\n<\/p>\n
Don\u2019t know how to invest in real estate<\/strong><\/a>? If you\u2019ve got $20K (or less) <\/strong>sitting around, there\u2019s a good chance that you could start TODAY<\/strong>. With home prices still sky-high and most Americans under the impression that buying is out of the picture, David Greene comes in to save the day with the \u201csneaky rental tactic\u201d<\/strong> that can help you start <\/strong>building a real estate portfolio<\/strong><\/a> for less than it costs to buy a car!<\/p>\n Welcome back to the long-awaited return of Seeing Greene<\/strong>. We\u2019ve taken some of the BEST questions from BiggerPockets listeners just like you and rapid-fired them at David to get his take. In this show, a military couple is looking to start investing <\/strong>but doesn\u2019t know where to begin. A wholesaler wants to buy rentals with a partner but doesn\u2019t know how they should form an LLC<\/strong>. A high-earner debates whether a \u201c<\/strong>luxury house hack<\/strong><\/a>\u201d <\/strong>is worth the extra money. Finally, an active-duty family debates selling their homes<\/strong>, and a deputy sheriff wants to know where best to put her leftover cash from a home sale<\/strong>.<\/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><\/a> 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: Jacob: David: Speaker 3: David: Whitney: David: \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 Recorded at Spotify Studios LA.<\/strong><\/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 816. This is a play where you\u2019re trying to grow equity. You\u2019re trying to turn that $20,000 of cash into $100,000 of equity. And in the future, that $100,000 of equity can be reinvested into more properties as your snowball grows. Now it\u2019s time to put some solid fundamentals and a little bit of elbow grease into that $20,000 that you have and start building some equity in the future so you can make big moves later.
What\u2019s going on everyone? Is David Greene, back with another episode of Seeing Greene. If this is your first time listening to one of these, I think you\u2019re going to love it. In the Seeing Greene episodes, I take questions from you, the BiggerPockets community, and answer them for everyone to see the type of stuff you would never get answered unless you were a fly on the wall in my office listening to the consultations that I do with David Greene team, or [inaudible 00:00:50] brokerage clients or at one of my events. But you\u2019re in luck. You don\u2019t have to actually get out of bed or even put on a pair of pants. You can listen right now to all of the questions people are asking and hear my answers from the comfort of your own home, car or commute.
Today\u2019s show, we cover what to do when you\u2019re feeling overwhelmed just trying to get started. I\u2019m sure a lot of you can relate to that. If you\u2019re starting to partner, what do you need to know and what should you be aware of. And is it ever okay to move into a luxury property? That and more on today\u2019s episode of Seeing Greene. Before we jump into the questions, today\u2019s quick tip, when you\u2019re struggling, you need to lean on your community and BiggerPockets is the best place to do just that. If you\u2019re looking for an extra personal touch or you like to be around people in person, consider checking out BP Con this year in Orlando. You can learn more about tickets and times at biggerpockets.com\/events. And remember, I will be there along with my team and other BiggerPockets personalities, like my co-host, Rob Abasolo.
And remember, if you want to have one of your questions answered on this show, I\u2019d sure like to have you, head over to biggerpockets.com\/david where you can submit your question there or share it with a friend if you\u2019re shy. Also, remember that if you\u2019re listening to this on YouTube, please leave a comment as you\u2019re listening, let us know what you think. We read those all the time. All right, let\u2019s get into our first question.<\/p>\n
Hi there, my name is Jacob Klavitz. I live in Suffolk, Virginia. My wife and I have recently gotten ourselves out of some debt. We\u2019re in the military, so it\u2019s not like we make the most money in the world, but we find ourselves with about $20,000 in savings, and we are just kind of overwhelmed on where to start investing that to really make it work for ourselves. I think real estate\u2019s a great spot for us, but the question that we just kind of have is where should we start? What should we start looking for and how should we go about using this money in the most efficient way to build something for ourselves?<\/p>\n
First off, Jacob and Jacob\u2019s wife, congratulations on getting yourself out of debt. That is a much bigger accomplishment than a lot of people realize that it is. In the world that we live in now, we tend to focus our congratulations on growing a portfolio, acquiring a property, adding cashflow. It\u2019s always something that we are gaining, but getting rid of debt is just as important. So not owing people money, putting yourself in a position where your finances are stronger will actually kind of be like shedding weights, so that as you run this race of real estate investing, you\u2019re able to run faster. I love that you focused on that. I also love the habits that are built to get yourself out of debt and playing good old-fashioned defense.
In fact, I talk about that in my upcoming book, Pillars of Wealth. I\u2019ve got an advanced copy right here, if you\u2019re watching it on YouTube, you can see it. How to make, save and invest your money to achieve financial freedom. And I talk exactly about this, like it\u2019s getting out of debt, putting yourself in a position of financial strength and then using that position of financial strength to safely scale a portfolio, which I recommend people do like a financial fortress. It\u2019s not about how fast you can get big or how much you can acquire, it\u2019s about how safely you can acquire it. So on that note, let me give you some advice that comes out of the concepts that are in Pillars of Wealth. First off, you\u2019ve got 20 grand. Let\u2019s look at how this could be invested in a way that is synergistically beneficial to both of you. So if you\u2019re going to spend $20,000, how do you make it go as far as it can?
Well, first off, you\u2019re going to want to use leverage. The more leverage that you can borrow from someone else, like a bank, the more you can make that 20 grand go. The lowest down payment you can get away with in the world of real estate is generally an FHA or a conventional loan, that\u2019s three and a half to 5% down, which means we\u2019re going to be having a conversation about you buying a primary residence to live in and not paying rent to someone else. Now, if you already live in the property that you own, that\u2019s okay. You could either sell it or you could keep it and make it a rental, depending if it cash flows, but I\u2019d like to see you guys buy another primary residence.
Now, house hacking is where I\u2019m going with this, especially to get started, you want to buy an area that\u2019s going to grow over time. You want to buy something that hopefully you can add value to. So either adding some square footage, developing a basement, developing an ADU, doing something to make the property worth more. And you want to do it in a way that you can move out of this house next year and make it cashflow. You see where I\u2019m going at here? We call this the sneaky rental tactic. How can you buy a property that can function as a rental property for you in the future, but you didn\u2019t have to put 20 to 25% down onto buy like an investment property? This is not illegal, this is not any kind of fraud. It is absolutely 100% copacetic to buy a property to live in and then move out of it later and make it a rental property. The sneaky rental tactic is what we call it, and I think this is a great way for you to get started.
Now, to recap on this, I want to see you do this with a property that will cashflow when you move out, which means that property needs more than one unit. That means you\u2019re probably going to have to add some value to it, which means part of the property is going to have to be developed or created to function as additional rental units. And I want to see you do it in the best area that you can get into so that over the long term the rents and the value appreciate over time. This is a play where you\u2019re trying to grow equity. You\u2019re trying to turn that $20,000 of cash into $100,000 of equity, and in the future, that $100,000 of equity can be reinvested into more properties as your snowball grows.
Congratulations to you for getting off to the great start that you did and getting out of debt. Now it\u2019s time to put some solid fundamentals and a little bit of elbow grease into that $20,000 that you have and start building some equity in the future so you can make big moves later.
All right, our next question comes from Omar in Chicago. Omar says that he has done a handful of wholesale deals in the Chicago metro area to accumulate funds to start doing BRRRs. I\u2019ve recently started taking action and have successfully completed several wholesale deals to accumulate funds for buying rental properties. I recently connected with an old friend and we are now actively searching for deals together. My question is regarding the establishment of a limited liability company, also known as an LLC. Should we form a single LLC as 50\/50 partners or should we each create separate LLCs to form a joint company entity?
All right, first off, since you\u2019re asking questions about partnerships, I highly recommend you and everybody listening to this, goes and listens to episode 801 of the BiggerPockets podcast, where I talk with Ashley and Tony about partnerships, they even wrote a book on partnerships. So you didn\u2019t ask about that, but I think if this is something that you and our listeners are interested in, you should definitely go check out that episode, but not yet. You got to finish Seeing Greene first before you go see Ashley and Tony. Seeing Greene.
All right. There\u2019s different ways that you can set this up. You\u2019re going to need to talk to your CPA about this and your friend\u2019s CPA because they\u2019re going to have much better advice for me. And the reason is it depends how your specific taxes are set up. LLCs are known as pass through corporations, which means the money that they make passes through them and to you. Which means that, here\u2019s the way I understand it at least in my mind and remember, I\u2019m not giving tax advice because I\u2019m not a CPA. Money flows into this LLC and I tend to look at money like water flowing into this bucket of an LLC.
Write-offs come out of the LLC, so that could be dinners, that could be trips, that could be expenses that are associated with the business, but you often would do them in life anyways. So you and your business partner go to dinner or you travel to a different area to look at these properties, or you attend an event or you seek legal advice that you\u2019re going to do anyways, but now you get to write it off against that business income. So some of the water right off the bat is sucked out of that bucket. What\u2019s left passes to you and you\u2019re only taxed on that. So if you\u2019re able to take expenses that you already had, remember this is not additional expenses, we\u2019re not talking about buying a car you don\u2019t need or going out to eat for dinners that are not necessary because it\u2019s a write-off, that\u2019s a terrible idea.
We\u2019re talking about things that you were already spending money on and you\u2019re able to legally write them off of this business. Maybe you buy a vehicle or some of the registration for your vehicle or the mileage that you\u2019re putting on, it can be deducted out of the LLC. Now, the rest of the money that didn\u2019t get taken out of the write-off passes through to you. That\u2019s what you\u2019re taxed on. But if you have some depreciation going on in your own world, other properties that you\u2019ve bought and you\u2019re a real estate professional, so rep status, now you can shelter the income that came to you from the LLC by some of that depreciation, and that\u2019s the name of the game When you\u2019re a full-time real estate professional. The bad news is you always got to be buying properties, you can\u2019t stop. But the good news is if you\u2019re doing that and you can use bonus depreciation, you can significantly lower your tax bill.
I say all this to say whether it runs through an LLC and then flows to you or it flows directly to your LLC is a question for your CPA because I don\u2019t know how they have your tax situation structured. There may even be a way where money goes into an LLC that you own 50\/50 with them, then passes out of the LLC you own with them, into your LLC or into your own name. That\u2019s what I would check with the CPA, is like what\u2019s the most efficient way to set this up? Now my concerns are not just about taxes, which I think is what you\u2019re asking as far as how you want to establish the business, I\u2019d be more concerned with the relationship. So let\u2019s say that you guys are buying properties and you\u2019re putting them in this LLC that you own 50\/50 and then while you\u2019re using the company\u2019s resources, you find a deal that you go put into your own name or a different LLC than your partner. How are they going to feel about that?
If they thought that you guys were doing this together, but then you had a deal come to you from an outside source, maybe it wasn\u2019t through the funnel that you guys built. It was a friend of yours or a person you met before. In your mind you think that\u2019s okay. In their mind they think that deal should have went into the thing you own 50\/50. It can cause a strain in the relationship. Then they might go do the same thing. Well, fine, if you\u2019re going to do that, I\u2019m going to do it too. And the next thing you know, you\u2019re each running your own separate businesses, but kind of co-mingling company resources to do it and the relationship starts to deteriorate. So I\u2019d like to see you have an upfront conversation with your partner about what you\u2019re going to do when deals come your way that you don\u2019t think that they should be a part of the company, or if all the deals are going to be a part of the company. And if they are, what if one of you works harder or is more successful than the other one?
What are you going to do if at some point you realize that you\u2019re responsible for 80% of the success of the company, but you\u2019re sharing the profits 50\/50? So as long as you get all this stuff worked out, you\u2019re okay, but you got bigger fish to fry than just how the income is going to be taxed and the title is going to be held. Make sure you go check out episode 801 for some more advice on this topic.<\/p>\n
Hey David, thanks for taking my question. Dude, you\u2019re amazing. Hey, what do you think about luxury hacking? For context, we are basically financially free. I would say after taxes and everything, maybe 100, 120 every year from just being an agent. So I usually buy another hack or another rental. What do you think about luxury hacking? Because we\u2019re house hackers, we\u2019re used to it, covering everything or close to everything. So now with a three-month-old, we\u2019re thinking about luxury hacking in an amazing area, amazing schools and everything, and then paying an extra two to three grand per month for that, even with whatever the other unit gives us. We\u2019re not used to it, so what do you think about it? I can cover it no problem, but I don\u2019t know if I\u2019m being too emotional to live in a more luxurious place because we don\u2019t live in a bad place at all. It would just be better for schools later on when she turns like three, four or five, whatever. So what\u2019s your take? Thanks, man. See you.<\/p>\n
Hey, BrandCo, thank you. Love this question. These are the exact kind of questions that you should be asking and the exact kind of questions that the BP community wants to hear. At what point can I get rid of my FI guilt? Is it ever okay to spend money on something? Do I need to be making my own soap, churning my own butter, stitching my own clothes? Or is it okay to spend two to $3,000 a month to go buy a property that I really like? You called it luxury hacking, but what you\u2019re really describing here is house hacking on a house that doesn\u2019t cover 100% of the income. I can\u2019t tell you if it\u2019s okay or not, though I am leaning towards telling you yes, it\u2019s fine because you said you can cover it, no problem. I\u2019m going to give you a different way to look at it.
All right. Most people that learn about house hacking, that learn about real estate investing, you sort of get taught in the most simplistic way possible, like the same way you teach a little kid to ride a tricycle or if you\u2019re my age, a big wheel. Those were all the rage. It\u2019s different than riding a bike, but the fundamentals are similar, but we don\u2019t give a five-year-old a bike so that they can fall off of it. We give them a trike or something with training wheels, so it\u2019s easier. Then when they learn how to ride a bicycle, there\u2019s a transition, but I thought it was supposed to be this way. It is when you\u2019re five, but we\u2019re now transitioning into some more nuanced and slightly more complicated wealth building principles. So let\u2019s just understand the way that you have been taught to look at real estate is overly simple and it tends to focus on nothing but what I call natural cashflow.
Natural cashflow is if you just grab a property and rent it out, what is the income? What are the expenses? Is there a difference and is that difference positive or negative? That\u2019s as simple as most people get when they\u2019re learning how to build wealth. But now that we\u2019re transitioning from checkers into chess, I\u2019m going to give you a slightly more nuanced way of looking at money that should make a big difference as you\u2019re building your wealth. Wealth is a form of energy that is stored. You go pour energy into work. You are compensated for that work from the energy that you put out. The amount of time, the amount of skill, the amount of value that you brought, all effects how much energy comes your way. And then we store that energy in a dollar and when we store the energy in a dollar, we call it savings.
When we store the energy in stocks, we call it a stock portfolio. When we store the energy in real estate, we call it equity. But it\u2019s all a form of energy storage and again, this comes out of the book Pillars of Wealth: How to Make, Save and Invest Your Money to Achieve Financial Freedom, which everyone can get a much deeper understanding of this at biggerpockets.com\/pillars. And I highly, highly, highly recommend you do because it will change the way that you look at building wealth and make it make much more sense. When you\u2019re only looking at cashflow, you miss all the other ways that the places you store your money in can cause growth. So when you put your energy into a property and you measure the cashflow that it puts out, that\u2019s a form of your energy growing, but it\u2019s not the only way that it grows.
You could move into a property that saves you two to $3,000 a month so that you have no living expenses at all, but what if the property isn\u2019t going up in value? It\u2019s not bad, that\u2019s saving you 24 to $36,000 of energy every single year not having a mortgage payment. But you\u2019re saying, \u201cHey, I want to live in this area over here and it\u2019s going to cost me 24 to $36,000 of energy to live this luxury,\u201d as you\u2019re referring it to. But what if the property appreciates by more than 24 to $36,000 a year? You mentioned it\u2019s in a much better school district. It\u2019s in a much better area. I\u2019m assuming this means it\u2019s harder to get into those places, which means that you have got constricted supply, which is always a great thing. When demand remains constant or improves and supply is constricted, value will go up.
In this case, that means equity will go up, which means your energy is growing at a disproportionate rate that\u2019s positive for you. Do you see where I\u2019m going with this whole thing? And we haven\u2019t even gotten into the fact that rents tend to increase over time more in the better areas. So you\u2019re going to be coming out of pocket, let\u2019s say 2,500 bucks a month. Let\u2019s split it right down the middle. Well, next year it may be 2,300 bucks a month you\u2019re coming out of pocket because the rent went up by $200. Next year it might be 2,200, then 2,050, then 1,850. You see where I\u2019m going? Every single year that you own this property, the amount of money that you have to pay to live in it is going to be decreasing, which builds wealth in your favor. At the same time, all things being equal, it should be appreciating at a much higher rate than the properties that are in areas with less demand, so to speak, not as good as school districts, maybe supply isn\u2019t as constricted, there\u2019s not as much demand to live there.
When you understand the way that energy flows within wealth building, you will start to recognize that buying the property that you spend money every month to get into, could very well lead to you making significantly more wealth than buying the cheaper property. Now, where you have to be careful of this is when you\u2019re not making enough money through your job, through your savings or through your investing strategy, that you cover the two to three grand a month that\u2019s coming out. This is a terrible idea for your first property when you don\u2019t have a lot of cash. When people are getting started and they don\u2019t have a lot of energy and savings, I would never tell them to go buy the property where they\u2019re going to be spending $2,500 a month of their own money. I would tell them to buy the areas where they can keep their savings high and their expenses low.
But you\u2019ve already got several properties. It looks here in my notes like you\u2019ve got 10 tenants over four properties, which are a mix of long and midterm rentals. You\u2019ve got a solid portfolio. In my idea of portfolio architecture, which is mentioned in the book Pillars, I talk about building a very strong base of low risk and low reward assets. Once you have those, you can step it up, which would be like your midterm rentals. Now you\u2019ve got some medium risk and medium reward assets. Now you get into elevated risk, which is what we\u2019re talking about right now, but there\u2019s also elevated rewards. You see what I\u2019m getting at? You don\u2019t have to choose between equity or cashflow between big wins or boring plays. You can get enough boring plays that you stack up that cover you in case something goes wrong with the big win, and then you can chase the big wins, which are going to be what build big wealth for you in your future.
So don\u2019t feel bad as long as you\u2019re financially secure with putting your family in a house that you like living in, especially when you can still house hack and only be spending 2,500 bucks instead of 5,000 or $6,000 a month, which is what all your neighbors are going to have to be paying. Great move. Congratulations on you for what you\u2019re doing and congratulations on being the poster boy of what a real estate investor should look like. You build wealth through real estate so that you can have a better life. Thanks for the question and let me know in the YouTube comments if you\u2019d like me to address anything else.
All right, thank you everyone for submitting your questions. We literally could not have the show without the awesome questions that you all submit, so thank you for doing it. If you\u2019re listening to this and you\u2019d like to submit your question, I\u2019d sure like to see it. Please head over to biggerpockets.com\/david where you can upload your video or leave your written question there and hopefully you can be featured on an episode of Seeing Greene and help a lot of people while getting the advice that you\u2019re looking for.
Also, make sure that you like, comment and subscribe to the channel. If you\u2019re watching this on YouTube, you\u2019ll see the ever present fidgeting that I do in the chair when I\u2019m trying to talk and think at the same time. And if you\u2019re not listening to this on YouTube, if you\u2019re listening to it on Apple Podcasts or Spotify or Stitcher or anywhere else, please go give us a five star review so the other people can find this channel and we can make it even better. All right, let\u2019s get into some of the YouTube comments from episode 777 and 789 and see what you all are saying.
Louis Vargas 7644 says, \u201cI\u2019m a new investor starting off in Connecticut with my first three family. One day I\u2019ll be on your show to share my story. I appreciate all the gems.\u201d Thank you Louis, and for everybody who\u2019s listening to this who doesn\u2019t know what a three family is, that means you don\u2019t live on the East Coast because on the East Coast, that is literally how they refer to a triplex. A four family is a fourplex and a two family is, as you guessed it, a duplex. A little bit of real estate trivia there for you.
From what to sell on Amazon. \u201cI am not going into real estate, at least not anytime soon, but I watch your YouTube videos on a regular basis because I absolutely love how you give your viewers realistic expectations in terms of the amount of work, dedication and perseverance it takes to be successful at anything. I think oftentimes many people wonder if content creators actually practice what they preach and you are not afraid to tell us the truth about just how hard and competitive it is in real estate and even how long it takes for success. For me, that is the proof that you make your money doing the business and not just by selling a course full of pipe dreams for people looking for an easy route. In fact, you don\u2019t even really make content for people that are not willing to do the necessary work that is unavoidable. I really respect you and thank you for that.\u201d Well, I wish I knew your real name, what to sell on Amazon, but thank you. That\u2019s probably the biggest compliment you can possibly get.
For those of you listening, there is absolutely a difference between people that try to hype you up and sell you on the dream because they want you to spend your money on their course, versus the people that are making money through the dream, which you usually don\u2019t portray it like a dream. It\u2019s hard work just like everything else is hard work, and we at BiggerPockets are going to shoot straight with you and let you know. But that doesn\u2019t mean you shouldn\u2019t do it because all the best things in life come after some hard work.
From Pope of Cholos. That\u2019s a pretty funny name. \u201cStill the cleanest shirt in the dirty laundry. David, 2023 words to live by, great quick tip.\u201d Yes, that is real estate. It\u2019s not as good as it was but it\u2019s still better than everything else. The cleanest shirt in the pile of dirty laundry.
From 2004 CBR, I believe that\u2019s a motorcycle. I\u2019m going to have to run it with my production staff, but I think a CBR is a Honda. What do you think, judges? Judges confirm I was right. I don\u2019t know how many CC\u2019s this is. So Honda or 2004 CBR, let me know in the comments if you\u2019re rocking a 600cc CBR or a 1,000, we all have to know.
Now your comment was, \u201cAnother great show. Thanks for all the great guidance. I would like to correct you on your Cali comment. I\u2019m born and raised in California and definitely call it Cali as do many others. Again, that might be my upbringing in the East Bay and listening to West Coast hip hop music since it\u2019s the \u201990s, it\u2019s all about perspective.\u201d Okay, this is a good comment, I see why my producer chose it. I just got to say, I don\u2019t know if I believe you, rap is the only place you hear anyone talk about Cali and it\u2019s always rappers that are not from Cali. Notorious B.I.G. is going going back back to Cali Cali, but I don\u2019t hear a whole lot of other people say it unless it\u2019s someone like Tupac who is making music that will be listened to by people that are not in fact in California.
So I\u2019m not sure. In fact, let\u2019s make this a poll. Audience as you\u2019re listening to this, if you live in California, first off, you need to know who I am and we need to be connecting because I\u2019m here too, but second off, let me know in the comments, do you call it Cali living in California or is this something that people outside of California tend to say about Cali? To me, the litmus test, if someone\u2019s from California, they definitely say hella and they probably don\u2019t say Cali, but I could be wrong. I\u2019ll be the first person to admit I don\u2019t know at all. So let me know, do you say hella and do you say Cali if you\u2019re from California, let\u2019s take this to the masses.
All right, we are going to be getting back into the show in a second here. Before we do, I\u2019ve got a quick Apple review from the Seeing Greene episode 789, that one of you awesome people left us. This is labeled, giving non-real estate advice to team. \u201cDavid, you are the man. There is no better thing to do for that youngster than to tell him that he needs to work hard and be an example to his siblings. Life is not about how many doors you have or how much money you want, it\u2019s about being a good example for others to follow. And all that family needs to have someone to model after with their parents being gone. You and Rob and BiggerPockets have made our lives change and made going to work fun because we get to listen to your podcast. May God continue to bless you too and BiggerPockets.\u201d From Tom via the Apple Podcast review section. T.
Om, I really appreciate it and I remember this episode. We had a young man who I believe his parents had passed away not too long ago. He was living with a family member, possibly grandparents, had two younger siblings that was asking me, \u201cHey, I need to make money, my family needs me. What can I do to make money in real estate?\u201d I believe he was doing some day trading or maybe some crypto trading. And his heart was in a beautiful place, as he was taking on the responsibility of leading his younger siblings, which is exactly what I love to see, but his head wasn\u2019t quite there. His head was still thinking, how do I make quick money in real estate? And guys, if there\u2019s one way to make sure you lose money in real estate, it\u2019s to try to make quick money in real estate.
It can happen, but this asset class is not designed to make quick money. It is designed to literally build wealth slow. If you look at the way amortization schedules work, where higher degrees of payments go towards principal and not interest over time, how this is a highly inflation sensitive asset class, which means over time the values go up and the rents go up, and you look at the fact that we can get fixed rate mortgages spread over 30 years so that your expenses don\u2019t go up. It starts to make sense that the literal architecture of real estate is designed to be something that makes more sense as you build wealth slowly.
So if you\u2019re getting sucked into some program that you think you can make quick money in real estate, not going to tell you it\u2019s a guaranteed scam, but I would be extra, extra cautious because that\u2019s not how the people that I know that built their wealth in real estate made it. That\u2019s how the people that I know that lost their money in real estate did it. So thank you Tom for recognizing that and to the young man, I can\u2019t recall your name, who is trying to do this for your siblings. If you\u2019re listening to this, my heart is with you, my thoughts are with you, my will is with you. I would love to see you make it. Focus 100% on being the best person you can be, bringing the most value that you possibly can to the workplace. Show up every day in work like it\u2019s the last day of tryouts and you don\u2019t want to get cut and you will be successful.
All right, our next question comes from Whitney in Eastern Europe. Let\u2019s see what Whitney Shea has to say.<\/p>\n
Hey David, my name is Whitney and I\u2019m hoping that you can help me. We are an active duty military family. My husband\u2019s been in the Marine Corps for 27 years. We\u2019re still sort of going strong but maybe going down towards the retirement path within the next few years. We kind of became accidental landlords because we were upside down in our homes when we had to change duty stations. So it\u2019s turned out to be a blessing in disguise because we do have a home in South Carolina and we also have a home in Florida and they are both paid off. They\u2019re both rented out. And so we are again very grateful to have that cashflow. At the same time, currently we are living, we\u2019re stationed in Eastern Europe and we are going to be heading back to the States in a few months, to Arizona.
So with all of that said, all that background, we also have a child heading off to college. And so lots of little details, but we\u2019re really kind of at a crossroads where we\u2019re kind of listening to other people say, \u201cOh, you should sell your houses because of the way the market is.\u201d We\u2019re sort of more the buy and hold people, thinking that way. So we\u2019d love to just get your position, your perspective, your thought process on best next steps for this Marine Corps family. Thanks so much.<\/p>\n
All right, thank you for that, Whitney. Man, I love problems like this because no matter which direction we take it, you\u2019re in a positive place. So you\u2019ve got properties paid off in South Carolina and Florida and you\u2019re beginning to build a home in Tucson, Arizona, which is relatively affordable for Arizona. You\u2019re in a really strong place. I don\u2019t know that I agree with people that say sell you off your homes because there\u2019s a market crash coming. I hate saying this because you never know, tomorrow there could be a market crash and then everyone\u2019s coming for me with pitchforks to the swamp, trying to get Greene like Shrek. Wasn\u2019t there a thing in Shrek where they were all chasing him down to the swamp and he\u2019s, \u201cGet out of my swamp.\u201d I\u2019d hate to have you guys coming after me that way.
I\u2019ll just share. I\u2019ll show my work. I\u2019ll tell you how I came to the conclusion. I don\u2019t think we are likely to see a crash in real estate. I actually think if we do see an economic crash, real estate could go down. I think it would go down much less compared to everything else. In fact, I think if we see asset classes getting hit, real estate would probably be the last one to go. And that\u2019s not because a homer for real estate. It\u2019s because I think that the supply demand fundamentals of real estate right now are incredibly strong and we\u2019ve seen this with the resilience in the market. Interest rates for mortgages keep going up and up and up. We\u2019ve seen the commercial space start to get hammered. There\u2019s a lot of people, and this is, I don\u2019t know a nice way to say it, a lot of operators that did a good job.
They increased the NOI on their properties, they managed it as well as they could, but cap rates expanded faster than the market could keep up with because they just increased interest rates so quick and so suddenly, and a lot of those operators are going to lose money on their assets or lose their assets, see what I did there, altogether. It\u2019s a problem. And yet the residential space, in spite of all of this, has been so resilient. The property values have not plummeted. In some places they\u2019ve dipped a little bit, like you mentioned Arizona. That Phoenix market, the Vegas market, they\u2019ve come down some, but that\u2019s because they were going up so fast. It\u2019s relatively really strong compared to everything else. I think the stock market would be much more likely to take a hit other than real estate. So I would not listen to the people saying to sell your homes, especially because they\u2019re paid off.
Your homes are paid off, it does not matter if they drop in value a ton. And remember, if you go sell them, you probably have to buy something else and people always forget this. If you sell high, you got to buy high. If you sell low, you got to buy low. It\u2019s very difficult to get the best of both worlds unless you\u2019re selling out of one market and into another, in which case you should probably read Long Distance Real Estate Investing, where I detail the strategies and systems you need to do that well. But even then it\u2019s usually roughly the same. You can\u2019t win by selling high and then buying low, it\u2019s incredibly difficult to pull that off. So when your friends are telling you to sell, I would say, well, where are you going to go put the money? You\u2019re going to have a bunch of taxes, a bunch of commissions, a bunch of closing costs, a bunch of headaches, a bunch of make ready costs to get the most for the house.
Then if you do have a successful sale, where are you going to put the money? You\u2019re going to probably have to put it right back into real estate, now maybe you have to do a 1031 exchange. You\u2019re just complicating your life to not really get that big of a gain. So I don\u2019t know that there\u2019s anything wrong, Whitney, with just hanging tight. You\u2019re in a really good position. When I\u2019m playing poker, which happens about once every four years, I have no idea how I do so well in poker. In fact, I\u2019m going to tell you my strategy so if anyone ever plays with me, now they\u2019ll know how to beat me. But what I typically do is I try to win a couple hands early and get a big stack of chips and then I just fold every single hand that is a killer. And I probably shouldn\u2019t be admitting this online, but that is what I do and I tend to end up at the winner\u2019s table almost every single time that I play.
You\u2019re in that position right now. You\u2019ve got a big stack of chips. There is no reason to make a move. You do not need to rush into anything. Don\u2019t let the pressure of the people at the meetups or I have this many doors and you don\u2019t have this many doors or I\u2019m up to this many units, all the things that people get into don\u2019t matter. That\u2019s their race and they might not even be running their race. They might just be trying to get significance and attention from people at these meetups because they\u2019re insecure. Your race is all about your family. You\u2019re in a great position. You\u2019ve got a lot of equity built up in these properties. You don\u2019t need to move it. If you\u2019re going to do something, let\u2019s just make some small safe bets.
When I\u2019m playing poker and I got a huge chip, I\u2019m only going to play the best hands and I\u2019m not going to overextend myself. I\u2019ll play the hands that are great and if the cards come out and my hand becomes not so great, I just fold. I took a small loss. Or if I win, it\u2019s only going to be on a monster hand unless everybody else just folded. I really think that strategy works for you and your family here. Build your house in Tucson. You probably are building a house you like. The next property you get into, maybe build another one, but whatever it is, make sure it has more than one unit. Try to get into something with at least three units, so you have several units that you can rent out in the same property, which significantly decreases your risk and just slowly grows your cashflow. Base hits are all you need. Even just taking a walk to get on base is fine when you\u2019ve got a big lead like you do.
Don\u2019t go making any big risks. Don\u2019t go making any big moves. Don\u2019t try to throw the long bomb here, if we\u2019re using a football analogy, and risk and interception, just keep running the ball in a boring way. Keep making boring moves and over the next 10 to 15 years you\u2019ve accumulated real estate hopefully in the best areas you can get, you guys will be doing great and you\u2019ll never have financial worries and that is a big win.
All right, our next question comes from Amanda Lane in Florida. Amanda says, \u201cI\u2019m 30, I\u2019ve been a deputy sheriff for 10 years and I bought a house when I was 21, no kids, and now I\u2019m selling a house. I\u2019ll net $200,000 from it conservatively, which is like winning the lottery to me. I\u2019m moving back to Chattanooga, Tennessee and have a few duplex options in mind. I want to do this as smart as I can for obvious reasons.\u201d Amanda, your life so far sounds suspiciously like a country song. You\u2019re working as a deputy sheriff, no kids, sold your house in Florida. You\u2019re moving back to your hometown in Chattanooga, Tennessee. You got a couple options in mind. Let\u2019s move on here.
\u201cI feel like I have a reasonable grasp on the first basic steps or what I think I should do with a substantial sum of cash. But myself 20 years from now might wish I could go back to this very moment and do it smarter. So pretending that we\u2019re back in time now, like I\u2019m living 20 years in the future, looking backwards, how can I either route my plan better or who can I connect with that can explain answers to questions I don\u2019t have?\u201d Well, if you had given me some of those questions, I\u2019d be answering them now. You can always DM me and we could try to set up a consultation or something for you. But I don\u2019t know that there\u2019s a whole lot of people that you can go to and say, \u201cHere\u2019s what I think you should do.\u201d
You really do need a person who\u2019s done this before, which is why I understand you\u2019re reaching out to me because I have, that understands not just your risk tolerance and not just your options, but your skills. People forget that. There are certain parts of real estate that I would be good at and other parts I\u2019m not good at, and vice versa for other people. You really want to build a strategy around the skills that you\u2019re bringing to the game. Now, because I don\u2019t have enough details to answer your question like I\u2019d like to, let me give you some practical advice that I think will work for everyone listening. If you\u2019re in a good position, you\u2019ve got $200,000 saved up, don\u2019t make a move in a market like this that\u2019s not terrible, but it\u2019s definitely not the market we\u2019ve had in the last decade where they were just printing money like candy out of a Pez dispenser, and it was very likely that real estate was going to keep going up, which it did. Be more careful.
There\u2019s nothing wrong with staying debt-free right now, even if your wealth isn\u2019t explosively growing, you don\u2019t need huge wins in a market like this. What you want to avoid is big losses. Consider house hacking. Again, I love the strategy of house hacking every year. You get into the best neighborhoods, you put the least amount of money down, you get the better interest rates. You don\u2019t rush and go too fast to where mistakes get made. You can add value to the property slowly while you live there. You can do this by renting out the rooms, adding units, finishing off square footage that wasn\u2019t developed. There\u2019s so many options that you have and you can do it for 5% down. I love this. Really, if you just did that, Amanda, you just bought a new house to house hack, you moved into it, in 10 years that first house you bought will go up a lot, especially if you\u2019re buying in Chattanooga, which is one of the markets I think we\u2019re likely to see significant appreciation in over the next decade.
And then the house that you bought the second year is going to have nine years of appreciation. The house you bought the third, seven years. Those first five are going to do really well 10 years from now. Now, if you\u2019re going 20 years in the future, imagine if you just bought one house a year, that\u2019s it, at 5% down, no huge risk. 20 years from now you\u2019ve got 20 homes, you\u2019ve got an accumulation of 20 years of rent increases, of value increasing, of you saving money continually because you never had to pay mortgages. You\u2019re in a position that you may never have to worry about money again. Don\u2019t race forward competing with other people. Don\u2019t think you have to go buy seven properties and develop these lots and do something huge. If you\u2019re bored with your life and you\u2019re not super skilled with real estate, don\u2019t feel the pressure to get out over your skis and do more than you need to.
You\u2019re one of those people, like the last question we took, in a really solid financial position. Use that to your advantage. When you\u2019re running out of chips in poker, you got to go all in whenever you get a halfway decent hand. There\u2019s some people in life who are in a really rough position. They hate their job, they owe a lot of child support, they\u2019re having a hard time making ends meet. Those people probably need to go start a business, become an entrepreneur, work 80-hour weeks. They got to do something drastic to get out of the situation they\u2019re in, but that\u2019s not you. So enjoy what you\u2019ve earned, enjoy some of the fruits of your labor, make smart sound financial decisions, continue to play defense, continue to avoid lifestyle creep. Put your money into properties that over the long term are going to appreciate and will not cause you headaches and run your own race.
Now, let\u2019s say that you do want to make some bigger moves in the real estate space and that\u2019s why you\u2019re reaching out, because you want to be more involved. My advice in that case is to find a person that has done a significant number of deals. That could be flips, that could be commercial multifamily properties they bought, but definitely someone that has some experience under their belt. And maybe bring some of that money that you made into a deal that you do with them. Not only does that decrease your risk of losing the money in the deal because they\u2019re experienced, but it increases the likelihood that they\u2019re going to teach you something that might catch on and get you excited and you could follow that path and pursue that end with your own real estate investing career. I\u2019d much rather see you do that than get hooked up with some other really excited newbie who hasn\u2019t done anything and then just close your eyes and hope for the best.
And that was our last question. What do you guys think? Was this a good show? Do you like hearing this advice? Do you like staying up to date with information going on the market because it\u2019s changing so fast? Was there something that you wish that I would\u2019ve said or I would\u2019ve been asked that never got brought up? Well, good news, if I didn\u2019t answer the questions you had, you can always ask them yourself, biggerpockets.com\/david. Feel free to share that URL with somebody else if you are shy, but they are not. And then also, remember we read the YouTube comments. So go in there, leave me a comment, tell me what you thought about the show. We just may read it on a future episode, but even if we don\u2019t, we\u2019ll definitely see it and incorporate the information into the show.
I love you guys. You can follow me at David Greene 24 on all social media, or you can go to davidgreene24.com and see what I have going on. I help people like you every single day trying to grow their wealth and responsibly manage the finances that have come under their control. I\u2019d love to see you guys continue to do better every day more than you were the day before. And I love the perspective of what\u2019s this going to look like in 20, 30 years, instead of what\u2019s this going to look like tomorrow? If you\u2019ve got a minute, check out another BiggerPockets video and if not, I will see you on the next episode of Seeing Greene.<\/p>\n