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Danielle Hale, Realtor.com chief economist, and CNBC’s Diana Olick join ‘Power Lunch’ to discuss housing and mortgage demand stalling and the state of the overall housing market.

The value of mentorship has become increasingly evident. Many young professionals recognize that having a mentor can be a transformative experience, propelling their careers to new heights and offering the kind of guidance, insight and wisdom that textbooks simply cannot provide. However, the process of approaching a successful entrepreneur about becoming a mentor can seem daunting, leaving many unsure about where to begin.

Here, Young Entrepreneur Council members share tips for how young individuals can secure entrepreneurs as mentors, starting them off on their own paths toward successful entrepreneurship.

1. Attend Events

Visit events that your desired mentor is speaking at, and if you don’t yet have a targeted mentor, attend business events in your community and beyond. Listen to different opinions from different leaders in their field, and find someone who identifies with your needs. Reach out personally; mention something they’ve done that you’ve found inspiring—perhaps a talk they did that gave you insight into solving a problem of your own—and make your ask of them clear and direct. Be upfront about how much time you would ideally want from them, the type of communication style you are looking for and what types of problems you would like their help with. The more information you can provide them with, the better they can evaluate their own ability to help you as well. – Darby Cox, Cox Consulting

2. Find A Mentor On A Similar Path

Choose mentors who fit your ideal lifestyle or, alternatively, fit your actual reality. Too often, young founders and entrepreneurs are drawn to the “shiny object” when it comes to mentors, like the person with the eight-figure exit or the social media juggernaut with millions of followers. In reality, the best mentor is the mentor who lives the life that is attainable. If you have two kids and a mortgage, a single, 45-year-old billionaire is most likely not your best mentor. However, how about the person with a significant other and three kids? The odds are strong that they will have some insights that go well beyond balance sheets. We are all on divergent paths, so choose the proper guide. – Ryan Bradley, White River Consulting, LLC

3. Express Genuine Curiosity

When approaching an entrepreneur for mentorship, it’s essential to express genuine curiosity about their experiences and insights, rather than just seeking them out for their status or connections. Begin by sharing your passion, the challenges you face and your eagerness to learn, framing the potential mentorship as a collaborative journey. Remember, a sincere and humble request, grounded in a desire for growth, often resonates deeply because many accomplished individuals remember a time when they too were seeking guidance and direction. – Javon Frazier, Maestro Media

4. Make It A No-Brainer For Them To Help You

Don’t lead with, “Will you be my mentor?” Instead, start by offering value first. Maybe it’s assisting with a specific project they’re working on, sharing a relevant insight or piece of research or even sending them an online article you think might benefit them. The key is to be genuine and show that you’ve done your homework about their interests and challenges. Successful entrepreneurs are swamped with requests and have limited time. By leading with value and showcasing your dedication, you’ll stand out to them. – Chase Williams, Market My Market

5. Be Clear About What You Hope To Gain

It’s important for young people seeking mentorship from entrepreneurs to be clear and specific. This approach is crucial because entrepreneurs are typically busy individuals with hectic schedules. By being specific about their goals and what they hope to learn or achieve, young people can demonstrate that they respect the entrepreneur’s time and are serious about mentorship. Additionally, it shows that they have carefully considered how the guidance of their mentor can benefit their career. – Chimezie Emewulu, Seamfix Limited

6. Avoid Forcing A Connection

A mentor is someone whom you click with and has the experience to offer you good advice and moral support. Let the relationship form organically. Someone becoming your mentor doesn’t have to be a formalized process. For example, instead of saying, “Would you be my mentor?”, instead say, “Would you mind if I gave you a call from time to time for advice?” This takes all the pressure off you—and them. And remember, a mentor should get as much, if not more, out of the relationship than you do. Many times, a person becomes your mentor without either of you even realizing they’ve become your mentor. The important thing isn’t the label, but the role they play in your life! – Bill Mulholland, ARC Relocation

7. Listen And Absorb

The two ultimate actions young professionals of today must take are to listen like a student and absorb like a sponge. These steps are so critical to grow as a human being and as a professional entrepreneur. When mentors or successful moguls see these two actions, it reminds them of themselves when they needed support, and will make them want to volunteer to help you because you’ve shown a solid foundation and that you are serious. Create the perfect environment, and you will be surprised by how many successful moguls of today will try to mentor you because they started the same way as you. The difference is, they didn’t stop until they won. – Doval Bacall, Bacall Companies

8. Focus On Mutual Value

Highlight how their guidance aligns with your career goals and articulate what unique skills or perspectives you can bring to the relationship. This approach emphasizes a reciprocal exchange of knowledge, making it more appealing for the entrepreneur to invest their time. By showcasing a clear and purposeful vision for the mentorship, you demonstrate commitment and increase the likelihood of establishing a meaningful and productive partnership. – Alfredo Atanacio, Uassist.ME

9. Ask Them Who Else Might Be Able To Help

The best question that you can ask is, “Who do you know that can help me?” When you ask this question, the professional, networking event attendee or cold contact can think about other folks in their network whom they may want to connect you with. I found this extremely useful when building my network for the first time. I went to all sorts of meetups and demo days, and heavily tapped the university’s free resources. Remember, you don’t need just one mentor—you can have a “brain trust” of mentors whom you go to for specific issues. A truly great mentor will understand where the limits of their ability to help are and connect you with those who can fill in the gaps. – Kaitlyn Witman, Rainfactory

10. Respect Their Boundaries And Time

Entrepreneurs are renowned for their hustle and are generally very busy. So, it’s important that you respect their boundaries and refrain from being overly persistent with your demands. Reach out to them in a respectful way and give them time to get back to you. Most entrepreneurs are humble individuals, so they will try their best to get back to you at their earliest convenience—just don’t flood their inboxes with unending follow-ups. Even if they are unable to commit to being your mentor, accept their response gracefully and carry on with your pursuit. This attitude will help you grow your connections and eventually find the mentor you’ve been looking for. – Stephanie Wells, Formidable Forms

Ashley:
This is Real Estate Rookie episode 321.

Andrea:
Still trying to learn all these terms, BRRRR, FIRE, financial free, all these things, terms. But I feel like with this condo that we bought in 2019, it was a two bedroom, two bath. We bought it and it needed a full paint job, which we DIY’d, then we rented it out. Fast-forward four years later, we ended up actually selling that and 1031’d it into our biggest short-term property that we had. But in between there, we also did a cash-out refi on it because we increased the value with the BRRRR. Pulled some cash out and we bought another property with that.

Ashley:
I’m Ashley Kehr and I’m here with my co-host, Tony J. Robinson.

Tony:
And welcome to the Real Estate Rookie podcast where every week, twice a week, we bring you the inspiration, motivation and stories you need to hear to kickstart your investing journey. Today, we’ve got a dynamic husband and wife duo, Joe and Andrea DelGrosso, and I really enjoyed chatting with them. We’ve had a few husband and wife duos on the podcast before, and just like the others, I think they’ve just brought a ton of value.

Tony:
There’s one point where we’re going over the numbers for their deal and they invested $29,000 into one of their initial investments. And we did all the math live on the podcast, and their minds were blown when they realized how much they had turned that $29,000 into, and I’ll give you a small hint that it’s over seven figures. So really cool episode. They talk a lot about light bulb moments they had on their journey and they talked a little bit about how to get your spouse on board, which is a big question we always hear. So love talking to Joe and Andrea. What about you, Ash?

Ashley:
They also share their mindset shift moment as to how they started their journey and then how they pivoted to something that they thought would suit what their needs were and what they wanted out of their life. So really interesting to hear how they went through that shift. And then also talking about the short-term rental management stack of what are the pieces of software that they use to run their short-term rentals. And they talk about how they’re able to do a lot of that stuff remotely and also how it’s become more passive. It’s still very, very active strategy, but being able to use some of these software stacks and setting up different things within them has really helped them. So if you have short-term rentals, you want short-term rentals and you’re going to be managing them, this is definitely the podcast for you to listen to.

Tony:
Yeah. And ultimately, Joe and Andrea were able to achieve financial freedom and go full-time into the real estate business with a relatively small number of properties. So if you’re looking for that framework, this is the episode for you.

Tony:
But I just want to share some boring banter, Ash, and some life updates. She’ll be 34 weeks this Thursday, so we’re getting pretty close to crunch time but actually, so Sarah and I, we’ve been dating since we were seniors in high school so we’ve been together for a long time, but we got married in our late 20s. And I come downstairs on Sunday morning, she woke up before me, and she’s got the living room filled with balloons and there’s a bunch of our engagement photos and the day I proposed to her and our wedding photos, and it said, “Happy 1,000 days of being married together.” And it was just such a special thing, and Sarah has always been so good at being creative. Never in a million years would I have thought to celebrate a thousand days of marriage, but she’s a special person like that. So I just got to give a shout out to my wife here who’s eight months pregnant, still doing her best to make other people feel special.

Ashley:
So thoughtful. That’s really what she is and how she does that. And I had seen the pictures you posted on Instagram. Love it and stuff. So yeah, that was really, really sweet of her.

Tony:
Cool. Any boring banter on your side, Ash?

Ashley:
Well, I went to the lake this weekend, and I did a morning week surf session and I faceplanted pretty good. Once someone started videotaping me, I smiled like, oh, I’m so cool, and then faceplant, but actually turned it into a reel on my Instagram. So if you want to go check out the video of me faceplanting and turned it into how you should be joining me in the Real Estate Rookie Bootcamp and you’ll faceplant on your real estate deal if you don’t, but if you want to check that out, you can go to biggerpockets.com/bootcamps.

Tony:
We’re such influencers now. Everything that happens in our life gets turned into social content. Before we get into the conversation with Joe and Andrea, I want to give a quick shout out to someone by the username of Sherry J68. Sherry left us a five-star review on Apple Podcasts. She says, “I love Ashley and Tony. I listen on my long drive to work on Thursdays and look forward to the real estate lessons from their guests. I’m a nurse practitioner and new to real estate, but I took the advice of some of the podcast guests and found myself a mentor, a JV partner and met lots of new people at the local Rookie Meetups and I’m ready to find my first flip. I have my team together and I’ve been writing letters to target populations and feel like I’m almost there. My goal is to do some flips to fund my rentals and keep scaling. I’m so excited to start this new career and I love it. Thank you so much for all the free education. I learn something new in every episode.”

Tony:
Guys, that is why we do the Real Estate Rookie podcast. It’s for stories just like that. So if you haven’t yet, please do. It only takes a few minutes, a few moments of your busy day, but leave us an honest rating and review on whatever podcast platform it is you’re listening to because the more reviews we get, the more folks we can reach, and the more folks that hear this message, the more folks we can inspire to change their lives. So do us that favor. Do someone else a favor and pay it forward,

Ashley:
And congratulations to the person who wrote that review because they took action. It’s easy to listen. The first step is listening to the podcast, but really that second step of actually taking action. So thank you so much for sharing that win with us that you’ve built your team out. That’s really incredible.

Ashley:
So for today’s social media shout out, I want to give a shout out to Lauren.Mattina, so L-A-U-R-E-N dot M-A-T-T-I-N-A, on Instagram. And Lauren is a science teacher and real estate investor, and she’s sharing her journey on social media. So go check out her Instagram page and give her support.

Tony:
Joe and Andrea, thank you so much for coming on the Real Estate Rookie podcast. We are excited to have you both. If you guys can, just tell us a little bit about your backstory and how you got started in real estate investing.

Joe:
Yeah. So I’m originally from Boston. I worked in television so I moved all around. I went out to California for a little bit, and then in 2012, I moved to Knoxville, Tennessee where Andrea and I met at a company we were both working at in television. And then, yeah, I don’t know, I guess we started our story together and started dating and we got married in 2015 and going through life and eventually, we started our real estate journey in 2016, buying a single family rental. And then today, that has now jumped to, we have six long-term rentals and four short-term rentals.

Ashley:
Well, congratulations on that.

Andrea:
Thank you.

Joe:
Yeah, that’s like the 30,000-foot view.

Ashley:
Yeah. So what was that initial moment where you were like, we’re going to buy that single family house? Walk us through those initial conversations. Was there one thing that happened where you were like, I want to do this?

Joe:
Yeah. So I would say in 2016, we were a year in married and we started to make some money from our jobs. We were working really hard. We were both doing 60, 70-hour weeks just grinding. And really what was happening in my industry with TV, streaming started to have a really big impact, and that was just throwing a lot of different curve balls in the industry. We were working crazy hours, and there was just such a grind factor there that we just started asking the question … I don’t know, we just really sat down. I didn’t want to be the 55-year-old, 60-year-old TV producer if I could even make it that far. There is a lot of you get pushed out at a certain age. Andrea was working at some different companies there, and she was working crazy hours as an accountant, and there was just a burnout factor. We were like, I don’t know, is this life? Are we going to be doing this until we’re 65?

Joe:
We just started asking that question, what else? And that’s really when I thought back to how I grew up, and I was one of three sons. My parents, they were teachers, so they weren’t making a lot of money, but one thing they had, they had two or three rental properties and they were really able to give us this great life on a teacher’s salary because they were able to access equity in the properties and they sold some and then bought some. There was always that presence of real estate in the background that I saw growing up. So when the time came for us to be like, we need to add some security to our lives, that was the natural step forward there, was looking into real estate. And I bought the Stock Market for Dummies book, and I literally did not understand it so I was like, we got to do something else.

Ashley:
No day trading.

Joe:
No day trading. I literally have no idea how that works. So no, the real estate, growing up around it, it just was that natural thing for us to ask, how could we get involved in it?

Tony:
I want to circle back to something that you just said, Joe, because I think there’s a lot to unpack there, and I don’t even think you realized this, but you said that you wanted to add some security to your life and your answer to that additional security was investing in real estate. But there are so many people who look at real estate investing as risky, and they’re afraid to put money into this business because they might lose it all, or they’re afraid to go out and get debt because Dave Ramsey says you shouldn’t do that, or they’re afraid to just do all the things that go into being an entrepreneur and building your own real estate business. How are you able to frame going into entrepreneurship as the less risky path?

Joe:
Really, the real estate stuff, it’s not harder than your W2 job. I’ll say that. Everyone thinks it’s this big foreign thing and it’s a different language and all that. It is not trigonometry. It is not Algebra 10. It’s easy to understand. You just got to take that first step. And it just gives such a great piece of security. It’s not like this sexy, crypto risky thing there. There’s a reason why what 90% of billionaires and millionaires in the country own real estate. It’s an asset class that is so forgiving as an investment. You can trip up and make a mistake, and there’s always just time, I feel like, to make it right. We’re definitely not perfect. We’ve made some mistakes, but what I love about this asset class is you can make a mistake and whatnot. You cannot be perfect and you can still do well in it, and it pays you in multiple ways too. All those other investment avenues I feel like didn’t have the different contributions that real estate does.

Ashley:
Andrea, what about you? Do you have any background in real estate at all or was there anything that you found that give you an advantage and what you brought to the table in your partnership?

Andrea:
I had absolutely no experience, no exposure. I came from, I don’t want to say came from nothing. It was a harder childhood. We’ll just say that, and lost my dad young. We had to go bankrupt. And my mom, growing up, I thought if I could make $40,000 a year, I’ve made it because that’s just what our exposure was. So when it came around to real estate, I just rode his coattail on it. He was the one educating. He was the one listening to the podcast. I was completely clueless. I was like, I can keep our books. I can do the bookkeeping. So I had QuickBooks experience. So I felt good about that. I felt good about the DIY side of properties and making sure that they’re taken care of and they look good and people feel at home when they walk in. But real estate business as that industry, completely clueless and was flying blind with him, letting him lead.

Joe:
There was some hard conversations at the beginning and, yeah, no, we worked through it.

Ashley:
I think that you just said two things right there. You made it a point to say I had no real estate business background, but you brought two things to the table. You brought your accounting background, doing bookkeeping, and then you said you did the DIY stuff. You had the eye for that. That is a big thing. I love design and I love rooms. I cannot put a room together to save my life. I love it, but I can’t do it. Other people can do it way better, more efficient than me. Those things may seem like mediocre things, but having somebody take care of your books, Tony and I hate bookkeeping. Somebody coming on board to partner with us to say, “We’ll do all the bookkeeping. We have experience. You don’t have to worry about it,” anything like that, that would have been a huge attribute to our business.

Ashley:
So I think the point is not to limit yourself as to what you’re bringing to the table because all of these skillsets help and they actually can really create this great business, and that is part of the business. Even though you might think, well, I’m not a real estate agent or I’m not doing remodels or something like that or I haven’t had an investment property, all these other skillsets add to the pile.

Joe:
I was just going to touch on those beginning conversations. They were hard in the sense of like, hey, I think we should do real estate investing. I think this will give us the security we’re looking for. And at the time, I think there’s that give and pull of we are saving like crazy. We were really big savers and whatnot. And she’s like, “Hey, you know what? We should use this money to renovate our bathroom or do the floors.” Where I give Andrea credit is she put those wants on hold and it was like, all right, if you think this is the right journey, let’s take the first step.

Tony:
It’s so funny. Me and Ashley talk about this all the time, but my Airbnbs, the flips that we do, they’re all much nicer than my primary residence. We had paper shades. We had fake blinds, the paper shades at our primary residence for two years because all the extra money that we have, we’re putting back into the business. I think it’s a willing sacrifice or maybe not a willing sacrifice, but it’s a sacrifice you have to make if you want to invest into your business.

Tony:
So just going back to the beginning here. So first, you guys have scaled relatively well. You’ve got 10 properties over the course of seven years. It’s more than one property every year since that timeframe. But I want to go back to that first deal. So when you guys made that decision to become real estate investors back in 2016, I’m assuming you guys, based on your DIY background, and Joe, with your dad’s experience, you guys probably knew a lot about investing at that point. Is that a fair assumption or were you guys flying by the seat of your pants? You’re both shaking your heads, no.

Tony:
So Joe, maybe let’s start with you. Why did your experience with your dad or his lessons make it easier for you that first go round?

Joe:
I feel like being around it, my dad’s properties and my mom and dad’s properties, made it easier for me to get into it, but I had no idea what we were doing. I didn’t know how to renovate anything. I didn’t know how to really assess the rent. We didn’t even have separate bank accounts for the property.

Andrea:
We didn’t know it could be a business.

Joe:
We had no idea.

Andrea:
We just were parking that first one to park some money and build some equity and have a tenant pay down our mortgage. We didn’t realize we could make this a livelihood and we can build it into the business that it is today. That took about three years before we had that moment.

Joe:
Yeah. And I think whenever you get really first into real estate, you try to find your lane. It’s like, all right, I thought I was going to love the renovation stuff. I touched a floor and I was like, “No, I’m done. No, I don’t want to do this.” You try to find your lane, and then meanwhile, I feel like we didn’t even really know your DIY skills until that first property and your love of it. All of a sudden, you’re tearing down walls and kitchens and bathrooms and closets and it’s like, I didn’t know you could do that. So yeah, you fall in love with the different lanes.

Ashley:
So let’s start with that first property. It was a single family home. Tell us about it. What was your investing strategy for that? Was it short term, long term? And give us a little backstory to that and then maybe what you went on to next after that.

Joe:
Yeah. So it was a single family condo. It was 150,000. So we just did a 20% down investment loan, pretty straightforward. The money for the down payment just came from us saving like crazy, and we just use it as a long-term rental, funny enough. So that was in 2016. The tenants, our first tenants are still there, which is just wild. That’s seven years later, they’re still going. So it was just a long-term rental, just plain and simple. We probably should have charged more rent at the time than what the mortgage was. We didn’t know.

Ashley:
Okay. So with that property, do you continue on and do long-term rentals?

Joe:
Yeah. So 2016, we bought the first one. And then 2017, we didn’t buy any. We were going through different things financially where, in the TV industry, where we didn’t feel comfortable buying in 2017 or we weren’t able to really. And then 2018 and 2019 is where we bought two more single family long-term rentals. Again, it was just all savings and just grinding and saving every penny we can. Anytime we got a raise or a bonus, we acted like we didn’t. We would take any additional money and just put it into an account to invest, and that I feel like was just a lot of delayed gratification for a young couple in their early 30s. We wanted to buy a boat. We didn’t. 2019 is when we took a big direction or a mindset shift, but those first three years, we bought three properties.

Ashley:
That mindset shift, t us about that.

Tony:
Yeah, because I’m curious. At what point did you guys make the transition from, hey, we’re just dumping money or parking money into this to get appreciation to it actually being a business?

Andrea:
So I’m going to answer that one. He had a job and was running the roads a lot. He was just driving a lot. And he started … The writing was on the wall. We became parents. We had twins in 2019, and it was like, all right, that aha moment. We don’t want to be in the W2 full-time. We realized we already had, what did we have at that point, three or four long-terms?

Joe:
Three.

Andrea:
Three. So then he had discovered BiggerPockets and podcast. This boy, who did not like school education, read 20 real estate books in one year. He would get up at … yes, work in his full-time job, new dad of twins, and he really just took that shift. And he’d come home and our pillow talk at night became what book he had read through that week or whatever. And he was really passionate and really on fire with it.

Andrea:
And so from that, then he started pushing me. He’d send me these podcasts. I’m like, what is a podcast? And he introduced me to Investor Girl Britt, which I fangirled out about all her stuff. I wanted to be her. And so that I feel like was the big shift, was when he consumed all the education, consumed all the information that he could, and then shifted it to me to be like, “Hey, you have an interest in this. Listen to this girl.” And that’s when we bought one of the biggest shifting condos that we’d like to talk about because it was such a game changer for us in so many different real estate points that it hit.

Tony:
Andrea, I got to pause on something that you said because one of the questions that Ashley and I get all the time is how do I get my spouse on board with real estate investing, and what you just described of Joe, Andrea, is the formula that spouses should try and follow. You didn’t say that he came to you one day and said, “Hey, I want to take our life savings and invest it into this hair-brained scheme I heard on this podcast.” You said you saw this guy, who didn’t like traditional education, read 20 books in one year, listen to every single podcast he could get his hands on and would share with you all this information. That is how you get your spouse on board. You show them how committed you are with your action, and that’s what gets them to buy into this idea. So Joe goes on this journey. He gets you drinking the Kool-Aid a little bit. And then you said you stumbled upon this condo. So what’s the story behind the condo, Andrea?

Andrea:
So we bought it in 2019, and again, we’re still trying to learn all these terms, BRRRR, FIRE, financial free, all these things, terms, HELOCs and cost segregate, all these real estate terminologies that we were clueless on. But I feel like with this condo that we bought in 2019, it was a two bedroom, two bath, great part of West Knoxville. We bought it and it needed a full paint job, which we DIY’d. And that’s when he would literally push play on a podcast and then he’d leave while I was painting, and he’d come in, bring lunch and all the things. It was pretty cute.

Joe:
It sounds so evil now, but I remember her being in the upstairs bedroom and she was painting and working on the bathroom, and I literally would hit play and walk out, and I’m like, yes.

Andrea:
It was awesome though. It fired me up to hear other stories. We listened to you all’s podcast. I heard other couples that were successful in this, and it really got my brain going while I was … My hands were busy. I was painting.

Andrea:
From there, we also redid the kitchen. So we essentially did a BRRRR on this condo. We painted the kitchen cabinets ourselves at home after our babies were asleep and after we worked our full-time job for the day. We had a contractor hire out. We redid the backsplash. We knocked down some cabinet. We just did some work. We hired some and we DIY’d some. Then we rented it out. And let’s see, fast-forward to, was it this year we sold it?

Joe:
Yeah. Sold it. Yeah.

Andrea:
Fast-forward four years later, we ended up actually selling that and 1031’d it into our biggest short-term property that we had. But in between there, we also did a cash-out refi on it because we increased the value with the BRRRR, pulled some cash-out and we bought another property with that. So that property taught us so much that we learned about in books, we heard about on podcasts, but until you get in and do it, that’s when we really had our real estate university. Right?

Tony:
Ash, can we just break down all the different ways they just made money off of this one deal? So this is the amazing power of real estate investing. So you guys buy the condo, put in some sweat equity, you rent it out for several years so you’re getting loan pay down, appreciation and cashflow during the time that you’re renting it out. You said you did a cash-out refinance at least at one point after you finished the initial rehab, took that cash, dumped it into another property, held it for several more years, got more cashflow, and then 1031’d that into another larger property. So you got paid four or five different ways off of one condo that cost, you said the purchase price was $150,000?

Joe:
No, it was 129,000. Our down payment.

Andrea:
129,000.

Joe:
Our all in on the deal was like 20,000 or something, not even.

Andrea:
Yeah. That’s just the power of real estate that once you can see, it’s mind-blowing.

Tony:
So $29,000 is your down payment. What’s the value today of those two properties that you purchased, the first one from the refinance and the second one from the 1031 exchange?

Joe:
Gosh. So that was Antler and that was Powdermill, so 1.5.

Andrea:
Yeah.

Tony:
No freaking way.

Joe:
Yeah, they’re both cabins. So the cash-out refi was to buy our short-term rental in Blue Ridge, and then the 1031 sale was to buy another cabin in Sevierville.

Tony:
So $29,000.

Joe:
Yeah. I’ve never really put it that way.

Andrea:
I was trying to quickly calculate those numbers before and I’m like, “Am I looking at this right?” Okay.

Joe:
Well, one way we were looking at it was like some of our long-term rentals are like, we’re going to have those for forever because they’re great quality and they attract great tenants. But this one, we knew was like our beat up property. We’re like, we’re going to flip this thing. We’ll renovate this thing and really just make the most out of it so we can level up. And that was this one.

Andrea:
We top leveled.

Joe:
Yeah. Top leveling, as they say.

Tony:
So we threw around the phrase 1031. So Joe, Andrea, whichever of you, if you wouldn’t mind, just define what a 1031 is and why you guys use that strategy.

Andrea:
So a 1031 is when you take the proceeds from … Essentially if you sell an investment property, Uncle Sam is going to want a piece of your gain, so you have to pay capital gain taxes. A way to avoid that is this 1031 exchange. You basically hire a third party. It’s specific 1031 handlers. I don’t know what their official title is, but-

Joe:
Intermediary.

Andrea:
Intermediary. There you go. So you get the proceeds from property A if you sell it, and they hold all of it. We never saw a penny of the gain from the sale of Bellbrook. They held it. You have a certain amount of days to identify one of three properties that you’re going to buy. You have a certain amount of days then to close on one of three properties. And then once you do, that 1031 intermediary then sends a check to the closing company for your new property. So essentially, it just sideswipes your taxes and it just goes from one to the other. Now those gains are now sitting on this new property that we have. So if we were to just ever sell it, then we have to pay the gains on that, but we can deal with that then, or 1031 into another property. But it’s essentially a tax saving.

Tony:
They call it swap until you drop. So basically, you just keep 1031-ing until the next property, until the day that you die. And I don’t really know what happens after you die. I don’t know if those taxes get passed onto your estate or how that works, but basically, for the entire time that you’re alive, it doesn’t. Oh, see, yeah,

Andrea:
I listened to a podcast on that actually.

Joe:
Defer until you die.

Andrea:
Defer, defer, defer to death is what it was called or something.

Ashley:
What was your biggest lesson learned from doing that and why do you think somebody should look into doing a 1031 exchange?

Joe:
I think we had a little bit of imposter syndrome. We were such linear, very safe, play it safe investors, buy, rent it out, don’t get crazy. We don’t like risk and whatnot. I think really the lesson we’d like to share is there’s just so many creative ways that you can expand your portfolio by accessing the equity in there. And really, that was just huge for us. And just thinking outside that box, no, we don’t have to just play it safe, rent it out and call it a day. It’s like we can access the equity in there to really just blow up our portfolio because up until that point, it was save, save, buy, empty out the account, save, save, save, buy, empty out the account. But since 2019, we have not used a penny of our personal savings to buy a property. It’s all accessing the equity that we’ve created.

Tony:
So I want to ask something, and it ties back to what we talked about earlier, but you said that you went into this with no real understanding of what a real estate business was. You were just flying by the seat of your pants. You have this aha moment in 2019 where you go on this learning binge to learn all things about real estate business. But then, was that the aha moment or the light bulb that went off to transition from long term to short term? Or what was the motivation to ditch the long-term rental space? It sounds like your last several purchases were all short term, correct?

Andrea:
Mm-hmm.

Joe:
Yeah.

Andrea:
Yeah.

Tony:
Yeah, I guess just walk me through the motivation for the change.

Joe:
So I think our plan up until 2019 was like, hey, we were in our mid 30s, we’re going to buy 10 long-term rentals, pay them off and retire in our mid to late 40s. I think that was our plan, nice and safe and whatnot. But then as we got older and our kids were growing up and we had another baby on the way, even before that, I guess, we were like, how can we speed this up? We don’t want to wait another 10, 15 years to get financial freedom. We want to go faster. And that’s when we discovered short-term rentals and the cash cashflow that that offers. It’s three, four times more than what the long-term rentals are. So we’re like this, instead of waiting 10, 15 years, we can speed this up in two, three years.

Andrea:
Thank you, Avery Carl.

Joe:
Yeah, the Avery Carl podcast. I know that was big for a lot of people when she did that original BiggerPockets one, but that played a huge part in it.

Ashley:
So with your short-term rentals, tell us, what is one thing that you would give or tell, I guess, as advice to a rookie investor as to what they should be looking for? So what was part of, when you decided to make that transition, what were maybe some of your criteria or your buy box of this is what we want to do?

Andrea:
In short terms?

Ashley:
Yeah, short terms.

Joe:
I think for us, we’re both very particular about what we want and how we manage our stuff. So I think for us, it had to be within drivable distance to us because we wanted to be hands-on and involved. So then we just literally took a map, drew a big circle, and it’s like, all right, we want to be in the southeast, drivable distance from Knoxville. What drove me crazy was we were doing all this stuff and investing in Knoxville right down the street from Sevierville, and we had no idea that that was becoming the mecca of short-term rentals. And we were like, oh man, we missed the boat.

Joe:
I think we’re attracted to vacation markets. I know some people like to go into the metro markets, but we like the vacation market so we’re in Sevierville, Blue Ridge, Georgia, and then Panama City Beach, Florida. So that was a big thing, being able to drive there ourselves and also me being at a property that we want to stay there with our family. We wanted it to be relatable in that way.

Tony:
And I just want to go back because you mentioned about how can we shorten the time to achieve financial independence and doing it with the least number of properties possible. And we had a coach, Chad Carson, on episode 306 of the Rookie Podcast. He just recently released his book, The Small But Mighty Investor, and it just ties into the whole mindset that you guys just displayed or talked about of how can we do this without having thousands of units or doors that we have to manage ourselves?

Joe:
Yeah, that’s our whole thing. We pride ourselves on being small and mighty investors. We don’t want 500, 2,000 units. We love the people that do that because they’re really inspirational. I love those podcasts and I love listening to those folks talk, but that’s not in line with what our why is. We don’t want to create another job for ourselves like that. I love the small and mighty approach, and I think that’s what we keep to today.

Tony:
So one of the things that Chad talks about is … And we also recently had Mike Michalowicz on the podcast as well. I’ll try and see if I can look up his podcast episode. But I think a lot of being able to scale your portfolio without it dominating your life is being able to set up the right systems and processes to be able to hopefully offload some of that management tasks with someone else. So as you guys have scaled up … because six short-term rentals for long term is not something to sneeze at. There’s some management that goes into that. So how are you guys currently optimizing your own portfolio so that you can do it with the least amount of time possible?

Andrea:
Sure. So for our short-terms, we run Hospitable, which Joe is the brains behind that. He’s automated all the messages. He’s learned and studied and done all those things. We have recently, very recently, within the last two months, outsourced a bookkeeper because it just got out of hand. So that way, I can be able to … I’ve shifted my focus to a direct booking site and trying to do our social media to drive traffic there, but we also, just all the tools that we can use to make anything easier. I’ve discovered ChatGPT which helps us quickly write descriptions for social media or our Airbnb posts, it makes us sound really good.

Andrea:
What are our other tools? Google Drive is another huge one that it’s simple, it’s easy, it’s free, but it keeps us organized. We have a simple spreadsheet out there that me and him access and it’s literally any password or just background with all of the properties. And what other tools do we use?

Joe:
For the long-term rentals, they run themselves. It’s crazy to say, but we bought them right, and we bought them, they’re B class properties. The tenants that are there, we probably hear from them once or twice a year. The six long-term rentals run themselves and it’s great. But yeah, for the short-term rentals, it’s exciting, it’s fun. We do a whole tech stack. It’s Hospitable for property management software that’s messaging with the guests, which is just fantastic because that’s a lot.

Joe:
We have a dynamic pricing tool, PriceLabs, that sets all the pricing so we don’t have to go in there. We got Turo-

Andrea:
Turno.

Joe:
… Turno that connects with our cleaners. There’s so many cool automation tools where these four B&Bs that are just running full steam, we probably have a mandatory five hours a week that we have to be involved. The rest of the time, it’s just running itself on these automations, which is great.

Ashley:
I really hope that everyone listening just wrote down that stack, that tech stack as even just a starting point as to like, okay, here’s some resources I should look into. And even if it’s not that specific brand but something that does something similar. Tony, do you want to share your tech stack real quick for short-term rentals?

Tony:
Yeah, sure. Ours is pretty similar, honestly. So we use Hospitable as our PMS. We use PriceLabs as our dynamic pricing tool. We use Hostfully for our digital guidebook. And we use Breezeway for our property operations software. Breezeway is similar to Turno, but we like Breezeway a little bit more. There’s a little bit more functionality to it. And then we use Slack to message with our virtual assistants and keep the whole team in line. Those five things are the baseline for our software stack.

Ashley:
And when Tony says PMS, he means property management software, just to be clear.

Joe:
Yes. Be careful when you’re yelling about PMS in public. Yes. Yeah, no, it’s pretty funny. Hospitable, it’s funny to see guests interacting with the automated messaging. I’m like, this is great. I remember that first week. I’m like, this is amazing. I could have never been a B&B host or a short-term rental host four or five years ago when this stuff wasn’t around. I would have been terrible. I would have been like, “What do you want?”

Andrea:
Turno has been the game changer for me because I’m the one that manages the boots on the ground. Team members in Turno, we’re not having to send them, “Hey, here’s our check-in and check-outs.” Turno does all of that. It communicates and pings the cleaner and they can send us pictures and text us about supplies that were out. So I’m very thankful for Turno.

Tony:
So Joe, Andrea, are you guys ready for today’s rookie request line?

Joe:
Yeah, let’s do it.

Tony:
All right. And for our rookies that are listening, if you guys want to get your questions featured on today’s podcast, head over to biggerpockets.com/reply and we just might use your question for today’s episode. All right. So today’s question comes from Allie Snyder Dattilio. And Allie’s question is, “For those in business with your spouse, do you typically put both of you on mortgages for your investment properties or just one at a time to be able to max out the number of loans? Trying to get a gauge for how much we could qualify for individually, but how was the DTI calculated if we split the mortgage on our primary residence? Are we each responsible for 50% of that debt?” So Joe, Andrea, I guess what has been your strategy for managing the loans and mortgages for your investment portfolio?

Joe:
So for us, it’s been both of our names on all of the properties. Now I know a lot of people are like, hey, split that up so you can get more of the traditional loans because you’re only granted 10. But we use both of our names for multiple reasons, just from a closing standpoint and being able to get the properties we wanted. As we were always leveling up and buying more expensive properties, we needed both of our incomes on the statement. So that really, we use both of our names really on all of them.

Tony:
Just from my own perspective, I think the goal probably should be to put the least amount of people on the mortgage as possible. If you’re in a position to qualify with one person, it allows you to free up more debt for the next person because yeah, even if both of your names were on the mortgage, technically you’re both tied to that entire debt. So it is easier sometimes to continue to scale if you can split it up that way. Ash, what are your thoughts?

Ashley:
Yeah. That’s what I was just going to say, is even a lot of times they still look at it as, okay, if you have a $1,500 payment and you’re both on the mortgage, they’re not going to split it in half and say, oh, we’re only going to calculate your debt to income. For me at least, they’ve always done it the full amount because you are responsible because if somebody else, that other person isn’t paying it, you still have to pay that full amount, the 1,500. It’s not like you pay your half then they pay their half. So to answer Allie’s question, I would say that it will fully affect your debt to income, and I think that’s an advantage if you can, is to go into one person on one loan, the other person on another loan, something like that too, if you’re able to do that.

Joe:
Yeah, if you can do it, definitely do. Just split it up.

Ashley:
Yeah, when I first started, I pretty much had my husband as a co-signer with me because I barely made any money and he made the money and that was like … So first couple of rental properties that I did on my own is we both went onto them and did the properties together as, I guess, technically a co-signer or whatever, but he was actually on the deed of the property, and that was how I was able to get my first couple of investment loans without using a partner.

Andrea:
I think looking back, if we could go back in time, I would have had him on our first five solo, but then as I grew in my career, I was making more, then we could have transferred. But if we could advise anybody, yes, to your point, split it up.

Ashley:
Yeah. If you can, if you have the income and the low debt and you can get approved by yourself, and that’s such a great tip right there, is try by yourself first and then if they say no, that’s not going to work, then bring in your partner or your significant other or whatever and then bring them on and say, “Well, now, what if we both go onto the property?”

Ashley:
And one thing too with residential is you’ll have to make sure that both people are on the deed. So you can’t have a co-signer if you were getting an apartment or if you were getting a car loan or something, you can have a co-signer who will be liable for it but they’re not actually titled to the property or to the assets such as the car or something like that. They don’t have rights to the actual rental property the person is leasing. So that’s a big thing too, is that if you are going to partner with someone and you’re both going to go on it, then you both go onto the deed too.

Tony:
All right. Well, let’s jump down to the rookie exam. So Joe, Andrea, these are the three most important questions you’ll ever be asked in your life. So Andrea, we’re actually going to start with you. Question number one, what’s one actionable thing a rookie should do after listening to your episode?

Joe:
Really, I think our biggest thing has always just been perspective and writing down what we want. You can’t start a race without understanding where the finish line is, and I think that is super important. Once we really sat down and got intentional with it like, hey, we don’t want to do the traditional path of 65, all that stuff, and we wrote it down. So having that perspective, but then really keeping it as an active perspective. Don’t just sit down once with your wife at the end of the night and write all this down. If you could see my office right now, it’s whiteboards everywhere, and all of our goals are whys, everything, and I see it every day and it’s that active perspective that just helps me remember when I’m in the fishbowl of day to day, this is why we’re doing this.

Ashley:
What is one tool, software app or system in your business that you use? So Joe, you did give us a breakdown, but maybe besides the short-term rentals, is there something else that you use maybe for the long-term rentals?

Joe:
Our hub is Google Drive really. We could not live without that because that’s where everything is shared. We traveled one time, I think early on, and I literally, and I was like, if something happens to us, no one will know where all our information is and our loan information, our contractors, everything. We put everything now on a Google Drive and I think we sent it to my mom before we travel. I was like, if anything happens to us, here, take this. But no, Google Drive is our biggest tool for our long-term rentals. It’s a small portfolio. It’s manageable in that way and yeah, we love that.

Ashley:
What are some of the things that you’re using to manage though? Is it like a Google Sheets or something like that to keep track and how are tenants paying? Is it a check and are you using QuickBooks? You want to give us the glimpse into how you’re self-managing that long-term rental?

Andrea:
Yeah. We use Venmo, so they pay us every month on Venmo, and it’s just six tenants at this point, so it’s pretty easy to realize if someone hasn’t paid. But everything for us is pretty manual on the long-term side because we just set it and forget it kind of thing. They pay us on Venmo and …

Joe:
Yeah, I think as now we’re scaling down the buying, we’re pausing the acquisition side and really focusing on optimizing. I think one thing we want to do is we can incorporate some of the software for the long-term rentals, like a Rent Ready and whatnot that does a lot of that and keeps it a little bit more organized and a little bit cleaner.

Andrea:
DocuSign.

Joe:
Yeah. Rent Ready I think has features like that. So I think that’s something where as we now, we’ve hit financial freedom, we’ve crossed that finish line, we’re like, “All right. Now let’s focus on optimizing some of these things now that we’ve finished a little bit of that race.”

Tony:
All right. Last question. Where do you plan on being five years from now?

Joe:
Five years from now? Right now, I would love to … We recently just paid off one of our first properties, which was huge for us, and it was just such a great feeling. In five years, I want to have a few of the properties paid off. We’ve now recently got into co-hosting, which has been great for us. A lot of people have followed our journey on Instagram and have reached out and DM’d us about hosting their properties. So that’s something we’re really excited to just dive into and take on. So in five years, I’d love to have a boutique co-hosting business, a few more properties paid off and just enjoying our small and mighty portfolio.

Andrea:
And the time freedom with our kids.

Joe:
Yeah. Time freedom has been great. Just even recently, we just took the summer off and I’ve just been hanging out with the kids and just more and more of that.

Ashley:
That’s awesome. How old are your kids now?

Andrea:
The twins are four, and the baby boy is 15 months.

Ashley:
Oh. So yeah, in five years, you’ll have a lot more time freedom. They’ll be a perfect age to go out and do things and travel and everything like that. That’s awesome. That’s exciting.

Andrea:
Yeah. I want to have that freedom to be able to expose them to things that we weren’t at their age.

Ashley:
Yeah. I joke with my kids that they’re getting spoiled because we’ll go on a trip somewhere and usually it’s to a conference. It’s not like a vacation, but we’re traveling somewhere, going to a conference and they’ll complain when I say that we’re flying Southwest and not Delta because Delta has the TV screens. I’m like, “You’re getting to fly somewhere. When I was your age, that would have been so exciting.”

Andrea:
Yeah.

Joe:
Oh, man. We were doing the road trips back in the day.

Ashley:
Yeah, yeah, yeah, really. Okay. Well, where can everyone reach out to you guys and find out some more information?

Joe:
Where can everyone find us? So we are pretty active on Instagram. We’re at Southern Sun Properties. That’s really where we just have a lot of fun there. Everyone can reach out to us. We’re pretty quick on responses and whatnot. Over the last few years, we’ve just let everyone into our journey, and it’s just been fun to see who’s interested in this world as well and we’ve made some great connections through it.

Andrea:
Yeah. We don’t paint the pretty picture that this is perfect. We have shared our fails, our hard days, our hardships, and we just laugh at ourselves and keep it fun and lighthearted.

Joe:
Yeah.

Ashley:
Yeah. Well, thank you guys so much. I know Tony is still trying to figure out the math of turning that 29,000 into 1.5 million. He would have baffled as to why that hasn’t happened with his property yet. But thank you guys so much for joining us on the Real Estate Rookie Podcast. I’m Ashley at Wealth from Rentals, and he’s Tony, @tonyjrobinson, and we’ll be back on Saturday with a rookie reply.

Jonathan Litt, Land and Buildings Founder & CIO, joins ‘Fast Money’ to discuss why he says more trouble is on the horizon for commercial real estate stocks.

“If our objective is to increase productivity, innovation and economic growth in the UK, immigrants are our natural allies.” So wrote Lord Bilimoria in the foreword of Passport to Progress, a new report we recently published here at The Entrepreneurs Network in partnership with ABE Global.

Derin Kocer shows that high-skilled immigrants are more prone to entrepreneurship and have a knack of making economies more productive and innovative. It calls on politicians to make the case for the positive benefits of high-skilled and high-potential immigration.

The report puts forward a number of policy recommendations, inspired by the best existing policies from around the world, to attract top international students, high-skilled professionals, STEM researchers, entrepreneurs and unusually talented individuals.

For example, Canada has been exceptionally successful in attracting high-achieving international students in the past two decades, accounting for a six-fold increase in numbers, realising the benefits of positioning international graduates as the future of its workforce. The report argues that any country competing for international graduates needs to copy Canada in offering graduates a right to work, with their time at university counting towards permanent residency.

The UK’s High Potential Individual visa, which grants two-year work visas to graduates of top universities, is highlighted as a unique and creative policy example. However, the report argues that what counts as ‘top academic institutions’ should be expanded to include graduates from institutes such as the Indian Institutes of Technology. It also advocates for granting permanent residency to advanced STEM students on their day of graduation.

Passport to Progress also makes the case for pro-migration policies, through the establishment of specialised task forces within the Government to actively recruit entrepreneurs and talented STEM professionals. The most ambitious historical example of this was the US’s Operation Paperclip whereby over 1,600 German engineers and scientists after the Second World War, who later led the American space program. Given the historic context this wasn’t without controversy, but a modern equivalent wouldn’t suffer from this.

The report also highlights Israel’s Innovation Labs programmes, which provide migrant entrepreneurs with access to critical technological infrastructure, and New Zealand’s Global Impact Visa, which creates training, investment and networking opportunities for migrant entrepreneurs.

The political context for making the case for more immigration is challenging. As Rob May, Chief Executive Officer of ABE Global, said: “Recently, the central relationship between immigration and innovation has come under attack. Motivated by desires to limit headline net migration figures, the positive effects of migration have once again become clouded in a hostile narrative that finds its fulfilment in the populist rhetoric that any immigration is antithetical to national progress. This neglects the historical truth that the flow of ideas, talent and people has been the cornerstone of security and prosperity.”

But we’re optimists. “Immigration is a story about opportunities. We need more of those stories and Passport to Progress is our contribution to how,” says Kocer. “We hope to unlock a sensible conversation in which the true potential of migration can overcome misplaced concerns,” says May. I would add that the arc of history bends toward more high-skilled immigration, as the evidence mounts. After all, over a third of the UK’s fastest growing companies have at least one foreign-born founder.

David:
This is the BiggerPockets Podcast, show 817.

Dan:
I started as a poker player. So negotiation is actually my favorite part of being a real estate agent. I love it. When you’re thinking for yourself like, what is this property worth? And you’re evaluating it for yourself, you’re looking at properties completely different than an agent that has never bought an investment property or maybe even hasn’t bought a property themselves at all. They don’t understand how to value the property and where the price should be because they don’t know what it’s like to have skin in the game, and they don’t know what it’s like to have skin in the game over and over and over again.

David:
What’s going on everyone? It’s David Greene, host of the biggest, the baddest, and the best real estate podcast on the planet, aka The BiggerPockets podcast. Welcome all of you. We’ve got a great show for you today. I am joined by my co-host, Rob Abasolo, who’s looking svelte, fit, trim, handsome, dark, well-dressed, well-manicured. Like can you just slow down this glow up that we’re all getting to experience in real life?

Rob:
Yes. I’m now changing my title to co-host with the co-most.

David:
Hmm.

Rob:
Yes. Yeah. So, if you could start referring to me as that, that’d be awesome.

David:
This is a true marketer at heart because that’s incredibly cheesy, yet will still stick in my brain. Sticky cheese, the Sticky Cheese Method with Robert Abasolo, Marketing Co.
In today’s show, you’re going to hear all about two popular markets, Chicago and Houston, as well as agents that work in those markets that can give you the scoop on what to look for, what to avoid, and how to approach buying real estate there. We talk a little bit about cashflow versus equity, identifying up and coming markets and the right approach to take in a challenging market.
Rob, what do you think investors should keep an eye out for on today’s show?

Rob:
Honestly, I think it’s a really great educational episode for anyone that is new at working with real estate agents in general because as you’ll hear in today’s episode, you’re going to hear how they provided value, how they were able to save deals, how they were able to price properties, and it really is just nice to know that there are realtors out there that are really thinking about your deal from every angle. We talk about owner financing and how not all realtors are down to have that conversation with the sellers and the importance of having someone that’s willing to go at bat for you.

David:
That is true. Having the right agent in your quarter can make a huge difference in having a portfolio that scales or having a portfolio that fails. Today’s quick tip is simple, head over to biggerpockets.com/agentfinder to match with an investor-friendly agent now. It’s fast, it’s free, and it’s easy. That’s biggerpockets.com/agentfinder and I am on there too, so hopefully, you all go find me and click on my beautiful bald face so that we can get in touch. All right, let’s get into today’s show.
Dan and Jodi, welcome to the show. So nice to have you two here today. We’re going to get into some interesting markets, Houston and Chicago. We’re going to run through each of these markets and then we’ll get into some recent deals that you two have helped close. Then we’ll talk about what made those deals work, and all of our listeners can use these insider tips and secrets on their next deal too. So we’ve done these before. They were a hit. We’re going to be learning all about what is available in Houston and Chicago.
Dan, we’ll start with you. A little bit about your background here. I understand you’ve been in real estate for 20 years. You’ve been an agent for five. You were full-time in learning development and training agents, started flipping with dozens of houses being flipped over the years. 10 units total. Made up of single family and multi-units. And you are a poker player who used your winnings to start in real estate. Did I miss anything there?

Dan:
No, you got it. That’s right.

David:
Awesome. All right. Jodi, you’ve been in the game for 20 years. You own a boutique brokerage where you have 12 agents that work for you, a property management company with home design and remodeling, a little bit of everything. 22 single family homes, a couple commercial properties. You’ve got historic homes that have been converted into office space. You flipped 30 houses, and one of the agents on your team was an investor that you met through BiggerPockets and you helped them acquire their first few properties. They later became a full-time agent on your team, and now you’ve got a full brokerage. Did I miss anything there in your story?

Jodi:
I think that pretty much sums it up.

David:
Awesome. Well, it’s nice to have you two here. Now that we have a little bit of background on you, let’s get into your markets. Dan, I’ll start with you. What are some of the long-term benefits to Chicago?

Dan:
Well, Chicago really didn’t go through the huge growth spurt that a lot of the other markets did. We increased about 3%, 5% depending on what part of the market we’re in a year. And some of our areas are just now returning to pre-recession prices. So that tells you that while our prices have gone up, there’s still a long way from what you’ve seen in the other markets. So there is incredible opportunity to appreciate price, and as you always say, there’s going to be a lot of appreciation in rent as well.

David:
There you go. What about population shifts? What’s the economic engine that’s driving Chicago?

Dan:
So, like every northern city, there’s always people as they get older, they tend to move to warmer climates. But for the most part, our population has done really strong work. Now, getting all the people that thought that they could live forever in Tahiti and work remotely, realizing they’re going to have to go in the office, they’re returning and we’re starting to see all that happen.
So there’s a couple of things. Number one, we have major hubs here like McDonald’s and Motorola and Allstate, Grubhub, and then United Airlines. And United Airlines is important because they have a hub here. And as part of that, there’s a huge consultancy part of Chicago. So, we have all the big companies like Deloitte, McKinsey, and Bain. And those people tend to be nomadic unless they take a full-time job that’s going to last forever. Most of those people expect to be here for a short period of time. And that period of time is one to three years. That’s what they expect. So they’re going to be renters even though they can easily afford properties.
But companies like United, when you have a hub at United, you think of people that the captains of the airlines, but you also have all the people that are just getting the snacks to the cart and there’s just tremendous opportunities. So whether it’s white collar or blue collar, there’s great paying jobs all over the city.

David:
But you’re seeing a tenant base is what you’re getting at. These are people that need to rent?

Dan:
Yes, exactly.

Rob:
And tell us, Dan, why should people consider Chicago?

Dan:
Well, Chicago is an extremely popular city to live in. We recently had the number one ranked restaurant. We have lots of world-class restaurants. It’s the place that improv lives and it’s the number two theater city in the United States. A lot of people move here when they graduate from college in the Midwest because it is the New York of the Midwest. There’s endless opportunities. The public transportation system is incredible. You don’t have to own a car here, but you can also own a car and find parking here. So it’s a great combination of both. So there’s a lot of reasons that people want to live here. So you’ll always have people that want to live here to buy and to rent.

David:
What would you say are the specific strategies that work best in the Chicago market?

Dan:
Anything works in Chicago. When you think about short-term rental, Rob, I loved your @BPCon this year was great.

Rob:
Oh, thanks.

Dan:
When you talked about short-term rentals, just the creative ways in which you can do it, and I think that helps you stand out because there is a lot of competition in short-term rentals, but you should know that the city ordinance to say that you do have to live in the property. So whether it’s a multi-unit property or single family home, you have to live in it. So it’s not something you can easily do out of state. So most people are moving to midterm rentals.
Obviously, I’ve flipped a lot of properties. It’s really easy to flip in Chicago because not only do we have tons of distressed properties, Chicago is unique in that on the same street, you’ll have a property that’s $350,000 sitting next to a property that’s $850,000 around the corner from a property that’s $1.2 million. So those other properties make the appreciation happen very quickly if you make the right changes to the property.
But I think the bread and butter in Chicago, the thing that most people should focus on, two to four unit properties. We have tons of them in Chicago, but they’re getting torn down every day because as people are looking for places to build single family homes and convert into condos, those are the best ways to do it without having to build completely from scratch. So, if you get into a two and four-unit now, it’s going to be become more and more valuable because it doesn’t make any financial sense to build them, they were built a long time ago when labor and materials were cheap. And if you were going to spend that amount of money on a property now, you would build a single family home or you would be able to hide in rentals or high-end condos. You would not build what’s there today. And there’s 1200 for sale right now in the area. So, there’s lots of opportunity.

Rob:
Awesome, man. Well, thank you for the snapshot. And before we move on to Jodi here, just wanted your take on the pizza, yay or nay?

Dan:
I am a huge fan of deep dish pizza, but you should know that true Chicagoans don’t actually think that’s their pizza. They have a different style called pub pizza, which is actually cracker thin. That’s what they think is their pizza. So, the people that think that deep dish is a Chicago local pizza, it’s really people that transplanted here that fell in love.

Rob:
Oh, interesting.

Dan:
But I love it all.

Rob:
Yeah, I did not know that. I’m a New York sliced guy, but occasionally, I do like to eat lasagna, and that’s where the deep dish comes in. But yeah.

Dan:
Yes, exactly.

Rob:
I think it’s all right, I got to try that. Well, thanks, man, I appreciate it. So Jodi, I’m going to ask you the same question. Can you tell us a little bit about some of the long-term benefits of investing in Houston?

Jodi:
Sure, absolutely. So I think some of the long-term benefits, and we’ve got a very favorable tax environment here in Texas, both for investors, property owners, as well as businesses. We’ve got good steady appreciation over the years. It’s a very landlord-friendly state. And we’ve got a very strong rental demand here in Houston. I know we’ve just had a 19% increase in rental properties over the last year, 3% increase in price. I think our average rental price now is about $2,350. So it makes it a very lucrative location for investors to look at long-term buy and holds.

Rob:
And what are some of the population shifts in Houston and some of the economic engines in the area?

Jodi:
So Houston is the fourth-largest city. Personally, I’ve experienced a ton of out-of-state people moving into Houston. I think the statistics are, we’ve had about 85,000 newcomers to Houston over the past year, two-thirds of those being people moving from other states. I think on an average over the past several decades, Houston has seen an increase of about 2% population. Some of the big economic sectors in Houston. Of course, everyone knows us for oil and gas. However, there’s a huge healthcare. We’ve got the number one largest bed center in the area, so that’s a big driving factor there. We’ve also got aerospace and biomedical research, tons of job opportunities in Houston.

Rob:
Yeah. Yeah, for sure. Oil and gas is a big one. NASA, like you said, and then overall, not specific to Houston, but we also have Whataburger and Bucky’s here, and that’s just an overall economic driver for Texas in general. Other than those two amazing things, why should people consider Houston?

Jodi:
Well, I think they should consider Houston based on a couple of what we’ve discussed in regards to our population, our good long-term appreciation rates. We’ve got a vibrant art and food scene, which is very important, low cost of living. Houston’s a very diverse community.

Rob:
And did you mention that the average rent in Houston is about $2,300?

Jodi:
Yes.

Rob:
Okay. Yup.

Jodi:
About $2,300 in Houston, yes. That is about a 3% increase from last year. Single family homes have jumped 19% year over year with the average lease price climbing 3%, which is now at $2,363, which is a record high. There’s also been a total of $4,396 leases were signed compared to $3,690 in July, which is the highest volume of single family leases that have ever been recorded in Houston history.

Rob:
Wow.

Jodi:
So we have a very strong rental market. The demand is there.

Rob:
It is. I mean, I grew up in Houston from zero to 18. I feel like it’s just such a different city 10 years later, which I guess you could say about really any city, but being from here and actually returning, it is just crazy how much development. And honestly, yeah, the real estate seems to be growing at all times. The rent prices definitely seem to be so much higher every single year. What strategies are currently working here?

Jodi:
I see I’ve got a lot of clients that are interested in the long-term buy and holds. Of course, with interest rates increasing the way that they are, it is a little more difficult to cash flow, but I’ve got a lot of investors focused on more long-term appreciation. And so, some of the metro areas in Houston, areas that have very good school districts, I have noticed I’ve got a lot of clients that are interested in that for the long-term appreciation aspect.
I think Houston is such a diverse area. It’s so large that you can really focus on multiple different strategies just based on what the investor’s goals are. So, I’m seeing a lot of newer investors that are purchasing properties, house hacking, or inside the loop, possibly looking at properties with garage apartments, doing short-term rentals there in order to offset those mortgage payments and be able to get in oftentimes with a little less than the typical 20%, 25% down payment for investment properties of owner occupying them. So I think there’s multiple strategies.
Of course, we also have older homes. So, doing the BRRRR strategy. Over the past few months, I’d say the majority of my clients are looking for the long-term buy and holds and small multifamily anywhere from two to four units, and we’re having great success there.

Rob:
And then when you said the loop, what do you mean by the loop?

Jodi:
I’m sorry. Inside the 610 loop, so that’s more inner city. And then you’re going to have, there’s three loops in Houston. And you’re going to have the 610 loop and then the Beltway, which is a little more suburban and far out, which used to be considered far out, is the Grand Parkway loop where you’ve got all the more suburban areas. And those are some of the areas that are really good for long-term buy and hold. Good appreciation, great school districts.

Rob:
Very cool.

David:
So I want to ask each of you a question that doesn’t get brought up a lot in real estate, but I think it’s a question that needs to be asked. The last decade, we’ve primarily invested for cashflow. Podcasts have described cashflow as the reason to invest. This has been the right motivation is you should invest your money to get cashflow. And if appreciation happens or if rents go up, so much the better, but you need to really rely on cashflow. And Jodi, as you mentioned, rates have gone up, but prices really haven’t gone down. Supply and demand is out of whack right now. There’s still much more demand than supply. So cashflow has been largely eaten up in a lot of markets, but prices haven’t come down to fix that.
What are your thoughts? We’ll start with you Jodi, on if a buyer is not going to get cashflow, are there certain markets they could focus on within Houston where you think rents will go up, So eventually they will? Do you think that there’s a strategy where they should be okay with breaking even if they believe the property values are going to increase? Or do you think that investors should just stop buying properties unless they cashflow really strong?

Jodi:
I think if a property makes sense, and especially buying in some of the areas that I had mentioned, some of the suburban areas where you’ve got steady appreciation and I think it’s always a good idea to buy if you can have someone else cover your mortgage and help build equity. And so, I would suggest some of the areas, some of the suburban areas, I’d say like Katy, Cypress. The school districts are the driving factor. You’ve got a lot of people moving from out of state specifically looking for those areas, wanting their kids in good schools. And so, you’re going to have long-term renters, good steady appreciation on average about 7% per year. So I am seeing a lot of investors now that are diversifying their portfolios and they are perfectly fine with breaking even and focusing on areas that have good long-term appreciation. That is something that we assist in guiding our clients and showing them the statistics in specific areas and giving them their feedback of which areas are ideal for that.

Rob:
Yeah. Houston is a really interesting city in that it is 80 cities all clustered around one big city. It feels like every suburb of Houston is just its own little metropolitan area. Like Cypress for example, I think that’s a really great booming area in Houston. But five years ago, it didn’t look like that. It was just fields. And you drive by Cypress now and it really is its own living, breathing city. I agree though I think a lot of those cashflow opportunities I think do tend to come from some of the suburban areas. It’s interesting how it is seemingly tougher to break even.
I’m actually working on a seller finance deal in Houston right now at the moment, and it loses money. And the seller proposed the terms to me. I said, “Hey, this loses money.” And he was like, “Well, the thing is with real estate investing, sometimes you got to lose money, but you understand that you’re building equity over time.” And I was like, “Well, yes, but I don’t like to walk into deals where I’m losing money automatically.” So we’re trying to work out terms to break even, but it definitely gets tougher in Houston specifically because the property taxes in Texas seem to be pretty high.

David:
Dan, what about you? What are your thoughts on investors that are having a hard time finding cashflow in the Chicago market? Do you think that there is an argument to be made for taking maybe a delayed gratification approach if the fundamentals are strong and you believe you’re going to have rent and price growth, that it’s okay to invest in those markets? Or are you like, “Hey man, cashflow till I die. That’s the only reason to invest. If you can’t find it, just don’t buy.”

Dan:
I’m really glad that you brought this question up and you guys had a great interview recently with Barbara Cochrane where she talked about she expects to overpay for properties and she’s thinking long-term. When you think about year one of a rental property, I just don’t think it makes any sense. Real estate to me is a long-term process and I just don’t think it’s that hard. You buy a property, your tenant pays down your mortgage and eventually, you are going to make a lot of money. If you’re not making a lot in the beginning or even breaking even or a little below it, eventually you will. The rents will go up. The price you’re paying for the mortgage will stay the same.
As somebody that invested in properties not knowing what he was doing in the beginning, I started before I even knew about BiggerPockets. We didn’t know what we were doing it, and here we are years later, our properties are worth two or three times what we paid for them. And we’re cash flowing and everything. I just think if you focus on short-term today, that was a strategy for 20 years ago. That’s not the strategy for today.

David:
That’s a great point. What worked before doesn’t always work now. And let’s give a disclaimer. Rob made a good point. This does not mean buy a property that bleeds two grand a month hoping that it goes up. That is not what we’re saying. We are talking about if fundamentals are strong, businesses are moving into the area, there is not enough supply for the demand that you see. Let’s assume Cypress, I know nothing about it, but hypothetically speaking, this is an area everybody wants to move into. The school scores are high, wages are higher in Cypress than they are outside of it. You have every reason to believe that this area is going to grow at a faster pace than the others around it, but wages haven’t gone up to the point where the tenants can afford to pay enough for the rent to make it cashflow. Right?
There is an argument to be made, I think, that buying in better areas will make you more money over time, but they may not crush it right away. That is not to say buying in a war zone and hoping that rents go up is a good strategy. I want to clarify that because it seems like there’s always someone, no matter how much I try to make this clear, that finds a way to be confused and accuses me of saying, “David Greene said cashflow doesn’t matter and we shouldn’t even analyze properties, and you shouldn’t even look at it.” That’s definitely not what we’re getting into. But I do think that some of the better markets like what we’re talking about today, have more competition for the homes which drives the prices up, which does eat up a lot of the cashflow, unless you find that unicorn that we’re always looking for.
So ,let’s move on a little bit here. Each of you has a deal that you’ve done. Jodi, I’m going to start with you. Tell us about the last resort.

Jodi:
So this was a property that one of my buyers located. It had been in contract previously. Typically, when I see that, I like to reach out to the listing agent, get some background information, see if they have any current inspections on the property, just try and figure out any insight that I can get that would be beneficial for my borrower going in. Got under contract, I think we negotiated after reviewing the inspection report. So she had a good idea of knowing what issues were going on with the property, which it was pretty much renovated, not many issues at all. We were able to negotiate about a 20K price reduction and got into contract. Everything was going smoothly. She opted to have another inspection report done. We negotiated a few repairs there during the option period.
Moving towards closing about three days prior to her financing contingency, found out that the lender had miscalculated her monthly incomes. Let me backtrack a little bit. She’s self-employed so this was a stated income loan. So, found out she wasn’t able to get approved. At this point, she had already sold her home in Austin, packed up and moved to an Airbnb waiting for closing in Houston.
So, we went to every other lender. I’ve got a good resource of lenders that I’ve worked with over the years and basically, everyone said no, they didn’t even know why the first lender approved her. The funds just aren’t there, she’s not going to be able to get it approved.
That initial lender had suggested going in with basically private moneylender or hard moneylender. Her rate was just jumped up to 12%, wasn’t going to make sense. I sat down with her, said, “Look, I know you really want this property, but you’ve got to take emotions out of it. Put your investor cap on. It doesn’t make sense.” Her intention was to occupy one side of the property and short-term rental the other. It was still, with that interest rate, going to make it very difficult for her to cashflow anything.
So, as a last resort, I reached out to the listing agent, was able to negotiate with her, and the seller agreed to seller financing with some pretty favorable terms. The terms were actually about 2% lower than the initial rate that she was going to go with, with the stated income loan.
So, we were able to negotiate that. Another hurdle came up that found out there were open permits on the property and the contractor that had done the renovations walked off. Seller couldn’t get ahold of them. And if anyone knows, working with permitting in the city can be difficult at times.
So at that point, we stepped in. I also have a construction design remodeling company. Got my project manager involved. They were able to go to the city, pull some strings with some people they know, and we were able to get those permits passed. And we actually closed on that deal about two weeks ago, and she has had it leased out on short-term rental for the past two weeks. She’s had full vacancy.
So it was a deal gone south that had many hurdles, but we were able to shift gears when needed and use our resources to actually get a more profitable deal for the investor as opposed to what she was initially going in at.

David:
You had me at pulled some strings with the city to get the permits approved. You just became my go-to Houston real estate agent. Congratulations, Jodi. You’ve skipped to the front of the line.

Jodi:
Well, it is hard to do. But at the end of the day, I mean what we’ve learned and we’ve learned in many municipalities in working with permitting, ultimately, they just want the job done right. And if you do it right and you do it the first time and you follow the guidelines, it’s not that difficult. So, we’ve got a good reputation working with many of the cities, and they know if we’re on the job that it’s going to be done right the first time. And so, not necessarily… no money under the table, anything like that, but just representing our clients to the best of our ability and getting the job done.

Rob:
And when you said that she was booked full occupancy, what do you mean by that? Do you mean that she listed on Airbnb and every night was just getting booked by guests?

Jodi:
Yes. Yes. For two weeks. She can’t believe it. She is a newer short-term rental or Airbnb host. She had her last property in Austin and she said she had about 50% vacancy there. So she’s new and she’s been booked for the past two weeks, so she’s super excited about that.

Rob:
Cool. Very fun. Well, how did you find the deal?

Jodi:
It was on MLS. And as I mentioned, in this market, just well, given the past year market, you had to be a little more creative to find deals. So I always like to look at properties that have fallen out of contract. Oftentimes, you’ve got sellers that are motivated, they may be in contract for something else. And so, when I see that something’s fallen out of contract, I like to jump on those and try and get it locked up as quick as possible for my clients.

Rob:
Awesome. And how did you help with the due diligence, the team building and some of those other aspects within the deal?

Jodi:
At first, I assisted in recommending our inspectors, lining that up. As I mentioned, our contracting company came in and they were able to get the permits cleared, which the seller was unable to do. I also got her in touch with an attorney that was able to structure the owner financing terms and draw up the paperwork. Also connected her with a property management company that she hasn’t employed yet because she’s been doing the management herself for the short-term rental, but that she would possibly, in acquiring her next one or other properties, she would help utilize.

Rob:
And you talked about it with some of the connections that you were helping to make, but were there any other ways that you demonstrated value to your client?

Jodi:
I believe just not giving up and being persevering over the hurdles that we encountered. Many people would just walk away, but ultimately, I mean I make a connection with all of my clients. And at this point of the transaction, I wasn’t giving up and I was making sure that she was going to be able to get this closed no matter what. So I think thinking outside of the box such as owner financing, that that’s something that I would say retail agent may not consider, but as an investor myself, I know that where there’s a will, there’s a way, and you don’t know unless you ask. So first, suggesting it and then putting her in touch with the correct people that were able to structure the deal and get it closed. I think that’s a way that we were able to turn tables on, what could have been an ugly situation and made it profitable for both her and the seller.

Rob:
In general, because I agree, I think any realtor that is willing to go to bat on the owner financing side, an amazing, amazing trait and characteristic. Do you feel like in general, most realtors are pretty, not anti, but won’t really ever take that to the seller?

Jodi:
Absolutely. I think most realtors, just because they don’t necessarily understand it. And I think a lot don’t want to come to their seller and propose something that they don’t understand or can’t educate them on. So, I have encountered many that do not want to. And then, as I educate them on how it can be most beneficial to their seller, as well as the buyer, I’ve been pleasantly surprised that others will. I believe that they need to be educated at first and know how it can help all parties involved.

Rob:
Awesome. Well, keep fighting the good… Now, I know who to come to for all my owner finance deals.

David:
All right, Dan, let’s talk some Chicago real estate. By the way, how come you don’t have an accent? Why is it that I go to cities? I just got back from Boston, I was there for the UFC fights. 20% of the people had an absolute iconic Boston accent like you hear in movies, then 80% of them just sounded normal. How does that happen?

Dan:
I was not born in Chicago. I actually was born in Indiana, so I have an Indiana accent.

David:
Okay, you are off the hook. What about everybody else that lives in a big city but doesn’t have the accent?

Dan:
Well, it really depends on the community you’re from. You mentioned this about Houston, but Chicago, it is really a collection of neighborhoods, and there are neighborhoods, and you live and work in that neighborhood, and everybody sounds the same. And then, in a different neighborhood, they sound completely differently. We have Polish neighborhoods where people only speaks Polish, and we have lots of neighborhoods where people only speak Spanish, and then we have lots of neighborhoods where people sound like Saturday Night Live Skid.

David:
That is a sound answer. I threw it at you out of nowhere and you gave a very good explanation. You also highlighted what I should have thought about, which is not everybody that lives there was born there and grew up in grade school, so there could be some transplants that I should have thought about. But the Saturday Night Live Skid is exactly right. It was actually my first time visiting the East Coast. And I kept thinking, every time I would talk to someone with a really thick accent, they’re pretending to be a character out of a movie in Boston. There’s no way that they actually talk like this all the time. And then I eventually realized, “Oh no, it really is that accurate.” They don’t like Rs. The letter R gets dropped out of everything they say. They’re just not fans of the R. All right, so tell me about Logan Square.

Dan:
So I had a client that had called me up from the Agent Finder on BiggerPockets. And I talked to him, got a sense of what he wanted to do, and got him qualified with a lender that works with multiunit properties, and felt really good about him. And very rarely, but every now and then, I find something on the private listing, which is just absolute slam dunk. So I called him up, and I said, “We should do this.” People don’t know private listing or listings that you can’t see on Zillow or Redfin that only brokers that know how to access them and make them available to their client, can show them. So I called him up.
And so many people that are listening to this podcast are listening for years and are afraid to buy something. And I found that when I offered him that, that he was suddenly dragging his feet nervous because it was the first thing I was showing to him. And I said, “Trust me, this is an absolute great deal.” And he looked at it and he loved it. They had redone the whole thing.
But David, as you know, a lot of the people that sell multiunit properties have no business doing it. They don’t know how to price them, they don’t know what they’re doing. And he just listed it way below market. But because it hadn’t hit the public market yet, there wasn’t much competition. So I’m begging this guy to get the offer in and he’s thinking and thinking. And finally, we get it in, and they said, “Oh, we just got another offer that’s much higher than that, and so we’re going to go that way.” So we lost out in it.
And then, he spent the next day going through, looking at his numbers and going, “Oh my God, I really screwed up, didn’t I?” I said, “Yeah, you really missed out on something.” And I don’t tell people this, but when there’s a multiple offer situation, I don’t tell them because I don’t get their hopes up. I’m always calling that agent saying, “Listen, if anything’s going wrong with this deal, give me a call. We’re going to get this done. It’ll be a sure thing.” Because a lot of people when they bid over asking price, once they do that, then they start to regret it and they have second thoughts about it, and then they start renegotiating the price. And so, that was happening. He called me up and he said, “Is your buyer ready to go? And I was like, “I hope so.” And I said, “Yes, absolutely.” I called him up. And by then, he was really excited for the deal. We got it under contract and everything looked great.
So this is a unique property. It was a two-unit property in Logan Square. And Logan Square is a neighborhood that is appreciating like crazy. There’s great restaurants and bars and breweries. People want to live there. So there’s lots of opportunity if you get a property there to find renters. But what was unique about this property was there was a top floor and then the bottom unit had two floors. And the people that lived in it were brother and sister. And in order to give themselves privacy, where the stairs were, they put a piece of drywall to separate them so they had privacy. And so, when the appraiser came by, he said, “This is not a two-unit property, it’s a property that has two pieces that aren’t connected.” And he couldn’t understand. All we do is take down a piece of drywall and it’d be fine. So he did not appraise at value.
So I had just promised this agent that we could get this done and now suddenly, it’s not appraising. But fortunately, the lender I worked with is really creative and we came up with an idea and we went back and I said, “Look, can you get the seller to take the drywall down? We’ll redo our loan so we get another appraiser out.” Because usually if you send the same appraiser out, no matter what you do, it’s not going to appraise above value.
So they had to, at cost, take down the drywall, clean it all up, make it look great. We sent out another appraiser. And a nice twist of fate, it appraised at $60,000 above what he was paying for it. And he got it. He got $60,000 of equity from moving in, and it’s cash flowing from day one. He’s really excited.

David:
You said something earlier, I don’t want to skip over. There is a psychological condition where if you are paying less than the asking price, you think you’re getting a good deal, and if you’re paying more than the asking price, you think you’re getting a bad deal. And it drives me nuts because it’s like tell me you’re an amateur without telling me you’re an amateur. It’s you use the list price to make your decision on the value of the property. It does happen where a house is listed low and writing an aggressive or over asking price offer is the smartest thing you could do to lock it up before they get a lot of other offers and realize they listed it low.
So what probably happened is you were speaking to that listing agent, they knew your guy was sniffing at the bait, but he hadn’t actually bit on the worm yet. You were trying to get him comfortable with going in strong and playing the listing agent like, “Hang in there, hang in there, hang in there. Come on, buddy, we got to do this.” And then someone else called and the listing agent told them, “Oh, I got another buyer.” And his guy was like, “Oh hell no, I’m buying that thing now.” Came in 20 grand higher, he gets the great deal. Your client wishes that he had.
I just want to co-sign on what you’re saying here that it is not inherently bad. Your agent is not ripping you off if they ask you to pay over asking price or I should say they recommend that you do that because sometimes properties are priced low, sometimes they’re going to get seven offers and the new baseline for what the seller expects, it goes from the $600,000 asking price to $650,000 because that’s where the offers have come in at. And had you paid $610,000 in the beginning, it would’ve looked like a good deal. Have you experienced that as well, especially with some of the small multifamily?

Dan:
David, yeah, that’s absolutely the bane of my life is I always tell people it’s not the price of the property, it’s the starting price. So sometimes the starting price is too high and sometimes it’s too low. And you can use the data to figure that out. It’s not hard to figure that out. I can tell usually if a property’s going to go the first weekend. So do you want the property at the valuation you put it or do you want it at the valuation that some agent, who may not even know what they’re doing, listed the property at? Yeah, I totally agree.

David:
There’s another point there where when you’re selling your house, because I know a lot of our listeners, at some point, we’ll need to sell a house with an agent. There is a temptation to choose the agent that says, “I want to list it at whatever the highest price is.” It feels safer. Like, “Well, this person said $700, but this person said $800, I’m going to go with the $800.” And then it sits there for four months not selling and it becomes stale product and nobody’s seeing it in the searches, and the showings dry up, and you have to drop it to $700 and then you get offers at $650 because it’s been there for four months and nobody wants it at that price.
It’s your own fault because you went with the agent that told you what you wanted to hear versus the agent that said, “Let’s list it at $700, try to get several offers and now my skill as a negotiator will play and I will push those offers up to $750,” versus, “Let’s price it at $800 and maybe someone will write an offer at $750.” It just doesn’t work that way. That’s another thing I want to highlight. The skill of the agent you choose plays a huge role in how much money you make. But most clients, and I think you probably can both agree, have no idea if they got ripped off or if they won. All they know is what their agent tells them.
You both negotiated against other agents that did a terrible job, and you knew it, and you knew they cost your clients money because you knew you made your clients money. In order for one side to make money, somebody had to lose it. That’s the way that it works. And I’m sure those agents never go and tell their clients, “I screwed up. I listed your house too high. I got too greedy. I went on vacation for three days and didn’t want to answer my phone. And so, the buyer that we had moved on somewhere else,” whatever the case was. They say, “Oh, those buyers are just jerking you around.” It’s just be very careful who you choose as your agent and make sure they have a lot of integrity because they can color how that went down however they choose to and you won’t be privy to that information.
As investors yourself, I’m assuming that each of you have a different perspective when it comes to this. So I know, Dan, we’re still wrapping up on your deal here, but do you have experience with selling real estate where you feel like your experience as an investor is helping your clients because you can shoot straight with them where other agents that don’t own their own rentals, that need that deal to pay their mortgage, feel pressure to tell them what they want to hear?

Dan:
Yeah. You mentioned at the beginning I started as a poker player, so negotiation is actually my favorite part of being a real estate agent. I love it. And some agents don’t. They can’t sleep at night going through the negotiation process. But yeah, when you’re thinking for yourself, what is this property worth? And you’re evaluating it for yourself, you’re looking at properties completely different than an agent that has never bought an investment property or maybe even hasn’t bought a property themselves at all. They don’t understand how to evaluate the property and where the price should be because they don’t know what it’s like to have skin in the game and they don’t know what it’s like to have skin in the game over and over and over again.

David:
Jodi, how about you? Have you seen experiences like this?

Jodi:
Yes, absolutely. For example, I had a property. I had someone that called us that an investor wanting to do a full rehab on a property. And they called in our design remodeling company, and one of my salespeople went out to do the bid. They realized, “Hey, this person probably doesn’t need to put in $80,000 to sell the property.” They consulted with me, and they had multiple other agents that told them, yes, they need to put granite countertops in, they need to change the floors, they need to put in a roof.
And when my salesperson came in and said, “Hey, I want you to look at this property, they want to do a full remodel, I don’t think it’s necessary.” I evaluated it, looked at the comps and said, “Absolutely not. It’s not necessary. Put some paint on the walls and the property’s going to sell.” There’s no inventory in the neighborhood right now. So I put my investor cap on thinking, no reason to go in and spend all of this money to maybe make a $20,000 difference because the home’s not going to appraise if not. So, absolutely. I think many times as an investor, we put that cap on and think how we’re going to save our client’s money as opposed to making it the most beautiful home in the neighborhood and making our marketing collateral look good.

David:
Yeah, a lot of people don’t realize agents don’t get training in what they’re supposed to do. A lot of it is just whatever occurs to them is the right way to think about it. It’s sort of the Wild West, and that’s why choosing your agent wisely is so important.
One of the things that I’ll do, just like you said, Jodi, someone will say, “Hey, I want to sell my house.” And I’ll look at it. It’s not updated. It’s got the green shag carpet, the white tile, brown grout linoleum, the oak cabinets, wallpaper with sunflowers, just your typical, this is not going to show well. I don’t assume that they need to go spend a $100,000 to upgrade their house because they may only get A $100,000 back if they do that, but they spend three months going through this really annoying rehab that ruins their life.
I just look and see, well, how many actives versus pendings do we have? When there’s nine active properties for sale and one or two pending, there are too many homes for the buyers that are out there looking. And so, we are going to have to do something to improve the condition of this property if we even want a chance versus there’s one property active and nine pending, there’s so many buyers out there looking for these properties that you don’t have to do anything. They’re going to pay almost the same price because they have no other option.
And that little thing, I swear, agents don’t even think about it. They just go and look up comps and they get a price and they say, “Here you go.” They don’t call the other agents and ask them, “How many showings are you getting on your listing?” They don’t call the agents of pending properties and say, “What did you go under contract for? How many offers did you get?” That’s really the only way I’ve found to get a snapshot of what’s going on in the market, is to talk to the agents that have pending homes for sale and ask them, “How many offers came in? How aggressive were they? Would you price it at the same price? Would you go higher? Would you go lower?” But that one little thing will make such a big difference when you’re giving information to your clients.
So all of our listeners, as you’re going to choose your agent, hopefully you’re using the BiggerPockets Agent Finder to do so, ask questions like that. See if the agent… When you say, “What do you do to sell a home? How do you make sure I know I’m pricing it correctly?” If you just get a, “Um, uh, well, we look at comps,” probably not the agent you want selling your home.
And the same goes for buying a house. You want to be asking them similar questions to what you hear Rob and I asking on today’s show of Dan and Jodi, because you could tell from their answers they know their market, they know what’s going on, they know where the opportunities are, they know what to help you avoid, and that’s what you’re really looking for, especially if you’re investing in a market you’re not familiar with.
And if you like more information than how to do that, check out Long-Distance Real Estate Investing where I explain the process for doing so and having the right agent is a crucial piece in that puzzle.
Dan, Jodi, thank you so much for being here. I really appreciate you guys. Jodi, if people want to find out more about you, if they want to reach out, where can they find you?

Jodi:
So I can be found on thisislivin.com. There’s no G at the end. And on Instagram and Facebook, Thisislivin_Properties.

David:
All right, and how about you Dan?

Dan:
Dan Loves Houses everywhere, including my website.

Rob:
Nice.

David:
Is it like Dan heart for loves like the poker suit?

Dan:
No. That would’ve been great. No.

David:
Rob, how about you? Where can people find you?

Rob:
You can find me over on YouTube and Instagram at ROBUILT, R-O-B-U-I-L-T.

David:
Did you give up on TikTok because someone stole ROBUILT over there?

Rob:
No, I’m still on TikTok, but you get the good-good over on Instagram.

David:
There you go. You’re only giving us the best version of Rob, not the mediocre.

Rob:
That’s right, that’s right. The weird stuff is on TikTok, but the good stuff, Instagram.

David:
Yeah, if you want to get the best of Rob, it’s like the very end of the buffet. Don’t eat early, avoid the TikTok. Wait till you get to the end. That’s where you’re going to find the most expensive items. Don’t fill up on all the mac and cheese that they put out early.
You find me at davidgreene24.com or @davidgreene24 on Instagram or your favorite social media.
Thanks again, both of you. Really enjoyed having you here. Rob, anything you want to say before we get out of here?

Rob:
No. No. Thank you for your time and maybe I’ll be investing in Chicago and more in Houston with you all, so thanks. We appreciate it.

Dan:
Thank you. I really enjoyed it.

Jodi:
Thank you all so much. I really appreciate it. Thanks for the opportunity.

David:
This is David Greene for Rob “End of the Buffet” Abasolo signing off.
Is there any cheese you don’t think is great, if we’re being honest here?

Rob:
Blue cheese, like crumbles, not a fan, but I like blue cheese dressing for my wings.

David:
So you like rotten cheese in its liquid form, not in its solid?

Rob:
Well, when you put it that way, it doesn’t really change anything, but it does make me feel worse.

David:
Well, if you like blue cheese, you should check out some green cheese, and you’re going to hear more of that coming up now.

Rob:
Green Cheese, that was your nickname back in prison, right?

Artificial intelligence can be an entrepreneur’s best friend or worst enemy. Channeled incorrectly, it can bring FOMO, anxiety, and fear of irrelevance. It can make business owners believe they’re not moving fast enough and their team fear they’ll lose their jobs. Used well, however, the benefits are huge. Do more in less time, make more impact with less effort, and make more money with a fraction of the cost.

AI is more than ChatGPT. Much, much more. Tools are popping up all over the place, each promising to transform your life and work.

Rowan Cheung is founder of The Rundown, a fast-growing AI newsletter providing an in-depth look at the latest developments in AI. In less than a year, The Rundown has gained a following of over 325,000 subscribers who rely on its content to stay informed about the latest advancements in artificial intelligence. Cheung is on a mission to inform millions of people about the latest advancements in AI and highlight how technology is transforming the world. His AI database, Supertools, records the best tools mentioned in the newsletter.

I asked Cheung to give his top 20 list of the tools entrepreneurs absolutely have to use.

20 AI tools that entrepreneurs can use every day

ChatGPT

Large language model (LLM) ChatGPT, “remains one of my most useful AI tools for generating content ideas including hooks and titles, analyzing data through Code Interpreter, using various plugins, and proofreading my newsletter,” explained Cheung. And while he doesn’t use ChatGPT (or any AI tool) to write his newsletter, “because there’s a risk of hallucinations and misinformation, AI produces really bulky, unreadable copy, and he just likes the human touch,” it’s great for ideation, proofreading, and instant access to a sounding board or co-editor.

Claude 2

Another LLM, Cheung described Claude as, “a less robotic version of ChatGPT.” Claude has a higher context window (up to 75,000 words), is “more up-to-date, can read multiple files similar to Code Interpreter and is completely free.” Claude’s specialism? “Analyzing extra long articles, or for any sort of copywriting suggestions.” Cheung also believes Claude feels more human and is, therefore, a better chatbot to talk with.

Midjourney

An AI image generator Cheung described as, “the highest quality.” He uses this platform to “generate images and thumbnails for my newsletter.” Accessed using Discord and prompted with words, Midjourney can remove the need for photographers, models and complicated sets. Simply describe the image you’d like to see and watch it appear before your eyes. Re-prompt to edit, and download for publication.

Adobe Photoshop Generative Fill

“I use Photoshop like a madman for my social media content and newsletter content, so this is a game changer,” said Cheung. Adobe’s new feature uses Adobe Firefly image creation model, allowing you to expand any image to whatever you can imagine in a few seconds. While Midjourney creates assets from scratch, Photoshop will do more with what you already have. Make use of Adobe’s automation tools and level up your imagery game.

Automation tools

Automation tools Make, Bardeen and Zapier automate your workflows, and each have different strengths. “The power of these tools is incredible, allowing you to automate basic tasks without lifting a single finger.” Cheung has made multiple automations, but one of note is that, “whenever someone replies to one of my posts on any social media channel, it gets sent to my private Slack channel.” This means he can simply stay logged in to Slack and ignore the others. “From there you can respond individually to the responses you find interesting, or even connect it to ChatGPT to generate a response.” He advised that you don’t get caught up on what to automate, rather, “get started with basic automations and letting the more advanced ones come to you with time.

Notion AI

“Notion is a place where I store all my notes,” said Cheung, who explained, “it’s literally my second brain and without it, my mind would probably explode.” Not only can you use Notion to take notes, but Notion AI will help you ideate and mindmap ideas, and if you add Super, you can create websites straight from these notes, without writing code. Cheung’s website Supertools, an AI tools database, was created from a database on Notion using Super.

Rewind

“This AI tool documents everything I see through my Mac laptop or phone screens, processes it, and then allows me to back-track certain content when needed.” Useful for prolific researchers or people who see a lot of stuff. “I go through multiple pages and apps daily, and it helps me recall exactly what I need when I forget throughout the day.” Use Rewind to group content you have seen by theme, for research, presentations or your own newsletter.

Fireflies AI

“Fireflies is a new tool I’ve been experimenting with to semi-automate my meeting notes,” said Cheung, who meets with AI tool creators that want to be recommended in The Rundown. “It transcribes and analyzes all my meetings into a condensed summary for future reference.” And while you might not need every detail from every meeting, “when I forget a thing or two, it’s nice to have the option to revisit.”

Wondercraft AI

This tool, with tagline “effortless podcast creation, for the AI era,” turns written content into engaging podcast episodes. “I’ve been using the tool to turn my newsletter editions into audio versions,” said Cheung, who describes it as an, “incredible tool for creators who simply don’t have enough time to do everythings at once.”

Vimcal

“This is your calendar app on AI steroids.” Cheung uses Vimcal to schedule his time efficiently, because it organizes his schedule to maximize work periods. Especially for busy entrepreneurs with too many meetings, tasks and an overflowing inbox, Vimcal calls itself the, “world’s fastest calendar” and claims to be the only calendar designed for remote work.

Superhuman

Described on its website as, “AI-powered email built for high-performing teams,” Cheung said Superhuman is “an email assistant that streamlines email productivity.” While not specifically all AI, it has “accelerated my emailing experience with its automated organizing systems.” Its built-in AI features include creating an entire email from a few notes, and matching your tone and voice to a tee. “I get a lot of emails every day,” said Cheung, and Superhuman sifts through to prioritize my responses.” You can also integrate your scheduling systems to avoid double-booking.

Social media schedulers

Taplio and Tweethunter are “LinkedIn and Twitter scheduling apps with AI features,” said Cheung, who uses both of them to schedule some of his content ahead of time. One feature of both is the ability to see when you should post, “which matters for the algorithm,” and both offer AI-generated tweet and post creators where they suggest content based on your brand’s topics.

Grammarly

The classic spell checker tool that now uses AI, Grammarly launched in 2009 but has been building AI tools including paraphrasing and text-generation. “I have Grammarly on 24/7,” said Cheung. “Not only does it help me with small mistakes I make while writing content across my newsletter, Twitter, and LinkedIn, but it helps me find more applicable synonyms in seconds.” Spot errors and mix up your wording with this tool.

Gamma

“Create beautiful, engaging content with none of the formatting and design work,” says the Gamma website. “This tool has been helpful when I need slide deck presentations created quickly,” said Cheung. It’s essentially an automated presentation generator that produces full presentations from a few settings and prompts. It also allows real-time edits. “The output usually requires some small changes, but the majority of the work is completed for you after the first round of prompts.”

Feedly AI

Feedly is a news aggregator app that compiles news feeds from a variety of online sources to customize and share with others. “I use Feedly to simplify and narrow my daily research, which has made my process much more organized,” said Cheung, who uses it to research the latest trends for his newsletter. Forget staying up to date with multiple sites, use AI to deliver everything you need to know to the same place.

Poe.com

Created by the team behind question and answer site Quora, Poe’s goal is to be the universal chatbot. “Poe lets people ask questions, get instant answers, and have back-and-forth conversations with several AI-powered bots,” according to its website. Putting existing chatbots into one platform for users to try for free,via a simple mobile interface, Cheung said, “it’s great to try and test chatbots before buying a subscription.”

Consensus

“ChatGPT currently produces fake citations, and this tool is the solution,” said Cheung. Consensus is a research tool that helps get your answers with credited citations, specifically from research papers. Ask your question, for example, “do people trust AI coaches?” and Consensus finds answers from evidence-based sources, or says there’s not enough evidence around. Anecdotes and hallucinations don’t make an appearance.

Perplexity

Perplexity AI “unlocks the power of knowledge with information discovery and sharing,” according to its website. Cheung describes it as, “another AI-chatbot search engine generated to deliver answers to all your questions,” and said, “Perplexity is a great tool to have on hand when you have quick questions requiring evidence-based responses.” No fluff or waffle, just cold hard facts.

Google Sheets AI

Not to be left behind is Google, which recently “integrated AI features into Google Docs and Drive,” said Cheung. “It’s actually extremely useful, especially creating templates for Google Sheets for data projects I want to start.” You can use a “Help me organize” prompt in Google Sheets to create tables with AI, as well as asking it to draft a trip planner or task tracker.

20 AI tools to help entrepreneurs in their business

If you haven’t yet boarded the AI train, these tools will get you started. Identify your biggest business challenges and see if you can make them disappear. Sign up for a free trial, experiment with a specific task, and assess the time you save or the output quality you improve. Forward-thinking entrepreneurs are finding the tools that will make the difference, and the ones that are right for you could be in this list.

Dave:
Hey everyone, welcome to On the Market. I’m your host, Dave Meyer. Joined today by Kathy Fettke. Kathy, how are you doing?

Kathy:
Well, you may or may not know I am obsessed with following the Federal Reserve, so today’s show is exciting to me because I feel like maybe we’ll get some insights when Jerome Powell is speaking so cryptically. You need someone to interpret that.

Dave:
Yeah, this is a great episode. If you haven’t heard before, we were having a guest on, Nick Timiraos, who’s been on the podcast, I guess this is his third time now. He is the chief economics correspondent for the Wall Street Journal. So a super well credentialed reporter. Sounds like he basically just flies around and follows Jerome Powell, whatever he does. Maybe we should do that. I think we should go to Jackson Hole next summer. It sounds like a great place to go visit.

Kathy:
Absolutely.

Dave:
Just a big bunch of nerds in a beautiful place, so maybe we’ll go do that. But in reality, Nick does all of that for us and just helps explain the Fed’s policy and thinking in a super digestible and interesting way. So Kathy, what are you going to be looking out for in this conversation?

Kathy:
Just confirmation that everything’s going to be okay and that they’re not going to throw us into a deep, dark depression, which I don’t think they’re going to, but just to get a better read on what’s going on because a lot of people probably didn’t realize until the last 18 months even who the Fed is and what their role is and so forth. And there’s probably still a lot of confusion about that, which we probably should explain to people who they are and what they do.

Dave:
Well, that’s a good point, Kathy. So I will just briefly explain what the Federal Reserve is. It’s basically a government entity. It’s our central bank in the United States. And they are responsible for monetary policy, which is basically what is going on with our money supply. They have a dual mandate from Congress. So their job is to use monetary policy to, one, ensure price stability, is how they say it, which basically means control inflation. And the other part is to maximize employment, which AKA just means make the economy grow as quickly as possible.
And why the Fed I think is so controversial and so interesting is because those two things are completely at odds with one another. Inflation is driven by an overheated economy, so their job is to heat the economy but not lead to inflation. So they’re always sort of walking this type rope, like on a seesaw, trying to balance two conflicting mandates. And it’s why I think Kathy and I are so fascinated by everything they do because obviously it impacts us as investors, as Americans, but it’s also just kind of a soap opera also what they’re going to be doing, or maybe only I see it that way.

Kathy:
Well, it’s a soap opera that we all get to be a part of. So it affects us and that’s why it matters.

Dave:
Absolutely. I just think people follow it like it’s a sports conference.

Kathy:
That’s true.

Dave:
Or maybe not the average person does, but the people who are nerds like us, read his transcripts, read the Fed’s transcripts after everything he says because obviously it impacts us like Kathy said, but it’s just kind of incredible how much power over the economy this small group of people had. So it really is important to pay attention to. And that’s why we’re bringing on Nick. So with no further ado, let’s bring on Nick Timiraos from the Wall Street Journal.
Nick Timiraos, welcome back to On the Market. Thanks for being here.

Nick:
Thanks for having me.

Dave:
For those of our listeners who didn’t join us for the first two times you were on the show, can you please reintroduce yourself?

Nick:
Sure. I am the chief economics correspondent at the Wall Street Journal and I wrote a book, Trillion Dollar Triage, about the economic policy response to the COVID shock of 2020.

Dave:
Yes. And you have been an incredible insider for us and reader of the tea leaves about Fed policy and so we’re excited to have you back. We are recording this at the end of August, it is the 30th of August. Just last week the Fed did meet in Jackson Hole. Nick, did you get to go to Jackson Hole by the way?

Nick:
Yeah, I was there for the conference this year.

Dave:
All right. Well, that sounds like a nice place to go visit, hopefully a fun work trip. What were some of the big headlines from the symposium?

Nick:
Well, the focus of the symposium was on Chair Jay Powell’s speech. He always gives the morning opening address. Of course, last year his speech was kind of a rifle shot where he squarely dedicated the Fed to bring down inflation saying that they would accept a recession. I mean, he didn’t use those words, but he said there would be some pain involved. And so that kind of had everybody’s antenna up for this year. Well, how will he follow 2022? What’s he going to say now?
This year he was more nuanced, focused still on bringing inflation down. The way I think about the Fed right now is there was an interview that Kobe Bryant had in 2009 after the NBA Finals. The Lakers had taken a two-games-and-nothing lead and a reporter asked him why he didn’t seem happy because Kobe seemed very sober and serious after the Game 2 win. And Kobe said, “What’s there to be happy about? The job’s not finished.” And that’s sort of the message that I think we got last week from Jay Powell and that we will continue to get from the Fed until they just see more evidence that inflation’s coming down. So that was sort of the takeaway was. Yes, we see that inflation’s improving, but we need to see more of that. And if the economy strengthens here, then the Fed will go up again with interest rates. So that was one of the takeaways from the Jackson Symposium.

Kathy:
And one of the big concerns they have as an inflation driver is too many jobs, right? Because then employers have to raise their wages to attract employees, I mean, generally. So we’re going to have a lot of jobs reports out this week and already had one that was actually more what the Fed seems to want. Would you agree with that, that they might be getting more of what they want this week?

Nick:
That’s right. So the Job Openings and Labor Turnover Survey, which came out at the end of August, which is for July, showed that job openings dropped to 8.8 million. It was as high as 12 million. One margin you can measure labor demand is job openings. Now some people say it’s not that reliable because technology has made it easier to post jobs, and that’s a fair point. But still you see that companies aren’t hiring as aggressively as they were in late 2021, early 2022. And the fact so far that labor demand seems to be coming down without an increase in the unemployment rate and we’re going to get the unemployment rate for August in just a couple of days, that’s the sign of success so far. But I think that’s where the emphasis is.
What the Fed is the Fed really wants to see is wage growth that slows down. It was running around 5% last year. And if you think about the components of wage growth, it’s inflation. Or if you think of where you get inflation, it’s really what part of the wage picture is productivity. And so, if you have say 2.5% inflation and 1% increase in labor productivity, that’s 3.5% wage growth. The Fed would be fine with that. 5% is probably too high unless we have a big boom in labor productivity. So you would want to see the wage numbers continue to come down. And the way that the Fed and other economists will see progress on that is just that you have somewhat less hiring because that gives you more comfort that’s supply and demand are better balanced.

Kathy:
I’m curious. Logan Mohtashami, I don’t know if you know who that is, he writes for HousingWire, he is of the belief that this robust job growth that we’ve seen is really just jobs coming back after the pandemic and that it’s not really as robust as it might seem. What do you think about that?

Nick:
Yeah, it’s definitely a fair of thesis to have. If you think about a lot of the things that we’ve gone through, if they were to happen year after year after year, prices going up, strong hiring year after year after year, that would probably be a bigger cause for concern that you were going to get control of these things. If there are a one-time shift, a one-time increase in the price level for cars, a one-time increase in household formation because people during the pandemic decided to go out on their own and rent an apartment, move out in mom and dad’s basement, then it means that a lot of the strength that we’ve seen, it just can’t be expected to continue. So I think Logan’s point of view is a very sensible one. And if that’s the case that this has been kind of companies in the leisure and hospitality sectors that just haven’t been able to catch up to where they were before but they’re now catching up, then job growth would slow, wage growth would slow.
And you’re seeing that one of the measures of whether the labor market is tight is what share of people are quitting their jobs. Because think about it, you quit your job, you’re more likely to quit your job to voluntarily leave your job if the job market’s really strong. You think you’re going to get more pay. You can raise your wages and your income if you go to a different employer. And the quits rate is a measure that we can look at and it’s been coming down. In the report that just came out at the end of August, it fell back to the level that it was before the pandemic. It was at a historically high level before the pandemic, but it went way up in the past couple of years. You think about companies that were throwing panic wages at people that keep them employed or to pull them into job openings. And so if the quits rate is coming down, that could also be a sign that some of the frenzy that we saw in hiring is behind us.

Dave:
Nick, there are seemingly so many different labor market indicators and none of them are perfect. If we want to understand Fed thinking, are there any metrics that the Fed favors when they’re trying to evaluate the strength of the labor market?

Nick:
Well, we’ve talked about wage growth. Wage growth is important to them and there’s a quarterly wage measure called the Employment Cost Index, which is seen as kind of the best quality measure of wages because it adjusts for changes in the composition of hiring. So if in one month you have a bunch of low wage jobs being created and then in another month you have a bunch of high wage jobs being created, the monthly payroll report doesn’t quite filter through those compositional differences. The Employment Cost Index does. We just got that at the end of July and wage growth was running in kind of the mid-fours. We’ll get that again for the second quarter at the end of October. And so that’s one.
But they don’t just put all their eggs on one indicator. They’re going to look at kind of a constellation of indicators. And if they’re all generally moving in one direction, which they are right now, which is towards slower wages like we discussed, fewer openings, it’s a sign that the labor market might still be tight, but it’s not as tight as it was. It’s coming into balance. And those are generally things the Fed wants to see.
Ow, if you were to see a big decline in payroll growth, that would be a different signal from what we’ve had and obviously people would start to say, “Well, have we slowed down too much?” Or if you saw hiring kind of ticking back higher here, inflation’s been falling, so that means our inflation adjusted wages are actually rising now and maybe that’s supporting more of the consumer spending. We saw strong retail sales in July. So if you saw some kind of acceleration in economic activity, that would also make the Fed maybe a little bit nervous because they think that we’re going to get back to the low inflation rates we had before the pandemic by having a period of slower growth. And so if you don’t have that slower growth, it calls into question their forecast that we’re going to get inflation to come down.

Kathy:
We keep joking on the show, let’s just stop spending money and we’ll solve the problem. And that hasn’t been the case. It seems like part of that was due to people with the stay-at-home orders, they weren’t spending as much money, they were saving money. And then man, when they got out, they went crazy. But from the recent reports, it looks like they’ve kind of spent it like it’s petered out and now they’re working on credit cards. And then you hear these reports that and then students are going to be having to pay their student debt again. How do you see that factoring into people maybe slowing down their spending?

Nick:
Yeah, if you look through the recent earnings reports for the retailers like Macy’s or Best Buy, you do hear more references to this cautious consumer. Executives or 2022 was great, everybody was out spending money on things that they hadn’t been able to go buy. And now you’re seeing maybe a slowdown. You’ve seen a slowdown, and the question is, student loan payments, what is that going to do? Is it really going to crimp consumer spending? Maybe people just don’t pay their student loans and they keep spending on other things. So there are maybe more question marks.
We’ve already dealt with some pretty serious questions this year. I mean after the failure of Silicon Valley Bank and a couple of other banks in the spring, there were concerns of a serious credit crunch. And so far it seems like we’ve really avoided at least the more scary scenarios there. Obviously, it’s harder to get a loan now if you rely on bank credit, but we haven’t seen maybe some of the more dire scenarios realized. And so it does suggest that maybe there’s more resilience in the economy than people anticipated. Or maybe we’ll be talking six months from now and it’ll all be obvious that the lags of the Feds rate increases, the bank stress they finally caught up with the economy, but we really haven’t seen it through the summer, have we?

Kathy:
No, I’m really glad you brought that up because that was going to be one of my questions that we know that the M2 money supply just blew up during the pandemic, so much money in circulation. And then one of the ways to slow down the economy is pull that money back out by less lending. And I thought that’s what was happening, is lending was becoming more strict and more difficult to get. Is that true for new businesses? Obviously, credit cards are being used and banks are fine with that.

Nick:
Yeah. Well, if you look at the growth of the money supply, you’d sort of want to take a trend, kind of a pre-pandemic trend and extrapolate, “Well, this is what growth of the money supply might have been if not for the pandemic.” And so even though the money supply has been contracting over the last year, it’s still probably running above where it would’ve been. And so to the extent that you’re a monetarist and you use the money supply, it’s hard to tell maybe what the signal there is.
If you look at lending standards, what banks are reporting right now, it’s gotten harder to get a loan. Commercial, industrial loan, commercial real estate banks are really tightening up on that kind of lending. In the corporate bond market, I mean, if you’re a big borrower and you’re borrowing in the investment grade or the lower investment quality, lower credit quality, the high yield market, we haven’t seen maybe as much of a pullback there, though with higher interest rates it is more expensive to borrow.
So those are questions. I think one of the big questions is to the extent companies locked in lower interest rates during the pandemic when interest rates were just very, very low, if you have a four or five year term loan, that doesn’t mature for another couple of years, but what happens when it does? What happens when companies have to roll over their debt in 2025? If we’re looking at interest rates that are still as high as they are right now, then you could see more of a bite. And we haven’t had interest rates that high for that long, so it’s hard to see that effect yet.

Dave:
Nick, from your understanding of the Fed’s own projections, how are they feeling about a recession? We keep hearing these signals that they’re okay with a recession and they’re forecasting them, but I see a lot of upward revisions to GDP forecast recently and I’m wondering if the Fed is more confident now that they might be able to achieve their so-called South landing.

Nick:
Right. I think that’s going to be the big question, Dave, heading into the Fed’s next interest rate meeting, which is in mid-September. So every quarter they produced these economic projections. And in June, officials were raising their projections for inflation. They saw inflation coming down a little bit slower, but they still had growth declining in the second half of this year and they had higher interest rates. They thought that because inflation wasn’t going to come down quite as quickly, they were going to have to raise interest rates a little bit more.
Now you have the first set of projections that are coming since the declines in inflation from June and July, and we will see about August here in a few weeks what happened with inflation in August. And so there’s a chance that they’re going to bring down their forecasts for inflation, certainly for 2023, but they might have to revise up their forecast for growth, because as you noted, whether it’s a recession or just a period of below trend growth, the Fed thinks that the long run trend growth rate for the US economy is just below 2%. So if you’re not doing that, if you’re not growing below trend or you’re not having a recession, then it raises the question, what is going to crunch demand enough to get inflation down the way that you’ve been forecasting?
Now, sometimes economists refer to this as an immaculate disinflation or a period in which you kind of have a painless drop in inflation. We’ve certainly had that so far, right? Inflation came down this summer without a huge cost, or really any cost in the labor market, but that’s because you’ve had supply chain improvement. Rent growth is slowing and that’s going to continue to provide some help to getting inflation down. But I think the worry right now is if the growth picture is getting better, what does that mean for inflation not six months from now, but maybe a year and a half and now, the end of next year?
The Fed in June was projecting they’d get inflation down to just around 2.5% at the end of 2024. Do they still think they can do that if we don’t get a period of slower growth? Do they just say, “Well, we think we’re going to get the slower growth because of everything we did on interest rates, but it’s going to come later”? I think that’ll be an important question for the September meeting and it’ll kind of tell us how much more they think interest rates have to go up. In June, they were projecting that they’d have to take rates up one more increase from here since they did one in July. And so, one question is do they still think they have to do that? I haven’t heard a lot of support for more than one increase. So I think the question is going to be, are they comfortable here or not? And the growth picture and the inflammation picture, they’re cutting in opposite directions.
The other big change we’ve had since the Fed’s last meeting has been the increase in August in interest rates, especially 10, 30-year loan rates have gone up quite a bit. And the Fed expects that to slow down the economy, they’ve actually wanted to see financial conditions tighten. And so that’s happening now, but that also you kind of have to say, “All right, well you’re getting better growth, but you’re also getting higher interest rates. Market determined long-term interest rates. And so does that offset some of the concern you might have from stronger growth?”

Kathy:
Wow, I hadn’t really looked at it that way. I was really happy that we might be avoiding a recession, but now it’s like that means rates higher for longer and maybe we don’t hit that 2% goal. I mean, how could we get to that 2% outside of a recession?

Nick:
Well, I mean that would sort of be this immaculate disinflation or soft landing story where you just continue to get all the things that went wrong in the pandemic, they’re now reversing. And so you’re getting increase in labor supply. We’ve had more immigration that’s maybe taking some of the pressure off of wages. And so if the supply side of the economy heals, and that’s something the Fed can’t directly control if we get a lot more apartments being delivered and that’s going to bring down rents, if we get more auto production and that’s going to bring down car prices or at least prevent them from going up quite as much as they’ve been going up.
So if you really were to see a really positive response on the supply side of the economy and you reduce demand enough, maybe you can get inflation down, I think it looks more possible that that’ll happen than it did a few months ago because you are getting these better inflation numbers.
I think the other point with a soft landing, people talk about a soft landing, which is really where the Fed is able to bring inflation down without a recession or without a serious recession. To get something like that, historically you’ve needed the Fed to cut interest rates once it’s clear that they’ve done enough. Or maybe if they’ve gone too far, they’d take back some of the interest rate increases. And so in 1994, the Fed raised interest rates by 300 basis points over a 12-month period and then Greenspan cut interest rates three times, 75 basis points in total.
This time I think the Fed is going to be a lot more careful about doing that because we have had inflation that’s much higher than it was in the 1990s and they’ve warned about this repeating the mistakes of the 1970s. One of the mistakes of the 1970s was that they eased too soon. You had what was called stop-go where they would stop, inflation would rise, so they’d have to presume interest increases. And so, to really nail a soft landing, you have to be confident that inflation is going to come all the way back down and you’re cutting interest rates because you think that’s going to happen. And if we’re in an environment where it’s sort of looks like, “Well, inflation’s going to settle out, but maybe closer to 3% than 2%,” everyone should know the Fed has a 2% inflation target. They think that’s important because it helps center expectations in the public’s eye. And if it looks like maybe the Fed is going to abandon that target, it can really mess things up.
So they’re going to be serious about shooting for 2%. And if it looks like inflation isn’t getting back to 2%, it’ll call into question how quickly they might be able to undo some of the increases they’ve had. And that I think will continue to create higher recession brisk in 2024 even if we don’t go into a recession this year.

Dave:
I think that’s a great point, Nick, and I tend to agree with the sentiment that the Fed has been very candid about the fact that they’re going to try and they don’t want to repeat this mistakes of the 1970s. I keep thinking about what Kathy and I talk about all the time, which is the housing market here. And if you think about how the housing market would react to probably even slight interest rate cuts, it would probably spur a frenzy of activity, which would probably reignite inflation very quickly. Even though housing prices aren’t necessarily in every inflation category, you just think about the amount of economic activity that the housing in general spurs. And so it makes sense to me that the Fed, given their stated targets, wants to keep interest rates higher for longer even if it’s just for housing, but obviously it’s for other sectors beyond just what we talk about on this show.

Nick:
Yeah, I mean, there’ve been a lot of things in this cycle that have been unusual, right? The post COVID recovery has been unlike any from post-work experience. The housing cycle part of it has been I think a complete surprise. I mean, especially at the Fed, if you had said you’re going to get a 7% mortgage rate and you’re going to see new home sales having bottomed out home prices have possibly reached a bottom here, right? We just saw on the Case-Shiller Index, I think for July, June or July, or I guess it was June, we’re going back up now, that’s not something a whole lot of people had on their bingo cards for this year.
To be clear, the way that inflation gets calculated by the government agencies, home prices may not play as bigger role as people think. They’re looking at owner’s equivalent rent, which is sort of an imputed rent for your house. And so during the housing boom of 2004 and ’05, actually shelter inflation didn’t go up nearly as much as the 30% increase in the Case-Shiller Index because what’s happening in the rental side of the market matters a lot. But that doesn’t really change anything of your point, Dave. It’s true that if you see a re-acceleration in residential real estate, that’s just one less place that you’re going to get the below trend growth that the Fed is looking for.
Someone said to me yesterday, “The Fed broke housing in 2022. They can’t really break housing again.” So even if it’s not going to be a huge source of strength for the economy here, I mean it looks like the resale market’s just frozen right now, then neither is it really going to be a source of drag or slowdown. And it just means that if the Fed is serious about seeing slowdown, they’re going to have to rely on other parts of the economy to deliver it.

Kathy:
Yeah. The housing market, I’m guessing, took everyone by surprise. It’s shocking that we’re back at our former peaks. And you said we’ve got to fix the supply side and build more. Is that even possible to build enough supply and housing to meet the demand?

Nick:
Well, you have a lot of rental supply that’s going to come on the market, right? So it’ll be interesting to see where the rental market goes in the next couple of years and what that does to vacancy rates and rents. I think that it’ll be an interesting question.
You also have these demographic forces that are quite constructive, right? I mean the millennial generations coming of age moving into their peak home buying years or rental housing years. So you do have sort of positive forces against this backdrop of higher interest rates and really terrible housing affordability. I went through some of the earnings calls for the home improvement companies, Lowe’s, Home Depot, and they feel good about kind of the medium to long run that people have housing equity right now. If you think about how different this recovery’s been from the period after the housing bust, people have equity, they’re spending money on their homes. If they’re not moving, they’re fixing that kitchen, doing the bathroom remodel. And so it’s a better environment for a lot of the home product companies even if you don’t have the same degree of existing home sales that we were used to in the earlier part of the century.

Kathy:
Well, we talked a little bit about mortgage rates. And if mortgage rates come down, it could unlock the market, but it would also bring on a new frenzy. We saw that tenure mortgage rates are generally… I’m saying this for the audience not you, but mortgage rates generally tied to the 10-year treasury, which we saw go up, I suppose, in anticipation of people seeing not a recession and seeing robust growth and not getting where the Fed wants to be and they’re going to raise rates and keep going and so forth. But just this week we started to see that back off and a 10-year treasury come down, which then brought mortgage rates down a bit. Do you see that continuing that trend of the 10-year coming down?

Nick:
It’s hard to predict the very near term fluctuations. It’s interesting. The last time we hit 7%, which was last November, we weren’t there very long. People got worried about growth, more optimistic about inflation and yields came down. But if I think back to a few months before that, maybe May, April of last year when the rate increases really got underway in earnest, and there were a lot of people who thought, “Oh, we’ll get back to a 5%, 4.5%, maybe 5.5% mortgage eventually,” and I think now you’re seeing more doubt about that. You’re seeing more doubt about whether interest rates will fall back as low as they were not just before the pandemic, but in the 2010s period where we got used to having mortgage rates between 4 and 5%. There are a couple of different reasons for that. One is that there’s just more treasury supply. We’re running bigger deficits. We’ve cut taxes, we’ve boosted spending. We have to spend more on healthcare as the baby boomers age. And so you have more treasury supply and somebody’s going to have to digest all of that and they might require a higher yield for it.
A couple of things that happened more recently that are being pointed to as catalysts for this increase in interest rates, one is that the Bank of Japan has been changing their monetary policy. They had had a fixed cap on long-term Japanese government bonds and they have suggested they might let that cap on interest rates rise a little bit. Well, Japan’s the largest foreign buyer of US treasuries. So if Japanese investors now have a more attractive… They can earn something on their 10 year JGBs, maybe they aren’t going to buy as many treasuries. So you’ve begun to see other forces that were keeping interest rates lower. Long-term interest rates were held down because you had strong foreign demand. Now, if you have some of these forces reversing, I do think it calls into question maybe a 6% mortgage rate could be the new normal, maybe not. Maybe we go back into a recession and the Fed has to cut all the way and you do end up with lower interest rates. But I do think there’s maybe more potential for this to end up in different places from where people were expecting.

Dave:
Nick, thank you so much for being here. We really appreciate it. This has been another eye-opening, very informative conversation with you. Thank you for sharing your wisdom with us. If people want to follow your reporting or check out your book, where should they do that?

Nick:
All right. I’m on Twitter, @nicktimiraos. And you can go to my website, which is N-I-C-K-T-I-M-I-R-A-O-S.com.

Dave:
All right, great. Thanks again, Nick.
Kathy, what’d you think of Nick’s thoughts on the Fed?

Kathy:
He just makes so much sense. And it really helps people like me and you who are trying to make decisions, financial decisions, and it depends a lot on what the Fed is going to do. So I think he brought a lot of clarity.

Dave:
Absolutely. The more I listen to people like Nick who know what they’re talking about, the more convinced I am that the Fed is not lowering interest rates anytime in the near future, and I think we all need to just accept that. That doesn’t mean necessarily that mortgage rates can’t go down a little bit. I do think there’s a chance that they’ll go down a bit from where they are, but where we got at the end where he was saying we should expect 6% interest rates, I think that’s, in my mind, at least how I’m going to operate for the next year or so, is thinking that maybe they’ll come back down to 6.5, something like that, but I don’t think we’re getting a 5 handle anytime soon, and that’s okay. As long as you just sort of accept that, you can make your investing decisions accordingly.

Kathy:
Yeah, absolutely. And that was kind of a light bulb moment for me too, where I’ve been really thrilled about a soft landing and like, “Wow, is this possible after all the Fed has done to try to wreak havoc?” But then on the flip side of that is, “Oh, that means we might not get down to the inflation target anytime soon if the economy isn’t going into recession.” So it’s opposite world. Like I’ve said so many times, good news is bad news, bad news is good news. I just look forward to someday having just normal news.

Dave:
I’m with you. I don’t think it’s going to come for a while. To be realistic, like you said, I think the only way the Fed cuts interest rates is being forced to do it, right? Their whole goal is to control inflation until the labor market breaks and we have a serious recession, they have no reason to cut interest rates. And they’re not going to do it for real estate investors. They don’t care.

Kathy:
No.

Dave:
And so I think that’s good because rates come down, but then we’re in a serious recession. So either way, there is probably some unfortunate economic realities staring us in the face for the next six months to a year. Maybe longer. I don’t know. But I don’t buy the idea that as soon as inflation dips down into the 2s, the Feds are going to cut rates. I just don’t see that happening. I feel like they’re going to hold it up for as long as they can and we just need to deal with it.

Kathy:
Yeah. Their fear of inflation is greater than their fear of recession, which is what it is.

Dave:
It is what it is. Exactly. All right. Kathy, thank you so much for joining us and for asking so many great and thoughtful questions. We appreciate it. If people want to follow you, where should they do that?

Kathy:
Realwealth.com is where you can find me and also on Instagram @kathyfettke.

Dave:
All right. And I am @thedatadeli on Instagram or you can always find me on BiggerPockets. And if you like this episode and know people who like talking about the fat of this stuff, share it with a friend. We always appreciate when you find an episode of On the Market that you like if you share it with your community so they can be more informed and also make great informed investing decisions just like you. Thank you all so much for listening. We’ll see you for the next episode of On The Market.
On The Market is created by me, Dave Meyer, and Kailyn Bennett, produced by Kailyn Bennett, editing by Joel Esparza and Onyx Media, research by Pooja Jindal, copywriting by Nate Weintraub. And a very special thanks to the entire BiggerPockets team.
The content on the show On the Market are opinions only. All listeners should independently verify data points, opinions, and investment strategies.

Ron Insana, chief market strategist at Dynasty Financial Partners, and Steve Grasso, Grasso Global CEO, join ‘Power Lunch’ to discuss a doom loop underway in residential real estate, the Fed’s hesitancy to adjust policy to help the housing market, and the correlation between interest rates and housing supply numbers.