Ashley:
You want to buy a rental property, but where do you actually find one? Do you open Zillow and scroll until something looks cheap? Do you send letters, cold call owners, build relationships with agents, or wait for someone in your network to mention a property?

Tony:
It can feel like successful investors have access to a secret website full of discounted homes, and the truth is they don’t. Most deals come from ordinary channels used with a better buy box, faster analysis, consistent follow-up, and enough offers to let the numbers, not the listing label, decide what is actually a deal.

Ashley:
Today we’re breaking down the ways we’ve used to find investment properties from Zillow and word of mouth to pocket listings, wholesalers, direct to owner outreach, and retiring landlords. For every channel, we’ll cover the advantages, the dropacks, and the strategy it fits best. So looking ahead to 2027, shifting inventory and seller motivation could create new pockets of negotiating leverage, which is why rookies should start building these deal finding systems now. Welcome to the Real Estate Rookie Podcast. I’m Ashley Kerr.

Tony:
And I’m Tony J. Robinson. With that, let’s get into our first step for finding the right rental properties now and what’s working today. So the first step is to start with your buy box. Okay, start with a very, very clear buy box. And a buy box by definition is just the boxes that a property needs to check in order for it to achieve your specific goal. So that it can vary from strategy to strategy and your buy box for a flip is going to look different than your buy box for a wholesale deal, is going to look different than your buy box for a long-term rental is going to look different than a midterm rental different than a short-term rental. So every strategy, even in the same market can have a very different buy box. But there’s a few ways that I would approach this.
At a high level, before you even think about buy box, the first thing you have to focus on is what is my investment goal? Am I doing this for consistent monthly cash flow? Am I doing this because I want a nice vacation house on the lake? Am I doing this because I want a big chunk of cash? What is your specific investment goal? What is your purchasing power? How much cash do you have on hand? How much loan can you get approved for? And then what’s your strategy? So if you have those three things, your goal, your purchasing power, your strategy, that’s the foundation for building out your buy box because maybe I’ll give you guys an example. Let’s say that you want to buy, say you live in Southern California, any high cost of living area and your goal is I want a cash flow, 30% cash on cash return buying something here in California.
With a lot of strategies, buy and hold strategies, that’s going to be tough. So you got to make sure that you have that laid out first before you actually put together your buy box. But once you have those things in place, and this is a mistake that I see a lot of rookie investors make, is that they start by going into Zillow or Redfin and seeing what’s for sale and they just kind of scroll and so they find something that looks nice and then they back into, okay, do I think this is actually a good deal or not? But the whole purpose of the buy box is that before you even hunt for anything that’s for sale, you’re doing very deep and thorough research on the market to understand what is already proven to do well in this market. So if I want to flip a house before I go hunting for properties to purchase, I’m going to look at all the homes that have sold in the last 30, 60, 90 days that are around the price point that I think I’ll be able to afford.
And I’m going to understand all those characteristics. If I want to buy a short term rental, I’m going to look at all of the top performers in this market to understand what are the specific boxes they’re checking that I need to make sure I’m including in mine as well. So we start the process of your buy box by doing a very deep and thorough research on the current market conditions and understanding, hey, what are people already paying for in this market? You do those two things. At least that’s how I start my process for buy box building.

Ashley:
We also have a buy box checklist that you guys can download. Go to biggerpockets.com/resources. And if you go under, it’s like finding deals or something like that, that section, there’s an actual buy box worksheet. And I created it and it goes through all of the things that you should think about when building your buy box. Some of these won’t apply to you. For example, there are certain things that may be in my area of the market that may not be in whatever market you’re in, or you may need to add some things to the sheet because it’s in your market and maybe not in my market, but at least it’s a starting point for you where you can go and see, okay, these are some of the things I need to look at. And then some of them I give more detail as to why this is something that should be on your buy box.
So you can go ahead and download that. It’s free to download. I’ll try to also get it linked into the show notes for you guys into the description on YouTube also so you can download that.

Tony:
So once your buy box is complete and you understand what you actually need to go find in that market, the final piece of this buy box step is actually working on getting the offers submitted. And oftentimes, especially when I’m working with students, I’ll tell them, once you have your buy box, we just need to go search for deals that fit the buy box and worry a little less about what the actual purchase price is right now because purchase price is always negotiable, but can we find the deal that meets the buy box? And then once we find the property, there’s different ways that we can negotiate to try and get the overall value of the deal to align with what we need. One of the most kind of simple solutions is we just try and reduce the price. If they’re asking 350, but it works for us at 300, well then let’s just offer 300.
So just asking for price reductions. Another great strategy that works especially well in today’s market is getting seller credits or seller concessions. Can you get the seller to give you a credit at closing to help buy down your rate? We’re actually in the process. We should be closing hopefully in a few days here on a new primary and we did both of those things. We got a 30K reduction on the purchase price and we also got another 30K in seller credits to help buy down our rate. So those are two things where the property fit our buy box. We knew exactly what it was that we were looking for for our primary. We found the property was priced higher than what we wanted it and we got both of those concessions built into the deal. So the buy box is the starting point, find deals that match and then use your negotiation tactics to make the numbers actually work.

Ashley:
One of the things I really like to do is try and find different ways to fund the deal. You can offer cash, you can get conventional financing, you can get seller financing. There’s all these ways to get creative and you can get a deal or a discount by the type of financing you are getting on the property. So if you’re able to get a better interest rate than somebody else because the seller is going to finance it for you at 5% instead of the bank that’s going to charge you 7.75% for a loan, you’re maybe able to have this as a better deal because you’re not going to be paying as much interest as someone else would. So getting creative with the finance can help you to get that discount while keeping the price the same. Or sometimes I even offer more if they’re willing to do seller financing.
Then the next is just looking at where the missed opportunity is in the property. Where can you add a value in just the operation? So I’m not saying going in and doing a full gut rehab to increase the market rent to make more money. I’m talking about things that you can do operationally, like quoting out the insurance on the property, maybe even disputing the property taxes to get them lowered. What are things that you can do right now that don’t mean that you’re going to have to put a ton of money into the property and it’s just operational pieces that you can buy it at this price point because you know you’ll be able to increase the cash flow because you’ll be able to put better operations into this property, even increasing market rent. And then the last thing is the seller’s motivation. You can use that to get a discount as in do they want to fast close on this?
Can you increase the timeline and put that into your offer? And maybe they’ll be more likely to accept a lower price knowing that you’ll be able to close fast. So think about that. What is their motivation? What do they want out of this? And try to include that. A lot of times when I’m buying properties, they’re full of stuff and I’m buying them from the estate or I’m buying them from someone who’s moving or I’m buying them from someone in their family. So I always put in my offer, you can leave whatever you want and I will take care of it. And that is usually a motivation for them to accept my offer because they don’t want to have to deal with cleaning out all of their family members’ stuff, getting dumpsters, going through everything. This way they can just leave whatever and I’ll have somebody take it out.
So there’s other ways to get discounts instead of just getting a cheap property, a better deal.

Tony:
Step number two or strategy number two is one of the easiest. And it’s just starting with the MLS, Zillow, Redfin, the places that you’re probably doom scrolling already. But this is best for Rickies that are looking for just kind of a quick and efficient way to get a large volume of opportunities to look at. Now obviously there’s pros and cons to finding deals on the MLS, on Redfin, Zillow, whatever it may be. I think the benefit, again, is that you can literally see inventory in any city across the country with a few clicks. There’s no gatekeeping, there’s no hoops you have to jump through. It’s just information that is readily available. Tons of public history, tons of, you can see the property taxes, you can see the transaction details. When did it last sell? How much did it last sell for? So there’s the photos, you can look at comparable properties.
There’s just an abundance of information that is completely free.

Ashley:
So the disadvantages are obviously it’s to the open market. So you’re going to have more competition on the property. Also, people may not exactly list their property for what it’s actually worth because they’re looking at what other people are listing, what other houses have sold for. So this has been a deterrent for rookie investors. Sometimes when you see the list price, you say, oh, well that doesn’t make sense. That property’s not worth it, blah, blah, blah. But remember, you have to have the mindset that the list price isn’t the purchase price. Also, there’s the Zillow’s estimate, which I find incredibly inaccurate or inconsistent. Maybe on some of my properties it’s accurate and then other ones just way off. At one point in time I bought a property for $52,000. It said on there that I purchased the property for $520,000 and the Zestimate on it was like $600,000.
This was a little duplex I bought for $52,000. So don’t rely on all the information, even the property taxes. So that’s also a disadvantage is you’re not getting fully accurate information from browsing these websites. The next thing is the rent estimates too. I would do your own research. A lot of the rent estimator calculators that are integrated into these different websites, a lot of them are only pulling data from their own website. So like Zillow, they’re getting their information from people who listed their property on Zillow. There’s a lot of mom and pop landlords that don’t even use some of these platforms to list their property. There’s people who still list property in the newspaper. I actually, I use TurboTenant and one of the places that they push out all of my listings, there’s like, I don’t know, 17 places my listing goes. And one of those is Craigslist.
And believe it or not, I get a huge amount of leads from Craigslist too. So there’s still listings out there on Craigslist even.
So just know that not all of the information is extremely accurate on some of these websites that you should do your own research to call around to property management companies, see what they’re charging for rent for different places. You can just say you’re looking for a two bedroom apartment or something that’s comparable to what you’re looking to buy and see what they have available for rent. And then kind of the last thing is obviously these are being put on these websites to sell. So they are going to show the best features of the property and these properties are going to look sometimes better than they actually are. Once in a while, you get the properties that have the worst photos, have the worst description, and you end up finding that it’s listed as a three bedroom, but it’s actually a five bedroom, but nobody knows that because it’s listed wrong.
So you do have those gemstones in a while, but sometimes they’re listed to be able to sell. So it’s just highlighting the great parts. My brother is looking to purchase house hunting and my mom went with him the other day and sent me the listing. Beautiful house, beautiful, beautiful yard. It had everything that my brother was looking for. They went to tour the property and in the basement there was this one slider door. They opened the slider door and it is literally just a room full of black mold. Obviously there was no picture of this on the MLS. So just that is another con is that it just doesn’t give all of the information. And then there also can be inaccuracies.

Tony:
Let’s talk a little bit, Ash, about how to actually use the MLS like an investor, because I think that’s maybe the most important point here. I’ll tell you guys how I’ve used it in the past. I was actually just opening up Zillow on my phone right now because I still have a lot of these saved searches, but you can save searches on Zillow. So for example, let’s say that you want to flip a house and for whatever target city you have on your list, you can save a search where it says, Hey, for any listing that goes for sale that’s between this square footage and this square footage or this price point and this price point or this bedroom count and this bedroom count that has certain keywords like TLC, as is, damage, repairs needed, whatever it may be. You just kind of stack all these keywords that someone might list in a home that could be a good potential for flipping.
You’ wake up every morning, you’ll get a fresh report from Zillow saying, “Hey, here are all the new homes that match your search.” And that’s kind of like your targeted list to go look after. You can look at homes that have been listed for a long period of time. So if your average days on market is X and you set your search to be like, “Hey, I only want to see properties that are listed 2X,” you can do it that way. And then even kind of the trickier piece, if you start tracking those listings and you see which ones start to fall off that didn’t sell, well then there’s an expired listing that you can maybe just go reach out to the seller directly even. But that’s the way that I’ve used the MLS is very targeted searches, either looking at properties been listed for a very, very long time or trying to be the first one to a property that just got listed, both bookends of that time spectrum immediately when it lists or after it’s been listed for a long time, I found the most success.
But those are the ways that I’m using the MLS. And anything that you’re doing, Ash, MLS wise, it’s also been useful for you?

Ashley:
I love going in reverse and seeing what’s been listed the longest, so sorting them by newest. And then it’s always exciting to see the new things, but I also like to see what’s sitting. I also like to go and look at what’s pending and I like to go back to the history of the property where it says the day that it was listed and then the day that it went pending. And I like to see how long that period was. So did it go pending within three days? I mean, that means it sold really fast and probably above asking in my area. Did it sit on the market for 60 days? Then it probably sold for under asking. So I really like to go and use that aspect of it as far as for research and stuff for my own things. But yeah, as far as searching, I go down rabbit holes still.
I have my selected searches save, and then I also take the map and just zoom all over to the different areas that I’m interested in and just hope that I didn’t get an alert for something and there’s something new and exciting. But I’m not actively looking to buy a deal right now anyways, so it’s all just for fun. But yeah, I would say my biggest thing is going back to sorting by newest, sorting by newest, and then looking at what is still sitting and how long it’s been sitting and then looking at the pending to be able to figure out how long things are sitting on the market.

Tony:
All right. Let’s talk about the next strategy, which is word of mouth. And I have actually, maybe by referrals, but by just the word of mouth we’re going to talk about right now, I’ve never gotten a deal by word of mouth where I was just in conversation and someone’s like, oh, actually I know someone that’s selling a house like that. Now Ashley, on the other hand, she’s like the resident expert of just like –

Ashley:
Oh, Tony, hold on. My neighbor’s outside rightnow. He said his friend’s got a property for sale. He wants to.

Tony:
I would not be surprised if that was actually happening right now and someone’s knocking on Ashley’s window.

Ashley:
He actually really was going on to get his mail though.

Tony:
Someone wants to sell a house. But yeah, Ashley is like. Ashley, what’s the secret, the book, The Secret? The Secret talks about, what’s the word when you just think about something and. Oh, manifesting.

Ashley:
Oh, manifest. Yeah. I would say that I do the opposite because they literally come to me when I’m not looking for deals and it’s like, “Oh God, now I got to figure it out. I got to pull money out from underneath my mattress.” So

Tony:
Word of mouth, guys, is just that you’re sharing with everyone in your network who you are, what you do, and what it is you’re looking for. I’m a real estate investor. I buy fix and flip homes in the local area. I’m looking for properties that are three bedrooms, two baths, rent style homes, 1500 square feet max that are needed some love. And you just share that with everyone that you know, people who play sports with your kids, your hairdresser, your barber, the clerk at the grocery store, the person at the post office, all those different places. Everyone knows what Tony and Ashley do and what kind of deals they’re looking for. And then eventually someone’s like, “Oh wait, I think I might know someone who can actually work with you or give you that kind of deal.” So it’s best if you’re in a small.
I wouldn’t even say a small town, but if you’re in a town where you’ve got a lot of network and you’re good at talking to folks and you enjoy that part of it. And I think the advantages of this approach, and we’ve seen it happen with a lot of guests as well, is that you get deals that would just been really, really tough to get otherwise. Sometimes impossible. I’ll give you an example. We just recently interviewed a guest and he knocked on his neighbor’s door trying to buy their house and they’re like, “We don’t want to sell, but hey, we know the neighbor down the street actually. He’s actually about to move and he might be willing to sell.” And that investor ended up buying that neighbor’s house. That’s the perfect example of word of mouth where it’s just people knowing you and knowing what you want to do and sending you deals that otherwise you probably would’ve never heard of before.
And the benefit of this approach is that you’re not fighting with a million other investors the same way that you are on the MLS. Oftentimes, you might be the only person talking to that seller because they haven’t gone to market yet. They haven’t done all these different things. Maybe they haven’t gotten postcards from other wholesalers about their deal. You are the only option. So if you can find a solution that’s a win-win for both of you, then they get the property off their hands and you get a really, really good deal.

Ashley:
I think another thing you said about if you’re in a smaller town, you know more people or whatever, that’s an advantage, but also the fact that there’s usually less investors too. I think that was kind of my advantage for a while is that there wasn’t a lot of people that were investing when I started or talking about it at least where I was sharing it on social media. I would talk about it with my friends where at the time I was in my young twenties and nobody I knew my age was investing in real estate. And if they did, they didn’t talk about it or anything. But the other investors that I knew were older men that still had full-time jobs doing something else, but had some real estate on the side. So I think that was something too, is that it was such a small community and there are just not a ton of investors in the community too.
I

Tony:
Think the only drawback to this strategy is that it’s just not very consistent.

Ashley:
Yeah. You can’t rely on this as your only deal flow.

Tony:
Yeah, because you could get something today and maybe it’s months before you hear something else. So it’s not like the MLS, you can just turn it on and it’s there. It’s not like direct mail where you send out X number of mailers, you’re going to get this many back. It’s not like cold calling people where you make enough phone calls and people pick up. So I’d say unless you disagree, I just feel like that’s really the only big disadvantage that’s unique to this strategy.

Ashley:
Yeah. You can’t track any metrics on it. You have no way of knowing who your actual leads are, who are the motivated sellers, who potentially would sell to follow up with them. If you’re doing an email campaign or something, you can see who opened your email at least, even a text message or who answered your call, maybe answered a couple questions and you know that they’re a warm lead now. But I think one of the things that you could do is go in local Facebook groups of the market you want to invest in and put it out there is to be like, “Hey, I’m looking for this type of house. Does anyone have anything for sale?” I’m in a group like that in my area and just people post all the time and I don’t think they’re investors. They could be, but literally all they’re saying is like, “Hey, I’m looking for five acres to build a house on.
Does anyone have anything they’re thinking of selling? I’m looking for a three bed, two bath house. If I had two bedrooms, maybe couldn’t make that work. Did anybody have anything?” And there will always be tons of comments. They’ll tag real estate agents, first of all. If they know of someone, they’ll tag that person and be like, “Hey, weren’t you thinking of selling this?” And then people saying, “Hey, DM me. I have something that I’m thinking of listing in the spring or whatever.” So that’s always an option to do is every once in a while just post in there. I would just keep it as short and generic as possible to see what can be brought to you. I wouldn’t be like, “Hey, I’m an investor. I’ve been investing for three years now. I’m looking to get my third deal. I want to buy a duplex.” I would just keep it as.
All

Tony:
Right. Number four, which is somewhat related to word of mouth, but it’s pocket listings and agent relationships. So a pocket listing is slightly different than just a word of mouth transaction. A pocket listing is actually coming from an agent, but it just means that they haven’t actually published it live for the entire world to see. So sometimes an agent might keep a pocket listing because they’re like, “Hey, I know if I list this one, it’s just not going to go well. So I’ve got you here.” Sometimes they have a pocket listing because they just haven’t actually listed it yet. And maybe they just signed the contract with the seller today and you’re there and they’re like, “Actually, I think I might be able to sell this without us even going to market and doing the whole rigmarole of listing it.” So there’s oftentimes a benefit for the agents as well, but a pocket listing means that it’s an agent’s actual listing, but before they mass market on the MLS, they’re going to a select number of people they trust first say, “Hey, do you actually want first dibs on this deal?” It’s great for someone who obviously has relationships with those agents already and that it takes time to build, and it’s great for someone that’s got the ability to move quickly, the ability to confidently close, because a lot of times when an agent is giving you a pocket listing, part of the reason they’re doing that is because they want certainty of close.
It’s like, “Hey, this is a deal that traditional financing isn’t going to work with. So I got to make sure I take this to someone that actually has the funds to get it closed. Hey, I’ve done 10 deals to Ash. She always gets it to the finish line. Let me go take it to her to make sure that this transaction gets done and I take care of my seller.” So it’s for someone who has that certainty of their ability to actually close in the transaction. And even if you’re a rookie investor, it doesn’t mean that you can’t have that certainty, but either A, you’ve got the funds, maybe you’re pulling on a HELOC, maybe you’re partnering with someone else, you have the cash ready, but being able to quickly close, I feel like will be one of those barriers that you have to tackle. But the advantages here is much like the word of mouth, is that you’re getting access to a deal without fighting a bunch of other potential investors.
And because these are agents who solicit homeowners for a living, it tends to be a more consistent pipeline of deals coming your way. And there are real estate investors out there who the majority of their deal flow comes from agent relationships. In fact, I have a buddy, his name’s Brian Davila, he’s based out of Vegas, and his entire wholesaling operation is really based not on going after homeowners, but on going after agents and trying to get access to their pocket listings.That’s his entire strategy for wholesaling. So you can really build a meaningful deal pipeline out of the strategy by itself.

Ashley:
I’ve actually got a lot of pocket listings too as part of my portfolio and a lot. Well, the majority I would say were estates where they went to an agent, they wanted to sell it, the houses are full of stuff, they need repairs. And so the agent says, “Well, I know Ashley, would you like her to take a look at it?” And then I come in, look at the property and things like that. So it’s usually people who are looking for. They don’t want to have to go through showings and getting the property show ready, and they would rather just get it done and over with. They’re grieving because they’ve lost someone. So those have been the majority have been estates. I think there was maybe a couple other ones that weren’t estates. I don’t remember exactly what the reasoning was why those were kind of like pocket listings done, but most of the time it’s because they’re not turnkey properties.
They’re not beautiful properties that are going to command way above market listings. So if they’re priced right or whatever, I will buy a pocket listing. There are some rules around pocket listings for agents though. When a property is officially marketed to the public, you have to list it on the MLS within one day or something like that. I really don’t know these rules, but there is something like that too. So if you are a newer agent and you haven’t heard about pocket listings and you maybe want to build a buyer’s list of investors and make sure that you’re aware of what the rules are for pocket listings so that you’re following them. I’m sure your broker can guide you.

Tony:
I think the only thing that I’d add to the strategy is that if you do want to get good at getting more pocket listings sent your way, just spend time talking to more agents. My buddy Brian, who I mentioned, he literally has a team of people who just cold call agents all day and say like, “Hey, here’s who we are, here’s what our buy box is, here’s what we’re looking for. Here’s how many deals we close on a monthly basis. We’d love to get on your list of pocket listings.” So that’s one approach. But obviously if you’re not doing that level of volume, it’s clarity on the buy box, which was step number one. And then just doing your own outreach to those agents, say, “Hey, if you find something, just know I’d be a willing participant to take a look at that deal and build those relationships.” Strategy number five is working with wholesalers.
Wholesalers for folks that aren’t aware, you can think of them as professional deal finders, ideally professional deal finders, but that’s the role they’re supposed to serve. So wholesalers basically through different marketing channels, generate leads of people who are looking to sell their homes below market value. Sometimes those marketing channels are ads on television and radio. Sometimes that’s ads on Facebook and Instagram and Google. Sometimes it’s direct mail, sometimes It’s door knocking, it’s cold calling. They all specialize in different strategies, but the end result is they get a homeowner who’s willing to sell their property at a discount. And sometimes, most of the time it’s because the property’s in distress, needs a lot of repairs. Sometimes the seller’s in distress. They’ve got a divorce, they need to sell quickly. Someone passed away, they don’t want to deal with it. They’re packing up and moving across the country for a new job and they have to close quickly.
So either the property or the seller are in distress. And the way that wholesalers make money is that they talk to the seller, they place the property under contract at one price, and then they resell that property to you at a higher price. So maybe they’re under contract at $200,000, they resell that contract to you for $250,000. They get to keep that difference of 50K. That’s how a wholesaler makes their money. So that’s what wholesalers do. The advantages of working with the wholesaler is that they’re doing all the hard work to go source the deals. You just have to make the relationships. They’ve already done all the hard work to make the deals. So it’s not nearly as consistent as what you’re going to see on the MLS. I don’t think anything matches the MLS in terms of volume, but it’s more consistent if you have a big enough roster of wholesalers where you can get deals sent to you every day.
This was several years ago where I went into a bunch of different Facebook groups in the areas that I’m looking to invest. And I’m pulling my phone here because I’m probably still every single day, but I put my buy box in a bunch of Facebook groups saying, Hey, here’s why I am. Here’s what my buy box is. Wholesalers send me your deal. And every single day, I just pulled this up, literally every single day, there’s five to seven emails in my inbox of properties that I could go buy. So there’s enough wholesalers out there to put on your market to keep you steadily kind of looking at deals and

Ashley:
Analyzing things. Some of the negatives are that you have to usually close quickly. A lot of times you have to pay cash for the property. You can’t really rely on the numbers that the wholesaler is giving you. A lot of wholesalers will tell you what the rehab cost will be and what the ARV will be the after repair value on the property. A lot of times these are not accurate because once again, they are trying to offload the property, sell the property and make a nice assignment fee on it. So you have to do your own due diligence and you have to do your own estimate on the property. Also, you should be aware of different rules, laws and regulations around wholesaling in your state specifically. Tony, there are some states that have completely outlawed wholesaling, correct?

Tony:
I’m not a wholesaler myself, but I believe so. And I believe there’s even maybe more states that have. You have to have a license now to wholesale, whereas before you didn’t have to be a licensed agent, but there are states that are moving towards like, you’ve got to have your license the same way that a realtor would. So definitely check the local laws and regulations for your state. I

Ashley:
Just looked it up and it says it’s not completely illegal, but heavily restricted or regulated in some states. So

Tony:
It’s getting tricky, right? So it’s trickier out there for wholesalers these days, but they’re adapting, they’re figuring it out and they’re still out there in full force. So again, check your state, see how restrictive it is, but wholesalers could be a great way to find the right deals.

Ashley:
Okay. Now onto number six, direct to owner and off market outreach. So I haven’t done a lot of this, but this is where you are going directly to the seller. You are going to find your own leads. You are going to find your own sellers. And this can be done by sending text messages. This can be done by writing letters, doing a mail campaign. This can be by calling people and asking if they want to sell their house. So this could be door knocking even. So this is where you’re cutting out the wholesalers, you’re cutting out agents, cutting out any middleman, and you are going direct to the potential seller. So you have to do the work. You have to do the mail campaign. You have to set up usually a service where you can blast out text messages, but you have to follow, again, rules, laws and regulations against spamming people.
The same with phone calls. You can do skip tracing to get the phone numbers of people that kind of fit your buy box, get the numbers for the property owners and do robocalling and you can outsource to a call center or you can make the calls yourself. Re simply even has AI agents that will do the calls for you too. But some of the benefits of doing these is you’re cutting out the middlemans, you’re not paying a commission, you’re not paying an assignment fee. So there’s more room to make a better price because you don’t have to account for those things to be taken off the top. One huge advantage I think with this is that you are getting direct to the seller to be able to negotiate. Sometimes it is nice to have a middleman, but also you’re playing telephone. You’re playing telephone from me to my agent, to their agent, to them.
In New York State, then there’s attorneys involved even, and then it’s even another additional layer of somebody that you’re playing telephone with and it’s going from person to person to person to person and things can get easily miscommunicated. One example I always think about is seller financing and explaining to someone the tax advantages of that. I don’t get to say when I’m working through agents really, if the seller’s agent doesn’t understand seller financing or doesn’t understand seller credits or doesn’t understand something I’m trying to negotiate into the deal, most likely they are not going to explain it correctly to their buyer. They’re not going to be an advocate for the buyer to accept this. So that is one advantage is you get to be face to face with the person and then also too, that you kind of cut out the middleman and then you’re also cutting out those expenses like the commission or assignment fee.

Tony:
In terms of the drawbacks, there are a few big things that come to mind for me. Number one is that this isn’t like an instant kind of spigot that turns on for you. So we talked about MLS. I can literally open up my phone at any point and any time of the day and go find a bunch of deals to go look at. When you’re doing your own direct outreach, there’s usually a long kind of warmup period before you can actually get to a point where deals start closing for you. And some of the folks that we talked to that go off market direct to seller, it’s six months. James Zehner talks about how he knocked doors for like a year before he got his first off market deal. So it just takes time to build that flywheel. So if you need a deal like today, typically this isn’t going to be the best approach.
Second is that, to Ashley’s point, you have to make sure that you’re following all the rules and regulations as it relates to outreach. If you’re texting people, there are guidelines around, I think it’s called TCPA where you have to make sure that you’re following those guidelines. I’m sure different states have different rules around mail and what does that look like? And if you’re calling people, so you’ve got to make sure you’re on top of what those look like for your local city, state and otherwise. And then I think that maybe the bigger downside that is maybe a little hidden is that depending on how good you are at this, it could actually end up costing you more. A lot of people want to go direct to seller because they feel it’s going to give them the best deal. And oftentimes that can be true, but let’s say that you’re really, really bad at direct mail.
Let’s say that you’re really, really bad at selling people on the phone or those face-to-face conversations and you’ve got a really, really low conversion rate of, “Hey, we send out X number of mailers and we get back this response.” If your response rate is really, really low because you’re not good at it, you end up spending more money on mailers and time and all those different things than if you would’ve just paid the wholesaler an assignment fee. So you’ve got to make sure that if you are going to go down this path of going direct to seller, that you’ve got the skillset and the proper training to execute on it to actually make it a cost effective model for you.

Ashley:
Now let’s look at number seven, retiring landlords. And I bought a portfolio from a retiring landlord before. And one of the big advantages of this is that if they have a smaller portfolio, it is way easier for them to retire by selling one person their whole portfolio or at least a large chunk of it than having to individually sell each single property to different people and having to do a ton of different transactions, a ton of different showings. So that’s just one advantage for them even, but also for you to be able to buy a portfolio and buy multiple properties in one transaction compared to having to go out and do all these separate transactions to try to build up your portfolio. This is more common for long-term rentals than I would say short-term rentals, but hey, who knows when Tony’s getting time to retire, he might offload all of those Joshua Tree properties that someone can snatch up a whole bunch of them.
But I would say more common small multifamily properties and long-term rentals, especially with boomers retiring that there may be lots of opportunity out there. And I will say that it probably is not very common for boomers to have huge short-term rental portfolios that they’ve owned for a long period of time, maybe lake houses or maybe different vacation properties like that, but it wasn’t as popular, I would say, as it is now. And long-term rentals, they could have held for 30 years where you’re looking at advantages of they have no debt on the property for holding it for so long. They are going to pay a ton in taxes if they just sell the property and pay capital gains on that. And then also they have the opportunity to most likely do some kind of creative financing like seller financing where they don’t absolutely need a lump sum of cash upfront maybe.
And they can be the bank do the seller financing that also offsets their tax burden and lowers their tax bills. So there’s benefits to both sides of that. But that’s one thing I love about the retiring landlord is usually there’s a lot more room for opportunity in how you finance the deal and getting creative with it. The portfolio that I bought, I bought some at once. Some were cash, some were I used a line of credit and then the rest were seller financing. And then two years later I bought the rest of the portfolio. So it wasn’t even like I had to do it all at once too. So that’s just some examples of how you are able to get these portfolios from retiring landlords.

Tony:
Yeah. Just the only disadvantage, and I’ve personally never purchased from a large portfolio from a retiring landlord, but I did get pretty deep into conversation when we were investing in Shreveport, this wonderful woman named Mary. And we had a long conversation about her portfolio, but the reasons I didn’t move forward with it was because really I guess there were a few reasons. Number one, deferred maintenance. Number two, really, really poor kind of bookkeeping and record keeping to confirm some of the actual revenues and expenses. And then they were just still asking a little bit too much given what that was. So obviously the rents were low, so I had the opportunity to bring them up to market level, but because there was so much deferred maintenance, it was going to be a really big capital expense to get all these properties to the point where I could actually increase the rents.
And when I balanced those two things out against what they were asking for, it just didn’t work for me. So I think that’s the only disadvantage is you really wanted to complete your due diligence to ensure that the asking price allows you to still execute the business plan and get the rents where they need to be, which is true of any underwriting or any property that you’re looking at. But that was a disadvantage I saw. And from you, Ash, given that you’ve done this a few times, anything that we’re not considering?

Ashley:
I would say maybe the only. No, I don’t think so.

Tony:
All right. And the final one here, number eight, Ash and I are just going to rattle off a few bonus channels that maybe you hadn’t considered that you can go take a look at. So one is HUD owned in Fannie Mae Home Path properties. So if HUD or Fannie Mae have to take back properties or they get control of properties for whatever reason, you can actually go bid on those properties. Now, don’t quote me here because I’ve never purchased through those programs, but I want to say that they have a timeline where it has to be someone who’s buying for their personal property first. And then after that timeline, then investors can go in afterwards. Ash, do you recall that? Does that sound familiar to you?

Ashley:
Yeah. They usually open up first to, if it’s going to be your primary residence to a certain amount of window. If they don’t get any offers or accepted offers that they don’t accept any of them, then after that window closes, they open up to investors. And still, if it’s going to be your primary home, you still can bid on it and look at it, but they do give that time for just primary residents to be able to submit offers, to not have to compete with investors. Okay. So the next thing is local banks and actually going and talking to the loan officers at that banks and seeing if they are actually foreclosing on any properties or if they know of anyone that maybe wants to sell their property, but building those relationships with people who deal with real estate investors or deal with homeowners, so loan officers, but also property managers, so property management companies in the area, they’re usually one of the first to know that an owner is going to sell their property if they manage that property.
And sometimes they will kind of keep the house in sale because then they’ll know that they are keeping the property. But if you can get on their list to be notified when they have a property that they’re selling for an owner too, that’s an advantage. Going to investor meetups, going in the BiggerPockets forums and just saying, “Hey, I’m looking to buy a property in this area,” searching where other people are investing if maybe you need to find a new market. And then local online groups, so Facebook groups, connecting with people on Instagram that are investing in your market. And then there’s also auctions and tax sales. So the Marshalls, the US Marshalls, they seize land and then they have auctions to sell it. I actually went to one before and it was really interesting. And the guy that I went with actually ended up buying the piece of land.
He was the only person bidding, so they got it exactly what it was, but it was like a prime piece of property. But they only notify the people who have the adjoining land. They send them a letter and just saying, “Hey, just this parcel of land that is adjacent to your property is going to be sold at auction. Here’s the date. Here’s where you need to be if you are interested or whatever.” And then I think you sign up in advance as a bidder. But there’s a ton of different government entities that do different auctions. There was one by my lake house recently. It was just a small parcel of land and it was listed because it back taxes. The person hadn’t paid the taxes on it and it was being put up for auction. It was just an online auction up there and they do it once a year and you just sign in, you register to bid and then you can bid on any of the properties.
So there are different. I would just go into Claude ChatGPT and ask in my area, what are some of the properties that are for sale? I bet you could actually find a lot of these tax auction websites just from using AI in your area.

Tony:
Last thing that we’ll wrap up here guys is that we gave you a bunch of different strategies, but none of this actually helps if you don’t execute on what we’ve talked about. And I’m a big fan of tracking things and data provides clarity and you can make the right move based on the right data. So if I’m a rookie sitting in this seat and I haven’t yet closed on my first deal, the things that I would be tracking are one, just did you complete your buy box, yes or no? But once you have your buy box complete, how many deals have you analyzed in a rolling 30 day period? And the goal is to never let that number get below at least one per day. And if you can do that, analyzing a deal every day for 30 days straight that meets your buy box, there’s a really, really good chance you’re going to find at least one or two properties that are worth really, really pulling the trigger on.
And I know that because I’ve seen it happen time and time and time again. So that would be my challenge to you guys is dedicate and focus yourself to one deal analyze that meets your specific buy box every day for the next 30 days.

Ashley:
And we want you guys to track this. So you’re going to track your new leads. You’re going to track the amount of properties that you are analyzing if that ends up being once a week. You’re going to track your offers submitted and you’re going to actually track follow-ups. So how often are you following up on a property? When did you follow up? Did you follow up? And then any contracts and closing. So you can use a project management board to track this. You can use a Google worksheet, whatever you want, pen and paper to track this. Thank you guys so much for joining us today, and I hope that you will look into some of these ways that you can find deals in 2027 or start this year. Take Tony’s advice and start analyzing, analyzing, analyzing, and it’s just going to make you more comfortable and better and help you get over that analysis paralysis.
I’m Ashley Hughes Tony and this has been an episode of Real Estate Rookie. Make sure I subscribe to our YouTube channel and if you haven’t already, check out biggerpockets.com. We’ll see you guys next time.

Henry:
Most people will say start small in real estate, buy a single family home or a duplex, learn the ropes and build your portfolio slowly as you gain confidence and capital. But say your goal is to reach 16 units someday. And now there’s a 16 unit building staring you right in the face. You’ve got the down payment money, so should you take it down for your very first deal or should you start small? You could fast-forward years of buying houses one by one, but one bad deal this size could totally wipe you out. I’m debating this question and a few others today with a special guest co-host. Is jumping right into a big investment property a smart way to accelerate your wealth building journey or is it a recipe for losing everything before you get started? And spoiler alert, we actually disagree on the answer. So if you’re figuring out where to start your own investing career, stick around.
We’ll break down both sides and help you decide whether slow and steady or going all in is right for you. What’s going on everybody? I am Henry Washington, co-host of the BiggerPockets Podcast. And today we’re answering questions from the BiggerPockets forums. I usually answer these questions with Dave, but he’s out of the office today. But don’t worry, I brought in a special guest. Now you’ve probably heard Chauncey’s full investor story. She was interviewed on episode 1256 back in March. But for anyone who missed that one, Chauncey, why don’t you give the people a little introduction?

Chauncey:
Yes, yes, yes. So Chauncey Pham started out as a realtor in the Dallas-Fort Worth metroplex, quickly went to owning my own brokerage and then progressed into becoming an investor. So I coined myself as the investor friendly realtor where I understand the investment side of things as well as the retail real estate side of things. And currently I am working primarily as an operator of a turnkey flipping service where I’m flipping houses for others. I’ve removed the financial exposure of the typical acquisition side of things and I’m helping others achieve their financial goals through house flipping.

Henry:
I love it. And you’re being a little modest, but let everybody know about how long you’ve been in this business. I’ve

Chauncey:
Been in the business for almost 11 years at this point. So I’ve learned a little bit of this, a little bit of that. And right now I’m using all of it and leveraging all of it to live this beautiful life.

Henry:
If you can’t tell already, Chauncey is a rockstar. She has been doing real estate for quite some time, has been extremely successful. So I’m super excited to hear your perspective on some of these questions. Hopefully I can get you a little riled up, get you going a little bit.

Chauncey:
Yes, yes.

Henry:
All right. Our first question is from Nekesh and Charlotte and he asked, “I’ve seen the general trend where investors invest in single family homes and then they consolidate to multifamily eventually. I can possibly afford to buy a quadplex or even larger. I’ve seen some 16 unit properties for sale in my area in Charlotte and I have a down payment that I could use to buy potentially, but I feel like I’m skipping ahead and taking a shortcut. Is it a terrible idea to go straight into a larger property or should I start with single family homes?” Now, I definitely have a perspective on this, but I’m curious to know what you think as an. Have you done multifamily as rentals?

Chauncey:
Yeah, we have a small multifamily. It was an eight unit out in East Texas. I have an opinion on this, not necessarily probably as strong as yours, but I tend to think that this whole crawl before you walk, walk before you run mentality is group think in these forum settings primarily from people that can’t run first. They can’t run. They can’t sprint. So of course they’re going to tell you to crawl and to walk first. I think that if you have the opportunity, you have the funds and you understand the risk involved with the acquisition of a 16 unit, then if you got the resources and do it, you’re able to do an acquisition of 16 doors in one shot, one inspection, get exposure to a commercial loan product and really get yourself out there without having to go through 16 single family homes just to build that many doors.
And so I personally think if you got it, do it.

Henry:
My perspective is you can make money in real estate a million different ways. You don’t have to start with a single, but I do believe if you’re brand new, never done a deal, haven’t spent a lot of time researching, don’t have friends or family or business partners who are in the business, just coming in out of the cold and buying a 16 unit is risky. It’s risky because a lot could go wrong. You can blow your budget. If you’ve never done a deal, it’s sometimes best to take your bumps and bruises on a single family home where you’re not going to lose your shirt. But I don’t think you need to spend years buying single families and then start to transition. If you just want to do one single, learn the business, learn what you’re good at, learn what you’re not good at, and then you want to jump into a multifamily, I think that may be a safer take.
Or try to find a partner or a mentor or someone who’s going to help

Chauncey:
You

Henry:
Get eyes on your deals, help you with decisions you’ve probably never had to make before, help you understand how to find the right tenants, how to manage that size of a renovation because it is, it’s going to be a little more extreme than doing it on a single family. Yes, multifamilies can be largely more profitable, but a lot of times it’s because they come with more risk. And so that’s my two cents.

Chauncey:
I mean, that’s fair. That’s fair, but it’s very safe and conservative. I’m going to jump out there. I’m going both feet in the deep end. I’m like, “Just do it. That’s the only way you’re going to actually learn.” But I do say jumping both feet in, but doing so in an informed way, understanding the risk, making sure you have the reserves, making sure you have the PM systems, making sure that you know all of that. And like you said, the easiest way to do that is to just partner with someone. So I say do it, go for it, but find someone that this is their niche and partner up with them.

Henry:
Or at least have that person as a mentor, even if they’re not on

Chauncey:
The

Henry:
Deal with you, find some way to incentivize them to guide you through this because it can. The mistakes are going to be multiplied because of the size of the asset.

Chauncey:
Yes, absolutely. I agree. Okay, so we just agreed on something.

Henry:
Yeah, yeah, of course. That’s a good start.That’s a good start. We’ll see how it continues. All right. Our next question is from Jackson in Columbus, Ohio. He said, “I’m 19 with a solid W-2, but I want financial freedom and a business my son can eventually inherit. I’m renting. I’ve got about 20K ready to invest, good credit, and a background in construction with a lot of contractor connections. What would you get into first? I’m eager to start, but the risk scares me. Failing in front of people and putting my family in a tough spot is a real fear. I’m looking for strategy to move fairly quickly while still managing risk. Appreciate any advice.” So I’m going to have a little bit different take on this one. He says, “I’m looking for a way to scale quickly while still managing risk.” Buddy, you’re 19. You got time on your side.

Chauncey:
Yes.

Henry:
You have all the time in the world to grow and scale a business. And I understand wanting to start building it and build it up so you can have something to leave to your son, and that’s admirable. I do this because I want to leave assets for my children. But I think that if you’ve never done a deal, I don’t know that you should be having a scale conversation. You should be having a how do I do my first deal conversation. You should be focused on how do I find a deal? How do I learn the business and then evaluate after? Once you’ve got a few deals under your belt, you’re going to learn a lot about yourself as an investor and being able to make adjustments and having the time to learn and then adjust your business or business plan based on the mistakes or the successes that you had is a huge advantage.
I do think you should absolutely be looking to invest, but I don’t even necessarily think a pure investment property is maybe even the best first step that I would take. If I was 19, I’d be looking to buy a house hack opportunity and that’s where I would start because then I get to reduce my expenses. I get to live for free. I get to learn the business. When you’re 19, you got nothing but time on your side. I would try to take advantage of that and build a business that you actually enjoy.

Chauncey:
I agree with that, but I’m going to take it a step further. First of all, I’m going to say that at 19 years old, failure right now is the cheapest that it’s ever going to be. That’s fair. But there was something that he said that stood out to me. He has construction experience. And so his main question is where should he start? If I were him, I wouldn’t even start with house hacking just yet. I would get my capital up if I were him through wholesaling, but I would do it in a different way. He has a very unique opportunity to market deals that not only give him assignment fees, which is going to be quick capital, but that will also ultimately feed his construction business that will give him capital as well. That’s a good point. What we see right now is wholesale deals coming out.
They email blast to everyone. The numbers typically are nowhere close to what they should be. The construction numbers are typically way off base. There’s no real plan. Imagine if he actually came out the gate swinging with wholesaling and giving good bids, giving a decent scope of work and offering his services on the back end of those deals, because let’s be real, most wholesale deals are scooped up by newbies that don’t have relationships with construction companies and things like that. I think he should play that game first for a while, partner up with some of the investors that he’s working with, learn from some of those investors, and so that once he has more than 20K, maybe once he’s got 75K, 100K from stacking the capital from those construction jobs and from those assignment fees, then he’s in a safer position to go in and then decide which avenue he wants to take with investing.
So then at that point, maybe he can house hack. He’ll have 20% down on a good property. He can flip a house if he wants. He can buy that long-term rental and he will have more options because $20,000 in regular life is a lot of money. $20,000 in real estate is real, real tight. It’s not a whole lot that you can do with that, but he has a very unique opportunity to build on that using his skills and that’s how I would play it. So I’d go in as a wholesaler and, “Hey, this is the deal. This is a real scope of work. This is a real bid. By the way, I can finish it out for you on the back end, stack that cash, make those relationships, and then go into investing in about a year.”

Henry:
That’s a great perspective. I think that’s a really good idea. I am always going to be team house hack, especially when you’re brand new. And if you’ve only got 20K. Of

Chauncey:
Course.

Henry:
If you’ve only got 20K, house hacking is about what you can afford because you can put 3.5% down, you can get yourself multifamily. And there’s nobody saying you can’t do both of these things at the same time. I just think house hacking gives you such a competitive advantage, especially when you’re young. It’s harder to house hack once you get married and you have more kids because people don’t want to share walls and you want the white picket fence and the single family home. But when you’re young, man, I lived in some crap holes when I was young and I was renting. So had I been smart enough to house hack back then, I might’ve been able to live in some much nicer places and been able to save a ton of money doing it. All right, we are two questions down. Chauncey and I are cranking these things out.
We’ve got another question from Ali and Houston, but we’ll get to that right after the break.
We are back on the BiggerPockets podcast. I am here with investor Chauncey Pam, and we are answering forum questions from the BiggerPockets forums. Our next question is from Ollie in Houston and Allie says, “Do you tell contractors your real rehab budget before they bid?” Say, “The most I can spend on a rehab is $70,000. If I tell the contractor upfront, we can work backward from that number and figure out what stays, what gets cut and where the money matters most. But part of me also thinks that the quote will somehow come back at $69,800. Do you share your actual budget before getting a bid or do you keep it private until the contractor prices the scope independently? Has showing your hand ever helped or did the bid just grow to meet the number? I am so curious to hear what you have to say as somebody who does construction in-house.

Chauncey:
Okay. So should you tell the contractor exactly what your budget is? I’m going to say yes.

Henry:
Okay.

Chauncey:
But I’m also going to take it a step further and I’m going to say that you actually need to know what your budget is. And one step that most investors are missing is they never have the design down before they try to get a bid. What I experience coming in as the contractor for investors is they come in, they give us a number, and then they’re pissed off by the end of the job because the number has almost doubled, but it’s because they didn’t have any specifics about what the design was supposed to look like when we gave the initial bid. Things like whether or not the faucet is going to come out of the wall or if the bathroom faucets are coming out of the countertop, whether or not they want to use a vessel sink or an undermount sink, that drastically changes whether or not we’re bringing in a stone fabricator or whether a hacker can just drill a hole in the top of the countertop and set a vessel sink on top.
All of these are things that people tend to not consider, and it’s because investors don’t know a lot about designs. They tend to get ideas midway through the project and then get pissed off when the contractor comes back and the number is way off. So I’m going to say yes, number one, you need to tell them what your budget is, but more importantly, you need to understand what your design is so that they can accurately tell you if they can execute that budget within the numbers that you have.

Henry:
Yes. Because just because you have $70,000 doesn’t mean you can complete your renovation for $70,000. You don’t know

Chauncey:
If your

Henry:
Scope matches your budget.

Chauncey:
Correct. Correct. So most of the time the scope doesn’t even match the budget, but they don’t even know what the real scope is because they don’t know what the hell needs to be done to the house. And they’re just kind of winging it and they’re throwing things out there that really drastically change the numbers. And so yeah, tell them what your number is and what you’re working with and they can give you a realistic expectation.

Henry:
So I’m going to speak from experience here. At the times when I have told my contractor what my budget was, sometimes the bid has come in at that number, sometimes it’s come in over that number, and sometimes it’s come in under that number. But in none of those situations did I feel like I was taken advantage of. I feel like the budget came in where it needed to come in, in order to get the project done appropriately. And I’ve just found that approaching a relationship with honesty tends to breed more honesty. No, I’m not saying I just go out there and say, “Hey, I’ve got $50,000. This budget needs to come in at $50,000.” And so what I would say is you need to be less focused on sharing the budget per se, and more focused on dialing in your scope of work and sharing that.
Because if you give a good contractor a well-designed, well-thought-out scope of work, they will get you an accurate bid, period. Whether that bid is your budget or not your budget, because like I said before, and like Chauncey said, just because you got 70 grand doesn’t mean you can get that house renovated for 70 grand. I’ve seen people with wine taste and beer money many times.

Chauncey:
That is a hundred percent the case. And as a construction company owner, I can tell you our goal is not to come in and say, “We got to pencil whip them down to every single dollar that they can spend.” Our goal is to just get the job done within the budget that they have. If it can be and if it can’t, then we would like to express what your expectations should be. We can’t do that if you don’t know your scope. So focus on the scope more than

Henry:
Anything. All right. Our next question comes from Amber in Tampa, St. Petersburg, Florida. She says, “If you could only keep one professional in your investing network, who would it be and why? CPA, lender, realtor, property manager, contractor, insurance broker? You do it all. So who would you think?

Chauncey:
The most important person in my ecosystem is my project manager because my project manager also happens to be a realtor, and I was very strategic about that and trained a realtor to become a project manager. So my project manager helps with acquisitions. Obviously, project manages the properties. He has his thumb on all of the subcontractors. He has his thumb on all of our materials vendors. I’ve set up my organization where I incentivize him to make sure I stay under budget. And if I stay under budget, then he gets the difference between what the budget was and the savings. He affects the cost of my loans because he influences the timing of the jobs. He influences the cost of everything. And so 100% my project manager.

Henry:
My answer is much more traditional. By far, my investor-friendly real estate agent is the most important person on my team because they have the keys to all the other relationships that I may need. So even if I don’t have a relationship that I need in my business, my investor-friendly agent knows someone. They have someone in their phone that they can share with me that can help me. The amount of money that my investor-friendly agent has saved me, made me, helped me avoid losing. I don’t even know that I could quantify it. It is by far the most impactful person, but I have a bonus team member that I think is extremely overlooked and hugely important, and that is your CPA/bookkeeper. I feel like investors who are new do not find the right fit for this role until way late. This is the role that helps me understand if my business is even profitable.
They’re doing the bookkeeping, they’re managing the P&Ls. If I want to know what properties are going well and what properties aren’t going well, I have to go work with my bookkeeper and my accountant to read those documents and figure out what’s performing. So for me, I think that that’s a huge role and I think that that’s the one that’s going to help you continue to make better decisions as you continue to grow and scale your business.

Chauncey:
I 100% agree. But what I also noticed is you said your investor-friendly realtor, and also my project manager is a freaking realtor. He’s a realtor. And you were saying that your realtor kind of ties you to everything, and I’m sitting here saying my project manager, who’s also my realtor, kind of has the ties to all the pieces. So then I guess it would be a realtor in some capacity. And if you could get them to work multiple pieces, then it’s even better.

Henry:
Chauncey, I cannot share a microphone with you and not ask you this question. So this question isn’t from the forums, it’s just from my heart.

Chauncey:
Oh, Lord.

Henry:
Should investors who are just starting out go and get a real estate license?

Chauncey:
100% they should. And not necessarily so that they can list their own properties, not necessarily so that they can actually become a real estate agent. But I think that my successes have come from me having been an agent first and understanding the consumer perspective. I understand what consumers want, and everyone overlooks the freaking consumer in the ecosystem of being an investor. We’re just looking at spreadsheets and we’re just trying to pencil whip and get our numbers to make sense and get our profits. And we forget at the end of the day, we’re actually creating a product, whether that’s for rental or whether that’s for fix and flip, but a consumer is going to consume the product that you’re creating. And if you don’t understand them and you don’t understand what they want and how they operate and the psychology behind them, then your product is going to lack.
And so I definitely think investors should get license and experience retail real estate sales in some capacity to help them understand the consumer, which will in turn help them create a product that’s wanted.

Henry:
This is one thing that I disagree with you on, but I love that perspective. I think people feel like they’re moving forward in their investing career by going to realtor school and getting a license, and it’s just a way for them to delay actually doing a deal. You don’t need to do that. Just go do a deal.

Chauncey:
Correct.

Henry:
But if you’re truly trying to get better and you want to learn what consumers or what the customer wants in terms of a product in the space, I think that what Chauncey’s saying is absolutely helpful. And you can do two things simultaneously. You can be looking for deals and analyzing deals and you can be getting your real estate license all at the same time. You don’t have to do one and then the other.

Chauncey:
Correct.

Henry:
We’ve got one last question that I am super excited to hear your perspective on, and I’m going to ask you right after the break. We are back on the BiggerPockets Podcast. Chauncey Fam and I have been answering forum questions from our BiggerPockets users in the forums, and we’ve got one last question here. This question comes from Sophia, and Sophia says, “I joined a brokerage in hopes of learning commercial real estate and specializing in multifamily apartment buildings. It’s been a couple of months and I’m receiving no training. When I have questions, my mentor answers them, but I’m looking for another brokerage that can teach me instead of just handing my mentor leads. I’m realizing really quickly what this business entails and how you only have yourself and you can’t really trust anyone. It’s unfortunate because you would think that you are surrounded by people who are looking out for you when you’re first getting started.
I would love to hear what you guys have to say.

Chauncey:
Okay. So let me give you my spiel because I’m very passionate about this. I’m going to get on my soapbox for a minute. When you get your real estate license, what people need to understand is it’s no different than you deciding to open Joe Blow’s shoe store and you going down to city hall to get a business license to operate that business. You getting your real estate license is the same. And just as the next step of getting that business license is finding a place to actually conduct business, so finding a storefront, that is the process of you finding a brokerage. That’s how you should look at your brokerage. Your brokerage is nothing more than the strip center or shopping mall that you decide to house your store in, but it is ultimately your store. And just like you wouldn’t expect for a property manager or strip center manager to tell you how to run your shoe store and what hours to work and how to get customers through the door and what point of sale system to use, you can’t expect for your real estate brokerage to tell you how to operate your business.
Their job is one thing and one thing only, and that is to create a safe environment for consumers to conduct real estate transactions, whether that’s residential or commercial. They are more focused on the legal side of things, holding the insurance and making sure that no fair housing laws have been violated. They are not here to teach you how to be a business owner. They’re not here to teach you business acumen and they’re not here to teach you how to market yourself. Those are all things that you will have to learn on your own. And the reason that other realtors and other licensed people are not helping you is because you’re their competition. So why would they spend their time teaching you how to take money out of their pocket? And so the onus is on you as a realtor to come in and understand that you are opening your own business.
It is like running a store and you are going to have to seek out people, pay those people more than likely that you sought out to be your mentor. They’re not here to be your friends because they’re out here grinding, running a business just like you are. And I think that that is something that a lot of people don’t understand. They come into it thinking that it’s like a job and that their brokerage is like their employer when in all actuality it’s more like you’re coming in and opening a store and your brokerage is simply the strip center that your storefront is housed in and you need to function accordingly.

Henry:
That might be the best definition of an agent brokerage relationship that I’ve heard, and I could not agree with you more. This is part of the reason why I feel the way I feel about the last question we asked is that people go to get their license and they have no idea what they’re signing up for. And when I was reading the question and I read the line, I’m realizing quickly what this business entails and how you only have yourself and can’t really trust anybody. Yeah,
That’s entrepreneurship. That’s what you signed up for. That’s literally what you signed up for. And so I think it sounds like you just need to change your mentality about what it is that you are doing. You are on your own and it is your job to build your business in the way that you see fit so that you can be profitable. And yes, you will have allies along the way and people that can help you and some of those people, sure, will be right there next to you in your brokerage, but I think you may have to rethink how you’re approaching those relationships and most of all, adjust your expectations of what you think other people should be providing you. I’m not saying to be bitter or be cutthroat or not be helpful to other people. I think a lot of the times too, you just got to put some good old-fashioned life lessons to work here.
And a lot of the times when you need things from other people, the best way to get people to get you what you need is to be the thing you need to them.

Chauncey:
I 100% agree. And I have had the unique perspective and ability here and opportunity to work with thousands of agents and 90% of them have this mindset because I really think that it’s the way that real estate has been featured on television and on the reality shows. You just open

Henry:
Doors, right Chauncey? You

Chauncey:
Just open

Henry:
Doors and say, this is the living room and this is the bedroom and then voila, I made $5,000.

Chauncey:
It’s crazy and it is nothing like that. You’ve got to know how to market. You’ve got to have some business acumen. You’ve got to understand networking. You’ve got to have customer service and be able to read people and be able to talk to people and have sales and closing skills. And unfortunately, most people that get into it don’t have that. So definitely shift your mindset, invest in yourself, invest with maybe some production coaches or even just be reciprocal with something of value that you have with another agent and you can definitely get there, but your brokerage will never do it. I would challenge you, Sophia, to think about this. What does a real estate brokerage sell? Real estate brokerages sell agents. Agents sell houses and you’re expecting for a brokerage that sells agents to teach you how to sell houses. And so I think if you keep that in your mind at all times that this brokerage’s job is to simply sell agents and they make their money off of agents, then I think your expectations will shift as well.

Henry:
All right. Those were our forum questions. First of all, thank you so much, Chauncey, for joining me on the show, helping me get this done while Dave is off doing whatever it is that Dave does. Thanks for filling in.

Chauncey:
Yes, absolutely. It’s been a joy.

Henry:
Before we go, a reminder that we found these questions on the BiggerPockets Forum. So if you have real estate questions of your own, you can go to biggerpockets.com/forums and you can get advice from more than three million members totally for free. And if you’re lucky enough, then maybe myself and Chauncey and Dave might talk about your question right here on the show. Thank you so much for listening and we’ll see you on the next episode of the BiggerPockets Podcast.

Dave:
This is the new 1% rule for real estate investors. For decades, investors use the 1% rule to pick markets and properties. If a house’s rent was more than 1% of the purchase price, it would probably cash flow. But today, 1% rule deals are almost impossible to find in most places. And that rule was created when interest rates and insurance payments and property taxes were much lower. Recently, I’ve been using a new different metric, the rent to payment ratio. It’s rent divided by your full mortgage payment, including principal, interest, taxes, and insurance. And in my own deal analysis, it’s been a much more reliable predictor of cashflow in 2026. So today I’m going deep on this 1% rule 2.0, what it does and doesn’t reveal about a property, the sweet spot ratio I’d target instead of just chasing the highest number and the full ranking of the top rent to payment markets across the US.
This is the new cashflow math you need to know.
What’s up everyone? I’m Dave Meyer, chief investment officer at BiggerPockets. And today I’m going full data nerd on you guys with a new investing metric, the rent to payment ratio. Now, if you’re investing back in the 2010s or even a couple of years ago, you may have heard of a rent to price ratio or you may have heard of the 1% rule as a rule of thumb for measuring cash flow. That rule of thumb is exactly what it sounded like. You would compare one month of rent to the purchase price of a property. And if it was at or near 1%, your deal was probably going to cash flow. If it was higher than 1%, you were probably getting a great cash flowing deal. And it was a really useful metric for a really long time. During the 2010s when interest rates were lower and taxes were lower and insurance was lower, it worked really well, but it has become a little bit outdated.
I personally haven’t used rent to price ratios in my own underwriting and analysis for a while because I don’t think it actually tells me that much anymore. First and foremost, it’s really hard to find 1% rule deals right now. And it can be really discouraging using a benchmark from a different era when cashflow was easier to find in today’s market because you’re probably missing good deals and good opportunities using an outdated metric. The other thing is that sometimes now when you use rent to price ratio, you might find a deal that looks really good by rent to price, but if it’s in an area that has super high property taxes or super high insurance, it might not actually cash flow and you could actually be getting a false positive because of an outdated metric. So instead, I created a new metric. It is a slight variation on a debt service coverage ratio.
If you’re familiar with that or if you’ve used a DSCR loan before, this will be very familiar to you. I didn’t make this up out of thin air. But what I did was pull together a bunch of different data sources that don’t normally talk to each other to create this new metric. What it is, is the rent to payment ratio. So instead of comparing rent to the purchase price of a property, what I’m doing is comparing the rent to what you’re actually paying to your mortgage company each and every month. This is also known as your debt service. That’s why it’s similar to a debt service coverage ratio. Your full debt service includes your principal that’s paying down your mortgage, interest, that’s the profit that goes to the bank, your taxes, super important in this new era of real estate because taxes have gone up a lot and insurance also really important in this new era of real estate.
That has gone up a lot, particularly in some markets that are prone to natural disasters. By doing this, you’re better incorporating the expenses that investors are facing on a day-to-day basis. Instead of just saying that the purchase price of a property is indicative of what your expenses are going to be, this actually measures the majority of your expenses, but it is not a substitute for underwriting your deal. Once you’ve looked at these deals and thought, okay, this one has at least the benchmark level of cash flow that I am looking for, that’s when you go put it in the BiggerPockets calculator, do the full analysis, understand how this deal is going to add to your portfolio, how it’s going to move you towards financial freedom over time. You can’t substitute that stuff. You got to do it. But by using this rent to payment ratio, you’re going to be able to look through markets and deals so much quicker.
So if you want to calculate this for yourself, it’s actually quite easy. All you need to know is one month of rent and your total mortgage payment. So if you’re looking at a deal, just estimate the rent, estimate what the mortgage payment’s going to be, divide the rent by the mortgage payment, and you got it. The higher the number, the better cash flow potential it’s going to have. And actually we’ll talk about this in a minute, but 1% is actually a pretty good benchmark similar to the rent to price ratio for this new metric. If you are getting a 1% rent to payment ratio or better, you’re going to cash flow, but you do not need to get 1%. I want you to know that. We’ll talk about different tiers, but I’ll just give you a little bit of a preview. If you’re at like 0.7, 0.75 or above, you’re probably going to have cash flow potential.
You still have to go analyze the deals to figure out what it’s going to be, but 1% is not a hard and fast cutoff rule, but if you’re close to 1%, you should feel pretty good about that market or about that deal. So calculating it for yourself on an individual deal, super easy. You’re just taking two numbers and dividing them. Calculating it on a market level is just a little bit trickier because you need to know the average taxes and average insurance. I was able to gather the top 54 biggest markets in the country. I figured out all this information for you and I will share that with you in just a minute and you can download it for free on the BiggerPockets website as well. All right, so hopefully this all makes sense and you’re bought in on this new rule of thumb. I’m clearly stoked about it.
I’ve been using it and think it works really well. I’m going to show you the market rankings and I’m actually going to just walk you through how to use this with a real deal, but we do have to take a quick break. We’ll be right back.
Today we are talking about the new 1% rule for real estate investors. Instead of using the outdated rent to price ratio, we’re going to be talking about and using the rent to payment ratio where you compare one month of rent to your mortgage payment rather than comparing rent to the purchase price of the property. We are going to talk about how to use this when analyzing a deal. It’s super easy, but I’m going to show you and walk you through some actual real live deals in just a minute. But first, I want to show you this spreadsheet that ranks some of the top markets in the country by this new ratio that I created. So what I did was I actually went out and gathered data from a bunch of different sources, but I used Zillow data for home values. I know people get all up in arms about zestimates and zestimates on any individual property can vary a lot, I admit that.
But actually when you aggregate zestimates and look at a whole county or a whole city level, it’s pretty accurate. I’ve looked into this, it is pretty accurate. We’re also doing the same thing with rents. So when you aggregate the data, it’s pretty accurate. I know if your property’s estimate is off, I’ve seen that many times or your neighbor’s is off, I get it. That definitely does happen. But this data for our purposes here, I do think is reliable. We also, I just found a bunch of different tax sources and aggregated those and insurance costs as well. Keep in mind, these are averages. They are not going to be the same for every single property, but what I found is that there are sort of like 10, I would say, elite level cash flow cities in the country right now. These are cities where the average deal has a rent to payment ratio of 1% or above.
Those cities, if you’re in one of these 10 cities, it is going to be much easier for you to find cash flow than any other city. Now keep in mind, other cities will cash flow. A lot of these other cities on this list will cash flow, but these ones are going to be the easiest. So those 10 are, I’m going to start with number 10 and I’ll just count down. So this is the 10th best is Milwaukee. That’s at 0.99. I’m rounded up to 1%, 0.99. Then we have Pittsburgh, Pennsylvania, Baltimore, Maryland, Philadelphia, Pennsylvania, St. Louis, Missouri, Hartford, Connecticut, Birmingham, Alabama, Memphis, Tennessee, Cleveland, Ohio, and Detroit, Michigan. Now you’ll probably notice a pattern here. Eight out of 10 here are in the Midwest and all 10 of them are relatively inexpensive markets. The most expensive market on this list with the highest median home value is Philadelphia at 248,000.
That is well below the national average, which is about 440 right now. But the other markets like Milwaukee’s at 195, Pittsburgh’s at 198, Cleveland 135, and Detroit really stands alone at $72,000. So if you’re in any of these markets, cashflow is going to be easier to find than any other markets in the country. Now you still have to go out and find the right deals, but if you are an investor wondering where to invest, this is such a good way to create a short list. You shouldn’t use this to pick the whole market, but if you say cashflow is a priority to me, the first 10 or 20 on this list is where I would start my further research. And we’ve talked a lot on the show about how to do more research into a market because you can’t just use cashflow. You need to figure out are there good economic prospects?
What are the appreciation is going to be? What’s happening with population? You still have to do all of that, but if I were a cashflow focused investor, I’d take the first 10 or 15 here and then figure out which of them has the best blend of other metrics that are in line with my long-term strategy. So for me, I’m not a pure cash flow investor. So what I would be looking for is what’s a good hybrid market? I want a market that is going to appreciate and I’m willing to sacrifice cash flow for some of that appreciation. So when I’m just eyeballing this list, I would say places like Hartford, Connecticut stand out to me. Philadelphia is a good market. Indianapolis, Columbus, Ohio, those are still below 1% during the top 15 or so, but still really good markets with strong fundamentals, exciting things happening and do offer good cashflow.
Now, if you’re looking at this on YouTube, you’ll see that I’ve ranked the markets green, yellow, red. And if you’re listening on audio, I’ll just let you know. The top 10, the ones I named to you, those are green. Those are kind of like the elite level cashflow markets. Then I brought in another 19 markets are in yellow and those are going to be solid cash flow markets. You could probably still find cashflow in any of these markets with the exception of New York. New York just has some unique idiosyncrasies here where it’s on this list, but I don’t think you could probably find cashflow there. But all the other ones here, maybe not Minneapolis, but a lot of them, you will be able to find cashflow on these deals because two things here. First and foremost, 1% rule is not dogma. It is not the be-all end-all.
It is just telling you how likely it is you are to find cash flow. The second thing to remember here is these are averages. So if you’re looking at a city like Buffalo, New York, I’m just picking one random, it has a rent to payment ratio of 0.89. That means that’s the average of all of the deals. So as an investor, you better not be looking for average deals, right? If it’s at 0.89, that means by rule, just the math, half of the deals in that market are better than 0.89. And so your job as the investor is to go out and find that deal that is better than 0.89. That is a really good way to use this metric. Even if you’re in some of these lower markets, I think Dallas is a great example. It’s actually in my third tier by rent to payment ratio at 0.74.
It’s not terrible. That’s still pretty good, but Dallas is a great market. So can you go out and find a deal in Dallas at 0.9? I bet you can because half the deals in that city are going to be above 0.74. And so just knowing that 0.74 is the average and that average is kind of low, your goal should be to say, “Hey, how much can I beat that average by? How much can I beat 0.74 by?” And you can do this in almost every market. Now I’m not going to say every market cash flows like when you get down to the bottom of this list, San Jose, California, Austin, Texas, Los Angeles, Seattle, San Francisco, these markets are probably not going to cashflow. They just aren’t. It’s really, really challenging. Now, I want to just call out a couple of things here. As we’re looking at the bottom here, there are some markets here that used to be great cash flow markets.
I’m looking at Houston here that for a long time had a good cash flow rate or Oklahoma City, for example, which had pretty strong cash flow. I want to just show you in Oklahoma City where the average rent is $1,130, the average insurance per month is $814. So this is why the rent to payment ratio is important is because if you’re just comparing the rent to the home value in Oklahoma City, you’re missing the most important variable here for investors, which is that your insurance is going to take up about 75% of your monthly rent, just the insurance. You see similar things in Denver, right? Denver has super high insurance. Houston has really high insurance. Houston has the double whammy of high insurance and high taxes. If you put the average taxes and insurance for Houston together, it’s 1,100 bucks. Meanwhile, your rent is under 1,700.
So just looking at this in Houston, on average, you can see your monthly payment is significantly more than your rent. There’s no way you’re going to get cash flow unless you get a screaming deal. And obviously, I should have said this earlier, but these are for on-market deals, so they’re as is. So if you’re doing a heavy renovation and a burr, you can reconsider this, right? The way you would do that is by evaluating the future rent that you’re going to get once you renovate the property by your future payment, once you refinance. That’s how I would look at it. Future rent, future payment, calculate your rent to payment ratio that way. One other thing I want to call out is on the total opposite end of the spectrum, these markets, Detroit, which really stands alone in terms of its rent to payment ratio. It’s at two.
That’s really high. The average payment in Detroit right now is $642, where the average rent is nearly $1,300. That’s amazing. So if you’re looking for pure cash flow, Detroit stands alone. But Detroit, similar to Cleveland and to Memphis and to Birmingham, certainly these first four markets at least, there are trade-offs in these markets. They may not appreciate in the same way that other markets do. Now, a lot of them have been growing in recent years, but in this new great stall era, I do personally expect a reversion to the mean for a lot of these high flying cities. That doesn’t mean they’re necessarily going to turn negative, although some of them could turn modestly negative. It’s just important that you understand the fundamentals. Detroit is recovering as a city, but as an example, its population has really declined since the financial crisis. And so there is an oversupply of homes.
There might be high vacancy rates. This is why you can’t just take this metric and use it to evaluate everything. If you really want cash flow, look at Detroit, but make sure you’re buying in a good pocket of Detroit where there’s going to be strong rental demand and home values are going to go up. You can do that. That absolutely exists in Detroit. I’ve been looking at deals there. That definitely works. That works in Cleveland, but don’t just assume because it’s the highest rent to payment ratio that it’s automatically a good buy. So that’s how you use this at a market level. Again, you use it by comparing to one another the relative availability of cash flow. And then two, once you pick market, knowing what the average is and then using that to set a baseline for what your deals are going to be.
They’re going to have to beat that level. That’s how you use it at a market level, but it’s also really valuable at a property level. And to show you how to do that, I’m just going to actually pull up a listing. But before we do that, we have to take one more quick break. We’ll be right back.
Before the break, we talked about how to calculate this and how to use it at a market level, but I’m just going to show you how to use it at a property level. And to do that, I am going to look for a property in Memphis. I just use my list and instead of using Detroit because it’s kind of an outlier, I just picked another one of the high up markets that have a strong rent to payment ratio. And I’m going to just pick the first one here on our list on Zillow. I’m just going through Zillow. I just searched for multifamily here. And we found a property on Harbord Avenue. It is listed at $340,000. It’s a six bed, two bath built in 1927, a little bit older, but it is 3,200 square feet and actually looks nice. The bricks had some tuck pointing, so there’s some work done there.
The roof is in pretty good shape, but it’s got some charm. It’s a nice house. Seems like it’s in a decent neighborhood for sure. What I would do if I were looking at this deal is first and foremost, I always look at the pictures just to see is this place reasonable? And I actually like what I’m seeing here. We got hardwood floors, we have fresh paint. The kitchen definitely needs an updating, which I like personally. I think that’s great. That’s a sign of a cosmetic rehab opportunity. Yard needs a little bit of work, but it’s not bad. There’s a nice fence. It’s a good property. So what I would do in this scenario is just quickly calculate the rent to payment ratio. And lucky for us, if we look at this duplex, they have listed the actual leases, so we don’t even need to estimate the rent here.
What we know here is that our rent is going to be 1,255 for the lower and 1,385 for the upper unit. And what we get there is 2,640. So this property is pulling in 2,640. So already in my head, I’m asking myself, is my monthly payment on this mortgage going to be more or less than 2,640? Let’s find out. To do that, I’m just going to pull up the BiggerPockets mortgage calculator and figure out what our payment is going to be. So I’m going to just assume that we’re paying full price for this. So my loan amount, if I’m putting out 25% as an investor, is going to be $255,000. I’m going to do a 30-year fixed. Interest rate’s probably around seven right now. Our annual taxes, they’re pretty high, are $9,800. And on the listing, the insurance is estimated at $1,350 a year. So I’m going to just hit calculate my monthly mortgage payment.
And what we got here is $2,625. So this is darn close to a 1% rule deal. Pretty good, right? Because what we found is that our monthly payment is $2,625. Our monthly rent is $2,640. And if you do 2,640 divided by 2,625, it’s basically 1.01%. So we got a 1% rule here in Memphis, but remember in Memphis, our average deal was going to be 1.17. And so while this deal probably will cash flow, it is probably not the best cashflow opportunity we can find in Memphis because we know that on average, the ratio is a bit higher. Now, I’m not saying that you shouldn’t buy this deal because when I look at this deal, I’m like, can I fix this thing up, put 20 grand into it and bring our rents from 2,640 up to 2,800 or 2,900? If so, might be worth buying this deal.
But if I’m looking for a turnkey kind of investment where I just put tenants in, because this place is nice enough, you could just put tenants in, this probably isn’t the best pure cashflow opportunity. So the way I would look at this and use this ratio is instead I would look for another deal. So let’s just see if we can find another one. Let’s look at this duplex instead. This is a six bed, three bath. It’s cheaper. So it’s about $300,000. The kitchens are a little bit older, but it’s still in decent shape. You could definitely rent this out today. The kitchens I would put a little bit of money on if it were me, but you could rent this right now. Now these are big units. They’re three bed, two bath. And so I’m going to assume that I can get 2,500 bucks in rent for this.
And so we’re taking out a smaller loan at 2.25, and then our annual taxes are going to be cheaper at around 7,000. Our insurance, I’m just going to assume is going to be the same. And now we’re getting 2,192. So this is a better cash flowing deal. So 2,500 divided by 2,192, what do we got? Now we have 1.14. This is closer to the average for the area. So this is a deal I would consider personally. I think this is a better cash flowing opportunity. I think there’s a better upside on this deal personally for a cosmetic rehab because if you just look at it, we could maybe drive the rents up to 2,800 on this by fixing it up. It’s a nice property, but just needs some work inside. And the other thing I like about this is this one’s been sitting on Zillow for 55 days.
So I’m probably going to get this below what they’re asking at 295, right? Let’s just assume we get a little bit of a discount. We get it at 280. If we do that and update our payment, now we’re at 2076. If we divide 2,500 by 2076, now we’re at a 1.2. So even if you don’t do the renovation, if you just buy this at a little bit of a discount, 15 grand off after sitting for 55 days, you buy this thing at a discount, now you’re getting a 1.2. Now that’s above the average. Now you’d go do the renovation, that’s a really good opportunity. So of course I would have to do more due diligence and do a full analysis on the BiggerPockets calculators to understand if this is the kind of deal that I want to buy. But just in those five minutes I just showed you, that first deal I thought was going to be good.
I looked at it and I was like, this is going to be a good deal. And it was, it probably would cashflow, but two minutes later, I found another deal that has better cashflow opportunity. Still going to do analysis on the second one, but it allows me to say, I’m better off spending my time digging into that second deal than I am the first one. That’s what rules of thumb are for. They’re not the absolute be all end all of any analysis. They’re used to help you save time and to eliminate deals that are clearly not going to work and to spend your time on the deals that have a high potential of penciling out. So go out and do this for yourself. Hopefully you can see how useful this is. We will put a link to the spreadsheet for the markets below and then go out and calculate this on deals on Zillow, Redfin, Realtor, whatever you use.
Go check out some deals and see if it works. Go see where the best rent to payment ratios are in your market or compare between two different markets and see which one have a better cashflow perspective. Once you’ve done that, go really work hard to estimate your rents, estimate your expenses, put all of that into the BiggerPockets calculator. You just go to biggerpockets.com/calculator, go calculate the deal, see what the cash on cash return is going to be, what your annualized return over time is going to be. You still got to make great offers. You got to do the work, but this rule of thumb I think will help you streamline your deal flow and your analysis so much. It’s been helping me a lot and hopefully this completely free tool that you can use can help you find your next deal as well. Before we go though, I do just want to reiterate, although higher rent to payment ratio does indicate better cash flow potential, the higher the number does not mean that is a better deal.
You heard me just talking through those two deals. Some deals are going to have better opportunity for value add. They’re going to be in a better neighborhood. They’re going to have better demand. So you need to think about that. And I actually think oftentimes if the rent to payment ratio is too high, that’s actually a red flag because there’s something wrong with that property. If it is priced really inefficiently, sometimes it happens where some people just price properties poorly. I’ve been the beneficiary of that several times in my career. It sometimes happens, but it’s a red flag too. It’s something you need to investigate. I think in this kind of market, if you can find a deal that’s in the 0.8 to 1.1 ratio, that’s probably going to be pretty good. That’s after you do a renovation. So the deal you might buy might not pencil, but if you’re going to do a cosmetic rehab or you’re going to do a rehab and drive up the rents, if you can get in that 0.8 to 1.1, you’re probably going to find a good deal.
Again, it’s a rule of thumb. It’s not going to work for every single time. This is just a means of filtering deals, and I’d love to hear how it works for you. Like I said, it’s been working for me, but let me know in the comments if this new ratio, this new rule of thumb, this new 1% rule is something you’re going to be using in your own investing. I would love to hear how you’re using it. Share it with the BiggerPockets community. That’s our episode for today. Thank you so much for watching this episode of the BiggerPockets Podcast. We’ll see you next time.

Ashley:
Most rookie investors are not choosing between a perfect deal and a bad deal. They’re choosing between imperfect options, limited capital, and the fear of making the wrong first move.

Tony:
Today’s questions all come from the BiggerPockets Forums, and we’re going to talk about whether to flip or house hack first, how to think through a first out-of-state investment in 2026, and how to decide if a cash flowing rental with major repairs is still worth keeping.

Ashley:
This is the Real Estate Rookie Podcast. I’m Ashley Kehr.

Tony:
And I’m Tony J. Robinson. With that, let’s get into today’s first question, which comes from Ivo in the BiggerPockets Forum. So Ivo says, “My wife and I are looking to make our first real estate investment and we’re trying to decide the best way to start. We’re currently debating between doing a house hack or going for a fix and flip that wouldn’t require a major rehab, something more cosmetic. I’m personally leaning more so towards starting with a fix and flip so we can build some capital first. Then the plan would be to move into a house hack, likely a multifamily property, live there for a while, and potentially do another fix and flip while we’re there. After that, we move out and keep the multifamily as a rental. Do you have any advice on the best way to approach this strategy, especially as a first investment?” Great question.
Honestly, I feel like you could. I don’t want to overwhelm you, but it almost feels like this isn’t necessarily an either or an or thing. Depending on how much capital you have, maybe there’s an opportunity that you can do both because they’re serving slightly different purposes. Now, for rookies that are listening that aren’t familiar with the phrase house hack, a house hack is basically when you buy a property and you live in it in addition to renting out some additional space to generate rental income. So to Ivo’s point, it’s like maybe you buy a triplex and you live in one unit and you rent out theother two. Maybe you buy a duplex and you live in one side, you rent out the other. Maybe you buy a five bedroom house and you sleep in one bedroom and you rent out the other four. You can house hack in a lot of different ways, but the essential idea is that you’re renting out the extra space that you’re not using.
If you have enough capital to cover a three and a half to a 5% down payment, sometimes these loans, I talk about NACA a lot on the podcast, maybe you can even get into a loan with 0% down. But the goal is that if you’ve got enough capital to cover a 0% down to a 3.5% down to a 5% down payment, well, maybe you can go and get your house hack done immediately. And while you’re doing that, take whatever additional capital you have left over and go tackle the house flip. So again, all this depends on how much capital you have. So if you don’t have a ton, then we do have to choose. But I think my first kind of gut reaction is that maybe these aren’t mutually exclusive and maybe there’s a path to do both of those. You do the house hack while also continuing to look for the flip.

Ashley:
I also think that you can basically accomplish this with one property. I don’t know if that’s what you were trying to say, Tony, but you can do the live and flip.

Tony:
No, that’s great. I was actually saying two separate properties, but yeah, you’re right. You could combine them into one as well.

Ashley:
So if you buy a property, you have to live in there for a year for your loan that you would get. But if you live in it for two years, you won’t have to pay taxes when you sell the property because it’s been your primary residence for two years. So over the course of two years, yes, it’s not technically house hacking unless you’re going to rent out the rooms or you’re going to get a property with another unit in it, still your primary residence. So let’s say you’re going to go after a duplex. You live in one, you fix up that side, you have a tenant in the other side, and then after two years you sell it and hopefully it has a lot more value because you renovated it and rehabbed it. One thing that I have seen people do, and I think this is even maximizing it, is when they move into the property, they fix up one unit and then they end up switching units and then they go and fix up the other unit.
I’ve seen people do this whether they’re house hacking or not, but basically when they purchase a property, one unit is vacant, they say to the tenant next door, “Hey, we’re going to renovate this. We’re going to let you have first dibs at this. This is what the rent will be and then you can move into there or whatever.” And hopefully the tenant says yes and they move into that new one and then you can go to work on that other one and renovate that one the second year while you’re living in it. Then at the end of those two years, go and sell the property, hopefully make a huge profit and you won’t pay any taxes on it. So when you’re doing just a regular fix and flip and it’s not your primary, you’re going to be paying a boatload of taxes on that property.
So I think if you like the house hacking idea and you want to do some renovation work and do a live and flip, this might be a good compromise for you where even if you don’t make as much and if you had two separate properties, maybe you could maximize more, but with this, you’re going to save so much money in taxes by doing it this route too.

Tony:
I think the last thing I’d add to that too, Ash, is that, and I say this a lot in the podcast, is that oftentimes it also does come down to personal preference. Between the idea of house hacking and between the idea of flipping, which one do you just generally feel like you would enjoy more? Which one aligns better with who you are as an investor? Which one. My wife would hate the idea of us house hacking. For her, it’s like there’s no amount of money we can make from a rental that would make her enjoy the idea of sharing walls with our tenants.That’s just not something that would excite her. Short-term rentals on the other hand, she was very excited about that and she can see herself doing that. So I think you’ve got to ask yourself just of those strategies, which ones align better with who you are as a person and which one ultimately gets you closer to the goal that you’ve got?
If the goal right now is just a big chunk of cash, Flippington give you that. If the goal is, hey, can we reduce our monthly living expenses and can we start building some long-term wealth? Then house hacking makes more sense. So part of it is personal preference. Both strategies work. You can be successful with either one. So I don’t think you can necessarily go wrong with either route.

Ashley:
Coming up, a New York investor is planning his first out-of-state rental for 2026. We’ll talk about how to keep deal one simple when your long-term goals are much bigger. We’ll be right back. Ivo’s question was about which strategy should come first. Our next question is from Jose in Manhattan who is planning his first investment property in 2026 and already has a bigger long-term portfolio vision. Hi all. I am a 29-year-old male based in Manhattan looking to purchase my first investment property in 2026. I am currently eyeballing either the Orlando or Atlanta market to make my first investment with my wife. Generally speaking, this first investment will serve as strong foundation for becoming familiar with the real estate investing process and for establishing a portfolio we plan to grow. All subsequent deals will be similar up until we have enough property and equity that will allow us to pivot into larger commercial deals 10 years or out.
Considering the above, we plan to take the slow burr approach where we will be looking for an opportunity that will allow for some forced equity in the midterm time horizon. With that, we’re looking for homes that only need small cosmetic lifts right now, but may allow for some ADU accessory dwelling units, opportunities or other enhancements further down the line. We currently have about $50,000 ready to deploy for a down payment for our first investment, and we’ll be contacting different lenders to see what our purchasing power is and what different debt products may be offered. My wife and I have a combined net worth of over 320,000 between cash, IRA, 401 and standard brokerage accounts, and we earn over 325K annually with expectations for the income to grow so we feel like we have a strong financial base to allow us to go out and take calculated risk.
As an additional note, we have family friends in both Orlando and Atlanta, so that largely plays a big factor in narrowing down to those two markets as that will allow us trusted boots on the ground as a long distance investor. Some additional pros for each city. We used to live in Atlanta for a couple years, so the market is not completely foreign to us. My cousins are actively participating in a rehab in Orlando, so they already have a great team to work with there that I can likely tap into. I will still do my own due diligence. Any thoughts, tips, or even just introductions would be very much appreciated. Okay, so that’s awesome, Jose, that you are in a position financially and also mentally and you’re ready to go, you’re ready to take action and implement some real estate investing on your first deal. So it looks like really what your dilemma here is is to which market you should pick.
And I love it that you chose markets where you know that you have advantages already. You have one with boots on the ground, you have one where there’s already a team in place. So the next question I would ask is, have you narrowed it down to specific neighborhoods within those cities and how does your budget fall? How far does that, what was it, 50K I think to invest? How far does that 50K get you in each of those markets? So I don’t know really what the median home price is in either of those markets off the top of my head, but is one going to get you a property in a rundown area, high crime, not a great school district? And one, is it going to get you maybe a B class property where better schools, less crime, things like that. So I would start there with, have you gone and looked at any specific neighborhoods in those cities above and beyond just what your advantages and opportunities already are there?

Tony:
Ash, there’s one thing that I just want to call out in the question here because it’s a bit of a, to me like a contradiction, but Jose mentions wanting to use the Burr strategy, but then also wanting to focus on properties that “only need small cosmetic lifts.” And I think those two are somewhat opposed. Sometimes you get lucky and you find just a really well-priced property that really does truly just seem like a small cosmetic lift. But generally when we talk about the Burr strategy, we’re trying to find properties in distress. So it generally means physical distress. Again, sometimes it can be a seller in distress and they’re willing to take a big haircut on the price because they themselves are in some form of distress. But oftentimes it’s the property that’s in distress. So you say slow burr, but the time of the Burr doesn’t really matter.
It’s like how cheap are we. At what discount are we buying that property in relation to what the after repair value is going to be? And the only way that we get that gap big enough is if we buy a property in distress. So I just flag that because Jose, I don’t want you to go into this with these unrealistic expectations. You’re going to find these properties that’ll need small cosmetic fixes and that you’re able to do any sort of truly successful Burr where you’re able to increase the value. Now, you did mention earlier in the question that you guys are more so focused on appreciation. So if by slow Burr, you mean small cosmetic fixes, understanding that today it’s not necessarily going to increase the value, but in 10 years from now we’ll hopefully have built some equity, it’s a different story, but I wouldn’t necessarily call that a Burr.
We’re just buying a property and we’re banking on appreciation. A burr is, hey, we’re going to force appreciation rapidly in the next three, four, five, six months, and we’re doing that by buying a distressed asset. So just a distinction I feel is important for Ricky’s understand. All right guys, we’re going to take a quick break, but when we’re back, a Ricky landlord has a cash flowing rental with major foundation and water issues. So should he fix it? Should he keep it, sell it, move on? We’ll cover that right after a quick break. All right guys, so our last question is from Joe in Cleveland and he already has his first rental, but now the property needs major repairs and he’s trying to decide whether this is a keeper or a lesson he should cash out of. So Joe says, “I own a single family home that I rent long-term and it’s cash flow positive.
There are foundation issues, water leaks into the unfinished basement when it rains, and the basement is used for laundry, so tenants have to go down there. It’s at a point that the entire interior needs to get repainted. The first floor hardwood could use refinishing. The small deck out back needs to be repaired, probably even torn down and rebuilt, and the main door needs to be replaced. This is to name the majority of the bigger cost repairs. I bought the home for $145,000 five years ago, and it’s probably worth 200K today with a good foundation. I’ve been wanting to own rental properties and continue to expand my portfolio, and I was planning on taking the equity I have in this home and using it to fund the purchase of additional properties. But now that so much has to be done to this home, should I sell it and take the profits or should I spend all this money on fixing it and keeping it?
I worry because it is a 100-year-old home and I feel the problems might never end, but it is a nice home for a rental. And in the five years that I’ve had it, I’ve never had a problem finding renters. Seeing this is my first rental, I don’t have experience in this world and I’m learning as I go. I really appreciate any guidance.” It’s a great question. How do you decide when to keep versus when to sell? I think there’s a few though process here that I would look at. Number one is how much equity have you actually built and what is your return, not just on your cash flow, but what is the return you’re currently getting on your equity? Sometimes when we do that calculation, we realize that if I actually go redeploy this capital, all this equity that I built up into another deal, I can actually get a better return.
If we just look at the cash on cash we put into the deal, that’s one number. But if we look at the actual equity that’s sitting in that property and we measure our cash flow against that, we get a slightly different picture and that helps us decide if we should stay or if we should pivot. So that’s one kind of calculation to go run because if you’re like, “Man, I’ve got…” Actually, I don’t think you will in this situation because you bought it for 145, you said it’s worth 200, so maybe there’s not a ton in there. You didn’t say what your loan balance is, but let’s say that maybe you only owe 120 or 105, something like that. So you’ve got maybe 95K in equity. And if you’re barely breaking even on that $95,000 in equity, well, then there’s a good argument to be made if you go redeploy that somewhere else, you can potentially get a better return.
So that’s the first thing that I would focus on.

Ashley:
But he also says that it’s. Or Tony, real quick, he says it’s only worth the 200,000 with a good foundation. So that means he has to go in and add in all those repairs too before it’s worth the 200,000. Yeah,

Tony:
That’s a good point. So maybe there’s even less equity in there than what it is. And this is the other element that I was going to hit on too, is that I also think that there’s just maybe a peace of mind component of real estate investing that we can sometimes consider as well. And if a property, even if it performs well, if it does nothing but cause you headaches and that there’s a time component that’s incredibly draining, sometimes that in and of itself is a potential reason to move on from a deal. It’s like, yeah, the property does great, does all these things, but man, I spend so much time thinking about it and worrying about it and doing all these things, and I’ve got these other rentals maybe make a little bit less, but I don’t have to think about them. I would take more of the not thinking about it rentals and make a little bit less than the one that does a little bit more, but eats up more of my time.
And that’s a trade I would make almost every single time. So there’s the calculations that we can run, but then there’s also just the bandwidth calculations we can look at to see if it actually makes sense for us.

Ashley:
I think the first thing that needs to be done is you need to get actual estimates on what these repairs will actually cost. I had a house where you would go upstairs of the house and you would put anything on the floor and it would literally roll down the slope of the house. I though this was going to be so expensive, but we wanted to sell the property. It ended up being $7,000, which yes, $7,000 is a lot of money, but the value of the property from if I had showings and someone walked into it and they’re literally walking downhill to get to the next bedroom, even though it’s on the same floor, compared to paying that 7,000 where the house is now level and even, it was so worth that putting in that 7,000. And I thought it would be more like $20,000, $30,000.
I just had this kind of stigma that foundation work and stuff like that costs way more money than what it actually did. Then again, I got another property quoted and that one was $20,000. So it can vary, but I think it’s worth going in. Even the deck repairs, maybe a handyman can kind of patch it together for you or get it to where it’s going to last a couple more years or something like that. So you could at least go and sell the property with a functional deck. So that I would recommend as your first step is to going and getting those estimates and not actually just assuming they will be expensive because it could really go either way. It could be cheaper than you think or it could be even more expensive than what you think. But I think having those estimates will really help you make the decision if it’s worth putting the money into this property to either keep it or to sell it.
And then also, as Tony said, with the debt, how much you own the property, if you’ll be recouping some of your costs, your down payment, maybe it is better just to exit the property if you don’t have the funds to put into it to fix all of these things and make it better.

Tony:
Ash, last thing I’ll add is that’s also the reason we want to make sure that we’re setting money aside every single month for things like reserves, CapEx, because although all of these repairs, it kind of sucks when they happen, they are somewhat expected. We know that a certain point we’re going to have to repaint. We know that at a certain point we’re going to have to swap out HVAC systems. We know that a certain point appliances need to get repaired. We know that a certain point the water heater’s going to give out. All these things have a shelf life. So setting money aside on a monthly basis is part of our job as real estate investors and even more so as part of our job during the analysis phase to make sure that, hey, if we are setting money aside from the revenue that’s coming in, do we still have enough meaningful cash flow left over?
So just a business discipline that we need to make sure rookies are developing as well.

Ashley:
Well, thank you guys so much for joining us on this episode of Real Estate Rookie. If you’re not already, make sure you are subscribed to our YouTube channel at RealEstateRookie. If you have a question that you would like answered, head over to biggerpockets.com and check out the forums and we may pull your question to be featured on the show. I’m Ashley, he’s Tony, and we’ll see you guys next time.

Ashley:
Thomasina Myresa spent years doing what she thought financially responsible people were supposed to do, work hard, avoid debt, and save. But when the pandemic stopped her modeling income almost overnight, she realized a savings account alone could not give her the security she wanted.

Toni:
That realization eventually led Thomasina from a New York City apartment to a $63,000 rental in a city she had never visited. Buying remotely was only the beginning because her first attempt at managing an inherited tenant forced her to rethink what responsible landlording actually looks like. And a later 10 bedroom duplex helped her discover the investing strategy she actually wants to build.

Ashley:
Welcome to the Real Estate Rookie Podcast. I’m Ashley Kehr.

Toni:
And I’m Tony J. Robinson. And with that, let’s give a big warm welcome to Thomasina. Thank you so much for joining us on The Rookie Podcast today.

Thomasina:
Thank you guys for having me. I’m so excited. I’ve been a long-term listener, so this is kind of like a full circle moment for me.

Ashley:
Now let’s start with before real estate even entered the picture. You were modeling and working as a social worker. What did those two jobs kind of teach you about earning, saving and personal finance in general?

Thomasina:
Well, I would say my personal finance journey started when I was even younger than that. My parents instilled in me to just save, save, save, but I never knew what I was saving for. I had my first job at 14, and so by the time I graduated from university, I had saved up a substantial amount. So I moved to New York City and like you mentioned, I was working as a social worker at night and then modeling during the day. And I was exhausted to say the least, but it allowed me to save money because a few months later after moving to New York City, the pandemic hit and all of my money or a big chunk of my money was paused.

Toni:
When the pandemic shut down your modeling work, Thomasina, what changed in the way you thought about financial security and the money that you had saved up?

Thomasina:
Yeah, I think the pandemic and having the modeling industry pretty much halt made me realize that putting money in a savings account, because I hadn’t even had a high yield savings account at that point. So I just knew that I needed to find another way to make money and also build wealth because the modeling industry is so volatile and it’s always been that way, but I had never experienced it halting completely. So that was definitely like a smack in the face and just made me realize I needed to find another way to make money.

Ashley:
Now, during COVID, you probably did not have a lot of modeling jobs come up. I would assume that they were kind of shut down during COVID. What kind of impact did that have on you? You had said you had learned to save, save, save. Did you find that you had financial security with just saving as your plan or what else did you learn along the way?

Thomasina:
Yeah, so I did have a pretty. I felt secure in terms of finances because I had so much saved up. So it wasn’t like I was desperate when the modeling industry shut down, but I knew that I had to think about the future. And because the modeling industry had paused, I had a lot of idle time on my hands. And so I started reading a lot and I came across Rich Dad Poor Dad, which was kind of pivotal in my financial and real estate journey. And it made me realize this seems easier. Building wealth seems easier than what I though. And investing was not something that I was exposed to early on. So after reading all those books, I went into a research rabbit hole and that’s how I found BiggerPockets.

Ashley:
Okay. Well, we always love to have somebody on that has found BiggerPockets and it became an integral part of their journey to start real estate investing. But I also learned that you actually got a mentor too. So I’m really interested in that aspect of it is how did you, a rookie investor who’s never done a deal, didn’t have any experience, didn’t really have anything to bring to the table to a mentor, how did you actually land one?

Thomasina:
So that is a funny story. I reached out to someone on Instagram completely unrelated to real estate. I just though that she was pretty and we had the same vibe and I was like, “Oh, I want to be friends with this person.” So I reached out to her and we ended up setting a time for lunch. And through our conversation and meeting, I realized that she was a real estate investor and I’m like, “No way. I just learned about this thing.” And so we get to talking and she tells me that she’s investing in Cleveland because obviously New York City is very expensive. And although I attempted to buy my first property in New York at the start, I was coming to the conclusion that it may be outside of my price point. So meeting her was kind of amazing timing because I knew that she was investing in Cleveland because it was much cheaper.
Anywho, she had a friend who was also investing in Cleveland and that friend was Yamu who actually has been interviewed on BiggerPocket several times now. She has an amazing story, but she was also investing in Cleveland at the time and offering mentorship. And so that is how I found my first mentor through a mutual friend. I

Toni:
Think it’s so interesting. It’s like you just reached out to this other person on a whim and it’s like that one conversation led to another conversation, which led to another conversation. That’s how it happens so often. Sometimes you’re lucky like Ashley where just everywhere you go, there’s just people who are like real estate investors want to hand you deals. I think Ashley’s gotten deals at football practice in the deli aisle at the grocery store and picking up her mail at the post office. So you never know where you might find the person who’s going to change your life.

Thomasina:
Just got to talk to

Toni:
People. You just got to talk to people, right? Now I think it’s a good question, Thomas, because I wanted to get on this a little bit, but for rookies who are considering mentorship, because there are a lot of different options out there and there are some that probably fall into the old camp of just being very gury where they’re peddling something that isn’t all that great. And there’s others who are really, really great options to help folks who are kind of on the sidelines. How did you vet or make that determination on who you wanted to actually?

Thomasina:
That’s a good question. And I’ll be honest, my number one factor was the price point. How much is this girl going to charge me for mentorship? Because that was one of the main reasons why I was afraid to make that first purchase because this is the biggest purchase that I would have made during that time in my life. I mean, I think I was 22, 23. So the price point was a big factor for me. So I wanted to know how much she was charging. And then the rapport, because this mentor came from someone that I knew and liked and trusted, I felt more comfortable at least opening that conversation. And so when picking mentors, because I’ve had several mentors after Yamu, but I always try to see if I know anyone in my network or in my circle who has already worked with that person and kind of what they have to say.
So that rapport is very important to me as well. I would also say to the rookies, do some research into their experience. How many deals have they done to what scale are they doing what you want to be doing? Because if you are just looking to buy your first property, seeking mentorship for someone who is niche down in Airbnb may not be the right mentor for you if it’s super, super niche. So kind of do some background on what their experience actually is to see if it aligns with what you want to do. I would also say how patient are they? From my experience with mentors, there’s often an introductory call before you actually execute on the mentorship. And obviously as a first timer who hadn’t purchased a property, I had a lot of questions, but Yamu, we had maybe a 30, 35 minute phone call.
And of course you want to be respectful of their time, but she was just very patient with me and was kind of empathetic to the fears that I had with making such a big purchase. And so that was something that went a long way with me as well. It wasn’t like a salesy call. She wasn’t trying to pitch anything to me. She was just very patient in fielding all of my questions.

Ashley:
And Tony, you actually got started by going to a seminar with a mentor, right, that I was putting on?

Toni:
Yeah, that was my first real estate event. And this was before we had transitioned to short-term. We were just doing long-term at the time, but I wanted to get into apartment syndication.That was my initial goal as a rookie investor was to do these big apartment complexes. And I’d done a few single family homes and long-term rental space. There was this guy I’ve been following who had this event in Los Angeles, and me and my partner went down there and we spent three days. The event itself, I don’t know, it was like a thousand bucks or something for the ticket. And then we ended up joining their mentorship program, which was like, I don’t know, a five figure investment. But the best part from all of that wasn’t even the mentorship. It wasn’t even what I learned at that seminar, but it was the other people that I met while I was there.
And there was a guy who I had bumped into at a meetup several months prior who just happened to also be at that event. And we just kind of started chopping up like, oh yeah, I remember you from the event. And we exchanged numbers and all those things. And that same guy was the guy who introduced me or encouraged me to buy my first short-term rental. So it’s like you never know kind of connecting the dots when you start investing in yourself where those things can lead. But I do think there’s time and place for it. So I’m glad it worked out well for you. But going back now to the actual deal itself, because one of the biggest challenges, Thomasina, I think that people face when they do want to get into investing is the financing side. Now, obviously you had very steady income with the social work, but as a model whose work was maybe somewhat impacted by COVID, which I’m assuming was 1099 where you were a contract role, how did you prepare yourself from a personal finance perspective to actually get qualified to go get the debt for your first investment?

Thomasina:
That’s a great question. So I utilized BiggerPockets to research lenders that people were recommending. And to kind of backtrack a little bit, when I was first looking to purchase a property, I was attempting to go through the NACA program, which you guys have talked about on the podcast a lot. And so through going through the beginning stages of the NAHCA program, I realized what kind of documentation are they going to be looking for to make sure that I can afford this purchase? And so that really helped prepare the materials that I would then take to a lender once I realized the NACA program wasn’t going to work out for me and the timeline that I was working with. So I had all those documentations prepared and I talked to several different lenders and the 1099 income was a little difficult. So it was nice that I had the social work W2 job at that time.
And I also had a substantial amount of savings because again, I had been saving since I was 14 years old, so that helped me as well. But just understanding what kind of documentation the lenders are going to be looking for, I think really helped me out. And some lenders who have experience working with 1099ers, because I sought that out as well, kind of knew how to legally play the system or to make you a more, I guess, reputable buyer.

Toni:
I love that point, Thomasine, that you said of trying to find a lender who had experience working with 1099 type borrowers because we say this all the time in the rookie podcast, but not all lenders are created equally. And there are some lenders who specialize in one type of loan and there are other lenders who specialize in different types of loans. And there are some lenders who will tell you something is impossible and there are other people who tell you we do this all day. I’ll give you guys a real life example. I was just talking to an investor yesterday. She was working on closing on her first short-term rental. And for whatever reason, the lender she was initially working with was like, “Hey, we actually can’t qualify you for this. You need to go talk to another lender.” And she already paid for an appraisal and she went to two different lenders.
And the first lender she said, “Hey, I already paid for this appraisal. Can you use this appraisal?” They said, “Oh, absolutely not. We have to do our own appraisal.” She went to a second lender. They’re like, “Oh yeah, we take new appraisals all day. Just fill out this form.” So it’s like had she just stopped at that first person, she would’ve hit a brick wall, but because she didn’t have to wait for the appraisal, she was allowed to move more quickly to actually still close on time. So I just love that you did that because it’s a step that a lot of people miss and they just go with the first lender they talk to and assume that that’s the only option for them in the entire world.

Ashley:
Now, after you figured out what your funding was going to be, you decided to look into Cleveland, and I’m assuming this is partly because you knew investors that were already investing there, but did you do any other kind of vetting or verification on the Cleveland market?

Thomasina:
Yes, I did. Probably not as much as I should have in terms of different neighborhoods and such. But again, going back to the BiggerPockets Forum, those were my Bibles when I was looking to buy my first property because people had already been investing in Cleveland for so many years and they had that experience. But I was really looking at crime rates, appreciation rates, which I didn’t really know much about, but I was trying to dip my toe in that field. And price point. Price was a big factor for me. And then rents, how much could I rent these properties for if I were to buy within this price point? So that was the research that I did at the time. I was just learning as I was going and really leaning on my mentor as well. And my mentor was more of the frame of mind of just get it done, like messy, massive action.
And so the reason why I implemented the mentor in the first place is because I found myself getting into analysis paralysis. And so I knew the more that I researched, the more I was going to scare myself from making this first purchase. So Ashley, to your point, could there have been more research? Yes, but I did what I could with the knowledge that I had at the time.

Ashley:
Now, since you had never been to Cleveland even, how did you build your team there and who did you need as an actual team to actually help you find your property and then to run it once you purchased it?

Thomasina:
Great question. So first things first, I need an agent. So I did utilize BiggerPockets like agent search to see who was doing the most business in that area, who came highly recommended. So I reached out to a couple of people on BiggerPockets, but I also just went on Zillow and kind of searched through recently sold homes and looked at the agent who was listed to see who was the most active in the area. So I ended up finding one agent and I did submit a couple of offers with her, but it just didn’t feel like the right fit. So then I found another agent and that was my girl. I ended up closing another deal with her as well, but she was the first member of my team and she had been an agent in the Cleveland market for years and longer than I had been alive at that time.
And so she had a very extensive list of referrals and recommendations for contractors, inspectors, lenders, et cetera. So I leaned on her for the rest of the team that I was building out there, but I found her from Zillow.

Ashley:
Now, Thomasina, you said that you just didn’t feel like it was a right fit. We have a lot of agents that are also investors and listen to this podcast. What would be some advice you would give them as to why maybe you didn’t feel like it was a great fit for you?

Thomasina:
Yeah. I mean, as the saying goes, time kills deals and her communication was just very, very delayed. I would be trying to submit offers and then she would respond two days later and I’m like, “That’s not going to work for me.” I also don’t think she was as knowledgeable. I think one of the main questions that I did not ask her, and I learned this later on in my journey, but I didn’t ask if she had experience working with out-of-state investors. And I think that’s a big question to ask agents when you’re interviewing to see who’s the right fit for you. And it became very clear after our time working together that she maybe wasn’t as experienced in that department. And I don’t think she had as much experience working with real estate investors in general, even locally. So a lot of the questions that I was asking and when we were running the numbers, it just wasn’t as thorough as what I needed, especially as someone who’s buying for the first time.
So that’s why that relationship didn’t work out.

Toni:
I love that you were cognizant enough to recognize that because I feel like a lot of newer investors, they’re just kind of like, “Oh man, my agent sucks, but what am I supposed to do?” But the truth is you can go find a new agent, which is exactly what you did. But I also just want to highlight, because I think you hit something super important for all the rookies that are listening. It’s that we tend to focus on markets where we have familiarity or proximity like that. That’s where most rookie investors start. And we do that because there’s this level of comfort that we know things about that market, but we can bridge that gap in a new market by simply connecting with someone who already has all of that knowledge, oftentimes at a level that’s deeper than what you could ever accumulate yourself. And what I mean by that is if you just go get a really good agent in a market, they can be that conduit to connect you to all the right places and know all those right things.
I’ve talked before about on the podcast about us looking in Oklahoma City to do flips. When we first had that idea, I reached out to a bunch of agents through the BiggerPockets Agent Finder, got a bunch of people that replied back to me and immediately I had a list of like, “Hey, here’s some contractors, here’s some handymen, here’s someone that does roofing, here’s a lender that works locally.” So when you tap into an agent who knows that space, it makes a world of a difference. I guess the question that I’m getting at here though is as you had that first experience with agent number one, when you went to go find the replacement agent, were there questions that you didn’t ask the first time that you found were good to ask the second time around?

Thomasina:
Yeah, absolutely. That investor question was probably the biggest question. Do you have experience working with investors and do you have experience working with out-of-state investors specifically? And so that was number one question on my list when I was finding a new agent.

Ashley:
Now let’s talk about the actual property that you ended up purchasing. Tell us about how you found it. What was your offer? Did it get accepted right away? And let’s start with that piece of it.

Thomasina:
Yeah. So the first one that we got accepted, or I guess the first one we closed because we did have another accepted offer that we didn’t move forward with, but it was a single family home in Cleveland, Ohio, which again, I had never been to. We closed at $63,000. I went with a conventional loan, 20% down, and we structured it utilizing a seller concession. So that was one thing I really appreciated about my agent is that she was very knowledgeable and suggested things that I wouldn’t have known. So I would tell her my goal is to bring as little money of my own to the closing table as possible. So I would tell her that and then she would take that and run with it and see, okay, how can we get creative so that we can make that happen? And so she recommended that we ask for some seller concessions instead of just lowering the purchase price outright.
And so I ended up coming to the closing table with maybe three grand when I was expected to come to the closing table with 12 grand. So it was a significant difference and those numbers might be a little rough, but I was very happy with the amount of money that I ended up coming to the closing table with. And that was just based off of her recommendation and her knowing what my ultimate goal was with closing that property.

Toni:
Can you educate our rookie audience? Why was it better to ask for a seller concession as opposed to reducing the price?

Thomasina:
Yeah. So with a seller concession, what you could do, if the sellers want a specific price, so in this case, the sellers wanted to walk away with $63,000. So we offered higher than the $63,000, and then we asked for the difference in a seller concession so that we could use that money at closing to buy down the interest rate. So I ended up buying down the interest rate to 6%, and then I still had a little bit of money left over that was just mine or it could go to closing costs and fees and stuff. So those fees that would normally come out of my pocket ended up just coming from the difference in what the buyers were walking away with versus what we offered.

Toni:
Absolutely. And I love that strategy. We’ve used it to great success in the past as well, where if the appraised value is higher than the contract value, you can go back and increase the contract value to match the appraised value. But instead of just giving that money back to the seller, the seller agrees to give that money back to you to either buy down your interest rate or help with your closing costs or things of that sort. We’ve interviewed folks on the podcast before who’ve gotten money back at closing because of the way they’ve been able to structure some of these deals. So you get into it 20% down, you’re closed, amazing. Just out of curiosity, from the time that you had lunch with the friend who was a model to actually closing on the property in Cleveland, how much time had passed?

Thomasina:
That’s a good question. Maybe about five months.

Toni:
Oh, wow. That long at all. That was fast. Yeah. Yeah. You were not playing about trying to move quickly. I love that.

Thomasina:
Yeah, I was ready. I just needed someone to push me off the cliff and Yamu, my mentor, she pushed me. So that’s what I

Toni:
Needed. Five months. I love that. Okay. So five months later, now you’re the proud owner of your first rental property. Now walk us through because you’re in New York, the property’s in Cleveland. I’m geographically challenged, but I don’t think those are close enough for you to get too quickly if something were to happen. So how are you managing this remotely from New York City?

Thomasina:
So as a first time landlord, a lot of people recommended that I try my hand at self-managing so that I can know how to manage. And once I employ another property manager, I would know whether or not they’re doing it correctly. So I’m like, okay, I’m going to try to self-manage. I’ve never been to Cleveland before. I’ve never owned a property before, but we’re going to try it because why not? I went in guns blazing, and this is probably the biggest regret of my real estate investing career. It’s not something that I’m proud of, but you guys don’t judge me. I’ve never done it before. I went in guns blazing. I bought the property. It already had a tenant in there. The tenant was paying, and according to my real estate agent, the tenant kept the property in great condition. So they were a great tenant, so to speak, but the rent was severely under market.
And so I’m like, “Okay, I’m going to raise the rent immediately.” No questions asked, not even a conversation. I did maybe a small intro email to the tenant to let them know, “Hey, I’m the new owner.” And then after that I was like, “Hey, I’m raising the rent this much.” Now, I didn’t raise it to market rates. I just raised it a little bit, but it was still substantial enough to impact her expenses. And so immediately she was like, “No, I don’t want to pay the higher rent.” So I was like, “Okay, well, we’re not going to renew you. Bye.” And this whole time I thought I was doing the right thing. So we ended up not renewing with that tenant. And from that, I did not like that experience at all. I lost sleep over that experience. I am a super empathetic person, social worker experience, and I just felt really guilty by the way that I handled that.
And I immediately thought, “Okay, self-managing is not for me.” So I went to researching property management companies in the area, found the one that was rated the highest, so the one that people were using most often, and I employed them immediately. They had already had a tenant that was looking to move in pretty quickly, and they had already had them approved and everything. So once my tenant moved out, this new tenant moved in, they were utilizing Section eight. So this would’ve been my first experience with a tenant utilizing Section eight.

Toni:
Thomasina, I appreciate you walking us through just your own thought process behind that. But I guess my question is, do you think that that experience meant that you were ill-suited to self-manage or something that you were still learning? What was the trigger to make you say, “Hey, let me just stop trying to self-manage all together,” as opposed to, “Hey, this is a lesson that’s going to help me self-manage better moving forward”?

Thomasina:
Great question. I don’t think it signified my lack of ability to self-manage, but it was very emotionally daunting for me. And I’m a Pisces. I don’t know if anybody’s into signs, but I felt that experience was very, very heavy because again, I was not proud of how I did that to that tenant. And because it was so emotionally daunting and I was also dealing with my modeling work and just lifestyle stuff, I was like, “I don’t have the emotional capacity to self-manage at this time.” So it was more so a mental health decision as opposed to a capability decision.

Ashley:
Now, when you were self-managing, were you using any softwares or tools or apps or anything?

Thomasina:
At the time that I was self-managing that first property, I had not even implemented any softwares, any tools. Yeah, because I hadn’t even started the search of finding a new tenant. I just kicked a tenant out and was like, “Okay, nevermind. I don’t want to self-manage anymore.”

Ashley:
Now let’s talk about the cash flow on the property. When you switched to property management, did you originally run your numbers with property management in place or did it really affect your cash flow once you did hire the property manager? And what did they charge? Was it a percentage?

Thomasina:
Great question. So the property management company at that time charged 10% of the monthly rent, and I had run my numbers using property management and without property management. And there was such a large gap that it was a drop in the bucket to pay that property management company. On that property, utilizing the property management company with the property at market rates, I was cash flowing about $900 a month.

Ashley:
Wow, that’s great. And you had put 20% down on the property and you had bought it for 63,000 and your cash flowing 900 or 800? 800,

Thomasina:
800.

Ashley:
So Tony, I know you just did the math in your head. What’s the cash and cash return on that?

Toni:
Well, it’s even better because I think you said after seller credits, you only came to the closing table with like three grand. Isn’t that what you said?

Thomasina:
Exactly.

Ashley:
Yes.

Toni:
Yeah. 800. Yeah. I mean, that’s a crazy good return. So did that cash flow hold up, Thomasina, as you look back and you. Yeah, talk it through because sometimes we model something on paper and then real life comes and shows us what to actually expect. So what actually was the kind of net net and what was that gap between?

Thomasina:
Yeah. So on paper, this was a slam dunk deal. I was rolling in the dough at this point. It’s my first property. I’m super excited. However, that cash flow, most of it I ended up dumping back into the property because the new tenant that the property management company placed did a lot of wear and tear on the property, a lot of expensive wear and tear. So we had to make repairs on that property on two separate occasions. And so yeah, all that cash flow, I would say about 80% of the cash flow had to go back into the property, unfortunately.

Toni:
Do you still own the property today, Thomasina?

Thomasina:
I wish, but no, after two years, I made the hard decision to sell it because I joined a new mentorship program and they talked a lot about rent to own and lease options. And so I realized that I did not want to renew the lease on the tenant who was utilizing Section eight. And so my thought process was, okay, once that tenant moves out, I’ll offer this house with a lease to own, which if you guys are not familiar, it gives a tenant the opportunity to lease the property until they are ready to buy, but the only caveat is that they give you a upfront down payment or deposit on the property, and that would go towards the purchase price. So because I was in that mentorship program and I was learning about that, with lease to own options, the tenant is responsible for all the maintenance and repairs.
So I’m like, okay, if I’m getting market rent and the tenant is also responsible for all of the repairs, then I’m just sitting back and recouping my cash flow. So I posted it on all of the websites, Zillow, all the aggregate websites, and I was getting a lot of interest, a lot of traction. However, people could not come to the table with the deposit that I was looking for. And then I also had a few tire kickers who would just come see the property and then never follow up with me. So after about a month of showing the house, mind you, I had it completely renovated as well, so it was in good condition by this point. So after about a month, I was like, “You know what?” Oh, and I had been to Cleveland. So I had visited the neighborhood in person, and I think the driving factor of choosing to sell was that when I got to Cleveland, I realized it wasn’t a neighborhood that me as a young woman would feel comfortable walking through at night.
I’ll just say that. And so because I was managing this myself and doing all the showings myself, I’m like, “I don’t know if I feel as comfortable investing in this area anymore, so I think I’m just going to sell it.” I didn’t get really any bites from the lease to own advertising. And so again, I went back to Zillow, found the agent. I chose not to use the agent that I had done two other deals or another deal with because I felt like there wasn’t as much investor experience that I needed. And so I found someone on Zillow who was doing a ton of deals in that area, reached out to him, reached out to several people, and I went with the agent who though that they could sell the house at the highest price point. And we ended up doing that. So we sold it for.
I bought it for 63,000. We sold it for 110,000 two years later.

Ashley:
And how much do you think you put into the property over that time with those two renovations?

Thomasina:
About 24,000 maybe.

Ashley:
But you had said that was pretty much your cash flow that was paying for that. So it wasn’t even like you had to bring money to the table for it?

Thomasina:
Correct. Correct. All the cash flow that I had saved up, I just put it back into.

Ashley:
So really not a bad gain over two years.

Thomasina:
Yeah. I was very happy with the gain that I got from selling that property. I just wish I had given myself a little bit more time. I think I could have kept the property, but hindsight is 2020. What

Ashley:
Do you think the property would be worth today if you sold it? Did it appreciate a lot more, you think, or the market kind of has been stagnant in some areas. Do you think it would’ve held steady at that price?

Thomasina:
I think I could have gotten more had I held it. I get the alerts for that property still for some reason, and I think they had it at 145. So yeah, I think I could have lucked out had I kept it a little longer.

Ashley:
But you could have also had a bad tenant that destroyed it and now you got a $50,000 renovation. So like you said, it all depends on the scenario.

Toni:
Thomasina, what did you do with the proceeds? So once you sold, this is your only rental property at the time still, what did you pivot into next?

Thomasina:
That’s a great question. So the proceeds, I bought a duplex before selling that single family home. So the proceeds did not contribute to the duplex at all. I still have the proceeds and I plan on using that towards buying a small business. So that is my next venture. So that’s what the proceeds will be used towards.

Toni:
So talk to us about this duplex. So you go through your initial kind of learning curve on the single family in Cleveland. I guess a few questions. One, why a duplex next instead of a traditional single family? And how did you vet the area for the second deal to make sure you didn’t feel that same emotion that you felt about the first property?

Thomasina:
Yeah, great question. So I was kind of following the strategy of the small but mighty investor. You start with the single family, then you double and then you double from there. And I knew that I wanted to do a house hack situation for this second property. I had never been to Cleveland and I felt like maybe it could be, because I wanted to really scale in Cleveland, I was like, maybe it could be beneficial for me to actually be there and visit. So I signed with a modeling agency that was local and found this duplex. And in terms of the area, I asked more specific questions to my agent to get a better sense of the area, the school system, what’s going on? Is there anything in development? Is there anything up and coming in the area? And we fell upon Shaker Heights, Cleveland Heights area.
So I really ended up loving that area, just all the traction. There are so many universities around that specific area. So a very big young adult and student population.

Toni:
So the property being a duplex and potentially a better part of town, I’m assuming maybe also more expensive. So just walk us quickly through the numbers on the duplex.

Thomasina:
Yes. So I closed on the duplex for 325, which was a big price jump, but I used a different loan product for this duplex. I used an FHA loan, so I came to the table with 3.5% down, which I had in savings. So I was fine with that. And I believe we used seller concessions on this sell as well. So I came to the closing table with maybe like $3,000.

Toni:
Man, 3,000 is the magic number for you. I love that. I just want to go back because you mentioned that maybe house hacking, this was going to be the strategy for you, but given that you, from a lifestyle perspective, didn’t enjoy self-managing the first time, now it being a house hack, what was your plan for the management with the duplex?

Thomasina:
I was going to try self-managing again because again, I wasn’t afraid of my ability to do it. I just needed to emotionally recover from the first experience. So with this duplex, it’s five bedrooms on each side, so 10 bedrooms total. So it is a massive 4,800 square foot, massive jump in property and square footage. So my plan was to self-manage the entire thing. I wanted to rent out a few of the bedrooms on one side and then rent out the entire unit on the other side. So the half that I was occupying, I furnished it within a week. My friend flew into town and helped me furnish it and build things. And that was amazing, very big blessing. My parents flew into town and helped me paint some of the rooms. And so I really am so happy that I have the kind of tribe and community that would support me in that way.
But we got that one side up and running. I listed the bedrooms on places like roomies.com, Facebook Marketplace, Zillow. I would say my biggest return was definitely between Facebook Marketplace and Roomies, but I had those rooms filled probably within the first three weeks of having it furnished. So there was never a time where I paid the full mortgage on my own since closing on the property, which I thought was a really big deal. I was very proud of that. Now, the other half of the duplex, I was still attempting to self-manage and it took me. Mind you, I closed in September, so we were creeping into the winter months of Cleveland, which is very, very harsh and people don’t really like to move in the winter. And so it took me about three months of trying to, or maybe two months of trying to fill the other side before I threw in the towel and I said, “Okay, I’m going to implement a property management company to just manage the one half of the duplex.” So I hired a property management company, fired them a week later, and then hired a new property management company.
And you may ask why did I fire that property management company? I fired them because the communication was terrible.
So once they listed my property for rent, they were charging exorbitant amount of fees to tenants and applicants. And I just thought that that was outrageous and unnecessary and it was going to deter people from wanting to stay at my property because nobody wants to pay all of those unnecessary fees. And so I realized that I also saw how they were marketing my property, didn’t really like it. And when I tried to get them on the phone to kind of walk through these things, it was very hard to communicate with someone. So I ended that contract after a week and then found my dream property management company who I’m still using to this day. I recommend them to everyone who is in Cleveland. They have been amazing and they’ve been amazing because their communication is top tier. Their turnaround time for repairs and such once it’s been submitted, top tier, very transparent, very honest.
And one thing that I appreciated is that as an owner, if something on the home needed to be repaired, they gave me the option to have it repaired myself to outsource it or have them do it. And they didn’t charge me any additional fee if I chose to outsource it, which I thought I really appreciated because a lot of property management companies will charge you extra if you choose to outsource that. So it took this new property management company maybe three weeks before they found the tenant and that tenant has been there for two years. They’ve been great. The property management company has been great. The other side that is rented by the room has also been operating great. And knock on wood, the property is still standing and cash flowing and doing a really good job.

Ashley:
It’s that saying is to fire fast and hire slow. And I think that’s exactly what you did there is you fired them fast. I feel like you were actually very fortunate that you had the ability to make that decision that quickly or else it could have dragged out even longer. And unfortunately, I was one of those people that didn’t make the decision that quick. I waited three long years with the property management before I actually cut ties with them. And there was just so much money lost, so many mistakes made along the way. So that’s amazing that you were able to take charge and that relationship and find someone else who has been amazing for you. Now, last question here before we wrap up is what do you cash flow on this property today?

Thomasina:
So I cash flow about $800 a month on the duplex.

Toni:
And just quickly talk to me about the economics on the room rental side. So you’ve got now five bedrooms. Are you still househiking or have you since moved out?

Thomasina:
Oh yeah, I moved out after the first year.

Toni:
Got it. Okay. So you’ve got all five bedrooms rented. How does that management workload or just that strategy compare to the traditional long-term rental on the other side and which one do you like more moving forward?

Thomasina:
So I don’t rent out all five bedrooms. I don’t want to get any kind of legal trouble, but the way that the duplex is split, the top floor has two bedrooms and a private bath. So I rent that out as a whole. So I get a little bit more money on that. But in terms of the economics, just for numbers, for the rent by the room side, I get 2,905 total. And then for the other side, I get 2,100. So there’s a big difference in how much you can get when you rent by the room versus just the standard rental. So that was something that really stood out to me. And I’ll just say through renting by the room, I still self-manage that side. I really found my niche and I found what kind of fueled me in the real estate industry. And now I know that I want to take the rent by the room strategy and run with it.
I will tell you guys that I’ve had some turnover in the rent by the room, but I’ve had young adults who come in, they’re able to save money on housing and then they go buy a car. Are they able to save money on housing and then they go buy their own house. And so I’ve been able to see my tenants go through those experiences and it makes me so proud as an owner and as a landlord, but also as a young adult myself, especially living in New York City, one of the most expensive cities in the states. And so I’m really passionate about renting by the room and just affordable housing in general. And I’m glad that I worked up the courage to attempt to self-manage again because it has been very fruitful.

Ashley:
Well, Thomasina, thank you so much for joining us today on the Real Estate Rookie podcast. Where can people reach out to you and find out more information about your journey?

Thomasina:
Thank you for having me. People can connect with me on Instagram and YouTube at Tomasinamyresa, and you can also connect with me on the BiggerPockets forums at ThomasinaPierce. I’m very responsive. Feel free to send me a message if you have any questions. Happy to help.

Ashley:
Well, thank you so much for taking the time to share your story, your lessons learned, and also congratulations on your success so far as an investor. It’s rookie stories like yours that help all of our rookie listeners get started or get their next deal. If you’re not already subscribed, make sure you check out our YouTube channel at RealEstateRookie, and you can follow us on Instagram at