How to Buy Your First Rental Property in 2026 (Step-by-Step)

Henry:
Real estate is arguably one of the best ways to build wealth and financial freedom, and one of the best investment vehicles for new investors is rental properties. And you don’t have to be some huge investor buying large multifamilies or big apartment complexes. Rental property investing is the average person’s way to build wealth. Whether you want to make $50,000 a year or $500,000 a year, you can do this. How do I know this? Because I did it. Just seven years ago, I owned no assets and now I own a portfolio of over a hundred rental properties. But here’s the problem. Most people have no idea where to start. So that’s why we’ve come up with seven steps that you can use to help you find your first property in 2026. Let’s do this. This is exactly how you go step by step from owning no rentals to your first one.
What’s going on everybody? Welcome to the BiggerPockets Podcast. I am Henry Washington and I used to have a corporate W2, but now I own over a hundred cashflowing rental properties and that allows me to invest in real estate full-time.

Dave:
And I’m Dave Meyer and I still work full-time. Well, I have a good job. I am the head of real estate investing at BiggerPockets and I’ve been investing in rental properties for more than 15 years. We obviously have different approaches to real estate investing, but maybe we should just take a minute and talk about why we are doing this and why our audience is probably sitting at home thinking, “Yeah, maybe I should do this, maybe real estate.” But what are the two or three reasons you think, honestly, I think most Americans should be considering investing in real estate. What are the top reasons for you?

Henry:
I think what most Americans are facing now is that the typical American dream doesn’t necessarily work anymore. It’s hard. It’s very, very hard to have one job that pays you enough to be able to afford a comfortable life. I think you can afford a life of some kind, but most people typically want more. They want to be able to take more vacations. They want to be able to spend more time with their family. And with how much life costs, groceries costs, gas, costs, mortgages cost. I think Americans find theirselves in a position where they need a way to generate some more income on top of their day job. And that’s the position I found myself in, and that was seven years ago.

Dave:
A lot of it’s gotten harder. I mean, I call me a skeptic, but I just don’t trust anyone else to take my retirement or my financial future seriously. I don’t think the government’s coming to help me. I don’t necessarily think any employer’s going to be around for me for the entirety of my career. I have a great job, but I’m not going to work for one company for 45 years. In my opinion, since I graduated college, I’ve always thought, how do I do something entrepreneurial so that I can take some control over my own financial future? And to me, real estate’s the best thing to do. There are plenty of other ways you can use entrepreneurship, but I’m not that creative. I’m not going to go start some business that’s going to change the world. I don’t know how to make an AI company, but I could run a real estate business.
Absolutely. I could do it.

Henry:
Absolutely.

Dave:
So can pretty much anyone.

Henry:
Absolutely. And for me, there’s just safety in real estate. And so being able to own something that’s a physical asset that literally everyone needs, there’s comfort in that.

Dave:
Yeah, absolutely. And this is possible. I always cite this stat. It’s a stat I made up, but that’s why I cite it so often because the creator is just so smart. No, I did the math because I think that a lot of people love the idea of financial freedom, but it feels so far away. And I did the math and basically no matter where you’re starting from, if you just buy regular on- market deals, you have to buy good deals, but if you buy regular on- market deals, you can get what we’re talking about, financial independence in eight to 12 years. And if you hustle like Henry Hussles, you could probably do it in five to seven. And so that’s what’s so cool and inspiring about real estate investing is even though things have gotten more expensive, even though mortgage rates are higher than they were eight years ago, buying on market average deals, if you just dedicate yourself to learning this craft, you can do it in under a decade, compare that to 45 years, the average career that someone works in a corporate job.
They’re not even comparable. So that’s why I’m in real estate. It sounds like we’re the same raises. So let’s move on. Let’s talk about how to actually do it. We’re going to walk you through our seven steps to going from where you are today, maybe not knowing that much about real estate, never having bought something before, to how do you actually go out and buy that first deal? What’s step number one?

Henry:
Step number one is to have some goals.

Dave:
Yeah.

Henry:
Look, people say it all the time. You got to know where you’re going to understand what you want to do. But I think in real estate, you get this excitement when you learn about it because you feel and see how powerful it is and you start to see other people doing it. And a lot of us who are action takers just kind of go and then we figure it out later. But in this business, understanding exactly how much money you’re trying to make and in what timeframe are you trying to make it in will really help set some guardrails for you so that you don’t spend a lot of time wasting time doing things that aren’t valuable to you.

Dave:
There are so many different tools you can use. There’s long-term rentals, there’s flipping, there’s all these different things. If you don’t take a moment to figure out where you want to go, you can very easily choose the wrong tool. And that’s not necessarily a mistake that you can’t come back from, but it does waste a lot of time. There’s an analogy I used in my book where if someone walked up to you and said, “What’s the best car?” What would you answer? I don’t

Henry:
Know. What do you want to do with it?

Dave:
Exactly. Are you trying to race?

Henry:
Because

Dave:
Maybe you go buy a supercar.

Henry:
Are

Dave:
You trying to build something? Maybe you want a truck. Do you have a family? Maybe it’s a minivan. But unless you know what you’re trying to accomplish, what you’re trying to do, you might pick the wrong tool. And I know it is fun to go out there and start daydreaming. I got to

Speaker 3:
Do it

Dave:
All the time. I do it too. But I really recommend everyone take a minute and set a goal. That can mean a lot of different things. So for you, what does a good goal look like? What are the kind of things you should be thinking through?

Henry:
Yeah, I think there needs to be some level of tangibility. And that’s why I said it the way I said it earlier. How much money are you trying to make and in what timeframe? Because your goals are going to dictate the strategy that you use because you could have an aggressive goal of making $200,000 in the next 90 days.

Speaker 3:
Yep.

Henry:
Well, that’s not going to be with rental properties. Your goals will help to dictate your strategy. So put some tangible goals behind it. We’re all doing this for money of some kind. Some of us need money now. Some of us need money later. Some of us need money now and later. But everybody’s in a different financial place and everybody has a different financial problem to solve. And so be tangible with it. What’s the amount of money that you’re looking to make and what timeframe are you needing to make it in? That’s the easiest way to start planning your goals.

Dave:
So what’s yours?

Henry:
Yeah. So my goals for money each year is I want to generate somewhere between 600,000 and a million dollars in net profits from flips that I want to use to help pay off current assets.

Dave:
That’s a lot. Yeah. That’s pretty good. And that’s just you or with partner? That’s just trade up? Yeah. Wow, that’s incredible. But do you have a goal with your rental properties? You use that money to put back into your rental properties. Do you have a number of unit goal or cashflow goal long term?

Henry:
The number of unit goal is more measuring stick. The cashflow goal also is … So right now, I think we generate somewhere around 30 or $40,000 a month in cash flow, but I don’t live off of it
And I don’t plan to live off of it. What the goal is is to pay off one third of my portfolio over the next 10 years. And if I can pay off one third of my portfolio over the next 10 years, I’m going to take a look at how much net cashflow that gets me and then I’ll decide if I need to pay off more or if I’m comfortable. Can I live off of this amount of money for the rest of my life? Because one of the things people don’t talk about with real estate is it’s all an active business. Some strategies more active than others. If you want it to be more passive, you got to get some unleveraged properties because unleveraged properties are going to pay you better than leveraged properties. And if I have more unleveraged properties, then I don’t have to flip as many houses because flipping houses is all of the active.

Dave:
Yep, exactly. And this is a perfect goal. Your real goal is to own unlevered properties. 100%. You’re using flipping as a strategy to get there quickly. And this isn’t exactly why you need to set your goals first because if you just said, “Hey, I want to flip,” you might make a ton of money. It sounds like you do make a ton of money, but you’re doing that with a different goal in mind. And so you have to cater and adjust your flipping strategy to pursue that bigger goal. And I think that’s a really important thing that’s sort of keeping you on track.

Henry:
And also lets you know how much of it you have to do. Right,

Dave:
Exactly.You could scale it down in the

Henry:
Future. Yeah. Do I need to do five flips or do I need to do 25 flips? That’s going to depend on the amount of money you want to make and what market you’re in. Because as we saw recently, somebody in a market is flipping one house and making what I make dang near in a year doing 10 to 15.

Dave:
That’s crazy. Yeah, absolutely.

Henry:
So yes, those are my goals. Everybody’s goals are going to be a little different, but after goals, in my opinion, comes strategy. So I know you literally wrote a book about strategy, so how do you feel about that?

Dave:
Well, I think that’s right. And I think that honestly, this is all strategy. I think goals are important part of your strategy, but I think when we, in real estate, when we talk about quote unquote strategy, we’re talking about the types of deals that you want to do. And I do think that’s the appropriate next step. My goal’s pretty similar. I want unlevered rental properties to pay for my entire lifestyle and then some within 15 years. And I can pay for my lifestyle with real estate now, but I don’t. And I’m sort of more in a growth mode. So over the next 15 years, I want to transition to more passive. I’ve been doing that for already for five years now. And how do I do that with less and less debt, which to me means less and less risk. So then I work backwards from there.
What kind of deals do I need to do? Do I need to flip houses? No. For me, it’s something I might do opportunistically because it’s fun in this industry, but I don’t need to do that. Do I need to do midterm rentals? No. Do I need to do short-term rentals? No, I could. But to me, given my goal, my strategy first and foremost is how do I buy a great asset at a great location that I’m going to be proud to own for the next 30 years? That’s the number one thing I look at. And then from there, I’m like, all right, is that a short-term rental? Is that a midterm rental? Is that a Burr? Is that a long term? That to me is more of a management choice. That’s a business plan choice. To me, it’s like I want something that I can own for a really long time, which is a very different strategy than buying stuff, renovating it, and flipping it.
And so that’s why we probably have different short-term strategies. But for me, it all starts with that goal and then I sort of work backwards. And that’s why my strategies right now are buying long-term properties. Maybe I switch up how I manage those rentals over the next 30 years, but I want the great asset and the great location that I’m going to hold onto for a long time.

Henry:
Yeah. And I think that that’s a brilliant way to look at it because if you’re looking at it from assets you want to hold forever, you may actually do more than one strategy with a particular asset. For sure. For example, I have a rental property that was a long-term rental, but in this particular city, in this particular area, mid-term rentals do really well. And so I converted it and it’s doing excellent right now. Will it do excellent forever as a mid-term rental? Probably not. Totally. We may have to put it back.

Dave:
People sometimes say, “Oh, are you a short-term rental investor? Are you midterm rental investor?” I’m like, “I’m a buy and

Henry:
Hold.” I’m going to buy a holding.

Dave:
Yeah, that’s what I do. I want to buy stuff for the long term and hold onto it and whatever helps me hold onto it. I would do that. Whatever is a good business decision at that time, I will do that. That’s to me the number one thing. And once you have that, once you say, okay, I’m a buy and hold investor, then you can go out and start picking your markets because I’m in an interesting position. I live in Seattle, very expensive market. It’s not a good buy and hold market. It’s not. That’s why I invest out of state. I didn’t pick the market first. I said, “Here’s my goal. Here’s my strategy. Now I got to go find a market that I can successfully do that in because Seattle ain’t it.

Henry:
” Preach, preach. I don’t know how many times people ask me, “What’s the best market to buy property in? ” I’m like, “I have no idea for

Dave:
You. ” Exactly.

Henry:
No idea what you want to do, what your goals are. That’s truly the way you should be looking at picking markets. And I feel like people pick markets because they think, A, either it’ll be easier to find a deal or more affordable to pay for a deal, but you should really pick your market based on your goals and your strategy.

Dave:
In that order. In that order. I really do. Hands down how I feel. Some people live, you live in a good market where you can kind of do a little bit of everything, which is nice, but that’s not true everywhere, especially in expensive markets. It’s very difficult to do it. So if you want to be a buy and hold investor, you can be creative, more creative than I care to be because it takes a lot of work and I have a full-time job. So I’m not going to go out and do student housing, for example, or rent by the room. I’m just not going to do that. Yeah, it’s more work to go find a market. I travel there. I go look at deals. I would rather do that because it’s just more aligned with my goal. It’s more aligned with my strategy of buying great assets and holding onto them.
And that’s how I pick that market. Perfect. So those are our first two steps. Number one, pick your goal. Number two is strategy and market, which we’re kind of combining because I do think it makes sense to do those. Next, we have step three, which I think we might disagree about this one. I think we’re going to disagree about which one should go third. You can weigh in on which one you think is right right after this break. Running your real estate business doesn’t have to feel like juggling five different tools. With Ree Simply, you could pull motivated seller lists. You can skip trace them instantly for free and reach out with calls or texts all from one streamlined platform. And the real magic AI agents that answer inbound calls, they follow up with prospects and even grade your conversations so you know where you stand.
That means less time on busy work and more time closing deals. Start your free trial and lock in 50% off your first month at resimply.com/biggerpockets. That’s R-E-S-I-M-P-L-I.com/biggerpockets. Welcome back to the BiggerPockets Podcast. Henry and I are sharing our seven steps for investing in real estate, going from wherever you are today to getting that first deal. And we were planning the show and we agree on the seven steps, but I think we disagree on the order of them, right?

Henry:
I agree.

Dave:
Okay.

Henry:
I agree to disagree.

Dave:
I disagree. We both agree that goals come first, then comes strategy/market. What do you do as third?

Henry:
Find a deal.

Dave:
Find a deal. So you would just go out. I don’t necessarily disagree about that, but I’ll offer a counteropinion, but you go first and just share finding a deal.

Henry:
Yeah. I think finding a deal is the key to being able to make money. I also think finding a deal makes all the other subsequent steps easier to you. If you’re going to find a contractor, it’s hard to talk to contractors about hypothetical deals. They don’t want to talk to you about

Dave:
It. It’s so

Henry:
Pointless. Right. And then also it’s easier to find money for deals the better your deal is. And so being able to go out and find a deal.

Dave:
So I guess within making a deal as your third step, do you create a buy box?

Henry:
Yes. Okay.

Dave:
Absolutely. Yeah. You take that market, you take the strategy and you get … How specific on your buy box?

Henry:
For me, it’s square footage wise. If it’s a single family home, I don’t want anything over 2,800 square feet. So I want less than 2,800 square feet. I want it built after. I think we just changed the buy box filter. Anything built before 1960, we don’t want. Now you could live in a place that’s a big city and you only want to buy in little pockets of the area, and so you have to know what zip code you want to buy in. You could live in a place where there’s tons of old properties, and so you don’t have a choice. You have to buy something older. So you’ve got to get real specific depending on your market. I just happen to live in a market where I can have a broad buy box.

Dave:
Yeah. I recommend for new people to be as specific as you can. It can be overwhelming, all the options that are out there. And so if you’re new, figure out a price point that you can afford, that is reasonable. Figure out what kind of asset. For me, personally, single family, small, multi, I’m like, whatever, whatever the numbers work on.
Trying to figure out what type of condition that you want, class A, class B, class C, what kind of neighborhood. The more specific you can be, the better the decision making process is going to be because if you’re new, you can do it, but if you’re analyzing 100 deals, 200 deals, looking at every deal because your buy box is so wide, it can be really overwhelming. And so trying to just be like, this is what I’m going to do first. I want something that’s manageable, a 3.1 that’s under this price point, it’s got an attached garage, that’s my buy box. That’s great because you can really hone in and practice your skillset. So I don’t disagree that going out and finding a deal makes things better. I do think just for new people, one step you can consider putting before the deal on the buy box is talking to a lender
Because I see so many new people get stuck at this. They’re being like, “I can’t afford it. ” I’m like, “Do you know that? Do you actually know that? ” Because there are 5% down loans, there are VA loans, there are owner-occupied loans, there are FHA loans, there are all sorts of things. There are government programs, state and city sponsored programs that help you with your down payment or your closing costs. And if you’re feeling stuck, please just go talk to a lender. If you feel good about your buy box, go do what Henry said. But if you’re feeling stuck, just talk to a lender. It’s their job to help you understand what you can afford and they will give you a number that you could go put into your buy box that you could say, “I can actually afford this. ” So it’s just one thing.
We don’t really disagree, but that’s something I think you can consider doing

Henry:
First. It’s interesting because I think we’re trying to solve the same problem for people a different way. Both of us want you to go take the action and you’re saying going and talking to a lender will truly let you know what you can go buy and stop guessing at it or making assumptions for people. And what I’m saying is finding a deal will motivate you to go find the money. And so what I’d say to your plan is talk to multiple lenders.

Speaker 3:
For sure.

Henry:
Because sometimes a lender will tell you no or tell you they can’t do something and it’s based on their limited information about the products that they offer- Or their bank. Or their bank. And there’s a million other banks out there that have a million other products to offer you. And so talk to multiple banks and get a consensus from them and that will truly help you understand what you can and can’t go do.

Dave:
I am so guilty of this. I’ve been interested for the last six months or so of buying a multifamily, not huge, but 12, 15, 20, something like that. But if you listen to my other buy box shows where I get into detail about what I’m looking to buy, I really like fixed rate debt. I don’t like commercial loans.
So for a little while I was like, “Oh, I’m not going to buy multifamily because I need a commercial. I want an adjustable rate mortgage.” And a couple weeks ago, I was like, “I haven’t even talked to a lender. They’re fixed rate commercial books.” Absolutely. I know if there are. But I just in my own head was just like, “Oh, I don’t want to get a commercial loan.” And I was just being lazy and I was like, “Now just go call them.” I’m like, of course they’re fixed rate commercial debts. 100%. Not that hard to find. I was just being lazy about it. Now by doing that, I’m like, okay, now I can make a buy box because I know what’s possible. I know what the rates are going to be. I know what the rate premium’s going to be because a fixed rate commercial loan’s going to be higher than an adjustable rate.
So I can bake that into my underwriting. And now I feel better about my buy box.

Henry:
And if you follow these steps in the order we’re giving them to you, you will learn so much by talking to lenders because you’ll be able to sit down and say, “These are my goals. This is the strategy I’m looking to employ.
And here’s the buy box that I’m looking for for deals.” And they may have options for you for loan products that are new or we don’t even know existed or you had no clue exist yet. But these, especially community banks, their job is to help investors in their market figure out how to get deals done with them. And so they may be able to piece together a strategy for you that you didn’t know as an offer. For sure. Absolutely. If you’ve got all these things lined out for them. All right. So we agree to disagree, but it sounds like we agree essentially on the same thing. Do

Dave:
This in same week. You can do it all. You can get

Henry:
To this. Yeah. You need to talk to lenders. You need to find a deal. All of this will be a benefit to you, especially if you’ve done the first two steps like we outlined. And so moving on to the fourth step, which is to analyze some deals. And I don’t know if you know this about this guy, but he loves analyzing deals.

Dave:
I do it for fun.

Henry:
I do too. I’m

Dave:
A deal junkie. Deal. It’s funny though, because you offer on way more than I do, but I’ll know I’m not going to offer on them and I’ll just watch this.

Henry:
And run the numbers anyway.

Dave:
But yeah, I think this is where you go from research to action. This is where you’re filtering, you’re doing your buy box, you come up with these great ideas, but ultimately real estate is really, it’s just math and execution. And this is the math part where you just say, is this a good deal or not?
And I know that sounds intimidating, but it really isn’t that hard. It’s really doing a little bit of research. The hard part is your assumptions. The math, the formulas are super easy. It’s you figure out your cash flow and you divide it by how much money you invested, that’s a cash on cash return. That’s easy. But your assumptions like how much rent you can collect, the ARV of a property, what your expenses are going to be, that is hard. I think that’s a skill that takes a little bit of time to get good at. I think I’ve gotten good at it, but how do you get good at that?

Henry:
Well, I’d say for people starting out, you’ve kind of hit the nail on the heads. The two things you need to have a handle on are after repair value,

Dave:
Which is just what you can sell for once you’ve

Henry:
Renovated it. Once it’s fixed up, what will that property trade for? You have to understand what that number is for your assets. But for a new person that can be very intimidating because the access to the data that you need to accurately get this information is behind the door that only real estate agents have the key for.

Dave:
And comping’s kind of

Henry:
An art. And comping without access to that information can be extremely challenging and overwhelming. So it is a skill that you have to learn. We don’t have time to tell you exactly how to go do all that here.
But so typically when you’re new, the best way to get that information is to partner up with a real estate agent who can help you run that analysis. So understanding ARVs, that’s the most important data point you need to get a grasp on when you’re going to be investing. The second data point that’s important and hard for new investors is renovation budgets. Not everybody who is investing in real estate has a construction background. I know I did. I still struggle with this. And this was extremely overwhelming for me when learning to run the numbers. There are several things that you can do to get familiar with it, but it’s just something that’s going to take time and experience.

Dave:
I think that I’m not good at construction. I’ve done plenty of it, but some people have a feel for it. They’re like, “Oh, I know how much this is going to cost.” Yeah, exactly. It’s like, oh, like James Standard, our friend, you probably- I do it all the time. You have a good feel for it. I do not. But I think the best thing I’ve learned is just to ask other investors. That is the number one easiest thing because yeah, you can go ask a contractor, but they’re building in profit and they’re going to try and, not all of them, but many of them are just trying to maximize their own profit.
I think talking to another investor, if I go to another market, I’m like, “What does a bathroom cost you? ” What does a kitchen cost you? That is the most valuable thing that you can do to get those assumptions right. Because like Henry said, ARV expenses, those are tough. Rent, you can usually figure, I don’t think rent estimates are that hard, but if you can nail those two things, it’s really going to help you a lot in your deal analysis. And that’s just why you have a community. That’s why you have bigger pockets. That’s why you go on and talk to people and BPCon, whatever it is. These are the relationships that really help you get around these assumptions because they’ll know they’ve done it.

Henry:
And I think one pro tip to doing just that is talking to other investors and learning about renovation budgets is ask other seasoned investors if they’ll send you bids from contractors that they didn’t hire because you’ll learn a ton by reading a bid for a project renovation. You’ll learn about what it costs to paint a house of a certain square footage. You’ll learn about what it costs to lay flooring in certain rooms of certain types. You’ll learn about-

Dave:
Scope of work, like

Henry:
What people are doing. Reading your scope of works, just having access to those is data. And you can start to build your own spreadsheet based on a cost per square foot model just by looking at other people’s bids.

Dave:
Yeah. I mean, yesterday, Henry and I were tooling around Seattle. We went and someone, we were talking to this guy, he was like, “You want me to send you my spec sheet?” We were like, “Yeah.

Henry:
Yes,

Dave:
Great.” So now we can see what he’s paying for cabinets for tile and for all these different things. And that just helps you orient yourself. And I think that’s really the hard part of deal analysis is people hear this word analysis and they think it says math and you’re like goodwill hunting up on the board. It’s like you just go to bigger pockets, just put in the calculator. That part is easy. Just go use the calculator.

Henry:
You just have to know what to plug in.

Dave:
Yeah. You need to know to plug in. That’s the hard part. The other hard part I think is knowing what’s a good deal because once it spits out a number, is that good or not? I think that’s another sticking point for a lot of people is like, you see, let me just throw out a number for you. You see 5% cash on cash return, what do you think for rental property?

Henry:
Not a good deal.

Dave:
Not a good deal.

Henry:
Yeah.

Dave:
I’d probably take 5% in the righ market.

Henry:
In the right market, in the right

Dave:
Situation. I would take it. Yeah, exactly. So I think that’s what people struggle with when they’re new is like, is this a good deal? So do you have some benchmark returns that you use either for flips or rental properties?

Henry:
Yeah. So for flips, I try to keep it super simple. I’ve talked about this before. I want to net make what I spend on a renovation. That lets me know that my risk and reward is in line.
So I don’t want to do a $200,000 renovation and make a $30,000 profit. That’s way too much risk and not enough reward. That’s a quick and dirty way for me to know if what I’m paying for the property is worth the effort that I’m putting into it from a flip perspective. On the rental property perspective, I still use to this day, the BiggerPockets Calculator. And what I’m trying to get to on my rental properties is I want them to cash flow positive or break even depending on the neighborhood that they’re in. So I’m okay buying a breakeven property. If it’s in an up and coming area, I’m going to get the appreciation, debt, pay down, tax benefits, but I’m in a different place. I think, but for most people, if you can get somewhere between seven and 10% cash on cash return for a rental property, you’re probably doing very well.

Dave:
Yeah, that’s good in today’s arcade. I agree with you. I will take anything down to even like a 3% cash on cash return if it’s in a great neighborhood that I know it’s going to be growing. Again, my strategy long term. I’m not thinking … This is why your goals are so important

Henry:
Because if- Your money later.

Dave:
Yeah, exactly. If my goal was I want to retire in five years, I would be only doing 10, 12% cash on cash return deals, no problem. I’m like, “Hey, if I’m buying a property that’s in great shape, in a great location, the cash flow’s probably not going to be amazing this year, but it’s still going to be in great shape from 10 years. It’s going to be in a good property. Location’s still good. The condition of the home is still good and rents have gone up and my debt is fixed, then I’m getting my cash flow.” So I’m willing to do that. The number I use is I want my total return. So I add up my cash on cash return, my appreciation, my amortization, my tax benefits and any value out I do. And I want that to be a 15% annualized return. It’s a little less than double what the stock market average is.
And to me, that’s worth my time because I don’t put as much time into real estate investing as you do, but I still spend 20 hours a month on my real estate portfolio.That’s more than stock investing. I want to get paid for that. That’s an incredible return. At 15%, just so everyone knows there’s a little rule of thumb here. Your money will double every five years.

Henry:
For those of you who are still around in this episode, that was your reward for it. That’s a phenomenal calculation to be able to run that most anybody can use and do immediately. So congratulations for sticking around. Thanks. That’s why he is the co-host of the BiggerPockets podcast.

Dave:
Yes, it’s true. But if you think about this for a minute, Michael’s 15 years, 15%, your money doubles in five years, then it doubles again. So you’re at 4x and then it doubles again. So you’re at 8X. So by doing 15%, which is very achievable, this is not crazy numbers. These are deals that I can do without worry. I can do this- Things

Henry:
That you can find on the market. Things

Dave:
On the market, I can 8X my money in the next 15 years. Think about that. And it’s an unbelievable value proposition. And so that’s how I think about it. And the 3% cash on cash return, honestly, it’s not because of the cash. It’s like that just gives me the cushion. I’m very conservative of my expenses, but it gives me even a little more cushion to make sure that I have a bad year. I can pay for these kinds of things without coming out of

Henry:
Pocket. Yeah. I think that’s the thing people need to understand when we’re talking about Oh, net returns is both you and I underwrite extremely conservatively.

Speaker 3:
Kind of scared.

Henry:
Extremely. The scenario in which that my properties perform like I underwrite them is probably pretty low. They probably all perform better than I underwrite them.

Dave:
Oh, all of mine do. That’s my goal. That’s why I do that. That’s 100%. Yeah. Someone sent me a deal. I was showing you this the other day in Detroit. The agent sent me really good rent comps, all these things. I was like, “It’s going to be 2,400 underwriting.” I’m like, 2,100. I just immediately discount all of it. Not because they’re wrong, but because I want to see the worst case scenario. Worst case scenario. Yeah. I want to see the worst case scenario. And then it works. I’m like, great.

Henry:
Yes.

Dave:
All upside

Henry:
For you. 100%.

Dave:
Yeah. All right. So now we’ve given you some benchmarks and some rules of thumb out how to identify what’s a good deal, but then you got to go get it. This is your territory. So I’m going to turn this over to you, but we got to take a quick break. We’ll be right back. Welcome back to the BiggerPockets Podcast. Henry and I are sharing our seven steps to getting from where you are today to buying a rental property. We’ve gone through our first four, which first was setting your calls. Second was strategy/market. Those look kind of a hybrid. Third was lenders and deals, another hybrid, but go out and figure out what you can actually accomplish. Fourth was analyze. Fifth, making offers. I feel like this is an underrated part of real estate investing. And in the market today, it is more important than ever.

Henry:
Absolutely.

Dave:
Take us to school.

Henry:
I feel like this is where people are falling short right now because it’s not that people don’t have enough leads for deals. It’s that people aren’t making enough offers on the leads that they have. And I think this all boils down to psychology. I think people are just scared of rejection and so they don’t make enough offers.

Speaker 3:
100%.

Henry:
And because we know as investors that our offer, especially if you’re making offers on on- market deals, that the offer that we need to make for the deal to pencil based on the analysis that we just talked about, how you need to run, we know that that offer is going to be substantially less than what people are asking for. They’re going to be disappointed. And so we make, again, we make decisions for other people. We go, “Ah, I’m not going to offer on this deal. They want 300,000. I can only offer them 125.” So we go, “There’s no way they’re going to take that and we don’t offer.” And what we have to do is get our personal feelings out of the equation and we have to learn how to make uncomfortable offers. Or as I like to put it, we have to learn how to make disrespectful offers respectfully.
There’s a way to make your offer on your property in a way that shouldn’t put somebody else off. Now, we can’t control how somebody else reacts to our offer, but we can do it in a way where it makes sense. So I made 12 offers on on- market deals last week. Here’s how we did it. We did verbal offers and the verbal was just a text message. And we created a text message script that was kind. And my agent sent this to the agents listing the properties and it said, “Hey, I have an investor client. He would like to make an offer on 123 Main Street. It is going to be lower than what you’re expecting, but what we can offer you is we can close it in seven to 14 days. He won’t ask your client to fix a single thing. We’ll take it in as is condition
And we will make this a very seamless and easy process for you. ” And then we say what the number is going to be. Out of those 12 people, two of them replied with counteroffers and one of them said, “Hey, my client actually owes X, Y, Z on this property, so we couldn’t take that offer. Could they come up to this? ” I couldn’t. So we said, no, thank you. The other one was listed for 200. We offered 125. They came back at 150. I said, “Let me go see it. ” I ended up offering 135 and they took it all from just sending a text message or a verbal offer. And most people would’ve said, “They’re listed at 200. They’re not going to take your $125,000 offer. That’s not for me to decide.” We just figured out a way to do it respectfully. I think we just have to get comfortable being a little uncomfortable.

Speaker 3:
Absolutely.

Henry:
And so if you’re new, it’s a conversation between you and your agent about what’s a way that we can do this that makes sense. That worked for my agent. My agent said, “Look, I don’t want to write up all those offers to them just get rejected. That’s a lot of my time.” I said, “That’s fair. So what’s a way that we could do it that would take less time?” And that’s how we ended up with the text message rule offer.

Dave:
Yeah, I think it just goes back to what we always talk about, just having real estate being mutually beneficial. I think some people might say, “Hey, you’re offering them less, you’re trying to screw them over.” But I don’t see it at all that way. When someone lists something on the market, they say, “Here’s what works for me.

Speaker 3:
”

Dave:
And by you reacting to that, you’re saying, “That doesn’t work for me. Here’s what would work for me. Does that still work for you? ” And they have that option to say yes or no. That’s the whole point of a market is for people to have these conversations. And so not on every deal, but on some deals, there’s going to be a number that works for both of you. And that’s what you’re searching for. There are sometimes they’re going to say, “No, that’s fine. That’s okay.” There’s sometimes they’re going to say yes, and that’s even better because apparently you have met their conditions. I think I told you the other day, I was working on one of my first flips. I took an under offer, underasking offer, still hit my target. Absolutely. Still buy for me. So it’s just up to you to have that conversation and to initiate it.

Henry:
It’s the seller’s decision whether they’re willing to take that offer or not. And when you’re making offers on the market, the only way to figure out if a seller’s willing to take less is to offer less because there’s intermediaries in between you and the seller. It’s not like where you’re making offers off market where you have more information and you can do that. And if you’re making offers off market, you still have to be able to do the same thing. You have to be able to make an offer to people at what may be lower than they’re expecting. I do this all the time, but I do it very respectfully in off-market deals. And I have a whole framework for doing that, which we can go into in another episode. But the point I’m trying to make with this step of making offers is you’ve got to get comfortable with a little uncomfortability and figure out a way to make the offer that makes sense to you and not be so concerned with how it might be interpreted by the person receiving the offer.
Because at the end of the day, they don’t have to sell you anything. Yeah,

Dave:
Exactly.

Henry:
It’s a business decision. It’s up to them. You’re not taking advantage of them. And the same people mad about you making lower offers than what people are asking on the market are the same people that are low balling people on Facebook Marketplace for stuff. So it doesn’t matter. No one’s saying the same. Exactly.You’re willing to do it in other areas. Right. You can do

Dave:
It here. Yes, you can.

Henry:
All right. So we’ve got the goals, we’ve got the strategy, we’ve got the market, we’ve got the money, we’ve looked for the deal, we’ve analyzed it, and now we’ve made an offer. What the heck do you do next?

Dave:
Sign the piece of paper. Sign a piece of paper, right? Yes. I mean, no, you got to close. I’m not going to get into that here. It’s pretty easy. Yes. They’re going to sign someone, an escrow agent who’s going to figure this out for you. You’re going to figure out how to close. That’s not bad. But then I think your first 90 days are pretty important as a real estate investor. How are you going to maximize and execute your business plan? I think that’s really what you need to focus on next because when you go out and buy your deal, when you create your buy box, you should have a plan. You don’t just buy and then you’re like, “What now?” If you’re going to be a short-term rental, you got to jump into furnishing that thing right away. You need to figure out your management strategy.
You need to put your properties in place. You’re going to do a Burr, hopefully during the closing period, you were already getting bids, you were figuring out your scope of work. Now it’s time for you to go execute. I think this is a time where you don’t think about your next deal at all,
At least in the beginning.

Henry:
You

Dave:
Do not think about your next deal. Don’t think about your taxes. Don’t think about … I mean, honestly, this is bad advice, but I wouldn’t even think about setting up the perfect systems. I would just say go and do the most important thing you could possibly do. If you’re doing a renovation, nail the renovation.

Henry:
Yes.

Dave:
If you have a stabilized property, screen your tenants well and find a great tenant who’s going to be happy in your home.

Henry:
Yes.

Dave:
Go do that. Figure out the number one most important thing and do it the second you’ve signed that piece of paper.

Henry:
Absolutely. I couldn’t agree more. Execution and timing is everything when you are operating a real estate business because literal time is money. Because if it’s a rental property, the longer it’s not rented, the more it’s costing you. If it’s a flip, the longer you’re holding it, the more it’s costing you. So you do. You have to figure out what is the immediate next step that I need to do and you’ve got to go execute against that step. I would say the thing that I would encourage you to do is to document as much as possible about what you are executing when you’re getting started.

Dave:
I wish I had that.

Henry:
I wish I had done the same thing.

Dave:
And then I just made it up again the next time.

Henry:
Because you end up repeating things that are not beneficial to you. We are all going to end up wasting a lot of time doing things that aren’t that important in your first deal. You’re going to do things that you hate doing that you’re going to wish you had documented so you have a process for bringing in somebody else to do it next time. Just you know how many times I waited until closing day to get insurance on a property because I just- I always forget to

Dave:
Transit for the utilities. Yes. I always forget.

Henry:
So if you write these things down, the next time you’re doing a deal, you’ll be able to be a little more proactive and save yourself a lot of time and effort.Just learn from our mistakes. Just literally every step you do, write it down. And then that way you’ll at least have an order of all the things that you did and you can start to eliminate some of those steps or pre-plan some of those

Dave:
Steps. Yeah, totally. Yeah. I think execute’s the right word. I think the other way, this word gets used in different contexts in real estate, but it’s just stabilize. Get in there and own it. You have your bills set up, you have your tenants in place. That’s what you need to focus on. I feel like when you arrive in a new place on vacation, you go get your bearings, figure out where you’re going to sleep. You put your bag down, you own the whole … You feel comfortable. Then you can start making decisions. I feel like that’s kind of what you need to do in those first 90 days. It’s just get your bearings, check everything out, make sure you feel comfortable. Then you can go into the optimization, then you can start doing the asset management piece of it. But you got to just get in there and take control, essentially.

Henry:
And also I would be figuring out who’s going to be on your team for the long term because you’re going to start executing and that’s not all going to be you. You’re going to have contractors, you’re going to have subcontractors, you’re going to have property managers. There’s all these people you’re going to have to engage with. Keep track of who you like working with and who you don’t like working with because honing that team in is going to help you be more efficient as you’re going forward as well. These are all things that I probably should have did a better job of when I first got started because all we’re trying to do when you get that first deal done is exactly what we’re saying. Keep your head above water. So just take some time and document this process and document who you’re working with and whether you enjoyed working with them or not, because your team is everything as you continue to execute going forward.
And the best operators I know have great contractor and business relationships who now basically do all these steps for them without them having to spend a lot of time operating these deals.

Dave:
For sure. All right. Let’s move on to step number seven, which is after you’ve executed, stabilized, gotten that property, you figure out what’s next, right?

Henry:
Absolutely.

Dave:
I feel like that’s kind of like you take stock of what you did, right?

Henry:
This is where all those notes we just told you to take come in handy because you’re going to want to go do more deals. That’s probably going to be in your goals that you’ve set up in the beginning. But now you’ve got some experience and now you’ve learned something. And what you may have learned could be that you need to re-look at your goals. You may have hated what you did.

Dave:
That’s

Henry:
A great point. Yes. My goals for when I first got started were far and away different than what they ended up being after I got a few deals under my belt. You’re just going to learn a lot about what you planned on executing and what you actually executed against. And you’re either going to get better and more efficient at the thing you currently executed against, or it is okay to go back to your goals and say, “Nope, it’s not this. It’s that I have to try something different. It didn’t turn out like I wanted it to turn out. I didn’t enjoy it at all. ” That is okay. Reevaluate your goals and then decide, do I continue to execute on what I just did and do it better or do I need to start fresh and that’s okay.

Dave:
Yeah. I think whether it’s your goals, your strategy, your market that changes, it’s okay,
But figure that at the end. I don’t think you should be tinkering in it. Absolutely. For me, I did a short-term rental. I didn’t really like it, to be honest. I’m okay. I would do it again, but it’s not like, oh, I’m going to go out and do a lot of those. I do strategies right now. I literally never heard of when I started investing. I didn’t even know it was a thing. You add that in once you sort of take stock. I blend. I never thought I would do something like that. I never thought I had the capacity to do something like that. So I think it’s just really important to say, “Here’s what you’re good at. Here’s what you like. ” For me, I like rental properties. I don’t mind property management. I like interacting with people. I’m totally fine with that, but I don’t like doing off-market deal funding.
It’s not something I like doing, so I’m not going to do it. And so I’ll build my portfolio. I’ll go into my next one. Think about that. You’re probably the opposite. You love off-market deal finding, but there’s probably something I do that you hate. So that’s what you got to do.

Henry:
Well, I’m doing this entire process right now, but with new construction, I’m building my first ground up with construction. And so I am literally documenting the entire process because if I decide this is something I want to grow and scale and do, I want to get better at it, especially this pre-construction phase, which has been a nightmare for me. And so I need to learn how to become more efficient at that if I want to get better. But at the end when I’m done, I’m going to take a look back and say, all right, do we- Did you like this? … truly want to do more of these. Was it fun? Was it profitable? Was it worth all the time and the effort? These questions I don’t have answers to yet, but as part of this exercise, it’s exactly what I’m going to do when I’m done.

Dave:
All right. Seven steps.

Henry:
Seven steps.

Dave:
Let’s see if I can remember them. What do we got? We got goals. Then we had strategy/market. Then we had deals/talking to a lender, analysis, offers, execution, and then-

Henry:
Evaluation.

Dave:
Evaluation. Yep. That’s all it is. I mean, it is a lot of work. It’s work. You got to go out and do something. No one’s going to hand this to you. You got to go absolutely and do it. But these are steps that everyone can follow. It’s what I follow in every single deal. It’s not like it really even changes. You still just do the same thing. Even if you’ve done one of these or you’ve done a hundred

Henry:
Of these. Yeah. And it starts to just work on autopilot as you build more systems and a team and have more processes. It gets easier. I know that sounds overwhelming when you first get started, but a lot of this stuff we do in our sleep. I analyze deals for fun. Like I said, I made 12 offers last week. That’s awesome. Yeah. All of this gets better the more experience that you have. But I think this framework is absolutely a framework that you can follow and land a deal. Well, thank you so much for joining us on the BiggerPockets Podcast. I hope that these steps and this framework is valuable to you. This is truly the things that Dave and I are doing every day in our portfolio. As always, leave us your questions down below or let us know what framework you follow when you are doing deals in your market.
We would love to learn more about that. Thank you so much for watching. We’ll see you on the next episode. Go

Dave:
Set your goals.