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How the Rise of “Accidental Landlords” Has Transformed the Housing Market

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While many people dream of having enough money to start a real estate investing career, scores of existing homeowners have become investors by default.

Dubbed “accidental landlords,” these homeowners have wound up collecting rents after refusing to lower the sales price on their primary residence, preferring to convert it to a rental property until interest rates drop and they can sell the home for what they feel it’s worth.

Such has been the extent of the trend that these newbie landlords with full-time jobs are influencing the rental market, forcing institutional landlords to rethink their plans and creating fewer opportunities for homeowners.

Accidental Landlords: How They’re Changing Rental Supply

According to a recent Parcl Labs report, stubbornly high mortgage rates, increased inventory, and waning buyer demand have forced many homeowners to delist their homes and instead try their hand at landlording.

In Sunbelt markets such as Atlanta, Dallas, Phoenix, Houston, Tampa, and Charlotte, this has put them in direct competition with large institutional single-family rental (SFR) owners. Rental inventory has swelled by around 20% year over year, with much of it coming from formerly owner-occupied properties.

“When these home sellers cannot find buyers, they face three choices: delist and wait, cut [the] price to find market-clearing level, or convert to rental,” Jesus Leal Trujillo, principal data scientist at Parcl Labs, wrote in his report. 

Parcl Labs analyzed the impact. In the six Sunbelt markets where large-scale institutional landlords, such as Invitation Homes, American Homes 4 Rent, and Progress Residential, hold over one-third of their collective assets, the number of accidental landlords has risen dramatically, with Houston experiencing a 41% increase and Dallas a 32% increase in former sellers turned landlords.

Rent Growth Has Slowed

The deluge of new homes on the market has threatened to slow annual rent growth.

Haendel St. Juste, a senior equity research analyst at Mizuho Securities, told CNBC:

“You’re not going to see big reductions in rent, but maybe you won’t be able to get 4% or 5% increases on your rent. Maybe it’s just 1% to 2% in some cases. But the professional big guys, INVH, AMH, have been getting 4% to 5% renewal rates and 75% retention in their portfolio. So keeping people in the homes at 4% to 5% rent is a key part of their business model.”

The result of added inventory has complicated forecasts for rent growth and landlord profitability, scaring big investors away from the single-family market and instead to more predictable build-to-rent communities, CNBC reports. The lack of accidental landlords and entirely purpose-built rental communities enables corporate investors to control their environment, offering luxury finishes, schools, stores, and more.   

The Broader Context: Why Institutional Investors Got Into Single-Family Homes

After the housing collapse of 2008, institutional investors, including private equity and REITs, rapidly grew their portfolio of single-family homes due to low prices. At its peak, Invitation Homes held about 80,000 homes at the end of 2020.

However, the escalating fees associated with institutional owners have squeezed tenants financially, resulting in the FTC filing a complaint against Invitation Homes, accusing them of providing renters with misleading information about the cost of their leases, adding hidden fees, failing to conduct pre-move-in inspections, and improperly withholding security deposits once tenants had vacated.

These types of practices, as well as the algorithmic rent-fixing practices allegedly conducted by corporate landlords using rental software company RealPage, have resulted in a negative image of large-scale landlords compared to smaller-scale mom-and-pop investors, including accidental landlords.

How to Smoothly Transition to Landlording if You Decide to Rent Out Your Home

If you are considering joining the ranks of accidental landlords by renting out your residence for the first time, either as a long-term or short-term rental, there are some essential steps to follow.

1. Get your property ready: A personal home is not a rental residence

First, invest in any essential repairs and modest cosmetic updates, such as fresh paint and curb appeal tweaks, and ensure safety systems like smoke alarms are up to code. Give your home a tenant-proof skin by replacing older carpet with harder-wearing vinyl plank flooring.

If you are converting your home into a short-term or mid-term rental, you will need to make additional adjustments, such as installing encased smart thermostats, exterior cameras, and keypad entry systems.

2. Use landlord insurance and adjust financing

Convert your homeowner’s insurance to landlord coverage and explore recasting your mortgage if feasible, so your cash flow can help cover costs.

3. Leverage technology

Rental management software can help simplify tenant screening, payments, and maintenance. 

4. Decide whether to self-manage or outsource

Property management isn’t for everyone, especially if you have a demanding day job/life or travel a lot. While numerous property management companies are available, they are not all created equal. Conduct thorough research and request testimonials. There’s nothing worse than having to manage the manager and giving up a percentage of the rent for the privilege.

5. Understand the legal and tax implications

Talk to your accountant before you list your property for rent to understand the tax implications of owning a rental and how best to take advantage of the deductions. Opening a separate bank account, keeping personal and business expenses separate, and having a clear understanding of local landlord-tenant laws in your area are essential.

6.  Research local rent amounts, and budget wisely

Go online or canvas a real estate agent about rental prices in your area. Price your property competitively and factor in vacancies and additional expenses, especially if you are running a short-term rental business (such as cleanings, laundry, toiletries, teas, coffee, and toilet paper restocking). Invest in a professional photographer to help your rental stand out.

7. Stay on top of your obligations: Don’t set it & forget it

Passive income is rarely passive. Even if you hire a property manager, you can’t take your eye off the ball and expect everything to be OK. Your rental is ultimately your responsibility. 

Be prepared for the unexpected and set aside some cash to cover unforeseen expenses. If you are cash flowing, try not to touch the money—chances are, you’ll need it.

Final Thoughts

Blessings often come in disguise, and not being able to sell your primary residence for the price you want could set you on the path to real estate investing. It’s not an easy journey, but if you don’t try to take out equity, stay liquid, and implement these steps, there’s no reason why it can’t be the start of a wonderful side hustle—and maybe more.

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Why the Smarter Short-Term Rental Investor Will Outperform Everyone Else

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This article is presented by Host Financial.

Let me paint a picture.

It’s March 2022. Your cousin buys a cookie-cutter cabin in Gatlinburg, Tennessee, with a 10% down payment. He sets his nightly rate by copying the neighbor’s listing, gets a dozen bookings by accident, and still manages to cash flow $1,500 per month. 

Your aunt sees this and buys one in Arizona. You finally cave and snag a spot in Broken Bow that somehow books out before you even buy a couch. Life was good.

Fast-forward to 2025 and suddenly the game feels…different.

You lower your prices, offer a welcome basket with tiny soaps and a bottle of off-brand rosé, and even add a swing for “Instagram appeal.”

And still. Crickets.

Meanwhile, that same cousin just bought a luxury A-frame in Lake Arrowhead. He locked it down off-market, closed in 15 days, and is now clearing $4,200 a month.

What happened? 

You played by 2022 rules. He evolved.

The Short-Term Rental Investor of 2025 Looks Different

Let’s be honest: The STR gold rush attracted everyone from real estate pros to folks who had never heard of a cap rate, but liked the idea of making money while they slept. Now the tide’s gone out, and we’re seeing who was wearing board shorts and who was skinny-dipping in negative cash flow.

Today’s top investors are:

  • Buying in high-demand leisure markets, not just cheap ones
  • Using nontraditional lending tools to close faster than conventional buyers
  • Prioritizing cash flow and operational efficiency over aesthetic throw pillows

Take Jamie from Denver. She bought a breathtaking home near Zion National Park in early 2024. Everyone said she was nuts for paying $325,000 for 450 square feet of glass and anxiety. But guess what?

  • Her occupancy averages 81%.
  • Her average nightly rate is $398.
  • She nets just under $4,000 a month.
  • And she used a loan from Host Financial that closed in 12 days and didn’t require a W-2.

Jamie didn’t win because she’s a design genius or influencer. She won because she knew what to buy and how to buy it.

The Market Is Still Hot, But the Rules Changed

You’ve probably seen the headlines: “Airbnbs Are Dead.” “Oversupply Crisis.” “Short-Term Rentalpocalypse.” Sure, in some markets, there’s oversupply. But the top leisure destinations? Still growing and still booking. 

The difference is that the investors dominating in 2025 are playing a smarter game:

  • They’re underwriting deals to more realistic revenue numbers.
  • They’re using dynamic pricing to capture last-minute bookings and high-season surges.
  • They’re pulling off creative financing that lets them move before the deal hits the MLS.

And that’s where most people are getting stuck.

Financing Is the Secret Weapon

Traditional lenders are still asking, “Do you live there?” and “Can we see two years of tax returns?” Meanwhile, Host Financial is saying, “Does it cash flow?” and “Can you close in two weeks?”

That’s a different universe.

You may be interested in purchasing a six-bedroom cabin in the Smokies for $790,000, with a 15% down payment. Traditional lenders typically offer conventional loans that require a substantial amount of documentation and a 60-day closing period.

Host Financial offers:

  • A 30-year & 40-year fixed
  • Interest only options
  • DSCR loan based on Airbnb income
  • No income verification (No W2s)
  • No Tax Returns
  • No DTI calculation
  • Competitive fixed and adjustable rates, locked early in the process.
  • LLC and entity-friendly structure
  • Lending in 48 States
  • 21-day close

You can then beat out a full-price offer from a traditional buyer who simply couldn’t close fast enough or get the numbers right. That speed translated into $10,000 of instant equity and a calendar booked out for the summer before they even uploaded professional photos.

Why You Need to Pivot Now

Look, this isn’t about fear. It’s about facts:

  • Inventory in top STR markets is tightening again.
  • Rates may drop, but that just means more competition.
  • Markets with clear STR ordinances and permitting processes are attracting smart capital and staying resilient.
  • And cash-flowing assets are still trading hands, just not to people dragging their feet.

If you’re still using old spreadsheets and hoping the bank “gets it,” you’re going to miss out on this next wave.

The new wave of investors are:

  • Getting preapproved with STR-focused lenders like Host Financial
  • Shopping off-market deals with real speed
  • Using creative lending tools to add units, buy more, and stay nimble
  • And most importantly, winning when others are retreating

So, What’s Your Move?

You can sit around waiting for a 5% interest rate and a 2020 price tag to reappear magically. Or you can pivot now.

Get preapproved with a lender who understands short-term rentals. Look at markets that are still growing. And make sure you’re playing the same game as the investors who will own the next decade of STR.

Because the STR investor of 2025 isn’t more intelligent than you. They’re just faster, more flexible, and financed by someone who understands the value.

If you’re serious about playing to win, make sure you have Host Financial in your corner. Because opportunity still knocks—just a lot faster than it used to. Get prequalified with Host Financial and see what financing options fit your next STR deal.



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Major Forecasters Revise Price Predictions

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Why are home prices finally falling? And how deep will the correction go? The number of large housing markets experiencing falling home prices has tripled since January 2025. ResiClub editor-in-chief Lance Lambert joins On The Market host Dave Meyer to break down why this widespread softening is happening now, how price dynamics are pushing more buyers toward new construction, and whether we’ve reached the bottom of the softening cycle. Lance also shares data on underwater mortgages and delinquency rates to forecast whether signs point toward a cyclical correction or a catastrophic crash.

Dave:
The number of large housing markets with falling home prices has tripled just since January, and the data says even more markets will follow in the coming months. Zillow has revised their nationwide home price projection down for the rest of 2025. This trend, of course, has huge ramifications for real estate investors and industry professionals. Today we’re going to dive into what’s happening in the housing market and how you can use these trends to your advantage in your own investing. Welcome back to On The Market. I’m Dave Meyer. Lance Lambert is back today on the show. He’s the co-founder and editor in chief of Resi Club. Lance is going to help us break down the expanding trend of softening home prices. We’ll dig into some intriguing data about single family home permits and his analysis of how far mortgage rates would need to fall to create the refinancing. Boom, I think everyone’s waiting for. Let’s dive in. Lance, welcome back to On the Market. Thanks for being here.

Lance:
Good to see you again. Housing, housing, housing. There is always so much going on in the US housing market, especially right now.

Dave:
I love it. Well, that gave me the intro I was going to do, but you already covered it for us. So for everyone who doesn’t know, Lance runs a website and newsletter called Resi Club, always looking at real estate data. So Lance, let’s just start with sort of the big headline that I think a lot of people are wondering about, which is home prices. We’re now seeing a lot of major forecasters downgrade their forecast for the year. What’s behind all of that and can you give us some details into how bad or good, depending on how you see it, things might get?

Lance:
Yeah, so I think the big thing here is that there’s been a widespread softening occurring in the housing market for a bit. And when you look at the nationally aggregated data right now, all of the major indices are seeing a deceleration in their rate of appreciation. So if you look in the data, you’re seeing this softening occur and it makes a lot of sense. The housing market has been coming out of the pandemic housing boom for a while in terms of rebuilding up active inventory, which during the pandemic housing boom, there was this huge influx of demand. The Federal reserve estimates that home construction would’ve needed to increase 300% to absorb all of that housing demand that came into the market during the pandemic housing boom. And the housing market wasn’t able to absorb all that demand housing starts did not increase 300%, which by the way isn’t even possible.
There are supply constraints, labor constraints just can’t happen. And so what occurred is that home prices overheated and they overheated in a historical fashion. And between March, 2020 to June, 2022, national home prices were up around 45% and some of the markets like Austin were up 70%. So it was just a really big runup at once. And then when the mortgage rate shock occurred, that affordability reality of home prices running up that much really set in. And so that’s kind of where we have been. And for a while some of these pockets of the country kind of stomached it, but as active inventory has built back up and those supply demand equilibriums have shifted, more of these markets have started to finally shift from sellers to balance, to balance to buyers. And even some of the pockets of Florida have felt like, especially in the condo market, strong buyers markets. So the housing market has been shifting as the market kind of recalibrates from prices just going up too quickly, too fast.

Dave:
Great summary, Lance. Thank you. There’s a lot to unpack there, but just back to the the headline about prices, why now we’ve been in this tightening cycle with higher interest rates for three years, people have been saying crash, people have saying it’s unsustainable. Why in 2025 are we starting to see this sort of across the board deceleration and appreciation rates?

Lance:
So if you want to think about it through an economic lens, you could even create a supply demand equilibrium chart. And on one axis you would have demand being sales and the sales side of it. You’re absolutely right. It really took a huge hit and a huge pullback in 2022 when we went into this mortgage rate an affordability environment. And so sales have been down there, but the other axis, and if you want to think about this as supply for inventory, active inventory that was still fairly tight when the affordability shock occurred. But now as that supply, that active inventory is slowly drifting up, that supply demand equilibrium is pulling more into a place that favors buyers. And so that’s occurred here is it’s just taken a long time for the market to kind get to the softened period. Now, I don’t want to act like things have been sunshine and rainbows the past three years. They have not. It’s been a very constrained housing market, very unhealthy housing market. But I’m just saying that we’ve worked into this place now where buyers are gaining more leverage and more of the markets are seeing falling home prices.

Dave:
Well thank you Lance. That’s a great national overview and I do want to dig more into some of these regional trends. Obviously we’re seeing this sort of split of the market, everything’s started slowing down, but performance is really dramatically different depending on where you are in the country. So let’s dig into those regional differences right after this break. Welcome back to On the Market. I’m here with resi clubs Lance Lambert talking about national home prices, mortgage rate trends. And before the break, Lance gave us a great summary of the national environment. Are there any other regional differences that you think we should know about and what is going into those sort of the dramatic differences between different regions and honestly even within different cities within the same state,

Lance:
We have been seeing for a while now a deceleration of softening buyers, gaining leverage. In a lot of the markets in the Sunbelt that have a lot of home building, a lot of new construction, those markets also tend to be migration destinations. And so during the pandemic housing boom, a lot of ’em like Tampa, Jacksonville, Austin, they sell prices run up even more. And so what that does is it creates a greater likelihood of a bigger demand shock once the affordability environment shifts. And so what Tampa and Austin saw is that once mortgage rates shot up, more of their demand was pulled back because so many of the local incomes couldn’t afford where prices got to.
And then the other thing is they had a greater vulnerability to a bigger demand shock because they saw so much net domestic migration coming in. A lot of Americans were moving to Tampa, Austin in 2021. And so while people are still moving to Florida, Texas, Arizona, the levels are not as high as they were during the pandemic housing boom. And so in Florida there was around 300,000 Americans on a net basis that moved in between summer July, 2021 and July, 2022. In the most recent 12 month period for July 23 to July 24, it was only 60,000 Americans on a net basis that moved in Florida.

Dave:
So still a lot,

Lance:
Still a lot moving in, but because you have fewer of those deeper pocketed buyers moving in, it creates the bigger demand shock because then you have to rely more on local incomes to support where prices got. And oh, by the way, I just mentioned prices in those markets ran up even more during the pandemic housing boom. And another factor here is that those markets have a lot more supply, a lot more new construction coming into the market. And that’s always the case. Those are the markets that are the epicenter a building in America, right? Dallas, Houston, those are the single family epicenters of home construction
And markets like Atlanta of course, and Charlotte and Austin. And so it’s not necessarily because so much supply was coming into the market and it’s more so that those markets have new construction, more of it. And so when the affordability environment shifts, builders are more likely to be aggressive on affordability adjustments to keep volume going, to keep sales going. Like Pulte group right now, they’re spending around 8.7% sales incentives per sale. And so in normal times they usually do three to three and a half percent. And last year at this time it was 6%, now it’s up to 8.7%. So on a $600,000 sale, which is their typical sales price, they are doing about $52,000 in sales incentives right now. And so what that does is it pulls some of the buyers who would’ve otherwise went to the resale and existing home market. And some of them are like, you know what?
These existing home sellers, they’re not really accepting reality of where we’ve gotten to, right? They’re stubborn, they’re fighting to keep every dollar their equity they have, and the buyer looks over at the new construction and they’re like, you know what? I wasn’t really considering new construction, but this payment that I would get through new construction is better for me than if I went to the existing home market. And so it pulls some of the buyers who would’ve naturally went to the existing resale market to new construction. And so the existing and resale has a harder time selling. And so that active inventory begins to build. So it’s not necessarily just this huge pipeline of supply coming in and the Sunbelt, it’s that they’re doing these affordability adjustments to continue to move product. And so that pulls some of the buyer who would’ve otherwise went to resale.

Dave:
This is a really unique dynamic right now where new construction is cheaper than existing homes in a lot of markets. And on top of that, you’re also getting incentives. Normally for our audience, people who are investing in real estate and rental properties, for as long as I’ve been doing it until last couple of years, you never consider buying new construction. But now it is really attractive. You could buy something that is under warranty, is going to have all the modern amenities, it’s not going to have the same level of maintenance and repairs as everything else, and it’s cheaper. It is a really compelling thing. So I think if investors are starting to think of it like me, I can see why normal home buyers are moving from the existing home sale market to the new construction market. And honestly, I hadn’t really thought about how that is playing out in the inventory element. That’s a really interesting perspective there.

Lance:
And at the end of their quarters, especially the Q fours, some of these builders have done some really big aggressive incentives and pricing cuts and a little bit of smoke and mirrors where the price cuts are actually bigger than people might realize. Looking at the sales price, and I’ve talked to a few investors who’ve been getting some of these bigger juicier deals late in the quarters from some of the builders. So if you flip it, a lot of these northeast and Midwest markets, they didn’t have the migration coming in. And so when net domestic migration decelerate, they weren’t affected. They didn’t see that affordability shock, and if anything, they were able to keep some of their residents who would’ve otherwise left.
And so when you think about something like the lock-in effect, which is people not wanting or not being able to afford giving up their lower monthly payment and rate for a higher monthly payment and rate the lock-in effect essentially takes away a buyer and a seller because they’re not selling their house and they’re not going out to buy that next property. But where that happens could be two different places. And so if somebody in Connecticut, New Jersey, Illinois, Indiana isn’t selling their house to go buy something in Florida to go buy something in Alabama and Texas, what that does is it takes away one home that would’ve been listed for sale in the Northeast and Midwest, but it takes away the buyer in the south. And so the lock-in effect is creating shocks to supply and demand, but the two places can be different. And that can even happen within markets where this neighborhood is not losing their sellers, but then this one’s not gaining that buyer. Right?

Speaker 3:
Yeah.

Lance:
Now one of the interesting things we’ve seen is that out west we have seen a greater softening over the past 12 months. And if you asked me where in the country has seen the fastest level of softening, it’s actually not the Sunbelt right now in terms of the southeast, southwest, those growth markets, those markets have been seeing a softening for a while it’s been occurring, but in terms of the fastest softening it’s been these western markets, and I’m not a hundred percent sure on all of the dynamics at play, some of it could be just that those markets have more strained affordability already. Some of it could be some of the softening that’s occurred in the tech job market. It could be some of that. I’m not a hundred percent sure on all of the dynamics that are at play out west, but I can tell you that they’ve seen a faster softening of late.

Dave:
Where does it go from here? Obviously everyone wants to know and you don’t have a crystal ball, but how do you see this playing out at least in the next year or so?

Lance:
So right now it looks like the direction is still pointing towards softening. If you look at the active inventory growth, if you look at what’s happened in these different markets across the country, the early leading data still suggest more softening to come. And I expect that to feed over more into the pricing data. But the question is are we at some point going to tighten up? And I think the answer is yes. I don’t think the speed of the softening is going to continue forever, but the answer that is really hard to nail down is how long of a period are we going to be in like this?
You could ask 50 different housing economists, 50 different housing analysts, and you’re going to get a lot of different answers on that one. But I think what is true is that the affordability environment we’ve been in, given that prices went up too fast too quickly, needs a bit of a healing here. We need the fundamentals to heal a bit. And so whether that’s rates coming down a bit, prices coming down a bit, incomes continuing to rise. And if you look at the data, we’ve had 30, 36 months of incomes outpacing national rent growth and home price growth. So there has been some healing occurring, but it’s a question of how much do we need to see? And so the things that I’m watching very closely continue to be months of supply, continue to be active inventory in these markets. And right now it’s pointing to still some level of softening. Now, I think people will point out that some of the markets, like in Florida, some of these markets that have seen prices fall, they are seeing active inventory begin to also fall now after the runup that we saw recently. But like I said before, that doesn’t necessarily mean that all of the softening is over. And you can use Austin, Texas as an example there. Austin, Texas has seen a seasonal rollover every year and it’s been in correction for three years. So watch active inventory, but also be careful not to misread it.

Dave:
I want to talk about new listings. I think that is also another really key indicator that we need to keep an eye out for. But we do have to take one more quick break. We’ll be right back. Welcome back to On the Market. I’m here with Lance Lambert. We’re talking about the direction of home prices and what’s just going on in the housing market nationally. Lance was talking before the break about active inventory and how we might know when a bottom is in One thing I’ve been watching, Lance, I’m curious your opinion on is new listings because I think you hear a lot of people who are pointing to a crash or saying that this is going to get really ugly and they point to new listings, which for everyone listening, there’s a difference between new listings and active inventory. New listings is the measure of how many people just put their home up for sale on the market.
Active inventory is how many homes are for sale at a given point in time. And that might sound similar, but it’s a pretty key distinction here because new listings is just a pure measure of supply. It’s just how much stuff is going on the market where active inventory is a measure of the balance between supply and demand, because active inventory can go down even if a lot of people are listing their homes because there’s buyers equal to that new supply and it goes off the market. One thing people point to is like, oh, new listings have been going up and they’ve been going up and up and up and up. But one thing I’ve noticed is that in the markets where you’re seeing the biggest corrections right now, new listings are starting to slow down. They’re not down from where they were last year, but that new listing pace is decelerating.
And to me that shows that this is kind of like a normal market cycle. Isn’t that what is supposed to happen when the conditions change and it becomes an adverse market for people to sell? You would expect to see new listings. And the reason I’m asking this is because to me that signals, yeah, I agree. I think we’re going to have a correction. I think a lot of markets are going to turn negative and it could last a while, but to me, this is a sign that gives me a little bit of confidence among other things that a full-blown crash is unlikely. And I’m just curious your opinion on that take.

Lance:
So I think my thoughts, there are obviously, and this is the part, this is my biggest disagreement with the really big bears for housing, is that there isn’t 2007 levels of distress in this housing market. No matter how you cut it, if you look at the single family delinquency rates, you look at the distress, it’s just not what it was then it’s not correct. And actually single family delinquencies just came in this week. They actually fell a little bit. And so they’re still fairly low. And so what we’ve seen in this market is that the affordability is very strained and it is putting downward pressure on the market, but there isn’t distress there where sellers are having to exit their house. They’re a forced seller. Yes, you’re going to see some of that, and that’s always natural in the market, but you’re not seeing the big wave of distress. And that’s not me underplaying the softness. We are absolutely seeing a softening in the market. Affordability is very strained, but the underlying reason here isn’t because we gave a bunch of bad loans to people who could barely afford it.
It’s that we saw so much demand occur at one time during the pandemic housing boom that we saw prices just go up faster than they should have. Now in some of these markets where prices have fallen, some, we are seeing a rise in the number of people that are underwater nationally, 1% of homeowners right now are underwater compared to 23% in September, 2009, still fairly low. But in some of these markets like Cape Coral, it’s now up to 7%. Austin’s up to 4%. And if you subset it by vintages, Austin’s 2022 vintage, when its prices peaked is 18% or underwater, and then Cape Coral and some of these Florida markets, some of their 2324 vintages are up to like 20%, 23%, 24% underwater. But if you look at the 2021 vintages, it’s very few underwater

Dave:
If it’s fine, right?

Lance:
And we have a few different factors there. One of them is that most people have some level of down payment when they buy a house. And so it gives them a bigger buffer because being underwater means that your home’s value is less than the mortgage you have outstanding. It doesn’t mean that the home’s worth less than what you bought it for, it’s that you’re actually under the mortgage. And so most people have some level of equity buffer because of their down payment. And so usually to get a bigger percentage underwater, you need more material corrections than we’ve seen so far. And one of the other reasons that a higher percentage of people aren’t underwater at the moment is that a lot of the markets that have seen bigger corrections like Austin, Texas, down 23% according to the Zillow home value index from peak down 19% from peak, according to ICE’s home price index for Austin, is that Austin was soaring up. It went up 70% for home prices during the pandemic housing boom. And at one point it was up 40% year over year, and it literally just penciled up to the top and then quickly blew off 10%
In 2022. So there was a much smaller cohort that actually bought at the top. Oh, interesting. Whereas one of the problems for GFC is we went up and smacked into that top around 2005 and we sat there for a while and we had all these loan products that got more people to purchase and kind of juiced existing home sales beyond what they would’ve. And so those vintages were massive.

Dave:
That makes a lot of sense.

Lance:
And so far the vintages of the markets that have rolled over haven’t been that big. And that’s why even though Austin’s down 23% for home prices, only 4% of mortgages in Austin or underwater.

Dave:
One last thing I just wanted to add to people. I think people hear the word underwater and get scared, and it is a really unfortunate situation, not a situation you want, but for a crash to happen. We talk about this a lot, you need this element of forced selling and your house being underwater is not necessarily forced selling. What has to happen for forced selling is for people to stop paying their mortgage rates. That’s when things really start to get bad. And as Lance noted, the delinquency rate, which is what we track to really try and forecast if there’s going to be for selling that delinquency rate, Lance just said went down last month. It’s still up from its bottom, but it is a fraction. Literally, I think it’s about 10% of what it was during the great financial crisis. And so just want to keep that all in perspective. Even though the rise in underwater mortgages is concerning and something we should all keep an eye on, it is different from forced selling and delinquency rates.

Lance:
And that’s what I was kind of getting to is that just kind of like being honest. If I had to peel back the onion, are we seeing any types of signals that we could get some distressed sellers? And at the moment, delinquency rates are fairly low, the levels underwater are fairly low. You do start to get some of these submarkets where the numbers underwater are kind of rising, but even in those markets, you’re still not at this point seeing many distressed sales and foreclosures.

Dave:
Well, Lance, this has been fascinating. Thank you. I learned a ton from this conversation. We appreciate you being here.

Lance:
Thank you for having me. Housing, housing, housing. Happy to chat anytime and if people want to follow my work, they can go to resi club analytics.com, subscribe to the newsletter. I’m also on Twitter all the time at News Lambert, and I’ve been spending more time on LinkedIn as well.

Dave:
You should check it out. I discovered Lance from Twitter. I’m a subscriber to Resi Club. Very good information. Check it out. Thanks again, Lance. And thank you all so much for listening to this episode on the market. We’ll see you next time.

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Making $30,000/Month (Per Property) with Assisted Living Rentals

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This investor generates $30,000 per month in rental income from a single property. It’s not a short-term rental, or a beachside Airbnb, or anything even close to that. Within a couple of years of starting to scale, James Davis has a rental portfolio on track to gross $1,000,000 per year in rents, from just six properties. The best part? He’s not even doing it for the money. His investments are making lives better while securing him financial freedom.

You may have heard of assisted living before, but probably not like this. While many assisted living facilities focus on older adults, James owns small assisted living properties that cater to individuals with disabilities. After taking on two traditional real estate deals, James’s brother, who worked in disability services, thought they could be treating residents better. So, they converted one of James’s properties into a compliant assisted living facility. They got their first monthly tenant—the rent: $15,000 per month for one bedroom.

Sounds steep, right? James walks through the entire expenses and profit margins to prove that the caregiving business may be worthwhile, even just for the emotional benefits. Now, he has six properties and has already pulled in $500,000 just halfway through the year. Follow the same steps James shares in this episode, and your portfolio could grow just as fast.

Dave Meyer:
This investor makes $30,000 per property per month with assisted living rentals. Is there really no cashflow available for real estate investors these days, or do you just need to get more creative instead of making excuses during a challenging market? Today’s guest found a formula that tripled his monthly revenue, and now he’s repeating it over and over to grow his portfolio and advance towards financial freedom. Hey everyone, it’s Dave head of Real Estate investing at BiggerPockets, and I’ve been buying rental properties for more than 15 years. Today I am joined on the show by an investor, James Davis from Salt Lake City, Utah. And James started his investing career with just $15,000 in savings and was willing to do anything including living without a toilet for three months just to make his first deal work. Now, just six years later, he owns six properties and is on pace to gross more than $1 million in revenue.
This year. James has done this by adopting the increasingly popular assisted living real estate strategy. Basically, what he does is provide a needed service to people in his community, and by doing that, he can generate up to $15,000 in revenue from just a single bedroom in a house that would normally rent for just 2000 bucks. This approach is definitely an active strategy, and so it’s not going to be for everyone, but if you’re willing to hustle as much as James has, you can radically transform your financial situation in just a couple of years. Keep listening and hear how he’s doing it. James, welcome to the BiggerPockets podcast. Thanks for being here.

James Davis:
Thanks for having me.

Dave Meyer:
So how long have you been investing or involved in real estate, James?

James Davis:
I got my first property, it was September of 2019, so it’d be almost six years ago.

Dave Meyer:
Nice. Okay, and can I ask why? What brought you into the world of real estate?

James Davis:
So I’ve always loved watching you guys. I really liked Graham Steffen and meet Kevin online. Sure,

Dave Meyer:
Yeah.

James Davis:
Growing up in high school, I watched those channels, so I think I always wanted to be invested in real estate. It was just a question of when and when I was 18 and I actually moved out of my parents’ place and I was a live-in aide at a nursing home. So what it looked like is I didn’t have to pay any rent.
I got to live there. I take care of this guy. He was a Vietnam War veteran and I took care of him. He paid for my food and housing and I didn’t have to pay anything, which was really nice. So it was a really good setup and my uncle reached out to me, he was a real estate agent, and he was like, Hey, I have this property that I think you should invest it. And in my mind I was like, oh, I don’t pay any rent. I could live here for a while. I’ll just save more money. I don’t need to buy a property right now. And that was July of 2019. So he was suggesting like, Hey, just use your savings. You’ll have a down payment. It was like a house hack situation where I’d live in the basement and I had a separate entrance, and then I’d rent out the upstairs, but it would be like $15,000, which was everything I had. So I decided, okay, yeah, I want to take this on. That was July, August of 2019, and it was actually a seller finance.

James Davis:
Oh, cool.

James Davis:
And this is my uncle setting it all up. I had no idea any of real estate contracts or anything, how that worked, and I had just graduated high school.

Dave Meyer:
It sounds like you walked into an interesting opportunity with your uncle. So he came up with this house hack. I’m curious, a great way to get started, especially in 2019. I’m sure it worked out well, but did you look at other deals or were you kind of just trusting your uncle? Like this one that he’s proposing to me, it’s seller financing. This is a good deal.

James Davis:
Yeah, I didn’t look at anything else. I had complete trusted him, and looking back, I’m like, wow. I was lucky, and I’m fortunate that I had someone in my life that cared about me and didn’t take advantage of me. He totally could have.

Dave Meyer:
Sure.

James Davis:
Yeah.

Dave Meyer:
But so was it in a neighborhood you liked? Did you know where it was or you just kind of moving into a house blindly based on your uncle’s recommendation?

James Davis:
When I went to the neighborhood, of course it wasn’t the most expensive side of town, but it wasn’t terrible either. We call it West Valley over here.

Dave Meyer:
Okay, cool. And so you find this house hack, you got to put 15 grand in, that’s all of your life savings at this point. Oh, yeah. But you’re moving from what was your job, right? Because living with this veteran you were living with was kind of how you were getting income. So did you have a new plan for how you were going to make your mortgage payments or were you living for free

James Davis:
At the time? I was making 16 bucks an hour at a call center.

Dave Meyer:
Oh, wow. And then you were doing DIY renovations to it at the same time?

James Davis:
Oh, yeah. And this is at the time where I had no idea what I was doing either. And what I had done is I lived in the basement, it had that separate entrance. There was no kitchen, not even a bathroom down there. And then I rented the upstairs right away.

Dave Meyer:
Okay, but how did you go to the bathroom?

James Davis:
It was funny. I had a gym membership and I had to strategically do that and I worked downtown at the call center, so I would go to the gym, not to work out or anything. I would just go there to take a shower,

Dave Meyer:
Just to use the shower

James Davis:
And then do everything and then go to work that way.

Dave Meyer:
Oh, wow.

James Davis:
I didn’t have a toilet for three months. Oh my

Dave Meyer:
God.

James Davis:
Yeah. I didn’t have a toilet, I didn’t have a shower, and that was my first goal was to try to get that.

Dave Meyer:
Well, I imagine that’s pretty motivating for when you’re doing your DIY. It’s like I got to build myself a toilet at least.

James Davis:
And then on top of that, so I had the down payment for 15 and I knew I needed about 15 or so in work, and I ended up spending about $12,000 on the renovations. I did all of it on my own.

Dave Meyer:
And how’d you pay for that? Was that just more savings or your income from your job?

James Davis:
It was my income from my job. Every paycheck. I just threw it at Home Depot basically going and getting materials and doing everything. Of course, I knew how to do something, but then I had to wait until I could buy what I needed to buy, which was really tough, especially with the mental load of the balloon payment coming due

Dave Meyer:
For sure.

James Davis:
My uncle was like, Hey, if you don’t finish it in a year, it’s due. And if it doesn’t appraise, then you can’t keep the house basically. So

Dave Meyer:
Everyone understands. Sometimes when you do a seller finance deal, the seller will say, Hey, yeah, I’ll float you for a year, but I’m not going to amortize this loan over 30 years like a bank. They’re basically like, I’ll give you a year to figure this out, but in a year you owe me all your money. And that’s sort of in the form of a balloon payment. And so what James was facing is that in a year he had to figure out a way to refinance, or I guess the seller could technically foreclose on you or try to take the property back, but you’re also dealing with this thing, you want to go quickly to renovate, so you can refinance, but you’re using money from your call center job to pay for that. So how long did it actually wound up taking you before you could complete the renovation and get that refi?

James Davis:
It took me eight months, and I think it probably would’ve gotten done in two, maybe if I had the money right away. But I had to do a just paycheck by paycheck. I added a kitchen down there, I added a bathroom, I did all the plumbing, the electrical, everything.

Dave Meyer:
And you taught yourself all that?

James Davis:
Yeah. There’s a really good book. I think it’s called Home Improvement 1, 2, 3. It’s something from Home Depot. Actually, my uncle recommended it and I read it and it shows all the basic stuff if you didn’t want to go through YouTube, but I used YouTube a ton, and even though it was really hard, I remember being very happy at the time and just being like, I know that this will help me in the future. I just got to get it done, put my head down and work on it. I didn’t even have a bed. I had a sleeping bag that I was sleeping on. There was no flooring. It was a concrete floor and it was just I was the definition of house pour at the time.

Dave Meyer:
Good for you, man. I mean, that is an unbelievable amount of hustle to get it done. You just found an incredibly creative way to get into your first deal and worked your butt off and personal sacrifice for eight full months basically to be able to do that. Not everyone’s going to do it that way, but kudos to you, man. I mean, you took responsibility and you worked your butt off to be able to do that, and hopefully it worked out for you financially. When you were done with the renovation, what did you have? Because you had the unit upstairs now, so what did the final product look like when you went to apply for the refi?

James Davis:
I had an appraiser come in for the refinance and they appraised it, the 2 85, which means the loan to value was 80%, I think.

Dave Meyer:
Nice.

James Davis:
So my mortgage two 20, which means I didn’t have PMI and I got a 3 7 5 interest rate.

Dave Meyer:
That must have felt good.

James Davis:
Yeah, it did. And it was June of 2020 when I closed on the refinance. So I was able to lock in that rate for the 30 years on a conventional loan instead of an FHA, and my payment ended up being 1300 with the PITI.

Dave Meyer:
And how much rent were you getting upstairs?

James Davis:
So during the renovations I charged 1100, but afterwards I was able to do 1300. Amazing. The rent covered my mortgage payment.

Dave Meyer:
So after obviously eight months of incredibly hard work and sacrifice, you were able to essentially live for free. Now your upstairs tenant is paying your principal, your interest, your taxes, and your insurance. So pretty much your biggest costs. I’m sure there was still repairs and other costs, but given that you just did a big renovation, at least the basement unit was probably in pretty good shape. And so that’s just a home run deal. That’s incredible. I hope you still have that 3.85% interest rate on that deal.

James Davis:
Yeah, I do. And it’s still doing really well and just recently appraised for four 40.

Dave Meyer:
Okay, congratulations. Just want to say, this just seems like an absolute home run deal. Congratulations on putting in the effort, the time getting creative, and figuring this out. I want to hear where this first deal has taken you and how you went from living without a toilet for three months to now running a multimillion dollar real estate business in just the span of a couple of years. But first, we got to take a quick break. We’ll be right back. Managing rentals shouldn’t be stressful. That’s why landlords love rent ready. You can get rent in your account in just two days, which means faster cashflow and less waiting. Do you need to message a tenant? You can chat instantly in app so you have no more lost emails or texts. Plus you could schedule maintenance repairs in just a few taps so you’re not stuck playing phone tag. Are you ready to simplify your rentals? Get six months of rent ready for just $1 using promo code BP 2025. Sign up in the link in our bio because the best landlords are using Rent Ready. Welcome back to the BiggerPockets podcast. I’m here with investor James Davis. We heard about this amazing house hack he did in Salt Lake City back in 2019. James, after you pulled off this incredible effort of hustle and creativity, what did you do from there?

James Davis:
Yeah, so actually January of 2021, I left and I served, it was a mission for my church, so I left and I was living in the Detroit area for two years.
So I had family that actually lived in the property and they took care of it while I was gone, while I was there in Detroit. And if anyone knows what a mission is like you don’t really have access to technology or what’s going on in the world, but when I came back two years later, I saw that real estate values had doubled in my area. So my mortgage was around two 20, but yeah, it was around the $400,000 range that it was worth. So I came back February of 2023 and taking the advice from what I’ve heard from BiggerPockets and the other real estate investors, I went and I applied for a heloc. So I got my HELOC approved for a hundred thousand dollars, June of 2023, and then this wholesaler sent me this deal September of 2023 for the single family property that needed a lot of work, but it was a sub two deal. Okay, interesting. The seller didn’t have any equity. They bought it back in 2021, but they had two loans on it, so it was the original mortgage plus they got a loan on their down payment. It wasn’t a pre foreclosure, but it was getting close to that.

Dave Meyer:
And how do you approach that when you see a situation like this, how do you structure a deal that makes sense for you and hopefully for the family that you’re taking the mortgage over for as well?

James Davis:
For this one, what we did, we back paid all those mortgage payments, so I made sure everything was current, and then they got $5,000 too on top of that. So instead of having to come out of pocket, they got $5,000. And I paid for all the closing costs too and the wholesale fee too. And it’s good for them because they’re in this situation, if they tried to sell with an agent, they would have to fix up the property, they’d have to deal with all that, and it would be like a several month ordeal probably,

Dave Meyer:
And probably a 6% commission.

James Davis:
Absolutely. So with a sub two, they don’t have to do that.

Dave Meyer:
Right.

James Davis:
And that’s kind of the selling point because a lot of people don’t know about it, especially the sellers. So when you’re trying to talk to sellers about sub two, you have to say, Hey, you get equity, you get paid to get out of this and you don’t have to deal with the payment anymore. And then if I don’t make the payment, you can have the place back and all the payments I’ve made, you can have that too. So that’s how I’ve structured it. And I think also key is having a really good title company that’s dealt with it before, and you can reach out to title companies and say, Hey, have you ever done sub two deals? Have you ever done seller financing? This is what I’m wanting to do. Have you guys had experience with that? And there’s definitely escrow officers that have more experience than others. So having those people with experience is I think really key

Dave Meyer:
For sure. Yeah, I mean that’s really good advice because with subject two, right, there are risks to both the seller and the buyer. For a buyer, there is a risk that the bank could call the note do. What are the risks to the seller? I guess maybe I should ask you.

James Davis:
Yeah, the risks to the seller is it’s still on their credit. So the loan is still there, so if I don’t make the payment, it could affect them still. So if someone pulls their credit, they still have to explain, Hey, this is a mortgage that yes is under my name, but it’s a substitute and they have to prove that if they were trying to get loans in the future. So there are downsides in that way, but I think the pros outweigh the cons where they can get out of a situation that they really don’t want to be in anymore and they can get paid to be able to get out of it, which is nice because sometimes with properties that need a lot of work, you almost feel like you’re taking advantage of people when you buy them. And I hate feeling that way. I hate feeling like I’m taking advantage of someone’s suffering. But with sub two, I feel like you’re offering a solution for a really tough situation that they’re in and you’re giving them a way out that’s creative that yes, there are risks, but I got their interest rate, which was three and a 5% in 2023.

Dave Meyer:
I think subject two is sort of a controversial thing. I think as long as you understand the risks and sort of go into it with the mentality that James has where you are trying to genuinely help someone and create mutual benefit, as long as you understand the risks, work with professionals, as James said, work with people who really understand this and go in it with an approach of trying to find a mutual benefit. It is a worthwhile strategy for a lot of people to consider. Make sure that you’re not breaking any laws doing anything they think. Right, but if assuming that you can do it right, like you said, you can help someone out and you can get an interest rate. That’s a fraction of what you would get today if you were just to go get a new mortgage.

James Davis:
Absolutely. And with this one specifically, we had reached out to the mortgage company and said, Hey, this is what we want to do.

Dave Meyer:
Oh, that’s great.

James Davis:
Hey, it’s either you have a foreclosure or we make the payments. And they said, okay, yeah, we do need to call the loan due, but we’ll delay it. So they agreed, Hey, we’re going to delay 18 months if the payments are current after a year, you guys can assume the loan.

Dave Meyer:
Okay, that’s a great way to do it.

James Davis:
But of course that was with the mortgage company agreeing to it and being kind enough to delay it, but it was in their best interest too.

Dave Meyer:
That’s a great way to do it and definitely appreciate you really dotting all the i’s crossing all your T’s and doing this the right way. When you were talking to some of these wholesalers, were you intentionally looking for sub two or did you just kind of come into this deal and then figured out sub two? After

James Davis:
I was looking for seller finances, but with the interest rates being higher, it was tough to find a deal that I could cashflow with the numbers because I was wanting to buy and hold and doing the long-term. And that was my idea back then was to buy the long-term rental real estate, but the numbers just couldn’t make sense. So I came across sub two and it kind of came to me, I guess with that first deal as an option.

Dave Meyer:
Well, you’ve proven yourself, James, to be a very creative and hardworking guy just from the first two deals that you’ve told us about. I want to hear more about how you’ve scaled. I understand that you’ve really grown a massive real estate business in the last couple of years, but we do have to take one more break. We’ll be right back. Welcome back to the BiggerPockets podcast. I’m here with investor James Davis. James, it sounds like youDid your first house hack. You did this sub two deal, but since then in the last two years or so you really scaled your business. What have you been up to more recently?

James Davis:
So my brother reached out to me. He was working for a company that did residential and disability services. There’s assisted living for older people, but then there’s assisted living for different categories of people too. We went into the realm of assisted living for people with disabilities that are any age. So my brother reached out saying, Hey, I work for this company. And one, he didn’t really like how it was being run. He was really passionate about the mission where it’s like, Hey, we need housing for people with disabilities. Of course there’s a business side of it, but you should look at this. So he sent me what it could look like and the whole licensing process, and I reviewed it with him and it would be really expensive because one, you have to have a long period of time without a tenant at all where they do tons of inspections and licensing process, and then we have to do so much paperwork.

Dave Meyer:
And you already have to own the property at that point, right?

James Davis:
Yeah, exactly.

Dave Meyer:
So you’re just sitting on a mortgage and insurance and taxes while you’re working with, I assume the government state, local government to figure this out.

James Davis:
Oh yeah. So we’re sitting on it and it’s more like I’m sitting on it and we’re doing the licensing process, and we started that around July, August of 2023. So it was actually before I bought the second property when we started. And it took eight months for the whole licensing process where we had to do all the paperwork and then we finally got approved. Okay, you’re allowed to provide services for these types of people,
But in this industry, at least in the state of Utah, the way it’s set up, it’s similar to being a real estate agent where you have to fight for clients and really show that you can take care of them. Me and my brother, actually, after we got the license and we were finally legal to have clients, we got the list of all the case workers in the state of Utah and called every single one of ’em, and it was like 400 called everyone we’re like, Hey, we’re a newly licensed provider. If you have a resident, we’re ready to take ’em right away. And of that entire list, we got one person. Oh my gosh. So we found a client that toured the place and was like, okay, yeah, I want to live here. And that was our very first one. And at that point, my HELOC was at like $50,000 and me and my wife and my brother, we were all working and we all took shifts. I’m taking care of this person.

Dave Meyer:
Oh my gosh. So it’s really like one-to-one care.

James Davis:
Oh yeah. So it was 24 7, someone had to be there 24 7, so we just took care of ’em. It’s similar to having kind of like an infant where they just need that level of supervision. The good thing is the revenue was closer to $15,000 a month just from this one person,

Dave Meyer:
15,000 a month. And they’re living in one bedroom in your facility?

James Davis:
Just one bedroom. And we were approved for up to three.

Dave Meyer:
Okay. Oh

James Davis:
My gosh. That was the first one. And we took shifts and we didn’t hire anyone because we really wanted to pay down our debt that we had accrued just from the vacancy and then from the renovations too. So we did that for about five or six months, just literally taking 10 12 hour shifts back and forth while we were all working and we just had to work it around our schedules. But after that, we started hiring people and it made it a little bit easier.

Dave Meyer:
I mean, I’m sure there’s a lot of people listening to this thinking 15 grand a month, maybe you can get three tenants at once. It’s 45 grand a month. That’s an incredible amount of money. Tell us just a little bit about the economics about this, because first, are there other expenses? I assume there’s a lot of insurance and stuff that on top of just labor costs, that’s a lot more expensive as well.

James Davis:
Oh yeah. You have to have the highest level of insurance for this industry. You’re taking care of people. So if something goes wrong, the state requires us to be covered. So the insurance requirements are really high. So we pay, it’s about a thousand dollars a month just in insurance. The good thing is, is that as you get more clients, that number kind of stays the same for insurance cost, but when you only have one, it does feel like it’s a lot too. For a $15,000 client, you are looking after all of the expenses, probably like 10 or $11,000 a month in expenses, but you’re probably cashflowing three or $4,000 per person that’s living there.

Dave Meyer:
And just as you scale up, I assume you got more residents over time?

James Davis:
Oh yeah. We have a lot more now. So we only had that one for five months, but then as we were doing well, the caseworkers I guess noticed and they sent us a little bit more. So right now we’re at 13.

Dave Meyer:
13 residents across how many properties?

James Davis:
So we have four properties right now that are active where we have residents there. So there’s residential care, which is that type of assisted living, but then there’s something called supported living where they live in a home and then there’s a staff that comes and takes care of them. So we have six clients that are residential. Then we have the rest that are supported living, so they’re not involved in our real estate portfolio, their business.

Dave Meyer:
So how big is this business grow? What is your revenue now?

James Davis:
So this year we’re set to do $1 million in revenue, maybe even 1.1 million depending on how things go. And then net out of that we should be getting at least $200,000 this year. So right at about a 20% margin.

Dave Meyer:
That’s amazing. Obviously created a business that you can, I would assume comfortably live on, don’t know your living expenses, but based on the stories you’ve told me, I assume that you can comfortably live off of that. Can you break that down? Just how many units is that? How many properties across,

James Davis:
I guess it comes out, it’s about $83,000 a month that we’re getting a total. For the real estate side of things, it’s about $70,000 of our revenue is coming just from the properties that we have. So we have four functioning properties, two of them, it’s about 25 to $30,000 a month, about two residents and each one. And their funding is a little bit different. It’s not always 15. 15 is on the higher end if they need a lot of staffing. So for the first two properties, there’s a 25 to $30,000 a month, and then on the other two they’re just one or two bedroom condos and those pull in $6,000 a month each.

Dave Meyer:
And then the remaining revenue is from sort of the staffing that you do in other people’s properties?

James Davis:
Yeah, exactly. So that would be non-real estate related revenue.

Dave Meyer:
Very cool.

James Davis:
Yeah.

Dave Meyer:
I’m curious if you have any advice for our audience here, because I assume a lot of people are hearing your growth trajectory, your revenue, your profit margin, all super impressive, but you’re also running a more sophisticated business that’s more complicated than buying just a regular rental property and you’re taking care of people. This is a super important role that you are playing. So what kind of investor, what kind of person do you think could succeed with a strategy like yours?

James Davis:
I think if someone wants to have a choice of how they make their money and they still care about people, it is caregiving in a way where you still have to care about the people. It’s not all about the money, even though we wouldn’t be able to do it if there wasn’t any money, but you do need to care about the people. And if you do care about people, you have a way to take care of people and meet your needs. And it’s incredibly satisfying. I remember working at my job and I hated getting up in the morning. I hated going to work. I hated having a boss telling me what to do. I hated having to beg someone for time off and saying like, Hey, I want to go do this. Or feeling sick and still feeling the need to go to work. You have to just suck up to somebody. So someone that doesn’t like being an employee, and I hate being an employee. I hate, and I think I’m a bad employee because of that. I don’t think I’m good at listening to other people.

Dave Meyer:
Well, that’s kind of what I was saying at the beginning. You clearly have this entrepreneurial spirit. Even in high school, if you’re selling stuff on eBay, there’s something about you that wants to take your financial future into your own hands.

James Davis:
Oh yeah. And I feel like a lot of people feel that way. It’s just they don’t have a vehicle to realize that dream. And this is a way to do that where you can use real estate, and I love real estate and a way to fund my lifestyle too and be able to meet my needs and my family’s needs while meeting other people’s needs too.

Dave Meyer:
Yeah, I love that mutually beneficial approach. Thinking about creating a business that obviously works for you and your family, but provides value to the people that you are serving at the same time, you’ve obviously James accomplished a lot in just a couple of years. It’s amazing. What are your goals from here?

James Davis:
Yeah, I think we’re kind of on the upper end of where we want to be, at least on the business side. We might get another property or two because right now we have six and it was really easy to scale and buy more properties when you just have a lot of money coming in. And we didn’t get paid for a really long time because we would just put that money towards down payments and doing more subject twos and doing that. But I think what we would want to do is buy a couple more properties, but we’d still love to have the long-term rental real estate too. I do like the idea of having a tenant that only bothers you every once in a while instead of every day, and you have someone that is really high maintenance, even though there’s more revenue on this side of things. It is nice to have some things really stable

Dave Meyer:
For sure,

James Davis:
Which is what long-term rentals are. So we want to use the revenue that we’re getting and the profit to have higher down payments and just buy really good cashflow, Inc. Real estate.

Dave Meyer:
Makes sense. Yeah, just balance out the portfolio a little bit. Higher revenue, higher work. Some is a little bit lower revenue, but lower work building a sort of portfolio of different properties that have different values, different purposes in your portfolio is I think where most real estate investors want to get. So thank you, James for sharing that with us. And thank you so much for being here and for sharing your story with us. It was really interesting to hear, and I’m sure our audience got a lot out of

James Davis:
It. Yeah, absolutely. Thanks for having me on.

Dave Meyer:
And thank you all so much for listening to this episode of the BiggerPockets podcast. We appreciate you being here, and we’ll see you for another episode in just another couple of days. We’ll see you then.

 

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How Today’s Investor Doesn’t Just Own Property, They Optimize It

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This article is presented by RentRedi.

You just bought your first property. Maybe it is a duplex you are house hacking, or a single-family home you are renting out. You are excited, motivated, and ready to grow. 

But here is a truth many rookie investors learn the hard way: Owning property is only half the battle. The real success comes from how you manage and optimize it.

When I started investing, I thought property management software was something you graduated to once you had a big portfolio. I told myself I would use spreadsheets and paper for now and upgrade later. 

That decision cost me. Two years into my investing journey, I found myself overwhelmed by disorganization. I had been so focused on buying more properties that I ignored how messy my operations had become. I actually had to stop acquiring new properties just to catch up, get my records in order, and finally implement the right tools to manage everything properly. 

Looking back, if I had started with property management software and onboarded each property as I bought it, it would have saved me a lot of time, stress, and momentum.

The smart investor of today does not just own property. They optimize it. And that starts on day one.

The Rookie Investor’s Reality: Excitement Meets Overwhelm

Buying your first property feels like a huge win. You close, collect that first rent check, and start to see the potential of real estate. But even with just one property, you quickly realize how much there is to keep track of.

Rent collection, maintenance requests, lease agreements, expense tracking, tenant screening—it all comes at you fast. And if you are like I was, you convince yourself that you can handle it all with sticky notes and spreadsheets for now. 

That is what I did. For two years, I kept telling myself I was too busy with acquisitions to set up better systems. But that short-term thinking caught up with me. I eventually had to stop buying altogether just to get my books in order and build the operational foundation I should have built from the beginning.

Looking back, it’s clear that starting smarter would have made my life so much easier. Onboarding each property into a professional system as I bought it would have kept me organized, avoided costly mistakes, and freed up my time to keep growing.

Why Smarter Investors Start Smart

Many rookie investors assume that professional tools are only for seasoned landlords with large portfolios. But in reality, the smartest thing you can do as a beginner is set yourself up like a pro from day one.

Having the right systems in place keeps you organized, saves time, and reduces stress. It helps you avoid rookie mistakes like not properly screening tenants, being lenient on rent deadlines, or losing track of repairs and expenses. It also builds your confidence and makes you feel capable of managing your property effectively, which is just as important as the numbers. When you feel organized and in control, it builds confidence in yourself as an investor. 

Think about it this way: You wouldn’t manage your personal finances without online banking. Why manage your property without the right tools?

How RentRedi Helps You Get It Right From Day One

This is where RentRedi comes in. It was designed specifically to make property management simple, professional, and accessible for landlords of all sizes, including those just starting out. RentRedi gives you everything you need to avoid rookie mistakes and manage your property like a pro from day one. 

Rent collection becomes seamless and professional because tenants can pay right from their phones in the app and deposited right into your bank account. I used to have a drop box where tenants would drop their rent. How inconvenient for both me and the tenants!  You can screen tenants right through the platform, reducing your risk before they even move in. The screening system is also Transunion certified, meaning that it is legitimate information and you get a credit score back.  Maintenance requests are tracked and organized so nothing falls through the cracks. Income is logged automatically to keep you ready for tax time and long-term planning.

It doesn’t just save you time.  It helps you build good habits by following each process to make yourself a more efficient landlord. For example, when you are collecting rent by check or cash, you can be delayed when you actually deposit it. Who wants to take the time to drive to the bank these days to make deposits? Instilling good habits of efficient landlording will provide a good process for you and the tenant. If you continuously let your tenant off by not charging late fees, they could keep paying late since there are no consequences. Within Rentredi, you can set up automatic late fee charges. That’s one less thing you have to remember to do. 

Why Starting With RentRedi Pays Off Long Term

Being organized from the start saves you more than just time. It helps you avoid costly missteps that could hurt your reputation and bottom line. It allows you to scale without having to stop and clean up a mess later. Nothing is more detrimental than not having an accurate account balance of your tenant’s payment history. Rentredi automatically tracks this for you, and this way there is no discrepancy with your tenant. Tenant-landlord laws are also very strict when it comes to security deposits. Proper tracking of how much the tenant paid for the deposit and that it is refunded correctly (or withheld correctly) can keep you out of any litigation.  And it gives you back your evenings and weekends so you can focus on strategy, acquisitions, and even just enjoying the freedom real estate investing is supposed to give you.

Whether you decide to stay with one property or grow into a full portfolio, RentRedi will support all your needs. It is an investment in yourself and your business that pays off, immediately and in the long term.

Final Thoughts

You do not need to be a big-time investor to act like one. Smarter tools mean smarter decisions and less stress from the start.

Whether you are renting out your basement apartment or house hacking your first duplex, RentRedi helps you manage it like a pro from day one. Start smart today and set yourself up for success tomorrow.



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From a $35,000 Salary to Quitting with 11 Rentals

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Most people think money is the biggest barrier to buying rental properties—it’s not! Inaction is what keeps most rookies on the sidelines. Today’s guest was making $35,000 a year and had very little money saved, yet found a way to buy his first property. Since then, he has built an 11-property rental portfolio and walked away from his W2 job. If he can do it, you can, too!

Welcome back to the Real Estate Rookie podcast! With just a $35,000 salary to support himself, his wife, and a baby on the way, Matt Krueger knew he needed to make changes to forge a better future for his young family. Thankfully, his in-laws had modeled the power of real estate investing, having retired with rentals many years earlier. So, Matt took action—hunting down his first property and negotiating until he was all in for just $2,500!

Feel like money is getting in the way of your first deal? It doesn’t have to! In this episode, Matt shares the “hacks” he used to lower his down payment and closing costs. He also talks about how pivoting to short-term rentals fast-tracked his financial goals and the moment he realized he could ditch his nine-to-five!

Ashley:
This is the Real Estate Rookie Podcast, episode number 596. My name is Ashley Kehr and I’m here with Tony j Robinson.

Tony:
And this is the Real Estate Rookie Podcast where every week, three times a week, we bring you the inspiration, motivation, and stories you need to hear to kickstart your investing journey. And today we’ve got Matt on the podcast. And man, what an inspiring story Matt is going to share with you where he talks about hustling every year for five years, moving, picking up his young family to get his next rental. He talks about finding deals, about working with agents, about working with lenders, and he talks about the pivotal moment of realizing he actually could leave his job to do real estate. So if you want an episode that is both inspirational yet super tactical, Matt’s episode is going to deliver on all of that today.

Ashley:
Well, Matt’s welcome to the show. Thank you so much for joining us today. Let’s get started with what your life looked like before real estate investing.

Matt:
I don’t even know where to start. Back at probably college, I went to a conservative Baptist school. I actually have a degree in youth pastor. I was going to be a pastor. That was my goal at least after graduation, realized that pastors don’t actually make much money. Who knew? And I was looking for a job just to pay the bills, pay rent, was living in just a little one bedroom apartment and ended up getting a job at a cellular retail store, sprint selling phones. I met my wife, oh man, 2013. I got married in 2014 and we bought our first house at the end of 2014. So that’s kind of the life before real estate, but working a dead end job. Didn’t really know where I was going in life, making about 35 grand a year. She was a veterinary technician making about 14 bucks an hour. So that was us before real estate.

Ashley:
And then what was that moment in time when you found out about real estate investing and wanted to change your life?

Matt:
So I think really the big trigger for me was my in-laws. I think most people have maybe somebody close with them that does real estate that encourages them, or they’re just really invested into listening to podcasts and self-learning. But that was it for me. When I met my wife, my in-laws were already, we’ll call it retired, retired into full-time real estate investing. He had been a meat manager or meat cutter at a grocery store for 20 something years and then started buying rental properties, which they rehabbed themselves. And when I met them, he was, oh man, 51, 52 and had already been out of the W2 job for 10 ish years due to real estate. And they were spending a month each year down on, I guess in Tucson living the high life. And I’m like, man, I want to get into this. What can I do to get this life? So that’s kind of what really spurred us on to start.

Ashley:
So Mary into a mentor is what you’re saying. There you go.

Tony:
That’s one of the questions we get all the time is how to find a mentor. It’s just marry your mentor’s daughter or son. It’s the fastest way. Matt, I want to learn more about how you took that leap from, you said, working the dead end job to actually building the life you have today. But just let’s set the table for the rookies who are listening. What does your portfolio look like today?

Matt:
Portfolio today we’ve got 11 properties, three of which are short-term. The rest are long-term. They’re mostly single family homes, but I do have a fourplex as well.

Tony:
And you built that portfolio over what period of time?

Matt:
Oh man. I mean there’s been some selling in that time as well, I want to say. So we started in 2014 with our first deal and our last purchase was actually last year. I’ve not bought a house in about a year now. So yeah, I mean about a decade. And it took seven years to finally leave my W2 job from the mostly passive income that we were getting through real estate.

Tony:
Well, Matt, I appreciate you sharing that because I think that last part of what you said is what most rookies need to hear is that it was a decade of you putting in the work and seven years of that before you even consider leaving your job. I think giving Ricky’s a realistic timeframe of you’re not going to do it overnight, but it’s also not going to take you 30 or 40 years to do this either. So appreciate you giving us that insight. But let’s go back to the first deal, man. You see the inlaws living the high life as you said. How does that lead you to your first deal? What did that first deal look like?

Matt:
Yeah, so I mean, I think something that a lot of new investors just they compare to the last generation or the last, well, five years ago, it was easier than now. And that’s what I was doing then for sure, where my in-laws had done all of those no dock loan deals prior 2008, where anybody and everybody could get a house to me closing on three properties at once with no real income verification. And maybe stuff was easier back then, not that it was done the right way for everybody, but it worked for them. So with us though, starting in 2014 at first our desire, we wanted to have rental properties, but more than anything, we wanted to start building equity. So our first deal was the end of 2014, and we were at the time renting a two bedroom apartment. We were spending about $750 a month for rent in a little town in Iowa.
So we were, and expecting our first, my wife wanted to stay home and that was my desire as well. And we’re like, what are we going to do to afford a house? And honestly, driving to work, I’m listening to BiggerPockets and other podcasts and just trying to educate myself on what to do. And our thought was let’s buy a home that’s a fixer upper and move into this house and live in it as we renovate it. So we were approved, I want to say it was like $130,000 is all that we were approved up to because I was making nothing and found a house for $90,000. It was a single story crawlspace underneath definition of grandma’s home. I mean, it had orange she carpet in the bedrooms, it had carpet in the kitchen and wood paneled walls. This thing was falling apart, but it was still livable.
And what we did, because we didn’t have much money saved either, is we found a bank, I want to say we called almost a dozen places before we found a bank that offered a first time home buyer’s credit. So the Iowa Wild Hockey Team actually sponsored this, and it was like a thousand dollars credit. The stipulation was to live in the house for a year, which we planned to do. Anyway, we got to go to the hockey game, crashed their mascot, actually came to closing fully decked out in his costume and took a picture with us, but got that credit, which helped with closing costs. And then the other hack that I learned was to offer over asking with the stipulation that the seller would pay some of the closing costs. So we actually bought it for 92,000 with the seller paying 2000 of the closing costs. So all we had to bring to closing was like $2,500 to buy this house, and we moved into it. So that was our first, I guess, home purchase, our first deal. And yeah, that’s how we got into our first house.

Ashley:
I think the big takeaway there is that you went to a dozen banks, you kept asking and finding out what loan products are available, and you ended up finding this amazing credit to help with your closing costs and what you had to bring to the table. Today’s show, it’s sponsored by Base Lane. They say real estate investing is passive, but let’s get real chasing rents, drowning in receipts and getting buried in spreadsheets feels anything but passive. If you’re tired of losing valuable hours on financial busy work, I’ve found a solution that will transform your business. It’s Base Lane, a trusted BP Pro partner Base Lane is an all-in-one platform that can help you automate the day-to-day. It automates your rent collection and uses AI powered bookkeeping to auto tag transactions for instant cashflow visibility and reporting. Plus they have tons of other features like recurring payments, multi-user access and free wires to save you more time and money, spend less managing your money and more time growing your portfolio. Ready to automate the busy work and get back to investing. Base Lane is giving BiggerPockets listeners an exclusive $100 bonus when you sign up at base lane.com/biggerpockets. Okay, we’re back with Matt on real estate rookie. And Matt, you were able to get in that first deal, you moved in, you’re fixing the property up. What happened next after you’ve completed the renovation?

Matt:
So when we bought our first house, our desire was to eventually have rental properties. We just didn’t really know how we were going to do that because the 20% down was something that we just didn’t feel like was achievable to actually save up to buy a property. I mean, we’re living in Iowa and we’re looking to buy in Iowa, so real estate is more affordable anyway. But we ended up, honestly, I was listening to a podcast or something on social media on the way to work, and I hear this guy talking about this idea of house hacking where instead of doing it the way that everybody thinks of where you buy a multi-unit property and move into one unit, rent out the others that you’re buying a single family home and then fixing it up, moving out and renting it out and doing that once a year.
So that’s what we decided to do after a year of living in that first house and renovating it ourselves, learning how to fix it up using YouTube. And then my father-in-law and my dad showing us some tricks on stuff. I mean, we all learned how to do flooring in that house. LVP wasn’t a thing, so it was just like a laminate floor, but we tiled the kitchen back splash. We used a countertop paint kit. Actually, we were so broke, we couldn’t afford counters, so we painted the counter, but it was nice enough to rent out our mortgage payment. Escrowed was $610 a month after principal interest taxes and insurance. We moved out of that house and we bought another house with 3% down on a conventional loan. It was $130,000 home. Moved into that fixer upper and rented out the first house for $1,200 a month. So that was our first real pay

Ashley:
1200. And what was your mortgage payment?

Matt:
600. Six 10? Yeah. So we’re cash flowing $590 a month. That was life-changing money for us then for sure.

Ashley:
And most likely the tenant is paying the utilities, taking care of the lawn. You really don’t have any of your expenses besides that mortgage with the escrow. Yeah.

Matt:
Yeah. And we did that a total of five times in five years. So we would buy a fixer upper, and this is not for the faint of heart, so you’ve got to really want it to do this, especially as you accumulate stuff and accumulate children throughout those years as well. We’re moving, we’re having a baby, we’re moving, having a baby. And then after five years of doing it, we landed in the house right now,

Tony:
Matt, so first I just want to give you major kudos because like you said, you got to really want it to pick up and move your life every 12 months with a young growing family. But I want to just go back to the strategy a little bit here. So just to recap, for the rookies that are listening, basically your strategy was we’re going to move into a fixerupper, we’re going to live there for 12 months, get this property rent ready, and then we’re going to turn it into a rental, move out into our next primary and just repeat that process. But what kind of financing were you using on each subsequent purchase and how were you coming up with those funds? Was it just like, Hey, we’re saving up while we’re living, or how were you funding all of these subsequent purchases every 12 months?

Matt:
Yeah, so first to kind of answer your last part of that question, how are we affording the down payment closing costs on each one? Number one, to save money, we decided we were not going to live on any of the cashflow from a property. So every cashflow or every property that we purchased, that’s almost $600 a month. We were just putting that into a separate account, only using that for necessities. Like we’ve got appliance, we’ve got to change out, or just the normal maintenance stuff that would come up with rentals, but otherwise we were not living on that money. So that’s how we were able to save for down payments. As far as the type of financing that we were doing, we actually just used conventional for all of those. I have nine conventional loans right now, and we were able to do that by just putting 3% down as a primary residence because we moved into each one.
So 3% down on 130,000, I want to say house number two and three were one 30, and then we had 180. So I mean, we’re not buying houses that are very expensive, so we’re coming into closing. We also did another hack. We did a gift of equity on one where we knew the seller and we did gift of equity to get out of some of the mortgage insurance and stuff on ’em too. But we found different hacks and stuff too to essentially help lower these payments for us and lower our upfront costs, doing the offering more and having them, the seller pay some of the closing costs that we didn’t have to come up with as much money upfront, but 3% down conventional loans is how we did it. Yeah.

Ashley:
Matt, can you describe your buy box on these properties? Because obviously this is, you’re a different shopper than somebody who’s going to buy their primary residence and you’re a different shopper than somebody who’s going to buy just strictly a rental. You need the mix of bolts. So what does that kind of look like for you?

Matt:
Yeah, so I mean, I was working full-time and we were not looking to buy houses that needed major construction walls taken down in, well, we did out of a bathroom in one of ’em, but that wasn’t the plan at the time. But mostly it was just we’re in mid seventies to mid eighties neighborhoods, kind of those B plus neighborhoods where other houses in that area are selling for 180 to two and we’re buying around one 30 because they are, I would say cosmetically distressed, old carpet, old paint, maybe older oak cabinets that could just use some love but not needing full gut jobs type of stuff. So we were looking for really those three to four bedroom, one and a half to two bathroom homes that we could live in comfortably enough, maybe be a little in construction to begin with, but then live there as we fixed ’em up. That’s what we were looking for.

Tony:
And Matt, how were you sourcing all these deals? Were they all on market listed on the MLS or had you maybe built up a pipeline of off-market deal flow as well?

Matt:
Yeah, so the two most important things for us were, number one, a good local realtor, having somebody who knew what we were after and really helped us find these deals. Secondly, just being persistent with Zillow. I hate to say that, but just, I mean, you guys know how it is. I am sure you’ve both been there just consistently opening up. Zillow, Facebook marketplace wasn’t really a thing, so maybe Craigslist and stuff. But looking on Craigslist, looking on Zillow multiple times a day, every day.

Ashley:
Now, how did you line up the closings, the rentals? Like, okay, you got a property under contract, your year is almost up. What’s the coordination look like of like, okay, we need to get this house rented and we need to move out to another house. Did you have the lenders when you were getting your next house alone, say, we want the lease for your current house before we’ll actually even approve the loan and kind of go over just the logistics of that and what it looks like

Matt:
With my income being lower. That was definitely an obstacle, was the your DTI. There we go. So debt to income was not qualifying us for these, so we worked with a lender who was willing to basically get a lease from somebody. So basically what we had to do on some of these, honestly, they were super stressful. Some of them we were okay with where they were like, okay, underwriting will approve you knowing that somebody’s going to be moving into this. But some of them were like, Hey, underwriting is going to want to have a signed lease from somebody moving in. So we’re basically closing on this property, we’re approved for the loan, but we have to have a signed lease showing that somebody’s going to be moving in here prior to the actual closing date. So we could wait up until a week or two before closing before that point, but we’re putting some of these houses up for rent and just saying, Hey, this is when it’s available, and just maybe not going into severe detail, but there’s an addendum on here. If we can’t close on this house, then we’ll have to postpone this rental out. So it made it a little more challenging a couple times, but it all worked out in the end.

Tony:
And Matt, you talked about that being a loan requirement that they wanted to see assigned lease, and I think loan requirements are something that Ricks need to pay more attention to because they can and will dictate how you execute different plans for different properties. And one thing we didn’t touch on, but I’m hoping you can give us some clarity on here, Matt, but why were you kind of focused on only staying at each property for one year? What was driving that timeline of 12 months

Matt:
Prison mostly mortgage fraud. Mortgage fraud. Yeah. Not committing mortgage fraud would be why. So yeah, I mean, we would’ve loved to move faster, but I mean, honestly, it was all in good timing. I mean, it was one of those things like we’re moving into the house, we don’t have a ton of money anyway, so it’s okay, we’re going to redo this carpet once we have some money to do that, and then we’re going to redo this and we have money for that. So by the time we got to that year, we were basically finishing up the house anyway, so then it’s like, okay, now it’s time to move out and rent it out. And it ended up being, there was one property and it was our own fault. We had thought we had been a year and we were not so underwriting caught that we were at 11 months and the loan fell through. So we ended up not being able to close on a property because of that. But typically your lender will know and be asking those questions to, or they should be, but we knew as well. So yeah, got to be a year unless there’s extenuating circumstances that you need to move otherwise for, but we were just bouncing around the same neighborhood.

Tony:
And just to clarify what Matt is saying about mortgage fraud, but when you buy a property and use a loan that’s designated for primary residence purposes, you have to say there for most loan products for at least 12 months to satisfy the requirements of that loan and do it at any time. Less than that is where you can kind of find yourself in hot water. So thank you for clarifying that, Matt. So you guys just go pedal to the metal a million miles an hour knocking out these properties every year for five years, and then you land in the property that you’re at now, which it seems you guys are kind of settled into. Does your portfolio stop growing at that point, or what’s the next move to keep scaling the portfolio up?

Matt:
To be honest, we had planned to do this 10 times. Our goal was 10 times in 10 years max out the conventional loans that we can have and then settle. But we ended up getting a really good deal on this acreage that we’re on now. It was the ideal location. The house was needing a lot of work. We’ve poured years of time into this house to make it where it is now. We actually just finished a bathroom renovation this last week upstairs, but we wanted this house, so we decided it’s time and we’re going to stay. So we also were at a point where we had cashflow from properties that was sufficient enough to start putting 20% down. So we used savings for that. We also found other ways as we renovated our primary residence here, I bought this house for $180,000 and we have put 60 grand into it over the last five years, six years since we’ve been here, and it’s worth about a half a million now. So we pulled out a heloc, a home equity line of credit, and we’ve used that HELOC to help fund other deals for down payments, renovations, closing costs and stuff too. And then we’ll just pay back off the HELOC after we start getting profit from that property and then recycling, reuse. So yeah, finding other ways and then using money from our other deals to fund them.

Ashley:
Matt, Tony and I had just finished recording an episode where we talked about reasons you should invest in real estate, and one of those was just the equity that is built up in the property over time. So for example, you bought your first property 10 years ago. What has that impact on your wealth building been like to see these properties that you bought for X amount, the tenants to pay down all of these mortgages, and today you just have all of this equity available and have you talked about the HELOC that you just put on your primary residence, but have you gone back and refinanced and tapped into any of that equity or taken a HELOC there, or have you just let this equity sit and grow to build your wealth?

Matt:
Our goal has been to kind of keep it 50 50 or less as far as at least 50% equity to debt. So I don’t want to have more debt than equity. So we did do a cash out refi on one of our properties using A-D-S-C-R loan, and I mean new investors, it’s basically like a loan for investors using potential profits from a property to approve you other than your income for those of us without real jobs, but did a cash out refi, had bought this property for one 60, turned it into a short-term rental, and a year later did a cash out refi for 300 on it. And then honestly, just use that to pay back off the HELOC because my interest rate on that was about 9.5% at the time. So trying to get some of those high interest loans paid off, especially heloc, I’d rather have it looped up into a conventional loan and then be borrowing on that. But otherwise, no. I mean, we’ve just really tried to put our sweat equity into it, build it through sweat equity, through appreciation, and that’s how we built our wealth through it and have more equity than debt now for sure.

Ashley:
Matt, what does the strategy breakup look like as far as how many long-term or short-term rentals that you have?

Matt:
We started with long-term because that’s what we knew from what my in-laws did, and short term just was not like the Airbnb boom hadn’t happened yet. So I wasn’t too knowledgeable about it. It was actually through listening to other social media, I’ll call him influencers, I think I bring up his name probably on every interview, but Michael a Lafonte, he’s the guy that really influenced me. If you guys have met or know who he is, a lot of people in the space. But he had been working at Domino’s and then working, or Dunking Donuts, I think his wife was at Domino’s, and they liquidated their 401k, they got into short-term rentals. They were living in a conversion van traveling around the country, going to different national parks. I’m like, man, he was able to do that with just a few properties. And here I am with five, six properties and not even halfway there.
Maybe we should just try this out. So we got into the short-term rental space locally because my thought wasn’t, people want a vacation to Des Moines, Iowa, but I like to be hands-on. I want to renovate this property myself, so let’s buy a house downtown Des Moines, near shops, restaurants, event venue stuff. We did some market research with Air DNA and found that there, it was like 70% of properties could only sleep up to six people or seven people in Des Moines. So we bought a house that could sleep 10, and we got into it. And short-term rentals just dramatically changed the game for us with cashflow. I mean, we bought this house for 160 K and we did the thrift store stuff, and our thought was, let’s experience this, let’s see how it goes, and then invest in a vacation market. But it ended up doing so much better than we thought.
I mean, we did like 70 grand on that house the first year. We were cash flowing $2,500 a month. So we bought another house in Des Moines for 1 65, and that house did 90 2K last year. We’ve got another one that we just bought this last year for 2 25 that’ll do over a hundred grand this year. I call it an accommodation location, not a vacation destination, but that’s kind of what our niche has been. But we’re definitely more STR focused right now, and that’s what got us into it, was just listening to other people talk about it. I mean, you guys both know it’s not passive long-term rentals are, but the cashflow is four to six times greater. So that’s ultimately what helped me leave my job a lot faster too. So that’s kind of how we decided to transition into them was just listening to other people talk about how great they were. So

Tony:
Well, Matt, we definitely want to get into that transition of leaving your day job and going full-time into your real estate business, but we’ll do that right after a final word from today’s show sponsors. Alright, we’re back here with Matt. So Matt, you talked about the transition to short term and man, the numbers you were throwing out, doing a hundred plus K on a $200,000 property. Those are some fantastic numbers. Absolutely. But let’s talk about the actual transition because you said you were working again, to use your words, a quote, dead end job. At what point did you realize I think I can actually make the leap.

Matt:
Yeah, so I mean over the years I stayed in cellular retail sales. So I worked with Sprint, I worked my way up to a district manager role, but it was with a third party company, so I think I was making 50 k. I ended up getting a training job with a third party for Apple where I’d go around and train people on iPhones. And then my last job, I was actually an account manager with Google, and I really enjoyed that. It was, again, like a third party company. A lot of employees or people that work with Google are not working directly for ’em, and that was me. So my salary, I was mid sixties. We were happy though, and the cost of living out here is very affordable, so it was easy to live on. But our goal throughout this time had always been not necessarily a house number, a number of properties. It was have our cashflow consistently surpassing the salary that we brought in from my job and my salary went up over the years. And I dunno, it kind of gray a little bit for us. And Tony, you’re going to get a really big head for this because I’m going to give you props, but I say this in all of my other interviews. The breaking point for me for why we finally decided to make the leap was actually going to your short-term rental summit in Newport Beach, California. We had there too.
So I had been watching these real estate Robinson people and I’m like, man, these guys are cool. I need to figure out how to do what they’re doing and I’m going to go to their conference. So I took my wife and my in-laws actually went out to Newport and attended your SDR summit. And we had one short-term rental at that time, and we had just gone under contract with our second short-term rental. And at that time, our cashflow from our properties was greater than my salary, just barely. But it was enough to live on it. And it was just, I mean, honestly, through listening to some of the different speakers there, but then talking and networking with people, I wish I could give him credit and I wish I knew his name, but I talked to this one guy who he had made the leap and was doing real estate full time and talk with him.
And he’s like, so what’s preventing you from leaving? And I’m like, well, I just thinking about maybe just getting a couple more properties and then really feeling safer. And he is like, dude, the amount of freedom that you have from just leaving and how much more effort you’ll put into your business and how much greater your business is going to do by not giving 50% of your effort to your job and then 50% to real estate. He’s like, you are just going to this trigger in your brain will be like, okay, this is my only source of income. This is what needs to do well, and your business is going to do better. And then he says to me, what would happen if you don’t succeed? Then you’ll end up right back to where you are now. And I’m like, dang. So I needed proof of income to close on this property. It was a conventional loan. So I actually, I waited until we were in the closing office right after we closed on our second short-term rental. I was in the parking lot and that’s when I called my boss and to put in my two weeks notice. So yeah, so thank you Tony for putting that together so that can happen. Yeah,

Ashley:
I know. I just love it too that that was from Tony’s conference too.

Tony:
Yeah, and Matt, I appreciate the kind words, but I think the power of events like that is, it’s not always what’s being shared on stage, but it is those moments in between sessions where you’re networking and you’re talking to people and you’re hearing their stories and they can ask you that one insightful question that changes everything for you. And we’ve heard that story time and time again from events that we host BP Con about, man, I just met someone. We had this conversation and my entire perspective shifted in a way that I could have never imagined. So for all the Ricky that are listening, take Matt’s story and get out and go to an event, BP Con is coming up, and obviously Ash and I are a little bit biased, but we think it’s one of the best real estate events that’s happening. But aside from all the amazing speakers, it’s moments what Matt just talked about of being able to, not just listening to a podcast and hearing someone’s story, but sitting down next to someone shaking their hands, having a drink and hearing their story face to face.
I’m telling you, it motivates you in a way that’s so hard to even articulate clearly. So Matt, dude, that’s got to be one of the coldest I’m quitting. My job stories that I’ve heard is I signed the doc for this deal, then I called in and quit my job, man. So I love hearing that. And last thing I’ll say, I think you hit exactly what I wanted to say as well. It’s like the worst case scenario is that it doesn’t work for you and you just go back to a job that you already had or some similar job. And I think that when we can frame the decision to go full time or stay at our job with that perspective, it makes it a whole heck of a lot less scary because you’re like, I’m already living my worst case scenario right now working this job, so it can only go up from here, man. So congratulations brother. What an amazing story.

Matt:
Yeah, yeah. No, I appreciate it. Yeah, once you experienced it as Tony knowing your story from hearing it a couple times too, it’s once you get over the fear factor and actually experience the freedom of doing your own thing, it’s not something that you ever want to have to go back to. So those early morning conference calls, those late night meetings for deadlines of things like, man, just experiencing that, people say, well, you’re not financially free. You still have to work a little bit. It’s like, yeah, but I work on my time, on my terms where I want to and with who I want to. And that’s what it’s all about.

Ashley:
Matt, I guess the last piece to kind of touch on here is the actual operations of your businesses. Who is handling the day-to-day? Do you take it on yourself, your wife? Are you using a property manager? Give us a little insight into the day-to-day of your real estate investments.

Matt:
As of right now, we’re blessed to have everything relatively local to us. All of our properties are within about a half an hour. We did have a short-term rental that we own for about five weeks down on South Potter Allen that we sold for a good profit and ended up just not doing that because the market shifted. But otherwise we bought local. I’ve got a fourplex that’s two and a half hours away, but it’s all long-term. So it’s pretty, we self-manage. I mean, we’ve done everything on our own. We’ve had some opportunities for joint ventures and stuff, and some syndication offers as well. But my goal isn’t money. It’s my time. And we’re at a place where we’re very blessed financially. We never thought we’d be in this financial situation. It’s been fantastic, but that wasn’t our goal. It was to have the ability to wake up and spend my day with my kids and not need to put in 40, 50 hours for somebody else.
So we self-manage right now, and we keep our portfolio around the 10 to 11 properties because it’s manageable, especially with seven of them, eight of them being long-term rental and only three shortterm short-term take the most time. But I use Hospitable as my property management software, which has been great. They help automate a lot. So I mean, typically, I don’t know mean it varies, you guys know, but two to five hours a week managing the day-to-day, we have cleaners for all of our properties, and then I’ve got companies or individuals that I’ll call for HVAC or plumbing, electrical stuff. So we’ll still do some of the things ourselves. Like we had a water issue with some drainage, not going away from the house at one of our short-term rentals. Carpet got a little bit wet with some flash flooding we had, and we were out there.
My wife and I were shovels yesterday digging it away from the house and adding drainage tile and stuff. But we enjoy that stuff though. We brought our kids with us and we homeschool. So it’s like, here’s just, here’s your learning for the day. You can learn how to properly drain a house because the previous owners did not. So it’s stuff like that. But yeah, I mean, we travel a lot. We spend our winters down on South Potter Island and homeschool down there and try to take a good vacation every couple months, and it works out. I mean, some weeks are busier than others, but we manage ’em all on our own. Yeah.

Ashley:
Well, Matt, thank you so much for joining us today. Where can people reach you and find out more information about your real estate journey?

Matt:
Yeah, social media. I go by the handle rental cashflow or just search up Matt Krueger. Rental Cashflow was available when I started social media, so that was just, that’s what stuck but rental cashflow, Matt Kruger on all platforms. So yeah, that’s where you’ll find me.

Ashley:
Well, we really appreciate you taking the time to share your journey with the rookie investors. Thank you so much. I’m Ashley. He’s Tony. And we’ll see you guys on the next episode of Real Estate Rookie. I.

 

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Mom-and-Pop Investors Are Investing at Higher Rates—Here’s Where They’re Buying

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You snooze, you lose: That’s the message real estate investors have adopted in the current housing market. While homebuyers are sitting on the fence, fretting about high interest rates and prices, investors have swooped in to dominate nearly a third of the market, according to property analytics firm Cotality.

However, these investors are not Wall Street behemoths, flapping their checkbooks like birds in flight. Rather, they are mostly mom-and-pop landlords intimately familiar with their local markets, scouring for deals. Cotality estimates that smaller investors make up 25% of the single-family owned market, while larger investors contribute 5%. The shift occurred as conventional homebuyers and larger investors applied the brakes, Cotality discovered.

Smaller Investors Move Quickly, While Larger Investors Pull Back

By smaller investors, Cotality refers to landlords with fewer than 100 doors. Unlike Wall Street corporations buying up vast swathes of homes or homebuyers worried about down payments and monthly expenses, smaller landlords can move quickly to close deals.

Part of the issue with larger investors has not only been concern about surging costs amid stubborn interest rates, but local and federal regulators making bulk buying of single-family homes more difficult. Conversely, according to Parcl Labs, large corporate investors like Invitation Homes, Progress Residential, and Amherst Residential are releasing rather than acquiring homes in major U.S. cities such as Atlanta, Dallas, Phoenix, Houston, and Charlotte.

“We’re acquiring at a fraction of what we were several years ago,” Chris Avallone, chief financial officer of Amherst, which owns around 46,000 homes, told the Wall Street Journal, blaming high interest rates for part of the slowdown. 

Large Wall Street investment firms are not exiting single-family rental real estate entirely, but instead redeploying their funds into build-to-rent communities, which minimizes competition from other investors, Rick Sharga, CEO of CJ Patrick Co., a real estate advisory firm, told CNBC.

A Low-Risk Investment Strategy to Replicate

The Journal reports that small real estate private equity firm Stand Capital has devised an investment strategy that enables it to be more nimble in the current market compared to larger financial institutions: They target single-family homes that cost around $250,000. After making a $75,000 down payment and investing $15,000 in the property for light renovations, they then rent the property for $2,000 to $2,200 per month. After three years of 5% annual appreciation, they sell the home at a profit.

The advantage smaller investment firms feel they have over larger ones is less internal regulation and red tape, the Journal reports. They don’t have to report to outside shareholders or pension funds. Another advantage is that there is currently less competition, as conventional homebuyers are not active in the market, waiting for more favorable conditions. Additionally, mom-and-pop landlords or investment firms can make all-cash offers, avoiding the issue of high interest rates.

38% of National Homebuilders Lowered Their Prices in July

The Journal reports that the cozy relationship that formerly existed between homebuilders and national single-family residential companies, such as Invitation Homes, recently stalled due to the inventory pileup in Florida and Texas. In the rush to clear their books of the supply glut, this has allowed smaller investors the opportunity to buy homes at deep discounts. National homebuilders have issued what amounts to a fire sale, with 38% lowering their prices in July, numbers not seen since just after the pandemic, according to the NAHB/Wells Fargo Housing Market Index (HMI).

Regional Snapshots of Investor Ownership

The 30% investor ownership percentage quoted by Cotality is not uniform across the nation, but rather an overall figure. Examining the numbers regionally, the differences are marked.

California

According to the Guardian, approximately 19% of the homes in California are investor-owned. That number increases to 83% in mountainous areas like Sierra County. In major metropolitan areas, such as Los Angeles and San Francisco, the percentage is closer to 15% to 16%, contributing to the housing and affordability crisis in the state.

Interestingly, small investors who own fewer than five properties are the largest group in California, accounting for 85% of investor-owned homes in the state, according to the Guardian.

Large metro areas like San Francisco, San Jose, Sacramento, and Oakland have seen a net-positive investor impact, meaning investor sales are greater than regular homeowner purchases. This is compounded in other metros, where investor purchases have limited supply for owner-occupiers, thereby tightening the market, according to Realtor.com.

Florida and the Southeast

Investor activity has declined significantly in Florida’s major metropolitan markets, with Orlando, Miami, and West Palm Beach experiencing double-digit year-over-year declines in investor purchases. Orlando was down 27.5%, Miami 21.3%, and West Palm Beach 14.5%, according to brokerage and listings site Redfin.

Things couldn’t be more different in Memphis, TN, where investor buyers accounted for 23.6% of sales in 2024, with slight growth into 2025, according to Realtor.com.

In Georgia, overall investor activity has softened, although it remains elevated at 17.3%, according to Realtor.com. Senior economic research analyst Hannah Jones said of Georgia and other investor-heavy states such as Missouri, Oklahoma, Kansas, and Utah: 

“Buying a home is still relatively affordable in these states, making them more hospitable for investors. Overall buyer activity has pulled back significantly as housing costs have climbed over the last few years. Investor activity has mirrored this pullback to some degree, but investors continue to find opportunities in low-priced markets with strong demand.”

Midwest and Ohio Region

The Midwest is starting to attract shifting investor interest, especially in Ohio. Columbus (15.9% investor share), Cincinnati (15.3%), and Cleveland (15.4%) saw significant upticks in investor buyer share in 2024, according to Realtor.com.

New York and the Northeast

It remains to be seen what effect the forthcoming mayoral election will have on New York City real estate. However, Realtor.com reports that in the New York-Newark-Jersey City metro area, investors had a net-negative impact of -4.4% in 2024, meaning investor buyers exceeded sellers, thereby constricting supply for traditional buyers.

As of mid-2025, the Manchester-Nashua, NH market ranks as one of the hottest homebuyer and investor regions in the country, according to the Wall Street Journal and Realtor.com’s Summer 2025 Housing Market Ranking. It’s not cheap, however. The median sales price of $599,900 as of June means that tenants and owners are higher earners, supported by a strong employer base, and are exempt from state income tax in New Hampshire. There is intense competition for investment real estate here.

Final Thoughts

There is a strategy for every market, most of which is determined by an investor’s risk tolerance and liquidity. With high interest rates and prices, having the option to buy with all cash and select a market where prices are still appreciating clearly makes sense.

However, in other markets where prices are falling, timing is everything. If history has taught us anything about real estate, it is that inevitably, prices and rents will continue to rise. Thus, strategizing how to continue buying and securing sensible deals to take advantage of the would-be buyers currently sitting things out, thereby lessening competition, is a worthwhile long-term approach.

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How Setting the Right Rent Can Make or Break Your Property Investment

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This article is presented by Avail.

As a landlord, you’ve probably heard it countless times: Setting the right rent price is critical. Price it too high, and your property sits vacant, costing you money every single day. Price it too low, and you’re leaving money on the table. Finding that sweet spot is both an art and a science. 

Luckily, there’s a smarter way to approach this challenge: leveraging the power of data.

Why the Right Rent Price Matters

If you’ve been in real estate investing for any length of time, you know how frustrating vacancies can be. But it’s not just about lost income; it’s about understanding renter psychology, too. 

Today’s renters are savvy. They quickly compare properties online, and pricing significantly influences their perception of value. Price too high, and they’ll scroll right past your listing, assuming better value elsewhere.

Setting rent accurately doesn’t just impact your immediate profitability—it positions your property as an attractive choice in a competitive market. Your goal is to match renter expectations right from their first glance, turning interested viewers into committed tenants.

Common Pitfalls Landlords Face When Setting Rent

If you’re like most landlords, you’ve probably run into one of these scenarios:

  • Overestimating your unit’s worth: We all think our property is special (because, honestly, it is!), but emotional pricing can lead to lengthy vacancies. Every week your property stays empty is money you’re not making.
  • Undervaluing your rental: Conversely, pricing your rental too low might fill it quickly, but you’ll miss out on revenue you could have earned, potentially amounting to thousands of dollars each year.
  • Ignoring market trends: The rental market is dynamic. What’s competitive one year, or even one season, might be entirely off the next.

Avoiding these pitfalls requires accurate, real-time market information. That’s where tools like Avail’s Rent Analysis report become invaluable.

Using Data to Set the Perfect Rent

Enter the Avail Rent Analysis report. This isn’t guesswork, it’s data-driven decision-making. Here’s how it can transform the way you price your rental.

Accurate rental comps

One of the best ways to gauge what your property can rent for is to see what similar rental properties in your neighborhood are priced at. With Avail, you get immediate access to up-to-date rental comps, allowing you to set a price that aligns perfectly with local market conditions.

Understanding market trends

Markets fluctuate based on various factors, including seasons, local economic conditions, and broader real estate trends. Avail’s Rent Analysis report doesn’t just show you where prices are today—it helps you predict where they might go next, allowing you to set competitive pricing that maximizes both your occupancy and revenue.

Minimize vacancy loss

Vacancies hurt your bottom line more than anything else in the rental business. Setting your price right the first time means fewer empty days, happier tenants, and more consistent cash flow.

Maximize Exposure with Promoted Listings

Even if you’ve priced your rental perfectly, visibility is key to finding high-quality tenants quickly. The right tenant is often the one actively searching on premium platforms like Realtor.com and Zumper. 

That’s why Avail’s Promoted Listings are such a game-changer. Here’s how Avail Promoted Listings can help you.

Boosted visibility across top platforms

Avail helps you maximize your property’s exposure across major rental networks, ensuring your listings appear prominently in search results on Realtor.com, Zumper, and partner sites. More exposure means more potential renters seeing your property first.

Attract high-intent renters

Promoted Listings don’t just attract more views—they specifically reach renters who are actively searching for rentals like yours. These are renters ready to move quickly, significantly reducing your vacancy periods.

Fill vacancies faster

When you combine optimized pricing with premium exposure, you drastically shorten the time your rental sits empty. Avail Promoted Listings users receive leads that are 3x more likely to lease.

Streamlining Property Management Beyond Pricing

Pricing and promoting your rental effectively is just one piece of the puzzle. Efficient management is equally crucial. Avail also simplifies day-to-day operations with a suite of tools designed specifically for independent landlords like you.

  • Trustworthy tenant screening: Rent with confidence using background checks, credit reports, and eviction history—at no cost to you.
  • Online rent collection: Eliminate the hassle of chasing down checks with automatic online payments, including added features like auto-pay for renters, automated late fees, and rent reminders.
  • Digital lease agreements: Professional, state-specific lease agreements ready at your fingertips, signed online in minutes.

By streamlining management tasks, Avail frees you up to focus on growing your investment portfolio rather than getting bogged down in paperwork and manual processes.

Take the Guesswork Out of Renting

Being a landlord doesn’t have to mean making educated guesses. With Avail’s Rent Analysis report and Promoted Listings, you’re equipped with powerful tools to set the ideal rent and get maximum visibility for your property.

Don’t leave your rental property’s profitability to chance. Start using data-driven insights today to optimize your rents, minimize vacancies, and boost your income.

Ready to Fill Your Vacancy Faster?

Make smarter, data-informed rental pricing decisions with Avail, and leverage Promoted Listings to ensure maximum exposure.

Click here to learn more about Avail and start optimizing your rental business today!



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Late Starter’s Guide to Real Estate (Start in Your 40s!)

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Today, we’re giving you the exact blueprint to retire in 10-15 years, even if you’re starting in your 50s with a median income and average savings. Got a small sum stashed for retirement and looking to real estate for relief? If you follow this strategy, you too could have retirement with plentiful passive income not too far in the future. We did the math—it’s totally doable.

Tired of seeing 23-year-olds flaunt 50-unit portfolios on social media? You DON’T need to be in your 20s, have a high income, or get a large inheritance to retire early with real estate. The average American can still do it in just over a decade.

Dave is giving you steps to take today to start on that journey, and he shares his fully mapped-out strategy for achieving early retirement in 10 to 15 years, regardless of your current age. Plus, how to “audit” your resources so you know the best strategy for you to take to reach your (early) retirement goals on time!

Dave:
You can get into real estate at almost any age and still pursue and achieve financial freedom. Do you feel like it’s too late to start investing in real estate? It’s not. And today I’m sharing my late starters guide to real estate investing. So whether you’re 30, 40, or even 50, investing in real estate today will likely improve your financial situation and allow you to retire early. If you have a stable career or already own a home, you even have some advantages over the 20 year olds you see on social media showing off their massive portfolios. On this show, I’ll explain how to maximize the benefits of starting later and I’ll share the exact strategy I think works the best for anyone starting in this age range.
Hey everyone, it’s Dave Meyer, head of real Estate investing at BiggerPockets. I’ve been investing now for 15 years and on this show we teach you to pursue financial freedom through real estate. One of the questions I get most as a real estate investor and a real estate investing educator, is it too late for me to start? And I can tell you right here at the top of this episode that the answer is definitely no. You can absolutely and should get started in real estate investing because there are just so many benefits regardless of when you start. But there are real good reasons why this question about whether it’s too late to start come up. First and foremost, it’s just social media. You probably see this all the time. You see these really young people seeing incredible success. They might be exaggerating or straight up fabricating that success, but nevertheless, we see it all the time.
And then the second reason is that the benefits of compound interest are real. The longer you are in the real estate market, the better. But even though that is true, it is still better for you to start today then not get started at all. And that’s what we’re going to talk about in today’s episode. In order to adjust this question, we do need to also answer what starting late means in the first place because I’ve had people who are 25 years old ask me if it’s too late to start, which is kind of crazy, but I’ve also had people who were 60 years old ask me that question and the span of what people think is the right time to start or too late to start is really, really broad. So for the purposes of this episode, I think we need to hone in on an age as an example, and I’m going to use the age 40 for the example, not for any real reason, but I just figured sort of quote midlife would be the most relevant example.
But the lessons and the strategies I’m going to talk about today will really apply to anyone who is starting from basically their late twenties up until their sixties. So with that here, it’s the late starters guide to investing in real estate. So we’re going to walk step-by-step how someone who’s, again, as our example, 40 years old, should start investing in real estate. And one more time, just wanted to reemphasize that. If you’re 35 or 45 or 30, these are probably the same things. I’m just going to be using the example of a 40-year-old. So what then is the first step in the late starters guide? It is setting your goal. And I know if you listen to the show, you’re probably, you say that for everyone, whether they’re 20 or 40 or 60, and that’s exactly the point. Setting your goal and figuring out your strategy is always the first step.
I wrote an entire book called Start With Strategy to emphasize this point and help people set their goals because I really genuinely believe that is the most important thing that you get started. So we know that we got to set our goals, but what is a good goal and what is a realistic goal? Because if you just pick something out of the hat, you might say, I want to retire in three years. Sure, most people do, but that is not really a realistic goal regardless of when you’re starting. Now, I’ve done the math repeatedly and what I’ve shown is that almost regardless of what your current income is or where you’re starting, if you dedicate yourself to real estate investing for 10 to 15 years, you can replace your income. I want to say that again because this is an amazing goal. This is what’s so cool about real estate investing is if you start today at 40, when 10 to 15 years, so by age 50 or 55, you can absolutely replace your income and retire early.
So that is the goal that I recommend most people anchor themselves to is trying to create a sustainable, low risk, high probability strategy that is going to take you from where you are today, which can be zero rental properties and get you to full income replacement through real estate in the next 10 to 15 years. That is the goal that has always gotten me excited and hopefully that’s getting you excited because it can cut your time from now to retirement in less than half. Even if you’re starting at 40, that is 10 to 15 years less of work if you start investing in real estate today. So if you agree with this goal, which I hope you do because it’s an exciting one, we can then move on to step two, which is to assess your resources. This is a big point I often make with people, and I wrote a whole lot about this in my book.
It’s called the Resource Triangle. It’s basically this concept that every single deal and every single real estate portfolio needs three distinct resources to be successful, that’s capital otherwise known as money. You need to have money to purchase real estate even if it’s not your own, but you need some money, you need time because real estate is not entirely passive regardless of what people say. You need to at least put some time into it and you need skill because someone needs to operate your business with some degree of proficiency to actually make sure the things that you buy wind up producing money for you. And the cool thing about real estate is even though you need all three of these resources for every single deal, you don’t need to bring all of them to the table. When I got started, I had time and I had a little bit of skill, but I didn’t have any money and I was able to trade my time and tiny bit of skill at that point for other people’s money.
Some people particularly those who are starting a little bit later might be in a different position. You may have saved up some money right now and that means you can bring that to the table when you’re figuring out how to grow your portfolio. And as I mentioned earlier in the show, a lot of people talk about the amazing benefits of getting started early, but most 22, 23 year olds that I know don’t have any savings and that’s a disadvantage for starting really early. Whereas if you’re 40, you may have some money that you can contribute, even if you don’t, that’s fine. But I’m just saying this is one potential advantage of starting a little bit later. But regardless of what you have, this second step of assessing your resources is really important. You need to figure out what you’re going to bring to the table because even if you have a lot of hustle, you can’t create something out of nothing.
You can’t create a portfolio out of thin air. You need some resources that you can bring to the table, whether it’s capital time or skill. You need some of that to make your dreams of a real estate portfolio of retiring early, more realistic. So I recommend what you do is sit down and think through what you can bring to the table. Start with money, look at a couple of different things. First, look at how much money you actually have saved up and that you can realistically contribute to real estate investing. Now even if you have $50,000, let’s call it 50 grand saved up, that’s a lot of money that can absolutely get you started in real estate, but you may not want to invest that all into your portfolio. You may have kids or family or people that rely on you, you might want to save some money for emergency funds.
All of those are really important, so think through that and subtract those other funds that you have from your savings and figure out what you realistically and responsibly can put towards real estate investing. So maybe that’s $40,000, that’s great. That’s a great place to start, even if it’s $10,000, just knowing that number and how much money you can contribute to your portfolio is going to be really, really beneficial to you. That’s the first part of capital. The second part of capital that I think is really important for late starters is figuring out whether you want to stay in your job or not. And this is a really sort of controversial thing that always comes up in real estate. A lot of people want to prioritize quitting their job, which is totally fine. Some people choose to stay in their job longer. My recommendation for late starters is to really think through how you can maximize your current income.
The sooner you can get more income in the door to invest into your portfolio, the better it is going to be for you. We talked about this a little bit earlier, that compound interest is a really important powerful force. The more money you get to invest in the market sooner, it’s just going to grow and grow and grow and help you achieve that retirement faster. And so when people ask me, should I quit my job to go into real estate? Should I stay in my current job? My recommendation for late starters is which option is going to help you maximize that income Short term? If you’re in a high paying job that you can live with, that’s not making you miserable. It doesn’t even need to be your favorite, but if you are in a high paying job that’s going to allow you to get loans and is going to give you excess money that you can save and then put towards your portfolio if you want to retire early, I would do that.
I know a lot of people want to retire right now, but remember retiring in three to five years if you’re just getting started, is not super realistic. So prioritizing and thinking sort of long-term about how do I retire in 10 years, maximizing your current income is going to be really important. There are some people though that are out there who are like, I hate my job. I literally can’t stand it. That’s a different story. Or I actually like my job or hate your job, whatever, but I just don’t make a lot of money. Then those to me are then scenarios that you may want to consider going into real estate. If you think you can make more money as an agent or a loan officer or a property manager, go do that. You’re going to get the benefit of learning the business and you’re going to make more money and you might get real estate tax professional status at the same time.
If you can make more money doing that, go do that. And if you would like it, right, if you would like it, do that as well. So this is again, the first sort of steps in assessing your resources. How much do you have saved up and then how are you going to get money to pour back into your portfolio? Sort of make a decision for yourself. Is that going to be staying in your current career or switching into one that can make you more income in the short term? Alright, so that’s the first assessment in the resource triangle, but we got to talk about time and skill, super important audits you need to do to allocate your resources. But we got to take a quick break. We’ll be right back. This week’s bigger news is brought to you by the Fundrise Flagship Fund. Invest in private market real estate with the Fundrise Flagship fund. Check out fundrise.com/pockets to learn more.
Welcome back to the BiggerPockets podcast. We’re here talking about the late starters guide to getting into real estate. Our goal here is to help on average someone who’s about 40 years old, give or take 10 years, retire in 10 to 15 years using real estate, which is entirely possible. The first thing I told everyone to do is to set that goal. The second thing is to do a resource audit and figure out what you can bring to the table to build your portfolio. The first step was assessing finances, but we have two more to go. We got to talk about time and we have to talk about skill. Time I think is one of the most overlooked elements of building a portfolio for real estate investors, especially when you’re first getting started because in reality there’s this big spectrum of how much time it takes to own and operate a real estate investing business.
You could be house hacking and self-managing everything. You could be flipping properties and that’s super time consuming and for some people that might work on the other end of the spectrum, maybe you’re super wealthy and you just want to invest in syndications or you want to split the difference and you buy duplexes and hire someone else to manage them. All of them work. It really just depends on your own personal resources. If you’re someone who’s going to prioritize a high paying job that maybe takes 40, 50 hours a week, you might not want to be self-managing every property because you’re going to burn out, and that’s really tough. So maybe you lean towards the more passive end of the real estate investing spectrum where you hire a third party property manager. Maybe instead you work a job that you’re okay with that has flexible time and you work 35 hours a week and you have five to 10 hours a week to manage your own property and that will increase your cashflow.
You should do that Again, the whole idea of this resource assessment is to just figure out what’s realistic for you and your lifestyle. And as a late starter, you may have a family, you may have responsibilities, and it’s really important to think about what time you can sustainably put into your portfolio because one of the worst things you can do is get into real estate, take on deals that are super time consuming and not be able to put the requisite time to make those things successful. You’re either going to burn out or you’re going to fail, and that’s worse than just hiring a property manager. If you hire a property manager, you could just make these successful and sustainable over the 10 to 15 years that you need to make this sustainable for in order to realistically retire. So that’s the second thing. And the third thing is your skillset.
This again, another thing people overlook, but it takes a variety of skills to be a successful real estate investor and figuring out what you’re good at and what you’re bad at, what you’re going to hire for, what you’re going to do yourself is another really important part of building your portfolio. As an example, I’m good at data analysis. I like analyzing deals, I like analyzing markets. I’m not very handy, so I outsource a lot of my property management, all of my repairs and maintenance. I outsource my billing and my CPA work because I’m not good at that either. And again, could I realistically do this all myself? Sure, am I going to do that? Well, no. And as someone who is, I’m not 40 yet, but I’m getting pretty close. I have other priorities and things in my life and I don’t want to spend all of my time working on real estate.
So just thinking through the things that you like doing that you think you’re going to be good versus the ones that you would rather hire out is going to help you. Every successful investor I know hires out at least some of the skills and stuff that you need to successfully run a portfolio. This is not copping out, it is not cheating, it is not being lazy. It’s just smart business. This is just what you got to do. And so take some time to think through this. This is the resource audit, thinking through how much money you have, how much time, and how much skill you have. That is step two in your late starters guide. And brings us to step three, which is mapping out your strategy. Strategy. The definition of it is a plan to achieve a goal. And we know our goal right now, and so the strategy that we need at this point in our plan for late start is to figure out how am I actually going to get from here today to the goal that I have of replacing my income in 10 to 15 years?
And that might involve rentals, that might involve short-term rentals, but at this point, I really think you need to kind of go a little bit higher level. And of course every person is going to have their own approach to this, but because you’re listening here and I’m giving you a guide, I’m just going to tell you what I think is the highest probability strategy for trying to retire starting at age 40 in 10 to 15 years. Here are my strategies. Number one, I already told you this one, maximize your current income however you can, whether that’s staying in your current job, working side hustle, going into real estate, get as much money as you can to put into your portfolio as quickly as can. That’s the best strategy. Second, focus on building equity for the next seven to 10 years so you can build your net worth as quickly as possible.
And this means not focusing as much on cashflow. I’ll explain that in a minute, but I think the real focus when you are getting started and trying to scale up is get that net worth your investible assets, the total amount of equity you have, grow that as quickly as you can. That can be passive, that can be active, that can be flipping, that can be brr, however you want to do it. The strategy behind it is to grow your net worth and equity as much as you can as soon as possible. The third part of the strategy is once you reach an appropriate amount of equity, which may be $2 million, for some people, it might be $1 million for other people, but once you figure out how much money you need and how much equity you need to achieve that, then you shift to a cashflow focus.
This can be in year seven, it could be your eight in year nine, but that’s it. That’s my plan for retirement. Maximize your current employment, spend the first two thirds of your growth stage building equity, and then the last third of your growth stage shifting from an equity focus to a cashflow focus. That’s it. Then you retire. I don’t often prescribe strategies to, but I really like this one. So for the purpose of this episode, I’m going to assume you like this one too, and we’re going to use it and I’ll share an example of you so you all understand sort of what I’m talking about, maximizing income and also the shift from equity to cashflow over time. I’ll explain that all in an example as we keep going. Okay, so let’s just talk about goals and sort of working backwards towards once you have the strategy, how this might actually play out for you.
So when we talk about goals and doing this resource audit, one of the things that you should do at this point when you’re building out your strategy is figuring out what income replacement means to you and what retirement actually means to you. Do you need $10,000 a month? Do you need $5,000 a month? Do you need $20,000 a month? That’s going to vary a lot per person, but the cool thing about real estate is that if you figure out what amount of money that you want, you can pretty easily work backwards and figure out, one, how much cashflow that you’re going to need monthly from your rental properties, but two, how much equity that you’re going to need to actually generate that cashflow. And this is a super important concept that I really want everyone to think about here. Cashflow is really a function of two things, how much money you have invested into your portfolio and the rate of return that you earn on that portfolio.
Just as an example, if you had $1 million invested into your portfolio and you earned a rate of return, like a cash on cash return of 10%, you can know that you’re going to have a hundred thousand dollars per year. That’s amazing, right? On the contrary, if you only have, let’s say $400,000 invested into your portfolio, which is still a lot of money, and you have that same 10% rate of return, you’re only going to be earning $40,000 a year. And I don’t know your personal lifestyle, but I would imagine you can all see that earning $40,000 a year from your rental portfolio versus a hundred thousand dollars a year in your portfolio is pretty different. And although conditions change and the rate of return that you can earn will change based on where you live, how good of an investor you are, what’s going on in the macroeconomic environment, the rate of return doesn’t change all that much on the low end.
You might be getting 5% cash on cash return on the high end. If you’re crushing it and doing value add, you might be getting a 15%. So that is a pretty big range, but I think for the average investor for who’s just getting started, you need to assume that you’re probably going to be getting a cash on cash return, let’s call it of 8%. Let’s say you average an 8% cash on cash return. So if you spend the next 10 to 15 to 20 years putting all the money that you have into your investment property and you wind up building up enough equity, let’s call it $250,000 of equity, that’s an amazing amount of money, right? You have an 8% cash on cash return, pretty good cash on cash return. Your cashflow at that point is $20,000. Nothing to sneeze at, but probably not retiring off $20,000.
Even if you got that cash on cash return, let’s just say you had a fantastic cash on cash return and you got it up to 15%, that’s great. That’s a really high cash on cash return. At that point, you’re doing better, but you’re still only earning $37,500 per year in cashflow. That’s a big difference, but again, it’s probably not that retirement number that most people want. Instead of focusing on getting our cash on cash return from 8% to 15%, if we spent the majority of our growth period of our portfolio building trying to build equity instead, let’s say we had a million dollars in equity at the end of seven years, which may sound like a crazy high number at this point, but trust me, if you commit yourself to real estate investing, that is an achievable goal. So if you say you have a million dollars of equity invested and then you go back to that lower rate of return of 0.08, you would actually be earning $80,000 a year.
Now that is getting pretty darn close, I think to almost everyone’s retirement number that is actually higher than the median household income in the United States right now. And of course I’m pulling numbers out of thin air, but what I’m trying to illustrate here is that what’s going to matter to your retirement more is how much equity you build up in the first few years, not how much cashflow you’re earning in the next few years. If you can mail 500 or a million or a million and a half dollars of equity in the next seven or eight years, taking that equity and generating cashflow from it is actually going to come easy. You could buy properties for cash, you could buy it for low leverage, you could do all sorts of things. Having that equity to invest at the highest rate of return close to the date when you actually want to retire, that’s what’s going to empower your retirement for sure.
Almost every real estate investor I know has this realization that focusing on cashflow in the first few years is not that important. What you need to do is maximize your equity and then focus on cashflow later. So again, this is why I’m proposing this strategy. Again, three part strategy. Number one, maximize your current income however you can because that’s going to help you invest and build up that equity. Number two, focus on deals that will help you build equity in the next 10 years, seven years, whatever it is as quickly as possible. And then three, when you’re getting close to the date where you actually want to retire, shift to a cashflow focus, and that’s it. That’s the high level strategy. This is what I would recommend to most people. This is what I do myself. Over the last 15 years of my own investing career, I have focused majority of my time and effort on building equity, and you could do that through tons of different deal types.
You can do it through rental properties, you can do it through the bur method. You could do it through house hacking, you could do it through flipping, but it does represent a difference between going out and just buying the highest cash flowing deal right away. There is a inherent trade-off in real estate. Some of the properties that cashflow the most are probably not going to have the same amount of appreciation, especially if you’re not doing a heavy renovation. If you do a renovation, you can get both, which if you can do both, absolutely do that. But as a newbie, what I would recommend to you if you want a retirement in that 10 to 15 years is to pick the deals that are going to give you those big pops of equity and prioritize that more than generating the maximum amount of cashflow in the short term. So that’s my strategy. I’m giving you all the strategy that I use and I recommend to pretty much everyone, but I want to hammer home this point a little more with a more specific example and just share with you the numbers behind how this can actually work. I actually built an entire calculator that can show to you and prove to you that this really does work. I’m going to walk you through it right after this break.
Hey everyone. Welcome back to the BiggerPockets podcast. We are talking through the late starters guide to real estate investing. Before the break, I shared with you my personal strategy and the one I recommend for any late starters. As a reminder, it’s basically maximize your current income, focus on equity in the short run, and then turn to a more cashflow focus as you get closer to your retirement date. In this example, I’m talking about a 40-year-old who wants to retire, let’s call it 10 to 12 years. So I would say focusing on equity seven to eight-ish years, trying to build up that net worth and then selling off assets or repositioning your money to more cash flowing assets for years eight to 12. That’s going to get you there, and I know that sounds overly simplistic, but it’s honestly really not. I’ve done the math here, and I can show you that this really works.
I have this thing, it’s called the FI five Financial Independence Calculator. It’s free on BiggerPockets. You go to biggerpockets.com/resources and download this for yourself and see the math for yourself. But I’m going to walk through the example that we’re talking about. I actually Googled what is the median income for a household at age 40, and it’s about $85,000 per year. So I’m going to use that as my assumption here. So if I’m starting with $85,000 per year and I have $50,000 to invest upfront, now not everyone might have 50 grand. That’s fine. I honestly, again, just Googled what is the median household savings for a 40-year-old in the United States, and it was about $50,000. So I’m just taking the average person in the United States making 85 grand, has 50 grand saved up if this person goes out and starts acquiring properties with the average property price of $250,000, and they do this as frequently as they can, and the whole calculator will show you the math, but it’s basically it does the math for you.
How long is it going to take you to save up between properties? Is it going to take you three years, two years, one year, but basically trying to buy properties at that price as quickly as you can? This person would retire in 13 years. Think about that. Think about that actually for a second. This is the average person working an average job with an average amount of savings, buying a totally average deal. This isn’t some special off-market deal. It’s not some heavy value add. It’s just following the strategy that I just laid out for you. They can retire in 13 years. Now, if you’re thinking 13 years is too long, fine, go out and do a more advanced deal than I was talking about. Do a do a flip, do a creative finance deal. If you can do one of those a year or you can sprinkle those in over the next six or seven years, you might be able to retire in 10 years.
You might be able to retire in eight years. Remember, this 13 year number is the most bland, boring portfolio that you can possibly do, and it’s still getting you retired in 13 years. So that is why at the beginning of the show, I said, when people ask, is it too late to invest in real estate? No, if you have 13 years, if you’re starting at 40, you could retire by 53. The average person in this country retires around 65, 66. So if you’re starting at 40, you can essentially cut your time to retirement in half by just buying boring old rental properties. That’s incredible. So that is why I’m so bullish on this strategy. If you want to check out the PHI calculator for yourself, you can get it for free. All you got to do is go to biggerpockets.com/resources. There’s a little section on there called Financial Freedom and Wealth Planning.
If you go in there, there is a financial independence calculator. You can download that for free. Now that I’ve explained this and sort of just walked through how the math can work, I want to just leave you with a couple of tactical points here. We focus mostly on strategy here, but I want to talk about sort of the system that you need to be able to do this repeatedly because as I said, you’re going to need to do this for somewhere between 10, 12, 15 years. So the things that you’re going to need are first and foremost a market where you can buy at a rate that is affordable to you. So I picked 250,000 relatively randomly, just I figured someone making 85 grand a year that is realistic for them to buy pretty frequently. So starting in the first year, you would buy one deal, then two years later you would buy your second deal.
Two years after that, you would buy your third deal and then you’d buy every year after that. That’s just kind of how the math works out in the beginning. It’s going to take you longer to save, but as you have cashflow and you build up equity in your properties, you’re going to be able to buy at an increasing pace. And so you need to be able to build a system to buy a property every two years and then every year after. So what do you need? First and foremost, a market where you can buy at that affordable rate to you. For some people that might be in their backyard, for others, it might be in other parts of the country. Figure that out. We have tons of resources on BiggerPockets to help you. The second thing that you’re going to need is to build a team.
First and foremost, you need an agent because you need deal flow. You need to be able to see all the deals in your neighborhood that are going well. And again, what I recommend to you is find an agent who can help you find yes, cashflow. I always recommend people find deals that at least have breakeven cashflow. I should have said that earlier when I say that you shouldn’t focus primarily on cashflow. I still think if you’re going to hold a property, it needs to be cashflow positive. It’s just not the most important thing. You don’t need to prioritize getting a 10% cash on cash return if you get a 2% cash on cash return and build a lot of equity, to me, that’s better earlier in your career. So you need to find an agent who’s going to be able to connect you with those kinds of deals that fit your strategy.
Now, every investor needs deal flow, but frankly, with this approach, you don’t need crazy deal flow. You don’t do direct to seller marketing. You don’t need to look at off market deals. You need to find a deal every two years and then starting in year six, you need to find a deal every year for the next four or five years, right? That’s pretty reasonable. So just find an agent who’s going to be able to do that. We can connect you on BiggerPockets for free biggerpockets.com/agent if you want to be able to do that. The third thing is to be able to spot and close on deals where you can add value in a modest way, right? Like I said, building equity is really important to this strategy, so you can’t just go out and find deals that are perfect the way they are. You need to be able to add value.
You don’t need to flip houses, you don’t need to break down walls. You don’t need to do any of that, but find ways that you can build equity in your properties. For most people, that’s just going to be doing cosmetic rehabs. Can you fix a bathroom? Can you update a kitchen? Can you add a third bedroom to a two bedroom unit so you can increase your rent? Can you find a place that in a couple of years that you can add a dadoo or an extra unit onto it? These are all upsides for the deals that you’re buying today that are going to really help you over the lifetime of your hold on this property and is going to again, help you build that equity. You can turn into cashflow in the future. So find those ways that you can add value. That’s number three.
Number four is to get traditional financing. If you’re going to go into real estate, this might be a little bit harder, but I recommend that people get fixed rate debt in almost every circumstance. A lot of people get ahead of themselves and start thinking about like, oh my God, I can only get 10 mortgages. How am I going to manage that when I get more than 10 mortgages? You may not need more than 10 mortgages. You may be able to buy five duplexes and retire. You be able to buy three triplexes and retire. So don’t get ahead of yourself. Focus on leveraging one of the best assets to any real estate investor, which is long-term fixed rate residential debt. It is an incredible asset to anyone, but especially to a late starter if you want to find great deals and lock them up so you can retire, get fixed rate residential debt.
So that is another part of the system that I highly recommend is finding your rate lender who you’re going to be able to do this repeatedly with, and that shouldn’t be that hard. If you have a job and you have decent credit and you are buying at this kind of interval, that should not be a problem to you, but you need to build out that system. Last is you got to manage your deals well. People always say you make money in real estate when you buy. There’s some truth to that. I think you make money in real estate when you operate well, because property, when you buy, that’s when you get the potential to make money. But if you don’t do it well, you are not going to be able to reap the rewards of that potential. And so think really hard about the best way to manage your property.
If you live close to your properties and you have the time to it, self-manage, you’re going to make more money. You save a lot of money. Not paying a property manager, having your hands on the property every single day is going to give you just a better pulse on what’s going on, is going to allow you to just maximize the efficacy of every single deal that you buy. But if you’re not going to do a good job of it, if you don’t have time for it, if you live out of state, it’s totally fine to get a third party property manager. I have third party property managers, but I was just saying, all things being equal. If you want to make more cashflow upfront, you might want to self-manage. So that’s it. Build a system like this. Find a market that works for you. Get a great agent.
Find ways to add value. Use traditional boring financing and find a great property manager. If you follow the strategy that I’ve been talking about, about maximizing your income, investing for equity, then transitioning to cashflow, the rest is honestly really easy. I’m not talking about buying really complicated deals or doing anything unusual. All I’m saying is go out, find a great agent, find a great lender, and buy deals every couple of years as quickly as you can, and you could retire in 10 to 12 or 15 years. That is unbelievable. That’s it. I know this might sound incredibly simple, but that’s honestly what it is. This is exactly the approach I’ve used to achieve financial freedom through real estate. I’ve seen tons of other people do this, and it still works. If you’re 40, it works. If you’re 35, it works. If you’re 50, it works at almost any age.
If you’re willing to give 8, 10, 15 years, depending on how involved you are, somewhere between eight and 15 years, you absolutely can retire. And I know that might sound like a lot, maybe 12 years sounds like a lot to you, but I assure you, working for another 25 or 30 years is a lot harder, and I’ve done it. I’ve been investing for 15 years almost exactly now, and I got to tell you, it’s been fun. I’ve actually enjoyed it. It is not that hard. And yeah, I got started pretty young. That is true. But I also worked full time during that time. I put myself through grad school. During that time, I managed self-manage all my properties. I dealt with all the other stuff that comes up in everyone’s life, and I just want to show that even though I got started early, there were some advantage to that for sure.
But there are disadvantages to that as well. I was pretty immature. I had very little money to start with, and I couldn’t scale as quickly as I wanted to. So remember that even if you’re starting a little bit later, there are absolutely advantages. There are resources that you can bring to bear that younger people or people who started earlier may not have. Think hard about that. Think hard about the resources and the skills that you can bring to your portfolio. And I promise you, if you want to achieve this, if you’re willing to be responsible for the outcome, you absolutely can do this. That’s what I got for you guys today. That is our late Starters Guide to investing in Real Estate. Hopefully this has been helpful to you. If you have any questions about this, please let me know. You can always find me on BiggerPockets or on Instagram where I’m at the data deli. Thanks again for listening. We’ll see you for another episode of the BiggerPockets podcast in just a couple of days. We’ll see you then.

 

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High DTI (Debt-to-Income)? How to Still Buy Rentals (Rookie Reply)

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Ashley:
On today’s rookie reply, we’re tackling three more thoughtful questions straight from the community, covering some really creative and challenging situations.

Tony:
First up, we’ll talk about a property manager exploring a unique way to earn income by tying their pay to appreciation instead of rent. Then we’ll help a rookie investor figure out how to buy their next property despite a high debt to income ratio. And finally, we’ll give some tips to a couple with kids who want to rent out a room in their home to medical students.

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

Tony:
And I am Tony j Robinson. And with that, let’s get into today’s first question. Alright, our first question up comes from Jeff and Jeff says, I’m a Superhost on Airbnb for my own property, and I’m considering starting to offer management to other people. But rather than taking a cut of the revenue which can make the cashflow challenging for the owner and markets with decent forecasted appreciation numbers, I’m playing around with the idea of taking a percentage of any future appreciation. Has anyone come across that business model any way to do this where I can see myself with X percent of $0 unless there’s no appreciation? Would this be an attractive option for you as a property manager as opposed to a percent of revenue? This is interesting. I’ve literally never heard anyone frame this question as a property manager to say like, Hey, I don’t need cashflow. I just want a piece of the appreciation. Have you ever heard anyone structure a management deal like this? Ash?

Ashley:
Actually, I think that I have as, I don’t think that I would do this, but I’m pretty sure that I have talked to people that instead of wanting part of the cashflow, they want part of the equity in the property and it’s a way to get them started in real estate investing. You see this in business models where someone goes and works for a company and they say, instead of taking X amount of salary, I’ll take a little bit less, but I also want some profit share or equity in the company too. So I don’t think this is uncommon. The reason that I would not do this as the property owner is because I wouldn’t want to tie myself to someone. And I think it gets more complicated if they don’t perform or don’t do a good job to actually separate from them. So first step is talking to an attorney to see what you would need to set the structure up and what would happen when you decided to part ways and to separate from each other. The thing that I would not want to happen is Tony comes on as my manager. I give him some equity, he does a horrible job. I tell him he’s done, but yet he still owns 10% of my property until the day that I sell it.

Tony:
Yeah, I couldn’t agree more. I feel the same way. As an owner, I would not give up a percentage of ownership of my property to a property manager for all the reasons you just said. I think what would be a better approach, Jeff, if the skillset of effectively managing Airbnbs, I would either just go the traditional route of offering a percentage. And if you want to be conservative of their cashflow, then I dunno, maybe structure where it’s like, Hey, I’ll only take a percentage of the revenue above X dollar amount per month. Like, Hey, you’re going to earn a thousand bucks a month. I’ll take everything above the thousand dollars, then I’ll get my 15% or whatever it is. But hey, if you don’t get at least a thousand bucks, then you don’t pay me anything. And maybe that’s a more attractive way to protect the owner’s cashflow without marrying yourself to that deal.
But I think it would be a tough sell, in my opinion, to go to someone and say, Hey, I’m going to manage your property in exchange for that. I want a percentage. Now I think it’s different. And Ash, you lemme know if you think differently here, but if Jeff came to someone and said, look, I found this amazing deal. I’m going to set the property up. I’ve already got it under contract, I just need you to buy it. I need you to fund the deal and then we’re going to partner on this thing. I think that’s a different proposal than going to someone who already has a running Airbnb and saying, Hey, can I get 10, 15, 20% of your equity? What do you think as, would that be a better approach than trying to do it as a management partner?

Ashley:
Yeah, I think that’s a great idea. You’re bringing somebody who has the capital, you’re doing all the work for them. And that’s how I got started. I brought my first deal to my partner and I said, I’ll manage it. I’ll find the tenants, I’ll manage the contractors for a little bit of repairs, and they became the money partner. So yeah, I definitely think you probably have a better opportunity with that. The one thing I will say though is even though me and Tony are kind of crapping on this idea of don’t do this, you should still ask people, you should still put it out there because just like we say with low ball offers, you never know until you ask. So I would not say don’t do this, but I think look at other ways that you could partner with somebody or become a co-host, provide value with not only this structure, maybe have different options for someone and say, Hey, you give me equity, I’ll manage your property and this is what it would look like.
And then there’s the offer too where it’s maybe a step up where the first month I’m going to make all these changes, I’m going to manage it and after the first month, if I’ve increased your revenue by X amount, you owe me a percentage. If I don’t do that, okay, we can continue on if we’re seeing a growth trend, but you don’t have to pay me anything until I hit that number or something like that. So I think you’ll have a better chance of getting those partnerships if you have different options and once you’ve kind of gotten that track record of doing it for other people, you’ll have a lot more wiggle moon of being able to say, this is how I structure the people I co-host for. This is my structure. But I think just to start building that brand and building that confidence in other people to have those different options available is a great start.

Tony:
Yeah. So Ash, we talked about maybe not taking your management fee unless a certain revenue threshold is met, but I think the other piece is the profit sharing. Maybe instead of you taking your management fee off of gross revenue, you can say, Hey, I want a percentage of the profits. And if you approach the property owners with that perspective, well now you’re almost like a partner because you’re not incentivized just to maximize the top line, but you’re also incentivized to maximize the bottom line and the actual profits that owner’s seeing. So I think maybe adding in the option of, Hey, I don’t charge my management fee off of the top line revenue, but actually charge a fee off of the actual profit that hits bank account is another creative way to approach owners in this situation.

Ashley:
Okay, we’re going to take a short break. When we come back, we’ll have another question from a rookie investor. Okay. Welcome back from our break. Today’s next question is from Daniel. Since joining this forum, less than a year ago, I had the good fortune to connect with a real estate pro who helped me buy my first investment property, a house hack owner occupied duplex with 5% down. I’ve caught the bug and want to buy another property as soon as possible, but my debt to income is already dented from my current mortgage and my six figure student loans, which I’ve been comfortably paying back. How can I get around this? Or is it more prudent to pay off these loans first? Okay, so I think probably the first thing to talk about is DTI. What is DTI? And it is your debt to income. And this is calculated by mortgage brokers, lenders, banks, when they’re seeing how much debt you have compared to your income.
So for example, if your monthly mortgage payments add up to $10,000, maybe that includes your auto payment, your student loan payments, that’s $10,000 and then your monthly income is $20,000. So that means you have a 50% debt to income. Your debt payment is 50% of your income. Okay, so with this question from Daniel is saying he wants to buy another property as soon as possible. Okay. So right here we have two options that we’re not sure what he is trying to do and is you can live in his house hack for a year and then he’d be able to move to another property to make it his primary. When he did this option, the bank would then look that he’s filling his side of the duplex with rental income and they could take a portion of that, a percentage of that rental income and count it towards his income, and that would lower his debt to income and that would free up some debt to income room for him to purchase his next primary.
If he’s going to buy the second property solely as an investment and not a primary residence, then he should look at A-D-S-C-R loan. So this is a debt service coverage ratio loan where instead of looking at your debt to income, it is looking at the income of the property and how much debt you’re putting onto the property. So what the lender will want to see is that the property is able to support itself and to pay the mortgage payment on the property. I think that is probably the best route for him to go. And then he doesn’t have to worry as much about paying completely off his student loans, especially when there’s six figures to be able to get that debt to income lower to go and purchase the next property.

Tony:
Great point, Ash. But you know what stuck out to me was he says, my DCI is already dented, but he didn’t say like I’ve been told by a mortgage broker or I’ve been told by a loan officer. So I think what I would do first, Daniel, is just go to a few lenders and give them your current financial situation and let them actually tell you if your DTI is an issue. But what I wouldn’t want you to do is just assume that because you have the student loans, because you have the mortgage from the House act that you can’t get qualified for another loan. So I think the first thing is just go talk, go shop around to as many lenders as possible to understand what the different options are. And as you bring up a good point of the DSCR, but as you talk to more lenders, and we just had Jeff Wegen on episode 5 88 of the Ricky Podcast and he talked about lending and he talked about so many different loans that Ash and I had never even heard of before.
So I think the first and maybe most important step, Daniel, is go shop talk and get the option of what makes the most sense for you. I think the second part of that question is, should I pay off my student loans? I think maybe it depends. If you do go to talk to a lot of lenders and they all say the same thing, like, Daniel, do these student loans are killing your ability to get approved, then maybe it is the prudent choice to pay those down. If you’ve got super high interest rates on the student loans, maybe it is a good idea to pay those down so you can free up more cashflow to get approved. But if the lenders are like, eh, it doesn’t really hurt that much and you’ve got a 2% interest rate, then maybe it is the better decision to go out there and use that money to buy that next deal. So I think there’s some nuance to the question, some detail maybe that we’re lacking, but I just wouldn’t make any moves until I’ve gotten no from multiple about buying that next deal.

Ashley:
Tony, did you have student loans?

Tony:
Yeah. Yeah, I still do.

Ashley:
Did you prioritize paying them off or did you invest first?

Tony:
I invested first because mine, they’re all federal loans and all of my student loan debt is a 2% interest rate. It’s crazy. So I have no pay that off left to pay that off. So I’m paying what I need to pay, and I’ve used that money to grow out there and buy all the real estate deals we’ve done. So for me, it was the right financial decision, but mathematically it made more sense for us as

Ashley:
Well. Okay. We’re going to take our last break and we’ll be back with our next question for rookie reply. Okay. Our last question today is about renting a room with kids at home. And Tony, we often hear the excuse of, oh, I can’t house hack, I have kids. So maybe Jennifer is proving us wrong. Now you actually can. So Jennifer asks, my husband and I are interested in renting out a guest bedroom and bathroom on the side of our home. We have four small children, so rules would need to be established. The guest would be in medical students. My husband was a medical student before becoming a physician and feels familiar with this guest space. What are some things we should know months, a month, contracts, damage, deposits, common spaces, et cetera. Okay. Well first of all, I think this is awesome that you’re going to be utilizing this extra bedroom and bathroom in your home to bring in additional income.

Tony:
Yeah, I think the first thing is that I like that you guys have a specific avatar of who you want in mind. There’s some commonality there, and I think if you are bringing someone into your home, and as you can probably speak to this way better than I can, but if someone’s moving into your primary residence as a tenant, you have a lot more latitude over saying yes or no to that person than you would if it was just a traditional investment property. Can you elaborate on that, Ashley? I know you’ve mentioned that in the podcast before.

Ashley:
Yeah. Some of the fair housing laws don’t apply if you’re actually occupying and living in the property, you have more say who’s going to be living in your home or even if you have a duplex who’s going to be living in the other unit next to you that you can’t if you’re just a landlord and not inhabiting the property. So that definitely is a huge advantage that you can select and not have to go off of the laws of like, okay, well this person met the screening criteria first you have to rent to them and can’t view all of the applicants and then pick who you thought was the nicest. Or in this situation, you can pick off of who you get the best vibe from or whatever. Even though you should, no matter what, do proper screening techniques, you do have more say as to who you can run to and why or why you could say no to somebody.

Tony:
And I think that takes off a lot of the pressure, right? Because you can really make sure you’re choosing someone that you feel you’re going to feel comfortable with being around you and your four children. So Ash talks about all the basics of tenant screening, so I think we should cover that too, but I think just maybe go talk to a real estate attorney and get the actual guidelines that you need to follow. When you are screening a tenant for moving into your spare bedroom, how much latitude do you actually have? Can you say no to someone just because you don’t like the way they smile? How much latitude do you have? So I think getting the ground rules are important there, but as you talk about the basics of tenant screening, what are the non-negotiables that this person should still do regardless of all of the other things they can look at, but what are just the basics of tenant screening?

Ashley:
Yeah, I actually just put out a guide too with rent Ready. It’s talking all about tenant screening and it’s actually a pretty long thing. It’s not just a one pager of how to do a tenant screening. It goes pretty in depth. You can find that at biggerpockets.com/resources and it’s the tenant screening guide. But basically you should have some kind of software that is actually going to run a background check for you, credit check for you do an income verification, or you should manually be calling to verify that they actually work where they say they’re employed. There’s a situation recently from a friend of mine that works for a property management company and they just rented to somebody and they went off of their credit screening reports just saying approved or denied and didn’t actually dig into what was on the reports. And now the dog board in is calling my friend who works at the company saying this person has been evicted to other places, which in New York you can’t deny someone based on eviction, but they have all of these felony records and stuff that didn’t show up.
And so he did a simple Google search of this person. So there’s three or four articles that come up to three or four different circumstances where this person was arrested for a gun charge, illegal possession of a weapon for gang violence, all these things that didn’t show up in the screening report. So it is very, yes, you should be using these reports 100%, but there are other things to do. Look at the person’s Facebook too. So violent things like gun possession, gang violence, those are things that you could turn someone away from because this wasn’t in a complex where there’s a ton of other people living and for the safety of others, you could deny that person. So I really like looking at the person’s social media, especially when it’s your house act too, and you can deny for any reason looking at their social media, can you see pictures of the room they’re renting now and is it kept clean? Is it kept nice? So yeah, I think use the standard screening procedures, but also do a little bit of your own. And most women are very good at exposing the truth about different things and doing the digging and investigating.

Tony:
That’s nice. Sarah, my wife, she never surprises me with her ability to sleuth on the internet. So yeah, do a little bit of that and see what you can dig up.

Ashley:
Yeah, it’s like you meet someone and then you’re like, oh, you know that person you talked to, here’s their house. Did you know they bought it?

Tony:
Well, I think the other piece of this too, Ashley, is, and I’m just thinking about myself as a parent with young kids at home, it’s like if someone were renting a room in our space, I’d also have to have some very clear ground rules around, Hey, how are you going to interact with us in our family? Do they have access to the entire house or are they like, Hey, all the other bedrooms are off limits. Make sure you’re never inside any of our rooms. The communal space, what does that look like? If you’ve got four young kids, quiet hours, if the kids go down at eight o’clock, can they be up making a bunch of racket at 10:00 PM? So I would just think through what areas of your life currently do you not want to be impacted? Do you not want to change? And just whatever that is, I don’t think there’s a right or wrong answer, but whatever that answer is for you, make sure it’s very clearly articulated to this person before they decide to say yes and sign that lease. That way you guys can make sure that there’s peace, there’s harmony when they actually do decide to move in.

Ashley:
And I think to set the expectations of what this person should expect from you too. So if you do have four young kids, if they’re loud, you’d want them to be able to run around and somp on the floor and not make that them aware of that so they know coming into it so it doesn’t become a problem. Later on with my short-term rentals, I was just a guest on figure stays with Garrett Brown, and we talked about how in my listing I put all of the bad things, here are the things people aren’t going to like about my property. And I put them in there so that it’s not an issue because it’s going to be more of a headache for me. When someone gets to the property and says, what do you mean you don’t have a grill? Or What do you mean there is this there in the shower, the faucet was put on the wrong way.
So when you want cold water, you have to turn it to the hot side. Okay, we literally put that out, we tell them right away because that was an issue a couple times. So I think getting ahead of anything that you may think may be a problem for someone else too, and setting that expectation, I would not want to tell my kids in my own home, no, you can’t run around the circle and chase each other and stuff like that because we have somebody in their room and they might be studying. We got to be quiet. So I would set that as an expectation. Hey, there’s four kids here, they’re allowed to run around, play, have a good time. One may wake up at 1:00 AM screaming or something. I would set expectations like that too.

Tony:
I think we should also just give them kudos for even thinking through this because it is a sacrifice that I think a lot of folks aren’t willing to make, especially with four young kids. So kudos to you because we always say one of your biggest expenses is your living expense, and if you can reduce that cost, you’re able to then have access to a lot more capital to go buy more deals. So kudos you guys on that. I probably couldn’t swing this in my life mostly because I feel like I would probably be fine with it, but I don’t think Sarah would be okay with us having a stranger living in our four walls. But yeah, I think I might be able to swing it. What about you, Ash? Do you feel like you’d be okay with renting out a room

Ashley:
To maybe My brother is 21, I’d say Yeah, but another thing I thought of too, right when I read this is getting an au pair. So maybe there’s something else that you need help with in the house that rather, instead of generating income, you get an au pair who helps with the kids and stays there for free. So instead you get in-home childcare. I don’t know exactly how this works, but I think it’s something similar to that. You provide a place for the person to live, you get free childcare, and then maybe that gives you the opportunity to go and do some other kind of work or something that you’d rather make money at than having to rent out the room to a medical student. I don’t know. But I’m just saying there’s other things like that too. I would say yes, Tony to a live-in chef, best you can live in my home. Alright,

Tony:
Ashley’s putting that out there right now. So if anyone wants to move to Buffalo Cook for Ashley and Darrow and the boys, she’s got an opening.

Ashley:
I need you guys to make me healthy meals, though. I really want to eat healthy all the time. I just don’t want to cook all the time.

Tony:
Yeah, I’ll take one of those here. If anyone wants to move to SoCal, all good questions for today. And whether it’s testing a creative new business model, finding ways to invest with heavy debt, or just figuring out how to open your home to a tenant while keeping your family happy. Today’s questions prove that rookies are thinking outside of the box.

Ashley:
And the best thing you can do is keep asking these kinds of questions. Run the numbers, talk to others who’ve done it, and don’t be afraid to try something unconventional if it fits your goals.

Tony:
Now, thanks again to everyone who submitted a question. And if you want your question featured in the Real Estate Rookie podcast, put in the forums. That’s where we go to find the questions for the episodes, it goes to the BP forums. Submit your questions. We just might choose it. And if you’re listening, don’t forget to subscribe. Share this episode and leave us a review so more Ricky’s can learn right alongside you. I’m Tony.

Ashley:
And I’m Ashley.

Tony:
And this has been an episode of Real Estate Ricky. We’ll see you guys next time.

 

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