\n<\/p>\n
Mortgage rates<\/strong><\/a> are up, which is good news for (almost) no one. Those who have built huge equity gains<\/strong> over the past few years now feel like they\u2019re stuck at a crossroads. You could <\/em>pull a cash-out refinance<\/strong> to buy another investment property, but with such high mortgage rates, is it better to wait out the market?<\/strong> This standoff between buyers, sellers, and the Federal Reserve have many investors confused about the next move to make. Thankfully, our in-the-field investing veteran, David Greene, is here to help.<\/p>\n Welcome back to another episode of Seeing Greene<\/strong>, where your host David answers questions on the spot from investors spanning every skill level. We\u2019ve got video and text submissions this week, with topics ranging from whether to wait or buy now<\/strong>, how to push past negativity<\/strong> when you\u2019re struggling to find deals, when to refinance<\/strong> while interest rates rise, asset protection <\/strong>basics, and much more. These in-depth answers from David will probably solve top-of-mind questions you may have too!<\/p>\n Want to ask David a question? If so, <\/strong>submit your question here<\/strong><\/a> so David can answer it on the next episode of Seeing Greene. Hop on the BiggerPockets forums <\/strong>and ask other investors their take, or follow David on Instagram<\/strong><\/a> to see when he\u2019s going live so you can hop on a live Q&A and get your question answered on the spot!<\/p>\n David: Rob: Jonathan: Rob: David: Rob: David: Jonathan: David: Rob: Duane: David: Parker: David: Daniel: David: \u00a0<\/p>\n \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? Check out our\u00a0<\/em>sponsor page<\/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 the BiggerPockets Podcast show 675. One of my like David\u2019s philosophies for building wealth is that you don\u2019t look for home runs. You\u2019re just trying to get a good pitch to get a hit. And every once in a while, the pitcher leaves one out there, they make a mistake and that becomes the home run. I look at real estate very similar. You can\u2019t go force a home run deal. You can\u2019t go make a seller sell you a house at a super good price. What you can do is look for a lot of base hits in the same deal. And that\u2019s how I put my portfolio together.
Hey everybody, this is David Greene, you\u2019re host of the BiggerPockets Real Estate podcast here today with a Seeing Greene episode. If you couldn\u2019t tell from the green light shining from behind my head, does it look like I have a halo? Do you think Beyonce would include me in one of her songs? I hope so. In today\u2019s episode, we take questions from people just like you that are BiggerPockets fans that want to know what they should do in their situation, get some clarity on the next best step moving forward, or try to figure out how to maximize the opportunity that they have in front of them. And we have some great questions and answers to share with you today.
Just a bit of what you\u2019re going to get as you listen to today\u2019s show. Which house hacking strategies work in different markets, we go into some pretty good detail with different strengths of different markets and what you should be looking for specifically in a house hack, depending which market that you\u2019re in. We talk about when you have equity, what to do with it, when a cash out refinance makes sense, when a rate and term refinance makes sense, and how you should be spending the equity that you pull out of previous good decisions. And one of my favorite things to talk about, we talked about how to get multiple wins in the same deal.
Personally, when I\u2019m showering and I\u2019m trying to figure out, \u201cOh, how do I help the BiggerPockets community to get more houses? What is stopping people from getting houses?\u201d I think about people are always trying to hit a home run in one pitch. They\u2019re waiting for this unicorn of a deal that they heard someone talk about on the show that very rarely ever comes around and they spend six years hoping that the perfect deal comes around and that nothing does. And they\u2019ve lost six years of loan pay down, six years of rent growth, six years of equity. It\u2019s terrible. So I get a chance to answer this question by helping the person asking the question to look at properties and say, \u201cHow can I get several smaller wins in one deal that stack up to more than one big win? So you can be buying more real estate, you have more options, and you\u2019re not waiting for the unicorn that very rarely ever comes?\u201d All that and more in today\u2019s episode.
Today\u2019s Batman voiced Quick Tip is, I am a huge proponent for pursuing excellence in your life, specifically your vocation. I think so many more people would be so much happier if they woke up every day and lived it like it was the last day of tryouts and they were trying to not get cut. Part of being excellent is giving your best every single day, and it\u2019s looking to always improve, which is something that we at the David Greene team and The One Brokerage who are always harping on. I harp on myself, and us at BiggerPockets feel the same way about. For instance, we are taking the pro membership and making it even better every single time we talk. I\u2019m not joking. Whenever I talk to anybody within BP, the question\u2019s always, how do we make pro better?
So my question to you, what are you doing to make your own life better? What are you doing to be more useful or helpful to other people around you? What are you doing to improve your own future? Are you on cruise control hoping something happens to change in your life, or are you proactively looking to get better every day like we are? Hopefully you\u2019re getting better every day, but if not, that\u2019s the question to ask yourself every day when you\u2019re showering.
All right, enough of that. Let\u2019s get to the questions. Before we jump completely into the show, I just wanted to give you a little bit of a heads up. We had Jonathan Greene on the podcast and asked him a couple questions to air specifically on Seeing Greene. So you\u2019re going to hear from Jonathan and my co-host, Rob Abasolo, and then a couple questions in, I\u2019ll be jumping in to provide my commentary. Hope you enjoy.<\/p>\n
We have a special treat today because typically with the Seeing Greene we are getting a masterclass from David Greene, but today we are getting a masterclass from not just David Greene, but his long lost cousin, Jonathan Greene. So we got a question here for you all today if you guys can give us your most insightful answer. And I, depending on how prolific I\u2019m feeling, I might even give a little POV too.
All right, first question from Misha Parker, asks, \u201cBuy now or wait a few months for more of a market correction?\u201d What do y\u2019all think?<\/p>\n
For me, it\u2019s always buy now within reason. I\u2019m always looking, there\u2019s nothing that I even identify about a market that throws me off hot cold. I still think I can find deals because I look every single day and I know the data. So it\u2019s always a buy now cautiously. As long as the numbers look good, the market conditions don\u2019t bother me at all.<\/p>\n
David?<\/p>\n
Yeah, that\u2019s sort of the way that question\u2019s pose as do I buy or do I wait, it\u2019s not the best way to look at it. It\u2019s more like when the market is in the seller\u2019s favor, you\u2019re just going to spend more time and buy less. And when the market is in the buyer\u2019s favor, you\u2019re going to spend less time, you\u2019re going to be able to buy more. So it kind of comes down to the expectations of what you think you can get for the time you put in.
I would say in general, there\u2019s overall two different kinds of markets throughout the country. We\u2019ve got markets where prices are softening as either the sellers were very ambitious and priced their homes way ahead of the curve of where things were trending and they\u2019re returning back to normal. Or there was not a great discrepancy in supply and demand, and now that demand has gone down, you\u2019re seeing an imbalance and prices are actually coming down based on fundamentals. So in that market, you\u2019re okay to wait a little bit longer because that will probably continue to happen. So if you can only buy one house, you got $20,000 saved up and you got to make a move, it\u2019s okay to wait in a market like that.
But many markets across the country, independent of these interest rate hike, are still red hot stuff, is selling very fast, the supply and demand is just so off. That waiting is going to make prices go up. So know the market you\u2019re in. Some of the markets where I\u2019m seeing the prices sort of turning back down would be Sacramento, that\u2019s a big one. Seattle. I\u2019m seeing that happen in pretty big degrees, especially in the higher price points. You\u2019ve got some of South Florida that\u2019s slowing down a little bit because it just got out of control, but don\u2019t expect to crash. There just is not enough inventory and there\u2019s still enough demand. But understand, like what we were saying, it\u2019s not just wait or buy now. It\u2019s not that simple. This is not stocks where the price goes down or the price goes up and those are the only variables. Like Jonathan said, you might find a deal that just at the surface looks mediocre, but you poke and probe and you realize, \u201cOh, I could get them down to another 100 grand\u201d and that becomes a great opportunity. Rob, what about you?<\/p>\n
I don\u2019t know. It\u2019s hard to say. I always liken this to stock or crypto where everybody, when it is at the top, everyone says, \u201cOh man, as soon as it falls, I\u2019m just going to buy a bunch of it.\u201d And then now stuff is falling and everyone\u2019s like, \u201cOoh. Hmm, I don\u2019t know. I mean, my dream came true with the price, but I don\u2019t think I want to buy it right now.\u201d But real estate\u2019s kind of the same way. Six months ago we were all paying all time highs. And now there is a little bit of a correction, now everybody\u2019s like, \u201cOoh, I don\u2019t know. I don\u2019t know if I should do it.\u201d
I\u2019m kind of the person that I really believe that you got to take action. And so like Jonathan said, take cautious action, right? Don\u2019t just get into a deal just to do it. Analyze it. If it fits your criteria, you should do it. Because at the end of the day when you say, \u201cOh, I\u2019m going to wait six months,\u201d 99% of people will never actually take action in those six months because they will have talked themselves out of it. So I think if there\u2019s a deal that fits your criteria, you should go for it.<\/p>\n
And if you want to know more information about which markets are trending up and which ones are trending down, I would suggest following Dave Meyer and the BiggerPockets\u2019 State of the Market Podcast where they cover this exact topic in detail.
All right. Our next question comes from Janelle Kuche. And Janelle says, \u201cWhat would you suggest to an investor who is currently battling a negative mindset and struggling to find deals?\u201d What say you, Jonathan?<\/p>\n
Well, a negative mindset is always a product of who you\u2019re around. I mean, if you surround yourself with negative people or don\u2019t know any investors, you\u2019re probably going to have a negative mindset. People are going to be telling you, \u201cYou shouldn\u2019t invest. You don\u2019t know what you\u2019re doing.\u201d You just need to get to more meetups, meet more people who are newer investors like yourself, and that will change your outlook. But also negative mindset comes from confidence, same as an analysis paralysis. So the more you know, again, this can all be achieved through meetups, listening to podcasts and making sure you find people you can trust, but I found that building relationships with other true investors, new and seasoned, as long as you have some value to add, will help you in both of those. A negative mindset\u2019s always about who you\u2019re around because you\u2019re not just doing it to yourself.<\/p>\n
Yep. I would say for someone in that position, the most important thing you could do is build momentum. Once you get one deal, two, three, they don\u2019t have to be home runs. You just get on base, you start to realize, \u201cOkay, this isn\u2019t as scary as I thought.\u201d The analysis paralysis goes away. You get excited about it, now you want to look at more deals. As you\u2019re looking at more deals, you get a better feel for what a deal actually is and then the fear just sort of evaporates on its own.
If you\u2019re trying to get a deal like what Jonathan gets or what you see Rob getting as your very, very first deal, you are setting yourself up for frustration. You don\u2019t have the skills they have, the resources they have the network, the experience, none of the things that make someone really good at what we\u2019re doing. So set the bar lower, start with house hacking. Buy a house in a great neighborhood, in a really good location where there\u2019s a lot of demand, good school scores, low crime.
It doesn\u2019t have to be the deal of the century, but it\u2019s a couple different units where you can live in one unit, run out the other two, reduce your risk profile as much as possible. Give it a year or two and see how much equity you\u2019ve created. That could be the down payment for your next two properties. And you\u2019ve got a little bit of the experience of the training wheels of managing a property, what goes wrong in a house, how you fix it. You\u2019re just going to get exposed to this and it\u2019s not going to feel as scary as jumping out of an airplane into the ocean. It\u2019s more of kind of getting into the shallow end of the pool and letting you feel what that water\u2019s like when it hits your body.<\/p>\n
You know, I think you should open a sugar free Red Bull, slam it and hit the MLS and look for deals, man. I mean, honestly, just find a way to get inspired. Jonathan, I think you\u2019re totally right. It\u2019s all about who you surround yourself with. Typically, negativity comes from being around negative people. I mean I have always found that. But when you surround yourself around people who are absolutely freaking crushing it, what are you going to want to do? You\u2019re going to want to crush it. You\u2019re not going to be bummed about it. You\u2019re going to be like, \u201cWow, I want to do what they\u2019re doing.\u201d
I remember about a year ago I was invited to speak at a conference. It was a Codie Sanchez\u2019s conference. I was in the green room, and the green, the G-R-E-E-N room, but I was in a room with basically about 20 other millionaires and I think maybe even a billionaire or two, and just talking to them and understanding how they\u2019ve gained wealth and how they\u2019ve gained real estate and how they\u2019ve figured out how to master this business. I was just like, \u201cWow, I have never been more inspired than I am now.\u201d I didn\u2019t feel bad about myself, I just told myself, \u201cOkay, if 20 other people in this room could have done it, I can do it too.\u201d So go find people that inspire you. Like Jonathan said, go to a meetup and really try to get as close as you can to them because that will, I think, unlock a motivation that will make you attack it very positively.<\/p>\n
Hi David. Duane, Long Island, New York. My wife and I recently bought a duplex, but because we did a double closing, we kind of got screwed because our buyer of our old property switched to a note 203(k), which pushed everything back. And so when we bought the new property, we were one of those people that fell victim to the interest rate hike. And so instead of us getting a three point something or a four, we ended up with 5.6%. Now my question has to do with strategic refinancing. What are some of the industry markers, market markers or strategies that you use to kind of refinance? Because as this interest rate fluctuates and changes, I\u2019m just trying to figure out a good way to understand what a good marker is to say, \u201cOkay, now\u2019s a good time to refinance.\u201d I mean aside from the obvious equity and things like that involved, like say if the interest rate drops, like I believe a couple weeks ago it went down to 4.9 or something like that. So just trying to figure out what strategies do you use when you\u2019re refinancing commercially or in multi-door units.<\/p>\n
All right, thank you Duane. I think this is a great question and I think this is the kind of questions I\u2019d like to see more of on the show. So thank you very much for asking it.
Okay, there\u2019s two ways that I think we can approach this question. The first is, Duane, exactly what you asked. \u201cDavid, how do you choose when to refinance?\u201d And I\u2019m going to answer that question. The other way is what I think you might have been getting after, which is how do you play the market when it comes to refinancing? So I will answer that as well.
Now let\u2019s talk about when it comes to my specific portfolio. I don\u2019t try to time the market nearly as much as people would think. Now that will surprise you when I give you my answer about how to time the market because I actually think about it quite a bit. And I have a lot of advice and input for if you\u2019re trying to time the market, getting in and out of buying, when to buy, when to sell, when to refi. I do have a lot to consider. But when it comes down to my own portfolio, I don\u2019t try to outsmart the market as much as you would think. I refinance when it makes sense to refinance.
So I recently refinanced four California properties. I went from a 3.75 to I think of 5.625. I wasn\u2019t super thrilled about that, but I pulled out over seven figures of equity. The cash flow from those properties is still more than what it used to be when I first bought them at the low interest rate. It\u2019s one of the cool things about inflation. When you buy real estate and you wait, your cash flow appreciates. You can now refinance and still make more money than you made when you first bought the properties when you had the lower rate but before your rents had gone up. So I\u2019m going to take that seven figures and I\u2019m going to go buy more real estate.
Now let\u2019s say the difference in my interest rate was 2%. As long as the real estate that I go buy is more than 2%, I\u2019m going to win. So even though I lost on the rate, I won in so many other areas buying below market value, getting into appreciating markets, increasing my cash flow, taking on more debt that my tenants are going to pay down for me. All of that leads to being much bigger wealth than I lost because my rate went up. So that\u2019s the first thing I just want to say is, I refinance when I want to go buy more real estate and when I have equity in the portfolio, not necessarily when rates are low. Now that same portfolio I did refinance a couple years earlier into a lower rate than what it was when I got them.
So you can do that too. We call that a rate and term refinance. When interest rates have dropped and you want to get a lower payment but you don\u2019t take any money out of the property, that\u2019s called a rate and term. When you pull money out the property, that\u2019s called a cash out refi and the rates are typically a smidge higher on a cash out refi.
Okay, now let\u2019s talk about how to play the market when it comes to refinancing. The question would be easier to answer if we saw increases in rates and drops in rates if it was kind of bouncing around. Unfortunately, the market we\u2019re seeing right now is the Fed has more or less come out and said, \u201cWe are going to continue raising rates until we see inflation stopped.\u201d
Now I\u2019m going to interject in my opinion here, I\u2019m not speaking for BiggerPockets. I don\u2019t know this as a fact. I don\u2019t have a crystal ball. The way I look at economics is that increasing interest rates does not necessarily stop inflation. It slows the velocity of money, which can have an effect on GDP and it can have a short term effect on inflation, but not a long term effect. If you want to actually stop inflation, you got to take money out of the economy that we put into it. We don\u2019t see the Fed doing as much of that.
Why do I interject this? Because I don\u2019t think that raising rates is actually going to stop inflation, which is one of the reasons that I\u2019m still buying real estate. But raising rates will slow down how quickly properties change hands. And that can make it look like the price of the asset isn\u2019t going up as much because there\u2019s not as many buyers that are buying them which mimics the effects of lowering inflation. And that\u2019s what we\u2019re seeing, is, \u201cOh, they\u2019re raising rates, so housing prices are starting to come down.\u201d They won\u2019t be a long term effect in my opinion, but it is creating a little temporary window right now where you can get deals that you couldn\u2019t get before.
Why do I say all this? I don\u2019t think that you\u2019re going to see rates come down, my man. That\u2019s what I\u2019m getting at. If you\u2019re waiting to refinance and you\u2019re hoping rates drop and you\u2019re like, \u201cWhat\u2019s the milestone marker where I know jump in now and refinance?\u201d It would just be if the rate is less than what you got. I don\u2019t think they\u2019re going to go down. In fact, I think that they\u2019re going to keep climbing up. We just saw a three quarter rate hike a couple days ago. We\u2019re going to see another one most likely coming soon. I think rates are going to continue increasing, which is good in some sense because it allows investors an opportunity to buy a home. It\u2019s bad in other senses in that it takes away the ability to refi, it makes cash out refis less desirable and it makes homes less affordable in general.
So if you got a chance to get a good rate, Duane, I think you should take it. I think you should plan on holding it for a while. Don\u2019t be discouraged if the property that you said you kind of got screwed on because of your double close and it taking too long to get to the point where you could get into the rate you have right now. You might not cash flow what you want, you might not even cash flow positive for the near future as rates continue to increase, but what goes up must come down. And they always do come down because there\u2019s some politician out there that wants to take credit for lowering rates and stimulating the economy, the same economy that we artificially slowed. Somebody will take credit for artificially speeding up by dropping rates.
What we really need is to increase the productivity of the country. That\u2019s what you really want to do. That\u2019s how wealth gets built. But it\u2019s easier to just tinker with rates, tinker with inflation, tinker with quantitative easing and make it look like we made some progress. Not to get too deep into macro economics there, but there will come a time, Duane, where rates will come down and that\u2019s when you should refi and don\u2019t get discouraged. The property might not be cashing like you hope for. You might even have to wait a couple years possibly before it happens, but when it does happen, it\u2019s going to be awesome because you\u2019re going to see that rents have been ticking up that whole time. And then you\u2019re going to get this big rate drop, and boom, you\u2019re going to have a solid spread and now you\u2019re going to be telling everybody at your local meetup about your amazing deal that cash flow is great. Maybe just don\u2019t have to tell them that you bought it five years ago.
Hey, hey, we\u2019ve had some great questions so far. I hope you guys have been joining the commentary by my BiggerPockets cousin, Jonathan Green, my co-host Rob Abasolo and that question from Duane we just had where we got to talk about the big picture economics as well as smaller picture tactical changes that you can make to increase the spread on your properties and bump up that cash flow. I want to remind everybody, if you would like to submit a video, please go to biggerpockets.com\/david and submit a video. Duane\u2019s is a perfect example. He asked everything he needed to ask. He put in all the details I needed and it was nice, short and sweet. There was even an airplane flying above while he was filming it that made it cameo into his video. Submit something like that. We\u2019d love to get you on the show.
Also, be sure to like, comment and subscribe. BiggerPockets loves you. Please love us back. Just hit that like button or smash it if you prefer. Hey, you can even just tickle it a little bit. Whatever it is that you\u2019re fancy, make sure that you press that like button so that other people can see this and then share it with other people. And leave me a comment. In this next segment of the show, we read comments from other listeners, people that tell us what they liked, what they didn\u2019t like, something funny. I want to read your comment on a future show. So please comment on our YouTube channel for us to go through and read.
First comment comes from Matthew Cook. \u201cI love to see deal deep dives.\u201d Well Matthew, we have seen your comment and we have responded. Rob and I recently released an episode where we dove deep into the hotel that he is buying and got into every single aspect of that particular deal. Tons of information there. Thank you for telling us what you want.
Next comes from Cooking with BB Laster. \u201cI really appreciate this podcast. The information is priceless. Even if you have not started yet, you gain so much knowledge. Thanks David.\u201d BB, that\u2019s exactly what we want to hear. Even if you\u2019re not at the point where you are able to buy real estate, we want you to not waste that time. Start learning about real estate so when the time comes, you are prepared.
Next comment comes from Viraje Dans. \u201cPortfolio architecture phrasing. Google search results from the building architecture and infotech fields with one hit on wealth management. Similar mixed results show for investment \u2018portfolio architecture\u2019 trying to be helpful as I love your playlist channel.\u201d Thank you for that Viraje Dans. I can garner from your comment that you went searching for the phrase portfolio architecture because you heard me talk about it and it peaked your interest. Well, the good news is that I do talk about this. The bad news is that no one else does. You\u2019re probably not going to find hardly any information on this out there on the innerwebs anywhere because this information is typically only shared in the inner circles of very wealthy people.
So you get around a bunch of Mark Cubans or people with huge portfolios and they\u2019re actually talking about how this business protects that business, how this property makes up for weaknesses and other ones and how to construct an entire portfolio. But typically, the people who are listening to a podcast that\u2019s free, they don\u2019t get to hear about this. So here\u2019s my advice. Listen to the stuff that I make because I try to take the information from those inner circles and bring it to you guys, the masses. Also, check out the new BiggerPockets book Real Estate by the Numbers. They get into this concept there written by Dave Meyer and J. Scott. If you want to learn more about it, I would go to biggerpockets.com\/store, buy Real Estate by the Numbers and see if you like what they put in that book.
Our last comment comes from Lisa Morrison, \u201cIn its entirety, this broadcast was FANTASTIC with all caps.\u201d Lisa went full Kanye there. \u201cI appreciate your work and commitment to help beginners grow our knowledge and courage because of this new knowledge. Thank you to everyone involved in making this show and the golden nuggets. Freaking rock stars.\u201d Well, Lisa, you just made my day, so thank you for saying that. I never really wanted to be a rock star, but I suppose now that I am, I\u2019m going to have to live up to the hype. Just kidding, no one\u2019s ever going to complain about being called that. So thank you. That was very sweet of you. I really appreciate it. I\u2019m glad you liked the show. Do us a favor, tell your friends about it. If we could get more people listening to it, we can make more episodes. So thank you, Lisa. Please share this podcast with anyone else in your life that you love so they can benefit too. And hey, maybe you\u2019ll make a friend out of it.
All right, we love and we really appreciate your engagement, so please continue to do so. Like, comment, subscribe on YouTube. And also if you\u2019re listening on a podcast app, take some time to give us a rating and honest review. We want to get better and we want to stay relevant so drop us a line wherever you listen to your podcasts. All right, let\u2019s get back to more questions.<\/p>\n
Hey David, my question is regarding house hacking. Essentially, I\u2019m wondering if I should find a unit or a deal that is good enough to just get into the market now and just start that timer of house hacking so that I can get it now and start letting time work for me. Or should I wait until I find a better deal that is seeming to be more difficult to find where I\u2019m cash flowing from the very beginning. I\u2019m having a hard time finding properties where I\u2019m living in one unit, renting out the others, and also cash flowing. Most of the properties I\u2019m looking at, I can live in one unit, rent out the others for negative 200 to $300 cash flow a month, which is better rent than we\u2019re paying right now. But I\u2019m having a hard time balancing. Should I just get in now to at least start and have something, start building equity for me? Or should I continue to wait to find not the perfect deal, but a better one? I don\u2019t know exactly what is a good deal and what\u2019s not if I\u2019m not cash flowing.<\/p>\n
Oh, Parker, my man, there are so many parts of this question that I love. That last question that you made, \u201cI don\u2019t know how to tell if it\u2019s a good deal if it\u2019s not cash flowing\u201d is so, so good because I think so many people listening are thinking the same thing. Cash-on-cash return becomes the only metric investors look at. So that becomes the way that they make their decision. \u201cIs it a high cash-on-cash return or a low cash-on-cash return? I want to go for the highest one.\u201d And there\u2019s so much more to real estate that we can help y\u2019all with.
And then you\u2019ve got the whole, \u201cShould I get in now on a standard deal or should I get in later on a great deal? Should I wait?\u201d I think that\u2019s another question a lot of people are struggling with right now. \u201cShould I get in now or should I wait for a better deal later?\u201d And then the better deal never comes. And four years later you\u2019re at BP Con again, you\u2019re like, \u201cI still haven\u2019t bought a property. I\u2019m such a failure.\u201d And so you go look at houses and go, \u201cUgh, I don\u2019t know if I should buy. Should I wait? Is there a better one?\u201d And you never get out of that cycle.
So here\u2019s what I want to offer to you. First off, my producer Eric is going to reach out to you. He is going to bring you in for a coaching episode if you\u2019d be willing to do it. Please do it. There may even be a chance that we could bring you in for half an episode or a full episode where we just go through looking at different properties online and me showing you what people have started calling the David Greene goggles. It\u2019s the way, the goggles, the lens that I look at real estate through. I will, with my experience, see things in a property that makes it tells you \u201cRunaway, don\u2019t even touch it\u201d that you might miss. Then there\u2019s other stuff where I\u2019ll say, \u201cOh man, this is an amazing opportunity\u201d that you wouldn\u2019t have seen if I wasn\u2019t showing you my perspective. And that\u2019s the whole idea of Seeing Greene. So I\u2019d like to get you on another show where we can look at houses together and help you figure out which of the options that are available would be a great deal that maybe you\u2019re not seeing.
Another thing I want to point out that you highlighted, you were saying, \u201cWell, I could get a deal. It doesn\u2019t cash flow. I\u2019m still going to spend 200 to $300 a month, which is less than my rent. Is that good?\u201d The short answer is yes, that\u2019s very good. There is no rule that says a house hack has to cash flow positive. And I just want to bring a new perspective into this question. If you\u2019re living in an area with very low rents, say that you could rent a place for $600 a month. In a situation like that, your house hack can and should cash flow positive. You can find a triplex or a fourplex that will pay you to live there if your rent was only $600 a month.
But what if you\u2019re living in Miami, Florida, New York, New York, San Francisco, California, somewhere that rents are really high? San Jose, Southern California, San Diego. Maybe your rent\u2019s there $5,000 a month. What if you can find a house hack that you only have to come out of pocket 1,500 a month instead of 5,000? Even though it\u2019s cash flowing negative, you are saving $3,500 a month. Compare that to making $200 a month and saving $600 a month on rent in that cheaper market. One of them is $800 net to you, the other is a $3,500 net to you. Which one of those deals is actually better? Which one sounds like it\u2019s going to build your wealth faster? This is why cash-on-cash return can be misleading because the San Diego deal would be much better than the cheaper deal in Louisville, Kentucky or something like that.
So there\u2019s a little more nuance that goes into, \u201cShould I buy a house? Is it half the cash flow all the way?\u201d We got to look at your whole picture and figure out what\u2019s going to build your wealth the fastest. So I\u2019d love to have you on another episode and break down different options and kind of show you and the audience, \u201cThis is what I see when I look at these deals, this is what I see when I look at these ones.\u201d I hope that that question gave you a little bit of insight and clarity into the decision that\u2019s best for you. And please keep an eye out for Eric reaching out so we can bring you back on another show.
All right, our next question comes from Davian Medina in Florida. \u201cI\u2019ve lived in my primary residence for over four years. I would like to run it and buy a new property. My question is, would it make sense for me to create an LLC for the property since it is under my name, meaning the title and the deed? Or keep it as it is and rent it with it still being under my name? I don\u2019t know the correct way from a liability perspective. Thank you for all you do.\u201d
All right, Davian, thank you for asking this question. I knew this was about liability protection from the minute that I started to read it. So on one hand, let\u2019s talk about your options. Option one is putting it in an LLC. Option two is making sure that you have enough homeowner\u2019s insurance to protect you in case you\u2019re sued. I\u2019ve said it before, I\u2019ll say it again. LLCs are not iron clad protection against ever having other people touch your assets outside of that rental property. They can be pierced and they are often pierced. Now, it doesn\u2019t hurt to have an LLC. I just don\u2019t want you thinking that it\u2019s like a guarantee. It\u2019s kind of like wearing a bulletproof vest. It\u2019s not a guarantee it\u2019s going to stop every bullet or every kind of bullet. You\u2019re still taking a risk if you go out there even having it. So you don\u2019t want to act like Superman just because you got this LLC thinking that nothing can touch you.
But a better question, one that probably wasn\u2019t asked here but that I think it\u2019d be good for you to be thinking about, is at what point in your investing journey does putting a focus on asset protection actually make sense? Do you need to be super worried about this? Let\u2019s say you don\u2019t have a big net worth. This house has almost all of your net worth in it and you don\u2019t really have a whole lot of assets outside of it. Maybe you got some cash, but that\u2019s going to go into your next home. Well, do you need an LLC if you are sued and the judge rewards the tenant and they take the wealth that\u2019s inside of that one home if you don\u2019t have wealth anywhere else for them to get into, it doesn\u2019t really matter. They can\u2019t take what you don\u2019t have. So that\u2019s one thing that I would think about.
Another one is I would say people don\u2019t realize that homeowner\u2019s insurance often will cover you in many of these cases and you want their lawyers fighting against if you\u2019re sued, not you yourself. That\u2019s just something else to keep in mind, is these insurance companies pay professional lawyers that know how to do this very, very well that are better suited to take this on than you. There\u2019s also a headache to opening a whole bunch of LLCs. I mean, when you get a really big portfolio, like when I talk about portfolio architecture like I did earlier, yeah, there\u2019s a lot of wealth that has to be protected. And so it does make sense to do this, not because it stops people from getting at the wealth but it more deters them from suing you in the first place if they can see there\u2019s not a whole lot of equity inside of this LLC.
So that\u2019s what it comes down to. When you have a ton of equity, you need to spread it out over different LLCs. If you don\u2019t have a ton of equity, there\u2019s really no need to do that. So I hope if you\u2019re a new investor, this is the last person that\u2019s likely to be targeted for anything. The people that are going to go after you are looking for a bigger target, right? So I wouldn\u2019t worry about it too much when you\u2019re new, but as you grow and build a big portfolio, that\u2019s where these questions start to be more relevant. So please, Davian, don\u2019t let this stop you from scaling right now.
Next question comes from Nate and Santa Barbara. \u201cFirst off, thank you for providing all of this amazing content. This inspired me to really look at options that can move my family towards financial freedom through real estate. I just purchased my first home investment in 2021 for 875K. The current value of my home is 1.25 with a jumbo loan amount of 600,000 at 4%.\u201d Well first off, congrats on your equity going up. And second, I can kind of see where this is going because you\u2019re showing me that you\u2019ve got a little under 500,000, maybe $400,000 of equity here. Oh no, even more than that, you\u2019ve got about $625,000 of equity here and you\u2019re at this 4% interest rate that you\u2019re not going to want to let go of.
\u201cI\u2019m looking for help with making the right decisions. This is a two part question on financing my next investment and what my next investment should be. I\u2019m looking to either refinance or use a HELOC to finance my next investment. Maybe there are other options I\u2019m missing, but these were the two I was looking at. My investment was going to be a house hack or convert my garage into a short term rental, which would pay off financing the conversion and eventually lead us to buy a new property and repeat the house hack strategy. Or should I buy a new property right now, move into this property and rent out my current property as is and slowly upgrade? Thank you.\u201d
All right, Nate. I heard a person make a comment one time. They actually heard me make a statement and then they said this and it stuck with me. It might have been Brandon Turner, I don\u2019t remember who it was. But they said, \u201cMillionaires don\u2019t ask, \u2018Should I do this or that?\u2019 Millionaires ask, \u2018How can I do this and that?\u2019.\u201d And I think that applies. So you\u2019re saying you have two options. You could either turn your garage into a short term rental, which would pay for the money that you spent to do it and pay off the HELOC funds that you used to do it. Or buy a new property right now, move into that property and rent out your current property as is and slowly upgrade. Why can\u2019t you do both?
In South Florida right now, the strategy I\u2019ve been using is to buy properties that have big garages. There\u2019s not a lot of them. Turn the garages into ADUs that were either one bedroom or a studio. Rent those out as a budget option and then rent out the main house as a different short term rental. No reason that you couldn\u2019t do the same with the house that you\u2019re in. So you could either do a cash out refi on this home or you could get a HELOC on it, convert the garage, you\u2019ve got two different units. Now you\u2019ve got two different units that can be rented out as short term rentals or long term rentals if you don\u2019t want to do the hassle of managing vacation properties, then move into another house and house hack and make sure the house that you move into has these same options.
See, one of my like David\u2019s philosophies for building wealth is that you don\u2019t look for home runs, right? I played baseball when I was younger. It wasn\u2019t my favorite, but I did play it. I noticed that the pitches you hit a home run off of, they\u2019re usually a mistake somebody else made. You can\u2019t go find that pitch. You\u2019re just trying to get a good pitch to get a hit. And every once in a while, the pitcher leaves one out there, they make a mistake and that becomes the home run. Maybe a better analogy would be basketball. I noticed this. If I tried to force a steal, I would be off balance and the guy that I\u2019m trying to guard would be able to get past me, and now I\u2019m actually in a bad position.
Steals would come with the offensive player made a mistake. Steels just happened. I had to be in the right place and wait for the opportunity. I look at real estate very similar. You can\u2019t go force a home run deal. You can\u2019t go make a seller sell you a house at a super good price. What you can do is look for a lot of base hits in the same deal. And that\u2019s how I put my portfolio together. \u201cOkay, I\u2019m getting this one a little bit less than market value. Okay, this one\u2019s in an area that\u2019s better than other areas around it. All right, this one has a pretty significant value add. I can add an ADU, I can add a garage. Oh, this one actually has rents that I can increase right away. Hey, this one has an opportunity to do something I couldn\u2019t do somewhere else, or it\u2019s in a better neighborhood in the better area,\u201d right?
And if I can get four or five or six of these small wins in one deal, it ends up being bigger than the home run that somebody got on just one thing, an amazing BRRRR, an amazing purchase price, an amazing location. If I can put a little bit of that together in every deal, the deals are easier to find and my wealth builds faster. That\u2019s what I want to recommend to you. Do both. You could go buy a new property, move into that property. But when you\u2019re picking the one you\u2019re going to buy, I want you to choose a property that has multiple ways you could win. Two ADUs, an ADU in a basement, a multifamily property in a grade A location where normally it\u2019s only single family homes. And before you move into it, I want you to convert that garage by putting a HELOC on the house doing all the work and then letting the income that comes in from both of the units being used as short term rentals on your previous house, paying down your HELOC. Then go move into a house you can repeat this again.
Just keep it that simple. Do this one thing once a year and in 10 years you\u2019re going to be a multimillionaire from just executing with these principles. So thank you for asking this question. Don\u2019t ask, \u201cShould I do A or B?\u201d Ask, \u201cHow can I do A and B?\u201d And then send us another video or write us another question letting us know how this worked out. Thank you very much, Nate.
All right, we have time for one more question and this one comes from Daniel Picasso.<\/p>\n
Hey David, huge fan of the show. I love your insight. You\u2019ve guided me so much in my real estate investing career. Now, onto my question, I\u2019m trying to be as quick as possible. I am wondering whether I should give up property management on my properties at this point. I\u2019m very frugal. I think about things in terms of, \u201cOh, if I could give up\u2026\u201d I make about gross rental income $9,000 a month in rent. So when I think of giving up 10% of that to a property manager, I\u2019m like, \u201cOh man, that\u2019s nine dates that I could take my girlfriend on. That\u2019s a round trip to Europe.\u201d And I am always thinking, \u201cMan, it doesn\u2019t feel too heavy to me.\u201d The only heavy part feels is placing tenants. And so is that the portion that I should give up? Because that\u2019s what feels the most heavy.
For context, I make between 200,000 and $300,000 a year as a traveling nurse. And so should that play into it, my dollar per hour cost for myself. Am I just being too frugal in my mindset? Is it limiting me? Should I give up property management on my properties? Should I do a middle ground by just having somebody place the tenants since that\u2019s what feels heavy? Thank you so much. I appreciate everything you do and I love the BiggerPockets Podcast.<\/p>\n
Hey Daniel, first off, love the look of a dark car. It looks like you just climbed into the Batmobile to make this video. And I\u2019m a fan. I also love the questions you\u2019re asking here. So let\u2019s see if I can answer them succinctly.
First, yes, only give up the stuff that\u2019s heavy at first. If you enjoy managing the properties, you don\u2019t mind that, you don\u2019t have to let that go. But you should definitely be looking into someone that can supplement the work you\u2019re doing by placing a tenant. You might have a property manager company that says, \u201cHey, we\u2019ll take half the first most rent to place your tenant and we won\u2019t manage the property.\u201d And you can get rid of it that way.
But the next question you\u2019re saying, \u201cHey, I don\u2019t want to give up 10% of this nine grand a month, that\u2019s $900. That\u2019s a round trip to Europe. That\u2019s dates with my girlfriend.\u201d That\u2019s true. Don\u2019t give up if you don\u2019t have to. However, my guess would be as a traveling nurse making 200,000 to $300,000 a year, you could make more money working an extra hour or two, especially at time and a half or double time than you would be with the hours you\u2019re putting into managing your properties. So I want you to think of it instead of I\u2019m giving up money as I\u2019m giving back time to use for a better purpose. So if you\u2019re spending 10 hours a month managing these properties, that\u2019s about $90 an hour. Can you make $90 an hour or more as a traveling nurse at time and a half? If not, just yeah, keep managing your own properties. But what if you realize, \u201cWell, I\u2019m actually spending 20 hours a month\u201d that\u2019s more like $45 an hour, I\u2019m sure you\u2019re making more money than that.
So if you can give up the management side and pick up more hours working, and we\u2019re talking about after tax dollars, you actually came out on top. And this helps you in a second way, because not only does it immediately make you more money, but it allows you to scale when you\u2019ve already got a property manager that\u2019s doing things the way that you want them to be done. When you get to 15, 20, 30 properties, there\u2019s no way you can be managing these and you\u2019re going to have to give it up anyways. So why not give it up earlier and start making more money with that time rather than waiting until you get to the point where you\u2019re at 20 properties and then being forced to give it up and you\u2019ve lost money for that whole time that you could have been making more, working more hours, getting more deals doing something better.
I also love that you\u2019re evaluating the heavy light thing though. I think that that\u2019s huge. So short answer, get rid of the part that\u2019s heavy, the placing of tenants. And then longer answer is find a property management company that you can transition into paying so that you can work more hours. And then what I always said was, \u201cHey, I\u2019m happy to pay your 10%. How many houses do I need before we can drop this to eight? When I get four houses with you or five houses with you, can we drop this to 8%?\u201d Most of the time they said, \u201cYep, when you scale bigger, we can go down.\u201d So my goal was to get to five in that market as quick as I could, get it to the better rate, and then I could kind of hit cruise control and go from there. Thank you for your question. Thank you for your hard work. Keep on that grind. Tell your girlfriend that she\u2019s got an ambitious boyfriend and we\u2019ll see you on a future episode.
All right everybody, that is our show for today. I hope you enjoyed this. And more importantly, thank you for being here. Thank you for the comments that you leave on YouTube. Thank you for the videos that you submit. Thank you for trusting me with answering your questions. Thank you for all the kind words. And even more importantly, thank you for doing smart good things with your money. I\u2019m a big fan of people that invest it wisely so that they can have a better future rather than spend it frivolously and then complain all the time. So if you\u2019re listening to this, you just spent a good chunk of your time doing something that will help your future. I appreciate you. I appreciate your trust and your attention as I know that you could be getting this information from many other places, but hopefully you see none are better than us. I will catch you on a future episode. Follow me @davidgreene24 or on YouTube at David Greene Real Estate and make sure you share the BiggerPockets YouTube channel with anyone you know who is interested in financial freedom.<\/p>\n