\n<\/p>\n
If you want to know how to start investing in real estate<\/strong><\/a>, you\u2019re in the right place. Today, we\u2019re going to detail the three often-overlooked beginner steps that\u2019ll allow you to build a real estate portfolio<\/strong>, reach financial freedom<\/strong><\/a>, and have more time and money<\/strong> than ever before. And no, these steps are NOT the usual \u201clook up properties online, talk to an agent, get pre-approved\u201d advice. Instead, we\u2019re giving you the time-tested expert guidance <\/strong>that leads you to REAL wealth, not just a handful of headache properties.<\/p>\n So, who has the foolproof plan for real estate success? Dave Meyer<\/strong>, BiggerPockets VP of Data and Analytics, host of the On the Market<\/em><\/a> podcast, and author of Start with Strategy<\/em><\/strong><\/a>. In today\u2019s episode, Dave outlines exactly how he built a life he loves<\/strong>, living abroad<\/strong> with free time to travel<\/strong>, making more than enough to support his adventurous lifestyle, all while spending less than an hour a day on his real estate portfolio<\/strong>. If you\u2019re ready to buy your first or next renta<\/strong>l, experience lasting financial freedom, and hear Dave\u2019s 2024 <\/strong>mortgage rate<\/strong><\/a> predictions<\/strong>, stick around!<\/p>\n Ready to start investing in 2024? Pick up <\/strong>Start with Strategy<\/em><\/strong><\/a> and use code \u201cSTRATEGY356\u201d at checkout to get 10% off!<\/strong><\/p>\n Ashley: Tony: Ashley: Tony: Ashley: Dave: Ashley: Dave: Ashley: Dave: Ashley: Dave: Tony: Dave: Tony: Dave: Ashley: Dave: Ashley: Dave: Tony: Ashley: Dave: Ashley: Tony: Dave: Tony: Dave: Ashley: Dave: Tony: Dave: Tony: Ashley: Dave: Tony: Ashley: Dave: Ashley: Dave: Tony: Dave: Ashley: Tony: Dave: Ashley: Dave: Ashley: Tony: Dave: Ashley: Tony: Dave: Ashley: Dave: Ashley: Dave: Ashley: Tony: Ashley: \u00a0<\/p>\n<\/div>\n Help us reach new listeners on iTunes by leaving us a rating and review! It takes just 30 seconds and instructions can be found here<\/a>. Thanks! We really appreciate it!<\/p>\n Interested in learning more about today\u2019s sponsors or becoming a BiggerPockets partner yourself? Email <\/em>[email\u00a0protected]<\/span><\/em><\/a>.<\/em><\/p>\n Note By BiggerPockets:<\/b> These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.<\/p>\n
This is Real Estate Rookie, episode 356.<\/p>\n
Today, we have the data deli himself, Dave Meyer. You guys might know Dave. He is the host of the BiggerPockets on the Market podcast. He\u2019s the VP of Digita at Bigger Pockets, and just an all around really awesome and intelligent guy, and I love talking to him. Today, he\u2019s got a new book out. It\u2019s called Start with Strategy. We\u2019re going to talk a little bit about how strategies should be played into your journey as a rookie real estate investor. Guys, this is probably one of the most overlooked things I\u2019ve seen rookies do, so make sure to pay attention in all of today\u2019s episode, because you\u2019re going to get some good stuff.<\/p>\n
As always, I\u2019m Ashley Kehr, joined by my co-host, Tony J. Robinson.<\/p>\n
You\u2019re listening to the Real Estate Rookie podcast where every week, twice a week, we bring you the inspiration, motivation, and stories you need to hear to kickstart your investing journey.<\/p>\n
Today, we\u2019re going to learn that investing is more than just running analysis. Today, we\u2019ll get into three of the five things you need to evaluate when you are starting in real estate, or maybe you need to even re-evaluate to hone in your real estate strategy. So, this will include personal values, transactional income plan, and a resource audit. Have you guys done any of those before? We may even have a little bit of time to get into some market predictions from our favorite data wrangler to see what he has in sight for 2024.
Dave, welcome back to the show, and Happy New Year.<\/p>\n
Thank you, Ashley, Tony. Happy New Year. It\u2019s great to be here.<\/p>\n
Is this maybe your third time on the show with us? Maybe even more. I think you\u2019re one of the few that has been on several times with us.<\/p>\n
Yeah, I think I have. It\u2019s been a long time though. I feel like it\u2019s been a year or two since we\u2019ve done this, so I\u2019m glad to be back and talking about this topic, which I think is particularly useful for rookies. So, I think this will be a great discussion.<\/p>\n
Dave, part of the reason you are here today is because you have a new book out too. So before we get any further, I\u2019d love to just hear a little bit about your book.<\/p>\n
The book is called Start with Strategy. The basic idea is to help real estate investors develop a business plan for the real estate investing business. We call it investing, but as everyone who\u2019s getting into this knows real estate is really entrepreneurship. Just like any business person, anyone who\u2019s starting a company, you need to have a strategy and a plan that you\u2019re going to follow not just for your first year, but figure out what goals you\u2019re aiming for in the long run, and work backwards to decide how you\u2019re going to get there. The book is a framework. It\u2019s super interactive, but also provides a lot of background context on how every individual, no matter what experience level you have, can come up with a strategy that\u2019s personalized to you and your preferences, goals and all that.<\/p>\n
Dave, do you have maybe a story that you can share with us as to a reason as to maybe why you decided to write this book, or why it\u2019s important to start with strategy? Why did you even think of this?<\/p>\n
I think we all experience this in real estate, where you get overwhelmed by how many amazing choices there are. There are so many good ways to invest, and it\u2019s hard to pick. I think I see this all the time, both I\u2019ve experienced and see with other investors, that you don\u2019t really know what to do first because you don\u2019t necessarily know where you want to end up. I have experienced this quite a lot in my life. When I was right out of college, I wanted to do so many different things with my life. I wanted to travel and be a backpacker. I thought about going into finance. I wanted to be a ski bum, and I was really struggling to figure out what to do next, because I didn\u2019t really have an idea of what I wanted my life to be in the long run.
Actually, I went out to breakfast with my grandfather, and I was explaining him my young angst about not knowing what I wanted to do with my life. He asked me a really simple question. He was like, \u201cWell, where do you want to end up?\u201d I was like, \u201cI don\u2019t know. I\u2019m just trying to figure out what to do tomorrow. I don\u2019t know. I don\u2019t want to think about a year from now or 10 years from now.\u201d He is like, \u201cWell, you\u2019ve actually quoted this thing from Alice in Wonderland,\u201d but he basically said, \u201cIf you don\u2019t know where you want to go, then your next step doesn\u2019t even matter, because you don\u2019t have a destination in mind, so what route you take is irrelevant.\u201d
I\u2019ve thought about that a lot over the last few years, and really worked on figuring out what my long-term goals are, and then working backwards into the strategies specifically in real estate that work for me. So, I asked him, \u201cWhat should I do next?\u201d He pulled out some old Alice in Wonderland quote, and basically said\u2026 I\u2019m going to butcher this, but paraphrasing it, basically said, \u201cIf you don\u2019t know where you want to end up in your life, it doesn\u2019t really matter what you do next, because any path will lead you to somewhere. Unless you have a destination in mind, it\u2019s really irrelevant.\u201d I\u2019ve thought about that a lot throughout my life, and it\u2019s guided a lot in my decisions, but I think it\u2019s true in real estate as well where people want to figure out, \u201cDo you want to flip houses? Do you want to be a rental property investor? Do you want to quit your job?\u201d
When really all of those answers, you can\u2019t really come up with answers to them unless you have an idea of where you want to be at the end of your investing career. That\u2019s what inspired me to write this book was helping people figure out what they want, and then plan backwards.<\/p>\n
Dave, I think you bring up a really good point, and I want to comment on that. First, I just want to clarify the quote, because I think it\u2019s such a good quote. I actually looked it up right now. Alice says\u2026 She\u2019s talking to the Cheshire cat. She says, \u201cWould you please tell me which way I should go from here?\u201d The cat says, \u201cWell, that depends on where you want to go.\u201d Alice says, \u201cI don\u2019t really care where I go.\u201d The cat says, \u201cThen it doesn\u2019t matter which way you go.\u201d<\/p>\n
Thank you. Thank you. My grandfather would be very proud. Happy that you actually got the quote.<\/p>\n
I think it\u2019s such an important thing, Dave, for rookies to understand, because you are inundated with all these different options when you first start. There\u2019s different asset classes. There\u2019s single family. There\u2019s small multifamily. There\u2019s large multifamily. There\u2019s storage parks. There\u2019s everything else you can think of. Then within those, you can flip. You can wholesale. You can hold long-term. You can do turnkey. There are so many different strategies, and I think what most people get caught up on is that they want to try a little bit of everything, which maybe isn\u2019t bad to begin with just to see which makes the most sense for you. But I think after a time, you\u2019ve really got to dig deep into one strategy to get good at that thing.
The goal is that it does align with your long-term goals of where it is you want to be. I always tell people, \u201cWhen you\u2019re investing in real estate, you\u2019ve got to look at what your motivations are. Is it cashflow? Is it tax benefits? Is it appreciation? Is it you want to just have a vacation home, and someone subsidizes the cost for?\u201d All those things tie into what strategy makes the most sense for you. So I guess for you, Dave, after you had that conversation with your grandfather, what was the realization you had about what does Dave want out of real estate investing?<\/p>\n
It took me a while, and ultimately, when I was maybe 22 at the time, I felt very conflicted about two different paths in life. Part of me really just wanted to be a heated nest. I\u2019d like to ski, and I just like to hang out with my friends, so I wanted to do that. The other part of me has a lot of frankly just financial anxiety, and so I really wanted to make a lot of money to have more stable income. I felt very torn, and ultimately just decided that my goal for my career in life was to find a way to do both. I really was dead set on having fun, having great relationships with my friends and family, but still making money and not making a trade-off, because it\u2019s easy to make a trade-off.
If you want to make a lot of money, you can work a lot of hours, or you can just have fun, but that comes with financial consequences. So, I set out to find a way to do this, and then I discovered real estate investing, and I was like, \u201cThis is the way that I\u2019m going to do it. It\u2019s a perfect way to strike the balance between living a life that you actually enjoy, and providing yourself and your family with financial security.\u201d That\u2019s what got me into real estate in the first place.<\/p>\n
You just mentioned having some anxiety. How does that actually play into making that decision?<\/p>\n
I mean, I think I just ultimately\u2026 Realistically, my upbringing, my parents were fine financially for a while, and then it all exploded and melted down very quickly for my family, and put us in a difficult situation for a couple of years. That just stuck with me, and I always had this feeling that your career could go away. My dad lost his job for a while, and I just didn\u2019t want to be in that position. It always sort of stuck with me, and I was always hustling and trying to make side businesses, and working two jobs in college and after school even. That was great, because it made me feel better about my financial situation, but I also was in my early 20s, and wanted to do stuff.
So, I felt like I really needed to find a better balance, and not just only focus on this financial anxiety that I have, and find a healthier way to deal with it than overworking.<\/p>\n
We have to go into break here, but real quick, where do we actually start with this? What is the starting point? You had mentioned you need to know where your destination is. What would you call that starting piece? If we\u2019re on the game board of we\u2019re playing some Alice in Wonderland board game here, and we\u2019re trying to pick, I\u2019m envisioning Candy Land in my head. Which way do we want to go? What is that first step, that goal, that destination, the big Candy Land castle? What do you call that, and how should everybody be looking at that as their first step?
If you guys are enjoying this episode with Dave, you can get more from Dave and other real estate experts in a brand new multi-day virtual summit that is happening January 29th to February 2nd, Get Prepared to be Successful in 20204. This is going to be a four-day summit that is exclusive for pro members with some access for free members, so make sure you upgrade to that pro membership before January 29th. Visit biggerpockets.com\/virtualsummit to get all the details on Dave Meyer and the real estate experts on how to access this exclusive event, and to register. Let\u2019s hear a word from our show sponsor.
Okay, welcome back from our short break. Dave is going to get into your first step. We had mentioned playing the game Candy Land. You\u2019re trying to figure out your path. There\u2019s the Candy Land castle at the end. What is that? What is the game piece? What is the first thing that you need to decide and build out and plan before you can actually build out your whole strategy? Dave, what would you call that piece?<\/p>\n
For me, the whole place, the destination you\u2019re trying to achieve is what I call a vision. I try and re-craft this every single year, try and make sure that I\u2019m still pointing in the right direction, but there are subcomponents of vision. You have financial goals. You might have what your job is going to be, some professional goals, but for me, the first thing I always reevaluate is what I call my personal values. I know this doesn\u2019t necessarily sound like real estate investing, but I think it\u2019s super important to figure out why you\u2019re investing, and why you\u2019re doing this in the first place, and what you actually value in your life.
This is common in businesses, right? We don\u2019t talk about it as much in real estate investing, but every Fortune 500 company has values. They have a mission statement, and so I encourage people to do that for themselves. It\u2019s something I do for myself by creating or tweaking my own personal values each year to make sure that everything I do in real estate or really in my whole professional life is aligned with the life that I want to live.<\/p>\n
Ash, I know for me, I probably haven\u2019t done a good enough job of creating a value statement, I think, for my real estate business. Have you put any thought into that, Ash?<\/p>\n
I actually had a consulting company that I was working with last year that helped me with doing a little bit of planning and writing out my mission statement and the vision for the company, because we were hiring for a couple of virtual assistants. It was the thing that I procrastinated on the most.<\/p>\n
It\u2019s really hard.<\/p>\n
Out of all of the stuff that I had to get to them, that was the thing. They\u2019re like, \u201cYou know what? We\u2019re going to send you this form. Just fill out this form, and we\u2019ll help you do that, and even fill them.\u201d They pieced it all together by doing a really good job of asking me certain questions that could help them understand, \u201cOkay, we think this is what you would want your mission statement to be.\u201d Then I would read it, and tweak it, and change it a little bit, but that helped me. But as far as sitting down and drawing a blank board, or Googling other companies\u2019 core mission statements, their values, what are their five pillars? Always been very difficult for me to do that, because I\u2019m just like, \u201cJust sit down and do the work.\u201d
I don\u2019t care, whatever company culture, things like that, but I know that it is really important, and things that you should do. I definitely learned a lot last year doing it with that consultant.<\/p>\n
I guess, Dave, what\u2019s your guidance for that rookie investor who\u2019s maybe never taken the time to sit down and think about values? How does one even come up with that list? Is it 50 values? Is it five values? Just walk us through maybe some tactical secs and actually putting that together.<\/p>\n
Sure. Well, first, I\u2019ll say I definitely identify with this. I came across this idea of personal values from an executive coach that I worked with for a few years, and she was like, \u201cYou have to do these values.\u201d I was like, \u201cMan, I\u2019ve got so many other problems to deal with. This is the last thing I\u2019m going to do.\u201d Finally, after maybe six months of nagging me, I sat down and did it. It\u2019s honestly changed my life maybe more than any other professional thing I\u2019ve done. I know that sounds strange if you\u2019ve never done the exercise, but the way my coach, Lauren, had put it to me was, \u201cYour values are the things that you can\u2019t live without in your life.\u201d
So, she encouraged me to come up with no more than five personal values, and you really\u2026 It\u2019s hard. You really have to think about it, but she gave me a list of basically words. It was 50 words. This is in the book. We have a template for it, but circle any words that resonate with you that are important to you. Then you basically go through this pruning process of narrowing down what things are really important to you. It\u2019s hard, because everyone wants to\u2026 Most people aspire to have a lot of these things. They\u2019re words like honesty, integrity, trust, adventure. Those all sound pretty good. But as we all know, as human beings, you have to make trade-offs.
You can\u2019t be everything, and so you need to narrow down what you want. Ultimately, I was able to get it down to five things that are super important to me. I use that, yes, in real estate investing all the time, and I\u2019ll explain that in a minute, but I just use it in my job. I use it in my friendships and how I choose to spend my time every day. I can just share them with you. For me, the five are growth, just like personal growth, adventure, freedom, mental and physical health, and meaningful relationships. I look back at those all the time. If I think about, \u201cDo I want to write another book?\u201d I have to decide like, \u201cIs that going to impede on any of my values, or is it going to support my values?\u201d
If I decide, \u201cDo I want to flip a house,\u201d is that working in alignment with the things that matter to me in my life or not? It really just has helped me improve my decision-making skills a lot, and that applies to real estate for sure.<\/p>\n
Dave, I appreciate you sharing that. One question that it makes me think of is do you always feel that those values are an equilibrium where they\u2019re always perfectly balanced, or do you find yourself going through seasons where maybe you prioritize one value over the other? Because that\u2019s something that I\u2019ve found as I\u2019ve progressed in life and in entrepreneurship and in business is that sometimes you have these seasons where you can really focus in on one piece of your life, and there\u2019s other seasons where you got to shift that focus towards something else. So, is your goal to always keep those perfectly balanced or just to be within range, but sometimes you got to shift resources and priorities?<\/p>\n
That\u2019s a great question. I wish it was easy to do all of them, and keep them all in balance, but I think it\u2019s unrealistic. I think the key is to\u2026 If you\u2019re going to live outside of some of your values, that it\u2019s a conscious decision. Sometimes I\u2019ll prioritize work, and that means I\u2019ll have less adventures, or maybe I\u2019ll spend a little bit less time with my friends for a couple of months, but that\u2019s a decision I\u2019m making to pursue another one of my values, or something else that\u2019s really important to me. I\u2019m not just letting this happen to me, and just making decisions willy-nilly based on whatever opportunity comes up. Because like you said, it\u2019s impossible, but I think it\u2019s important to know, \u201cOkay, I\u2019m going to take a step back from this,\u201d but knowing that to live the life you want, you have to get back closer to equilibrium at some point.<\/p>\n
Dave, you had also mentioned that one of those beliefs that were important to you was personal relationships. So, how does this impact your investing, your personal core values per se?<\/p>\n
The way it mostly impacts me is that I actually pretty significantly limit the amount of time I\u2019m willing to spend investing in real estate. I know it sounds silly for someone who does this for a living, but I work full time, and so my real estate investing portfolio is above and beyond my job at BiggerPockets. I find that if I were flipping houses, or doing BRRRRs, or really trying to grow my portfolio as quickly as humanly possible, I would run out of time for the meaningful relationships that I want to prioritize. So, actually, we can talk about this later, but for me, my goal is 20 hours a month on my portfolio or less on average. That, for me, gives me enough time to pursue the meaningful relationships that I have outside of real estate.
Now for some people, that could mean being close with the people you work with. I live in Europe, and so I almost exclusively invest passively. I don\u2019t have a lot of opportunity to build meaningful relationships with the people I invest in real estate with. So, I need to limit and compartmentalize my real estate investing so that I can find those meaningful relationships elsewhere in my life.<\/p>\n
All right, guys. Dave, so much good information that you\u2019ve shared already as expected, but coming up, we\u2019re going to cover how to audit your personal resources. But before we go there, Dave, can you tell me what exactly is a transactional income plan, and how does that add to this vision that you\u2019ve talked about so far?<\/p>\n
Transactional income is just a source of making money that\u2019s outside of investing. So, a job is basically transactional income, but there are types of real estate that are transactional as well, like flipping a house, or being a real estate agent for an example. I think one of the things that I struggled with early in my career, and I see a lot of rookies struggle with is trying to figure out what they\u2019re going to do and if they should make real estate investing a full-time job. To me, it\u2019s super important in your vision to figure out whether or not you want to make real estate a full-time job, or it\u2019s going to be something you do on the side, because that will really help you narrow down the options that you have as a real estate investor to just the ones that make sense.
Some are easy, whether you work full-time or not. Others really only make sense for people who are full-time into real estate. I think making that distinction is very important and helpful for setting your strategy.<\/p>\n
Dave, one thing that makes me think about, so many people in our rookie audience are focused on walking away from their day jobs, and understandably so, but I think some people almost get too excited about that idea sometimes. They lose sight of how important that transactional income is to their goals of building their real estate portfolio. It makes me think. Someone shared this analogy with me before, but have you guys heard the term escape velocity? It\u2019s like you have to travel at a certain speed to break Earth\u2019s gravitational pool, and if you don\u2019t travel fast enough, you\u2019ll get to a certain height, and then earth is just going to pull you back down.
It\u2019s a similar concept for real estate investing. If you step away from your W-II job too soon, you haven\u2019t yet reached the speed to reach escape velocity. You\u2019re just going to pull back down to reality. I\u2019ve seen people, I\u2019ve met people who have maybe pulled the trigger too soon, and then they have to go back out into the workforce again, because they weren\u2019t quite ready to step aside on their own. So, there\u2019s a lot of benefit to keeping your day job. I think the goal is to get to a point where you\u2019ve 1.5x or 2X what you need to survive on before you pull that trigger.<\/p>\n
Even then if you have hit that 2X, that 3X, whatever that amount is if you\u2019re able to do both things too, and you enjoy your job, and you enjoy being a passive investor, then that\u2019s something you can do too. I think there is that big misconception of, \u201cI haven\u2019t reached financial freedom until I\u2019ve quit my job.\u201d Well, no, that\u2019s not true. You can still make it as a real estate investor, and still carry on a W-II. That\u2019s even more impressive if you\u2019re able to balance out both than just, \u201cYou know what? I have to quit my job, because my properties are so overwhelming. I need to manage them, and take care of them.\u201d
So yeah, I agree. I think that\u2019s a common misconception is that you need to build your real estate, and then quit your job, and then you\u2019re free, and everything\u2019s wonderful and great. But in the U.S., one thing is health insurance. That\u2019s actually an incredible difficulty once you become an entrepreneur, and you don\u2019t have that anymore. So, it\u2019s not always just the pay. It\u2019s the benefits too.<\/p>\n
I think you both hit on really important topics here. I think it\u2019s really just comes down to what you want out of life, because I think most people say, \u201cOh, I want to quit, so I can work on real estate full time.\u201d That might make sense for you, but you have to recognize in 90% of those cases, you\u2019re just trading one job for another job. So, you\u2019re trading your W-II job for working at real estate full time. I am making presumption, but both of you work in real estate full time. I\u2019m sure it still feels like you have a job, right? So, it\u2019s really up to what provides you\u2026 To me, it\u2019s just two questions. What provides you with more resources, and what provides you with the most fulfillment?
Because if you have a job that you don\u2019t like, but it gives you a lot of money to invest, or a lot of time to invest, or skills that you can bring to your portfolio, you may want to stay in your job, or even if you just really like your job, and you\u2019re fulfilled by it, that\u2019s a trade-off that you might be willing to take. So for me, I only recommend people quit their job and go into real estate full time if it will move them up on one of those spectrums. Is it going to improve the amount of money you\u2019re going to make, or the time that you have to invest, or is it going to make you feel more personally fulfilled? Then you might want to consider it, but don\u2019t just do it, because people on Instagram are doing it, and make it seem like that\u2019s the ultimate goal of real estate.<\/p>\n
Last thing I\u2019ll say about the personal income piece is that what I\u2019ve found, what I\u2019ve seen from other folks is that the fastest way to grow your real estate portfolio, unless you\u2019re doing creative finance, or you\u2019ve got capital partners, but if you want to use your own money from your own W-II job is to grow the amount of money you make in your day job. Oftentimes, the fastest way to do that is to leave to another company. I know for myself, I got, I don\u2019t know, like a 45% pay increase by going from one company to the next. It\u2019s crazy to think that someone who\u2019s never seen you work before is willing to pay you 45% more than a company you\u2019ve been at for years, but that\u2019s typically the case.
There was this study. I can\u2019t remember. I wish I knew the exact numbers, but it looked at people who job hopped every 24 to 36 months versus someone who stayed at the same job. They lined those people up after 15 years, and the people who job hopped made exponentially more than the people who stayed at the same company. So if you\u2019re looking for a way to shovel, then focus on maybe looking at a new position with a new company.<\/p>\n
Didn\u2019t they say that\u2019s the problem with the-<\/p>\n
Yeah. Can we tell that to BiggerPockets? It\u2019s like they always reward the new customers. They\u2019re like, \u201cCome to Verizon, and we\u2019ll give you a new cell phone.\u201d You\u2019re like, \u201cI\u2019ve been here for years. Give me the new cell phone. I\u2019ve been coming here forever.\u201d It\u2019s like the same idea with jobs. They need to incentivize people to leave something that\u2019s comfortable a lot of the time. So, it makes sense. I think the other thing in addition to making more money too is if you want to grow your portfolio, but you\u2019re working 70 hours a week, can you find a job that maybe you make even the same amount of money but you work 40 hours a week? That opens up a whole lot of time where you can be looking for deals, or networking, or doing all this other stuff that could help grow your portfolio.
I just think thinking critically about your job and how it supports your investing is really important. It\u2019s not just how quickly can I leave it? It\u2019s, \u201cIs this helping me get to ultimately where I want to go\u201d For some people, the answer might be, \u201cYes, you should quit your job.\u201d If your vision is, \u201cHey, I want to leave my job in five years,\u201d you can make that happen sometimes. Some people can make that happen, but if you know that, \u201cHey, I want to keep working for 20 more years,\u201d that\u2019s going to open up so many more real estate investing strategies to you. You can take on more risk. You can think more long-term. More markets are going to be available to you. So, knowing where you stand on that spectrum will be super helpful.<\/p>\n
We\u2019re going to take a short break real quick, and then we\u2019re going to be back and just follow up talking about a resource audit and what you can do today. Then we\u2019re going to go into a little bit of 2024 predictions.
Welcome back to the show. Dave, the third thing that we wanted to finish up here and talk about is doing a resource audit. So, what is this that something somebody can implement today? Maybe is this something you\u2019re going to continuously do throughout the year or maybe once a year?<\/p>\n
Resource audit is basically looking at the various resources that you have today to contribute to your portfolio. This is really just helpful in figuring out what you should do next. As we were talking about earlier about, money or capital is obviously a very important resource for real estate investors. It is a capital intensive business, and so knowing how much capital you have is super important, but one of the things I personally love about real estate investing is that you can get by or get started. Even if you don\u2019t have capital, there are other resources like time and skills that you can contribute to a portfolio to help you get started. As long as you have one of those three things, you\u2019re able to build a portfolio.
Just a small example, when I got started, I had no money. I had no skills, but I had a lot of time, and so I used that time to go find deals. I used it to self-manage a property that I basically only earn sweat equity in and that was able to get me started. So, even if you\u2019re new and thinking, \u201cI want to get into real estate in 2024, but I don\u2019t have a lot of money,\u201d figure out what you do have, because there are things that you can contribute. If you have time or skill, like I said, you can find ways to use those resources to get into real estate, but for me, the first step is just figuring out what you got.
You got time. You got skills. You got money. If you don\u2019t have any of them, it\u2019s going to be hard, but if you have at least one of those three, there is a path forward for you.<\/p>\n
Ash and I talk about this in our book, Real Estate Partnerships, where every real estate deal, it\u2019s like a puzzle, and certain people have certain puzzle pieces, and they\u2019re missing other puzzle pieces. So if you have time, if you have the ability to analyze deals, maybe you\u2019re lacking capital, or maybe you\u2019re lacking the ability to get approved for a mortgage, go find someone else that can plug those pieces in for you, and then the two of you work together to take that deal down. If the inverse is true, where maybe you have the capital, you have the ability to get the debt, but you\u2019re a physician who works 90 hours a week or something crazy like that, and you know you don\u2019t have the time, go find some young college kid who just graduated, or something like that who\u2019s got an abundance of time that can do that legwork for you.
So, it\u2019s all about finding that puzzle piece that matches with what it is you\u2019re missing as a real estate investor.<\/p>\n
That\u2019s such a good analogy. It\u2019s so true, and it changes over time. If you start without capital, that\u2019s okay. You just hustle and learn some skills, use your time. For most investors, I find that that\u2019s how almost everyone I know started is they didn\u2019t have a lot of money, but they just hustled their way into it. Then over time, as you have more capital, usually, you buy other people\u2019s time, or you buy their skillset to help you grow. So, that\u2019s why I think it\u2019s useful to do this once a year. Just be like, \u201cAll right, now I have less time than I used to have, but I have more capital. So, given that reality, I need to change my portfolio in X, Y, Z ways.\u201d So, it just helps you figure out what to do next.<\/p>\n
Dave, how do you evaluate those skills for yourself? When you\u2019re looking at yourself, what skillsets do I have? Is there a way to do an evaluation on yourself?<\/p>\n
Just to preface that, I think it\u2019s such an important question, Ash, because a lot of rookies, they\u2019re not self-aware as to what value they bring. So, I think this is going to be super practical advice, Dave.<\/p>\n
Oh, good. I think this is\u2026 Again, I agree with you Tony. This is one of the things that most people overlook, because there are a lot of skills, and I think\u2026 Basically, in the shortest example, I have a list of skills. I have one in the book, but you can really look on BiggerPockets. I\u2019m sure there\u2019s other places of lists of skills that you need. I think the two important things to think about are, one, how good am I at it today? Two, how hard would it be for me to learn this skill? I think that\u2019s the one that people really overlook, because it\u2019s easy to start and be like, \u201cI\u2019m bad at all of these, and I\u2019m going to try and learn all of them.\u201d
That is where so many people go wrong. I went deeply wrong here. I was like, \u201cI\u2019m going to be super handy. I\u2019m going to start building staircases, and drew in drywall.\u201d I\u2019m so bad at it. I am just awful. There\u2019s no reason I should spend any time doing that, and so I go through these lists, and just say to myself just as an example, finding deals, that\u2019s something I\u2019m okay at. I\u2019m not great at it. I know people who work full-time in real estate who are much better at that than I am. I have a network, so I\u2019m not going to probably do that much time like learning how to do outreach to off-market deals. I\u2019m going to rely on other people to do that.
For deal analysis, that\u2019s something I\u2019m good at, and that\u2019s something I\u2019m going to contribute to my portfolio. When I talk about finance and tax, that\u2019s actually something I have professional experience with, but I hate it, so I\u2019m going to pay someone to do it. I don\u2019t want to learn how to do it. I think it\u2019s just really important for people to be realistic about, one, there\u2019s a lot of things you need to do that need to get done, let me say. You don\u2019t need to do them, but that need to get done for a real estate portfolio to be successful. You do not have to nor should you do all of those things.
So, I think it\u2019s really important to just focus on the ones that you like and that come easily to you, and to outsource the other things. It will save you a lot of time in the long run. Honestly, it might seem like it\u2019ll save you money to try and do everything yourself, but take it from thousands of investors who have tried to do everything themselves. It does not save you money.<\/p>\n
I can definitely relate to that too. Dave, I do have a question though as far as when you\u2019re picking your skillset and the things you actually are going to do for your first property, your first business, whatever it may be, is there a preference you have, or a way to differentiate choosing between something you want to do but maybe know nothing about, and have to take the time to learn or something that you do know but you don\u2019t want to do it? You had mentioned finance and taxes. You know that stuff. You could do it but you hate it, but maybe compared to doing drywall, whatever, you\u2019re actually super passionate about it.
You want to learn it. It would be fun to get your hands dirty, but it\u2019s going to take you longer. You\u2019re not going to do as good of a job of doing it as someone. So, is there any kind of balance where maybe you should do something you hate doing, because you do know it? I guess, just what are your thoughts on that as far as putting a value add to what your skillset is?<\/p>\n
That\u2019s a great question. I think it comes down to what other resources you have, because if you don\u2019t have a lot of capital or time, and you\u2019re really relying on your skillset to grow your portfolio, you may have to contribute something you\u2019re not good at. I can imagine or know people who are contractors who don\u2019t really like it, but they want to get into real estate. It might be a good way for you to get in to use your skills as a contractor at the beginning while you build up those other resources. So, I think there are things like that. I also think there are certain skills that every real estate investor just needs to have at least a baseline of.
To me, I call it portfolio strategy, but that\u2019s just what we\u2019re talking about here is, one, just understanding where you want to be and how real estate can get you there, I think, is super important. Deal analysis, everyone needs to be able to do at least a basic level of deal analysis. You can\u2019t really outsource that. I do think networking is also another skill that people overlook that you can\u2019t outsource. You can\u2019t have someone make relationships on your behalf. So, I think there\u2019s certain things like whether you like it or not, you probably should learn those skills. Whereas things like taxes or property management, those things are easily outsourced.
I guess that\u2019s another way you could look at it is taxes, property managers, lawyers. Those are all things, contractors. You can hire those people easily. Could you hire someone easily to analyze single family rental properties for you? Probably not. I think that it\u2019s probably just worth learning for yourself. So, I would think about it that way.<\/p>\n
That\u2019s great advice. The one thing that I would add to it too is your own time and the value on your time. If you\u2019re considering,,, you say you have your W-two. You have a side hustle, maybe a remodeling business, so you could go and you could stop remodeling for other clients. You could go and you could work on the house that you\u2019re flipping yourself. Well, what is actually the time value trade-off on that? As a contractor doing luxury remodels, are you making $100 per an hour? But if you go into your own flip, and you do the math, and after three months of flipping this house, you only ended up making $50 an hour, so would it been more cost-effective to actually just hire somebody else out to do it, and then you go and maintain doing your flips, and then you ended up netting the same amount, $50 or whatever it may be, because they were able to work all day, and then ended up selling the property in a month instead of the three months, because you had to do it at night?
Things like that too, I think, are important to take into consideration as to your time value. That even goes back to quitting your job. Are you going to be working more hours but actually making less being a real estate investor, because you\u2019re spending more time on it than what you would if you would actually go to a W-2, and you could hire out?<\/p>\n
A lot of times, Ash, I think, does come down to the numbers and what makes more sense as you lay everything out. I think the mistake that a lot of rookies make is that they just go with their gut, and they don\u2019t really back it up with a deeper analysis here. One thing I just wanted to comment on, Dave, you mentioned being able to outsource the networking. I actually read in this book, and it was called\u2026 I think it was called Book Yourself Solid. It was an old marketing book that I read years ago, but he actually did have this process for outsourcing some of his networking, where he had someone on his team that every month, they would just send out emails to people in his database or whatever it was. It\u2019d be something simple like, \u201cHey, Dave, see you got a birthday coming up this month. Hope all is well.\u201d
Then when they replied, he would reply himself, but he had his team going through and send an emails through his inbox for these different little things, and he would just reply when those came in. So, super ninja trick and probably beyond what our rookies are working on right now, but it could be an easy way to build that out. All right, what I really want to talk to you about, Dave, and what I\u2019m most excited to hear your thoughts on are your predictions for this year. Obviously, 2023 was a crazy year for real estate. We came off this high that we saw in 2021 and early 2022 where interest rates peaked to their highest in decades.
I know I lost money on a flip, I have friends who lost money on flips. We have commercial real estate is going through this crazy cycle. What are you seeing for 2024? I guess first what I\u2019ll ask you is where do you think interest rates are going to go? Are they going to hold steady? Are they going to go up? Are they going to come down?<\/p>\n
Oh boy, my favorite topic. Let me just tell you, I actually did very well in interest rate predictions in 2023, and very poorly in 2022. So, let\u2019s take that with a grain of salt just so everyone knows. My general feeling is that interest rates are not going to move as much as people think. They\u2019re in the high sixes as of this recording. I\u2019m going to give you a broad guess and say I think they will end with the first number still being a six at the end of this year is my guess. I\u2019m hopeful that they might come down into the low sixes, but I just want to explain that a little bit. We hit about a high of 8% average 30-year fixed mortgage rate in October of 2023.
They\u2019ve come down a little bit. As bond yields have fallen, the Fed has signaled that they\u2019re going to cut rates next year, and that\u2019s encouraging. All of that is very encouraging. The thing is the market, mortgage companies and bond investors who really set mortgage rates are already pricing those things in. So, a lot of the declines that we are expecting or that the Fed is signaling are now priced into mortgage rates, and so we\u2019ve already experienced some of the benefit of what is planning to happen next year. If the Fed stays on course and does exactly what they said they\u2019re going to do, which let\u2019s talk about their track record over the last three years, never happens. So if they do that somehow, then we will probably have mortgage rates right where they are right now, but the Fed\u2026
This signaling is exactly that. They\u2019re not saying they\u2019re going to do three. They\u2019re very data reliant, and so they\u2019re going to change things as they need to, and as inflation and the labor market change. My guess is they will cut rates a little bit, but we just don\u2019t know. So, I think it\u2019s a little early to say that rates are going to get down as the fives. Hopefully they do, but I think that\u2019s a little early to say. My guess is that they\u2019re going to be more stubbornly high than, I think, a lot of people are hoping for.<\/p>\n
So, we should buy a house right now, or we shouldn\u2019t?<\/p>\n
That\u2019s what I was going to hit on too, Ash, because I think what a lot of people are doing right now is that they\u2019re waiting to buy that first real estate investment, because they want to see rates come down to whatever rate. But my thought is that once rates dip, it\u2019s going to be a bloodbath, because you\u2019re going to have so many people that are sitting on the sidelines jumping back into the market, and we could get to a point where people are going 10K, 100K over asking again like it was a few years ago. You can always refinance your rate, but you can\u2019t refinance your purchase price. I can\u2019t go back to the bank, and say, \u201cHey, I know I bought this for 300,000, but can I actually rebuy this today for 250,\u201d and the bank\u2019s like, \u201cOkay cool.\u201d
So, Dave, what\u2019s your advice to the rookies? Should we be waiting for rates to fall? Should we be pulling the trigger today? What\u2019s your thoughts on that?<\/p>\n
I generally just don\u2019t believe in timing the market. That\u2019s just like I study this full time, and I don\u2019t know what\u2019s going to happen. I just want to make that very clear. So, I believe more in just buying when you have the time and the financial resources to do it, because at least if you\u2019re like me and investing on a 10 or 20-year time horizon, then you\u2019re probably going to be fine whenever you do it. I do think, Tony, there is some wisdom to what you\u2019re saying that prices\u2026 I think there is a good chance that if we rates fall, we\u2019re going to see a very significant increase in competition. I think that is one of the more likely outcomes for 2024.
Not necessarily will happen, but I think there is a good chance that happens. So, buying now when rates are they have come down is wise. I also just think when people talk about \u201crates coming down,\u201d I find that people have wildly different expectations of what that means. I\u2019ll just say this, I think if we ever see mortgage rates in the three percents in our lifetime again, that I would be surprised, and something will have gone terribly wrong with the economy. I just don\u2019t think that\u2019s going to happen. So, could they come down to the fives? Yes, but realistically, they\u2019re going to come down slowly. So, you have to think about what\u2019s your strike price? Okay, they\u2019re at six and three quarters now. You\u2019re waiting for six a quarter. You\u2019re waiting for five and a half. You could be waiting two years for that.
During that time, who knows what could happen to the housing market. So, I just think ultimately, rates, they do matter. It is important, but they\u2019re on, I would say, a positive trajectory now where we\u2019re probably not going to get back up above maybe in the low sevens. So, if you find deals that make sense, you should go for them. Then if rates happen to go down, you can refinance. I think the two things I always say to people is, one, don\u2019t count on rates to go down. If your deal doesn\u2019t make sense, and you\u2019re like, \u201cI\u2019m going to buy it, and then when rates go down in six months, I\u2019ll refinance. Then my deal will pencil.\u201d
I don\u2019t generally recommend that, because no one knows if rates are going to go down. It\u2019s something that\u2019s outside of our control. The other thing is if a deal makes sense with high rates, then it\u2019s going to make even more sense in low rates. So if you can find a deal right now, you might as well buy it, and then it can only go up from there.<\/p>\n
I think where some people got into trouble and could get into dribble is where they\u2019re over leveraging themselves, and then they\u2019re at the point where they have to refinance somehow, or they have to put financing on the property, and when they ran their numbers at the property having a 4% interest rate, and now all of a sudden they have to actually get an 8% interest rate. That has caused a lot of trouble the last couple of years, especially now if somebody went and they were rehabbing a property for a year, and now they\u2019re trying to go and refinance, and the rate is very different from when they bought it. In New York state, here, it can take you three months to actually close on a property, and that\u2019s normal window of time.
So, those three months, if you were buying a property the end of 2021, and then didn\u2019t close until 2022, even right then was starting to make a difference, then you have to rehab your property, and then the rate increased. So, the best thing you can do is make sure you have multiple exit strategies on a property that you\u2019re not over leveraging yourself. You have some kind of backup plan if you are going and needing to refinance. Like Dave mentioned, he\u2019s long term buy and hold most of his investments, where he\u2019s not worried about having to go and refinance and get a rate. If the deal works, the numbers pencil, the day that he\u2019s buying it, what it\u2019s at and what his interest rate is, great. That\u2019s awesome.
You could always go and refinance for that lower rate, but you\u2019re not at risk of having to be told, \u201cSorry, you\u2019re going to have to pay this higher interest rate.\u201d There\u2019s also five-year arm loans or even seven-year arm loans where your mortgage is fixed for a certain amount of years and then it becomes adjustable. That\u2019s where other people will get into trouble too is that they got this lower interest rate for the first five years, and then when those five years are up, it\u2019s going to adjust. So, we actually did that on one property, where it\u2019s a seven-year arm, and for seven years, it\u2019s like 5.12%, which is a great rate. We got this a year ago, great rate at that time. In seven years, that interest rate could go up to 13%. It has a max of 13%, and then I think a floor of 6%.
That would make just a tremendous difference in someone\u2019s mortgage payment if all of a sudden they haven\u2019t planned for that year seven, and they have to go and refinance, or it goes to that adjustable rate. But even if you\u2019re going to refinance, you\u2019re most likely going to be that high rate too, so having some way to get private money or have the cash to pay that off, things like that. So, you want to look at as to, \u201cShould I invest now because of the interest rate, or shouldn\u2019t I?\u201d It\u2019s based upon what your strategy is, and that\u2019s all basis of today\u2019s episode is start with strategy. So if you\u2019re holding onto that property, who cares?
Like Tony said, you\u2019re going to buy it for cheaper right now with the higher interest rate so that when you go and sell it in 20 years, because you\u2019re ready to go move to the beach, and sell everything, you\u2019re going to have paid less for it than somebody who waited and wanted that lower interest rate, but yet they had purchased their property for more.<\/p>\n
I think, Ashley, you made a lot of great points. One thing I wanted to second is that people focus a lot on what rates are and if they\u2019re up or down. I think there\u2019s benefits to both, right? It\u2019s more affordable when rates are low. There\u2019s less competition when rates are high. So if you\u2019re a real estate investor, there\u2019s pros and cons of each. For me, the thing I root for, I obviously have no control over things, but if I had my druthers, I\u2019d root for just stability or predictability. I think we\u2019re getting to that point where rates are going to be more stable. That is just what you need to make a decision, because as you said, Ashley, that makes it so that if a deal pencils, and you have to still wait two or three months to close, you have a reasonably high confidence that you\u2019re not going to be looking at a totally different monthly payment than you were a couple of months ago.
Unfortunately for the last two years, year and a half, it\u2019s been really volatile and hard to make decisions. So, even though I\u2019m not sure which way rates are going to go, if they\u2019re going to trend up a little bit, trend lower, I think they\u2019re going to be a lot more stable, and the band of that rates is going to narrow. So, that just makes it easier for people to make decisions. To me, that\u2019s one of the most important things in getting back to a healthy housing market, more than rates going down to 5% or 4%. I think, predictability really matters a lot in the psychology of home sellers and home buyers.<\/p>\n
Well, Dave, thank you so much for such incredible insight. We really appreciate having you on the show. Can you let everyone know where they can find your new book, Start with strategy?<\/p>\n
Absolutely. Go to biggerpockets.com\/strategybook. That is where you can find the book, and it comes with all sorts of bonuses. If you actually order it now, but it\u2019s still pre-order, you get a free planner. So, it\u2019s like a journal that goes along with the book, where you can actually develop your own investing strategy and business plan. If you buy that, if you go to biggerpockets.com\/strategybook now, you can get that completely for free, which is a great deal. If you use the code strategy 356, you\u2019ll also get 10% off.<\/p>\n
Oh, we always love a good discount here on the Rookie podcast. You can use that 10% towards your first investment property.<\/p>\n
All right, guys, before we wrap here, I just want to give a quick shout out to someone that loves to say five star review on Apple podcast. This person says, \u201cBest real estate investing podcast of all time.\u201d They say, \u201cI listen to this show every chance I get. I can\u2019t wait for the new episodes to air. I always find value in some way, shape, or form. I\u2019m fairly new to real estate investing, and I love when you guys talk about partnerships. You guys always seem to have something I need to hear on a regular basis. I love the podcast. Keep on giving back. I can\u2019t wait to be on your show one day.\u201d
So guys, if you haven\u2019t yet, please do leave us an honest rating review on whatever platform you\u2019re listening to. We\u2019d love to read your review here on the show for the rest of the listeners as well. The user who left that podcast review was Nick@rei216. Nick, we appreciate you.<\/p>\n
Thank you so much, Nick. Dave, thank you so much. Another great podcast to listen to is On the Market podcast, so make sure you go check out Dave and his crew as they talk about current and up-to-date information that you need to know as a real estate investor. Today\u2019s episode was amazing, and we learned all about starting with strategy. We went over three of the five things that you need to start. The first thing was personal values. Second was transactional income plan and how to present that, and then also completing a resource audit on yourself.
Well, I hope you guys are an amazing new year so far. I\u2019m Ashley, and he is Tony, and we\u2019ll see you guys in the next episode.<\/p>\n