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Mindy:
Welcome to the BiggerPockets Money Podcast show number 312, Finance Friday edition, where we talked to Alexi Horowitz-Ghazi about the buy now, pay leader program.

Alexi:
In the early years of credit cards that led to problems with overconsumption and spending, problems with fraud, that then led to the regulatory framework that now is just kind of normal to us. And so this feels like a new type of consumer technology that’s also started with individual businesses targeting individual demographics and is now expanding. And now the traditional financial institutions are like, “All right, we’re going to start offering versions of this to compete.” But there hasn’t been a full regulatory reckoning. So we’re still in that leading edge moment of kind of new technology.

Mindy:
Hello, hello, hello. My name is Mindy Jensen and joining me today is my military millionaire cohost David Pere.

David:
What’s up? I know, I’m supposed to say something super profound.

Mindy:
That’s okay, you don’t have to.

David:
The sky is blue, because science.

Mindy:
Wow. That’s not why the sky is blue at all. David and I are here to make financial independence less scary, less just for somebody else. To introduce you to every money story, even the ones that I don’t love. Because we truly believe financial freedom is attainable for everyone, no matter when or where you are starting.

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

Mindy:
David, today, we are speaking to Alexi Horowitz-Ghazi from the NPR podcast, Planet Money. He recently released an episode about the buy now, pay later program, which is also called the point-of-sale loan program. And holy cannoli, I’m going to give you a spoiler right now. I don’t like this program. And I want to talk to Alexi about it because I think he’s got a lot of great insights into this concept and he was the first person to introduce me to this particular idea. I didn’t even know it existed until I listened to his episode. And I was like, “Whoa. That sounds like trouble.”

David:
Yeah, it definitely feels like it’s targeting people who are… I want to say, less well off. But it’s not something that billionaires are running around using. I feel like it’s targeting people who are a little bit less financially educated and they see it, psychologically, as an easy way to purchase something that they want. And it seems like it would be very easy to fall into the trap of doing this too much, and then being just completely overwhelmed.

Mindy:
The exact problem that the heroine of Alexi’s story, that released on his podcast, fell into. She discovered that she could buy this item and it wasn’t this giant price. It was this small price a bunch of times. And she’s like, “Oh. Well, that’s practically nothing. It felt like monopoly money.” So then she goes and does it again, and again, and again. And at the end of the month, she’s like, “Oh, I’ve made a big mistake.” What is that quote from Arrested Development? “I’ve made a huge mistake.” So it feels like people who use the buy now, pay later program are going to be quoting Joe Bluth a lot.

David:
Hopefully not, but.

Mindy:
Please tell me that you got that.

David:
Of course.

Mindy:
Alexi Horowitz-Ghazi is a host and reporter for NPR’s Planet Money and is drawn to tales of unintended consequences. He recently released an episode about the buy now, pay later companies, which are also known as point-of-sale loans. This is a special episode of Finance Friday because I think this is a crisis in the making. And people who are using the service aren’t educated on the downsides. Alexi, welcome to the BiggerPockets Money Podcast. I’m so excited to talk to you about this.

Alexi:
Hi, Mindy. Hi, David. Thank you for having me. It’s a pleasure to be here.

Mindy:
I want to thank you for bringing up this topic. Because until I listened to your episode, I had no idea that this thing even existed. I am definitely not the target market for the buy now, pay later companies. So let’s just give an overview about this again. What is the buy now, pay later program?

Alexi:
Okay. So buy now, pay later is a relatively new kind of consumer credit. They’re basically installment loans that are offered to consumers at the point-of-sale. So at the checkout, if you’re buying clothes, or an increasing number of things, airline tickets, even like gas and IRL. It started out as an internet phenomenon, but it’s growing to more and more parts of the economy, including at the real life checkout.

Mindy:
Oh. Oh, that’s even worse.

David:
Yeah, that’s very interesting. I can’t imagine the idea of like, “Oh, I can’t afford gas. So let me stretch the payment out for three months.”

Alexi:
Yeah, yeah. It’s grown to all sorts of different services and products that you can buy. Initially, these companies were relatively narrowly targeted at retail sites for people who either had thin credit histories or bad credit, or otherwise couldn’t gain access to other forms of consumer credit potentially. And so it was pitched as a democratizing way to get people the money they needed now and give them this new way of paying it back later. Generally, the way that works is they’ll front you the money for whatever you’re buying, and then you pay it back in four interest-free installments through whatever their platform is, depending on what the company is. There are other types of loans. There are longer loans with different kind of terms and conditions. But that’s the basic model, is paying for interest-free payments.

Mindy:
Okay. In your episode, you spoke with Amelia who started down the buy now, pay later path by buying a brown and white tie-dye bikini. And I can see this in my head, “Oh, that’s so cute.” But it was a $200 bikini, which makes my frugal heart break. She noticed, when she went to check out, that there was this buy now, pay later option and she clicked it. And she now had the option of paying in four installments of $41.99. And she’s like, “Well, I can do that. I can get $41.99. It’s no big deal.” And I instantly thought of layaway. Alexi, I’m not sure how old you are but I’m very old. And we had layaway. We didn’t have this fancy internet thing when I was growing up, we had layaway. But we didn’t get the items with layaway. You go to the store. You give them all the things you want in the special layaway department, and they put it away for you and you make payments.

Mindy:
I remember I bought a pair of peach overalls that were very hot in 1987 on layaway. And it took me… I had to drive to the store every week for four or five weeks to write out a check or pay cash $20 a week for this. But now, it’s this easy click and it’s not as real. I mean online purchases already don’t seem real because it’s just… My credit card is already in the system. All I have to do is put my fingerprint on my little fingerprint sensor on my keyboard, and now I just made a payment. That’s even less real than having to type in my credit card number at the site. Like it’s so easy to make a payment now. And now I don’t even have to pay the whole amount. I can pay it in four easy installments. This just seems like… This is where to me the crisis is in the making. Because this isn’t regulated, right?

Alexi:
It does. These services kind of fall into a few different regulatory schemes, depending on whether they are run by banks. And regular credit card companies have basically been responding to this new wave of buy now, pay later services which started taking customers from them, taking credit card transaction money from them. And they responded and said, “We can’t leave all of this money on the table, leave this whole consumer group without an option from us if they’re going out and spending money this way.” Ones that are run by banks fall under a different set of regulatory laws. The kind of distinct buy now, pay later companies interact in various ways with credit card regulatory systems.

Alexi:
But it’s still not clear which of those they’re meeting. And so there’s now been this wave of calls for at least investigation from regulators. So the Consumer Financial Protection Bureau started an inquiry last year into how these companies fit into the existing regulatory structures. If there are any rules that they aren’t meeting, if there are new rules that need to be devised to make them safer for consumers. And the House Financial Services Committee also held a hearing on this question last year, last fall, I believe, looking into that question. So it’s still a bit opaque, honestly, what regulations do or don’t apply to them in which they’re hitting, which is part of the reason that this is of concern to a lot of consumer advocates.

David:
Yeah, absolutely. Is there any data as far as how this is impacting different people from different economic backgrounds?

Alexi:
As far as I’ve seen, I don’t have a kind of demographic breakdown. Definitely the pitch to businesses as to why they should accept this type of payment type is because they’ve seen a large adoption by millennials and zoomer consumers. Millennials, for a while, there were kind of seen as less interested, a little more reluctant to use traditional consumer credit products like credit cards. People raise in the wake of the financial crisis, and so this was pitched as an alternative that doesn’t quite a way to get credit, that doesn’t quite interact with the existing credit system.

Alexi:
So you don’t need necessarily very high credit scores to get access to these services. And whatever you do on them for the most part up until now, whatever loans you’re taking out at the point-of-sale are not being reported to credit bureaus. It’s not designed to impact or relate to your credit score. So it’s like credit without the baggage of the current credit system is how it’s pitched. And so the initial uptake in these products were amongst those demographics, but that’s expanded as they’ve gone mainstream in places like Walmart and Target. And a lot of major airlines are now offering these buy now, pay later payment systems at checkout.

Mindy:
Is there anything predatory or detrimental about this practice? I mean, to me, I am… I don’t know if you could tell, but I’m not a fan. I think this plan, this program is… I’m the host of the BiggerPockets Money Podcast. I have my financial stuff together. I can see that a 0% interest loan would be awesome. Why would I pay now when I could pay later and it doesn’t cost me anything? But I’m also responsible with my credit. I can see that this would be really awful for somebody who doesn’t understand the negative consequences of their misactions.

Mindy:
I, in the past, have missed a credit card payment. I remember missing one credit card payment because the statement didn’t come. I’m really old. This was back when we didn’t have the internet and they would just send it to you in the mail, and things would get lost in the mail. And I remember six years later I was getting a mortgage and the mortgage person was like, “Well, what about this missed payment?” I’m like, “What are you talking about? I never miss a payment.” But there are people who don’t understand how this affects you. And you mentioned that it’s not necessarily set up with the credit system, but they are reporting the negatives. When you miss a payment, that’s being reported in many cases. You’re just not being reported when you’re making the payments. So in that regard, it kind of seems predatory on people who don’t know what they’re doing. I don’t know how to phrase that.

Alexi:
I think it’s a hugely mixed bag at this point. I think consumer credit technologies, including credit cards are in part… The point is that it enables people to spend money. The problem comes when people are spending too much money, or get into cycles of spending and revolving debt that make it impossible to dig themselves out of. That’s been true of credit cards and other forms of consumer credit, as much as it is of buy now, pay later. Of course, with credit cards, that stuff happened in the ’50s and ’60s and in the ’70s. A whole series of consumer protection laws were passed that has curtailed some of the outrageous spending and fraud that came about in the wake of credit cards being this new technology for people to buy whatever they want, with the idea that they would pay for it later.

Alexi:
So it’s kind of a similar thing, we’re in an earlier stage of this technology and we’re watching it play out. In terms of the credit reporting, it is true that for the most part, the way a credit bureau would hear about what you’ve been doing using buy now, pay later services would be if you have been unable to meet multiple payments and then defaulted on your payments. So some of those are sent to credit bureaus. So it is easier for there to be a negative effect from these products on your credit score than for there to be any sort of positive. There’s at least one buy now, pay later company that is kind of… To differentiate themselves, they’re offering a way to report your positive payments, making your payments on time to the credit bureau. So there definitely is like a niche in this space to do that.

Alexi:
In terms of the predatoriness or not, it’s hard to make a call about that. There are particular parts of the design that worry consumer advocates. Our protagonist in our story, as an example of this. Part of the pitch from buy now, pay later companies to merchants when they’re saying, “Use our payment service,” is that it causes this kind of psychological trick by making the purchase price of something look a bit lower or feel a little bit lower when you kind of… It’s something that you see in late, late night infomercials, or whatever. Like, “Four payments of 19.99.” There’s something about seeing a lower ticket, even though it’s attached to installment payments and it’ll be following you in the future, that makes it feel a little bit cheaper or at least you’re not depleting all of your income right in the moment. And so you feel like you can make those payments as they come up.

Alexi:
One of the big problems that people point to is that because this isn’t being reported systematically to the credit bureaus, and these individual buy now, pay later companies are not telling each other about your loans with them. There’s no communication here. You could take out a buy now, pay later loan from four or five different companies. And all of a sudden you’re keeping track of four or five different individual payments. Or maybe if you did multiple purchases with each of those, it can kind of turn into this very confusing rotation of various payments that are coming in at different times. And there’s no credit scoring net that’s going to keep you from spending more and more.

Alexi:
There is a kind of internal system within each of the companies that presumably limits the amount that you’re spending. When you apply to buy something through buy now, pay later, generally, they’ll often run a soft credit check. So they’ll look and see what your credit history is. But a soft credit check means that it won’t impact your credit score. Then they have different kind of algorithms that they use to also determine whether they should give you a loan. And then they’ll set a kind of initial spending limit. So they’ll say like, “You can only spend $200 with us.” And once you have proven yourself through that purchase to be dependable by making three or four of your installment payments, they’ll up your limit. So there’s kind of like an internal credit system within each of the companies. But because they don’t communicate, you can easily get into trouble if you’re going on a shopping spree like our character did.

David:
It’s like the exact opposite of asymmetric returns. It’s like you’re investing and you’re like, “Oh. I might lose 10% on this, but my upside is up to 200%. So that’s a win.” This is like the exact opposite, where it’s like, “Hey, they don’t report anything if I’m doing great. But if I mess anything up, it’s going to bite me.” So there’s not an upside for your credit score, but there’s definitely a downside.

Alexi:
Yeah. I will also say, generally, it doesn’t seem like the kind of standard model is based around nailing you on late fees or getting you into a fee trap structure from what I found and from what researchers I saw found. The main thing about this business model, and this may shift as more and more companies take it up and the larger economics change. But right now, they’re able to do this because they’re convincing enough people to buy more stuff and it actually makes sense for merchants to pay higher fees to adopt these services, to offer these services.

Mindy:
That was going to lead into my next… Or that does lead into my next question. The consumer, when they’re using this program correctly, essentially gets an interest-free loan. But in your episode, you mentioned that it costs the retailer 4 to 9%, which is almost double the going rate of credit card charges, which sounds like it would be a negative program all around. But the result when the consumer is spending less in their monthly payment, is that they’re buying more, they’re spending more overall. So the hero of your story is Amelia. She bought a $200 bikini, but it was really only $41. And then the next day she went out shopping again and she bought sneakers and jeans and sweatpants, and her total bill was going to be like $20 or something. And she’s like, “Well, that’s practically free.” “It feels like monopoly money,” I think is the quote that I got from her.

Mindy:
One time is, okay, no big deal. Let’s say she used this and paid $200 for a bikini and made her four payments, and then she was done. And this was like the bikini of her dreams and whatever. I don’t want to say no big deal. I don’t want to say understandable. But that’s not a financial detriment. I think in the story you even asked her, “Did you learn your lesson?” And she’s like, “I still spend. I still buy stuff online.” And I think that it’s going to be… We’re talking about people who aren’t my age. We’re talking about people who have grown up with the internet. They grew up with your life being online all the time. When I was growing up, the phrase was “Keeping up with the Joneses”. That’s just a phrase. But we have a TV show called Keeping up with the Kardashians, and you see their big, beautiful, glamorous life where they have all this amazing stuff. And you’re like, “Wow, they must be happy because they have all this stuff.” So if I have all this stuff, then I’ll be happy too.

Mindy:
And spoiler alert, they have problems just like everybody else. Money doesn’t buy happiness. But when you’re 19 or 25 and you’ve been living in COVID for two years, and you’re not going anywhere, seeing anything. And all you see is this fake life that people are showing you online, you can think, “Oh, well, if I just had that brown and white bikini, then my life would be perfect.” You’re not going to be happy when you have a brown and white bikini, because that’s not the thing that’s missing from your life. So don’t go out there and… I’m not a reporter. I am definitely biased. And I hate this program so much because I just think it’s awful for people who don’t know what they’re doing, and that’s exactly who they’re aiming at. I asked you kind of a leading question, “Is there anything predatory or detrimental about this practice? Is there anything not predatory or good about this practice?”

Alexi:
Well, I was going to just say on the first point, one of the things that feels a little bit dastardly is the way that these have been so seamlessly interwoven with different kind of social media and influencer culture in a way. Our protagonist Amelia found out about this because a lot of the influencers who she follows and aspires to become, were plugging this new technology from a few different companies in their videos. They would do these haul videos, which are when they try on a bunch of different outfits, they order a bunch of different clothes, tell you which ones they like, how they fit. These kind of shopping videos essentially and then they provide a list of where you can buy the things. And now they offer this new payment system there, which was a big part of the strategy of targeting people in this demographic.

Alexi:
So there definitely is something to be said for like this is targeted for people who generally don’t have a high degree of financial literacy. And so there is like an even higher potential for problems there. That said, I think it’s not… As far as I can tell, there is definitely promise here, right? If you’re somebody who doesn’t have access to other forms of credit and you use these things according to their terms and conditions, there’s a way that you can use this to smooth your consumption in a way. Instead of using payday loans and taking on extremely high interest rates that get you into a debt cycle to make a purchase when you’re waiting for your check to come in. If this is an alternative to that, it is pretty promising. In that like you’re going to buy one thing, if you follow the terms and conditions, you can pay for it, and you’ll get the money later down the line and be able to make the purchase even though you didn’t have the immediate amount to spend.

Alexi:
So as an alternative to other forms of consumer credit, I think there is definitely a promise here. There’s going to be a trade off when it is integrated into the existing consumer credit scoring system I think. Because the way it’s designed right now, if you were just to straight up report these types of purchases to a credit bureau, there are all sorts of things that would make it problematic. Because each time you’re making a purchase with a buy now, pay later service, you’re essentially taking out a new little loan, and you’re taking out the maximum you possibly could take out on that line of credit. So what that would look like on a credit reporter to a credit bureau is like a ton of new loans all the time that are maxed out.

Alexi:
There’s maybe a benefit if you’re paying them off consistently. But basically, the credit bureaus need to figure out a way to actually make sense of this data and make it so it’s not like entirely detrimental immediately if it’s reported to them. And as far as I can tell, that sort of stuff is in motion. This kind of movement of the broader financial system to try to make sense of this new product. But yeah, my takeaway was there are definitely a ton of pitfalls. There are easy ways to get into trouble with this, as there were with credit cards, as there still are with credit cards, if you’re just deciding to charge everything and don’t have the means to pay it back. With credit cards, you’re paying interest. It will negatively affect your credit score as well, which will impact your ability to get a car, or get a house, or whatever else. So there are other consequences to going on this type of spending spree with other forms of consumer credit as well.

David:
But you get points.

Alexi:
That’s true.

David:
Okay. So we mentioned if you miss a payment, then it’ll get reported and it can hurt your credit. But is there any other kind of recourse, like let’s say I bought myself a $200 brown bikini, because why not? And I made the first 41.99 payment and then I didn’t make another payment. But I already got the bikini and I look wonderful in it. So who eats… I mean, I can’t imagine that the company calls and says, “Hey, please send that back.” I wonder what’s the recourse look like? Does the merchant eat it? Does the buy now, pay later company eat it? Like someone’s getting hosed in that scenario.

Alexi:
Yeah. So one of the appeals to merchants also of the buy now, pay later service pitch is that they’re essentially being bought out at the moment that the customer buys the bikini. They are out. If the person had used a credit card instead, the consumer would have chargeback protections and other consumer protections that come specifically with credit cards because of some of the regulations that were put in place in the ’70s, which means that if they didn’t like it, they could initiate a charge back and that money would be pulled back from the merchants. So there are kind of financial risks to the merchants and annoyances that come with credit cards and some other payment things that make buy now, pay later a little more attractive.

Alexi:
Well, basically we spoke to a few of our listeners. We did a wide call out. We talked to people on TikTok about their experiences with this. From the people that we spoke to, it seemed like if they missed a payment for organizational reasons, like they just… First of all, most of these payments are automatic. So you put in either a bank account number or a debit card number or a checking number, and they auto draw every two weeks or whatever the kind of payment cycle terms are. So generally, it’s not like, “Oh, it slipped my mind.” Is not the reason you’re going to miss a payment. If you don’t have funds in your bank account, from the folks we talked to, it seemed like the… Also, a lot of these services will send you payment reminders the week of, through text and other forms. And then if you’re unable to pay, a few of the people we spoke to said, they set a new deadline basically.

Alexi:
And they said, “All right. You missed this payment, we’re going to charge you a late fee unless you can pay within…” I don’t remember what it was, maybe seven days, or 10 days, or something like that. “If you do that, we’ll waive the fee.” So they’re not even necessarily charging the fee at the first time the payment has dropped. Because their model is not really about getting you into a cycle of fees. They want you to be consuming more to be boosting the merchant number so the merchants keep paying the fees. So that’s not really the predatory angle of the model, as far as I can tell. But there is a point at which they will send your payments to collections and potentially sell the debt. So these companies are on the hook as far as I can tell if it were really dropped, and then they can go through the traditional kind of trying to recoup their costs methods which would be collections, which is how it would potentially impact your credit score.

David:
Cool. I mean realistically though. I’m torn on this. I like the way that their business model is charging the merchant for the service rather than the consumer. And there’s not an interest rate and there’s not… It’s essentially the same as swiping your debit card. It’s the same cost, just spread out. And so in some ways, I could see it makes sense. The downside I see is, like we talked about before the show, it’s a tool. And if you, realistically, from basic personal finance stuff, if you can’t afford to buy the item right now, then you probably should just wait to buy it rather than doing this. Because what’s going to happen is you do five or 10 of these things and then for the next quarter, you’re monthly expenses have shot up. And if something comes up, now you’re kind of…

David:
That kind of brings up a weird situation, which is… Let’s say I got crazy and I bought $1,000 a month worth of bikinis. And so now I’m on the hook for $1,000 a month for the next quarter, and then it’ll go away, whatever. But if I’m applying for a mortgage, that’s not going to show on my credit report. So it won’t show on my debt to income. So they may be like, “Oh yeah, totally qualified for the mortgage.” And then I can’t afford the mortgage. So it’s kind of weird… Exactly like what you were saying. It’s because it’s not regulated and they don’t really haven’t figured out what to do with it that it’s like there’s some weird ways to fall through the cracks on this that could help you in some regard. But if you overdo it, next thing you know you’re not even living paycheck to paycheck. You’re like, “oh my gosh. I need this next paycheck so that I can pay all this back to zero,” which is just not a fun spot to be.

Alexi:
As you say, it’s a tool. It is a tool designed to get people to consume more than they would otherwise. And a big part of the appeal is that they’ve targeted this demographic of people who might not have been buying stuff on credit before at all. So it’s a tool, but it’s a tool that preys on people’s desire to consume things, which is maybe a broader problem in society and with credit as a larger engine for our economy, but.

David:
It’s the same psychological tool as why on Sunday, when I was in Walmart getting a toy for my five year old, as we’re doing grocery shopping. And you’ve got, whatever. I don’t know, $10. We’ll say 15. And he points at something and he goes, “Oh, well, that one’s only 14. So can I get something that’s a dollar?” And it’s like, “Well, that’s 14.99.” And that’s a psychological game. So it’s the same thing as like a course being 197 instead of $200. And the funny thing is, that stuff works.

Mindy:
That works on me. That works on you. That works on all of us. I bet it works on Alexi too. Alexi, I don’t want to speak for you but I bet it works on you too. Because you see the one, you don’t see the 97. You don’t round up. You see one.

Alexi:
Yeah.

Mindy:
With one, you round down. It’s practically free because it’s only one. You round a zero. And I’ve used things like this. I do a lot of home improvements. And I go to Home Depot, I swipe my card. And if you use the Home Depot Credit Card and you spend X amount of dollars, you get no interest 4, 6, 12, 18, or 24 months. And I make sure that I pay that off before the end of the promotional period. Because if I don’t, then I owe the entire amount of interest on the entire purchase for the entire time even if I only have $5 left at the end of the thing. So I make sure that I definitely pay that off before it’s due.

Mindy:
But that’s an interest-free loan. I would much rather spend $2,000 over the course of 24 months than right now, because I can then go spend $2,000 at Lowe’s as well and buy more stuff. So I can identify with what they’re doing, but also I can afford to buy the 2000. I’m just choosing the interest-free loan. And I think that’s kind of the difference between the way that I’m using it, which is in a more responsible way than this. This girl, I don’t believe could have afforded the $200 bikini. Or maybe she could have paid $200 for the bikini, but then if she had to, she would not have also bought the shoes and the jeans and the sweatpants and all of the other things. It’s set up and in that way I think it is very predatory. You’re tricking people into paying later these little tiny amounts.

Mindy:
I found an article on sfgate.com about this same concept. Because like I said, until I listened to your episode, I didn’t even know this thing existed. This Celesta from the Bay Area, she’s a fashion influencer on TikTok, said people almost like brag or joke, “Oh, it was only 24 payments of $20.” Or, “I got it with Afterpay so it’s technically free.” No, it’s not free. Even if you’re paying $1 for 47 payments, that’s still $1 for 47 payments. It’s only free if it costs you $0 forever. And it doesn’t cost you $0 forever.

Mindy:
I wanted to do this episode and talk to you more about this because I think there’s a lot of people out there who have no idea that this program even exists. And I can see a lot of people who… Because they don’t know what exists, they don’t talk to their children about it. I would have not talked to my children about this because I didn’t know that existed until very recently. And now this is another thing I have to teach my kids not to do, unless they can use it in the way that it will benefit them. And that is to buy things that you were already going to buy and then just spread out the payments. But only if you do it all the way through. I just don’t see a lot of upside for most people with this program.

Alexi:
Yeah. The other thing to mention is that a lot of these companies now become kind of like marketplace platforms. So you can actually go shopping or they’ll send you… You can go shopping through their platforms essentially. So it makes another kind of avenue, another app on your phone through which you can go and find deals and use their service.

Mindy:
No.

Alexi:
So that’s another thing people should be aware of if they’re thinking about downloading any of these apps. And that’s also brings up one other thing. The CFPB is also looking into what type of data is being harvested from people’s phones, and whether and how that’s being sold and packaged. So that’s not clear yet, but because it’s such a kind of digital technology because it potentially interacts with other apps on your phone, like what is tracked is not exactly clear yet. So that’s another thing regulators are concerned about and looking into.

Mindy:
Well, and it’s not all wine and roses for these companies right now. I noted that Klarna just announced that they’re laying off 10% of their workforce, and a firm has lost nearly three quarters of its stock value since the beginning of the year. I mean we’re recording this at the end of May where everybody’s lost a ton of their stock value. So I can’t really say that that’s all due to this. But some of these companies are being sued in California saying that they’re acting like lenders, so they should be registering as lenders and then being regulated as lenders. So I think there’s a lot of… What is it? It’s a learning time and an exploratory time to try and figure out. Because I think it’s kind of funny that Silicon Valley moves so fast and then the stodgy lawmakers have to scramble and catch up. Do you remember when Mark Zuckerberg was in front of Congress and one of the Congress people was like, “Can you tell me why my iPhone does this?” And he was like, “I don’t work for iPhone.”

Alexi:
Those are my competitors there.

Mindy:
Yeah. They don’t understand what’s going on. And because they don’t understand what’s going on, they don’t know how to regulate it. And so it’s this… I’m so flustered, because I’m so frustrated because we don’t have financial education in school. My daughter is a freshman. Tomorrow’s her last day of freshman year of high school. And with her entering class, her high school class is the first class in Colorado that is required to take financial education before she graduates. And she has to take a whopping half semester, and I’m like, “Oh, well, don’t put yourself out.” I don’t even know what they teach in this whopping half semester, which doesn’t come until her junior year. And by that time, she could have already gotten herself into a whole bunch of debt with this stupid Klarna and the firm and Afterpay.

Alexi:
There’ll be four new buy now, pay later and other types of financial technologies we haven’t heard of yet by the time.

Mindy:
Exactly. Exactly. Okay. So the moral of this story is talk to your children about credit and how buy now, pay later, and all this online shopping, and all this craziness. Because you can get yourself into a world of financial hurt even when you think that it’s monopoly money. “I had no idea that I had to pay this, and it’s technically free because it’s only a dollar.” It’s not only anything unless it’s only zero.

Alexi:
Yeah, interest-free does not mean free.

David:
They should make a net worth requirement for teaching that financial class. Because it’s kind of ironic that you know that whoever’s teaching it probably they took a class in college and they may or may not actually know anything about finances. But at least they’re trying, which is cool. You mentioned something, Mindy. I was trying to figure out how to word this. But the idea that they should be regulated as lenders is interesting when you consider that… Like they’re not lending you funds, they’re not charging you interest, and they’re not charging you fees.

Mindy:
Well, what about a mortgage? When I go and buy a house, the mortgage company doesn’t hand me $500,000 and say, “Okay, now go give that to the title company.” They send it directly to the title company, who gives it to the person who pays off their mortgage. This is the same thing.

David:
That’s true. They charge points in interest and fees. So it’s like… Yeah-

Mindy:
Still loaning you the money.

David:
… it’s like this weird loophole that’s just hanging out over here like, “Oh I hope no one sees us.” Like, “Please don’t regulate us Mr. CFPB.”

Alexi:
Yeah.

Mindy:
Well, but they’re point-of-sale loans. Buy now, pay later is a point-of-sale loan. And just because they’re not charging interest, doesn’t mean it’s not a loan. They are giving somebody money on your behalf so that you can buy something that you don’t have enough money to pay for outright, or that you’re choosing not to pay for outright. So that…

David:
You’re right.

Mindy:
Yes. Wow. Could you say that again? I didn’t hear that.

David:
My mic suddenly stopped working. I don’t know what’s happening.

Alexi:
Buy now, pay later is a way of describing any loan also. I mean whether you’re buying the house now and paying for it later, or a car, or anything else, it’s kind of baked into the concept.

Mindy:
Yes, but this is… Now we’re kind of splitting hairs, but I see what you’re saying. Yes, credit cards are buy now, pay later in installments and I don’t have to pay the whole thing all at once. But it’s different.

Alexi:
Yeah, it’s revolving instead of installment basically. They both use fees. But credit cards depend on those interest payments as well to be profitable, whereas this just gets the money for the moment from a different place for the most part. Even though buy now, pay later companies do offer longer installment payments for interest. So they act a little bit closer to what a traditional credit card.

Mindy:
I wonder how they would act if they were regulated like lenders are. If they had to follow all the same rules, would they change their tune? Would they change the way that they behave? I mean they would have to change the way that they behave. I wonder if they would still exist as many of them.

Alexi:
Right. Well, the other thing we didn’t mention too, is that it’s actually even gone beyond personal finance consumer, or it’s beyond consumerism or shopping or something. Now it’s spread to, you can pay for some types of medical bills or dental bills or small business financing or home improvement. You could take out a kind of buy now pay later loan to do some of the work you were describing, going and doing yourself at Home Depot. So it’s expanding to become a model for other types of act of commerce basically.

Mindy:
I think it could have its place, but I think we need to enact more regulations around it. And I really am hesitant to say that because the government’s really good at screwing things up. But I think that they need to do something so that there’s more laws in place so that you have to follow all the same guidelines. So there’s not just this loosey goosey, whatever.

Alexi:
Yeah. Well, one last thing I’ll say is that to me, it felt really reminiscent of kind of the way that credit card spread and were ultimately adopted and then regulated to some degree. Credit card started as, maybe in department stores or to particular business. You had credit within one business. And then eventually, a few of these networks came together to make cards that they could convince merchants across the economy to use and become interchangeable to make universal cards. And then there were all sorts of preposterous ways they tried to get people to use them.

Alexi:
They mass gave out credit cards in people’s mailboxes. And there was all sorts of ridiculous shenanigans in the early years of credit cards that led to problems with overconsumption and spending, problems with fraud, that then led to the regulatory framework that now is just kind of normal to us. And so this feels like a new type of consumer technology that’s also started with individual businesses targeting individual demographics and is now expanding. And now the traditional financial institutions are like, “All right, we’re going to start offering versions of this to compete.” But there hasn’t been a kind of full regulatory reckoning. So we’re still in that leading edge moment of kind of new technology.

Mindy:
Wow. Yeah, I think that’s a really good point. That’s a really good comparison that you’re making. I can see the parallels. That’s very interesting. Well, I’m excited to see how this goes. I’m excited to see some regulation coming, and I don’t really think that that’s going to come anytime soon. So if this is something you’re planning on using, the buy now, pay later, just do it with extreme caution and read the fine print. Oh my goodness. Read the fine print of this thing that you’re doing before you do it. Put it in the cart and then walk away and think about your purchase. Do you really need that brown bikini? David, you would look smashing it and it goes with your beard. But do you really need 20 of them?

David:
No, no, just two or three.

Mindy:
Okay. Alexi, this was so much fun. I really appreciate your time today sharing your thoughts about this program with us. And I appreciate you bringing this up just in general because this episode was really, really, really helpful to keep me informed of all the new crazy financial shenanigans that Silicon Valley is coming up with. I can’t wait to see what else they come up with.

Alexi:
It’s an exciting new world. Thank you guys so much for having me. It’s been a pleasure.

Mindy:
Okay. We’ll talk to you soon. All right. David, that was Alexi Horowitz-Ghazi from NPR’s Planet Money. I really enjoyed talking to him. But I do not like this program, this buy now, play later. I think there’s a lot of potential upside where people could use it responsibly, but like credit cards, like other loans, people are going to use it negatively. And I just think that there’s not enough regulation around it and it’s targeting people who don’t have enough education. But then even as I say that, I’m thinking, “Well, yeah. But what about credit cards? People get themselves into problems with credit cards. Why don’t I have such a problem with credit cards or other types of loans?” I don’t know what it is about this particular program, maybe because it’s in its infancy and there’s no regulation around it. But I don’t like this nearly as much as I’m okay with credit cards and other things, because points.

David:
Yeah. The lack of regulation is definitely something to… I don’t want to say worry about, but to be aware of. And then I think the other thing that got me on this, as far as just not being a fan, is the fact that if you use it, there’s absolutely no upside to your credit or your credit history, or anything of the sort. But if you fail to make a payment, then there is a downside. It’s the exact opposite of what you want as an investor. You want very minimal risk, massive upside potential.

David:
This is very little gain other than whatever item you want, and massive downside potential. Not to say that it’s a terrible… I mean they’re not charging fees, they’re not charging points or interest. So there are worse options out there. But, I would say if you’re looking at doing this, maybe the better bet is to just put that $45 away for four months and then buy it at once. And then you don’t have to worry and run the risk of someone messing with your credit because of a missed payment, or whatever. And then hey, three months, four months down the road, if you still want it, then cool. Go buy it. And if you don’t, then you’ve got 200 bucks that you can now invest.

Mindy:
What a great idea. Save for the purchase instead of making the purchase and scramble to make the payments later. I love it. That was a good point, David. Okay, should we get out of here?

David:
We should.

Mindy:
From episode 312 of the BiggerPockets Money Podcast. He is David Pere and I am Mindy Jensen saying, “Take care, polar bear.”

UBS’s John Lovallo joins ‘Closing Bell’ to discuss a moderating housing market and where prices could go from here. With Ariel Investment’s Charlie Bobrinskoy.

Ashley:
This is Real Estate Rookie, episode 194. 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, information and education you need to kickstart your real estate investing career. So Ashley Kehr, what is going on today. I see you don’t have your typical hip hop T-shirt on. You got some country on today. Felt like switching it up, I see.

Ashley:
Yeah. You know what? I feel like everybody knows my gangster side, so I got to show my countryside a little bit here.

Tony:
Got to represent both sides.

Ashley:
Got my Kenny Chesney, she thinks my tractor’s sexy, T-shirt on. Yeah, so I actually found the other day, this bin in our basement and it’s all my husband’s old T-shirts from when… I mean, he’s a, don’t want to brag, and I’m a lot younger than him, so he has all these ’90s T-shirts from concerts he went to. So I was going through all of them, I’m like, “Geez, some of these are cool, vintage, country T-shirts,” so I might start-

Tony:
There you go.

Ashley:
… throwing them out here on the podcast.

Tony:
You got your own thrift shop. Yeah, you got your own thrift shop in your basement.

Ashley:
Yeah.

Tony:
I love that. Well, what else is new Ash? What’s going on?

Ashley:
So my business partner, Joe, who’s actually been on the podcast before, he’s been pretty stagnant, shall I say, in his real estate investing in the past, probably, year and a half. He built his own house. He had a baby, so he’s been super busy. Well, he has been talking to me a little bit more about getting another deal, working on a project and today, I was so proud. He sent me a property and he said, “I set up the showing and we’re going at 5:30 today.” I said, “I am so proud of you for finding the deal, getting us to showing. Now, how are you going to pay for it?” He’s like, “Well, I’m poor, so you got to pay that out.” But, I was super happy for him that he is ready to get back into investing and taking some initiative after taking some time off. He has a full time landscaping business that he runs, so it is still his side hustle that he does, but yeah. Excited for him to get back into it.

Tony:
That’s awesome. What kind of property is it? Is it a single family or duplex?

Ashley:
Yeah, it’s a single family and it’s actually right near his house where we’ve also purchased a property before. This area, there’s actually a waste management dump site. I don’t even know, a landfill, I guess that’s what it’s called, and in that town… So he lives on the far end of the town and the landfill is on the other side of the town, so we purchase properties near his side because the landfill, they actually pay the majority of the property taxes.

Tony:
That’s awesome.

Ashley:
It’s something to do with, oh, because of the smell of the garbage. Well, you can’t smell it at all when you’re on the other side of the town. So the property taxes, I mean, are ridiculously cheap, especially in New York State, so we find that very attractive to purchase in this area.

Tony:
Tip for new investors, always look for the landfills. That’s where you’ll find the best deals going forward. No, cool. I’m excited for you guys. Keep us posted on how that deal turns out and I’m glad to see Joe back in the game.

Ashley:
Yeah. I don’t know. Joe was on one episode. We did a partnership. It was with Sarah too. We had her on talking about partnerships, so you guys will have to go back and find that in the one of our past episodes and take a listen.

Tony:
Yeah. Cool. Well, glad things are moving along. I mean, we’re busy, busy, busy, right now, but one of the things we did most recently that has been tremendously helpful is we hired some folks onto our teams. So we have four people that we added to our operations team.

Ashley:
Wow.

Tony:
So we’ve been ramping them up over the last couple of weeks, and it has been like a life changing experience to have some other people to manage all the different pieces of the operational aspect. We’ve got some virtual assistants that we hired for the front end guest communication, then we hired an operation’s manager that manages those VAs and deals with the bigger, more strategic issues that pop up. So me, Sarah and Omid are slowly getting some of our time back, so that way we’re not so much in the weeds and we can continue to focus on growing the business. Busy training people, but also, we can see the light at the end of the tunnel that it’s going to be one of the best decisions we’ve ever made.

Ashley:
Yeah. I remember Sarah did this Instagram reel where you guys went to Disneyland, I think. It was like, a day in the life of an investor at Disneyland, and it’s like, “Oh, got to take care of this call. Got to shoot this interview message.”

Tony:
Totally. All that was so real. People were asking, it’s like, “Oh, is that staged, where you guys…” And I’d be like, “Literally that is the life that we live.”

Ashley:
I’ve been with them places, and I know it’s real.

Tony:
Yeah, so excited to start building the team out so we can grow this into an actual business and not just a job for ourselves.

Ashley:
Awesome. Well, today we want to talk about, actually, some apps today that help manage your business easier, too. We both created a list of different apps that we use every day for different things in our business, and we thought maybe these would help you guys, be an interest of you. As real estate investors, we’re usually always on the go and we don’t always have time to sit down, at a computer, and pull up software or to go onto our computers and try different things out, so with apps, you do everything from your phone.

Ashley:
Some of the apps that I use when I am looking for deals, the first one, pretty obvious, is Zillow or realtor.com. Those apps just to scroll listings. The next is LandGlide, so this is an app that shows you parcel information, so you can input an address, or you can search, maybe if you’re driving around and you see a house, you can pull it up on the map, see who the owner is, the mailing address. PropStream is another one that is similar to that, and then there’s also onX Hunt. This is my favorite one. It’s actually a hunting app, so you can pull up information about the property too, but it also tells you, and LandGlide does this too, as to how much of the property of the parcel is maybe forest, how much is field? How much is the actual building? Are there other buildings on it? I think that’s really cool too, especially if you’re looking for vacant land deals or lots of acreage, you can find out what exactly that acreage is composed of.

Ashley:
Then there’s also DealCheck, which is just a way to analyze the property and will actually pull information from the Amalas, such as Zillow, into the calculator for you when you input the address. Then there is Homesnap, where you can actually take a picture of the property, and it will actually pull it up for you, the information on it, so it uses your GPS tracking on your phone, so you have to have all those location services turned on. But these apps also tell you too, the outline, the survey of the property. They’re not 100% accurate, but if you’re walking a property, I like to be able to see where the actual lines are, where the property ends and starts. Those are my big ones for finding deals.

Ashley:
The next ones that I use are more just to keep my head in place, and the first one is Personal Capital. So this is where I can link all of my bank accounts, all of my credit cards, even my investment accounts, and I can just open it every day and I can see just a little dashboard of what all my balances are on all of them. Then I use Easy Calculator, so this is a free app with so many different calculators. So I use it to compute interest only payments. I use it to compute principle and interest payments to pull up an amortization schedule. And then I also, sometimes when I think about, “Okay, if I put this much into my kids’ savings account, or their investment account,” and I see on average, it takes 9%, I like to see in 10 years how much money will kids have in their invested account. So those different calculators I like to use and they come handy. They’re so quick to open up.

Ashley:
Then the next thing is Google Tasks. So this links with all my other Google products, so Google Calendar, Google Docs, all these. So Google Tasks is just a really easy way to input things I need to do on the go and you can set them so they’re actually on your calendar to remind you. You just check it when you’re done and it disappears, but you can always go back and look at what you’ve actually accomplished for your day.

Ashley:
Then the last app that I’ve used is Hours Tracker. And I’ve used this two different ways, so Hours Tracker, I’ve used it as time tracking to see where my time is going, where I’ll just log in and log out as to, “Okay, I worked on my business for three hours here, and then I made lunch for an hour, and then I scrolled social media for an hour,” and it’s like, “Okay, there’s where my time is wasted. There’s where my time is productive.” But I’ve also done it to track different projects. Darrell that I work with, he’s used this too, is to like, “Okay, he’s working on managing this rehab just so we can get an idea too, of where his time is actually going.” So I found that app, Hours Tracker, very valuable. And those are the main apps that I use throughout the day, besides my text messages and my mail. Actually, I don’t even respond to text messages, so I wouldn’t even include that one.

Tony:
Well, Ash, that was like an encyclopedia of real estate investing apps, so it’ll be hard for me to top that, but I have a couple that I think are cool. The first one that I’ll talk about isn’t even about real estate investing. It’s about content creation and I’m starting with this one first because I think so many people can benefit from sharing their journey about investing on social media and other platforms. One of the apps that I was using is called Splice, so S-P-L-I-C-E, and it’s a really easy to use social media editing app, and it allows you to export in the reels or TikTok sized format. You can add captions and music and all kinds of other things, so it’s a really easy way to take your normal content, spruce it up a little bit, so it gets a little bit more love on social.

Tony:
The next one I use, similar to the Hour Tracker one, but it’s called Time, and this one directly integrates with QuickBooks, so that’s why I like that one. My CPA recommended it. I was using it more so for the real estate professional status, so you have to track your hours to show how much time you’re putting into the business, so we were using it for that reason, so time by QuickBooks. MileIQ is another one that I really like, so that one helps you track mileage on your vehicles. I can’t remember if that one integrates with QuickBooks or not, but QuickBooks has another version of a mile tracker app that’s really helpful.

Tony:
The next app that I use is the Schlage app, so at all of our short-term rentals, we have a keyless entry pad and we’re able to remotely unlock or lock that using the Schlage app, and then we can also create, delete and edit unique codes for all of our guests using that app as well, so the Schlage app is super helpful as a short term rental owner. The next app we use for the short term rentals is the Ring app. The Ring video doorbell, they have a whole suite of security devices. They also have the Ring floodlight camera, which we have at every single one of our properties, and that’s cool because you can check and see who’s coming in, who’s coming out. If you ever need to scare someone off of your property, you can make the alarms go off. We’ve had to do that once or twice, so the Ring gap is definitely a helpful one.

Tony:
Then the last one I’ll mention that’s productivity base or, probably not even productivity based, but the next one I’ll mention is the Loom mobile app, so if you guys don’t know, Loom is a screen recording website where you can go and take quick screen recordings of what you’re doing to give video instructions to someone, but they also have a mobile app. I found that to be super helpful because sometimes we’re out or we’re doing stuff on our phone and you can record a quick Loom on your phone as well, so that’s pretty cool.

Tony:
Then the last two I’ll mention, these ones are strictly productivity. First is monday.com, so we’re big on trying to have project management software for our business. We used to use Wrike, we’ve since switched over to monday.com. There’s a little bit more customization you can do there, but if we’re ever on the fly, we need to take track of something while we’re on the go, the monday.com app is super helpful.

Tony:
Then the last one is a Miro, so M-I-R-O. Miro is a brainstorming app where you can do… What are those things called? Little thing with the… Why can’t I remember what they’re called?

Ashley:
Like a-

Tony:
Anyway, it’s a brainstorming thing.

Ashley:
An organization chart?

Tony:
Or you can put-

Ashley:
Like a brain dump?

Tony:
Yeah.

Ashley:
Yeah.

Tony:
Or a chart. Yeah, exactly.

Ashley:
Basically think of a white board-

Tony:
You guys know what we’re talking about, right?

Ashley:
… with Post-it notes thrown up all over it.

Tony:
Yeah. It’s going to drive me crazy that I can’t think of what the heck that diagram with the lines. I don’t know why I can’t think of what this is called.

Ashley:
Yeah. Tony, actually just got me started using that too, when we started brain dumping ideas for the podcast. I have to say, I really enjoy it too, because right now, I actually have this huge whiteboard sitting in my living room and I think that this app is finally going to get me away from whiteboards.

Tony:
The whiteboard? Yeah, it’s a mind map.

Ashley:
Mind map.

Tony:
That’s what it’s called. A mind map.

Ashley:
Yeah. Okay.

Tony:
Yeah, so you can make mind maps, flow charts, all kinds of other things and just any brainstorming. For most people that are entrepreneurial, they have a thousand ideas a day, and it’s easy to let those ideas slip and you have this great idea and you never execute on it because it came and then it went, so for me, I love having the Miro mobile app because anytime I have an idea about any part of my business, I open up Miro. We have a board for that specific idea. I drop a little note on there, that way I can come back to it later when it’s time to execute, so the Miro app is something I use really regularly as well. So I think that’s everything on my side Ash. Those are all the big ones that we use on a regular basis.

Ashley:
Yeah. I’m definitely, pretty sure, I’m going to switch to that Time one, because I like that it integrates with QuickBooks because that’s what I use. Then I didn’t know that Loom had an app too, so I’m definitely going to download them.

Tony:
Yeah.

Ashley:
Yeah, so thanks Tony.

Tony:
There you go.

Ashley:
Thank you guys for joining us this week for this week’s Rookie Reply. I’m Ashley at Welcome Rentals and he’s Tony at Tony J Robinson on Instagram. We will see you guys on Wednesday.

CNBC’s Diana Olick joins ‘The Exchange’ to discuss this week’s housing data, including new homes, interest rates, homebuilder earnings and forecasts.

One of the biggest talking points of the last couple of years has been the gap between supply and demand in nearly every industry, from real estate to energy.

Inflation hit 8.6% in May, according to the latest CPI report and gas prices spiked to a record average of $5 and over across all U.S. states for the first time as the cost of an oil barrel climbs to $120. Broken supply chains have caused catastrophic supply and demand issues in nearly every sector of the economy, giving us the perfect storm of inflation. 

However, despite the outlook, AirDNA’s May Review indicated that supply, at least in the short-term rental market, might finally be catching up with demand.

Occupancy Falls By 8.6% As 84,000 Listings Are Added

In data generated by both Airbnb and VRBO, 84,000 new short-term rental listings were added to the market, creating a 57,000 net increase after removing closed listings.

In total, there are roughly 1.3 million listings available for rent in the United States, which is up nearly 25% year over year. This marks a record high for total available listings in the U.S.

While demand has been extremely high, especially as some reports suggest that this will be a hectic traveling summer, occupancy fell to 60.2% in May. 

While there doesn’t seem to be any worrisome signs to keep an eye on just yet, falling occupancy rates aren’t exactly an STR investor’s favorite statistic. Yes, listings were added month over month, but if demand is as high as it is, then you wouldn’t expect a sharp near 10% decline in occupancy heading into the busy season. Instead, occupancy is mirroring 2019s numbers more than 2021, for better or worse.

The fact of the matter is that supply outpaced demand in the short-term rental market, despite this summer supposedly being the season of “revenge travel,” as some pundits have labeled it. 

But when we consider the larger factors at play in the economy: high inflation, expensive gas, expensive goods, expensive flights, and a Fed determined to slow down inflation with historic interest rate increases. These are signs that the brakes need to be pumped on the economy, and it’s already starting. Typically, travel slows down with the brakes.

Understanding the American Consumer

In a survey conducted by Credit Karma in May, 51% of Americans reported that their financial situation was worse off than it was at the beginning of the pandemic. However, 30% of Americans plan to spend more money this summer.

Even more concerning, but adding to the surprising rationale, is that almost 33% of Americans reported taking on debt to afford rising gas prices. Yet, 22% said that they were planning to spend an extra $1,000 more than their typical budget. 

Why? Why do Americans, who are feeling tremendous financial pressure from a variety of directions, feel the need to bloat their travel budgets?

It turns out it has to do with making up for lost time (33% of respondents), taking advantage of normal life again (38%), and the fear of missing out (25%). While living life to the fullest is not bad, there are real barriers to travel that can and will prevent someone from going somewhere if it will result in financial instability when they get home.

This is where short-term rental investors or prospective short-term rental investors need to be careful.

A Warning for Short-Term Rental Investors

I’m not ringing the alarm bells and signaling the end of times. I’m just being cautious about a lot of the news and reports coming out.

While short-term rentals are by no means in any jeopardy at the moment, in fact, STRs can be quite “interest-rate proof” during these times. I will say to be careful of the reports on travel and a booming season.

STRs are rapidly expanding and continue to boast growth. Nor has supply met demand nearly enough to justify lowering prices. But there is a looming recession and clear indications that many U.S. consumers are falling behind in their finances. When you put these two together, one of the first budget items to get cut is travel, regardless of how much people want to get out and about. That’s just how economics works.

As an investor, you should be prepared for the worst. In this case, low occupancy due to a recessionary environment. Depending on your market and the type of rental you’re operating, occupancy varies with the seasons. Do what’s best for your business in the long term. Be prepared for economic fallout and changing STR laws (many local governments have turned their attention towards making it harder for STRs to operate in order to create more housing availability).

Don’t allow yourself to be blindsided. Many investors have enjoyed the short-term rental growth sparked by the pandemic. But now, times are changing again, and we must be prepared for what’s to come, good or bad.

Ready to invest in short-term rentals?

From analyzing potential properties to effectively managing your listings, Short-Term Rental, Long-Term Wealth is your one-stop resource for making a profit with short-term rentals!

Finding cities with the highest rental appreciation is crucial if you want to make a profitable investment in the rental market. Even in an expensive housing market, finding suitable buy-and-hold assets is possible if rent prices are rising. There are plenty of rental properties in great places for investors. 

The hot housing market in the U.S. means that it can be a boom time for investors—if you know where to look. According to Reuters, home prices are expected to rise by 10.3% in 2022. However, some analysts say it may slow down by 2024 to around 4%. Others have different predictions, such as a 10% price correction in either direction.

With rising inflation and the cost-of-living crisis, the rental market in the U.S. is set to grow over the next few years. So, where are the top cities with consistent growth in the rental market if you are considering buying an investment property? 

This article lists the best rental markets to invest in 2022.

The Top 10 Best Rental Markets to Invest In

Rental properties are an excellent way to earn regular income from secure investments. To ensure a high return on investment (ROI), finding affordable properties with excellent cash on cash return is crucial. 

A quick glance at a property value map makes it easy to see where the best investment properties in the U.S. are. For example, Florida, Texas, South Carolina, and Ohio all have cities with affordable housing prices, high rental yield, and tremendous job growth.

1. Orlando, Florida

The housing market in Florida always performs consistently well for real estate investments. High demand for single-family homes and global attractions like Walt Disney World and Universal Orlando means investors can make excellent profits off short-term rentals. Additionally, the amusement parks mean there are always plenty of job opportunities.

The average home price in Orlando is $367,000, and the median rent is $1,820. However, it’s possible to buy investment properties cheaper and lock in the same rental rates in some areas.

2. Tampa, Florida

Like the rest of the Sunshine State, Tampa’s housing market remains excellent for investors. Stock availability is the primary reason Tampa performs well, and home prices continue to rise. In 2022, the median sales price for a Tampa-area property was $390,000, and the average rental rate for a one-bedroom apartment was $1,897. 

It’s good to note that analysts predict that active listings in the Tampa housing market will drop, leading to a surge in rental demand.

3. Salt Lake City, Utah

The Salt Lake City housing market has experienced a boom in home prices and rental rates over the previous few years. Limited inventory, increased demand, and low mortgage rates have resulted in tremendous appreciation. According to some reports, the median home value in the city increased by 24.1% in 12 months. Similarly, rental rates have experienced a 21% increase. 

There is no sign that the Salt Lake City housing market will slow down in the coming months, especially as big tech companies like Microsoft and Adobe move in.

4. Austin, Texas

Austin has been one of the hottest real estate markets in the United States due to tons of investment and explosive job growth. According to the Urban Land Institute, Austin has the highest projected population growth over the next five years. You’d have to put Austin at the top of the list for real estate prospects.

The average cost to buy a home in Austin is $639,900, and the average rent is $1,735. However, it’s good to note that rental rates in the city are increasing at over 15% per year. Rental appreciation and year-round warm weather make Austin an ideal city to buy a residential investment property. The only challenge you may find, especially as a newer investor, is being able to find good deals in Austin.

With a housing market exploding as much as it is there, you’re paying top dollar for most properties.

5. Boise, Idaho

In 2021, Boise was one of the hottest housing markets due to a growth in home sales, a strong economy, and monthly rent prices. Factors that make Boise ideal for long-term investment include:

• Strong population growth.
• Steady growth in the jobs market.
• Low fixed-mortgage rates.
• Low unemployment rates.

Even during the COVID-19 pandemic, home prices in the city continued to rise. 

In 2022, the median house price in Boise was $425,000, a rise of nearly 28% compared to 2021. If you rent a house in the city, you can expect an average rental income of $1,574—a rise of over 50% over the past three years. 

6. Raleigh-Durham, North Carolina

Raleigh and Durham consistently appear on the list of best real estate investment markets. Compared to other cities in the U.S., the rental market in Raleigh-Durham is large—around 43%. In addition, the large student populations from Duke, North Carolina State, and the University of North Carolina at Chapel Hill mean there is always a demand for rental apartments. 

According to some figures, Raleigh and Durham’s homes sell for a median price of $405,000, a 22% annual increase. For interested investors, the average rent price in the metro area is $1,522. 

7. Cleveland, Ohio

Cleveland has an excellent market for investors wanting to invest in apartments. Although Cleveland hasn’t experienced the population growth of other cities, many young professionals are looking for rent accommodations in downtown Cleveland. In addition, in 2021, 10 Fortune 500 companies have a headquarters in the city. 

Cleveland is one of the most affordable cities to buy a rental property. Median home prices are as low as $115,000. With average rental rates of $1,238 in Cleveland, investing in rental properties provides an excellent ROI.

Overall, Cleveland is one of the best cities to find a good deal in. 

8. Houston, Texas

Houston is the 4th largest city in the U.S. and is continuing to grow each year. Excellent job prospects and a vast metropolitan area make investing in Houston real estate a sensible choice. However, investors find that despite the large housing stock, properties sell relatively fast. According to data from Redfin, the median days on market in Houston is currently 13 days.

Median home prices are 21% below the national average, which should make finding a good deal a little more possible. Overall, you can expect an average rental income of $1,263 per month.

9. Atlanta, Georgia

Atlanta offers solid investment opportunities for buy-to-rent investors. Over the past few years, the city has experienced a population boom, growing on average by 14%. Also, a rapid job growth rate—10% above the national average—continues to attract more residents to Atlanta. 

The median listing price of an Atlanta home is $412,000, and the average rent for an apartment is $1,812. 

10. Phoenix, Arizona

Phoenix is an excellent place for buying an investment property because of its affordable real estate prices and tremendous economic growth. Average home selling prices have surged by 17.8% since the start of the pandemic, making it one of the hottest housing markets in the U.S. In addition, the city attracts people from more expensive areas like Los Angeles and San Francisco. 

The median listing price of a home in Phoenix, Arizona, is $392,500 and the average price to charge for rent is $1,547. 

How to Analyze Real Estate Markets

Whether you plan to flip a home or buy and hold a property, an accurate real estate market analysis is key to your success. If all that sounds overwhelming, don’t fear. This guide explains exactly how to perform a market analysis, which will help you decide if an individual property matches your investment targets. 

David:
This is the BiggerPockets Podcast, show 626.

Zach:
I mean, there’s not a lot of difference. Whether you have a $200,000 single family in the Midwest, a $2 million deal in a more expensive neighborhood, you still evaluate the numbers the same. So don’t limit yourself looking at the larger deals and getting scared at participating in those, even if it requires bringing in some private money.

David:
What’s going on, everyone. I am David Greene, your host of the BiggerPockets Real Estate Podcast. Here today with my fantastic co-host, Rob Abasolo, where we get into an interview with the CEO of Rent To Retirement, Zach, was it Lemaster, or how did he say it? Zach Lemaster. You know what’s funny is when Brandon did these shows, he always messed up the last name, and now I, as the host, find myself doing the exact same thing. It’s funny, because when I was the cohost, I always knew what it was and as the host, I don’t.
Well, Zach gives us a great interview from several different dynamic perspectives of real estate investing. So Zach owns investment property himself all across the country, some of it small multi-family. We get in to talk about a luxury property that he actually bought in Colorado in a ski area that he’s going to be renting for $5,000 a night at peak season.
He also owns a turnkey company. You may have heard their name, Rent To Retirement. They are familiar in the BiggerPockets space. You probably heard his ads on our show. And we get into how he runs a company, how he hires, why he believes turnkey could be better for some people. Really good stuff. Rob, what was your favorite part of today’s show?

Rob:
I think it was really nice to hear his insight into turnkey properties. He really spoke a lot on stacking your strategy and staying hyper focused, because he’s had a very cool trajectory in his real estate journey. He went from being an optometrist to going into wholesaling, then to residential, then to commercial, and like you said, incredibly successful business owner as well. So just really fun to always dig into those stories a little bit deeper.

David:
Absolutely. Before we bring in Zach, let’s get to today’s quick tip. Today’s show, we talk about the W-2 mindset and how it doesn’t always fit into the world that we work in, which is an entrepreneurial space, what I call the 1099 environment where you don’t have clear paths drawn out for you for an employer to walk in. You’ve got this huge, immersive 3D environment. You can take any path you want and it can be very scary and unsettling when you bring a W-2 mindset into this world.
So ask yourself, in what ways are you operating in a W-2 mindset, ways that you may be and not know it? Is it a unseen expectation that other people should be telling you what to do? The thought that when something goes wrong, somebody else should be having to fix it and not you? The belief that you shouldn’t have to do work after 5:00 PM, or that during the hours of 9:00 to 5:00, you need to be working all the time?
None of these are rules that are hard and fast, set in stone, they are habits that we’ve created because we’ve worked in a W-2 world for so long. And if that’s you, that’s okay. But if you’re trying to get into the world that Rob and I and Zach operate it on a daily basis, that could be holding you back. So find out somebody, sit down and talk about what ways you might be experiencing a W-2 mindset that’s holding you back. Rob, do you have anything you want to add on that topic?

Rob:
No. I think it’s always very helpful to talk to someone who’s actually made the leap and has struggled with just going full on in the self-employed. And I think one, funny enough, I always used to say that I was unemployed and then Tony Robinson, Rookie host was like, “No, man, you’re self-employed, be proud of it.” And I was like, “That’s right. I am.” So find someone, pick their brain and learn. That’s all you can really do.

David:
All right. Well, that sounds great, Rob. I’d say without anymore ado, we should get into our interview with Zach. Zach Lemaster, welcome to the BiggerPockets Podcast.

Zach:
David, Rob, thanks so much for having me. I’m excited to be here.

David:
Yeah, we’re glad to have you too. So let’s get started by asking you, what does your portfolio look like right now with real estate and business?

Zach:
Absolutely. This is an ever evolving scenario, but today what we’re looking at, we mainly have transitioned to owning a lot of commercial retail space. That’s the majority of our personal holding. So we have 30 commercial spaces or doors, I guess that’s spread out across seven doors. We have 29 residential units. Two of those are single family in Canada that we own. My wife’s Canadian. Majority are here in multiple states. We have a couple duplexes, one fourplex in that. We have one very unique, large short term rental and we have 18 build to rents. Those are all single family.

David:
Awesome. And then what about from the business side?

Zach:
Yeah, on the business side, so what we’re doing is our core business Rent To Retirement, we’re a turnkey provider. And so we work in multiple markets throughout the US, mainly in Midwest and Southeast. We probably do about 50 houses a month. These are mainly single family or small multi where they are rehabbed, leased, and managed for our investor clients. And so that’s really our core business.

David:
Sweet. So you’ve got your wealth in real estate. You make your money and business in real estate. You are like us, a real estate nerd. So how did you get started in this whole space?

Zach:
Yeah. I think real quick to your point, David, it’s interesting is we interview a lot of people that are really successful in real estate and other businesses. There’s so many people that make money outside of real estate and other avenues and put it into real estate. And there’s so many people that flip houses, but don’t hold houses. I always thought that was a very interesting thing.
But going back to our story, so I’ll try to keep this somewhat short for you. We have a background in healthcare, I guess. My wife and I are optometrists by education. We met in school in Oregon. I think I initially got interested in real estate investing, as many people did, reading just Robert Kiyosaki, Rich Dad Poor Dad. That really stuck with me just in the mindset. I continued to always educate myself about different aspects of real estate, although, it took many years to actually take our first step into investing.
So we went to school in Oregon. I was on a scholarship with the Air Force after professional school. So I went in as a Air Force captain for five years, practicing optometry there. That’s where we started investing in real estate. My first house was a house hack, duplex. Used a VA loan to purchase that, excellent loan. We kept that house as a rental for many years, continued to move out of that and scale up over time.
One thing I always tell people is every single year, since that first duplex, which is over 10 years at this point, we’ve bought more and more real estate every single year and that has really allowed us to scale our portfolio where we’re at today. That’s just an internal goal we’ve set, just with that scalability mindset.
One other thing we did early on was wholesaling. We started to explore. Wholesaling we thought was an interesting way to just basically use a side hustle to make money in real estate and was, I guess rather low risk, at least initially. As many people have done, I paid a large amount, $25,000 for a course, money I didn’t have at the time just coming out of school, and so we put it on a credit card. I was very nervous about that, couldn’t sleep, worried about losing the money. I brought in a partner that ended up paying 50% of that and helping us get started with wholesaling.
We grew our wholesaling business to the point where we were probably doing 15 properties a month, decided to keep some of those as rentals and scale that over time, and then decided to also manage those, which many mistakes were made there of course. We started to scale over time, investing in different states throughout the US.
And I think that’s really a pivotal moment for us because that opened up our eyes, when we found out that, hey, you can invest out of state following, it’s really the same process as you can locally. And it’s all about your team and systems in place. And that allowed us to really focus on growing our portfolio in areas that had the best returns.
Some of the first two properties we bought were turnkey properties from a turnkey provider. These were South Side, Chicago, D class assets, numbers looked great on paper, high end rehab. And so it looked all good on the initial investment and they just performed terribly.
And actually the provider we bought them from, who also managed the properties. He ended up dying a year later, had a brain aneurysm. We were stuck with these properties. There was just nothing to do, no one to help us. But that was really the catalyst for us to start our turnkey business is, hey, we can go out there and do this on our own, and develop our own systems just through having to learn through those experiences.
So fast forward to where we’re at today, we’re investing in multiple markets throughout the US, scaling our portfolio and doing a lot of transition into the commercial space. We own a lot of commercial retail and that’s an area that we’re focusing on allowing us to scale up quicker, do the tax advantage benefits of cost aggregation studies on those. So that’s where we’re at today.

Rob:
So I want to jump back just a hair here, and I wanted to ask you … Oh, well, I mean, you mentioned you spent $25,000 on a course and you split it with a partner. A lot of people do this. My question to you is when you’re getting started, do you feel like the success that you had, the boost that you had from this course, did it come from the fact that you just spent money on it and you said, I am financially committed to this thing now, so I’m going to do it, or did the success come from the knowledge that you got from it? I’m always curious to hear, because I think it’s 50-50 for a lot of people.

Zach:
Rob, you hit the nail on the head, it was a hundred percent the financial commitment. It’s like, oh crap, I better do something because I just dropped this amount of money that I don’t actually have. Sure, the course had some educational stuff. You had a little bit of coaching. They reviewed some contracts with us. The reality is all that stuff was available online for free or just networking with the right people. But it’s definitely the financial motivation behind it. I don’t think that’s necessary, but definitely it’s going to light a fire under you to make sure that you do something in that scenario. That’s what happened to us.

Rob:
For sure. And so when you were first getting started, just so I understand the timeline, I know you said you were into the optometry industry, was that what really fueled your, I don’t know, the initial capital to get into this? Or how did that work out when you were first getting started? Or were you using the money from wholesaling to really fund the purchase of all your residential properties?

Zach:
Yeah, it was a combination. I mean, we were also in debt. We had six figure student debt, so that was a little bit of a burden, of course. Having the VA loan allowed us to purchase that first property with no money down. That was an excellent loan structure. But actually wholesaling rather quickly became the main method to fund a lot of the rentals that we were holding.
Wholesaling was key for us because it allowed us to evaluate deals, learn how to find and evaluate deals. And that I guess was crucial in allowing us to evaluate how to take on deals that we were going to buy and hold. But that was a great side hustle, I guess, that allowed us to build capital much quicker than we would just in our typical profession.

Rob:
Are you still in that? I guess it’s a little bit more of a front hustle at this point, but are you still in that world or did you move on once you built your backlog of capital and everything like that?

Zach:
You mean in the healthcare setting?

Rob:
No, no, in the wholesaling setting. Do you still execute that side of it at all? Or are you just now fully into the other niches that you discussed earlier?

Zach:
Yeah. Wholesaling is always an exit strategy that’s a potential. If there’s a deal that we’re not going to take on, we’re going to sell it to another rehabber. So, I mean, that is something we’ve definitely done, but it’s not the core business. Really, now, we buy a lot from wholesalers to actually take on, that we’re going to add to our own portfolio. So it’s something that’s not a main focus, but definitely I think it’s just an exit strategy to be aware of.

Rob:
Totally. Yeah. I guess it’s very rare that we have someone in your position here where you do have a really great business and you also have an amazing real estate empire. So just from a philosophical standpoint, I wanted to dig in a little bit on how you handle your investments and personal philosophy on how you’re funneling money from one side of the business to the other. And so what I was curious is do you take all the profits from your real estate side and just keep reinvesting that? Because it sounds like you’re always just growing your portfolio and buying more and more. Or is there a little bit of reward that you actually take from your real estate portfolio? Or do you live solely based off of business income?

Zach:
I mean, we don’t live huge, lavish lifestyles by any means. It doesn’t take much to replace the income that we have today. But I mean, when we started to earn significant income through our business, the tax burden was painfully real, and so a lot of our strategy now is to reinvest that money and that’s following our philosophy of how you should reinvest your proceeds. And so a lot of our active business we take and we put it into, at this point, now these commercial retail centers, run cost segregation studies on those to reduce our taxable income and just try to keep scaling that way. So I guess the answer, Rob, is just reinvesting it, absolutely.

Rob:
Yeah. This is something that I really find a lot of entrepreneurs and real estate investors struggling with, especially when they do have a business like you’re talking about and real estate and they just don’t know like, how do I pay myself? When do I pay myself? When is that appropriate? Because for me in my personal investment career, I’ve never actually spent any of the money that I’ve ever made in real estate. Not really anyway. I mean, not anything significant. I’ve always taken the profits that I’ve had and I’ve just dumped it back into the portfolio to just keep it growing.
And it’s really hard because obviously I feel like you do have to reward yourself every so often. But I’m in a similar scenario where I have another business outside of that and that’s where I’m … My income is mostly coming from that so that I can just protect the real estate nest egg that I’m slowly building over time.

Zach:
Absolutely. I love that.

David:
When it comes to what you really love about real estate, why you left your former profession to dive into this, what can you tell us? Was there a moment where you saw something that you hadn’t seen before? Was there an element of it you fell in love with? Was it a pure business decision? What got you into leaving your old job and going full steam into this one?

Zach:
I think probably the moment that we were just like, hey, we got to go full blown into this. This makes complete sense. It’s a simple fact that real estate, it’s not time associated. With working in the healthcare setting, you’re compensated based for your time in the chair, right? You can only see so many patients, you can only be compensated … Even owning businesses too, you’re wearing multiple hats. And a lot of healthcare professionals are not great business owners.
But just the ability to create income streams, where you are growing your net worth and providing consistent passive income, whether you’re actually working or not, I mean, once we saw the writing on the wall with that, David, that was very much like, hey, we got to go all in. We’ve seen a successful business model. We have a proven track record.
It was an emotional change though, too. There was a lot of people like, hey, you spent eight years of college going to school for this profession, what are you doing? So, I mean, there’s a little bit of that and it was an emotional change, but the best decision we made, absolutely.

David:
So this is probably a good point to ask you. We’ve talked about what we love about real estate, what are some of the challenges that you’ve encountered that you were not expecting when you first got into it or some of the things that stop you from growing at the pace that you wish you could?

Zach:
It’s an ever evolving world. You really need to stay up on legislation, on financing. I mean, financing is a huge thing. That’s been a big obstacle for us as we’ve grown our portfolio over time. One thing we always do is interview multiple different lenders to try to find the best financing options.
We hit a little bit of an obstacle with some of our commercial properties we purchased where they required … They gave us the best loan terms, but then they stuck us with all these loan covenants and requirements. They wanted a 10% liquidity requirement just sitting in the bank, just letting inflation eat that away. And they check that quarterly. So it’s just a little bit of a hindrance to be able to use that money to grow and scale. I mean, there’s all sorts of obstacles in real estate from all different capacities.
One thing that’s allowed us to be successful, I think is just being creative. And I also like that, that’s a challenge obviously with the obstacle, but being creative to find a solution to those problems, to be able to scale your portfolio, whether that’s a tenant, a financing issue, whatever the case is.
We’ve had some bad partnerships in real estate. I mean, that could be applied to business in general. We’ve lost a lot of money in partnerships that we jumped in too quickly and scaled too quickly with that unwound. But that’s just part of the game and staying out and trying to stay the course.

David:
Rob, as you hear this, what are you thinking about when you’re thinking about what your experience has been, and now we hear Zach’s doing this at a pretty big scale? What kind of thoughts are going through your head as far as the challenges that you’ve had as they compare to Zach’s?

Rob:
Well, Zach, obviously, you’ve scaled up and there’s a really big difference between running a 20 unit portfolio and a 100 or 200 or 300 unit portfolio. It’s a very interesting challenge. I think the scaling is something that a lot of people are … They have a lot of trouble because everybody has a very different idea of what scaling looks like and how to successfully execute it.
And so now that I’ve been doing this and scaling and growing my team and making this work for me, I’m starting to understand, and I don’t say this in a negative way, but it feels like I’m leaving the golden days of when I was learning everything and cutting my teeth and I could still make mistakes and I could still fail really big.
And now I’m really having to hold myself accountable and be like, okay play time’s over, we experimented. It was the wild west for the first five years of my career, but now there are a lot of things that I have to take in consideration and there are jobs on the line and I pay people, I pay employees. And so for me, I’m just in the throes of scaling.
But I know that even five years from now, I’m going to say that right now is the golden days, because I feel like this is going to be the most important period of my life is figuring out how to scale my business. And so yeah, I don’t know. I mean, I have a lot of respect for people that can grow a portfolio past 20 units, 20 doors, just because the team that it takes to do that is very difficult to build. It’s very difficult to find people who are on your page, on the same page as you, I guess.

David:
Yeah. So Zach, what’s your thoughts on that element of what you’re trying to build?

Zach:
Yeah, systems. I mean, systems and scalability is the hardest thing. I think it’s rather easy for a lot of people to scale their real estate business and portfolio to a few million with a handful of employees, but to really take it to that next level of growing your portfolio, where you have maybe 20 plus employees or you’re really making this a legitimate business, and really any business I think for that matter, scalability is tough and dealing with real big issues with employees. I mean, that’s a hard thing, I think we all are consistently facing.
And I haven’t figured that out yet, but every step we take on scalability, you try something out, if it doesn’t work, you try to implement a better system to do that and continue to add the right people to your team. That’s what it’s all about. I mean, we’ve heard the term or the saying of hire slowly and fire quickly. Sometimes we’ve done the opposite. But the right people are really what it’s about, creating those systems.

David:
So another challenge that investors face is where they live can have a geographical hindrance on their investing. So if you live in a great market, you don’t really think about this, if there’s opportunities to buy properties, if you’ve got cash flowing properties that are where you are. But if you’re in a market that’s not so great, you’re painfully aware that this whole investing thing sucks.
So you’ve had to learn how to buy properties in different parts of the country, that’s out of state investing. I mean, you’re actually in other countries with some of the stuff. What are some of the challenges that you encountered when it came to long distance investing and how did you overcome those?

Zach:
Yeah, I think the challenges of real estate really, there’s some challenges that don’t matter geographically because you’re going to have the same issues and then there’s some that are obviously. There’s this comfort, this mindset associated with, hey, if a property’s close by, I can solve this problem, which could be true to some extent, but it can also maybe take up too much of your time.
The reality is if you have the right people and teams and systems in place, it should follow the same process regardless of where you’re at. But investing out of state, I mean, finding good contractors, how do you build that team, whether it’s locally or in different areas? Obviously there’s different state legislation you need to be aware of and tax structures.
It’s like, what are the tenant laws and how do we know that we’re abiding by those? Can we vet tenants the same way that we do in this area? How does the eviction process work? There’s a lot of things to look at as far as managing the properties long term.
Internationally, I mean, constantly. And we have family that owns a property in Australia and many other countries as well. I always love to compare the US to those countries as far as a lending and tax structure, because there’s nothing else that comes close. I mean, there’s no such thing as a 30 year fixed loan in Canada or any other country. Australia does negative gearing where they actually buy negatively cash flowing properties to offset taxes. So that’s a constant reminder that the US has so much benefit to invest in. That’s why we have so much international money coming.
But as far as the challenges, I think they’re all really the same, David. I think you face the same challenges regardless of actual location and that’s why it’s vitally important to have the right people set up.

Rob:
Yeah. So I wanted to dive a little bit into it because I know you’re a big turnkey guy, right? And so I wanted to ask, what does that look like? What do you consider a turnkey property? Do you truly consider that when you’re investing in something that is in that category, a hundred percent done, locked down, ready to go, or do you still go into a potential turnkey property with any kind of renovation budget, whether it’s 3 or 4 or $5,000 just to get it up to your standard?

Zach:
Yeah. Turnkeys, I mean, we could go down many different rabbit holes with this, right? I think there’s a lot of people that have different opinions about turnkey versus doing syndications or something like this. I think in general turnkey, and obviously this is our business, but I think turnkey is an excellent option, if you’re working with the right people to allow you to scale, to allow you to have a little bit of hand holding starting out and allow you to diversify into different areas.
But it doesn’t make you immune to the same sort of challenges that you would have with real estate in general. When we look at turnkey, I mean what our definition is, is a house that’s newly built, because we actually participate in a lot of new construction. That’s about 50% of what we do at this point in time is build to rent.
But we want to see a house that has at least 8 to 10 years of life expectancy. So if your HVAC, your water heater, the roof needs replacing, then definitely those are your CapEx items, those are your biggest items to do that, and then of course lease and manage the property.
But we also, even though we sell turnkey products, we also buy turnkey. A lot of the commercial assets we buy, I would consider those even more so turnkey. Those are triple net leases, management pays our taxes, pays our insurance, pays our mortgage for us. Those are triple net leases often corporately guaranteed. So I mean, there’s a lot of different philosophies about what turnkey really is, but I think it’s really just going and having the right team in place to assist you in learning how to do that.
And I also think that turnkey is not the only option out there. We see so many people that are buying turnkey and this is the exact same thing with us too, Rob, is turnkey is a great way to invest in a certain area alongside what else you’re doing. If you’re doing your own flips, if you’re doing your own wholesaling, whatever the case is, it’s a great way to diversify into these different areas.
But as far as rehab budget, we have an expectation. We have different contracting teams in these different areas and they have a specific budget and line item, as far as what the expectation is. On management, we don’t do any internal management at this point, same sort of thing for property managers. We have a specific process we want the managers to follow as far as vetting tenants and how they’re actually managing the properties.

Rob:
David, are you buying any turnkey these days? Because I know obviously you’re the value add guy right here, Sir BRRRR, and I know that obviously that has been a very big component of your career. But obviously, I know that you’re a very busy and a very successful real estate entrepreneur. So as you grow in your business, I know that your time is more limited, does that mean that you’re typically looking for more turnkey stuff at this point? Or are you still in the value add space?

David:
I think that’s a really good question here. My heart is in the value add space, but depending on what I have going on at any given time, I’ve had to be humble enough to admit if I take on this project, one popped into mind right now, a property I have under contract in Savannah, Georgia that is in the historic district. It’s coming with short term rental permits. There’s a lot, I really liked about it, but in the inspection, it’s got some significant issues, like needs to be torn down to the studs at some point, needs a complete new roof.
And I was thinking, if I’m honest with myself, if I buy this thing right now, I am never going to manage that rehab. I’m not going to know what’s going on. I don’t have a person in place that I trust that could manage the rehab. That’s the wrong move for me, even though it’s got a ton of value add potential. I won’t be able to execute on that.
And I’m probably more geared towards when we say turnkey in the short term rental space is what I’m looking at. I need something that is coming furnished, doesn’t need a whole lot of work, out the box is good to go. And I recognize I’m not getting the built in equity I used to have, but I’m not going to be bleeding, trying to find how am I going to get furniture brought into this place, when we are having the supply chain shortages.
And how am I going to get a contractor in one of these really hot markets where it’s very difficult to find them? It’s going to be 90 to 120 days before someone even starts the project. And then I got to sit in the permit line that’s going to be really long because everybody else is doing the same thing.
So it is a balancing act that you’re constantly having to go through. And at times the turnkey option is definitely better for me, but there could be a moment where everything’s running great with the businesses, I’ve got good hires in place, people are doing good, and I’m going to be like, hey, this is the opportunity to go take on a bigger project.

Zach:
David, I think that’s a crucial point, just being realistic with what your capacity is right at this point in time. And if your time is limited based on other things that you’re doing than your business or building your portfolio, I think a lot of people are looking for … They may get distracted with … If you don’t have the time to dedicate to a deal, then you’re not going to perform on it, to the best of your ability. And so it’s just being realistic with what you bring to the table and what your time capacity is and what fits your goals at this point in time.

David:
Yeah. And that’s an important thing to acknowledge in real estate in general, because there is a temptation … I need to come up with a name for it. This is where I missed Brandon Turner because he was so good at coming up with clever names for things.
But it’s this idea that there’s a part of human nature that wants to ask the question of what am I supposed to do, just give me the blueprint and I’ll just go do it, as if life works that way, as if there’s just a path that everybody can walk, and that isn’t the way that this goes. There are many paths, and depending on your skill set, your time, your goals, they’re all going to be different. And part of, I believe at least, part of being good at real estate is knowing yourself well enough to know what type of properties that you should be getting into and where your time is better spent.
I think that’s one of the reasons that I went out and I built businesses and built teams instead of just focusing on buying a whole bunch of smaller properties is I had a skill set where I like leading people and I’m a visionary, whereas somebody else, that’s not what they’re good at. They’re really good at bookkeeping, and so they just need to be running syndications and buying multi-family properties.
And it’s both frustrating when you’re new trying to figure it out, but it’s beautiful when you’re experienced because all of a sudden the tree explodes into branches and you have all of these different ways that you can walk in that makes your job more fun.
And I know Zach, one of the things that you believe in is this concept of strategy stacking. It’s, hey, you’re good at this asset class, what’s the next asset class that you can bring in that will complement what you already got going on. Can you share what that strategy is and how you’ve worked it into your business?

Zach:
Yeah, absolutely. And I think so many people, especially starting out, David, they get the shiny object syndrome, right? And it’s like, oh, I want to do this, I want to do this. And that’s a beautiful thing about real estate, there’s so many different ways that you can make money investing in real estate and be successful, but you can’t start with all of them at once.
And so you need to stay hyper focused on what makes sense for you and then just understand that as you continue your journey, real estate investing is a lifelong journey, that there’s going to be multiple different ways that you can learn about and participate in. That’s exactly how our business and our personal investing has grown over time.
We bought our first duplex and the next year decided to buy two more duplexes and continued to scale over time. We tried wholesaling. That was a lot more work than we initially anticipated, but that allowed us to learn how to evaluate deals. Guess what? We wanted to decide to keep some of those deals, because we really liked the idea of long term holding. Then we started to build this business and be successful with that, investing in different areas.
Started to make more money. What do we do with that money? We got to put it back into real estate. We didn’t want to own 500 single family houses. I think I heard you refer to your portfolios, like herding cats at some point in time and that’s very much the case. I love single family, but only to a certain degree. And so we needed a place to scale quicker and larger deals takes those tax benefits.
There’s all sorts of different strategies to invest in real estate. And that’s the beautiful thing is you can be successful in multiple at once, but you got to stay hyper focused with one strategy at that particular point in time. Learn it, succeed at it, and grow over time.

Rob:
Yeah. So when you’re entering a new strategy, I guess, because it seems like … So looking at your portfolio, you did wholesaling, residential, now a little bit of commercial, you’ve succeeded at it. Is it a matter of, oh, I feel like I’ve succeeded at this, time to try something new? Or do you think of it as more like, I need to master this strategy before I move on? What’s your mindset there?

Zach:
Yeah. I wish I could tell you that I have this clear action plan, Rob, but it’s more or less learning about a new strategy, being intrigued by it, because if you’re interested, if you’re passionate about it and you’re interested in a strategy, then you’re obviously going to migrate towards that more and want to learn about that and take it on.
I’ve always been attracted to the idea of commercial in general, just because it’s longer term leases. Now there’s a lot of risk and volatility with that as well, make no mistake about that aspect of it. Single family and residential I think is just your bread and butter, solid way to build wealth, at least initially. But that’s been something I’ve always been interested in, just to be really passive and have these long term leases in place. So we decided we wanted to invest in commercial, well, probably five to six years before we even bought our first one, but it was just talking with the right people, learning about that.
But the next and when we hear about different strategies, and this applies to the tax side too, when we learned about cost segregations and investing in opportunity zones and things like this, my mind was blowing because I was like, there’s really ways to completely reduce your taxable liability, if you’re in and invest in real estate doing the same things we were already doing. We love real estate for all these reasons. So it’s learning about it and just continuing down that path until the next thing comes up.

David:
So what are some practical examples that you can think of where the average listener can sort of … Let’s say somebody starts on the small multi-family path. I think that’s probably the most common way everyone gets started. Rob, you were part of the Pokemon generation. So was Pikachu the first Pokemon everybody gets?

Rob:
No, you usually choose between Bulbasaur, Charmander, or Squirtle.

David:
Okay. So real estate’s just like, it’s the same thing. You’ve got the small multi-family road, maybe that’s Bulbasaur. Then you’ve got the single family house hacking road, that’s Squirtle. And I don’t remember what the other one you said was, but there’s another route that-

Rob:
Charmander.

David:
Charmander, right? Maybe that’s going to be like just buying single family homes in cash flowing areas, like Kansas City, lower price point areas. So there’s typically those three passives people start on, you’re going to house hack, you get into single family or small multi-family.
Small multi-family is probably the most common way that people get started. You learn the fundamentals of real estate, the best. Zach, you mentioned you have a lot of duplexes, triplexes across the country. That’s not a coincidence.
So somebody gets 7, 8, 9 of these things and they start to experience what I call that herding cats feeling. It’s like in the cartoons where there’s a leak in the submarine and they stick their finger in it. And then another leak pops out and then they stick their finger in, another one they stick their toe. And then they got to let go of one finger to go plug in another one, and the water’s coming out from there.
And for me, it was like every single day, another little leak was popping up and none of them were going to sink the boat, but they were freaking annoying. And it wasn’t fun to be investing in real estate because I’m dealing with these very small problems of a leak going on, a sewage line breaking, an air conditioner going out, a tenant complaining about something.
And I just thought, I could sell 25 of these houses or replace it with one house 25 times as big or as good or an apartment or something and get the same benefits, but not the 25 different holes that I’m having to plug. So for me, that was my moment where I realized, all right, I need to get into a different asset class.
I guess what I’m getting at here is can you share some practical examples of what a listener who’s got seven or eight small multi-family properties that’s ready to get another stack added onto what they’re doing, some possible scenarios that would work for them?

Zach:
Yeah, absolutely. I think that’s really what a lot of people think about when they’re trying to achieve financial independence or significant passive income is how do I scale up into some of these larger type of deals? And there’s multiple things you need to do to position yourself to really be the most attractive investor.
Biggest thing is on the financing side. I think that’s why starting out with single family, small multi-family puts you … Not only does it give you the experience investing in real estate, but it also positions yourself in the best financing position. When a commercial type of lender, whether we’re talking commercial, retail, office, industrial, multi-family, when they’re evaluating you as a borrower, they’re going to look at your track record and your performance.
Most people are not jumping right into real estate, buying a 50 unit apartment complex. I think it’s a great way to scale up over time and also show the bank that, hey, I can be a successful investor buying and holding these properties and running them successfully. And that’s going to dramatically change the type of lending that you can accomplish. Having that experience gives you the confidence as well, to look at larger scale deals and just changing your mindset about that.
But I think financing is the biggest thing to really look at, make sure you’re having a successful portfolio. Other than that, I mean, there’s not a lot of difference whether you have a $200,000 single family in the Midwest, a $2 million deal in a more expensive neighborhood, you still evaluate the numbers the same. So don’t limit yourself looking at the larger deals and getting scared at participating in those, even if it requires bringing in some private money.
Practical examples though, I mean, running a business successfully with those smaller rentals, that’s huge, and also scaling your team over time. As I mentioned on the managerial side, your management … And David, did you have management on … I mean, you weren’t doing your own management, right? You had employed management? It was still this herding cats feeling, even though you had management?

David:
Yeah. Even with the managers that were in place, they still had come to me and they’re like, “What do you want to do with this? What do you want to do with that?” And it was, well, the bid that you got. I remember one of them, there was a sewage line that broke underneath one of the properties and they came back with a bid for $46,000 to fix it. And I remember thinking like … I mean, I wouldn’t let a house go to foreclosure, but that would make more sense than what they were wanting me to spend on this.
So I said, “All right, well, who did you talk to?” They gave me the name of the company. And I said, “Did you send anyone else out?” No. Would you like us to? I was like, “Oh.” I’ve told this … Here’s a side note. Property management companies go through staff so fast that you can tell someone, this is what I want, and they probably hired three people since the last time you spoke to them and that person has no idea what you had said to the first one. So you’re always reiterating these instructions.
And we sent somebody else out and he said, “Oh, I can fix this for $2,700.” They ran a scope through the line and figured out where the problem was, whereas, the initial bid was, they were just going to rip out the entire floor of the home to try to find where the leak was. And I just remember thinking I could have easily just replied yes, fix it, and threw $46,000 at a $2,700 problem, and that was with property managers. So my issue was more, I needed to hire a person that could manage your property managers, and I wasn’t able. That’s been a very difficult thing to find.

Zach:
So practical examples from that, and I agree with you a hundred percent is yes, knowing how to manage your managers. If you need to hire an asset manager at some point in time, it’s worth doing that because they will also allow you to be more successful and more passive.
But I mean, even in that scenario with your property managers, even if they took care of the issue, which clearly in your case, they didn’t because they just gave you the first, most expensive quote and left it at that, but even if they take care of everything and you’re just hearing about it, that’s just so much noise and it distracts your mindset from what’s actually …
And that could be a super successful property that sell and have huge appreciation in the future, but there’s so many of those issues that are distracting you from being able to focus on your business. So focusing on how to manage the manager, how to find and vet good managers, and how do you solve individual problems when they come up? Sometimes it takes getting on the phone and calling those contractors and being creative and finding the right people to actually solve those problems.
It’s the same type of issues, single family house, it’s just maybe a larger scale issue, but solving those problems is probably one of the best skill sets you can have in learning how to follow through with that.

Rob:
I’m curious, David, what was that job title? Was it property manager, property manager?

David:
Kind of.

Rob:
Or was it property manager, property manager?

David:
So that is another issue I run into in business where your staff is always asking for a title or a job description. There’s this like, I need to know what’s my title, what’s my job description. I was like, well, I’m hiring you to do all the stuff that I don’t want to do and there’s a lot of different things. So I don’t know that I could possibly come up with every possible thing that could come up. But can I just trust that if you have to send an email out through MailChimp, you could do that. Do I need to include that in your job description?
I don’t even think I called him an asset manager, because every time I put something out for that, I got people that wanted $200,000 a year. But basically what they had to do is sit in front of the email that all of the property managers would send the statements and their repair requests to and handle the emails that came in with some degree of common sense. And if you ran into a big problem, no, I need to go bring this in front of David and learn from what he did and fix it.
So I learned quickly that giving the title asset manager was not a good idea, because it was like, oh, well, I’m an asset manager for this huge corporation and they pay me 250,000 a year, so I’ll come work for you. And I’m like, no, this is only like three hours a week of work that I actually need done.

Rob:
Yeah. I sent out an email yesterday that was like eight roles. And I put in the email that each role would require like one to two hours a month. It wasn’t anything. It was to help the people in my program. I’m trying to like expand the capabilities of it. But I had a lot of people that reached out and they were like, “Oh, I want X amount and X amount.” I was like, “Oh, no, no, no. As per my email, it’s like two hours a week, maybe. It’s not a lot.” So I think that’s probably pretty common.

Zach:
Well, no one’s going to care as much as you care about your properties, and so how do you make that hire? How do you find someone that can make those executive decisions for your portfolio? It’s tough. But if you find a good property manager, which that’s a tough job, right? I mean, that’s a tough business. It’s really like you have mad owners and you have mad tenants and you’re just in the middle of it, but there are good ones out there that can usually, if you give them good direction, handle the majority of the issues.

David:
Yeah. I would say to the people listening, if they’re trying to figure out how do I get into the next step, I really believe, and Zach, I’m curious if you would support this, and you as well, Rob, a big hindrance to people being successful in our world, which I’m going to call the 1099 world because it’s just, you’re responsible for your own success here, is they bring a W-2 mindset into it.
They’re expecting structure and rigid rules and a 9:00 to 5:00 schedule and all these things that we’ve been conditioned to expect from grade school, into the workplace, to where it’s just like we almost have a moral system set up around you shouldn’t have to work past 5:00, or weekends you should have off. And if you’re asked to do something outside of that, it feels like you’re being taken advantage of, even if you sit in the office and do nothing for seven out of the eight hours you’re getting paid for, right?
So when somebody comes into our world with those expectations, it’s very difficult to adapt to some … You could have a problem at a short term rental. Let’s say that there’s a mouse running around inside there at 9:00 at night. And the tenant isn’t looking at it like, oh, I’m bothering the person, they’re, I want this mouse out of this house and you don’t want a bad review. So the right thing to do is to jump in and fix it.
If people could have that flexibility with understanding that you are getting paid to solve problems and they could pop up at any given time, but there’s benefits to this as well. I personally think we would have more people in our space that were able to get more involved in what the three of us are doing and therefore, they would learn. Zach, do you take a similar opinion to that?

Zach:
Well, that’s the hardest thing, David, is finding staff that has that mindset. I mean, the entrepreneurial mindset, there is no 9:00 to 5:00, there is no on, off. And that’s a hard thing too. I think that we can probably all attest with this. I mean, sometimes you need to turn off your own mind and focus with your family when you’re at home. That’s a hard thing to do and I’ve struggled with that. It’s like my wife constantly reminds me.
But to find someone that has that same sort of mindset, I don’t know how to do it. I mean, it’s the biggest challenge is finding good people. And if you have someone that has that entrepreneurial mindset and to keep them, I don’t know, they would likely want to be some sort of partner to some degree at some point. How are you going to compensate them and keep them happy to stay? That’s a tough thing. What do you think, Rob?

Rob:
Yeah. This is hard, with the W-2 and the 1099 thing is we want all the good things of the W-2 world when we’re 1099, but none of the bad things. And so it’s like, we want our cake and we want to eat it too. And that this is something I deal with a lot. I’m a podcaster, a content creator, a real estate investor, there is no moment in which I’m not thinking about really those three things, other than if I try to turn off at 5:00 or 6:00. And my wife and I have an incredibly flexible life, and so do the kids, but it is not fun when I come home at 6:30 because she’s like, “Well, you can come home at 4:00, right?” And I’m like, “Well yeah, but if I don’t work, we don’t we don’t pay the bills,” kind of thing.
And it’s really similar even with hiring employees and everything, because I’m the entrepreneur, they’re not. And so the meeting of the minds there can be very difficult because I have to really make them understand, especially my assistant, who she’s my property manager and everything, and I have a lot of sympathy for her because she’ll be messaging Airbnb guests at 7:00 in the morning, 7:00 at night, midnight, 2:00, 3:00, but she might have downtime from 1:00 to 6:00 PM because there wasn’t a single peep on it. So it ebbs and flows.
And I think you’re right. I mean, I think you just have to prep people that it’s like, look, it’s cush when it’s cush and it’s not when it’s not. When it rains, it pours. You have to really understand that with the real estate space, because it’s never a 9:00 to 5:00 thing. It’s a 9:00 to 9:00.

Zach:
But that’s what you’re building. That’s what you’re growing over time. You got to put in that work now. You got to be willing to do what no one else will right now to build that type of lifestyle and portfolio long term. So it’s just part of the game.

Rob:
Although, I will say that when I was living in an apartment and stuff broke all the time and I would put in my maintenance requests, they wouldn’t come fix it for two or three weeks. I wish I could do that, where things go wrong and I’m like, yeah, I’ll give it a couple weeks and then I’ll fix it. I am envious of that.

David:
All right. The next segment of our show is the deal deep dive. In this segment of the show, we are going to dive deep into one of our guest’s specific deals to see how it turned out, how they found it, and a bunch of other juicy details. Remember that you can do more deals yourself with the help of BiggerPockets tools and resources. So be sure to check those out. So question number one is what kind of deal is this?

Zach:
So the one we’re going to be talking about today is right up Rob’s alley. This is a luxury short term rental out in the mountains in Keystone, Colorado. We actually found it basically just through broker relationships. It was listed and poorly marketed and then just became a stagnant listing.

Rob:
Okay. And how much was the deal?

Zach:
So it was listed at 4.8 million and that was far over list price, far over market value. Of course, Zillow has it at 5.5. And I think that they were going off of that as their pricing structure. But no one, there had been zero activity on it, no bids, anything. And it was listed by a broker that wasn’t really, I think checked in and was maybe on the ski mountain more than they were answering their phone. So that’s what it was listed at.

David:
Okay. And then how did you end up negotiating it to get it in contract?

Zach:
So we looked at it. And we don’t have a lot of short term. I mean, we have limited short term space. And so this was really a big learning lesson for us is evaluating it, looking at areas for value add. So this is something we looked at as, hey, obviously we need this, the numbers to make sense, be positive cash flow. We evaluate all these deals, even if they don’t make sense on the surface, just to see what kind of opportunity there is there.
So what we did is we basically gave them an offer. We saw that this is a stagnant listing, no activity. And so we just put an offer in. Our initial offer was 3 million, and so that was significantly less than what they … And especially in today’s market. They told us, well, they didn’t even respond, that’s just insulting. And so that’s what we did. We threw it out at 3 million.
We heard back from them later, I think it was three months later, still no activity on it. And it’s a unique house too. It’s like 9,000 square foot, 8 bedroom, 11 bath, just a very large, unique house, I don’t think a lot of people wanted to take on either. And we ended up going under contract at 3.2 ultimately.

Rob:
Sounds very, very familiar to a deal that me and David just did. How did you fund it?

Zach:
So we actually used a second home loan for this property and this will be a good learning lesson, just on the financing side to look at what different financing options are out there. Because of the price point on it, we were told by probably 20 different lenders that no way can you do a second home loan with 90% loan to value, this is jumbo, this is above our underwriting criteria that we would allow for. And so most lenders were quoting, I think it was a 60 to 70% loan to value on it. They also didn’t know how to value the property. They’re like, well, why are you buying it below market value? What’s wrong with it?
So we actually ended up finding a good credit union locally that had done some financing for us commercially in the past. We got a second home loan with 10% down. They actually waived the mortgage insurance because there was no company that would provide mortgage insurance at that price point.
And the interest rates as well, we almost used an ARM product on that, just because interest rates were a little bit more volatile at this point in time. ARM products were still, I think we got a ARM quote at 3.75, but we ended up getting a long term fixed product at 4.25 on it.
That’s the interesting thing too, some of those larger loans, and on the commercial space, you can actually get a lower interest rate than … I mean, those interest rates have less volatility sometimes than your single family.

Rob:
When was this again, just so that I know?

Zach:
Yeah, so we just acquired this earlier this year.

Rob:
Okay. Yeah, because we just closed our 3.25 million house at, I think six and a half, or no, 6.25. So just a little bit over yours.

Zach:
Yeah, and that’s a tough thing. We were getting a lot of quotes at … So this was obviously a couple months ago, interest rates were definitely different than right now, but still, we’re still seeing some quotes on, again, ARM products below that 4% and it’s just, I think finding the right credit unions and banks to explore with.

David:
So what did you end up doing with this deal?

Zach:
So this is a short term rental. There’s not a huge value add as far as renovation, it was built in 2001. So it is dated and we’ll put some renovation into it over time, but really the opportunity with this one is the property manager, which was also the listing broker on it. So you can imagine how that property was run.
It’s large enough where it’s a wedding venue in the summer, as well as corporate space. So it actually has quite a bit of activity in the summer. But they kept the rental at, I think it’s $1,700 a night throughout the entire year. I mean, I think that’s probably rule 101 with short term rentals is having dynamic rents, especially in peak season. Ski season, that property is projected to rent out between 4 to $5,000 a night in peak season, and she was still renting it out at $1,700 a night.
Now, she kept it rented for 340 nights last year, but obviously there’s much more upside potential. So that’s our use of it is obviously going to keep the short term space, probably do a little bit of value add just in the renovations, but also increase that income significantly.

Rob:
Well, I guess we sort of talked about the outcome. Is there any other specific outcome that came out of that, or we’re still figuring out exactly where you’re going to net out, right?

Zach:
Yeah, this is a new deal for us, so we’ll look at it and see how it performs over time. We’re excited about it. If there’s a huge equity position, maybe we’ll do something with that, or look at 1031 in the future, but I don’t know. I mean, we’ll plan to use it of course maybe a couple times a year when it’s not rented out.
But we’re excited to see how the path goes and just on initial projections, I mean, they did … Just in using dynamic rents and not changing anything else about the property, we were able to increase the income by over 30% on it, and that’s huge.
And so that took it from being a property that didn’t cash flow at all, at 90% loan of value, we would’ve been losing quite a bit of money on that to actually being a positive cash flow, which has been hard to do.
We’ve been looking in this area for short term rentals for probably three or four years now and it’s always a scenario where it’s like, okay, we’ll buy it. If we’re not putting 30 to 40% down on it to make it cash flow, it’s not going to cash flow. We just could not find anything. So I think the ability of finding something at this price point, unique house, undervalued rents, we’re just excited to see how it performs over time. Have you guys out to ski in the winter.

Rob:
Oh yeah, count us in.

David:
So what lessons would you say you learned from the deal?

Zach:
I would say, well, we didn’t really talk about too much of the negotiation. I went straight to the point of what we actually ended up acquiring the property at. There was a lot of tactical conversations throughout the process of, oh, we have this person, we have some people, because they knew we were interested in it. We were the only people that viewed the house. Even though we gave them a low ball offer, it was, hey, we’re interested. We have some other people that are interested. They’re putting in these offers and countering us.
And we just stuck to our guns the whole time. We knew the number. This wasn’t an emotional buy. That’s the biggest thing I think in this one, David, this was not an emotional buy that you can easily get yourself into, I think especially in the Airbnb space, if you plan to use it. But we knew where our numbers were to make it make sense and we stuck to that the entire time and that allowed us to actually acquire it at the price that we needed it to.
It was a waiting game, but we just stuck to the numbers as well as exploring different financing options. That’s a huge thing. I encourage everyone to look at least 5 to 10 different lenders for every deal, even if you have a lender. I think we so often fall into this category of, hey, I want to use a lender that I’ve been using, because I feel loyal to them and I feel comfortable and it’s easy, I don’t have to turn in all my docs.
Well, lenders are not created equal and they’re quite dynamic as well. So if you have a good relationship with someone, absolutely explore that, but every deal is different and definitely be willing to look at different loan options out there. We had so many people that tell us that you cannot finance that, a 90% loan to value. We don’t have mortgage insurance on it and a lot of people said that’s just not possible. So those are the biggest takeaways. Also, just looking for value and sometimes that takes some time, especially in today’s market.

Rob:
Awesome. And lastly, who was the hero on your team for this deal?

Zach:
Ooh, is this a new question? I don’t know if I’ve heard this one before.

Rob:
It is. We’re throwing you a little curve ball, Zach. The old switcheroo.

Zach:
Well, my wife’s a hero. I have to give her the shout out because even though we … I got emotionally attached to … I was willing to pay more than we should have, but she was the one that really reigned us back in and said, “No, we’ll find something else. You don’t need this. Don’t stretch this to make it work just because you’ve been looking for three years for something like this. If it makes sense, it does, and if it doesn’t, we’ll find something else. It’s not a big deal.” And so I think really that is the biggest aspect of just keeping us focused, knowing the numbers and going through our criteria. And so definitely wife is a hero on this.

Rob:
They always are.

Zach:
Yeah. Yeah. She made me say that by the way, she knew that we were recording this.

Rob:
She’s standing on the other side of the camera like, you better say it.

Zach:
Yeah.

David:
All right. Well, that brings us up to the last segment of our show, it is the world famous, famous four. In this segment of the show, Rob and I will ask you the same four questions we ask every guest and we’re excited to hear what your answers would be. Question number one, what is your favorite real estate book?

Zach:
And I don’t have anything that hasn’t already been said. There’s been so many good books. A huge Kiyosaki fan, but probably for right now, The Millionaire Real Estate Investor, Gary Keller. That one’s just huge for me, and I try to read that once a year, section two, talking about the different stages of think, buy, own and receive a million. That’s huge, implementing systems. I mean, that’s just an outstanding book and encourage everyone to read it if they haven’t.

Rob:
Great. Great. Question number two, favorite business book.

Zach:
Business for us, I mean, this kind of goes to what we were talking earlier about the entrepreneurial mindset, so the E-Myth absolutely, or E-Myth Revisited on this one with Michael Gerber. This is definitely something that I try to read consistently as well to remind myself to focus on the business, not so much in the business. I think this is a crucial book for anyone running a business in any capacity and definitely something that is just how to build a team, focus on systems. It’s an essential book.

Rob:
Awesome. And when you’re not building a turnkey empire and a commercial empire, what are some of your hobbies?

Zach:
So as I mentioned to you before the show, we have a one year old, that’s our hobby right now. We’re loving that. We used to travel quite a bit. Right after we got married, we did a seven month honeymoon and visited like 30 countries, scuba dive a lot. We love to travel. We’re excited to get back into that once the kiddo’s old enough to do that. And then other than that, just enjoying nature out here in beautiful Colorado.

David:
In your opinion, what sets apart successful investors from those who give up, fail, or never get started?

Zach:
I think I’m going to say I’m going to use three terms because I believe that all of these are essential for people to be successful in real estate. First of all, they need focus. You got to stay focused on what path of investing you want to participate in. If you’re a new investor, don’t get the shiny object syndrome, choose a path and take action and follow it.
But the biggest thing over time, I think is just staying the course. Tenacity and creativity are the two other keywords. Real estate has a lot of obstacles and it’s not easy, right? This takes a lot of time. This takes work. This isn’t a get rich quick type of scenario and it’s challenging and frustrating, but as long as you can stay consistent to invest in this lifelong journey, generational journey, as you teach your children how to be a successful investor as well.
But you got to stay the course and be creative about solving problems. There’s always a solution, multiple solutions often, and put in the due diligence to find out what those are.

Rob:
Very wise words to live by, Zach. Lastly, can you tell us where people can find out more about you?

Zach:
Absolutely, our YouTube page. Although it’s a newer page, we’re trying to put out as much educational information about all things real estate. So our page is just Rent To Retirement, Rent, T-O, Retirement. They can go to our website as well. That’s renttoretirement.com, to learn more about our team, different things that we have going on. If they’re interested to learn about turnkey investing in any of the areas that we operate in. And that’s got links to all our social media accounts as well, so that’s a great place to start.

David:
Rob, how about you?

Rob:
Well, you can find me on YouTube as well on Robuilt. That’s R-O-B-U-I-L-T. And you can also find me on Instagram, @robuilt, and TikTok, @robuilto.

David:
All right. And if you like the interview that you heard today with Zach, go check out BiggerPockets’ YouTube page. We have a ton of stuff. I guess it’s called a channel, not a page. Tons of stuff on there, different interviews. I’m interviewing people. Rob’s got some stuff that’s on there. Lots of different BiggerPockets personalities that if you want to get deeper into this world, there’s plenty of content. And then be sure to check out biggerpockets.com/podcasts, where you can see the other podcasts that we’ve got for you to listen to on specific topics. If you want to follow me specifically, I am davidgreene24 on Instagram and everywhere else.
Zach, this has been fantastic. We really appreciate you being here with us and sharing your information. Is there any last words that you’d like to leave with our audience before we let you go?

Zach:
Go out and take action. It’s a crazy world right now, high inflation, interest rates are crazy, competitive markets. There’s still deals to be had and people are still being very successful in real estate. Don’t let that stop you. Educate yourself and take action. It’s been fun guys. Thank you so much.

David:
Awesome. We’ll let you get out of here. This is David Greene for Rob power-coif Abasolo signing off.

A perfect storm has been brewing in the U.S. economy. Supply constraints coupled with increased demand built up during the pandemic have led to rapid inflation. The Fed is now taking action by raising interest rates significantly, a move that has many worried about the impending recession soon to follow. While a housing market crash is not anticipated, economists are predicting more inventory and a cooling market due to the interest rate hikes. 

In an episode of BiggerPockets’ On the Market Podcast, we spoke with Nick Timiraos, Chief Economics Correspondent for The Wall Street Journal, to get his thoughts on the Fed’s plans now that the Fed has increased its interest rate by 0.75%, the most aggressive increase since the 1990s.

The Difficult Task of the Federal Reserve

Timiraos says to think of the Federal Reserve System as “a bank for banks,” because the Fed controls short-term interest rates. The Fed doesn’t directly set mortgage rates but determines the interest rate banks pay to borrow from their reserves overnight. 

The Fed is charged with the difficult task of monitoring and maintaining the economy’s health in a couple of ways. “They have two goals assigned to them by Congress: to maintain stable prices and to have maximum employment,” explains Timiraos. “And you could think of that as the most employment possible without having inflation. And those are their two goals. And then, in addition to all of that, they’re charged with regulating the banking sector.”

When the Fed reduced interest rates at the onset of the pandemic, they were trying to stimulate the economy. As they increase interest rates like now, they’re doing it to slow down inflation, which inevitably slows down the economy. 

What is Causing Inflation?

The problem started with the $5 trillion stimulus package for pandemic relief. The federal government’s response resulted in much higher inflation than we currently see in other countries. In the short term, it may have appeared that they achieved the intended result of providing more financial stability to families. But national debt must be repaid. The government must, at some point, tax more than it spends. Federal Reserve economists estimate that pandemic spending contributed about three percentage points to the inflation we are experiencing now. 

In the long run, any government attempt to stimulate the economy by creating money without also increasing production leads to harmful inflation. But the impact of the pandemic was so swift and far-reaching that it would have led to deflation if the government hadn’t stepped in. And meanwhile, food and housing insecurity was rising. About one in five children may have experienced food insecurity during 2020. So despite knowing that distributing more money into the economy would debase the currency, the federal government was most concerned with the greater implications of starving children and broad housing insecurity.

Then, when lockdowns were lifted, there was a pent-up demand for goods and services, along with extra money for consumers to spend. “You have a lot of demand. You have more people working, making more money, spending money on things,” says Tirimaos. 

But, at the same time, global supply chain issues have prevented producers from keeping up with demand. That’s pushed the inflation rate to 8.6%, according to May’s CPI report, and now the Fed will do whatever it can to keep that rate from rising. 

“The Fed can’t do a lot in the near term about the supply side of the economy,” explains Tirimaos. “They can’t create more oil, they can’t create more houses, their tools just don’t do that. So when they talk about bringing supply and demand into balance, they [need] to get lucky, they need to get supply chains moving again.” 

Or, they need to do something to curb demand so that a balance between supply and demand can be achieved. 

That’s the goal of raising the benchmark interest rate. When the Fed’s rate rises, its effect spreads into the mortgage market, the auto market, and increases the cost of borrowing business loans. Overall, people become less likely to borrow and purchase homes or vehicles. “And also businesses hire fewer workers. And so people have less overall income. And so they don’t spend as much money,” says Timiraos. 

Why the Fed is Taking Action Now

If inflation has been a problem since last year, why is the Fed suddenly getting aggressive with interest rate hikes? 

During the pandemic, specific supply-constrained industries, such as new and used cars, saw the highest price increases. “And so for a while, of course, the Fed infamously said, and a lot of private sector economists agreed that this was transitory,” says Timiraos. “The idea behind that was that inflation was really driven by the pandemic. And assuming the pandemic was over with quickly, inflation would be too.” 

But more fuel has been added to the fire since then. The war in Ukraine caused inflation in the global energy market and supply chains never recovered as well as they needed to. The problem no longer seems transient, which has the Fed concerned. 

“They’re worried that one year of high inflation is okay, but if we have a second year of that, people are going to begin to build expectations of higher prices into their wage setting and price setting behaviors. And that psychology is something the Fed really strongly wants to avoid.”

The Fed’s goal now is to achieve a neutral interest rate, says Tirimaos. “A neutral interest rate is the level the Fed thinks isn’t providing any stimulus to the economy. If you think of the economy as a car and the Fed is the driver, they’re taking their foot off the gas. They’re not pushing on the brake, but they’re trying to find that place where they’re no longer pushing on the gas, not necessarily stepping on the brake.”

The Fed is “not trying to induce a recession,” says Federal Reserve Chair Jerome Powell. But it will do whatever it takes to slow down the overheating economy, which could very well implicate a recession.

What About Asset Prices?

Real estate appreciation isn’t factored into the Fed’s assessment of inflation, but the Fed is charged with overseeing the financial system’s stability. So in that way, Tirimaos says, they’re concerned about rapidly rising asset prices. “Now, there’s been a big debate over the last 10 years which is: should the Fed raise interest rates even if inflation’s contained and even if they’re meeting their mandate unemployment, but to prick a bubble? Because an asset bubble could jeopardize their ability to achieve both of their other goals. And the argument has generally been, no, we shouldn’t use interest rates. We shouldn’t raise interest rates to prick asset bubbles.”

But in 2022, inflation is so high that the Fed needs to raise interest rates regardless. Curbing the asset price boom simultaneously is a “happy coincidence” rather than a direct goal. 

Still, a cooling housing market aligns with the Fed’s goals. “They want [economic] activity to cool, they want to remove some of that excess demand that you have right now. And so if you’re in situations where homes that used to be getting 10 or 30 offers are now getting three or four, for the Fed, that’s probably a healthy development.”

What This Means for Consumers and Investors

The Fed is attempting a “soft landing” that won’t result in a recession, but the chances of this are slim, with history as a guide. Dave Meyer, VP of Analytics at BiggerPockets, writes, “As the Fed raises rates, many parts of the economy will be negatively impacted.” These include a falling stock market and a loosening labor market. “With all these factors converging, I believe a recession will likely come in the next couple of months.” 

The best thing Americans can do in preparation for a recession is to save aggressively and invest for the long term. Experts recommend adjusting your budget to bolster your emergency fund in anticipation of layoffs. Once your emergency fund is adequately funded, invest in the stock market while prices are low—or invest in real estate, which is typically more stable. 

Investors relying on mortgages to make deals will have their margins constrained by rising mortgage rates, so they’ll need to factor that into investment decisions. Make sure the deal is profitable with the current rate, but remember that refinancing may help increase your profit margins later on if we see interest rates fall again.

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