a calculator a hundred times in a row hoping that you end up striking gold. It usually doesn’t work like that.
Thank you very much for your question, Ryan. Loved it.
At this part of the show, I would like to go over some comments from previous shows we pull off YouTube. Now, if you do me a favor, pull us up on YouTube yourself and like, comment, and subscribe to this show so other people can find out more about it. I want your comments because I want to read one on a future show. So if you could do me a favor and pull us up on YouTube, you’ll find BiggerPockets has a lot more to offer than just the podcast. There’s lots of other podcasts and there’s lots of videos that we air on BiggerPockets YouTube, many of them from yours truly that you won’t hear on the podcast.
Our first comment comes from Veronica O., right out of episode 714. “Hi David. You are so good at explaining complicated things. It would be nice to have a full episode on micro and macroeconomics explaining the correlation between the prime rate, stocks and bonds, unemployment, recession, inflation, and its effect on the real estate market.” That would be fun. I will take a note there that maybe we should put another episode together that talks about those kinds of things and how they affect the market as a whole. Because Veronica, you’re pretty smart. Everyone looks for the individual property they think is going to make them rich. It’s much more about understanding the bigger factors that determine whether real estate goes up or down as a sound financial strategy.
Kimberly Smith says, “David is my favorite. I’m buying my first duplex next month reading his BRRRR book on the daily.” Thank you for that, Kim, and I’m glad I’m your favorite. It’s pretty cool. Congrats on that duplex. I will keep an eye out for you to see how it went.
From episode 690, TJ says, “I always look forward to Seeing Green episodes. I like the format of having different personalities answering questions. This is a great episode. I learned a lot. Thanks.” Well, thank you TJ for that comment.
Derek and Melinda Decken say, “The bar has been raised in this video. I want to hear more commentary from special guest star Batman.” That’s kind of funny. All right, you guys got to go check out episode 690 to see what Derek and Melinda are talking about there. You will not regret it.
And our last comment comes from episode 690. “Respect to you, David, for still going strong on the podcast. I’ve been listening for four years now.” Well, I didn’t realize it had been four years, but I did just have a birthday yesterday and I am getting older. That is for sure. So thank you very much for acknowledging that and for the respect that you’re showing me. I’m thrilled to be a part of BiggerPockets ever since Brandon Turner first brought me on and I vowed to never ever, ever let him regret that decision. I’ve done my best and I’m glad to hear that you guys like it, so thank you for that.
We love and we appreciate the engagement all of you give on our YouTube comment, so please go in there and leave another comment. Tell us what you like. Tell us what you don’t like. Say something funny. I thought that Batman reference was really good, and tell us what you want to see more of on the shows and we will make those shows for you. Our next video clip going back to our questions comes from Wade Kulesa in South Dakota.

Wade:
Hey, David, Wade Kulesa here from Sioux Falls, South Dakota. I am a contractor here in my local market. I own a few properties and looking to expand this next year. My biggest question is as a contractor, I love doing the work. I like getting my hands dirty. I love seeing new projects being accomplished and that kind of thing, but I know that in order to scale that I kind of have to get past that mindset and handle those things off to other people. Do you have any advice for me as to how do I change my mindset or get past that feeling of giving up control more or less to other people to do some of those lighter construction tasks in order to scale and grow my business? Again, construction is my passion. I love the accomplishment and the feeling I get from flipping in a different property and making it better for people to rent, but need to get over that home. I just need some advice. I appreciate all you do. Thanks

David:
Wade, thank you for your transparency there. My goodness. I can tell you I struggle with the same thing. All right, we’re going to pull back the sleeves. We’re going to get to brass tacks. I’m about to get real everybody, so buckle your seatbelt. This problem you’re experiencing, Wade, is never going to go away. If I understand you correctly, you are a person who’s passionate about doing things the right way and we need that in contractors. Like you see the different ways a contractor can solve something. There’s always corners that can be cut, easy roads that can be taken, things that can be skipped that maybe for the first couple years won’t show up but will absolutely cause problems later for the person whose home that is. And you have a passion against seeing that happen.
You probably had a really good mentor that trained you in the right way and you get that feeling of a job well done, which becomes addicting. It’s literally releasing dopamine in your brain. Now, in the role of home contractor, this is a blessing. This is why you’re good at what you do. I already know you have a thriving business. You’re buying rental properties. People know you do good work because you’ve got this value system in place that makes sure you do good work. You’re now experiencing the problem where your value system is getting in your way as crazy as that is.
I don’t want you to ever compromise on excellence. I do want you to think about where excellence is being applied within the goals of your life. You can continue to do the work yourself and run a great business and get a lot of dopamine, but as you recognize, if you want to scale, if you want to build wealth bigger, you need to be excellent at different things, and this is the struggle many of us get into. Once we get good at something, we don’t want to let it go. You raised a little baby, it’s finally great and it’s time for it to go off to school, and you don’t want to let go. This is normal, but it’s something you’re going to have to deal with.
I can see your problem. Clearly, you’re in a small bubble of excellence within construction and you’ve got a bigger bubble over here of excellence within real estate investing and you know need to leverage off some of the work that you are doing so you can spend more time in this other bubble. The problem is you know the people you’re going to let do the work are not going to do it as good as you and your conscience is screaming at you that that can’t happen. The only ways that I know to overcome that have to do with stepping back and seeing a big picture. If you’re giving people lesser jobs to do, and I wish I knew more about construction to give you better examples with this.
Let’s assume that maybe the siding on a home is not as important as the framing of a home. I hope I’m not wrong. And every contractor out there screaming it’s the other way around, please just give me some grace here. For the purpose of this assumption, you want to make sure your best guys are doing the framing and your new guys are doing the sighting. If mistakes are going to be made, you want it to be on the stuff that’s not as important. And as those mistakes get made, your job as the business owner is to increase the standard that you expect from every person so that they do not continue to make mistakes. Like it’s going to happen; you just don’t want to see the same mistakes continue to happen. So there are strategic things you can do like putting your new people on the less important jobs with the goal not being a job as good as you would do it, the goal being a job better than they did it before. That’s what you’re trying to do.
When you become a business owner, this is a position I’m at, you stop doing the work and you start putting the same energy towards creating the standard. You have to hold them all to the standard and you got to know they’re not going to hit it. They’re going to fail Just like at one point you failed, they’re going to fail maybe more than you did because they don’t have your level of drive, ambition or talent, but you still have to keep pushing that standard higher and making them rise to it. Now as you see that maybe they don’t do it as good as you, but they did it better than they did before, you will notice progress and that will help break the chains of your enslavement to doing the job yourself. When you see their progress, it will help a lot. That’s half of it.
The other half is getting over into this other bubble that we talked about that has to do with getting excellent at real estate investing. And in that bubble, you will start to realize excellence within construction is not really relevant. I don’t do any construction and I still built up a really big portfolio of stuff myself. When you get deeper into investing in real estate, the dopamine connection, the emotional relationship you have with the work you’re doing in construction hands on yourself will be weakened, as you replace it with dopamine that comes from doing a good job within being an investor. Negotiating deals, closing on deals, finding the better deals, coming up with the plan for the property, improving upon the results you thought outperforming what you thought was going to happen will start to feel good and it will make it much easier to let go of the bad feelings of seeing the work not getting done.
If you wait for other people to do the job as good as you, it’s never going to happen. You’re never going to get out of that bubble of being a contractor. I think that you recognize that. So don’t make them do it as good as you make them do it better than they were before. And at the same time it will be easier to relate to those people screwing up when you step over into this other bubble because guess what? You’re screwing up. You don’t know how that bubble goes.
I talk about the three dimensions of leadership. The first one is learn. You’ve learned how to be a good contractor and now you have to step aside because you went from zero to a hundred. You’re at a hundred, you have to step out of that. The new guy’s starting closer to zero, he’s not as good as you, and that’s where the struggle is because you have to let go of doing the job yourself. Now you’re in leverage, you’re in the second dimension. You’re going up instead of left to right. And in the leverage, you’re starting off close to zero also, you suck at that. Or maybe you’re stepping out of learning into learning a new category, which is actually real estate investing and it will help a lot how humbled you get when you make mistakes. You will have more patience and show more grace to the other people that are showing mistakes. It will make you connect with them better and it will make this journey much easier to do than you’re imagining right now.
Your problem is you’re trying to step from a hundred percent skill level into a new area of 0% skill level at the same time that you are trusting your work to people that also have low skill levels. When you are doing something new with a low-skill level and you’re supervising people with low-skill levels, it will be much less frustrating than when you’re operating as a black belt trying to work with a bunch of white belts.
Thank you for the question. Keep us apprised of how this goes and my thoughts are with you and your success in this endeavor.
All right, our next question comes from Cali in Missouri. “How can I make the BRRRR method work in my area? My husband and I have been looking to use the money from our first flip to purchase one or two more homes that we want to BRRRR. The problem is that within our area, red values are too low for us to cash flow after we refi. Most of the homes we analyze seem to negative cash flow. How can we make this work? Do we need to look to different areas?”
Great question, and I haven’t talked about BRRRR in a while, so I’m glad that you asked it. All right. Your problem as weird as this sounds is not a BRRRR problem, it’s an area problem. I think that your subconscious had diagnosed this for you.
One of the first things you should look at when doing a BRRRR is acknowledging it’s going to be a buy and hold cash flowing property, which means before you look at how much of my capital can I get back out, how do I add value to it? You have to look at do the rent support the price at the end?
Now, if you’re operating in a market that doesn’t support the cash flow, it doesn’t work to look for a BRRRR because you wouldn’t be looking for a long-term traditional buy and hold rental there. If it’s nowhere near the 1% rule and you know that that area doesn’t cash flow for that type of asset class, it’s even harder to make it cash flow on a BRRRR. So right off the bat, if you’re operating in an area that’s not good cash flow, but known for equity growth, the BRRRR method is not the best place to work there. I don’t do it very often in the high-growth areas. In fact, I only do it in high-growth areas if I’m doing something unique. I’m adding a lot of units to the property. I’m transitioning the property out of a long-term rental into a mid or a short-term rental that’s going to make more income. You got to do something creative here. That’s the first thing I would say.
So yes, you look for a different area. You start with an area that I call in the BRRRR book, a target rich environment. You want an area that has a lot of homes that are close to the 1% rule. That does not mean they have to be the 1% rule. Please, everybody calm down. I know that nothing’s hitting that right now. What about 0.7 or 0.8? That’s close enough that you can actually look at the deals. When you find the area that does have them work or you find the asset within the area, maybe triplexes work, maybe short-term rentals work, but not long-term rentals, whatever it is. You find the pattern of what properties will cash flow in that area, then you only look at those properties as potential BRRRRs. You don’t even bother looking at stuff that’s like right out the gate ready to go. And you don’t bother looking at fixed upper properties if you know they’re not going to cash flow in that area after you buy them.
So before you worry about the rehab and the value add of a BRRRR, you worry about the end result. You start with the end in mind. So yes, you start with the area, you find the area, you find the asset class within the area. Then you start individually analyzing the individual properties to see which ones could work as a BRRRR. You’re asking the right questions there, Cali. Congrats on that and good luck in finding your next deal.
Our next question comes from Casey Christensen in Utah. Casey says, “Hi David. Thank you for the awesome content you put out each week. It’s motivational and uplifting. I currently own three duplexes. I had four and I just sold one that I closed on last week. Currently have the funds held at a qualified intermediary with the intent of doing a 1031 exchange. However, I’ve recently been thinking about not doing a 1031 and instead using the money to get into a syndication or coaching mentorship program. My tax bill would be about 10 grand if I didn’t do the exchange. I started buying about two years ago and I’ve realized that building a portfolio this way will get me to the point where I can leave my W-2, is going to be a long and arduous road.”
Side note, this is not coming from Casey. That’s what a lot of people realize and it’s what I talk about all the time. You’re probably only going to hear that here. “I’ve always wanted to get into the syndication route, but I felt I had to go smaller first. Do you feel it’d be a mistake to take the tax hit and invest in a mentorship program? I’ve also hesitated to go to the coaching route because of an insecurity that I will fail in the program and find myself worse off for having thrown 20 to 40,000 at a program that got me nowhere. Do you also have suggestions on how to deal with such insecurity? Thank you again for all you do.” Wow, Casey, this is really good.
All right, let’s break it up into little pieces. First piece, I don’t think paying $10,000 in taxes is the end of the world. I might not do a 1031 to save 10 grand just because they can be stressful. So if you’re worried about the 10 grand, I don’t know that I would say you have to do a 1031 to save 10,000 in taxes. You might put the money into a bad deal that you lose more than 10 grand, so it doesn’t actually help you. 1031s are not foolproof.
Now about the coaching program, I don’t know that that’s the best use of your money either; and about your insecurity, that’s a third issue that we’ll talk about next. So here’s the thing with coaching programs. They can be good, but I think people look at them the wrong way. How do I want to say this? I’m trying to be sensitive because I know a lot of people that run coaching programs, some of them are good, some of them are not, but even good ones, I don’t know if it matters. Let’s say that I have a personal training program. You’ve been watching me. You’re like, “Oh, David’s starting to look a little better. He’s hitting the weights. I wonder what he’s doing.” And I’m like, “Hey, I’ll show you what I’m doing. I’ll show you what I’m eating. I’ll show you what my workout is. I will even check out with you once a week to see how it’s going.”
People sign up for programs because they want the result. They want the body or they want the weight loss or they want the improved gains in whatever they’re trying to lift, but the program is not a guarantee of the result. This is where it gets tricky. It’s a guarantee that they will give you the information, and I guess it’s not a guarantee because they might be bad, but if it’s a good coaching program, all that it can guarantee is the information. I can tell you what I’m lifting. I can tell you what I’m eating. I can check in with you every week, but I can’t make you go to the gym. And when you go to the gym, I can’t make you lift hard. And if you think you’re lifting hard, I can’t convince you that you actually could be lifting harder. I’m going to stick with this weightlifting analogy because I think it’s working out here.
I’m a little bit older now, so working out is harder, but I still recognize there’s a difference between going to the gym and getting through my workout and going to the gym and giving it everything I have. I finally got to the point where I can start lifting heavy again, and what I’ve noticed is that it’s freaking hard. Like to get through my set of six or eight or whatever I’m trying to do, I’m focusing, I’m really focused. Sometimes I’m praying, “God, help me get through this because it is so hard I don’t know that I can.” That is the only way that I’ve guaranteed that I will get stronger. It’s that level of effort. Now, it’s not complicated. You grab a weight and you move it from here to here, only moving these muscles, but just because it’s not complicated doesn’t mean it’s easy. It’s still difficult. Coaching programs are the same way.
Paying 20 or $40,000 for a coaching program could do amazing if you’re going to go in the gym and work out incredibly difficult or maybe you already have a baseline and work it out, you’re just trying to get back into it. Maybe you already have a pretty good understanding of real estate and you just need a little bit of information to get you over the hump that then you might earn a lot more money than that coaching program is going to cost. However, if you join the program thinking that you’re going to get information that’s going to make you wealthy, it’s like signing up for a fitness program thinking that information is going to make you fit. It’s not. The information is a guideline. Your effort is going to make you fit and then other genetic factors and other things you have going on.
Now, you might start a fitness program and be in terrible shape. You’ll eventually get fit, but it will take you longer. Same as you have a coaching program. It might take you a lot longer to figure out the stuff that some of the other students learn quicker. That is how life works. But I want to caution anybody against starting a coaching program because they’re wanting a result. You’re not buying a result. You’re buying the information and the result will be determined on what you do with that information.
Now, the last piece of it has to do with your insecurity, and I’m hoping that my answer to the second piece also answered your questions about the third. Insecurity is an interesting thing, isn’t it? We all don’t like it, but it definitely serves a purpose. When we’re feeling insecure, it’s our subconscious telling us something. You might have the feeling inside that you’re not ready to take action that they’re going to tell you to do, and so the insecurity is just your subconscious saying, “Don’t sign up for this because you’re not going to do it.”
If you know hate lifting weights and you know don’t like sweating and you’re not really, really hungry to get in better shape, it’s dumb to sign up for a personal trainer that’s going to teach you to lift weights. If what you really love is running, but you’re trying to get bigger and put on bulk, so you sign up for a personal trainer but you’re not going to listen to them, you’re going to feel insecure about that. It’s not going to sound like a good idea. Don’t do it. If you know that the only thing you’re going to do is run, then run and just let go of the expectation that you need to get bulkier. And if you know that you don’t like working out but you’re still committed doing it, okay, that would be a reason that you should sign up for the personal trainer.
I want you to be honest with yourself about why you’re insecure about this. You could easily throw 20 to $40,000 at a program and it will get you nowhere. If you’re not good at the stuff they’re teaching you, you don’t pick up the skills, you don’t have the opportunities, you don’t have the money, you’re not driven, it’s not going to help. So that’s my advice. You had three questions there. Gave you all three of those. I want you to really do some deep thinking. And for everyone else who’s listening to this who’s in a similar position, please remember that information does not get you a result. Actions get you results.
All right, everybody, that little motivational line from me will wrap up our show. I don’t really get to answer questions like that very often. That was pretty cool. You guys have some great questions. I got to say, from when I started Seeing Green to now, the questions are consistently getting better and you deserve all the credit from that in the BiggerPockets community. If you would like to be featured on the show, I’d love for you to be, please go to biggerpockets.com/david and ask your question. Now if you’re someone that I know, even cooler. Fricking show up in this thing when I’m recording the episode, I’d love to see that. So if we’ve met at a conference or you’re a friend of mine, I’d love to have you go to biggerpockets.com/david and submit your question. And even if not, if you’ve ever been driving in your car and thinking, “Why don’t they ever ask about this, or why does no one ever talk about that?” This is your chance to get it talked about.
Thank you so much for paying attention. If you would, please give us a five-star review on Apple Podcasts, Spotify, Stitcher, wherever it is that you listen to your podcast. Means a lot and it helps us out a ton. I would really appreciate that. And if you’d like to follow me, you could do so on Social Media @DavidGreene24. I do live YouTubes every Friday night where you can come and ask questions. Those are youtube.com/@DavidGreene24.
That’s our show for today. Please send us more questions. We’d love to do another one. If you have a minute, listen to another BiggerPockets video. And if not, I’ll see you on the next one. Don’t forget, in the meantime, you can go to biggerpockets.com and check out the forums where people are asking questions all the time, where you get to learn for free. See you guys.

 

Help us reach new listeners on iTunes by leaving us a rating and review! It takes just 30 seconds and instructions can be found here. Thanks! We really appreciate it!

Interested in learning more about today’s sponsors or becoming a BiggerPockets partner yourself? Check out our sponsor page!

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





Source link

Side Hustles, Syndications, & Escaping a W2 with Real Estate Read More »

Mortgage rate you get depends partly on credit score. What to expect

Mortgage rate you get depends partly on credit score. What to expect


Phiromya Intawongpan | Istock | Getty Images

Anyone who’s exploring homeownership may know that rising interest rates and elevated home prices are making that goal challenging.

The average rate on a typical 30-year, fixed-rate mortgage has been zigzagging between 6% and 7% for the last several months — down from above 7% in early November but roughly double the 3.3% average rate heading into 2022, according to Mortgage News Daily.

Yet the interest rate that any particular buyer is able to qualify for depends at least partly on their credit score — meaning you have some control over whether you’re able to get the best available rate, experts say. And the difference that a good or excellent score makes in terms of monthly payments — and total interest paid while you hold the mortgage — can be significant.

“The score impacts practically everything: loan approval, interest rate, monthly mortgage insurance premiums … and ultimately their payment,” said Al Bingham, a credit expert and mortgage loan officer with Momentum Loans.

More from Personal Finance:
Some newlyweds face a ‘marriage tax penalty’
What to do if you can’t keep up with car payments
States have about $70 billion in unclaimed assets

The median home price in January was about $383,000, according to Redfin. Although prices have been sliding since mid-2022, that amount is still 1.5% higher than a year earlier. In January 2020, the median was below $300,000.

While you may be able to negotiate on the price of the house to bring the overall cost of homeownership down, it’s also worth making sure you go into the process with as high a credit score as possible.

Lenders check three scores but use one number

Although things like steady income, length of employment, stable housing and other aspects of your financial life are important to lenders, your credit score gives them additional information.

The three-digit number — which ranges from 300 to 850 — feeds into a lender’s calculation of how risky a borrower you may be. For example, if you’ve always made your debt payments on time and you have a low credit utilization (how much you owe relative to your available credit), your score will benefit.

And the higher the number, the less of a risk you are to lenders — and therefore the better terms you can get on a loan.

We're in a housing reset after years of unprecedented low rates, says Taylor Morrison Home CEO

Lenders check a homebuyer’s credit report and score at each of the three large credit-reporting firms: Equifax, Experian and TransUnion. For mortgages, the score provided by those companies is typically a specific one developed by FICO, because it is the score currently relied on by Fannie Mae and Freddie Mac, the largest purchasers of home mortgages on the secondary market. (In the coming years, this reliance on one score is poised to change.)

However, because that particular FICO score can differ among the three credit-reporting firms due to differences in what is reported to them and the timing, mortgage lenders use the middle number to inform their decision.

The higher your score, the lower the interest rate you’ll be charged. For illustration only: On a $300,000, fixed-rate 30-year mortgage, the average rate is 6.41% (as of Thursday) if your credit score is in the 760-to-850 range, according to FICO.

This would make your monthly principal and interest payment $1,878. On top of this amount typically would be property taxes, homeowners insurance and, if your down payment is less than 20% of the home’s sale price, private mortgage insurance.

In contrast, if your score were to fall between 620 and 639, the average rate available is 7.99%. That would mean a payment of $2,201 (again, for principal and interest only).

Most of your monthly payment goes to interest at first

There are ways to boost your credit score



Source link

Mortgage rate you get depends partly on credit score. What to expect Read More »