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David:
This is the BiggerPockets Podcast, show 694.

Dave:
I spend all day looking at different asset classes, looking at different types of investments, and I still believe, and to my core, I truly, truly believe that real estate offers the greatest chance to build long-term wealth out of any asset class. That includes crypto, that includes stock market because it is proven, millions of people have been using real estate to build wealth and to find financial freedom over the last several decades. I know it’s possible because I’ve lived it and I’ve seen thousands of people do it as well. And we’re going to talk about one of the best strategies for real estate investing that in my opinion, works in pretty much any type of market conditions.

David:
What’s going on everyone? This is David Greene, your host of the BiggerPockets Podcast, here today with a special episode. In today’s show, we will all be learning from Dave Meyer as he breaks down the fantastic system of investing in small, multifamily real estate to kickoff or supercharge your current portfolio. Now, if you haven’t heard much about multifamily real estate, you’re going to love it. This is probably the absolute best method that you can learn for finding cash flowing real estate. And Dave’s going to do more than just teach you about small multifamily. He’s actually going to walk you through how to analyze them, how to find the highest cash-on-cash return you could get, and how to use the BiggerPockets offers to start scale and manage that portfolio. You will understand the detailed process for finding, analyzing, and buying small multifamily properties to help you achieve your financial goals.
Now before we begin, Dave, today’s quick tip is I’m going to challenge you to ask yourself how could small multifamily fit into your current portfolio? For many people, this is where they get started because it’s probably the easiest and most forgiving asset class of all the ones that I know. Others get into this as house hacking because it’s one of the easiest and simplest ways to get a house hack and get in for very low money down. For other people that have maybe a short term rental portfolio, adding something like this to your portfolio can help mitigate some of the risk and kind of smooth out the fluctuations in revenue that you get when you’re a short term or a medium term rental investor. Same can be true of land flipping, wholesaling, other things that are a little more volatile. Small multifamily is a very solid foundation that can kind of act as a base if your portfolio is a little too acidic.
So ask yourself, how could small multifamily fit into what I’m doing and would this be something that would benefit me? And if you’re not house hacking, you definitely need to start here. All right, and one last thing before we bring in, Dave, if you guys decide that you’d like to become a BiggerPockets Pro member, which will help you analyze these properties, manage these properties, get you access to exclusive content and more, use the code multi. All you have to do is go to BiggerPockets.com/Pro, P-R-O, and type in the code multi to get 20% off your first year of an annual membership, as well as all the perks that I described and Dave will probably talk about a little bit later in the podcast as well. Those who do upgrade to a Pro membership using the code multi will not only get 20% off the first year of their annual membership, they will also get a free copy of the Multifamily Millionaire Volume 1, a book written by Brandon Turner that’s going to teach you even more about how to do this. All right, Dave, you’re on.

Dave:
Hey, everyone. Welcome to today’s webinar, How to Buy Small Multifamily Properties. My name’s Dave Meyer, I’m going to be your host today walking you through this really exciting webinar that’s going to help you figure out how to achieve financial freedom or really pursue any financial goals that you have through the power of real estate, specifically buying small multifamily properties. So welcome all of you for being here. This is a big step. If you’re new to real estate, congratulations on, even just attending is a big step in your journey towards financial freedom. So thank you all for coming. We’re going to have a lot of fun today, at least I think this is a lot of fun and I’m excited to share everything I’ve learned over my 12-year real estate investing career with all of you today. Before we jump into today’s topic, I do want to address the elephant in the room because this is something I hear about quite frequently and it’s something that’s worth addressing.
Can you still even invest in real estate today? I know that’s probably on a lot of your minds [inaudible 00:04:11] The answer though is yes, and I know that seems like a very definitive answer, but I spend all day looking at different asset classes, looking at different types of investments, and I still believe, and to my core, I truly, truly believe that real estate offers the greatest chance to build long-term wealth out of any asset class. That includes crypto, that includes stock market because it is proven, millions of people have been using real estate to build wealth and to find financial freedom over the last several decades, BiggerPockets has been helping literally hundreds of thousands, if not millions of people find financial freedom through real estate. I know it’s possible because I’ve lived it and I’ve seen thousands of people do it as well.
So the answer is yes, and we’re going to talk about one of the best strategies for real estate investing that in my opinion, works in pretty much any type of market conditions. So right now, now is the time to sharpen your acts, to learn the skills that you need to be a successful real estate investor. We’re going to talk all about this over the course of today’s webinar, but the things that you need to know are not hard. They require work, but all you need to do is learn a system. It’s just a process that has been proven that thousands of people have done before that you can learn. I’m going to teach it to you today that you can learn, apply to your own life and reach those financial goals that you’re looking for. So if you’re wondering exactly who belongs at this webinar, the answer I think is pretty much anyone.
But if you’re wondering if this is the right webinar for you, here are the four types of audiences that I think this webinar is perfectly suited for. First, if you don’t know anything about real estate investing and you’re just getting ready to dip your toe in the water, don’t know exactly what you want to do. Don’t know what strategy you’re considering. Today’s webinar is going to be perfect for you. Maybe you’re already looking to buy your first small multifamily investment, you know that this asset class is something that you’re interested in, but you just don’t know where to start. Great, we’re going to address that today. Third, maybe you’ve done single family deals or you have a primary residence that you’re thinking about renting out, or you already have rent [inaudible 00:06:21] you’ve heard about small rent, multifamily, you’re interested and now you want to learn more. We got something for you.
And lastly, if you’re already investing in multifamily, but you need a way to streamline your business, remember I just said this is all about processes. We’re going to talk a lot about processes that are going to help you scale your business and reach that financial goal that you are striving for. One thing of housekeeping, we do have a free worksheet for you to follow along. So go to BiggerPockets.com/MultiWorksheet that is completely free. It’s going to help you remember things that I talk about. We’re going to cover a lot of really important materials today, so you can write down everything, you can reference them back later. And personally, I find that when I write things down, I remember them better the first time. So that’s the idea behind this. You can go check that out. Again, BiggerPockets.com/MultiWorksheet, totally free. So go check that out.
What are we talking about today? I know we’ve talked a little bit about this already, but we’re talking about using specifically duplexes, triplexes, and fourplexes to find financial freedom and why just two, three or four units? That’s important. We’re going to talk about that later, but that’s what I consider small multifamily properties is something that is either a duplex, triplex or fourplex, and it is, in my opinion, the best way to get started pursuing that financial freedom, which is really what we’re here to talk about, right? We want to use duplexes, we want to use small multifamily to achieve something, right? No one wants to buy a duplex or a triplex just for the sake of buying it. I don’t think anyone growing up was like, “oh, I can’t wait to be a landlord.” What really motivates people and me, and why I think, I’m guessing why most of you are here today is because there’s something more.
There’s something more about your life that you want to pursue, and financial freedom is the key to unlocking that. And this is going to mean something different to all of us. To me, it’s a lot about travel. It’s about being able to go on adventures and spend time with my friends and family. To you, it might be about spending more time at a faith organization or giving back or whatever it is that you want to do. I don’t think it’s because you really just love owning property. It’s because what rental property investing specifically, small multifamily investing can unlock for you is so very powerful. It’s the freedom that we all yearn for personally, I believe it’s the freedom we all deserve. And so [inaudible 00:08:46] we’re going to talk about today, how to use these simple strategies and processes to get you to that financial freedom that you want.
We’re going to cover a lot today, so I won’t get into too much of this right now, but we’re going to go through gifts. I’ll tell you a little bit about myself and BiggerPockets and why I am qualified to lead this webinar right now. And then we’re going to get into the processes that you can follow to achieve the financial freedom, get to that unit count that you’re looking for, the passive income that you’re looking for. We’re going to get into all that today. We’re also going to give you some tools and we have a ton of bonuses to give away at the end of the webinar, so definitely stick around to the end because you’re going to want all of this free stuff that we’re giving away. Honestly, it’s worth hundreds if not thousands of dollars. So just for watching this webinar we’re giving it away. So you might as well check that out.
So at the end of the day, why you’re here is because you’re going to be, you’re going to understand by the end of this webinar the detailed process. Again, I’m going to talk a lot about that today. It’s about process and systems, the detailed process for finding, analyzing, and buying, of course, small multifamily properties to help you achieve your financial goals. I hope that sounds good to you guys because that to me is super motivating. All you have to do is learn a little bit of a process and you can be on your way to achieving your financial goals by the end, in the next hour, hour and 15 minutes. So, oh, we also have some bonuses before we jump into that. Again, like I said, we’re going to give those away at the end. So stick around to the end. We have a deal finding master class, we have a low money down class, we have discounts on some of our books and products, you’re going to want to check that out. So stick around to the end.
If you don’t know who BiggerPockets is and you just happen to be on this webinar or maybe you know us through the podcast and nothing else, BiggerPockets is a one stop shop for real estate investors. We have blogs, forums, you might be familiar with our podcast. It’s super popular. We have webinars and most of these tools honestly are free and they’re designed, all of them are designed to help you use real estate to pursue your own financial goals. I work full-time at BiggerPockets if you don’t know me, why I and my colleagues at BiggerPockets go to work every day, that is what motivates us is to help you find your financial freedom. Every employee at BiggerPockets pretty much is pursuing financial freedom through real estate. I am a success story of BiggerPockets and that’s why we’re so passionate about sharing our knowledge, processes with all of you.
Here are three things that at BiggerPockets we truly believe, and I think and I hope you internalize as we talk through this today. Number one, real estate works when you work it. This is not a get rich quick scheme. No matter what some people on Instagram or on YouTube might tell you, real estate is not a quick, get quick, oh wow, I can’t say that. It is not a get rich quick scheme and no one’s going to hand you passive income or financial freedom. If it was easy and it was that easy, everyone would do it. You have to put work into it. So that is one thing to remember. Real estate works when you work it. And the second thing we believe is that it’s actually pretty simple. So while it’s going to take some work, this is not complicated. There’s no calculus, there’s no difficult math here.
The systems I’m going to show you today are relatively simple. All you need to do is practice and get good at them and implement them and you’re going to be well on your way to financial freedom. Lastly, anyone can do this. This is something that we believe, but actually it’s more than something we believe. It’s something that we know because we’ve seen it so many times. BiggerPockets has been around for 18 years now. I’ve worked there for six-and-a-half and I’ve seen thousands of people who knew nothing about real estate, just like you might be feeling right now. Maybe you are experienced, but people who have started from no knowledge of real estate and have come out financially free. So we know that everyone here can do this. About me and why I’m here leading this. My name is Dave Meyer. I’ve been a real estate investor for 12 years.
I started when I was 23 years old right out of college. About six years ago, I was really interested in working full time in real estate. I had been working in software, got a job at BiggerPockets. I’ve had a bunch of different roles there. But now I am the vice president of data and analytics. I do have a master’s degree in business analytics, so that makes sense. And I do all sorts of things at BiggerPockets. I do internal data. But on top of that, the thing that I’m super passionate about in addition to educating people on webinars is I’m the host of our newest podcasts called On The Market where we give out all sorts of information about data, trends and news that impact the world of real estate investing. So you should definitely check that out. It’s super cool. You can find on Apple, Spotify, YouTube, any of that.
I also, if you haven’t figured out already, I’m sort of into data and analysis and deal analysis, which we’ll talk about in a little bit. So I have a new book with J Scott on deal analysis and most importantly, I was once a newbie to real estate investing just like you. It was 12 years ago. I had no idea what I was doing, but I got into small multifamily investing right off the bat and it has been absolutely life changing. Want to share that all with you today. Also, if you follow me on Instagram, you probably know that I am a sandwich enthusiast. You can follow me on Instagram where I’m giving out data about real estate investing, about personal finance, about the economy all the time. You can find me at the data deli. All right, in addition to all those things I just said, mostly I’m a real estate investor.
That’s what I’m super passionate about and that’s why I’m here today. My first deal was actually a small multifamily. This is why this topic of this webinar so near and dear to my heart is because this changed my life and I know that it can change yours as well. And I’m super excited to share this with you. I bought this property. This is the actual property I bought in Denver. Man, the grass looks pretty bad. I took this picture when I was relandscaping, but it looked better, I swear, when I was actually done with this project. But it was four units in Denver, Colorado and I did actually sell it a couple years ago, but before I did I was generating 2,500 bucks a month in cashflow, which is incredible. The only reason I sold it is because I had a bunch of partners on this deal, which we’re going to talk about in a little bit and we were just ready to part ways.
It actually worked out really great for everyone. But that’s how I got started. My second deal was also a small multifamily. I house hacked in this one. So if you see those three small windows on the second floor there, I lived there for several years while being the landlord taking care of this property and it was actually just down the block from this other one that I was just showing you. They’re one block apart. So I was able to manage all seven of those units while I was working at BiggerPockets in grad school. It was an amazing learning experience. Still own this one and it is generating about 2,500 bucks a month in cashflow, which is a ton of money. So hopefully you can see that these small multifamilies, just seven units, if I had kept the other one generating $5,000 a month in cashflow, I know everyone out there would be excited to have that level of cashflow.
Of course this takes time, this takes effort, but I just want to show you that it doesn’t take that much to get to financial freedom if you find the right deals and you learn the right process. Wow, I got ahead of myself. So it doesn’t take that many small multifamily properties to achieve financial freedom. That is entirely what I want to convey right now is that did those seven units get me to financial freedom? Not exactly. $5,000 a month is not exactly where I want to get to, but I quit my job in 2014. I was trying to figure out what to do and it allowed me to go on a trip and to figure out what I wanted to do. It actually paid for my graduate school. I got all of my graduate school paid while I was going through because of these properties.
It allows me to take risk and because I learned the systems that I was doing over time, it has allowed me to actually achieve financial freedom, not just these two properties, but over time it has gotten me there. It just takes the right properties, just takes the right properties and systems. And one other thing, time, it does take time. You’re going to have to invest some effort into this. You’re not going to get 50 units in small multifamilies in your first year, but if you put in effort over the next couple of years, you definitely could get there. So let’s just talk for a minute about why specifically small multifamily properties are such a powerful wealth building tool. First reason is cashflow. Listen, multifamily properties are built for investors. No developer builds a multifamily specifically for someone’s dream home. That’s typically not, at least in the US, what someone’s dream home is, these are meant for investors and they are meant as investments.
So they are designed to generate more cashflow and they generally do. So I think multifamily, if you’re a cashflow investor as a lot of people are, especially in the beginning, you probably want to be, multifamily is a great, great way to generate cashflow. They tend to generate better cashflow numbers than single families. Second, and this is super, super important, is residential financing. So at the top of the show I mentioned that we are specifically talking about duplexes, triplexes and quadplexes. And this residential financing piece is exactly why. If you buy something that is four units or less, it is considered a residential property and you can get a residential loan. This means that you’re going to maybe be able to put down less money. It means you’re going to get a better interest rate, which means your properties are cheaper and it is going to be a whole lot easier on you just in general to get a loan.
You’re probably not going to have a balloon payment at the end of your property. So there’s all sorts of reasons. This is super beneficial, especially just when you’re getting started, but you can basically get a regular mortgage. Third, there is just less competition and recently the market has been relatively competitive and so you see more competition in areas where there are more buyers. 80% of homes that are bought are just by people looking for shelter, looking for their home. And so single family homes have by far the most competition. Small multifamilies, less competition because it’s people like you and me, it’s investors who are looking for that. On the other side, you also have competition for the big properties, BlackRock. These private equity firms or even just regular syndicators you find on BiggerPockets are all competing for these 30, 50, 100 unit deals. But the small multifamily is a perfect niche for people who are getting started where there is not as much competition as in the single family space or in the large commercial space.
Lastly, house hacking. I absolutely love house hacking. I did it for several years. If you don’t know what this means, it just means that you live in a property that you’re also renting out. So in the context of small multifamilies, you can buy a duplex and rent out the other side or you can do what I did, rent out a triplex, live in one and rent out two others. Or you can do it in a quad as well. And the reason I love this is one again, residential financing. You can get owner occupant financing if you are house hacking, which in some cases means you can put as little as 3.5% down on an FHA loan. We’ll talk about that more in just a minute. But it also lowers your interest rate. Owner occupants loans get lower interest rates, which is super important. So these are four reasons that I think small multifamily are so valuable.
You get more cashflow, you get better loans, there’s less competition and you are going to learn a lot. That’s actually one thing I meant to mention about house hacking that I love is that if you live on the property, you are going to learn so, so much about property management that it’s going to help you for the rest of your investing career. Even if you want to hire a property manager in the future, you’re still going to get so much out of living in that property and being the property manager, even if just for a year or two that you are going to be such a better real estate investor for the rest of your career. I think it’s super, super valuable. So hopefully I’ve convinced you that this is a great asset class. I personally love small multifamily. It’s still probably the thing I try to invest in most.
So how can these small multifamily duplexes, triplexes and quads give you financial freedom? Well, ask yourself, what is financial freedom? It’s different for everyone, but what do you actually need to pay your bills? What do you actually need to be financially free in the most basic sense to pay all of your bills? Is it 5,000? [inaudible 00:21:20] I think that’s a pretty good number, I think for most people. For me it was about 5,000. I said I’m not financially free of 5,000 because I want more than just paying my bills. But just think about this is the level one financial freedom to get to the point where you can pay all of your bills with passive income. If you could get just a $100 in cashflow per unit, which really isn’t that good, all you would need is 50 units. And I know that sounds like a lot, but once you learn a system, it’s really not that much.
What about if you could generate $200 a unit, then all you need is 25. If you’re buying quads or you’re buying fours, that’s only six or seven different properties. If you buy one a year that gets $200 per unit, then you’re financially free. And if you’re thinking, I want to do it faster than five or seven years, I understand you can try and do that, but think about how different your life would be even just going slowly and conservatively starting right now. If you put in a dedicated effort for five to seven years, just 200 bucks per unit, that’s not even that hard. You can get to financial freedom and is really not that challenging. And the thing that I think is really important about these small multifamilies is it’s actually a stepping stone to get to an even more important and more powerful wealth building tool, which is large multifamily investments.
I invest in large multifamily properties right now, not as an operator but as an investor. So a lot of people go and buy 300 units and they need investors and I invest a lot of these, but I learned how to underwrite these deals and I learned how to pick good deals because I understand how property management works. I understand what dealing with tenants in multifamilies is like and if you want to either be an LP in syndications like I am or maybe you want to buy and actually operate these ones, learning the ropes on these small multifamilies is an incredibly, it’s a lower risk and easier way to get into this line of investing and to learn as much as possible. If someone came to me and was like, “Hey, I want to, I’m buying a 100 units, will you invest? I never bought a multifamily deal.” I’m probably not going to do that.
But if someone came to me and said, “Hey, I’ve been investing in small multifamilies for the last five years and now I’m ready to take the jump to a 50 unit.” I would listen. I would listen to that person because they have learned over time how to make their systems work. And that’s what I as an investor really care about. So one question I get often when talking about these things is where do you actually find these deals, right? Because deals are always hard to come by. That’s makes sense, right? Because all the good ones, the obvious ones are going to get snapped up. So as an investor you might need to put in a little bit of work, but we can talk about this. There are plenty of places to find deals. Every experienced investor I know is still finding deals right now in any type of environment.
So the first one I know is going to be controversial, but the MLS, you can find deals on the MLS. It is a 100% true. So many people overlook the power of just getting a real estate agent. I talk to investors and they’re like, “oh, there are no deals on the MLS.” I’m like, “well, have you talked to an agent?” And they’ll say, “no, but I heard that there’s no deals.” What are you doing? You got to actually go and try before you can make that determination. So you can find a good investor-friendly agent who understands what you’re looking for. On BiggerPockets, that’s completely for free, BiggerPockets.com/agent or ask people in your community for a good investor friendly agent. But the trick is to find an agent that really understands investing. Ideally someone who invests themself.
So I understand some of you might be early agents and you might not like what I’m about to say, but if you’re a new investor, you’re trying to learn your market, find an investor who is experienced, find one who is responsive, find someone who, when you ask the question, where would you invest, has a thoughtful answer that’s not just like, “oh, anywhere in Denver is good.” You don’t want to hear that. You want to know the details about what neighborhoods are seeing, infrastructure investment or where rents are going up the fastest.
You want to look for those tidbits of information with an agent and they are likely to be able to help you find a deal even on the MLS is a 100% true. The second trick I have for the MLS is look for value add opportunity. So one thing I really like to do is look for zoning favorability. So for example, maybe you find a single family home that can be turned into a small multifamily or maybe you find a duplex that has a basement that’s unfinished and you can turn it into a triplex. Those types of things, you have to look at the zoning, are really huge opportunities for investors and most people are too lazy to figure that out.
So that’s something I love to do. You can also just look for opportunities where maybe it’s a duplex and there’s again an unfinished basement and you can add a third bedroom or fourth bedroom that’s going to increase your rent and make it a better deal. So look for those hidden potential opportunities. Most people, again, most people who are looking on the MLS are not thinking about this as an investment. They’re thinking about it as their primary home. You have to think about it as an investor and find those hidden opportunities. If you can’t find something on the MLS, which might be true for some people, you can go off market. Driving for deals is probably the best way to go off market. I’ve done this successfully in the past and basically what it means is going around a neighborhood and finding all the properties that you would like to buy and then you just contact the owners and see if they’re willing to sell it.
This is a numbers game. If you send out a 1000 letters or if you call a 1000 potential sellers, you might get 20 of them to respond to you. Maybe 5 of them will entertain an offer that you can analyze and maybe you’ll close on 1, but you’ll probably get a really good deal because again, real estate works when you work it. And so if you put in the work, you’re likely to find better deals. So just an example of how this works. A couple years ago I went to this community planning meeting. Those are great ways to find out what’s happening in a city by the way. Went to this community planning meeting, found out that a park was being built in a neighborhood. I already was kind of interested [inaudible 00:27:29] They were shutting down the street, turning into this amazing park and I was like, “man, I got to get in that neighborhood.”
So I biked around. I like to bike for dollars because I just, I like biking first of all, but I think you go slower. You get to get the sense of the neighborhood a little better. So I wrote down a bunch of properties that I was interested. I wound up calling a few people, got someone to accept an offer, and I actually wound up living in that house for three years while the park was under construction. No one wanted to live there on the construction. I was willing to live there, saw the value go through the roof. Now I’m renting it out, making great cashflow and the equity in that property has gone up a ton. But if I had just waited until the park was done and someone was willing to sell and it was obvious I would’ve paid like 200 grand more for that property.
So this is just an example of if you put in that extra work, you’re going to be able to find deals. Another trick that Brandon Turner actually talks about that I think is a really good trick is going on Craigslist and Facebook and find out who is listing properties in your neighborhood and contact them. Those are the property owners. If there’s someone with a duplex who is listing both sides or just one, just go see if they’re willing to sell. And you have to be professional about it. You have to know your numbers, which we’re going to talk about a little bit, but you can approach these potential sellers and see if they’re ready to sell their property. It’s another great way to find deals. We also have a marketplace on BiggerPockets completely for free. People are posting off market and on market deals there, so you can go check that out.
And direct mail, which is similar to driving for deals. It’s basically you find the owner of a property and send them pieces of mail. There’s a website called DealMachine. I’m not affiliated with them at all, but it’s a super useful tool. I also have this tool called ListSource. Again, not affiliated with them and just want to show you how this works. But basically you can build a list of potential owners. So if you wanted to pick a geography, you could say like, let’s say we want to just look at area code and we wanted to just look at Colorado for example. I don’t know, 303, that’s the Denver area code. So we just wanted anyone who has that 303, you can look at the type of property that it is, you can check which mortgages. So maybe you just want people who own for cash if you’re looking for seller financing, that’s a really good way to do it.
Or you can look at the demographics of the area. You can see if anything’s in foreclosure. So you just build a list like this. I’m not going to actually go through it right now. This is not the main point of this webinar, but you can go through, build a list, you have to purchase this. So I’m not going to actually do it right now, but then you just mail these people. You can say, “I want every duplex, every triplex, every quadplex in Denver. I’m going to send every single one of them a piece of mail.” And again, this is a [inaudible 00:30:20] You’re not going to get a lot of letters back, but you can find great deals that way. So now that we’ve talked about the first step of the process, which is finding the deal, then we have to talk about how do you finance that.
So just as an overview, we’re going to talk about finding the deal, financing the deal, then analyzing the deal. Those are the three steps that you need to be able to do. So we’ve talked about the first one. Let’s talk about financing a duplex, triplex or fourplex. The first one I’ve already talked about a little bit, which is an FHA loan. This is an opportunity to put as little as 3.5% down, but it is an owner-occupied loan. So you have to live in the property for at least a year. But think about that. You can get a quadplex, you could buy four units and put as little as 3.5% down. This is traditionally done as a house hack, right? Because you have to be living in a property. And so this is an extremely, extremely good way for people who don’t have a lot of capital to put into their first deal to get into small multifamily investing.
Highly recommend looking into an FHA loan. Second is conventional. This is when you put down, it’s just a regular mortgage, right? You put down 20%. Normally when you’re an investor, if you’re not going to live in the property, you have to put down 25 or maybe 30% on a loan. But again, it is still a residential loan and you’re going to get a pretty good interest rate and pretty good terms, no balloon payments or anything like that, and a conventional mortgage. So that’s really good. Next, partnerships. I love partnerships and people overlook this all the time. Everyone wants to own a 100% of their first deal. But I got to tell you something, most investors do not get started that way. And a lot of the experienced investors still look for partnerships on many or even all of their deals. I’ll tell you [inaudible 00:32:08] my first deal, I showed you that quadplex.
I was waiting tables. I had no money. Literally all the money I had was in my bedside table and I found a deal and I found a great deal that was going to cashflow and I convinced three other people to go in on it with me. So we were each going to put in a quarter of the down payment, but I didn’t have that. It was like $26,000. I did not have anywhere, I didn’t have $2,600. So there was no way I was going to be able to do that. Luckily, I brought on even one more partner and I got a family member to lend me that $26,000 with 6% interest. So it was another loan I had to pay off, but that got me into my first deal. And sure, yeah, I would love to have owned a 100% of that deal. I’d probably still own that, be making 2,500 bucks a month.
But it got me into real estate. It made me a ton of money by the way. It got me into real estate. I learned the ropes and I think it is such a valuable tool of partnerships. Still today I do most of my deals with partnerships. So don’t overlook this. If you need help getting into your first deal, find someone who is willing to put in the money and you’re willing to put in the time. Next is seller financing. This is when someone who owns a property free and clear, they don’t have any mortgage or loan against it is willing to sell you the property. But instead of getting a lump sum, they’re willing to take monthly payments in exchange for the property. So think of it as like if you were to sell your uncle your car and you owned the car free and clear, you didn’t have a loan against it and your uncle said, “I don’t have the 10 grand for this car, but I’ll pay you a 1000 bucks a month with some interest.”
You say, “okay, that’s pretty good.” So that’s basically what it is. He would get the deed to the car, he would own the car, but if he stopped making payments, there’s recourse for me to get it back. That’s the exact same thing with seller financing. And if you’re wondering why someone would do that, it’s because they want passive income just like you or me. Imagine you’re in your 50s, 60s, 70s, getting ready to retire, and you own this property for 30 years. You don’t need to own it, you’re not going to live there anymore. You’re ready to move, but you want some income every single month. So maybe you sell it to an investor and say, “send me a check for a 1000 bucks. Send me a check for 2000 bucks every single month with some interest on it and you can have this property.” So that’s a great way, again, if you don’t have a lot of cash to get into these types of deals.
The last is BRRRR investing. There’s so much information about BRRRR. Actually, one of the discounts and giveaways we have today, if you wind up going Pro today, we have a discount for that too. Is a class on BRRRR investing. I won’t get too much into it, but what BRRRR means is basically it’s like flipping a house, but instead of at the end of the renovation selling it, you just keep it and rent it out. So you find a fixer upper, you fix it up, you rent it out for a higher price, and then you refinance, which allows you to pull your money out of that deal and then recycle it into another one. So say you only had a 100 grand, that’s a lot of money, but say you had a 100 grand and you want to build this huge portfolio. You can buy one property, invest that money into it, rehab it, get that cashflow going, and then you can refinance and take out some of that money and put it into your next deal.
It’s a way of just keep using the same amount of money time and time again to get into that deal. If you want to learn more about that on BiggerPockets, we have books, we have all sorts of information about BRRRR that you can check out. But another really good way, if you don’t have a ton of capital and want to build a 50 unit, a 100 unit portfolio, that you can start doing that. So that’s step two of the process. So hopefully right now you already understand what you’re, you have some idea, right, of how you are going to get leads, like how are you going to find properties? Are you going to find an agent? Are you going to drive for dollars? Are you going to go on Facebook? You could do all three of those, but you need to have deal flow coming in so that you’re looking at a lot of properties.
Next. By now, you should have at least some idea of how you’re going to finance this. So maybe you’re thinking, “oh, I’m going to house hack, so an FHA loan could be a great option for me,” or “I don’t have money. I’m going to look for a partner who’s going to help me with my down payment. And then we’re going to get a conventional mortgage.” You don’t have to have it all figured out right now. You just have to have an idea of what you want to do to get to the next step. And the next step to me is the most important. Obviously I’m a data analyst, so I think it’s the most important, but pretty much every real estate investor agrees that deal analysis is the single most important part of being a real estate investor. After all, you have to be able to run the numbers and know when a deal is good so you can take advantage of good opportunities.
And you have to know when a deal is bad, maybe even more important so you don’t waste your money on opportunities that are not so good. So that brings up the question, how do you actually do this? How do you analyze a duplex, triplex or fourplex? Well, it’s got to be super complicated, right? We [inaudible 00:37:08] do this by hand. So I went to graduate school to get a master’s degree. And only by doing that am I able to analyze small multifamily properties. I learned all these complex techniques and it takes hours to do every time. I’m completely kidding, by the way, that is absolutely not true. I don’t need any training at all because there are tools that help you do this. Everything is already been done before, guys. We’re not reinventing the wheel. There are analysis tools that are going to help you know and honestly, in five minutes or less, whether a deal is good or not.
And I know that sounds crazy and at first it’s going to take you longer. It might take you 30 minutes on your first analysis, then 25, then 20. But by the time you’ve run, let’s say 25, maybe 30 deals, you’re going to be doing this under five minutes. I promise you it is super easy. BiggerPockets has these tools that are called our real estate investment calculators that are going to help you do this. And I am actually going to do this today. We’re going to walk through a deal. I’m going to go find one on the internet and we’re going to do the analysis right here and show you exactly how this is done. And listen, this is the most empowering part of real estate investing. If you learn to be able to say, “I know for sure that this is a good deal or this is not a good deal.”
All the fear that you’re feeling or you might be feeling, I should say, is going to dissipate because you will know the math behind each of these deals. And I just want to show you that I have been running deals constantly. I use this every day. Look at all these deals that I’ve been using. This is actually my tool of preference, even though I know how to do this by hand. I do know how to do this by hand, but I don’t because I don’t need to. I have a BiggerPockets Pro account and I can run as many calculator reports as I want. Okay, with that, let’s get to the deal analysis. We’re actually just going to jump right into this and I’m going to find a deal on BiggerPockets.com and we’re going to just walk through how to use the BiggerPockets calculator. And I’m going to just switch my screens here.
And while I’m doing that, I just want to make sure that you guys understand or I want to share, I should say, that I find that deal analysis and running these numbers is the most empowering part of real estate investing because it allows you to see that there are formulas, there is math behind each deal that tells you with a pretty high degree of confidence whether you’re going to make money, how much you’re going to make. And you get to see the whole deal right in front of you. And of course you have to put in good numbers and we’re going to talk all about that right now. But if you put in the right numbers and you use a tool like the calculator, it takes a lot of the fear. It takes a lot of the risk out of it. So I’m excited to show you guys this. All right, so I’m just coming here to the BiggerPockets, find a deal tab.
I click on real estate listings and it brings up all these listings. And I’m going to go and sort by property types since we’re talking about, we can do duplex. Let’s look for a quadplex. That’ll be fun. Let’s do a bigger one. My first deal is a quadplex. So we’ll talk about quadplex. All right. Ooh, this one looks nice right here. 400 for a quadplex. It looks like they’re all two bed, one bath in Des Moines. All right. I mean, that seems like a good one, but now I just want, now I love just scrolling. So now I’m going to just scroll and look at everything, but we have a limited amount of time, so I’m just going to do this. Let’s just do this Des Moines, Iowa one. Let’s go see what we have to say. So it tells us, this is great. It actually tells us the current rent, each of these at 850.
We can see what the cash-on-cash return is, but we’re going to run the numbers ourselves to see what’s really going on here. There’s actually some pictures, which is nice. All right, looks like [inaudible 00:40:51] a little bit of work, but yeah, that carpet, whoa, big stain. All right, I like it. This is the kind of deal we kind of like, right? I mean opportunity to add value. That’s always what a real estate investor is looking for. So I’m going to quickly just actually screenshot this so that I have, oops, let me just do that again so I can put this into our calculator report. So now that I got our deal, I’m just going to copy and paste the address here because that’s the first step we’re going to do. So then we come over here to our rental property calculator. You get the point of what I’m doing here.
So that was what I was doing yesterday. So I’m just going to put this image here just so we have something. You can add as many images as you want. So if you want to keep track of the properties that you’re analyzing, which you should, I’m not going to do that now because I don’t want to run out of time as you can do that. So that’s it. Just put it in property information, put in image. And now next we’re moving on to purchase. So what was the purchase price here? One, let’s just round up. We’ll say that, let’s just assume that we can get it, again, for purchase price. Guys, I’m not doing a full analysis here. I want to show you how to do this. So if you have different assumptions and you’re saying, “oh, I think I can buy that for 5% over asking,” you can go do that after this.
My whole point is just to show you how this calculator works and the value that it provides. So I’m going to just assume we can get this for the purchase price. Closing costs, uhoh, right? We don’t know what this is going to cost, right? Well, luckily, BiggerPockets has built in all these help tools that are going to help you analyze a deal. So I won’t make you read all of this, but it says if unsure, 1.5% of the purchase price is a good number to begin with. So let’s just use that. 1.5% of this would be about 2,400 bucks. Let’s just round up, let’s just say 2,500 bucks for closing costs. Again, the way to actually know this is to go and talk to a lender. Because we just talked about step two of the process is learning about financing, talking to a lender, no cost way to learn this stuff.
Let’s just say that we’re going to rehab this property a little bit. It actually looks like it’s in pretty good shape, but let’s say that rather than 165, let’s say we could get it up to 190. Let’s say we can add a little forced appreciation to this baby, another 25 grand. And let’s say that’s going to cost us, I don’t know, 1250, let’s just say that, well, not 125,000, $12,500. So I’m making this up guys. I just want to show you that all the things that you can do, but this probably makes sense. If you put about $12,000 into this, you probably could increase the value of the property a lot. And that’s what we’re going to do next. Let’s go to our loan detail. So again, if you want to do a house hack, you can put as little as 3.5% down. You can learn more about what to put in this.
Maybe you’re making a cash purchase, but for me as an investor, I typically put 25 or 30% down. So I’m just going to put 25% down. Right now, I’m going to say the interest rate is about 5.5% and I’m going to say points charged as zero and my loan term is 30. I love [inaudible 00:43:58] a 30-year fixed rate mortgage. If you can lock in an interest rate, no worries about it. I absolutely love doing that. There are good times to get an adjustable rate mortgage. Not going to talk too much about that today, but I love that. So I’m going to just assume this is a 30-year fixed rate mortgage with 25% down. So I know I’m cruising through this everyone, but this is how easy it is. This is why it takes me five minutes, and I know you’ll have to think about this a little more than I am, but check this out.
All I’ve put in is an address which I copy and pasted. Same with this purchase price. I used an estimate for closing costs, ARV and repair costs, and now I’m just putting into basic loan information that you can find on the internet in like five minutes. So next we’re going to get to income. And this one actually is a little bit trickier. And what we need to do is figure out what this can rent for. And if you are a BiggerPockets Pro member, which I am going to give you a code to a discount and it’s amazing value, honestly, it’s crazy what we’re giving away. You can get this tool that estimates rent for you. So I’m just going to do this. This was in Milwaukee, so I just come over here. It’s under the tool section. You go tools, rent estimator.
So I just type in the address again and it asks me, what it is, remember, so is the three one, yeah, six two. So there are three ones. So I’m going to search for this address. [inaudible 00:45:18] Awesome. So now we can see that the median rent in this area is 900 bucks a month. Confidence here is high. It’s not very high. So sometimes it is very high. So there is a shadow of doubt here. But the amazing thing about this tool is that it shows you the distribution of rents. So you can see that a lot, the median here and the mode is probably around 944. We also see the distribution that some people skew higher. If you want to actually look at some of the listings, you can see all the things that are going on down here. So over here we’re seeing things that are 950, [inaudible 00:45:54] 1195, 1095. So actually when I’m looking at these comps, I’m starting to think maybe I can get more than 900.
A lot of these things look a three one for 1055, a three one for 1150, a three one for 1050. So using this 900 a month is a pretty modest conservative estimate and I like that personally. I am a conservative investor, especially in a market I don’t know, I’m not super familiar with Milwaukee, so I’m going to be conservative and say 900 bucks a month for each. So that is 1800 bucks aside. So hopefully you see how useful this tool is. If you are analyzing a lot of deals as you should be and you want to figure out what rent is. All you need to do, you type in information and it tells you with a high degree of confidence that this is going to rent for roughly 900 bucks a month. And if you buy this deal or you’re ready to buy a deal, you might want to call some property managers in the area, just go on Craigslist, see what things are renting in that area just to double check.
But for your deal analysis for trying to whittle down your funnel, this is an incredible tool that will help you. So let’s just say 1800 bucks, which is exactly what we think it’s going to be. Next we have expenses. So property taxes, I think I saw that it was about 3,500 in this area and insurance 200. So these are things that I just know you can look at the property tax on any one of them. And then insurance, insurance is kind of one of the harder ones to figure out. You can’t just Google what the average insurance is in your neighborhood and that can be super helpful. So let’s actually just do that. Let’s just do average homeowners insurance Milwaukee, let’s see what we got.
Okay, the average cost of homeowner insurance is about 1370, but that’s probably for a single family. So I’m actually going to double this for the duplex and make it 2740. That’s doubling it. So I’m going to just do 2740 here for the annual insurance. If you want to talk to an insurance broker, of course you can do that. You’ll get better at this. So repairs and maintenance, I like to say about 8% for repairs and maintenance. 150 a month, that seems about right. Vacancy, I do a 5% vacancy. Vacancy rates right now are at all time lows. So I think this is conservative, but important to be conservative in my mind, especially when you’re first getting started, you don’t want to get into a bad deal for your first deal or really anytime. And I think that really comes down to being conservative when you’re underwriting and analyzing your deals.
Capital expenditures is another one that people really struggle with. I like to put about 8 to 10%. Let’s just put 8% here as well. Again, you can make up your own. It depends on what the property is, but what capital expenditure is it’s like repairs and maintenance, but it’s for the big thing. So think about every 20 to 30 years you’re going to need a new roof or you’re going to need a new boiler or a water heater or maybe you want to renovate the whole thing. Capital expenditures is basically saving up for those big expenses. And the reason we keep it separate is one, because you want to probably keep it in a reserve account [inaudible 00:49:00] not take it out and use it for something else, you want to save it. So when you have those big expenses, you have some capital there. And two, the IRS actually treats capital expenditures more favorably and so you want to keep track of that stuff.
So I’m going to put 8% there. So totals for repair, maintenance, capital expenditures, about 15% total. You might want to do more, you might want to do less, I don’t know. Management fees, I’m going to put at zero because I want to encourage you all to self-manage your first deals. I think it’s super important. I know this is a big debate in real estate investing, but I personally believe that self-managing for the first couple of deals is super important because you learn so much. Once you’ve done it for a year or two, pass it off to a property manager, you’re better off spending your time looking for deals, building systems like we’re talking about. But at the beginning I think it’s super important and will help with your cashflow as well. Next we have to talk about utilities. And utilities is something personally I like to pass on to the tenants and that’s not possible with every property.
It’s not possible in every city, but in most places it is. If they’re metered separately for electricity and gas and water, you can actually do that. And I highly encourage you to do this. It’s better for everyone. You don’t have to guess what their usage is going to be and tenants just pay for what they actually use, which seems like the fairest system to me and it’s not a headache for you as a landlord. So I encourage that. And when I underwrite my deals knowing that I’m going to do that, I usually put zero for electricity and gas. Water, I’m going to just put 25% because you usually have to pay a sewer fee as the owner. HOA, I personally hate HOAs. I know some people are not as afraid of them, but I don’t like to invest in deals where there are HOAs. In fact, with my single family or short term rental that I have, I specifically look for unincorporated towns, there’s no HOA and that’s worked out great.
So I’m not a huge fan. Some people are, but that’s just me. So I’m going to do nothing. And then garbage, you probably pay for, let’s just say it’s 25 bucks a month. So that’s it. That is all we need to do. We have now put in everything we need to do as an investor to analyze a deal. And I know I went quickly, but I got to tell you, if I was doing this by myself and wasn’t explaining this, I would’ve done this in a third of the time. I probably would do it in four minutes. And that’s super important, not because it’s a speed game, but when you get a lot of deal flow coming in, which you need to do, you need to be talking to an agent, you need to be driving for dollars, those type of things.
You might look at 5, 10 deals a week and you want to be able to do this relatively quickly. So that’s important here. Okay, let’s look at this deal. So if we did this deal, we’d be getting $150 a month, not bad. Cash-on-cash return of 3%, which I know a lot of people are thinking, “oh, that’s not so good.” But personally I actually target 3 to 5% cash-on-cash return as long as it’s in a high appreciation area. Some people look for 8. I know Brandon looks for 8, so this one might work for me, might not work for Brandon, but that’s actually not the end of this analysis. I’m glad this came out right here because one thing I want to stress to you, especially when you’re looking at these types of deals is there is a number at which any property works.
And so with the inputs that we have used so far, it’s a 3.12% cash-on-cash return. For me, I might consider doing that. For you, you might not. That’s okay. But you can also do something really cool here on the BiggerPockets calculators, which is you can adjust your expectations. So let’s say that instead of that 900 bucks a month, which is I think pretty conservative given the comps we looked at, let’s just say that it was a 1000 bucks a month. That’s not so different. We saw a lot of places that were getting a 1000 bucks a month or we’ll just do 1980 here. What about now? Okay, now it’s a 6.2% return. So this is the time where you go and call a property manager and figure out how do I get those $900 rents to a $1000 rents because then I can do this deal.
Or maybe we made some just sort of off the cuff assumptions about this, that if we put in $12,500 we can increase rent. Maybe that actually gets us, we saw a couple places that were 1050 remember. Maybe we want to get up to the 1050 range if we increase this. Now we’re at 8%. All of a sudden Brandon’s buying this deal. So my point here is one, BiggerPockets calculators are super helpful because you can adjust your expectations. Maybe instead of raising rent, you just want to lower the purchase price. Maybe you’re like, “okay, I can live with that cash-on-cash return, but I actually think this is worth 155 instead of 165. Okay, now it’s a 7.5%.” If you’re trying to do this by hand, this would take forever. I know how to do this by hand and it would take a long time to make all these adjustments.
This is what’s so great about the BiggerPockets calculator and all of a sudden I’m really liking this deal, 20% annualized return, which to me is what I really care about. I like cashflow, but I care more about the total annualized return. 20%, sign me up for that. That’s not even with a lot of appreciation. So hopefully you could see why this is so helpful. In addition to just cashflow and annualized return, we also get all sorts of information here about how our expenses break down, what our NOI is, cap rates, super expenses, important stuff. And I think this to me is what I really pay attention to is what the long term outlook is. I am inherently a long term buy and hold investor. And so when I see things like a five year, 20% annualized return, sign me up. Honestly, I just picked a random deal off the internet, but sign me up for 20% annualized return.
Just so you know, the stock market return is about 7, 8, 9% per year. So that is almost triple that. And you are doing this just on a random deal that I just found off the internet. Before we break out of this, I just want to show you a couple more features of the calculators that are super helpful. If you just hit this share button, you can enable report sharing and post your deal to the BiggerPockets forum and get free input and feedback about your deal from investors on BiggerPockets completely for free. So if you’re brand new and you’re wondering, you want someone to help you check your numbers, check your deal, just go do this, you can hide the address so no one can go steal it from you. Although I don’t think people in the BiggerPockets community would do that, but you can go do that.
You could also generate a PDF, which I think is super, super important here and something that people should be doing, which is generating a PDF so that if you want to go find a partner, right? When I first found a partner, I was like, “Hey, I have this deal, I think it’s going to be good.” And people are like, “what are you talking about? How much money am I going to make? What is the risk?” And if I had this tool, it would’ve been so much more helpful. So if you’re going to go out and raise money for a deal, bring them this spreadsheet that has all this information about what returns that they can expect, what assumptions you made in your underwriting. It will show them how much money and what type and quality of investment it can make and that’s going to help convince them if it’s a good deal to invest in your deal.
Same thing goes for financing. If you go to a bank and you want financing, bringing this type of information is going to be helpful to you. The last thing is maybe your significant other is not on board or partner or someone who you want to convince. This type of professional, visually appealing analysis that breaks down step by step, how good or hopefully good your deal is going to be really helpful to you in your investing career. Okay, so that is the BiggerPockets calculator and the third step in the process. So we talked about finding deals, we’ve talked about financing deals and now we’ve talked about analyzing deals. Listen everyone, if you are here, if you can do this, just those three things, you are going to achieve financial freedom, I promise you. Find deals, finance them, analyze them, that’s all you need to do. I know it sounds complicated, but that’s it.
So now let’s move on to the dangers to watch out for. Real estate investing just like any type of investing does come with risks, so let’s cover them. So you just are really clear about what you might be getting yourself into and how to avoid some of the risks if you are able to. Number one, condition and location. This is a common one. People look for really cheap properties and assume that they are going to cashflow and appreciate like expensive properties. I’m sorry, but that is not how it works. You get what you pay for. So if you look for properties in good condition, in good locations, they’re going to cashflow better than the other ones. They’re also going to be less headache in my opinion. I personally look for properties that are in good condition because I don’t want to deal with the maintenance, I don’t want to deal with things that are falling apart.
I have a full-time job and I just want to find properties that are in good location, good condition. Some people go the other way, but just be aware. You can go and buy, you can find great cashflow, great deals in less good locations, less good condition, but it’s just more work. So it’s just something you have to consider and there is a little more risk there. Second, multi-families are more management. Just the human dynamics of it, there are multiple tenants living in properties. I’ve had people who refuse to pick up their dog’s poop and that pisses off the rest of the tenants and you have to sort of play counselor between them and there’s a little bit more work that you have to do than in single family homes. That’s just the nature of it. But I think the benefits outweigh, but just be aware of that.
Third, again, is you got to do your math. Just because it’s a multifamily doesn’t mean it’s going to do well. You have to be able to run those numbers, you have to be able to analyze deals really, really well. As I just showed you, it’s not that hard, but you have to be able to do it before you pull the trigger. And lastly, fear. I mean to be honest, fear is the biggest risk. And I understand that there is fear. I was really afraid when I did my first deal. I still get a little twinge of excitement and fear when I do a deal. But to me the fear of investing doesn’t even compare close to the fear of working a job that I hate or having financial insecurity for the rest of my life for 40 years. Those are the types of things personally I am afraid of.
So I think the question is what are you more afraid of? Are you afraid of getting into a deal and maybe having to figure out how to deal with a tenant or how to fix something that you’ve never fixed before? Or are you afraid of spending your life doing something that you don’t care about and insecure about money for the rest of your life? So to me fear is a risk and it’s something that you have to be cognizant of, but hopefully it’s something that this type of information, these processes that are proven over and over again can help you overcome. Okay, so I know that if you were new to investing and it can feel like real estate investing is this huge decision and you’re jumping off this cliff and there’s all this risk and you’re doing it by yourself, but as you become a more experienced investor you realize that investing is more like this.
It’s actually more like a hike and better, yeah, it is a hike with your friends. Through BiggerPockets, through your local community, you find a team, you are doing this together. And I think most importantly, at least what gives me the most comfort about investing is that you are just following a system. You are using the tools and the processes that millions of people have used before and you’re just learning to implement them yourself. And at BiggerPockets, we’re all about building those tools, helping you get the education that you need to go on this journey towards financial freedom that I hope is as motivating to you as it is to me. And this is not just theory. I have walked this path myself. I have followed BiggerPockets, I have followed the path of other great investors and I honestly, I’m not making up stuff.
I’m not some genius where I’m like inventing some new business model or something like that. All I’m doing is learning to, all I’ve done is learn to implement the systems and processes that other people have done. And since working at BiggerPockets over the last six or seven years, I have seen tens of thousands of people do the exact same thing. This is not just theory, it is a proven method that we have all seen, done before. But here’s what I know. Regardless of what your reason for being here is, here’s what I know, real estate investing works and it can help you build an incredible life if that’s you want to travel, if you want to spend more time with your friends and family, if you want to see your kids grow up or maybe you just want to get rich. All of these things I know real estate investing can help with.
And our goal at BiggerPockets, hopefully you’ve seen this through this webinar, is to help you reach your financial goals through real estate. That’s what we are here for. We have tons of tools available to help you realize this and we’ve been created some incredible tools in addition to all of our free tools that are designed to help you get there faster and with less pain. So that’s what the Pro membership is all about. I’ve given you guys a lot of information to take into account today, but I want to talk to you quickly about BiggerPockets Pro and the tools that it offers. It is truly and I know I work there, but it is something I use almost every single day in my real estate investing. It is an essential, if not probably the most important part of my real estate investing toolkit.
I use the rent estimator, I use the calculators, I use the lease forms all the time. So I just want to talk to you. If you are ready to take action, this is a good option. If you’re not, that’s okay. If you’re not ready to commit to real estate investing yet, don’t go Pro. But if you are ready to take that next step and to take action on your journey towards financial freedom, Pro could be a really good tool for you. So if you bear with me for a few minutes, let me just explain what it is. Okay, BiggerPockets Pro helps you analyze properties and get to your next deal faster and the whole point of financial freedom is to get there faster, right? When I first started at BiggerPockets, I had done one or two deals I think, and I was sort of on this path for 30 years to get to a good retirement.
I was on a path for a good retirement, but I wanted it faster. Now, six years later, I am financially free and that is what BiggerPockets and Pro can do for you. It can literally shave decades off your retirement age. You could do more deals, you do them faster. So let me just go over the features that can actually help you do this. First, we talked a little bit about the calculators. Of course if you want to analyze deals by hand, you can do that, go ahead. I’m happy to answer any questions for you about that. But it is time consuming and you know are prone to mistakes. Our calculators have gone through years of refinement to help you just figure out the most important part of any deal’s analysis. And if you go pro, you get unlimited access to those deal calculators. Today, actually we only talked about the rental one, but there’s a flipping calculator, there’s a BRRRR calculator, there’s a kind of other tools, depending on what strategies you pursue over the course of your investing career, we have something here.
And the point here is that these calculators help you buy good deals, but they also help you avoid bad deals, which is equally if not more important. Next you get curated articles and video content. I make a lot of this myself. I put out all sorts of data analysis. We license data from some of the top providers in the world. It’s super expensive so most individuals can’t get this kind of data by themselves. But as a BiggerPockets Pro, you get access not only to the data, but my personal analysis of the data that can help you find markets and make really smart decisions. Super, super helpful. We also have a way of showing people that you mean business. And I know this is not as quantifiable or tangible, but so many people, let me just give you an example. So many people reach out to me on BiggerPockets and ask for help and mentorship and one of my first questions to them is like, what have you done to actually start?
Because a lot of people just want information and they’re not ready to take that next step. But if people are actively in the game, I’m happy to help. And the Pro badge is one of the ways to signal to our community at BiggerPockets that you are serious, that you are ready to take action and that you are taking action in pursuing your financial goals. People are much more likely to help you if you have some skin in the game and you’re actually not just kicking the tires a little bit, seeing if this is right for you, you’re actually in the game. And if you are kicking the tires, that’s totally fine. Don’t get me wrong, I’m just saying like the Pro badge does sort of differentiate people who are already doing it. Next we have lawyer approved lease documents. This is so helpful.
When I first got started investing, I was spending thousands of dollars coming up with customized leases, which was so stupid. I mean [inaudible 01:05:44] now on BiggerPockets, all you need to do is click a button and you get all of the legal documents that you need to be a landlord in any state. We update these every year so they keep up with current laws. It is a super helpful tool. Highly recommend using this. I swapped out all of my old leases for these leases and if you are investing across multiple states and cities, this could be even more cost beneficial because you’re getting them for every single state in the US. We also have perks and boot camps. I talked a little bit about boot camps, but they’re 12-week programs designed to give you the accountability and information you need to get to your first deal, get to your next deal.
The people who are going through this, you should read some of the testimonials. They are getting rave reviews. Only pros get to go to the bootcamp. So that is a really big factor in going pro. If you want to be part of one of our really important boot camps, you have to be pro. We also have all these perks. So some of the biggest software companies in real estate, MASH, Fryzer, Foreclosure.com, AirDNA, if you’re into short term rentals, offer discounts to pro. So that can save you hundreds if not thousands of dollars as well. I mean all of these features are super helpful. Oh, the rent estimator too. I showed you a little bit of that, but that is a super valuable tool because finding rent data, it’s actually super hard and this is kind of my job, but finding good accurate rent data is super hard and the rent estimator is a great tool for that.
But you know, all these are features. They’re individual things that you’re going to help you at different points in your real estate investing journey. But there is just one overriding reason to consider Pro. It works. I know that sounds simple, but it really does work. I have seen thousands of people over the course of my time at BiggerPockets use BiggerPockets Pro to become financially free. Let me read you a testimonial from Aaron who is a BiggerPockets Pro member. He says, “the BiggerPockets calculators are my go-to for analyzing potential properties. There’s no way I could analyze the volume of properties I do without being a Pro member. I locked up my first three unit almost a year ago and I’m now selling it for almost a $70,000 profit that will go towards something larger. The BiggerPockets calculators were a huge factor in making sure my numbers were right.”
That’s amazing. That’s exactly the power of Pro that I hope you take away. Or Patrick says, “back in June, I attended one of your webinars, right afterwards I signed up for Pro. In the next couple of weeks I analyzed a bunch of deals. Eventually I found a fourplex, I got it under contract three weeks later after signing up for Pro and a week later closed on another property that was six units. Big thank you to you and the entire team. Final quick tip, sign up for Pro. I made my money back at the closing table.” So again guys, if you’re not ready to get into real estate, if you’re still trying to figure out if this is right for you, Pro is probably not right for you. We don’t want to take your money if you’re not ready to get investing in real estate, it’s simple as that.
But if you are ready to get invested right now, you can use this code multi to save 20% on your Pro annual membership. That is an incredible deal. It’s going to help you out a lot and Pro is going to help you get to that financial freedom. So the question is, how much is BiggerPockets Pro, I’m sure you’ve seen, maybe you are, if you’re interested in real estate investor, you’ve probably seen on Instagram or YouTube, some of these other people who are selling courses or software and it can literally cost $25,000. I’ve seen people who have paid some of the big names in real estate up to a 100 grand. You know what? They’re giving you the same exact tools and the same information. They are just charging crazy amounts for it. But I told you at the beginning of this webinar what BiggerPockets believes and what BiggerPockets believes is that anyone can be a real estate investor.
And not just that anyone can, everyone should pursue their own financial goals through real estate. That is something we firmly believe and we have priced our tools accordingly. Is it worse because it’s cheap? Absolutely not. It is very good software. It is good information that is going to help you. It’s the same thing that anyone else might be giving you. We actually have way more and it’s way, way cheaper. Most people don’t have rent tools or lease forms. Maybe they have a calculator, but it’s probably not as tested, embedded as ours and ours only cost 390 and as I just said, we’re giving you 20% off. So it actually costs 312. It’s actually a great deal. And think about what kind of investment $312 is. If you get even one deal [inaudible 01:10:18] pay for Pro for the rest of your life. So put in 20%, you can use the code multi.
All you have to do is go to BiggerPockets.com/ProUpgrade. Multi webinar, if you want to get access to the calculators, the rent tools, you get the badge, the lease forms, access to the boot camps. That’s all you got to do. But in addition, we’re also giving away a ton of cool stuff. Brandon Turner very generously is giving away Multifamily Millionaire Volume 1, which is all about small multifamily investing. So if you want to do this, why not go Pro right now and get this free book that is literally all about small multifamily investing. That’s a $45 value. We’re going to give that to you for free if you go Pro today. We’re also going to give you an investing with no or low money down workshop worth 200 bucks. David Greene and Brandon Turner put this together. It is so incredibly valuable. This is worth the price of Pro and more, but we’re giving it away for free.
And one of my favorites, this might be the best out of all of the bonuses, finding great deals, masterclass, I know a lot of people get hung up on how to find great deals. Brandon puts together an incredible list of ways that you can find good deals. This is going to get you a deal if you watch this. We put the estimated value on this at $1000. It’s worth so much more if you get one deal, but we’re giving it away for free again. Also, bootcamp access, like we said, this is worth tens of thousands of dollars. I mean most boot camps, most masterminds cost 20 grand, 30 grand, 50 grand. We are giving you access to these boot camps that just cost a couple hundred bucks if you go Pro today. So [inaudible 01:11:57] you’re getting thousands of dollars in bonuses, just go to BiggerPockets.com/ProUpgrade, enter the code multi.
Hopefully it’s a great tool for you, but you know what, if it’s not, we give you your money back. So just go use it. I mean, we’re a 100% refund. We’re not going to ask you any questions. Just email [email protected] if you don’t love it, we’re going to give you a 100% back. It is not a big deal. So just go check it out. If you are ready to get started investing in real estate, this is your tool designed for your next step. So take that next step. If you found out it’s not for you, give your money back. If it is right for you, good for you. You’re going to be on the path for financial freedom. Nothing would make us happier. Okay, well, let me leave you with some parting words from a very smart man, Jim Rohn, who said, “if you really want to do something, you’ll find a way. If you don’t, you’ll find an excuse.”
And I think this is so true about so many people with financial freedom. You say, “I can’t find a deal, I can’t find financing.” But that’s not true. Have you actually adopted the systems that other real estate investors for decades have been using to find deals, to find financing, to analyze deals? Have you done that yet? Because if you haven’t, you’re just finding an excuse, you will find a way. Everyone I know who commits themselves to real estate investing finds a way. So if I can leave you with any parting wisdom from this webinar, that’s it. Start to take action, go to a meetup, find an agent, analyze 50 deals in the next month and get really, really good at it. That’s what you need to do. Figure out what your next step is, figure it out and go do it right now.
Right after this webinar, figure out what your next step. Is it finding an agent? Is it going pro? Is it posting in the forums? Go do it right now. All right, for being here before we go, if you do want the slides, you can get them at BiggerPockets.com/multislides and is a bonus just for showing up that costs nothing. Go do that. And again, before we go, if you want Pro ready to take that next step, go to BiggerPockets.com/ProUpgrade and enter the code multi. Oh, if you are already a Pro and you want this bonuses, we’re just giving out free stuff today, just go to BiggerPockets.com/AlreadyPro. I think I wrote the wrong URLs here, but it is BiggerPockets.com/AlreadyPro. You do have to be a Pro annual just so you know to do that. So if you are Pro monthly, you can go to already Pro and upgrade to annual and get all the bonuses.
But if you are Pro annual, you can get all these amazing bonuses that we were just giving out completely for free. That’s what we do here at BiggerPockets, we are always giving away stuff of tremendous value for free because we want all of you to succeed in real estate investing. All right, that is it for me today. I hope you all enjoyed this webinar, got something valuable out of it or ready to take that next step in real estate investing. If I personally can be any more help to you in your journey, please hit me up on Instagram where I am at the data deli. You can also message me on BiggerPockets. But good luck to you all. Join the BiggerPockets community. Join this movement of people who are finding financial freedom through BiggerPockets. It’s going to change your life. It changed mine. Go out there and have some fun and pursue those goals. All right, I’ll see you guys soon.

David:
And that was our podcast with Dave Meyer, BiggerPockets genius data analyst and real estate investor. I hope that you guys like that. And even more important than that, I hope you considered going Pro. Head over to BiggerPockets.com/Pro and use the code multi to get yourself 20% off as well as a free book and all the other perks that were mentioned. It’s one of the best steps that you can take to getting serious and committed to growing well through real estate. I was a Pro member for a long time. Now I’m a premium member, which is the same idea, but it’s been for real estate agents. But the point is I am committed to the process and I hope that you are as well. Thank you guys very much. Hope you enjoyed this podcast. And if you’ve got some time, listen to another one.

Daniel Lacalle, chief economist at Tressis Gestión, says investors should be diligent in considering which sectors in China to invest in, and adds that “it’s not going to be a year of looking at an index” or of “being passive.”

Ashley Kehr:
This is Real Estate Rookie, Episode 238.

Ashley Hamilton:
If you are new and you’re just wanting to get started and you want that cash flow, it’s not a situation where if you make a mistake and fail that you could lose your shirt. Obviously nobody wants to lose money, but I’d rather lose a couple thousand then a $100,000 or something like that. But again, with Detroit, we’re very cash flow heavy. There’s a lot of demand and especially in Section 8, so I feel like it’s a great market for rookies to infiltrate because it’s so low risk with the guarantee rents and things like that.

Ashley Kehr:
My name is Ashley Kerr, and I’m here with my co-host Tony Robinson.

Tony:
Welcome to the Real Estate Rookie Podcast where every week, twice a week, we bring you the inspiration, information, stories you need to hear to kickstart your investing journey. I want to start this podcast by shouting out some folks in the Rookie audience. Today we have a podcast review from someone with the username Owen Warren. Owen says, “Total game changer!!! I started out listening to the OG Bigger Pockets Podcast which gave me a plethora of information, but sometimes so much that it can lead to analysis paralysis.” I know we’ve all been there. “While I still enjoy the OG Podcast, my focus has shifted more so to the Real Estate Rookie Podcast, due to the fact that I’m still relatively new to real estate investing and have only completed a handful of deals. So whether you’re brand new or have a well-balanced real estate portfolio, I believe Tony and Ashley, along with their guests, have great content to share with you guys. Thank you all for everything.”
Man, that’s one of the nicer reviews I think we’ve got in a while. If you haven’t yet, please leave us an honest rating and review on whatever platform that you’re listening to. The more reviews we get, the more folks we can help. And that’s always our goal here. So Ashley Kerr, what’s up? How you doing today?

Ashley Kehr:
Good, good. I got a child sick from school today. Sick or skipping school, still not sure yet what the consensus is. Yeah, it’s been pretty busy. The end of the year is coming, and we actually have an episode coming up for you guys in the next couple weeks that’s going to be about goal setting. So how did Tony and I do on our goals last year? What are our goals going to be for 2023? Now is the time to start thinking about that and kind of putting your action steps and your most important next steps in place.

Tony:
Yeah, I think a lot of people almost wait too long to start having that discussion, so I am excited to get into that. Yesterday I had an hour and a half long call with my CPA, just kind of like game planning for next year. We’re in October right now, so I think it is helpful to start thinking about the next year before the next year actually gets here, that way you’re kind of one step ahead of the game. We’re doing the same thing in our business as well. We’re already now trying to identify what some of the blockers and the obstacles might be for our real estate business next year as well. So for all of our Rookies that are listening, if you guys haven’t taken some time to start thinking about the oncoming year and what it looks like for you, you should definitely, definitely set aside a day to start putting that game plan in place.

Ashley Kehr:
And a great point, too, with talking to your CPA is even reviewing the past year, and see if there’s anything you need to do before the end of the year hit.

Tony:
Yeah, totally.

Ashley Kehr:
Because you can only write off things in 2022 for this year. So you can’t wait until the year is over and then talk to your accountant and be like, “Oh man, I should have done this differently, or maybe I should have bought this,” blah, blah, blah.

Tony:
I just want to share something that I learned in that conversation with my CPA. Cost segregation is one of the big benefits of buying real estate, and I always thought that you could only perform a cost segregation in the year that you purchased the property. So if I buy a property in 2022, I have to complete the cost segregation in 2022. But she corrected me and told me that you’re not limited to the year that you purchased it.
So if I purchased a property in 2022, as long as I put it into service in 2022, I can still get all of the cost segregation benefits that come along with buying that property in 2022. So for example, at the end of this year, bonus depreciation goes from 100% in the first year to 80% in the first year, and then the last 20% is spread out over five years. So before, if I have a, I don’t know, $160,000 cost segregation depreciation I was able to use, I could use all of that in one year in 2022. But moving forward, I only get 80% of that in the first year, and then a decrease every year there afterwards. So I was like, “Man, I got to do a bunch of cost segregation this year to get all of that benefit.” She’s like, “Well, Tony, not necessarily.” She’s like, “Any property that you put into service in 2022 will still have the ability to use 100% bonus appreciation even if you do that cost segregation a year from now or two years from now.” That was something that was news to me that honestly made me pretty happy, because we put quite a few properties into service this year.

Ashley Kehr:
Yeah, and to kind of spread it out so that you’re not taking it all in one year when maybe you don’t even need it. So you could transfer that, do a little the next year, and then some the following year too. Yeah, that’s really interesting. I didn’t know that either that you could do it later on.

Tony:
Yeah.

Ashley Kehr:
Well, today we have another special Rookie Reply format for you guys. We have Ashley Hamilton with us. She is a Detroit investor. You may have seen her on Instagram or the Bigger Pockets Podcast. She just had her second debut on there. Her first episode I think was one of the best performing episodes ever on the OG podcast, so you guys will have to check it out. But Ashley comes on with us live at BPCON. Yes, that’s right. Me and Tony are still giving you guys interviews that we did in the basement of the hotel at BPCON. We want to bring Ashley on and we’re going to talk a little bit about her, but she’s also going to walk us through how she invests in properties, and as a Rookie what is the best way that you can get started that she thinks of. She kind of goes through these steps that she implements and thinks that will be beneficial to you guys to help you get started. Before we bring Ashley on though, we are going to do an actual Rookie Reply.

Tony:
This week’s Ricky Reply comes from Cullen Lewis. Cullen’s question is, “Real estate rookie here. My wife and I are really wanting to buy real estate properties, but the market where we live is currently too expensive for us. Is it a bad idea to invest in properties out of state where the housing market is cheaper and more affordable for us? Or, would it be better to save more money and just invest in the market we are currently living in?”
I’ll take a stab at this first, Ashley, and then I’ll pass it over to you. I think a lot of it depends on what your goals are, Cullen. If your goals are to maximize your tax benefits and appreciation, then maybe investing in a market that’s more expensive might actually be a good thing, right? Because historically markets that are more expensive, like California, parts of New York, they tend to appreciate more than some of the more Midwestern or more affordable states. If the appreciation is a big motivating factor for you, then maybe investing in your own market does make sense.
If cash flow is what’s most important to you, then yes, there might be a benefit to going into a market that’s less expensive and can probably give you a better cash on cash return.
I think there are some things to balance there, but if you do decide to go out of state first, read David Greene’s book on out of state investing. It’s a great, great resource for both new and seasoned investors on how to build the team to invest out of state. But second, I think, don’t just chase the markets that are super, super inexpensive, because sometimes you can find yourself in the wrong neighborhood. If you don’t know that state, you don’t know that city, you can find yourself with a property that’s difficult to manage. We’ll bring Ashley on here in a second, Ashley Hamilton, and she’ll talk a little bit about how she’s been able to invest in Detroit, but it’s because she knows that area and she knows how to find the right tenants in that market. So I think if you do go into a market that’s historically less expensive, you really want to do your homework to make sure you’re investing in the right part of town.

Ashley Kehr:
Yeah, and I think a great way to find another one of those markets is to look where other people are investing, and then do your own research from there. Because how many markets are there across the US? There’s a lot. So look where other people are investing, and then go and do your market research from there. Like Tony had said, what is your goal? Is it cash flow? Are these cash flow performing assets? Are you going to be buying properties that are super old on the east coast? We just had a guest on who was buying houses in the early 1900s, late 1800s, and those may come with a lot of continuous repairs or updates because they’re just such old properties. Or, would you rather buy something new and that’s more turnkey? There’s a lot of factors to look at when you’re analyzing a market. I think that it’s 100% doable to go ahead and invest out of the area that you live in. There’s millions of people doing it every day.
Go into to the Bigger Pockets forums and just ask people, “Who is the first person you connected with in a market to start on your team?” It’s most likely going to be maybe a real estate agent, or a handyman, or a property manager that can help you through the process. That’s going to be a crucial part of it is finding your boots on the ground too to build that team for this.
Let’s bring on Ashley Hamilton though, who’s actually going to have a lot to say towards this question, too. I think we’ll provide a lot of valuable information for you guys. Ashley, welcome to the Real Estate Rookie Podcast. Thank you so much for joining us here at BPCON. We’re super excited to have you. You have one of the most amazing episodes on the Bigger Pockets OG Podcast, and you were just recently back on again with that podcast. For anyone who doesn’t know who you are, please tell a little bit about yourself and how you got started in real estate.

Ashley Hamilton:
Absolutely. My name is Ashley Hamilton from Detroit, Michigan, as if nobody knows, right? Because it’s always blasted everywhere. I really got my start I feel like in a very common way, where a lot of real estate professionals are people that want to get started in real estate where they’re at. Obviously a lot of us don’t have a six figure job or corporate America or a rich family we can borrow money to, so I was one of those people that really had to get in really creative. I literally started purchasing real estate using my tax return. I was fortunate enough to be in a market that was more affordable and easy to get into, where if I took a big risk because I didn’t know anything, if I did have a loss or make a mistake, it would’ve been easier to bounce back from because the capital requirements were so low. I chose Detroit as my market, and I started using my tax return to purchase properties.

Tony:
That’s amazing. Because most people, they get that tax return, and it’s like, “What are we buying? What are we shopping for?” And instead, you use it as a way to build your financial future. Can you just give us a quick overview of what your portfolio looks like today?

Ashley Hamilton:
Yes, absolutely. So today I’m super blessed to be a proud owner of 35 doors. They’re all located in the city of Detroit, but because the capital requirements are so low, I have a ton of deals that I purchase all cash. So I was able to have a lot of equity in my properties, and when I started to leverage that, that helped me almost tripled my portfolio in one year. So I’m at 35 doors right now, and cash is always my number one. There’s no wrong or right way to invest. Some people might invest for appreciation. But I really wanted the cash flow because I really wanted to spend time with my children. So that’s where I’m at right now and I’m excited.

Tony:
A lot of investors, they hear Detroit, they think that, “Is it the right place to invest? Is it the best place to invest?” What has your experience been, and why do you think it might be a good place for new investors to get started?

Ashley Hamilton:
Absolutely. My answer’s always yes, it definitely is. So one thing, I know a lot of people when they talk bad about Detroit, they was like, “Oh, you can buy a property there for $5,000,” and they kind of played it as if it was a negative. So even if I lived in California, if somebody got on the news and said, “You can buy a property for $5,000,” I’m going to instantly do some research.
But yes, it’s a great place to invest. We always had the automotive industry, so the big three auto companies, so they’re still there. Now there’s a lot of tech companies coming there, so that’s really improving. But the best thing about Detroit is it’s still affordable. So even now after the big COVID boom and all that inflation, you can still purchase a property all in for about $80,000, and that property will still generate at least $1,300 to $1,400 a month in rent.
The reason I feel like it’s so important, especially for rookies, is because obviously there’s no rule book or a way to do real estate. So if you are new and you’re just wanting to get started and you want that cash flow, it’s not a situation where if you make a mistake and fail that you could lose your shirt. Obviously nobody wants to lose money, but I’d rather lose a couple thousand than $100,000 or something like that. But again, with Detroit, we’re very cash flow heavy. There’s a lot of demand, and especially in Section 8. So I feel like it’s a great market for rookies to infiltrate because it’s so low risk with the guarantee rents and things like that.

Ashley Kehr:
Let’s walk through that process kind of. So you’re recommending that a rookie investor start out with more affordable housing, so these properties. What are kind of the action steps someone can take to identify a market? Maybe they’re looking at other markets besides Detroit. What are some of the things that you looked for to find these $80,000 houses that were generating that amount of rental income?

Ashley Hamilton:
Yes, absolutely. I do have a four step process. But before I go into that, I want to talk to the listeners about, step away from the business a little bit and think about your customer. I feel like as a business owner, even though real estate is a property, it’s still a business, and we kind of go technical. But I always think about my customer. So if you’re servicing an affordable market like Detroit or a lower income market, I’m thinking about who’s going to going to live in this property? So nine times out of 10, it’s going to be a single mother like I was, or a small young family, maybe a husband and wife and one small child.
When I was growing up, my parents always said, “Hey, stay where I can see you. Don’t be running up and down the block, just stay where I can see you.” When I look for a property, the first thing I do is look at the street view. As long as the seven adjacent properties to my subject property is good, that’s one step off my checklist. And again, my logic behind that is the kids, they’re not going to be all the way down the street. So if there is a smaller or a vacant property down the street, as long as the surrounding areas is good, that’s going to be safe for my family, and they’ll have neighbors and things like that.
So number one, when you’re looking in Detroit, the first thing you want to do is look at the street view and try to eliminate properties that have blighted, burnt down, or vacant properties directly next to it. The next thing is you want to check to see what the rental amount is. That’s also going to tell you what the neighborhood supports. On average in Detroit, even the worst houses you can get about a thousand dollars a month. If I’m looking at the average rents, and I do use Bigger Pockets all the time, they have a great rental estimator and it’s really accurate. It’s hard because Detroit normally is not accurate, but I give props to Bigger Pockets for that. So if I can look and see that the rent in that area is going to be $1,000, that’s letting me know it’s a greater area.
Next you want to just check and see, make sure that there’s comps. If you’re going to be all in for $80,000, as long as you can identify one property that’s sold in the last six months for $80,000, that would be the fourth step. After that, I would just reach out to real estate agents, making sure that property managers is readily available in that area.

Ashley Kehr:
That’s great advice, and those four steps you can do in any market.

Ashley Hamilton:
Absolutely.

Ashley Kehr:
So building out your buy box, building out your criteria. If your budget is at $80,000, you’re going to be looking for that. If you have a certain rent to price ratio that you want to meet, then you’re going to look, “Do the rents meet what you’re purchasing the property for?” Then doing the Google Street view, that’s also a great tip, especially if you’re investing out of state and you can’t physically go and drive and actually view these neighborhoods to do that. So that’s awesome.
After you’ve identified the neighborhood you want to be in, what kind of happens next when you’re ready to make an offer on a property? Are most of your deals through the MLS?

Ashley Hamilton:
Yeah, so to be honest, I feel like I’ve been an investor that’s capitalized on the people saying what you can’t do. So you can’t find good deals on the MLS. During my one explosive year where I purchase 11 properties, nine of them were straight off the MLS. I don’t know if it was people weren’t checking there, the flippers weren’t, if that’s how. So for sure you can use MLS, but I’m a firm believer in networking, especially with wholesalers. And if you are really savvy, or if you’re really interested in really exponential growth and profit, really look at properties that need a little work. Doesn’t have to be a full rehab, but if you’re willing to do the work, that’s going to force the appreciation and give you a bigger outcome, especially in a city like Detroit. Because if it’s 90% complete, obviously there’s not going to be any savings on the offer. So for sure, that would be a couple things that I would look for as well.

Ashley Kehr:
Okay. So then what’s your process after you’ve put the offer in and you’re under contract? Are you doing inspections on these properties?

Ashley Hamilton:
Yeah. So to be honest, for sure, I always recommend that every investor get an inspection, but my philosophy is I buy neighborhoods, so just always considering my customer. And just also, if you pick a market, you want to know the statistics. So in Michigan, I know that there’s 30,000 voucher holders that don’t have a place to live because there’s a housing shortage. So I know, okay, great, that could be a market I can service with a Section 8 and guaranteed rent, so that’s why I’m putting my mind in the consumer again. Once I buy the property, I start to look at and analyze properties similar to that to make sure that I’m doing repairs that’s going to make a Section 8 tenant want the property and feel lucky for it. Sorry.

Ashley Kehr:
With that Section 8, I want to go into this because I don’t think we’ve really talked about this before, is what are some of the things that you do to your properties that’s attractive for somebody with a voucher, or even the housing authority likes to see? Because they kind of walk through, because they do an inspection too of the property, correct?

Ashley Hamilton:
Yes, absolutely. So for sure, so to be honest, they do do an inspection, but it’s a really basic inspection. You don’t have to have the nicest property; they just want to make sure that it’s safe. But for me, I want to stand out in my market. I know all the requirements that they ask, and you can easily do that by just reaching out to your local agencies. But I like to go a step over and beyond, because my philosophy is cash flow helps you quit your job, and tenant turnovers kills cash flow. So my goal is to eliminate tenant turnovers. So I know that if every property in my neighborhood is Section 8 and they just have the basic Formica Home Depot countertops, I might go in there and put a granite in there. I might spend $1,400 more, but I have a tenant that’s going to stay three more years, and that’s guaranteed rent. Those are some of the things that I do now.
And then also the cheapest way, if you guys don’t want to commit to the granite, there is these faucets at Home Depot. They’re literally $60. You can also get them on Amazon. And literally when you turn them on, it lights up. I run all the kids when I’m doing a showing to the bathroom and show them that. That $60 faucet has literally made so many Section 8 people pick my properties over other, and it’s not even that expensive.
When you think, always think of the consumer in mind. And me being someone that was on Section 8 when I was younger, and I saw how people treated me and my family. We had the basic minimum. We were never excited to show people our homes. I really want my tenants, whether it’s Section 8 or not, to be excited to show people their homes. And again, that’s going to make them want to stay longer and keeping my cash flow alive. So that’s just some philosophies and a quick cheap tip. Like I said, it doesn’t have to be the granite of $1,400. It can be a $60 faucet that you can put in there that really make an impact and really help your rentals occupy.

Tony:
Ashley, you talked a little bit about your experience as someone who lived in subsidized housing and some of the, I guess, stigma, or maybe the mindset the landlords had about their tenants. I think that is something that happens for a lot of new investors is that there is a stigma around investing in Section 8 or in lower income neighborhoods. Have you found any of those misconceptions to be true or those ideas to be true? Or maybe, what challenges have you seen, and how have you overcome those?

Ashley Hamilton:
Yeah, absolutely. I haven’t found any of those to be true, because I truly believe that no matter if you make a $100,000 a year or $100,000,000, or $10,000 a year, because I’ve probably been a little bit of both of those, you’re still human. At the end of the day, I’ve had people that work at making $100,000 a year at a factory that won’t pay me rent at all. So it’s really the judgment of character, and just giving people the benefit of the doubt. So for sure, even if you’re having Section 8, a lot of landlords, they’ll skim on their criteria or their screening process because they’re thinking it’s the guaranteed rent, and they just overlook that there was already red flags. So now when they get the tenant, they’re like, “Oh, these tenants are bad. All Section 8 is bad.” But no, you didn’t do your proper screening because you just automatically assumed now that would’ve just happened regardless if it was the government assistant or a regular paying.
It’s definitely important to do screening no matter where your tenant is coming from. Just some of my obstacles, again, it’s just showing that my prospects that, “Hey, I’m human. I’ve been there before.” I think that really resonates with them and let them support me more, and kind of remove me from the big old evil landlord like I guess some people would think of it, because they know I’ve been there before and things like that. So that’s really helped me.
But again, I feel like just kind of removing the business like straight and narrow, and being understanding and say, “Hey, listen, I know you’re a single mother, but don’t worry. If you stay here three or four years, I have connections with a great realtor, and maybe I can refer you to a home buying program.” So letting them know that, “Hey, as long as the communication is good, I’m here to help you,” that really has helped me in my journey as well.

Tony:
Yeah, I think it’s kind of an unfair characterization to say just because someone makes less money that they’re less of a qualified person to rent your property, right?

Ashley Hamilton:
Yes.

Tony:
A lot of times, someone on a voucher program, Section 8 or otherwise, they might be your best tenants because they know that there’s a long line of people waiting behind them to get that unit. So it’s like, “If I know if I disrespect this place, or if I’m not a good tenant and I lose this voucher, where am I going to go?” They’re almost incentivized to be your best tenants because of the value that comes along with that voucher program.

Ashley Hamilton:
Yes, absolutely. I agree. And they stay longer too, typically. And especially if it’s a nice place where they’re just bragging to their whole family they never want to leave. I feel like also what I’ve noticed is the nicer I make my rentals and the care that I show, the tenants reciprocate that as well. I mean, some of my tenants have better grasp than me. They’re hiring companies, and I’m like, “Wow.” But they saw the care and respect that I put into the property, and they see me grinding and in the business. They reciprocate that with the property.

Tony:
You talked a little bit about your screening process. Can you elaborate on what that looks like?

Ashley Hamilton:
Yes, absolutely. This just is based off experience; obviously every market is a little different. But early on what I would get, the people that worked at the Big Three and the automotive that I just thought, “Oh, they’re so successful.” They would come in and they were the worst payers. I don’t always just shoot for the income situation. My number one criteria is previous rental history. I feel like if you’ve been renting a property for five years and you move into my properties, chances are you’re going to continue to do right. If you don’t have that rental history, that’s when I kind of look deeper into your credit to try to build up that, see how your payment history is. But my number one is previous rental history. Obviously you want to make sure they can afford it because you’ll be doing them a disservice just as much as yourself if every dime they get has to go to rent. I also make sure that their income is three times the rent amount. And then also, I really don’t like people that had evictions in the last three years.
That’s typically my biggest criteria. So no evictions in the last three years, must make three times the rent in income, and have previous rental history. Now, if it’s a Section 8 tenant, then the income aspect, it’ll just be three times whatever your allotment is. Some people, their rent might be $1,600, but they’re only paying $300. So as long as they make $900 a month, then that would be a good candidate.
But if you all can notice, I didn’t really say credit. And again, obviously if you don’t have rental history, then I look at the credit. But I do realize that even though credit is good, but if these people had a 700 credit score, a perfect employment history, they’ll probably be buying a house. They wouldn’t be looking. So I always wanted to be a little bit lenient on people who didn’t have the best credit, but as long as they have demonstrated positive pay history with their previous landlords, that’s the biggest referral I can get.

Ashley Kehr:
What kind of software are you using, if any, to manage these properties?

Ashley Hamilton:
Yeah, so if I told you guys what I do, you all would think I’m a crazy person. I’m definitely blessed. I’m hoping to be able to use software and stuff, but it slows me down. So to be honest, I’ve been running my businesses on spreadsheets. But for the last six months, I have been using Building, the property management software. I’m going to sit here and say it live publicly. Don’t use spreadsheets, just invest. It took so much time to set it up. I’m not going to lie, it did take three weeks of me really getting in there. But now that it’s going, it’s literally the best thing. If it’s just one or two units, you can do it on spreadsheets, but I highly recommend you using a property management software.

Ashley Kehr:
Yeah, I was in the same boat too. With anything really, my businesses, I waited too long to implement it.

Ashley Hamilton:
Yes.

Ashley Kehr:
Do it now while you’re a rookie investor, and put it in place and build your systems up. You can change them as you move along, but starting from the beginning, instead of when you have, how many doors do you have now?

Ashley Hamilton:
35.

Ashley Kehr:
Yeah, trying to onboard 35 units does take a long time and it’s time consuming.

Ashley Hamilton:
Yes, for sure.

Ashley Kehr:
What last piece of advice do you have for us for rookie investors? What would be your number one thing?

Ashley Hamilton:
I know it maybe sound cliche or maybe something that you guys would never thought, but to be honest, it’s really getting crystal clear on what you want. I can’t say that enough. I know it seems easy, but it’s really important. Because I’ll get people that call me up and say, “Hey, I want to be an investor. I want to quit my job in three years, so show me how to flip properties.” That right there says you’re clearly not clear on what you want. Because even though I love flipping, flipping is not a means to quit your job, right? Because you are using that $40,000 in profit, which really turns into $30,000 once you have to pay Uncle Sam that everybody forgets about. That profit, you’re going to use that to sustain your life. So just really getting crystal clear.
Now, maybe you do want to be a flipper, and that’s totally fine because you’ll get the experience. But if you want to quit your job, you’re going to want to look for cash flow. I feel like that’s the number one thing, is getting crystal clear on what you want. Because a lot of us think like, “Oh, we want a hundred doors,” or, “We want 20 units.” But if that’s not your goal and your goal is just to quit your job and have a better cash flow, then that’s probably what you want to go after.

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

Ashley Hamilton:
Absolutely. They can reach me on Instagram at @Detroit_Investor. I share tips and show a lot of my rehabs right there, and truly just here to help and give back. I’ve been so grateful for the Bigger Pockets family and literally just this whole community. I’m so passionate about giving back because you can do this, guys. It doesn’t have to be complicated. It really is simple. You just want to figure out what you really want and find people that are doing it. Shoot them a DM, right? Instagram is so good. Or just social media in general, because you have opportunities to DM and email your mentors and people that you might want to seek guidance from. Instagram is definitely the best place, @Detroit_Investor.

Ashley Kehr:
Well, thank you so much for joining us live from BPCON. I’m Ashley @wealthfromrentals. He’s Tony @TonyJRobinson. Thank you guys so much for listening, and we’ll be back on Wednesday with a guest.

Speaker 4:
(Singing).

David:
This is the BiggerPockets Podcast, show 693 buying equity. This is when you buy below market value and when you combine all this together, you start getting home runs, go after properties that you can buy equity in. So you bought up the low market value, you then added equity too through some form of rehab. You then change the way that you used it, which increased the value as well, changing it into a short-term rental, something like that. And you do that in an area that’s growing. Then you watch your return on equity and once you’ve accumulated a decent amount of equity like that, sell it and 1031 into something that cash flows naturally like an apartment complex. What’s going on everyone? This is David Greene, your host of the BiggerPockets Podcast. And I just realized I’m getting much better at these numbers that we flash up every time we do this that used to be a pretty hard part of the show.
But with everything else, the more you practice it, the better you become. And I want to help you guys practice getting better at building wealth through real estate because it’s freaking and fun. Today’s episode is Seeing Greene episode where you get to look at real estate through my eyes, but not just mine because I brought in some help, several other different BiggerPockets personalities and authors are here to help answer questions from the people like you that are listening, give their advice on how to build wealth. And I chime in with that. So what can you expect from today’s show? Well, an amazing topic was the time value of money that Dave Meyers gets into. And I throw my two cents onto how a dollar invested today is worth significantly more than that same dollar invested 10, 15, 20 years from now.
You definitely are going to enjoy that. We clarify what a HELOC is, how to use it when it’s good, and what’s actually happening as far as the type of loan that you’re getting. We talk about buying for equity and then converting that money into cash flow as opposed to buying for cash and then trying to store up all the wealth that comes from that is actually much easier to create equity and then turn it into cash flow than to just start off trying to get cash flow, which is a thing that many experienced investors figure out later in their career. And I’d like to introduce you to that earlier in the career. All that and more. We also have a live guess with the unique situation and you’re really going to enjoy hearing the problems that they’re having and the advice that they are giving.
Today’s quick tip, the sale is almost over BiggerPockets Cyber Monday Sale is November 28th and everything is up to 60% off. This includes the not yet released book, the Real Estate Rookie: 90 Days to Your First Investment, which is available for pre-order until tomorrow. Please note the author name codes that you are hearing on this and other episodes will work for every other time of the year, but they don’t work during this sale because the discounts are way bigger than 10%. And if you’d like to get your hands on a copy of the Real Estate Rookie: 90 Days to Your First Investment, which is a book that has not yet been released written by Ashley Kehr, you can also pre-order that by going to biggerpockets.com/store.
All right. We’re going to get to our first caller, but before we do, I’d like to ask, if you’re listening to this on YouTube, please open the comment section and have your thumbs and fingers ready to type something out for me. Let me know what you’re thinking. If you were to want another book from me or another, couple books, tell me what you would want them to be written about. What would you want the title to be? What would you want the topic to be? What do you want to hear more of from me? And I’ll work on writing a book on those topics. All right. Let’s get to our first caller. Okay, I have no idea what we’re going to be talking about. So do you have your question lined up or do you…

Erin:
Yeah, so I had sent, so basically a year ago I bought a triplex in Savannah in Georgia, and I had been listening to the podcast for a couple of years. And originally, I was planning on buying in Florida and then the pandemic happened, and all the prices went crazy with everyone moving to Florida, buying everything up. A girlfriend of mine was buying in Savannah, and she said, here meet my realtor. And she was awesome. So I started looking at places. I checked out three or four and we settled on this triplex. So I closed on that last year.
So it’ll be a year in December, which is amazing. It’s got long-term tenants, its cash flowing for me nicely. But being a foreigner, I had to put down 25%, which was $110,000 plus closing costs. So it’s a fairly decent chunk of money and I think as a foreigner, from what I’m understanding from the lenders that I’ve been speaking to since then, speaking to a couple at the moment, trying to see what the different requirements are going to be, everyone’s more or less still going to want 20 to 25 to 30% from me.
And I’m wondering if there’s ever going to be any circumstances where that’s not going to be the case. At some point in time in my journey, if I buy a few more properties and I prove myself with my longevity and paying everything in the correct manner, that they’ll say, okay, well you are proven and we’re going to expect less of a deposit for you. Or if there’s any other foreign friendly lenders out there that I’d be able to get in touch with that wouldn’t require so much. I have plenty of reserves in Australia. I do meet all the requirements. The mortgage that I got is here in the US through my own industry, through the marine accountants. They hooked me up with someone here, so that was all great. I’m just wondering what to do next as well. Do I keep saving until I can put down another $110,000 and then go with your sort of stacking method and do another triplex or a quad or a couple of duplexes or something like that?
Because I want to keep building, my primary goal is to create as much cash flow for myself because I eventually want to be able to supplement my income. I want to be able to step back from working as much as I do. I work 16-hour days for months at a time, sometimes long periods away from my family. I want more family time, I want more time for myself to have a personal life and I’m just trying to figure out what my next best move is. And I’m trying to figure it out by myself, and I so appreciate your time. I didn’t expect to hear back from BiggerPockets. This was special.

David:
Well, I’m glad to hear that and this is a very cool story. It sounds like your biggest challenge is how do I continue buying real estate without having to put a $100,000 down every time? Is that the gist of what your problem is right now?

Erin:
Yeah, because I like small multifamily that makes sense for me. So do I do keep doing that saving so much or… I listen to an episode today and he’s talking about creative financing, so I need to maybe learn more about that.

David:
Well, everybody talks about creative financing. It’s always like, “Oh, you don’t have money, go do this.” In practice, it’s much more difficult than how it sounds when you hear someone talking about it. Let me ask you before we get too deep into this, what are you doing for work?

Erin:
I work as a stewardess. I’m the chief stewardess on a private motor yacht that’s based here in the US, and I’ve been traveling a lot this past year. We’ve just gotten back from Alaska. I’ve been at sea since August. It’s October now. So I’ve been working in and out on this vessel for the past six years and I’m just trying to figure out how to supplement my income or how to increase my income with rental properties so then I can keep putting down more money and eventually be able to step away from this and have a life again.

David:
Okay, so here is my personal take on the situation you’re in. This is probably the biggest hurdle for the average stereotypical American investor. It’s the down payment. You got to figure out a way to make more money or put less money down. At a certain point you will start to see this, your properties will be producing more equity, which becomes the down payment for future properties. It’s very slow going at first and then you hit a rhythm where you don’t have to worry about capital because it’s coming from stuff you bought eight, nine years ago. It takes a long time to get to that point. So at that stage in your investing journey is kind of where we’re starting right now. The short answer is there’s not going to be a lender who lets you put down less than 20% just because you have a good track record.
In fact, 20% is like the least you could probably ever expect to pay. My company had a period of time where we were getting 15% down for investment property. It’s kind of nice. It doesn’t last forever. It comes and it goes 20% usually your minimum and 25 to 30 becomes what they actually want. So the question is how do we get to the point where that isn’t a problem? Because you’re not going to do better than that and in other countries it’s actually worse.
One solution is if you become a good enough investor, you can borrow money from other individuals. That’s a form of creative finance. We would call that private money lending where you go to someone else, another person you work with who’s got 75,000 sitting in the bank and is doing nothing for them and you say, I’ll pay 8% on that money. And you take it and that becomes the lion’s share of your down payment. Once you have a track record and you feel very comfortable with the specific market, that’s one option you can use. Another one is going to be called house hacking. You familiar with that phrase?

Erin:
I think I’ve been listening to all of the strategies, and I think that would work I suppose except for I live on board this yacht and I don’t pay any rent. It covers all my expenses. I suppose I could set it up, so it was going to be my house and I was living in it, but I’m still living on the boat. But then renting out the other spaces.

David:
That’s exactly how we would do it. So I’d have you reach out to us, we would figure out which area. Where are you currently making home? Do you have a city?

Erin:
I spend quite a lot of time in Florida because we are loosely based here. I’m in Fort Lauderdale at the moment, but Savannah-

David:
That’s where I’ve been buying real estate. That’s funny.

Erin:
Nice. Well, I’m just getting ready for the boat show. So it’s going to be a busy week. But I bought in Savannah, Georgia and I love Savannah for lots of reasons for, like short-term rentals for medium term rentals, traveling professionals, film and TV crew, yacht crew. I think it’s a great market for that. So I’m wondering if I should be trying to get into short-term rentals and single family or something and then perhaps just generating cash flow like that to make myself my money for my next deposits.

David:
Well, the reason I ask is because the city that you make, your hometown will dictate where you’re allowed to buy with a primary residence loan. The reason we want to get you a primary residence loan is you can put three and a half percent down, 5% down. You have options that are not this 20%, a $100,000 you’re struggling with. If you could get by putting $20,000 down, you could buy a lot more real estate. You could start to build that equity that you could then tap into later to put towards these bigger deals you’re used to. So let’s say for instance that you bought something in Fort Lauderdale. There’s a lot of travel that’s going there. That’s why I’ve been investing there. We get you a loan as a primary residence loan, you buy a property, you rent it on Airbnb when you’re on the boat, you manage it remotely or you find another person that will manage it and then when you’re going to be staying in town, you just don’t book it.
You live in the house, then you’re leaving again. You put it right out there. I think this is a fantastic way of balancing… It has to be my primary residence, but I also want to make income off of it because nobody’s like someone like you, you’re not home very often. So why have it sitting there vacant? You rent it out. Now obviously there’s things you’d have to do, you’d keep a separate owner’s closet with separate linens and stuff so that you’ve got your own things there. There’s also properties you could buy where what I do in Fort Lauderdale is I buy a really nice property that has a garage because as you know, not every property out there has a garage. I will convert the garage into a separate, like a one bedroom or a studio apartment. You could stay in that, and you could rent out the main house.
They would never know that’s your primary residence. You wouldn’t have to share space with any of those people. It’s not that expensive compared to putting a 100,000 down on something. That’s a strategy I would recommend you look into. And the last one would just be the BRRRR strategy. That’s one of the ways that you don’t have to keep dumping a $100,000 into deal after deal. If you can go find a fixer upper in Fort Lauderdale, convert the garage, make it worth more, maybe you got it at a really good price because right now you’re seeing that the prices are coming down in a lot of areas. Like I was at an Imperial Point, that neighborhood a couple, couple weeks ago, looking at properties out there. You do that, you make it worth more, you refinance it into a primary residence loan, you get a big chunk of your capital back.
You’ve got a place you can rent as a short-term rental, and you can live in the studio by combining all of these methods together. You can make this work. You’ve got the primary residence loan, you’ve got the BRRRR method, you’ve got converting the garage to make it worth more. And now you don’t have to share space with somebody else. If there are people that you trust, other stewardesses that you work with, maybe that they’re on a separate, maybe they miss this trip, they’re stay at home. You can rent it out to them while you’re, you’re out there. And then this is nice to repeat because you can do it every year.
I think this is just my opinion here. Erin, this is the future of investing for that amount of demand we have in the real estate market in the United States and the lack of supply. People have to get used to the fact that they’re going to need to buy a house as a primary residence and make it work as an investment property. Gone are the days that just go buy a triplex and never have to think about it. They’re so expensive, there’s so much competition for them. You have to be able to think creatively. So what are you thinking after hearing that?

Erin:
I mean I think that’s fantastic. I didn’t realize, I suppose that I would qualify for anything like that. Being a foreign, I thought that those sorts of loans just wouldn’t be available to me because so far all I’ve discussed I suppose is real estate investing properties for rentals. And these were the terms that I needed to meet, and I just assumed that that was going to be across the board always. But if I could qualify for something like that, that’s definitely a strategy that I would be so into doing. And I know that I could run an Airbnb. I mean I run a super yacht. So for me, I write checklists all day long. I have daily weekly task list. I manage a team of cleaners and guest interaction and high-end service. So that’s something for me, that’s my skillset, that’s where I live.

David:
And that’s why I asked about your job because literally the way that you invest should be a reflection of the skill you have. And most people’s skill set was developed at their job. So you just telling me what you did, answered so many questions that I would’ve had. It tells me that you’re organized. It tells me you’re not afraid of a challenge. It tells me you’re used to having to think ahead and anticipate what could go wrong. It tells me you’re not unfamiliar with a schedule. All of those things are like you said, exactly what it takes to manage a short-term rental.
To you this will be easy. To the person listening to this who’s never done a job like that, it would seem daunting to have to try to manage a short-term rental. And so the advice I’m giving you is going to be geared towards what I think you’d be good at. And in fact, I think that you might be someone who could manage properties for somebody else in the future. You may be managing my short-term rentals because I think you’re just going to be like, “Yeah, this is so easy.”

Erin:
I would love to mean eventually-

David:
Prepare to be in on a super yacht, right?

Erin:
I love it. It’s been such an incredible adventure. But event, I do want to step back from it at some point in time and beyond that life, what is there for me? And I feel like that is the natural transition for me into managing rental properties, having my own and I want to set myself up for the future so I can actually afford to travel I want to and not on someone else’s time. And I can go home and see my family more often than every two years or so.

David:
Yeah. So here’s what you got to keep in mind. That is a worthy goal. Don’t buy in any hype that it’s easy to get there. That if you just buy someone’s course in six months, your goal will be completed because that’s a worthy goal. It’s going to take a lot of effort, a lot of sweat equity, a lot of challenge, a lot of emotional sacrifice to get to that goal. But once you get past that first maybe six, seven, eight-year period of time where you’re grinding stuff just starts to fall in the place and becomes so easy. It’s not a linear progression, it’s an exponential. It will feel like you’re not getting anywhere. And then you hit this inflection point and it starts to take off. So I would recommend first off, reach out to us. We will figure out how you could get a primary residence loan as a foreign national, which lenders are offering that, what programs are available?
Then we’ll come up with a strategy like what we just said by a short-term rental that you can live in when you’re there. You’re not there very often, so you’re going to be renting it out, you’re going to be making some money from that and then scale that every year. Every year you get to buy another one of these primary residences. And then in addition to that, once you get pretty good at it, you can probably start borrowing money from other people who don’t know what to do with their money. They’re getting 2% interest on it, maybe they start lending it to you. You pay them 8%, 10%. Now you’ve got your down payments figured out and you can start to scale pretty good.

Erin:
That all sounds so good. I love it.

David:
All right, well thank you Erin. We appreciate you being here and bring in this question. We’ll make sure we stay in touch.

Erin:
Yeah, thank you so much for your time. It was an honor. Enjoy the rest of your day. Thank you, David.

David:
All right. On this segment of this show, we review comments left by people who have commented on the BiggerPockets YouTube channel from previous shows. Our first comment comes from Randy Robinson Knight. I absolutely love this market. I have agents sending invites for brunch, champagne, and gift card offers. That is hilarious. It’s absolutely true. When the market gets tough, you start seeing agents and loan officers spoiling you a little bit. Take advantage of that. Our next comment comes from DDREI mentor. When I’m finding in Chicago is a lot of agents are removing listings and re-listing somehow removing the old price. You can’t easily see how long it’s been on the market, and you can’t see how much they lowered the price. I just keep seeing new listings of stuff I saw in May, and it will say that’s been on the market for two days with a listing history that has all blank prices.
All right, so DDREI mentor. Here’s what’s going on with that. When a listing agent puts a house in the MLS, there is a timer that starts that we call days on market. Houses have the most leverage possible when they first go on the market and then every day that they sit there that don’t get a buyer, they slowly lose leverage. It’s very rare you will ever find a house that’s been on the market a 100 days that’s going to get an over asking price offer. But it’s very likely if someone writes an offer two days in that they’re going to get an over asking price offer. So agents have figured out some kind of sneaky ways they can make it look like this house hasn’t been on the market for a long time and it’s not stale product. Like every good homicide detective knows your chances of solving a murder significantly decrease after the first 48 hours.
So real estate agents have just learned, let’s keep restarting a new 48 hours by taking it completely off the market, waiting a predetermined period of time and putting it back on the market. They’re making it look like it’s a new listing and that will help their clients in several ways. For one, it gets rid of that timer that was counting, making it look like it’s a house that nobody wants for. Two, it hits all the buyer’s email lists again as a new listing. So once you’ve seen all the new listings, the MLS stops sending you the stuff you’ve already seen by taking it off and putting it back on. It gets in everybody’s inbox again as a new property. And it also allows a listing agent to say, oh no, no, no, that offer’s not nearly good enough. We’ve only been on the market five days.
You’re going to have to do better. Here’s my advice to you. Who cares what the cumulative days on market or the days on market says or what the listing agent says? Write the offer. You’re willing to pay for the house, follow up with the agents to see if they’re willing to take it and continue that follow up eventually when no one’s buying this house, the sellers are going to take the offer that they don’t like because it’s not about the offer that they want. It’s about the best offer they can get. And every one of them eventually gets to the point where they realize this is the best offer I’m going to get, so I might as well take it. You want to be the first person in line when that happens.
All right, next comment comes from New Way Home. Excellent chat guys. I can almost imagine home buyers dancing and excitement with watching this keep up the good work. Well, I hope so, because home buyers for a very long time have not been able to dance about anything. They basically just had to take a deal that they didn’t like and pay way more than they wanted to and sort of put their tail between their legs when they got the keys to their new home, and they couldn’t be excited and just eat it. Well, that’s how it started. At least until three or four years later when they have over a $100,000 in equity in that property that they didn’t do anything to earn other than just wait. It’s one of the ways that the market cycle works. When you’re very rough to get the deal you like, you usually end up really liking that deal three, four, five years later when you love the deal you got right away, you probably aren’t going to have the same upsides so that yes, buyers right now are dancing in excitement.
It doesn’t mean that they’re going to be just as happy in five years if the market continues to stay where it’s at. There’s no right or wrong way to do real estate. There’s just the way that it’s working based on supply and demand and we hear a BiggerPockets want to give you the information to play the game based of what the defense has given you. Our last comment comes from Charles Granger. This video seems dishonest and geared towards bulls. I don’t think they’re appropriately displaying risk to investors. Additionally, you comment about your deals to display authenticity slash authority, but you have a different means of acquisition than the traditional investor. All right. Charles let’s start with different means of acquisition. I’m still using money just like everybody else is, so that’s not any different. I’m not buying properties, I’m not like finding properties off market.
I think that there’s some people that are doing that and they’re like, I just got this million-dollar house for $500,000 because they spent two years and a bunch of money sending out letters to find the deal of century. I’m not doing that. Almost everything that I buy comes right off the MLS just like anyone else. If what you meant that I have different means of acquisition is that I have more money than other investors, that could be true. I mean I definitely have don’t have more money than all of them. I have more money than what you’re calling a traditional investor. If you’re assuming it’s a person who’s just getting started. But I don’t think that’s a traditional investor that’s a newbie trying to crack into the game.
Most of the money that I have comes from properties I bought previously that I refinanced or pulled equity out of to buy the next round, which meant I bought and waited, which nobody wants to do or from businesses I started where I helped other people build wealth through real estate representing them as a real estate agent or a loan officer, which other people don’t want to do.
So rather than being mad about it, why don’t you just take my advice and do the same thing for yourself. Start a business in real estate or buy some real estate and wait and then pull that money out to buy more properties. Regarding the part where you’re saying you don’t think that I’m appropriately displaying risk to investors. I don’t know how to, because there’s two kinds of risk. There’s the risk of buying a property and then losing it because you couldn’t make the payment or there’s the risk of not doing anything and missing out on all the money you could have made. I want to just bring up a point that nobody really likes to talk about, but it’s very important. Let’s go back in time to 2014. Everyone’s telling you that the market is too hot. Now let’s even go forward. Let’s go 2016. The market’s even hotter and everyone’s saying don’t buy.
There’s no way that this can continue. The prices have to come back down. We just had a crash. Another one is coming, and you don’t buy a house. The money you lost from not buying in 2016 to 2022 is so much more than the money that you could have lost if you bought and then the market went down some. One of the cool things about real estate is that even if the market does go down, we still continue to collect rent, so we don’t lose the property. So there’s risk on both sides. We just only tend to focus on the part of risk that would lose something we already have. I’ll give you a little example of this. Let’s say I said to you, there’s an opportunity for you to make $200. It’s just about guaranteed. You got to drive four hours in that direction, pick up your $200 and then drive back home.
And it might be a little bit difficult. They’re going to ask you to do some pushups when you get there, but other than that, the money’s yours. And then I said, on a scale of one to 10, how urgent are you looking for that opportunity to go get that $200? Would you be like, whatever it takes, man, I’m going to fight through a hungry cage of tigers to get to my car so I can go get that money. Probably not. Most people would consider it, but they wouldn’t jump at the chance. Now in this same example say hey, there’s somebody in your office right now stealing $20 out of your wallet. You’d probably do anything in the world to get there and fight like hell to keep that $20 from being stolen from you. Why do we put so much effort into saving $20 but not into gaining $200?
I don’t know myself, it’s a thing of human nature. I don’t work any different than that, but I do want to call attention to it because oftentimes when we talk about risk, we’re only talking about what could go wrong. We’re not talking about missing out on what could go right. Think about this advice and anything else in life. Don’t go talk to that girl, man. She might not like you. It might hurt really bad. There’s risk involved in putting yourself out there. Don’t go tell her how you feel. Well yeah, there’s some risk you could get rejected, but consider the risk of spending your whole life never being with someone that you really, really love and always wondering what that person did. Which of those things is riskier? The last part is when you’re saying it’s dishonest and geared towards bulls. No one knows if this is a bull or a bear market.
I’m very, very clear with explaining to you guys why I think what I do, not just what I think. Do I think the market’s going to continue to go down? Yes. Do I think it’s going to be long-term? No. Do I think it’s natural? No, I think it’s artificial. I think we’ve raised rates artificially to slow down the market. It has worked, it’s pushed prices down, but it hasn’t necessarily pushed affordability down because the Fed isn’t doing this for real estate investors or for real estate. They’re doing it for the economy as a whole. And lastly, I do believe very deeply that when rates come back down, the prices are going to shoot back up and I don’t want people to miss out on that. So I hope you guys don’t think that there’s anything dishonest about the information that we’re giving you here. I do tend to have a bullish outlook on real estate long-term because when I look back for 500 years, that’s all it’s been.
Is this been going up constantly when I see all the money that’s being printed, I think it’s going to continue even more. Only time will tell, but I will say this, in order to protect against your downside, I’ve said it a million times, I’ll say it again. Keep more money in reserves than you need. Do not quit your job right now. Continue to work and continue to save and by smart cash flowing deals. All right, we love it, and we appreciate the engagement, even the negativity. I love that stuff guys. If you have something negative to say, if you’re sitting there grumbling saying, David always says to buyer, David says not to buy these markets, but I like these markets. Whatever it is, it’s okay. I’m not mad. I want to hear what you have to say. It actually leads to a better discussion and more depth being shared as to the inner workings of what makes wealth being built. And I want more people to hear it.
So please get on YouTube right now and tell me what you like and what you don’t like. Tell me what you don’t agree with. Tell me what questions you have that are not getting answered and we will do our best to address those on a future Seeing Greene episode. All right, our next question comes from Dave Meyer answering Travis in South Carolina.

Dave:
Hey, what’s going on everyone? My name’s Dave Meyer. I’m the host of the BiggerPockets Podcast on the market and I am the author of the new book Real Estate by the Numbers that teaches you to analyze deals like a pro. Today I’m going to be answering a question from Travis who invests in South Carolina and his question is about the time value of money. Travis writes, I am in the process of rehabbing a two bed, one bath home that I plan on renting out after this rehab. I’ll be totally out of funds making me unable to purchase another property that could come across my radar, thus losing money, which is why I bring up the time value of money. So my question is, should I free up funds now in case some great opportunity presents itself in the future? I generally don’t know that I want to do a cash out refinance because of rates going up.
And what if the deal never comes? It took me nine months of searching, waiting to get hold of this property and it’s hard to justify doing a refinance when there’s no guarantee I will find a property to invest in anytime soon. But at the same time, the house I’m rehabbing now has a 6.5% interest rate. So I suppose it’s definitely a possibility of burring this one and getting my cash out and keeping a relatively similar interest rate. What do you recommend? So Travis is basically in a BRRRR right now and is facing two options. He can either take the equity that he has generated by improving the property and leave it in the current deal, earning him some cash flow, or he can take the option of doing a refinance where he takes the money out and then hopefully invest in another deal. But as Travis says, he doesn’t know if he’s going to be able to invest in a good deal right away.
And he asks about the time value of money and how you analyze this question through the lens of the time value of money. And if you’ve never heard of this concept, it’s a little bit complicated, but the easiest way to think of the time value of money is that money that you generate now or that you have now is worth more than money that you have in the future because you can reinvest it. So as investors, we shouldn’t just be thinking about how much money can we generate by a deal. You want to think about how much money can you generate as quickly as possible. You want to get those returns and pull them up as close to now as you can so that you can reinvest them at a high rate of return. And so with this question, you basically have to determine which option between keeping your money in the deal or refinancing is going to generate you more cash faster.
And there are metrics that take the time value of money into account. You can do a discounted cash flow analysis, you can do a net present value or IRR, which is a very popular metric for real estate investors. And you can measure which one of these options is going to earn you the better return with the time value of money factored in. But just as with the math aside, just logically, what I would recommend doing here, Travis, is you should go out and see what kind of deals you can get right now. I’m sure you have a real estate agent, contact them and go run the numbers on five or 10 deals and figure out if you were to even before, don’t do the refinance, but just pretend that you’re doing the refinance and go run the numbers on five to 10 deals and see if that option would earn you a better return than keeping your money in the deal.
Because I generally don’t recommend pulling money out, especially at a higher interest rate to just sit on it because you don’t know if you’re going to get a deal. So the only reason I would refinance if I were in your position is if you knew that you were going to be able to reinvest that money at a higher rate of return than you’re earning with your current deal. Hopefully that helps Travis appreciate the question. Now I’ll throw it back to David.

David:
Man, that was some good stuff. I want to make sure we don’t gloss over. This idea of time value of money is very important. There was a lot of big words that were used there. Dave Meyer is obviously a data guy, so I want to make sure that people who are not data people don’t just have their eyes gloss over and say, I’m going to wait for something to be said that makes more sense to me. Here’s another way of looking at time value of money. We’ve all heard the story of would you rather be given a million dollars or a penny every day that doubles. So you get one penny the next day it’s two pennies and it’s four cents, then eight, then 16, then 32 and it goes on and on and on. And basically, right around the time you hit like day 30, it’s a whole bunch more money than a million dollars.
That is a story to illustrate the power of compound interest. When you invest money, and it compounds, and you reinvest the money that was added and that gets invested even more comes back and it grows at an exponential rate. Albert Einstein was once quoted as calling compound interest the eighth wonder of the world. To be fair, I think Albert Einstein is credited for saying a bunch of things that who knows if he ever said, but it’s still true that it’s a pretty impressive thing. If you want to understand the time value of money, here’s a good way to look at it. If I was to give you a penny on day one, would that be worth significantly more than a penny on day 27 of this 30-day compounding slide, right? Obviously, the penny is worth a lot more the further back you go and that’s what the time value of money is really trying to demonstrate.
If you invest your money at 15 years old, 20 years old, and it keeps doubling, that’s massively more powerful than doing the same thing at 80 years old because you’re going to die before the money has time to keep growing. And that’s all that the time value of money is really getting at. So from a overall perspective, that’s what I want you to take out of this video. Now, from a tactical perspective with the person saying, “Hey, I don’t buy deals very often. I really, really, really look for the perfect deal. It took me nine years to find the house I have.” If I do a cash out refi, the downside is I lose my good rate, so the property becomes more expensive. The upside is I have more money to invest, but the upside isn’t worth anything to me or it’s not worth much because it takes me nine years to buy a property.
So I see that the dilemma that this person’s in, here’s the advice that I would give. Put a HELOC on the property that has the equity but don’t pull the money out. Okay? Start looking for properties. Hopefully it doesn’t take you nine years to find the next one. Maybe you’re more comfortable. So it only takes four and a half this time find the property and then buy it with the money from the HELOC. Put that as your down payment to buy this new property. Now, you’ve got two properties, okay? Once you’ve got the second property bought, now refinance the first property that has the HELOC on it to pay off the HELOC. So do your cash out refi, pay off the HELOC and your original note, get the money back that compensates you for the money that you took out on the HELOC that you put into the next house.
This way the money doesn’t sit in the bank doing nothing for you while you’re spending nine years looking for your next house. You have access to it but you’re not paying for it because you don’t pay money on a HELOC until you pull the money out, which you won’t have to do till you find the next property. I hope that makes sense. That’s a way that you can avoid the situation that you’re in, where you don’t have to pick your poison. You’ve got an option that is not poisonous.
All right. I just was contacted by the producer of the podcast, Eric, here with a question that I want to include in the show. So Eric sort of jumped in. He is like, I don’t quite understand exactly how the HELOC works When you’re borrowing money off a property as a HELOC, I know you can get access to the equity, but how is that recorded?
So here’s the simplicity. A HELOC is really just a fancy word for a second position note. So you buy a property worth a million dollars and you put say $600,000 down. So you have a first position lien or a note in first position for $600,000, which means if there was a foreclosure, the first position person gets paid back first a HELOC, let’s say you took out another $200,000 on a HELOC. So you’ve got a first position for 600,000. A HELOC is just a second position note for $200,000. So you’ve got a total of $800,000 of debt against your million-dollar property. You’re still at an 80% loan to value when you go refinance and you say, “Hey, I want to do a cash out refinance.” And they say, “Great, we’ll let you take out 80% of the value of the home.” The money they give you on the refinance goes to pay off your first position note, which was in this case 600,000 at the lower rate and it pays off the HELOC, which was your second position note.
And now you just have one new first position note for $800,000 on your million-dollar property. And the $200,000 that you had taken out originally on that HELOC was the down payment for the second property that you went to go buy, which has now been paid off on your cash out refi. Thank you, Eric for asking for some question there and for helping me bring some clarity. Anytime we say HELOC, that’s just a fancy phrase. For a second position lien with an adjustable-rate mortgage by doing a cash out refinance, you’re turning first position, fixed rate, and a second position adjustable and replacing it with is one loan at a fixed rate that is no longer having the adjustable component. That’s the downside of a HELOC. Our next question comes from, Will and is answered by Pat and I will give my two cents on that.

Pat:
All right. Got a question here from a Will in California. How do I determine the correct amount of equity keyword equity here in this question? How do I determine the correct amount of equity needed to replace my W-2 income so that I can invest in real estate full-time? And how would I restructure my real estate portfolio to provide the cash flow I need in the most tax efficient man manner while preserving as much capital as possible to continue scaling up? And he goes on to say he’s got a duplex, one single family and one duplex both in Texas and he bought both of them with negative cash flow. Rents have increased since he’s bought them, but he’s barely getting any monthly income at this point. He says, I am getting a slight monthly positive on the single and the duplex is still a negative. So this is a great question and I’m seeing this more and more. It’s quite fascinating.
In the years past, people bought real estate based on cash flow and I don’t think that it’s smart to say that that has gone out of style. I think it’s interesting to see that some people stopped buying based on cash flow. I have never bought anything with negative cash flow or break even. I don’t understand the logic behind that, but I’m the one not answer asking the question, I’m answering it. So my answer is you need to get into things that cash flow. You’re in things that don’t cash flow, so get out of them. And here’s a rule for when you know should get out of an investment. If you could sell the property today and make more than seven times what your yearly cash flow is, you need to get out. So what that means is if your yearly cash flow is, let’s say it’s 500 a month and your yearly cash flow is $6,000, if you can sell the property and make more than $42,000, you need to get out because that’s around 10 or 11% return that you’re getting on equity.
And you need to be able to do better than that. When you’re buying these things new, you really should be shooting for 15% cash on cash. Worst case, 10% cash on cash. And what that means is if you’re spending, let’s say a $100,000 as a down payment on a property and you’re making $10,000 a year cash flow, that means you’re getting 10% cash on your cash that you put in. So you’re getting 10,000 out of a 100, you’re getting 10% cash on cash. That’s kind of like your bare minimum. Will, you’re way below bare minimum. You don’t even start above line. I think that you’re never going to be able to quit your job buying houses like this, never the next couple of years. Most likely they’re not going to give you any sort of appreciation like you’ve seen in the last five years.
Matter of fact, you might lose as the next year, two years, go on. If something’s worth 300 for you now, it could be worth 270 this time next year. I mean it’s possible. So you really got to look at this number, the seven X number and that’s going to be the case in both of these because you don’t make enough money on them. I would suggest you selling them and then getting into something that does cash flow. It might not be as close to your house as you want it to be. Might not be in as comfortable as a neighborhood as you want it to be. It might be uncomfortable for you. But first and foremost, most important thing, in my opinion in investing and trust, we have done this for over 30 years now. I have lots of investment is cash flow. That’s what you buy for first and foremost.

David:
Well, that was a journey down at Intellectual Highway, wasn’t it? Lots of good stuff to chew on with that one. That might be one you want to go back and rewind and listen to again. So let’s see. Pat gave some really insightful information about metrics you can use when trying to hit cash flow. Hitting a 15% ROI is very difficult to do in a market like this. My guess is Pat’s got access to some business opportunities and some bigger apartment complexes that are getting him a 15% return based on the internal rate of return. That’s probably not cash flow right off the bat. Now I don’t want to take too much time to answer this question, but I kind of see what’s going on here. Pat’s looking at, hey, if I invest my money in an apartment or something like that, that we’re going to buy hold for five years and sell.
And he’s incorporating all the ways that money are made through that investment, which is what the IRR does, the cash flows, the loan pay down, the selling at the end, the revenue that’s generated from the capital raising, whatever that would be, 15% possible. But most of our listeners are sitting here as you’re hearing this, you’re like, you’re only looking at the cash-on-cash return in year one to determine your ROI. There’s almost nothing out there that’s hitting 15% cash on cash return year one. So don’t get confused by what’s being said here. If you said, “Hey, I’m going to buy a property that rents are going to go up every year, there’s a big value add component to it, I’m going to add equity to it’s going to go up in value and rents are going to go up and at the end of five years I’m going to sell it.”
And you looked at the entire money you made from every single component I mentioned, 15% totally doable. You could do better than that with single family residential property. Like I’m getting over a 100% returns on a lot of the stuff that I’m buying when you look at the internal rate of return. Okay, that being said, that wasn’t exactly the question that was being asked by the caller. The caller was saying, look, I’ve got a W-2 job that makes good money. I want to replace it with investment income. You’re on the right place so far. How much cash flow or what’s the best way to build up cash flow to replace my job? And I think the subtlety that might have been missed was the person asking the question here, Will. Will, understood that it’s very difficult to build cash flow.
It’s much easier to build equity. So I think what will was getting at is what can I buy that will build equity that can be converted into cash flow that can be used to replace my W-2 income. He’s sort of breaking this into a couple steps and I do like that approach. Now, Will mentioned that his properties are not cash flowing really solid. And Pat heard that, and he said that’s not good. You shouldn’t be buying stuff that doesn’t cash. What Will didn’t say is how much equity is in those properties. Pat’s advice might have been different if Will had said they’re only making a little bit of money every month, but I’ve got $200,000 in equity because I waited three years. Rents just haven’t kept up with the value increasing. You see how this changes the scenario that we’re looking at here. So, Will here’s my advice to you.
This is the same strategy that I use for investing myself. Of course, I want cash flow, but I get cash flow, not by focusing on cash flow. You go after equity. There’s several ways you can do it. One is you invest in the right area, which you’re probably onto investing in Texas. So keep doing that by an area that’s going to grow. Number two, buy something that you can add equity to. You can rehab it, you can add square footage, you can improve it cosmetically, you can turn it from a long term into a short-term rental. Anything that will make the property worth more. That’s step number two, three. It’s what I call buying equity. This is when you buy below market value and when you combine all this together, you start getting home runs, go after properties that you can buy equity in. So you bought it below market value, you then added equity to through some form of rehab.
You then change the way that you used it, which increased the value as well, changing it into a short-term rental, something like that. And you do that in an area that’s growing. Then you watch your return on equity and once you’ve accumulated a decent amount of equity like that, sell it and 1031 into something that cash flows naturally like an apartment complex, okay? That’s my advice for you for how to get from, I have a job and I want to replace my income. You’re not going to get it by buying $110,000 duplexes in the Midwest. You’ll be doing that for a 100 years before you get the income that you’re getting from your job. You do it by adding value and equity in properties that still at least break even like you’re doing. And then exchanging the equity for cash flow in the future. So you want to be having both things going on.
You’re doing a 1031 exchange from existing equity into a cash flowing asset like an apartment complex, a triple net complex, a big short-term rental that’s going to make you more cash. And at the same time, you’re buying new properties and you’re adding value to them. And if you do it the way that I’m describing, you will never run out of capital, which was one of the concerns that you expressed. So first off, thank you Will for asking a good question. And second off, thank you Pat for bringing up some really good information that will help everybody else. All right, we have time for one more question and this one comes from J Scott reading a question from Cheryl.

J:
Hey everybody, I am J Scott. I currently own about 50 single family houses all around the country, including in the sunshine state of Florida, which is good because today’s question comes from Cheryl who is asking about buying rental properties in Florida. Specifically, she wants to know about how rising insurance costs in the state along with things like hurricanes and the potential for global warming are likely to impact investors who are looking to buy and hold in various parts of the state. Now, she specifically mentions Tampa, which is on the East Coast, or I’m sorry, the West Coast of Florida and Orlando, which is in the center of the state. Now, why I don’t have a crystal ball to know exactly what might happen in the future, I do agree with her that rising insurance rates over the past few years is making it really difficult to find good cash flowing properties in many parts of the state.
And there’s certainly risk, both short term risk from other storms and long-term risk from things like global warming that Florida might become a really expensive and a really difficult place to invest at some point in the future. Now, that said, Florida also has a lot of things going for it. There’s large population growth coming into the state, which is likely to push rents higher over the next few years, and there’s a lot of building going on in many parts of the state, which means that a lot more housing supply could keep prices reasonable for the next few years. Not to mention that while hurricane damage is horrendous and really has impacted tens of thousands of families, honestly, it does provide some opportunities for investors, especially those investors who are willing and able to do renovations. Now, all in all as a Florida investor myself, my recommendations are the following.
First, ensure that your flood risk before buying any property in the state and make sure that the insurance costs still makes sense given that flood risk. Second, if you’re going to buy in Florida, I would suggest diversifying across different parts of the state so that you face less risk from any single storm or any single weather event. And third, I would highly consider looking at property in the middle of the state off the coasts, which will help reduce the likelihood of storms and reduce your insurance risk. All in all, I believe that there’s a lot of opportunity left in Florida, but I don’t recommend putting all your eggs in one Florida basket. Anyway, thanks so much, everybody. I’m going to hand it back to David now.

David:
All right, thank you, Jay for that very insightful commentary. I’m going to second a lot of what you said and maybe just expand on some of your points a little bit. There’s pros and cons of investing everywhere, everywhere, and it… I get a little bit of a bee in my bonnet if you will, that people tend to ask questions that insinuate that they’re looking for an area to invest in that has all pros and no cons. It doesn’t exist. In fact, if you had the perfect area that had all pros and no, everyone else would be investing there, it’d be very hard to get a deal and that would become a con, right? So a lot of people look for areas with the lowest price point homes that they think are going to get them the highest cash on cash return and there’s no other investor competition.
They end up in areas that have no long-term growth and don’t build any kind of wealth. That’s what I’m trying to get at is you’re always balancing pros and cons. You don’t make wealth by trying to avoid cons. Now, let’s talk about some of the Florida pros and cons. J mentioned several of these things, the pros, massive population growth. Everyone’s moving there. I’ve said it before, if you just took like a table of the United States and you shifted it down into the right, that’s where all the population tends to be going towards right now and I think they will continue to for the future. Long-term population growth means you can expect increasing rents. You can expect a increasing tenant pool. You should have more people to choose from. When picking your tenants, you’ll have an overall better experience. Another pro is that businesses are moving into Florida.
I’m a Florida investor and this is one of the reasons that I’m putting money into that market is I’m watching a lot of businesses leaving New York and going into South Florida and that’s going to lead to increased rents in the future because people make more money and they have better jobs so they can pay more rent, they can pay more for a house, which both drives the price of my home and the rent that I can get for that home up. What else is good about Florida overall? It’s pretty good weather. You get a lot of rain and you do get hurricanes, but you don’t have the snow and the freezing cold issues like pipes bursting that can cause you some problems investing in real estate now, that’s why everyone wants to invest there. This is why so many people are talking about they like the pros, but you got to look at the cons too that Cheryl brought up and J highlighted.
Number one, insurance is ridiculous. It is insane. I’m getting hammered on insurance that is over three to four times as much as what my highest guess what it could be was the hurricanes have absolutely changed the way that homes are insured there. In fact, I have one house that I bought there during a 1031 exchange that blew me away. I didn’t even think this was possible. The lowest quote I could get on homeowner’s insurance for this property. Now it’s a big nice house, it’s near the beach, it’s over a million dollars. It’s 5,000, 6,000 square feet home. But still the premium to insure it as a short-term rental was $26,000 a year. That’s a down payment on a house in some places. So this insurance thing is legit. That’s a pretty big con. Another con, the actual hurricanes that cause these high insurance premiums are real and they do happen.
And that’s why J is saying consider investing in the middle of the state because you get less of that type of activity going on. Now, there’s a con to investing in the middle and you tend to make more money on the coastlines. That’s why we’re looking to want to buy there. We want to be near the beach. So you have to factor that into your choices. Another con for investing in Florida is that it’s very competitive in the best areas. There’s a lot of other people that are trying to buy now, let’s say for Orlando for instance, that is in the middle of the state. It’s going to be safer. Hurricanes don’t tend to hit that part as hard. You do have a good economy, but it’s very dependent on Disneyland. That’s why most people are buying short-term rentals or houses in Orlando. They don’t have a ton of industry outside of Disneyland.
And that makes me nervous. I’m not saying don’t do it, I’m probably overthinking it, okay. But part of my long-distance investing strategy is to not have too much of your assets in any area that’s dependent on one thing for its economic base. Most of the people that are living in Orlando are going to be like Disneyland employees. The people that are visiting it have something to do with Disneyland. Of course, there’s other businesses there, but Disneyland’s the biggest one. What happens if, God forbid there’s some scandal that comes out from Disney executives, knock on wood, right? And it gets canceled, it’s canceled Disney and nobody goes there because now it’s politically unpopular to go visit Disney World. I think I’ve been saying Disneyland, I meant Disney World. You see what I’m getting at? If that park shuts down or people stop visiting there, you now have an investment that no one is trying to use.
No one’s going to our Orlando to visit the swamp. They were going there to visit Disney World. So I get very nervous. I don’t think anyone saw Detroit collapsing the way that it did until it happened. So I’m not saying don’t invest in those areas. I’m saying be aware of the pros and the cons. I think a lot of good ones were highlighted in J’s response. I just want to bring a couple more, but the bigger point I want to make here is don’t get stuck only looking at cons. There always is going to be a con in any area. You’re going to just make sure that the pros outweigh them. All right. That is our show for today and I really hope you enjoyed it. We had another show where I brought in some backup to help answer questions because what’s important is that you guys get the knowledge and the experience that in our heads into yours.
If you’d like to buy one of the BiggerPockets books, simply head over to biggerpockets.com/store and use the discount code DAVID, and you can get 10% off any book that you’re buying there. I’ve got a couple in there to check out and new ones that should be coming. But more important than that, tell me what you think about the show. Go to YouTube and leave us a comment, subscribe to the page while you’re there, make sure you like the video, so the YouTube algorithm knows to keep showing you something along those lines. And if you want to follow me, you can do that @davidgreene24. I’m most active on Instagram, but you can follow me on Facebook, on LinkedIn, on TikTok, I think I’m officialdavidgreene and at YouTube I’m @davidgreene24. And I forgot to mention that tomorrow is Cyber Monday. So that 10% discount code that I worked will work at any time except for Cyber Monday because you’re going to get a bigger discount tomorrow up to 60% off on many BiggerPockets books.
Go check that out. If you’re listening to this after Cyber Monday, that 10% code will work. As I mentioned, follow me on social media, let me know what you thought of the shows and what I can do to help you build well through real estate. If you live near me in California, I definitely want to know about you because we put on meetups where we teach people about real estate investing and I’d like to invite you to them. Do me a favor, go leave a review, a five-star review on Apple Podcast, on Spotify and Stitcher, wherever you’re listening to this. And when you come to the meetup, show me the phone with your review because you deserve a high five. All right, everybody that wraps up our show for today. Please check out another BiggerPockets video, keep learning and keep making money through real estate.

CNBC’s Diana Olick joins ‘Squawk on the Street’ to discuss the impact of rising interest rates on home sale prices, drops in investor home purchases and what regions are seeing the biggest investor pullbacks.

Mindy:
Welcome to the BiggerPockets Money Podcast, Finance Friday edition where we interview Zoe and talk about how to invest for the future.

Scott:
The tool I would recommend there for you is a one page investment philosophy, and I think that to put that together, you have a lot of homework to do because the investment philosophy follows you for a long period of time and you’ve got to make some hard choices when you get into that. If you had come in and said, I believe in Google, Amazon, Facebook for these reasons, and I have these stocks, I think that over 30 years they’re going to do phenomenally well and I’m ready to ride the ups and downs that come with investing in tech stocks in good times and bad, that’d be totally fine. That’s not your viewpoint. You’re like, I invested in them because they’re the type of list in Robinhood and now that they’re down, I want to pull out. That means that that philosophy is not yet developed.

Mindy:
Hello. Hello. Hello. My name is Mindy Jensen and with me as always is my forward thinking co-host Scott Trench.

Scott:
That was an introduction for the future, Mindy. That was terrible. Whatever. We’ll just keep going.

Mindy:
They can’t all be winners, Scott. Scott and I are here to make financial independence less scary, less just for somebody else to introduce you to every money story because we truly believe financial freedom is attainable for everyone no matter when or where you are starting.

Scott:
That’s right. Whether you want to retire early and travel the world, go on to make big time investments and assets like real estate, start your own business or come up with an investment philosophy. We’ll help you reach your financial goals and get money out of the way so you can launch yourself towards those dreams.

Mindy:
Scott, I am excited to talk to Zoe today because I think she’s facing something that a lot of people are facing for the first time, a downward trending market. And I really want to hammer home the thought that just because your stocks are down, just because your portfolio total value is down doesn’t mean you have lost money unless you sell the stocks. And yes, you have sort of lost money. Help me figure this out, Scott, help me enunciate this correctly. Because you haven’t lost money unless you sold, you still own X number of shares of this individual stock or that index fund. It’s just not worth as much as it was last month.

Scott:
At least in the accumulation phase of building wealth, you never spend the principle, so if I invest a hundred bucks, I’m never going to spend it. It’s just not part of my life. It’s not something I consider as part of my wealth or that I that I’m able to access. I’d only ever spend the returns generated by that hundred dollars. So the dividends for example, or the appreciation over the long term, but I’m going to stick with that investment for 30 years or maybe forever.
I may never sell the index funds that I purchase, and so, am I going to lose money? Sometimes the paper value of that will go up or down, but I just keep buying, right? Who we interview Nick Maggiulli a few weeks ago, he wrote a book called Just Keep Buying. That’s literally the title of the book and it tells you all you need to know about my index fund strategy and my real estate strategy. Now, real estate, you do have to sell at some point because you lose the depreciation benefits and there are tax reasons, so you can’t hold it for more than 27 and a half years. But if that didn’t exist, I would literally hold my properties until they fell down as well, because that’s my investment philosophy.

Mindy:
You can hold them if it’s a great performing cash flowing property, you don’t have to just sell it because you can’t appreciate it anymore, Scott.

Scott:
That’s true. Yes, but I will probably sell it because the ROI does get compressed when you have to start paying a lot more in taxes.

Mindy:
Yes, but the way you phrased it made it sound like you have to sell after 27 and a half years.

Scott:
That’s true. Yeah. Anyways, yeah, and that’s the big piece here and I think that’s hard to accept until you’ve really internalized your investment philosophy and that takes dozens, maybe hundreds, maybe thousands of hours of reinforcement of your investment philosophy through books, read different perspectives. I told Zoe our guest today to read books on how to pick stocks and books on why index funds are so valuable because that will help solidify whichever approach she chooses to take.
I’ve read them both and I’ve decided that index funds are the approach that are best for me. And because I have that perspective and because I believe I have at least a journeyman’s baseline understanding of how to pick stocks, I’ve decided to invest in index funds and that allows me to stick with my approach for the long run without having to be fearful in a market like 2022.

Mindy:
Yep. I think that your investment philosophy sheet is really helpful or will be really helpful for people who are experiencing their first down market. If you don’t know what you’re investing for, if you don’t know what your philosophy is, you’re going to have a hard time weathering the storm. Also, if you are having a hard time weathering the storm and you are a buy and hold investor and you don’t plan on selling your stocks, stop looking at your portfolio. If you’re not going to sell it anyway, what does it matter if it’s down a dollar today or up $2 tomorrow, stop looking at it until the market evens out.
Before we get into today’s show, let’s take a quick break and we are back. Before we bring in Zoe, let’s remind you what my attorneys make me say. The contents of this podcast are informational nature and are not legal or tax advice and neither Scott nor I nor BiggerPockets is engage in the provision of legal tax or any other advice. You should seek advice from professional advisors such as CPAs and accountants and attorneys before making any financial decisions. I think I did that pretty good for memory.
All right, let’s welcome Zoe to the show. Zoe is our guest today. She’s single and looking for steady income to cover her expenses and also help with her parents’ retirement. She’d like to live in a big city, which means a higher cost of living, but she lost money in the stock market due to inexperience and lack of research, which is something that happens all the time. So I hope she hasn’t beat herself up over that. Before we chat with her today, let’s look at her money snapshot. Here is a general view of where her finances are. We’ve got a salary of 5,100, yay Zoe, plus additional income of $1,400 a month from her house hacking roommates and $200 additional for utilities.
She’s projecting a 10% bonus from work and she has a side hustle that brought in $2,500 in October that is lumped together to bring us a nice great big total. Now, she sent in her expenses, but honestly they total up to $3,300 and I don’t see this as being a big problem for Zoe. If these expenses are accurate, this is a great amount of expenses for her in her situation. Of course you can always cut out expenses and you can always reduce expenses, but Zoe has a delta of $1,800 before the 1650 from her roommates for their portion of the housing expenses. So again, I don’t think spending is her problem. My advice here would be just to make sure that these are your true expenses and that if you do have approximately $1,800 left over at the end of the month, then these are your true expenses. If you have significantly less than it’s time to start looking at where your money is actually going.

Scott:
And I’ll just point out a few things there as well to follow up on what you said, Mindy, we have 1450 a month coming from house hacking roommates and a mortgage of 1630. So you’re paying $200 to live plus your share of utilities essentially, and that leaves all the other expenses that are adding up to the 3,300. So I mean you’re spending less than what, $1,700 a month on everything besides housing and 200 a month on housing. It’s phenomenal situation. So I think we’re going to have a lot of fun today. You’re going to have a lot of really good options.

Mindy:
Yeah, I think we have a lot of fun today. Zoe did send in a detailed spreadsheet, so I am fairly certain of her numbers here, more of a comment to those who are listening. Something I see frequently is people think that they’re spending X, but then they also don’t have any money left over at the end of the month. And if this is the situation you find yourself in, I encourage you to track your spending as granularly as you possibly can to make sure that you are in fact spending that much. What we find frequently is people forget about, oh yeah, I’ve got that one expense and that one expense and all of a sudden there’s where all the extra money is being eaten up.
Zoe’s also doing really good on the investment front. She has a current 401K of $1,500, but that’s because she just started a new job. She has Roth IRA of $15,000, Roth 401K of 2,900 ESPP employee stock purchase plan of $200 right now. But again, brand new in this, a previous Roth 401K of $15,000 two after tax brokerage accounts that are approximately $20,000 and cash savings of $31,000. So she’s sitting really pretty.

Scott:
Plus the house hack.

Mindy:
Plus the house hack. I mean, yeah, we didn’t even include that and we don’t have equity in that investment. We have equity, we don’t have it listed here. So Zoe, let’s look at your money story really quickly. How did you get to this phenomenal position and what on earth can Scott and I help you with today?

Zoe:
Yeah, so I grew up, I would say below the poverty line and so expenses and money problems was always prevalent in my early life. And so seeing my family struggle and pinch pennies and not having a clear goal or idea where they want to be really resonated with me. So I guess early on I was always really careful with what I spent my money on, always negotiating expenses and so as a result I’ve kind of really put myself in a position where I’m always thinking about how can I make sure I will never go in reverse, essentially. Make sure that I will never be in a position that I was growing up and making sure building wealth for I guess future generations to come in my family.

Scott:
Awesome. How long has the current situation been going on? Could you give us an overview of the recent past you you’re saving $3000, $4,000 a month it seems like when your side hustles are kicking in and has that been continuing for a long time or is that a relatively new phenomena?

Zoe:
So the side hustle started in September. So before that I wasn’t saving as much. I was closer probably to the 2K mark, but now with this additional income, I’m really struggling to decide where should I put my money and can I move on to better things, move to a bigger city like Mindy spoke to. When I graduated in 2019, I only had 5K to my name and I think 3000 of it was in a CD account so I couldn’t even touch it.
And my first position that I had a career-wise, they had us go to essentially a convention for onboarding and you’re supposed to pay for your own expenses and they would reimburse you in the next pay period. So I remember being scared because I had almost three grand on my credit card and I was like, how am I going to pay this off? How am I going to last until I get reimbursed for everything, like the plane ticket, the stay, the hotel expense, the food? And so that was kind of a wake up call, like okay, this is what it’s like to go out into the corporate world, you know, really got to focus on how you’re going to be able to give yourself that cushion. So I’m never going to be in that position again of fear.

Mindy:
I like your mindset, I want to call out all the employers that make you do this. This is so stupid. If you are hiring fresh out of high school or fresh out of college graduates, don’t make them buy their own plane tickets. That’s just mean. Okay, sorry.

Scott:
From the employer perspective, I’ll just say that sometimes employees prefer that because they get to rack up, all the credit card points and they’re getting reimbursed. So yeah, I think it’s wise to provide the option either way.

Mindy:
Yes, the option, I prefer it and I’m kind of miffed that BiggerPockets took that away recently. However, I also am not right out of college. I know it’s hard to tell, but I graduated from college a couple years ago.

Scott:
So your employer wasn’t evil, it just scared you in that situation. But that’s a really good reason to be like, you know what, I’m never going to have to worry about that again. I don’t think you will have to ever worry about that again, by the way, as we get into your numbers here, I think that’s immediately clear from the financial profile you’ve shown us so far.

Zoe:
That’s what I like to hear. Yeah.

Mindy:
Okay, well let’s talk about that initial Robinhood and E-Trade investment that you think you lost money on. Did you sell the stocks or did the stocks just go down? Because right now everybody’s losing money and it’s losing money in air quotes you still own X number of shares, it’s just worth less than it was a year ago or six months ago or whatever, but you don’t lose money until you sell. So did you sell or what were you doing with this investment?

Zoe:
That’s a good question. So I’m a buy and hold kind of investor, so I have not sold and that’s one of the questions I was going to ask. Like hey, these are all losing money, should I sell and try to invest in something safer like an index fund versus the kind of ignorant decisions I made early on with my investments. So yeah, haven’t, I’m just holding onto them.

Scott:
What are your investments? Can you give us a very quick overview of what got you into those investments, why you chose them?

Zoe:
So I think the breakdown is I have 91% in stocks, 4% bonds and 5% in crypto. So Bitcoin.

Scott:
Which Stocks?

Zoe:
So I would say the majority is in ETFs and then I would say the Robinhood amount is in individual stocks. So big names like Google, Amazon, and then when I first started, I think Robinhood has a list of top stocks to invest in were most popular and that’s kind of what I looked at and I would briefly look at the profile and Yahoo Finance and oh think this is a great investment and buy some of that stock and that’s kind of the early mistakes that I made.

Scott:
So most of your loss, so you had previously $14,000, $15,000 in Robinhood, now you have $8,500 because of a big drop in Google, Amazon, other of these name brand tech stocks, is that right?
Yeah.

Zoe:
Okay. And then the E-trade portfolio, you lost less, you had 15,000, now you have 12 and a half, 15, 16, now you have 12 and a half and that’s because those were largely an ETFs and index funds.
Only ETFs. I think only my Roth IRA has mutual funds because that’s the first thing I opened when I graduated was my own personal Roth. But all my recent investments have only been in ETFs.

Scott:
Awesome. If you were to assess what is the total number of hours that you’ve spent learning about investing?

Zoe:
I’ve been listening to BiggerPockets for the past two years, so once a week, that’s probably less than two hours a week.

Scott:
But you spent about a hundred hours learning about money but not really. How about specific to stock investing?

Zoe:
Oh, so I went to school for finance and so I kind of have an idea of how to read the numbers on Fidelity, understand what that means and some YouTube as well. So just watching some general videos and just my experience from school and what I learned in class and that’s just kind of how I did it. Also, when I first started, when I first got my 401k, I looked at Fidelity and they have ratings, so I ignorantly kind of trusted those ratings. Okay, this is rated really high so it would be in good, a good investment. But looking back I should have done further research into those, not just like what is just rated as popular or as a good investment, but really understand what historically has been the best investing strategy and what performs the best historically versus a short term period.

Scott:
Well I think there’s two issues here with this and I think again, your personal situation is fantastic because you’re spending so much less than you earn, you’ve got a great income, your house hacking, you have the side hustle that’s adding up to it, you’re going to get rich. You just need to figure out where you want to put that money from an investment standpoint. And that’s what I think you’re struggling with at the highest level is you don’t know where you want to allocate all of these funds. I think that your first issue you brought to us was asset allocation, which is exactly right. And the tool I would recommend there for you is this one page investment philosophy and I think that to put that together, you have a lot of homework to do because the investment philosophy follows you for a long period of time and you’ve got to make some hard choices when you get into that.
It’s not just like, oh, I’m going to buy some Google, that’s great, that’s what Robinhood says, that could work, but it’s not something that I think you’re able to live with. If you had come in and said, I believe in Google, Amazon, Facebook for these reasons and I have these stocks and I think that over 30 years they’re going to do phenomenally well and I’m ready to ride the ups and downs that come with investing in tech stocks in good times and bad, that’d be totally fine.
That’s not your viewpoint. You’re like, I invested in them because they were the top of the list in Robinhood and now that they’re down I want to pull out. That means that philosophy is not yet developed. So I would recommend that first you start with the framework, I’m going to get started and I’m not going to diversify, right?
I’m going to pick one asset class and I’m going to go heavy in that asset class for the first few hundred thousand dollars in net worth. Why is that? Because diversification is a great, great way to protect wealth, but I think it’s a less good way to build wealth. Now people will disagree with me, but I really like the real estate house hacking that you’re doing. I personally like index funds with that. That gives me heavy exposure into real estate and stocks, very little exposure in other markets. I don’t bother to pick stocks personally, but you could. So if you were to look at my investment philosophy and I actually posted a template which we can put in the show notes here and I’ll send to you after this. It says in five years I want to have multiple asset classes, stocks, real estate, private businesses, BiggerPockets.
I do want to get into lending at some point, but I did these one by one heavy, heavy real estate for the first 5, 6, 7 years because I felt that house hacking multiple times was a really powerful way to build wealth. But I’m 95% real estate while I’m doing that slowly moving into other investments. But I think that you need to build to frame something like that and that’s going to take some research. So I have four books to recommend to you on that topic and I’ll send you all four of these books, the titles with them. One Up on Wall Street by Peter Lynch, The Intelligent Investor by Ben Graham. If you studied finance, that book was very, very dry, but very, very important. Those books will tell you how to pick stocks, which I don’t recommend, but I think you need to learn that in order to feel comfortable with your investment philosophy, you need to see what the experts who have advice on that have to say.
And then I think that the other two books I recommend are a Simple Path to Wealth by J. L. Collins and a Random Walk Down Wall Street by Burton Malkiel. And I think that those four books will help you get a really strong grounding. And if you read those four like I did, you might come to the conclusion that index fund investing and putting all the that into Vanguard or Fidelity in one of their total market index funds is the right approach. But that at least give you the framework to approach the problem from a position, a belief set that you can actually invest with for many, many years.

Mindy:
So I have a slightly different approach. I still believe in real estate like Scott does. I still believe in index funds very much, but my husband and I invest in individual stocks heavy in the tech sector. All of the ones that you listed, some of the ones that we have, we have others as well. But here’s the difference, my husband wakes up in the morning and reads every article that came out yesterday about every stock that we own and every company that he finds interesting, he reads, and let me tell you how much, I don’t want to hear more about Tesla, I talk about this a lot because he talks about it a lot, but I would not feel comfortable investing in individual stocks if I was the one driving the boat 100% because I’m not willing to do the research, I don’t have the time, I don’t have the inclination, I would just set it and forget it with index funds.
He is fascinated by this. He wants to invest in the individual companies, he does the research. So another thing to think about is I don’t think you’re doing a bad job picking individual stocks, but I think you need to have, like Scott said, I think you need to have a reason for picking them. So I’ve been invested in Google since their IPO and it’s been a great, mostly up, but every once in a while it goes down stock, it’s a tech stock and they’re volatile more so than your blue chip stocks.
But another thing to think about is we’ve had what a 12 year run up and there’s been some downs but it’s been up, up, up this is a more, I don’t want to say more normal market, but the market moves up and down a lot and if you’re in it for the long term, stop looking at your stocks, that’ll give you a lot more peace of mind.
Just you want to hold onto this stock for a long time, then buy it and then don’t look at it again and then buy more and don’t look at it again. I mean even index funds are going to be volatile, but if you believe in the long term strength of the United States economy, which I do, then you will see it go up. I truly believe that the stock market will go up again and past performance is not indicative of future gains, but I do believe that the stock market will go up in the future.

Zoe:
Yeah, that’s helpful. I think going off of that, I have some mutual funds and I bought them early on and I didn’t really look at the expense ratios. I was thinking like oh 0.9%, that’s nothing. But then now I’m switching over to ETFs and the expense ratios are much lower like 0.03. So I’m thinking I would like to buy and hold, but is this to a point where I should sell now and reinvest what I can recoup into lower index funds because as I’m waiting for the market to recover, I’m paying these expense ratios over that period of time.

Scott:
So first we need a long-term plan in three to five years online portfolio to look like this, not like this. You need to be able to articulate that and that’s where the investment philosophy comes in. And starting with the end in mind. You’re already doing half of this right. I’m almost all of it. You have a strong cash position, you’ve got Roth, you’ve got a heavy Roth allocation, you’ve got after tax stocks, you’re building a position that’s going to support financial freedom if you continue what you’re doing with this because your asset allocation, you need to pick the investments that you’re comfortable with.
If you decide that index funds, for example are the way you want to go, then yes, I like the idea of taking the opportunity now to sell these high fee actively managed mutual funds and move that into passively managed index funds because you’re probably not going to have a big capital gain problem from them going up in value. If you’ve been doing this for 10 years, you might have to harvest $200,000 in capital gains and move it over. I don’t think you’ll have that problem, although you should do the math and check. You’ll have some homework there.

Mindy:
Yeah, I just downloaded Scott’s investment philosophy one page template and I think this is going to be really helpful for you to go through and fill out and it’ll help guide you when you are choosing your investments in the future.

Zoe:
Yeah, I think if I could start over, I would just dump all my money in index funds for long-term goals. I can change all the mistakes I’ve made in the past. And so I guess that’s kind of what my issue is now is like do I take action now or do I wait to see before I can change my portfolio to match what my goals are?

Scott:
I think now’s a great time. I think you probably have a loss, so sell, take the loss if you have one, do that homework first and move it into the investment that you believe in, right? Only don’t do that if there’s some sort of barrier, like a large capital gain you have to harvest and think about from a tax perspective, which I doubt will be the case in this situation. So I think you could easily do that now and you’ll have a benefit tax benefit if you do it correctly. That might play out in future years.

Zoe:
To offset, like the loss to offset the gains.

Scott:
You came to us with three questions, asset allocation and then the second one was around maximizing your revenue streams and the third was around reducing taxes. Let’s talk about the revenue streams. Tell us a little bit about your job, your real estate, your and your site hustles.

Zoe:
Yeah, so I work as a financial analyst for an exchange operator and I love my job. I have no intention of really leaving. I’m interested in moving up in the company and it’s a really great company to work for. I have a pretty flexible schedule and it allows me to pursue interests outside of my nine to five. And as a result I attended a lot of networking events like local real estate events, meeting, even people who have been on the BiggerPockets podcast will come to Kansas City and have a speaking engagement.
So all of those activities have inspired me to essentially pursue real estate. I started with my owner occupied home that I’m house hacking and the reason I have such a large cash reserve was because I was trying to buy an investment property and I kind of backed out of that deal because I just trusted my gut, ran the numbers as a long term rental and it just didn’t work out out.
So I kind of exited that opportunity and at this point I’m not really pursuing it unless something falls in my lap and so I doubt that’s going to happen. And now trying to understand what should I do with such a large cash reserve because it definitely covers my expenses for up to a year and just trying to understand what I should do with excess.
As far as my side hustle, I work for real estate syndication, it’s a team here in Kansas City, so essentially I’m their intern. I work about 10 to 15 hours a week, sometimes more, sometimes less, just doing it outside of my normal hours for my W2. And it’s been a really an eyeopening process to deal with tenants and to deal with underwriting and sourcing deals. I think these were all issues I had on my own. How do I understand the numbers of this property?
If I see something I like on MLS, how do I know if it’s going to work? And so that deal analysis was something that I kind of struggled with and that’s kind of why I do regret this home purchase. It wasn’t the best purchase line of numbers now that I look back at. Initially wanted to buy duplex with an FHA but there was just none on the market and I didn’t really understand how to look for off market deals or how to pursue those.
So I just feel like I kind of settled with the home that I bought. I pay HOA and they have restrictions, so definitely would not want to pursue another real estate investment inside an HOA. And with my roommates I looked at just market rents for my area and just kind of settled on a number and it’s been good so far. It pays for most of my mortgage. I think my total monthly payment for both my mortgage and utilities on my end is around 600 to 700, 700 being the max I’ll ever have to pay just from what I look at utilities and such. And I do pay a little bit more principle for my monthly payment. I’m just wondering if I should contribute more.

Scott:
Walk us through the numbers on this deal because I think that a lot of folks, myself and Mindy included are going, what is she talking about? This sounds like a great housing choice and house hack move. What are the numbers and why do you think it’s not ideal?

Zoe:
So I would say I kind of bought towards the end of when interest rates are great, I have a 4.875% and if I would’ve started earlier or maybe if I should have waited and held all my cash on hand to even have a larger cash reserve to contribute to something more like cash flowing or higher appreciation just because I feel like I kind of overpaid. I think I went 20K over and it’s technically a town home, so it’s not a single family, it’s not going to appreciate as much and there’s so many rules with the HOA, so it’s more a little bit both. I would’ve ideally liked a situation where roommates covering my entire mortgage, not just some of it.
And also the area, it’s a very good school district is what I found, but that’s not kind of what I’m looking for. I don’t have kids, I don’t need to be in a good school district. Instead I can buy the beat up house on the Missouri side and be able to put more money into it and get a higher return or build even more equity for that home.

Scott:
Your mortgage payment’s? $1,630, right?

Zoe:
It’s $1,630, my HOA is 10 and I pay an additional $46 to even it out to 1800 a month.

Scott:
Interesting. And what would the rents be if you moved out?

Zoe:
It really, I think depends. If I were to rent out each room individually versus the whole house, I think I would definitely get more if I were to rent out each room by itself versus into an entire family. I think market rents are 1,900 to 2,100 and I have three bedrooms and two nonconforming. So other goals to finish the basement. But there is a rule in the county that I live in that you can’t have more than four unrelated persons living inside a home. So there’s that to be aware of as well.

Scott:
What do you think you’ll get for rent by the room?

Zoe:
If I were to move out, my room is the largest, it’s the master and I have a master bath and it’s furnished, so I’m thinking I could probably get 1100 to 1200 a month for.

Scott:
So you bring in 2,500 without even finishing the basement.

Zoe:
Actually one of my roommates does live in the basement. She has cats, so she’s nervous that they’re going to scratch up the carpet in the upstairs bedroom. So I have a guest bed. So it’s not being used.

Scott:
You have, in my opinion, a very satisfactory investment. I don’t know if it’s going to be a home run or not. A lot of folks are scared. Everyone’s scared about their first purchase in 2022. You’ve got a good interest rate. Not the fantastic one we had two years ago, but a good one, not one that’s as high as currently. You have the ability to cash flow this. If you were to move out in a substantial way without having to finish the basement, you have more opportunity if you do finish the basement and you are sitting real pretty, in my opinion, in this particular investment you bought with a position of financial strength, I would not be fretting over this decision. If you keep making mistakes like this, you’re going to become a millionaire pretty quick.

Zoe:
In hindsight, I wish I would’ve bought earlier. I wanted to get my credit score to 740 to get the lowest rate, but because I waited for the six months that it took to get to that 740 mark, I lost out on a 2% interest rate. So in hindsight, I wish I would’ve started looking earlier even though I had an apartment lease and I would’ve had to break it, but it would’ve been worth it.

Scott:
I think we all wish we bought more earlier.

Zoe:
Yeah.

Mindy:
Yes. But you are learning by doing. Scott says maybe this isn’t a home run. I think this is at least a double and probably a triple. This is a good investment and yes, your interest rate is higher than 2%. Well so is mine and I work here. Don’t beat yourself up about this, but you are doing so you’re learning how to be a landlord. You are learning how to be a property owner and then now you know what you want and what you don’t want. Oh, you know what? I wish I would’ve done this. So the next time do that. When did you buy this property?

Zoe:
Around my birthday. So I think May 12th.

Mindy:
Of this year?

Zoe:
Yeah.

Mindy:
Okay. So you can start looking again for a property when the new year turns, maybe in February

Zoe:
Counting down days.

Mindy:
Start looking and see what you can find. You wanted a duplex and you bought a townhouse in an HOA. So don’t look for townhouses in HOAs, look for properties that are duplexes and just wait for that to pop up or keep an eye on single family homes that have the ability to finish off the basement and then you can rent it out to four unrelated people and make so much money that you are living for free and also making money as you are living there for free. I mean you’re doing a really great job on this property and you, you’re too hard on yourself. Be nice to Zoe.

Scott:
Yeah. So Zoe, a couple more questions about this property. You got three bedrooms upstairs and one of your roommates uses the basement for their cats is what I’m hearing.

Zoe:
Well there’s two nonconforming bedrooms in the basement and so she has both of those rooms. One’s for her cats and one’s for her. They’re nonconforming because they don’t have the egress window.

Scott:
How much does it cost to put an egress window into one of those bedrooms?

Zoe:
3K to 5k.

Scott:
3K to 5k. And how much more rent will you get or how much rent would you get if you rented out four rooms, the three upstairs and the two at the bottom as a suite with one conforming bedroom?

Zoe:
I think that’s a personal preference that I don’t want another roommate. I’m happy with two and I think-

Scott:
You’re going to move in February.

Mindy:
She’s going to move in May because she has to honor her one year owner occupancy agreement.

Scott:
You’re going to move in May. So forget about your personal preference right now and treat this as a coldblooded mathematical house ROI decision. You’re gone in May, you have three bedrooms upstairs and you have a suite downstairs. You can’t have five bedrooms because there’s no point in having five bedrooms to rent by the room because the statute prevents you from having more than four unrelated people on the lease. So my thoughts are one bedroom, one, two, and three upstairs, get rented, basement gets finished and becomes a suite with one conforming bedroom on there. How much would you get for rent in that scenario? Does that sound possible or practical given the setup at your house?

Zoe:
Well the two full bathrooms are all on the top floor. So one’s connected to the master bedroom and one is just a hall. So if there were three roommates outside the master, they would all share one bathroom. Essentially there is a half bath, but as long as there’s three roommates who are okay with sharing one full bath, then it would be possible. I think I could probably get 2,800 and just charge a little more for the larger bedrooms to make it even.

Scott:
2,800 for those three units plus more for the master.

Zoe:
Yeah.

Scott:
So that would give you 3,900.

Zoe:
I would say 2,800 in total with the master and then having to reduce the rents for the other three tenants just because they’re all sharing a bathroom.

Scott:
Okay, that’s close. I don’t know how much of a cost to finish the basement and put in that it may not be worth it in that scenario.

Zoe:
I think it’s 15K to 20K I think it was what I was quoted already looked into.

Scott:
Nice.

Mindy:
Are there any rough ins in the basement to make a bathroom down there?

Zoe:
So it is possible to put a bathroom in the basement, but it would be a 10K to 15K investment. It’s a small basement, so there’s not much room to work with. There’s already two bedrooms in there and then just the area where the laundry is. And so there’s not really practical layout, so I don’t think I would put a bathroom down there.

Mindy:
So then in your future properties. Keep that in mind, how can I expand this property so that I can get three roommates in here for one year and then I can move out into my next property and expand that one to get three roommates in for one year and then you’ve maximizing the four roommates in each one to maximize the amount of money that you’re making on each property. And then when you decide that you don’t want to have roommates anymore, you can find your last property and that’ll be whatever you want.

Scott:
Okay, so at the highest level I’m seeing you made a solid investment here from position of financial strength. I’m sure you have some things you would’ve changed about it, but again, this is not a disaster. This isn’t even a mistake. This is going to be I think a reasonable investment for you based on the numbers you shared with us. After you move out, you’re going to have 2,500 give or take in income on 1700 in expenses if you can charge the utilities through to your tenants. So that’s really good. I like that. I would invest that personally. So that sounds pretty good.

Zoe:
I was told that I can’t do a duplex situation unless I have 25% equity in my current home. So if I were to like come May, I wanted to buy a duplex, I would have to have 25%.

Scott:
Who told you this?

Zoe:
A lender.

Scott:
How many lenders have you talked to?

Zoe:
Four.

Scott:
And they all said the same thing.

Zoe:
I really only asked two of them and they said, I believe only one of them said about the 25% if I wanted to do an FHA with 3.5% down in May. And so with my current home I only put 5% down.

Scott:
And what type of loan product did you use?

Zoe:
I used conventional.

Scott:
Okay, so FHA is going to require you to put 25% down in May.

Zoe:
Yeah.

Scott:
That doesn’t smell right to me.

Zoe:
Well like 25% equity stake in my current home, I have to have a 25% equity position in my current home in order to use an FHA loan to purchase a duplex in May.

Scott:
Interesting. Mindy, have you heard of this?

Mindy:
I haven’t, but I think this is a research opportunity right now. Lenders are real open with their time, so I would call up your favorite lender and ask them to explain this to you. Why do I need 25% down? They could be an FHA rule, it could be what this lender specifically wants if only one of them is telling you this. But that is an interesting question. Also, if there’s a lender listening, if you want to reach out to me, [email protected] and explain what’s going on, or we can go over to the Facebook group and at facebook.com/groups/bpmoney and we can chat about this there as well.

Scott:
I am skeptical that that will be the case after you talk to more lenders and we get some feedback. But let’s presume that lender is correct and we have to use 25% down. How much does a duplex in your area cost you?

Zoe:
Oh, I meant like 25% in my current home. So if I wanted to put 3.5% down duplex, I could just need a 25% equity and I only have like 5%.

Scott:
But our other option is for you to put 25% down on the next property and avoid that entirely.

Zoe:
I would say like it’s 3.50, size of a duplex.

Scott:
So that’d be like $75,000 down. So 80,000, am I doing that right? 75,000 to a 100,000. You are saving $4,000 or $5,000 a month now that we have your side hustle in place between all of that. So 5,000 times six is another $30,000. You’re not going to be far away from being able to put 25% down in May. So you’re looking at August to be able to do that just based on the way your cash position is. You could do it sooner if you’re willing to take some of your investments out. So you have opportunities here if you would like to, I mean you have a decision at the strategic level for asset allocation first to make, do I want to be in real estate this heavy or do I want to go into stocks in something more passive?
But if you chose to do real estate, you would have the option to do this with a traditional down payment relatively soon within the next year. So then that’s a luxury of the fact that you have such a strong personal financial position and such a strong savings rate. So you have really good options here is kind of what we’re highlighting and you’ll either be able to do it with another low down payment loan or with a traditional down payment.

Mindy:
I would talk to lenders about all of your options. You are bringing up the FHA loan several times. Is that because it has such a low down payment? I would talk to them about other options that are available to you. I don’t know if there are any USDA locations near where you’re at, but the USDA loan is up to 0% down or down to 0% down. I don’t know how you say that right. That’s the only 0% down loan that I know of that isn’t the VA loan.
The FHA loan is an consumable loan. So somebody who got an FHA loan in that 2% and then needs to sell. You could assume that loan. There’s a lot of ins and outs with regards to that. If anybody is looking to assume an FHA loan, definitely talk to a lender. I need to talk to a lender about this as well so that we can get the information out there correct. But the FHA product is an consumable loan. You do have to bring money to closing to cover the delta between what they had left on their loan and the amount that you’re paying for it. That’s an option.

Scott:
I really like what Mindy’s saying there as an option for you. We’ve had other folks, and I don’t want to get people excited about assuming mortgages in a general sense because there’s risks and creativity things and all that other stuff that you really need to be smart with. But you Zoe are in a strong financial position, save a lot of money, have a good investment property, currently have plenty of cash and are piling up savings on a monthly basis.
You are in position where if you wanted to researching how to assume mortgages for folks and making your next house hack one where you just take over somebody else’s mortgage that maybe that was in that low low rate may be a great option for you to think about if you can be opportunistic in the next year. So I really like that a lot, but I don’t want to get other people too excited about that. If you have don’t have a strong financial position, then you’re just assuming hundreds of thousands of dollars more in risk that you maybe shouldn’t from that, but it’s a good option for you potentially.
Let’s talk about the other income streams for the last few minutes here. Walk us through your part-time hustle with the fund and then your photography side hustle.

Zoe:
My photography side hustle is literally like nonexistent. I stopped doing it earlier this year just because it’s slowly become more work and less more of a passion. I just started it because I wanted to capture family memories and occasionally a friend would ask me to take their photos and that’s what I did. But I’m not pursuing it as a legit side hustle, if you will. As far as the real estate syndication, actually I do enjoy that. There is some difficult parts to doing some of the property management, but it’s been very worthwhile of my time and that’s something I definitely want to pursue if my W2 will allow it.

Scott:
You made $2,500 last month from this activity, right?

Zoe:
It’s kind of like a paid position hourly. So that 2,500 was from September 15th to October 31st. That was the check for that. So normally it is around 1600 a month.

Scott:
Great. And what is the hourly rate?

Zoe:
17.

Scott:
And what do you earn at your day job?

Zoe:
I don’t know what the hourly is.

Scott:
What’s the annual

Zoe:
85.

Scott:
Okay, so your hourly rate at your day job is 42.50. You can just divide the annual by 2000 and that will give you that but that’s assuming you’re working 40 hours so that there’s not a great arbitrage on this, but you’re probably learning a good skill while you’re doing this side hustle. So I like it a lot but I do think that there would be opportunity over time to figure out how do I try to make sure that if I’m going to earn side hustle income dollars, that it’s around the same rate as my W2.

Zoe:
And it’s more of an internship position. So I just started and we’ve already had discussions of increasing my, increasing my scope of responsibilities. So that’s definitely something I’m very aware of and we’ll keep in mind moving forward.

Mindy:
With regards to that. I’m going to say that everybody and their mother wants to invest in syndications right now and you working for a syndication gives you so much educational opportunity while they are paying you to learn about syndications that I really hate to disagree with Scott, but I think it’s just fine to make less than what you’re making at your W2 because this is an educational experience in a field that you want to learn more about. If you were working at the gas station for $17 an hour, I would agree with Scott, but you are learning more about real estate and how to find deals, how to analyze deals, how to do property management, how to do a lot of different things. I think it’s a great use of your time, especially given your age and the fact that you are not married, you don’t have kids, you have the time right now to put into learning about this investment strategy, which you want to do anyway so you’re getting paid to learn. I think that’s great.

Zoe:
And to me it’s not like a job, it’s more of an interest I’m pursuing. So that kind of makes it worthwhile. I think when I was thinking of the pay, I did look at market rates and that’s kind of aligns with the market rate here in Kansas City and so there’s no really no leverage to give or negotiation. So pretty content with it and it will increase.

Mindy:
Yeah, I think that’s great. The last thing you wanted to talk about was reducing taxes. I don’t have a lot of really helpful tips for reducing taxes contributing to your 401k as much as possible.

Zoe:
Since I submitted those numbers, I did talk to a CPA and just to see how can I reduce my taxable income because my side hustle income is pretax. I’m like I’m going to have a fat tax bill at the end of the year if I don’t plan and budget for owing taxes. And that’s one of the questions that I’ve been thinking about is how do I track my expenses? I’ve just taken pictures of every receipt expense that I’ve had and is there a more efficient way of doing it? If there’s the app, I know you guys are really great at recommending finance tools. I’ve utilized like Mint and I tried, you need a budget as well. I prefer using my own spreadsheet for budgeting, but just trying to figure out the best way to consolidate all of my expenses and have a clear idea of where I’m going to land at the end of the year.

Scott:
The easiest way to do it would be to open up another bank account for that business. So just, hey, I am an intern here for this and I’m going to just put everything on the debit card for that business and then it’s all in that one bank account. You don’t have to worry about it. It’ll be super clean that way. So that would be my recommendation is the easy button to resolve that problem.

Mindy:
I think that’s great. Either a bank account or a credit card depending on what sort of expenses you have for there. I like the credit card to get miles, but if the debit card works better for you, then that’s one that I would do. I actually write on my credit card, I do have a credit card for my house investment purchases and I just write the address right on the card so that I don’t forget to use that card for just that one thing.

Scott:
I got three credit cards in my pocket or three cards. One is my personal one. One is BiggerPockets credit card when you purchase things for the company and third is my rental property debit card, which I just spent out of the bank account. I could get a credit card for the company but that would just create another complication point for me. So I do it on a debit card.

Zoe:
I do have five credit cards and each one has its own purpose. So the six too much or I actually thought about getting rid of one or two just because I do try to keep track of all five of them, but sometimes I think it might be easier to reduce the number of credit cards I have, but I kind of went credit card crazy at one point and trying to see if it’s a good idea to reduce that.

Mindy:
I would say make sure that you keep the first credit card that you ever opened open forever. It is your length of credit history and the credit giving institutions really care about that. Every other card you can look at and see is this really giving me the benefit that I thought it was when I first opened it. I have a bunch of different credit cards. One, I have for hotels, one I have, it’s the Costco card and I get cash back when I shop at Costco and cash back, back on gas one I have for airlines. So there’s a purpose for each one of them, but if they also all have zero annual fees, if there were annual fees, I would have a different outlook on them.

Zoe:
So you would not recommend getting the Chase Sapphire or?

Mindy:
It depends on how much you travel. I had the Sapphire and then we got rid of it and because of the annual fee and I think that my husband and I should have had a bigger conversation about that instead of just saying, okay, because it’s a $300 annual fee, but then you get $300 back or a $400 annual fee and you get $300 in travel benefits back every year.

Scott:
I think the fee is $95 for the preferred card and that’s the one I have. So I keep it simple with that. But I think the reserve with 495, you got to use those benefits if you’re going to pay that much.

Mindy:
Exactly, yeah, it’s not worth it if you’re not going to use the benefits.

Scott:
I want to just kind of frame a couple of things as we get ready to wrap up here. You are doing great. You’re house hacking, you make a great income. You said you’re 26.

Zoe:
24.

Scott:
24. Yeah, you’re completely crushing it. So you got a hundred thousand dollars net worth. Not even counting your real estate. That’s 75,000 net worth.

Zoe:
Got like 5K in equity in my house now.

Scott:
But great, you’re paying off a mortgage and you’re living for close to free, so you’re absolutely crushing it with this. You have not made a mistake with the rental property, even if you had the worst timing in the world and prices do come down. If that does happen, you still made a smart investment from a position of financial strength if you hold long enough and operate well based on the numbers you provided. So you’ve done fine there. What you’re missing is two things here. You’re missing a structure for how to get rich over the next 5 to 10 years. First, you need to think about the end in mind. What does that portfolio look like? I like what you’re doing right now. You have a strong cash position and most of your wealth, or a big percentage of it is outside of those retirement accounts.
If you’re in 10 years, all that wealth is trapped in retirement accounts and home equity. You’re not financially free. You have a big net worth on paper, but no actual freedom. If you keep doing what you’re doing at the highest level, you’re going to be have freedom and the ability to use those assets to live a life that you want. So keep doing that, but put together an investment philosophy that enables you to get there, whether it’s index funds, real estate or something else. So that’s a formula piece. You’re missing the formula that you’ve committed to mentally to build wealth over the long run. And your big buckets with your massive sets of asset allocation. That’s some homework for you to do. The other part is the pot shots. You have different side hustles. You have your real estate, you have these things.
What I’d recommend there is that you spend 90 days and focus on one of them at a time. I think we’ve ruled out real estate for the next 90 days. It doesn’t sound like there’s a lot of value to be added by finishing the basement or doing additional work with your property. So I like the fact that you’re doing this side hustle for this indication. I think that’s perfect. Go all in on that. Make sure that whatever you’re trying to get out of this job, this internship actually comes to fruition or begin thinking about switching it some point in the new year, right? Some sort of education, some sort of increased earning power, some sort of opportunity should materialize from this bet that you’re making with a significant chunk of your time. And if you do this 10 times over two and a half years, that’s 10 quarters.
10 90 days chunks, something will materialize for you. So opportunities will blossom, right? One of those 90 days could be buying your next property. One of them could be the next stage of the… you could just take the internship for three quarters because a new opportunity roll each time you could bring back your photography business. But if you do that 10 times and each quarter set out intentionally to make use of this extra time, you’re going to hit a winner at some point that’s going to produce a couple hundred or maybe even a thousand dollars a month in cash flow or produce a chance at significant wealth. So I like doing that, but think about it as a formula and build a system or architect a program that’s going to automatically get you wealthy with where you deposit your cash, and then that is actually scientific about taking these shots with your opportunities. Is that helpful framing?

Zoe:
Yes. I think that kind of answers some of my biggest questions that I have to take that initiative to decide what I want, and there’s not one fits all kind of a solution. Before this, I thought I had a good idea of what I wanted to invest in and just kind of reaffirming, just put everything in index funds. But I do want some short term gains. I don’t want to wait three to five years to see the money. So I think that’s my biggest hurdle to overcome is that it’s not a quick solution. It’s going to take some time.

Scott:
I agree. You could be a millionaire in three to five years if you play your cards right and have a little bit of luck on that and make a couple of big plays, probably more realistically, seven to 10 years at your current pace, given how early you are in your career and the likely future income potentially you have. I would sit back and I would say, what do I want that million dollar portfolio to look like when I get there? That’s the freedom point. It’s going to be a grind until you get there. So grind it out and be ready to do that, but don’t grind your way towards a portfolio that’s not going to actually get you what you want in the end state.
Make sure that that’s designed intentionally right now. So you’re backing into that and you’re rounding that out and it’s the three properties in the same corner that are really easy to manage in all of the same thing. Instead of a property in Kansas City, a property in Denver and a property in Seattle, whatever. It’s an intentional portfolio that is exactly what you want. Make sure you’re backing into that and you’re going to be fine. You just need to do that work and your fundamentals are so strong, it’ll probably carry you to a great outcome somewhere in that timeframe, in my opinion. Hopefully that’s good news.

Zoe:
Hopefully. Yeah, we’ll see.

Mindy:
The only thing that I would add is, Scott is saying that real estate isn’t the right thing to focus on in the next 90 days. And I agree with that to a certain extent, but I would like to see you talk to a lender now during their very slow time to see what are the options that are there. And one of the guys that works at BiggerPockets, Austin had a really interesting journey to buying his house. And he would talk to a lender and they would give him a little bit of information and then he would talk to a different lender and they’d give him another little snippet of something and he was able to piece things together and then he could start asking questions and they’re like, oh yeah, there’s this too.
So ask all the questions you can think of to ask what are some plans? What are some loan products that I can get into as a young person, as a second time home buyer, as a landlord, as all these different options. Maybe there’s something available that they don’t think that you would be interested in until you share with them what your plans are. Oh, there’s this plan, there’s this product, there’s this opportunity. Sometimes they’re just not aware of what your intentions are. So right now they have a lot of time to talk, so call them up and have a big chat.

Zoe:
Yeah, definitely.

Mindy:
Okay, well, Zoe, this was a lot of fun and I really appreciate your time today. Thank you so much for coming on this show, and we’ll talk to you soon.

Zoe:
Thanks so much for having me. Take care.

Mindy:
All right, Scott, that was Zoe. And that was, I think some very great advice for her. I think some very great advice for a lot of people listening, we are in a squidgy market and it’s going to go up, it’s going to go down, it’s going to go down some more. It’s going to go down some more and then it’ll go up a little bit and then it might go down again. And for those of you who are in it for the long haul, just buckle up and enjoy the ride. And if your investment philosophy says, I’m going to keep buying every single week, then buy every single week or month or quarter or whatever. And if your investment philosophy says, I’m going to buy when the stock reaches this price, then buy then, but have an investment philosophy and be investing for specific reasons, not on a whim.

Scott:
And after the recording was over, we asked, hey, was this helpful? We always do that because folks always say one thing on the recording and then you know, always went with the opinion. And she said, yes, of course. But what she wanted really was specific, what exactly should I do in this situation? And we’re really not supposed to do that, but I’m the CEO, so I’m going to go ahead and break that rule. And I’m going to say, what I did is my situation mirrored Zoe’s almost in an eerie fashion, right? She’s 24. When I was 24, I was making less than her, but I had a house hack. I had around that same level of savings. I had lost money by investing in stocks that I had picked, a Chinese fruit juice company that reported their financials inappropriately, all those kinds of things.
It was a very similar set of circumstances there. And what I did is I tried to maintain that cash position of $25,000, $30,000. I took my 401K match, I maxed out my Roth, I dumped everything else into after tax brokerage savings, and I serial house hacked for a few years. And then I took pot shots every 90 days on various items that would advance my career, like getting my agent’s license, like buying a property.
I started, I floated the idea at least of a winter tire rentals business, which would be a horrible plan to a local mastermind group. But I did exactly what I told Zoe there. And my portfolio today is these five rental properties, a large portfolio that is essentially all index funds, Vanguard index funds, and then my position here at BiggerPockets. That’s it. Like that’s the portfolio. And it’s that simple from that perspective.
And you just every week get a little better at your job or a little better with the side hustles or move that next project forward. And you let that compound for eight years and it’s this feeling of monotony or grind, and you look up every couple of months, you’re like, whoa, I came a long way with that by waking up every day and going a little bit further forward. So there’s nothing to be afraid of. It’s a long term investment. It could start with a plan about where you want your portfolio to be in a future state. Work the plan, make the formula work for you in a very simple way, and then allow yourself the opportunity to get lucky by taking the chances that you think are roll around, but don’t say yes to everything. Say yes to one thing at a time and move forward with it.
And that’s what you do in order to do this. And I think she’s got that all, she’s so strong in every part of her financial position, in her framework. She just hasn’t completely solidified it into a crystal clear plan yet. And so I think that’s giving her a lack of confidence in a couple of things. She’s making very minor mistakes that are almost irrelevant in the scheme of the overall story of her personal finance journey when she looks back in 10 years. But she’s perseverating over them because she just hasn’t quite solidified all that into one cohesive philosophy and framework. She’s very close though, and I will not be shocked if she’s not a millionaire within seven years, let’s call it.

Mindy:
I agree 100%. I will be shocked if she is not a millionaire in 7 to 10 years, depending on what the stock market does. But yeah, I think you need a plan. I think anybody listening needs a plan and the investment philosophy document will be in the show notes for this episode. The link to it will be in the show notes for this episode. So if you are struggling with your investment philosophy, Scott’s document can help you out.
All right. That wraps up this episode of the BiggerPockets Money Podcast. Thank you for listening. We really appreciate you. He is Scott Trench, and I am Mindy Jensen saying, got to go Buffalo.