Ashley Kehr:
You could offer the highest price on a house and still lose the deal or worse, win it and deeply regret it. Because of what was not in the contract, today DFW realtor and mortgage loan officer, Layla Smith, is going to walk us through the 10 things she puts in every buyer’s offer to protect her clients. These are the terms most people overlook and the ones that could save you thousands. Today, we are talking about one of the most underrated skills in real estate, not finding deals, not financing them, but actually writing the offer in a way that protects you from the moment you sign to the moment you close.

Tony Robinson:
Our guest today is a DFW realtor and licensed mortgage loan officer who started her career as an investor alongside her husband before earning her license. She knows what it feels like to be on the buyer’s side and that experience shapes every offer she writes.

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

Tony Robinson:
And I’m Tony J. Robinson. And with that, let’s give it a big warm welcome, Layla. Thank you for joining us today.

Laila Smith:
Thank you for having me.

Ashley Kehr:
Now, Layla, before we get into your list here, give us a 30-second version of your story. So you started as an investor, then you became a realtor and also a loan officer. What made you want to do all three of these things and how does the combination change the way that you write offers?

Laila Smith:
Well, I decided to start all three really because I actually started being a lender and then a realtor after that with investing as well, just because it made it a complete package for my clients.

Ashley Kehr:
I haven’t run into anybody else I know that is all three of those things. Do you know Tony? Especially an agent and a lender, I don’t think that I … Unless somebody just didn’t tell me that.

Tony Robinson:
David Green, no. Oh, wow. David Green, I think, is checks that box. And James Dainer. Jimmy has a lending company too. Okay.

Ashley Kehr:
Now you’re getting ahead of yourself. Okay. I know two people. Now three.

Tony Robinson:
Well, let me ask, right? Because I think that a lot of investors just kind of stay investors, but it does give an agent, I think, a slightly different perspective because there are a lot of investors who end up becoming agents. I think there’s fewer agents who are also investors. So how does that background of you being an investor maybe give you an edge? Or maybe was there a moment that you realized a lot of agents were leaving some of these critical protections on the table for their clients they were working

Laila Smith:
With? Yeah, I think it gives an edge because I know exactly when I go into investment transaction, I know exactly what the numbers are and what is going to be profitable and what’s not. So it made it easier to be able to pivot with investing and lending. And then real estate is just being a realtor was just given when it went into that.

Ashley Kehr:
And what about the investing? How did you start? What was your first investment that you did for real estate?

Laila Smith:
So we did a property over here in about 30 minutes away from my house. It was a single family residence that had been vacant for quite some time and came in and my husband and I, at the time, we gutted it out and then just built it from the ground up. And that was the first transaction. It was exciting and scary, but exciting at the same time.

Tony Robinson:
Yeah. I mean, a full gut on your first deal. That takes some guts. But now you’re here, right? And how long have you been in real estate in general now, Layla?

Laila Smith:
In the industry total, almost 17 years.

Tony Robinson:
Okay. So you’ve seen some of the ebbs and flows that come along with investing in real estate. Now, you shared a list of the 10 things you include in every buyer’s offer to protect your clients, and a lot of these are things that people overlook. So I want to go through each one of those 10 things, starting with number one. So the seller paid home warranty. Most buyers don’t even think to ask for this. So what is a seller paid home warranty and why do you fight for it in every offer? And what does it actually cover after the buyer moves in?

Laila Smith:
Yeah. So the seller paid home warranty, typically it is a warranty that is given to the buyers. Usually it’s paid by the seller for about a year. And some of the major items that those things cover is going to be like your appliances. It’s going to be a protection for things like your HVAC unit, plumbing, electrical, things that may happen within the first year of moving. That’s what it covers for the clients.

Tony Robinson:
Ash, have you ever had one of these on a transaction you’ve done, a seller paid home warranty?

Ashley Kehr:
No, I have not.

Tony Robinson:
Yeah, me neither. I’ve never dealt

Ashley Kehr:
With that. Yeah.

Tony Robinson:
Never even thought to ask for that. Layla, what’s the typical cost to the seller? Is this $500 or is it $5,000?

Laila Smith:
So a decent warranty usually is going to run you about $1,000, between eight to $1,000.

Tony Robinson:
And I guess how hard is this to actually get? Is this something that sellers are typically open to or is it maybe a bigger fight to get them to agree to this?

Laila Smith:
So most of the time it is more so by just asking. I think a lot of agents miss that for their clients. It’s not really difficult to get because most sellers are open to paying that small cost to, in a way of a good negotiation to sell the home, they’re more willing to do that. So not very difficult at all. It’s just about asking.

Tony Robinson:
Yeah. And I guess how many things are covered under the seller paid home warranty? You mentioned the appliances. I’m assuming larger systems as well, like the HVAC, but does it include the roof or if a window stops, how much wiggle room do we have within this warranty?

Laila Smith:
Yeah. So it wouldn’t cover things like the roof or foundation, but it will cover things inside the house. So like we talked about like the fridge or like the oven or just appliances that came with the home. It can also cover things like if there was any type of like plumbing issue, minor things that you may not need to go to your homeowner’s insurance for, the home warranty is going to be covering those things.

Ashley Kehr:
Yeah. I really haven’t had any experience at all with a home warranty. I know it’s pretty common with the new builds correctly where it will come with a home warranty, but I never even thought to actually have it, have the sellers get it for you. I just purchased a property that on the day of closing, the basement was flooded during the final inspection. And so the boilers underwater, the hot water tank’s underwater. And so it was like crunch time, what should we do? And we just kept thinking like, oh my God, thank God this happened before closing. This could have happened after we would be buying a new boiler, a new hot water tank, new sump pumps, draining this out. So it definitely puts it more into perspective of like things that can happen after closing. But what we ended up doing was they gave us a seller credit and that’s how we ended up working it out.
But if you’ve already closed on the property and something breaks or dies right after, then you can’t get that.

Tony Robinson:
Yeah. Now it’s yours right now you’ve inherited that issue. But it actually does because we bought our primary home as new construction and it did come with a one-year warranty from the builder. And I’m so glad that that came in because there was one day I was sitting in my dining room area and my sister was there with me and she kind of looks up and she’s like, “Hey, your ceiling’s wet.” I’m like, “What do you mean?” And I look up and like there’s this big wet circle on my ceiling and it turns out that my son’s bathroom is right above and there had been some kind of leak in the plumbing in his sink and it had been dripping, dripping, dripping. We were in the house for maybe six months at that point. So it had been a while and this water had just been dripping for six months.
Now, luckily because it was under warranty, they came in, they cut everything out. They literally had to rebuild basically his whole portion of his bathroom, redo all the drywall and the ceiling up there and obviously remediate whatever mold that had happened during that time as well, but it was all covered. All we had to do was make a phone call. Now to your other point, Ash, about finding surprises before you close, I was buying a home from a wholesaler. And obviously we expect these homes to be in disrepair. It was a home that needed a lot of renovation, but we walked the property, we got our scope of work and the day before, or not the day before, it was like maybe a couple days before closing. For whatever reason, we had to go back just like it went additional measurement. And when we walked back in, the entire ceiling had collapsed inside the main living area and talk about a big material change.
So luckily we found it beforehand, but yeah, things can get crazy if you wait until afterwards.

Laila Smith:
Yeah, definitely.

Ashley Kehr:
Okay. Now another thing that you like to put in is mentioning that the repair deadline is in writing. So what goes wrong when repair agreements are vague and what does it look like when you write repair deadlines the right way?

Laila Smith:
Well, we definitely want to have a clear language requiring the repairs to be completed and also be able to do a reinspection prior to closing. And most of the time we try to create a deadline where it’s like, if we’re going to be having repairs done, we want to make sure that we have a date set so we can be able to renegotiate with the seller.

Ashley Kehr:
I was selling a property and there was a telephone line down and they wanted the cable taken off the property or fixed or whatever before closing. And so I had my assistant take care of it and she called and one company came out and said, “Nope, that’s not our line. It’s this company, whatever.” She’s like, “Don’t worry, I’ll take care of it, whatever.” The day of closing, when they’re going to do their final inspection, they’re like, “Oh, this line is still down.” And it was kind of to the point the two agents were like, “Well, it’s not like we’re not going to close over this. So we’ll still continue to close or whatever and just they’ll have to figure out whose line it is and call and get it done.” So it wasn’t that big of a deal. But if the buyer in that situation, I would be kind of upset, you asked for this to be done, it was in the contract to be done and yet it wasn’t done and there was like no repercussions at all.
And I do like the idea because I don’t think in any of the contracts I’ve ever done, there’s like a date as to when the repairs had to have been done. But I’m also buying a lot of dilapidated properties where I’m not even asking for repairs to be done, but I think that is such a good idea of like to even give you time to inspect and make sure it’s properly done so it’s not the day of closing and you’re frantic and panicking like I was.

Laila Smith:
Correct. Yeah, we definitely don’t want to do that. And usually we’ll have an initial date that the repairs after we submit an amendment for the repairs to be done and then we have a follow-up. And usually I try to get it done a week before closing because you don’t want to wait until closing and be surprised that you’re excited to sign these papers, but all the repairs that were requested weren’t completed. So try to make sure that we’re kind of looking at the property one more time before going into closing and that everyone’s happy, the client’s happy and I walk into any surprises.

Tony Robinson:
Layla, for that re-inspection clause, you said like a week prior to closing. So since your due diligence period has already ended, if you get to that date of the re-inspection and they’re not completed, does the buyer now have the ability to walk away and still get back their earnest money deposit? Is that how you structure it? Or what happens if the work isn’t done?

Laila Smith:
Correct. Yeah, because when I submit an amendment for the repairs to be completed, that also said in my report, I am putting in there that it has to be done prior to closing. So depending on the amount of days, depending on when closing is happening, we’re going to have a set date that the repairs has to be completed by, whether it’s three days or it’s five days, depending on the length of type of work that’s being done to make sure that it’s done. If not, then yes, they will be able to get their earnest money back.

Tony Robinson:
I love that. I’ve never included a re-inspection clause into any contract. So I love this because I’m picking up some things for myself. So the third point you had, Layla, was that window coverings convey, and this one sounds small, but it can actually save you thousands of dollars. And I think a lot of people overlook this. So walk us through why window coverings matter and how buyers get burned when it’s not actually in the contract.

Laila Smith:
Yeah. I mean, you definitely want to have those things written out. So if you walk into a home that has blind shutters, things are going to be a little bit more of an expense. It’s not just your typical blinds, basic builder grades, blinds in the house. You want to make sure that we have that in a contract. So even like drapes, like the buyer walks in, they fall in love with the drapes. We want to make sure that we include that in a contract. So that is something that if it is present, I will include it to make sure that if the seller is going to leave it behind, we want to make sure that happens and not, again, walking in after you close and then whereas the beautiful drapes or the nice shutters that was put in, they’ve taken it to the next home.
So those are things I would definitely want to make sure that is included and I make sure that it is.

Tony Robinson:
Yeah. And you don’t realize how expensive those things are, but it’s like if you have a lot of windows in your house, it adds up. And again, my wife and I, when we bought our first home, biggest investment we’d ever made, this is before we were real estate investors and it was new construction. We just got to build or grid everything. And because of that, we got no window treatments at all. There was nothing on any window. And we lived like that for two years before we even bought blinds because we were just doing the math. It’s like, man, this is so much money for blind. So I love this.

Ashley Kehr:
Did you hang up sheets? College kids do hang up sheets.

Tony Robinson:
In our bedroom, we had temporary shades, at least for the one by our bathroom, because when get out the shower, there’s this big window there, so we had to figure out something. But Layla, what does the actual language look like to make sure that there’s clarity? Because I feel like maybe that there can be some ambiguity there or signals get mixed. So what does the actual language look like?

Laila Smith:
The language is going to be specifically like the fixtures convey. So we’ll want to be very specific because if they want to be able to keep the shutters and not really caring for the drapes, we’ll want to be able to write that out. So that’s something that I will write off specifically for the items that are going to be left behind because most of those things are personal items to the seller and sometimes they feel like they can take the drapes with them, but I do write it out specifically for my clients to make sure that the buyers are fully protected in that aspect.

Ashley Kehr:
Now, what about seller paid closing? Has This is your fourth item in here and you negotiate seller credits that actually reduce the buyer’s out- of-pocket expenses. And this is kind of what happened to me on the day of closing unexpectedly is I got a $25,000 credit at the closing table and actually took a check home. So how do you frame that ask without killing the deal and what does it actually mean for a buyer’s bottom line?

Laila Smith:
Yeah. So the closing costs on average can run anywhere between two to 5% on the purchase of a home. A credit that can be given to the client, especially for first-time home buyers that can be given to them to help out with closing costs. I usually go in with that negotiation as far as how long the property’s been on the market, how eager my clients are. And that would help me determine the amount of closing costs that I’m asking for my clients. But try not to kill the deal because you want to be fair as well, you’re working for a buyer’s agent, but you want to also be fair in looking out the seller, where they stand with the property and make sure that we are kind of fitting the right numbers, and which also kind of run into the type of loan the client has as well, can determine how much of a concession that I’m going to be asking for.

Tony Robinson:
Layla, can you elaborate on that? What do you mean by the type of loan they have and what are the restrictions depending on the loan type?

Laila Smith:
Yeah. So the difference would be between efficient and conventional, for example, and also depending on how much you put down. So efficient, you can go up to 6% in concessions. Conventional, you can start at 3% all the way up to 9%, but that really just depends on how much money they’re putting down. So it’s going to be anywhere from depending on the loan size, and we can start at 6% and try to negotiate to work our way down, but I always go in for the max. So full protection. Yeah.

Tony Robinson:
And why a credit versus a price reduction from the buyer’s perspective? Because for the seller, it’s the same thing, right? Whether they give a credit or they reduce the price, a lot of it works out to be the same in terms of cash to them at closing, but why is maybe one more beneficial for the other or over the other for the buyer?

Laila Smith:
Yeah. For the buyer, the credit actually makes more sense because it helps them with their bottom line as far as what they’re bringing to close in. And most people are going to be first time home buyers that I’m working with. So usually they need more help with the amount of money they’re bringing to the closing table. So if we can get a credit to help out with that overall cost that’s going to reduce their closing costs by 10 or 15,000, it’s more advantageous for them than just getting a price decrease that they’re still going to come up with the same money anyway at closing. So it’s actually better for them to bring less money to closing that they can put into their home when they first move in.

Tony Robinson:
And as you just said, you got to check at closing because of this credit.

Laila Smith:
Correct. Yeah. Yeah.

Tony Robinson:
Yeah. That’s crazy. And think

Ashley Kehr:
About that. I mean, yeah, they have to go and buy a new HVACs. It’s not like it’s money. I get to shove under my mattress.

Tony Robinson:
But it’s still a crazy concept that you can purchase a piece of real estate that’s going to produce cashflow, appreciate over time, give you tax benefits, and that if structured the right way with your loan, your down payment, your credits, that you can actually walk away with money in your pocket. Ash, we interviewed someone, and it was a while ago, I believe his name was Andre, but he used the NACA loan. And I’ve talked about NACA before, but it’s a 0% down loan that you can use on your primary residence up to four units. And he bought a four unit, I was able to negotiate some credits at closing, and because it was a zero down payment loan, I think he walked away with 20 grand at closing for this four unit property that he was unable to house at. So it’s like my mind is blown that more people aren’t trying to leverage seller credits to help reduce the cash they need to actually get into some of these deals, especially if you’re doing it for a house act.

Ashley Kehr:
Yeah, because your loan is set. So especially me getting a credit last day, your loan amount is already fixed. You’re proof for that amount for that house and they’re not changing and saying, “Oh, you’re getting a seller credit today. We’re going to take that money off of your loan and now you have a lower loan or whatever.” So that’s part of the reason as to why you walk away with the check, but yeah, it can be. So maybe it’s even better just to negotiate the seller credit at the last day.

Laila Smith:
Oh yeah. No, it’s so much better. And even on the loan side, I’ve been able to use some of those credit because we have a max amount that we can use, but on the lending side, we could use some of that credit to even bring their interest rate down, which reduces their payment as well. But the credit is always great to have for sure. Yeah. And I’ve had several clients actually walk away with money at the closing table, they’ve actually gotten a check because we have so much more.

Tony Robinson:
Yeah. And that’s a great situation to be in, getting paid to buy real estate. All right, Layla, so your fifth point is clear possession terms, right? So move out dates and penalties spelled out in writing. Why does this clause matter and what does it look like when possession terms are left maybe more vaguely than they should be?

Laila Smith:
Yeah. So I mean, the nightmares and error could be on closing date, your seller has not moved out and you are now roommates. So you definitely want to have that written out and have a clear possession date and which is always going to be on closing date for me when I do a contract. So we need to make sure that we don’t have any issues as far as like coming, they having completely moved that was their personal items or anything else, or if they need to have a lease back agreement, you want to have that clearly written out as well.

Ashley Kehr:
Actually, it was the first ever house that I bought on my own without a partner. And it might’ve actually been the first house that I bought that didn’t have tenants in it or wasn’t already vacant, but it was a family that lived there and they were moving out and we were doing a double closing. So they had to close on their house and then within that hour, they were closing on their new house. Well, when I went to do the final walkthrough inspection, they were literally still moving stuff out of their house. And this was like, I was on the way to closing. So I didn’t even get to see the house completely moved out. So when I actually, we went to the actual county clerk’s office to do the closing and we sat down at the table and my agent actually negotiated a credit for me because it was not clean at all.
It was supposed to be like broom swept or whatever and it was not like the fridge, I threw it out. It was so disgusting. And so their hands were kind of tied because they needed to close to close on their new loan. So it gave me a little bit of negotiating power, but that was like one thing I never wanted to do again is like do the final inspection and they’re not even completely moved out yet. Okay. So that’s five down and we’ve got five more to go. And the next batch is where Layla get into the clauses that most rookies have genuinely never heard of. So the appraisal protection clause alone could save you from one of the most common and most painful surprises in a real estate deal. So stay with us. We’ll be right back. Okay. Welcome back to Real Estate Rookie.
We just went through the five things that Layla has every buyer put into their offer. Now let’s finish the list with five more protections and these ones get into some territory most buyer’s agents completely ignore. So Layla, our next one, number six is appraisal protection. You’re using contingencies or capped appraisal gaps to prevent overpaying if the value comes in low. So walk us through what actually happens when an appraisal comes in under the contract price and how this clause protects your buyers.

Laila Smith:
The appraisal gap scenario that I can think of is you offer 350,000 on a property, but it appraises for 330. Without this protection, you’re going to be owing the difference. And typically I make sure that that is written out for my clients to make sure they’re not in that position to have to come out of pocket with that extra money. So we definitely want to have that written out in the contract.

Tony Robinson:
And what are the different ways that a buyer can go about protecting themselves if there is any sort of appraisal gap? What are you writing into the contract to give them some flexibility there?

Laila Smith:
So there is a contingency document that I usually add to every contract that basically saying that if the house does not appraise for the offer price, then my buyer can choose to walk or they can choose to renegotiate. So usually that’s the option that I have for them.

Tony Robinson:
This was like a really big thing.

Ashley Kehr:
Have you ever bought a house that didn’t appraise?

Tony Robinson:
The only time I bought a house that didn’t appraise, and this is kind of like a crazy store. I think I shared this on the podcast before. We were buying a new construction and it was supposed to be a four bedroom, but it ended up being a three bedroom. Oh yeah. So that was one where it didn’t quite appraise, but luckily we were able to get the builder to rectify. But aside from that, we haven’t bought any property that didn’t actually appraise. But I think like coming out of COVID when the market was going crazy, there were so many people buying properties way above appraised value. And it was like you had to almost include in your contract how big of a gap you’re willing to cover. But I’ve personally never done that. Ash, what about you?

Ashley Kehr:
The only one was new construction also, and it was my primary. And it was when we did all of our blueprints with the architect, we did a finished basement so that we would have the plans and the drawings for whenever we did decide down the road to finish the basement. And when we went through our final draw to close out our loan, they flagged it and had sent the inspector out and said, “No, it’s not finished. The basement needs to be finished. That was what was in your drawings.” And that was like panicking like, “Oh my God, we don’t have another $50,000 to finish off the basement.” And it had a bathroom, it had a bar, all this stuff, all these rooms. And so what I ended up doing was I fought it by saying, “Here is my contractor’s contract, his scope of work that you reviewed and you approved and you set the draw schedule to, and nothing in that contract shows any finishes to the basement.” So they actually honored it and they agreed and they said, “Yes, it wasn’t in the contract.
It wasn’t in the scope of work. You’re fine, you’re good. We can close out the loan, you’re okay.” But that was definitely like a really panicky situation there.

Tony Robinson:
Look at you, Ash, many lawyer over here, and this is like pre AI days, you had to do all that sleuthing on your own.

Ashley Kehr:
And that was like, I probably only like two properties, investments at that time. So very, very … And this was my first ever loan that I ever got from a bank too. So it made it even more scary, I feel like.

Tony Robinson:
Well, on that point, let me ask, because I feel like the appraisal gap was a big thing, like I said, coming out of COVID, are you seeing that as much of a necessity today? Have market conditions maybe shifted how often you’re including this one or is this one that you just always include no matter what?

Laila Smith:
It’s one that I always include no matter what, just because … And we don’t have a whole lot of homes that we’re dealing with that right now, especially like you said, after with COVID homes were inflated so much. And I think as the market’s starting to adjust, we just want to have that for protection because the house that was appraised for increased in value a hundred thousand four years ago is not going to be the same today. So just to make sure that my clients are fully protected, that is something that I always include in every contract. There is also a difference with FSA always is automatic with the appraisal that it has to meet that. But with conventional, definitely I always include that into the contract.

Tony Robinson:
Your seventh protection here is the option period leverage. Now, this is basically an inspection that allows you to renegotiate credits or termination if major issues are found. How do most buyers use the option period and how should they actually be using it?

Laila Smith:
Yeah. So the option period is a paid time that I usually discuss with my client. You’re paying for the house, kind of like you’re renting the house for X amount of days to have the right to terminate if the inspection does not go the way you want it to go. And there is a difference between the option period and option fee with option money, with earnest money, and also leveraging that as far as how much money they can put down for the option for us to buy those limited amount of days to have enough time to do inspection and then renegotiation after that.

Tony Robinson:
So let me ask that, because I just want to make sure I’m tracking. When you say it’s paid time, what do you mean by that?

Laila Smith:
Yeah. So option period, typically you’re paying per day. So it can range whatever you and your client talk about and feel like it’s the best fit for you. So anywhere from two to $300, like $50 a day, for example, that you’re paying per day for you to do your inspection. So you’re asking the seller basically take your house off the market for five days or 10 days. So we can do the inspection, we’ll pay you $50 a day as an example to do the inspection. And if it doesn’t work in our favor and we cannot come to an agreement for negotiation on the repairs, then I owe you that money and I can walk away free and clear. So it’s just really buying the client’s buyer’s protection at that time, but also giving the seller something back just in case it doesn’t work out for either parties.
I’ve

Tony Robinson:
Never heard of this before, so what’s the timing on this? Is this before you have an actual purchase and sell agreement accepted? Because you said take it off the market, but if you’re already under contract, then technically it’s still on the market, but it’s listed as pending or under contract. So what’s the timing of this paid period?

Laila Smith:
So the timing usually is after the contract has been executed. So usually in Texas, when the contract’s executed, we have an option period. So the option period, again, it can be, depending on how aggressive the offer is, it can be two days, it can be three days, it can be on average, it’s about seven days, seven to 10 days that you’re technically asking the seller to remove the house off the MLS and say the house is technically on a contract, like a contingency contract, so you’re pulling it off the market. No one else can put a contract in at that time until the option period is over.

Tony Robinson:
That’s interesting. Ashley, is it like that in New York? Because I feel like for me, whenever I sign a purchase agreement, I have my due diligence period, which sounds or similar to this option period, but we don’t have to pay for it. It’s just like an understanding that, hey, we need the opportunity to get into the property and do our inspections. Is it like that for you in New York too, Ash, or do you have something similar to this?

Ashley Kehr:
Yeah, it’s the same. You have your inspection period and sometimes it’s actually very vague. It’s just like, okay, once the inspection is done, you have to let them know if you’re going to make any change or things like that. It really depends on the timing as to when your agent thinks that they can get an inspector out there. So sometimes it’s as fast as two days, so it’s like three days is your inspection period, could be seven days, but usually not over that for single family or small multifamily at all. All

Tony Robinson:
Right. So the eighth thing on your list is survey responsibility. So responsibility for the survey, existing or new, is something most buyers never even ask about upfront. So Layla, what is a survey? Why does it matter for an investor and what happens when this is left too vague?

Laila Smith:
Yeah. So the survey is basically kind of like you’re looking at a map of the property lines. So it shows anything like from the encroachment, easements, flood zones, any destination with that property that has to do with it specifically is what the survey shows. As far as for an investor, you can’t really build on a lot if you don’t have a survey to know how to expand and where your fence is going to be, you need to know your exact property lines. So the survey usually is something that is the seller’s responsibility to have it. However, if the seller doesn’t have the survey, there could be negotiation as far as them purchasing a new survey for the buyer. And if they cannot purchase it in the buyer, that’s going to be the buyer’s responsibility. But that is something that the seller usually will always have.

Ashley Kehr:
I’ve done it a couple times, and I haven’t done this in a while, but a lot of times I would write into my contract that I would accept an existing survey as long as it was done within a certain timeframe. And I can’t even remember what the timeframe was, but my attorney would advise me on that. But that actually did help me get some offers accepted because they don’t have to pay. I mean, now it’s like, I think I’m seeing thousands of dollars to get surveys done. So that is something I’ve done. And I’ve also, when I’ve accepted an offer on a property I’m selling, I also have asked sometimes if they will take an existing survey too, because it’s worth asking. But honestly, and probably in the last couple years, like every deal I’ve done, my attorney has just, they take care of hiring the survey or they take care of getting it done.
Or if I have an existing survey, I just give it to them and I don’t even know if it ends up getting used or they use a new one. I’d have to look at my closing statement. I don’t know.

Laila Smith:
Yeah. So the survey in Texas usually have to go through title and everything in Texas. Every closing has to be reviewed by an attorney. So we have to, when I put that clause in the document, in the contract, basically I’m saying that if the title company does not think the survey is fit, then that’s when a new survey has to be purchased. So you’d be surprised. I had a client that has lived in a home for 26 years and they presented a survey that was in meant condition. So we had no issues, but then you have people who live in the house for five years and the survey have coffee stains on it, right? So then it’s all ripped up and they have to order a new survey. So usually we have to get over to the title company if the client has the survey and the seller has it, and then the title company has to make sure that it has the right stamp on it and it has to be reviewed by the attorney.
And then that’s when we determine who pays for it within the contract.

Ashley Kehr:
I got to ask you guys, because I think about this all the time and I never actually ask anyone, how are you guys storing your title of abstracts in your surveys? Because they don’t like fit in a standard filing cabinet or they don’t scan easily. How are you guys storing them? Tony, where do you put all of your title of abstracts?

Tony Robinson:
Anything that I get back from title … Well, first, I always ask to get everything just emailed to me. But if I ever do get anything that’s physically sent, I don’t think I’ve ever gotten anything that couldn’t scan into my scanner before. So I don’t know. Maybe it’s just like a New York thing, Ashley. They blow it up for you too big because for me, I just scan it all in the Google Drive.

Laila Smith:
Yeah. Same here. I think usually I just get emails on everything and then …

Ashley Kehr:
Yeah. See like this right here.

Tony Robinson:
It’s on legal size.

Laila Smith:
Yeah, legal size. Yeah.

Tony Robinson:
Yeah. That’s true. I do- It’s all

Ashley Kehr:
Paper clipped together and

Tony Robinson:
They

Ashley Kehr:
Want the original when I close it on a paper. So I just have tons of them just sitting in a bucket basically.

Tony Robinson:
That’s true. I do have several of those in the legal size paper and yeah, I haven’t found an effective way to … They’re just sitting in my closet actually.

Ashley Kehr:
Editors, if an address or something on that showed, if you could please blur that off. I tried to flip it, but I think they probably showed the exact parcel or whatever.

Tony Robinson:
Well, Layla, let’s talk about HOA review rights. Again, it’s something I never really ask about. I haven’t bought too much in HOAs, but HOA documents, reviewing timelines, termination rights, this is one Ricky Skip probably all the time when it comes to HOAs. What are you actually looking for inside of the HOA documents and what could potentially make you walk away from a deal?

Laila Smith:
So for the HOA documents, I think specifically we want to make sure that the property is in good standing with the HOA. So if I have a client moving into a subdivision where the HOAs also include restrictions as well, but if the HOA have issues with any type of legal issues, if they have any pending lawsuits, if they have litigation going on or the HOA is not paying their dues, those things can affect our current buyer coming into the subdivision. So that is something that I have to make sure that it’s always covered, that we have kind of like a clear title, but it’s like a clear HOA that when the client’s moving in and also looking for any type of restrictions. So if the buyer is also thinking about possibly renting this property, as an investor, I should say, we have to think about what the restrictions are for an investor.
If they’re purchasing a property that have really stringent rules as far as how many renters can be in the community at a time, that’s something that we want to make sure that we are reading through the contract to make sure that that’s not going to affect my investor. Once the property’s purchased, now they’re like, oh, I can’t even rent the property out because we are over the percentage of renters that we can have in this neighborhood. So we want to make sure that that’s also clear too.

Ashley Kehr:
Okay. So we’re onto number 10, our final one, which is also the final walkthrough and utilities. So this one, you require that utilities stay on through closing, the keys transfer, and a final walkthrough is completed before any funding. Why is this important and what happens when agents skip this or treat it as optional? Well,

Laila Smith:
The final walkthrough is not more self-courtesy. It is a contractor agreement to protect the buyers, to make sure that everything stays on until the day of closing, and also that the buyers can be able to transfer in their name after the day of closing. So things like you want to make sure that things like that the water’s still … You’re not have any leaks in the house the day of closing, or you want to make sure that nothing’s wrong with the units in the house, turning on the HVAC unit, making sure that it does work, make sure the electricity on. That is something that you want to make sure that the electricity or utilities are kept on until the day of closing, until the buyer can actually transfer in their name.

Ashley Kehr:
And you want to remember to call to switch the utilities in your name too.

Laila Smith:
Oh, so that.

Tony Robinson:
And when you sell, remember to switch them out of your name because I’ve had some issues forgetting to do that as well. Now, Layla, we just went through all 10. Now, the last question, because knowing what to include is only half the battle, but how do you put a fully protected offer together and still actually win the deal? So Layla’s going to show us exactly how she does it right after a quick word from today’s show sponsors. All right, welcome back. Now we’ve got the full list, the 10 protections all explained. Now let’s kind of bring it home, right? Layla, the question everyone’s thinking is, can I actually include all of this and still be competitive? Can I actually still get my offer accepted? So we want you to walk us through how you write a winning offer that keeps every one of these protections intact.
So you’ve said that you can offer the highest price and still lose, or you can win and regret that you actually won. So talk to us about what winning and regretting looks like. What is the version of winning a deal that maybe actually hurts a buyer?

Laila Smith:
Yeah. So I’ll just give you some example. I mean, winning with no contingency, what happens with that is that inspection reviews that there are issues with the house and then now you’re purchasing the home or winning without the appraisal protection and now you owe 20,000 over the appraised value. Those are things that you want to avoid. And just having clear possession. So winning without that specific language with clear possession with the property, now you’re a landlord to your seller. So we want to make sure that even though we’re making this emotional decision that we are not trapped in something because we decided not to add these protections for the buyers.

Ashley Kehr:
Now, before we wrap up here, the last thing I want to know is as both a realtor and a mortgage loan officer, you are seeing the full picture before an offer is written. What is a conversation most buyer’s agents are not having with their buyer that you always have before that first offer even goes out?

Laila Smith:
Yeah. So the financing reality check, what their rate will look like, what the payments look like, what their cash to close will look like at the price that they’re wanting to purchase the home. We talk about things like rate buy downs versus closing costs, credits, and how offering, making a good offer can structure them to where they can be able to see their full buying power, right? Walking away with price and not selling because they have an emotional attachment to this house and just making a sound decision that is based more on the actual numbers at the end of the day.

Ashley Kehr:
Well, Layla, thank you so much for joining us today. We really appreciate you taking the time to share your experiences with the rookie listeners. Where can people reach out to you and find out more information?

Laila Smith:
Yeah. So I am on Instagram at Lila_Dallas_Realtor.

Ashley Kehr:
Well, thank you so much for joining us today. We loved going through your list of 10 things to help everyone listening write a better offer. I’m Ashley. Hey, Tony, and we’ll see you guys on the next episode.

Dave Meyer:
Property taxes have become one of the fastest growing costs of home ownership in America. They’re actually up nearly 30% since 2019, that’s a national average. And now a broad political revolt is starting to take shape across the country. More than a dozen states are actively weighing proposals to limit, reduce, or fully eliminate property taxes. And some of these ideas are serious. They could actually be implemented. So the implications for the housing market and real estate investors are significant. Today on On The Market, we’re breaking it down. We’re talking about the great property tax revolt, how property taxes have evolved, how they’re impacting the market today, what remedies are being proposed, and which ones are likely to pass. And of course, we’ll talk about how this all could impact your portfolio and what you should be doing about it.
Hey everyone, welcome to On The Market. I’m Dave Meyer, investor and chief investment officer at BiggerPockets. Today on the show, we’re digging into one of the biggest sticker shocks investors have been facing and dealing with in recent years, property taxes. Back in the day, I remember fondly the time when property taxes were just background noise where you just didn’t really think about it. They kind of were what they were. Now they are a major expense category and the change in property taxes and how quickly they’re changing has become a constant source of stress. And it’s something that investors just have to deal with more and more because property taxes are significantly impacting the overall big picture costs of homeownership in the United States. They’re also impacting cash flow and overall return on investment for investors as well. And this problem is now starting to get more and more political attention.
Actually, more than a dozen states now have legislation to try and figure out some level of relief for homeowners and in some cases for investors as well. And this is everything from caps on how much property taxes can go up, full on exemptions, or even straight up elimination of property taxes is actually being considered in more than one state. So today on the show, we’re diving into it. What’s been happening, what some of the proposed solutions are, which ones might actually pass, and how this could all impact you. Let’s get to it. So first up, let’s just talk about the numbers. Big picture, how much have property taxes actually risen in the United States? I’m guessing if you’re already an active investor or a homeowner, you know the answer and it is a lot. I’ll break it down for you, but the national median annual property tax bill, so if you averaged everything in the country, what’s going on right now is that from 2019 to 2023, we saw a 23% increase in property taxes that went from about 2,500 bucks to over $3,000 a year, at least according to NAR.
Now, if you actually pull out condos and attached and you just look at single family homes, the average bill reached 4,300 bucks. That’s up 6% in just a year. So it’s still growing faster than the regular pace of inflation. And if you extrapolate that out to duplexes, triplexes, fourplexes, commercial insurance, all of that is going up as well. So really, no matter how you look at it, taxes are going up a lot. And this is impacting everyone, all sorts of people. You hear a lot about older folks on fixed income being hit particularly hard, but I think this is just across the board. It is increasing homeownership costs. So why is this happening? Well, the answer is actually not that complicated. This is actually a pretty simple thing to figure out, but basically home prices went up. If you look at the period of time from 2019 to 2024, where taxes on average went up 27%, home prices during the same exact period of time went up 50%.
And so based on the way tax policy works, when your home value goes up, your assessed rate goes up. And so your taxes go up because the way that property taxes work for pretty much everywhere in the United States is you kind of have two variables. One is the assessed value of your home. How much does the county or local government think that your property is worth? And then the amount that they tax that. The average across all states is about 1% of that assessed value per year, but that actually ranges anywhere from about 0.4% to 2% per year. And so what we’ve actually seen over these last couple of years is that tax policy has not really changed. If you look at the effective tax rate, again, that percentage of the assessed value, that has actually been relatively stable. It’s actually declined in some markets.
So what’s causing the increase in taxes is because appraised value has gone up. Now, fortunately, research shows that for every dollar that your property increases in value, your property insurance doesn’t actually go up proportionally. It only goes up about 0.3 to 0.5% for every 1% increase in property value. So that’s actually good because you’re building equity faster than your taxes are going up. So I want to just put this in the big picture. If you are a homeowner, if you’ve owned your property for a long time and you have seen your taxes go up, you’re probably still a net winner because your equity has grown so much that your net worth, if you’re judging it just by your total net worth, you’re still ahead. But where the problem comes in is cashflow, right? Because your equity that you’re growing is not money that’s coming into you every month.
And as an investor, that’s a consideration. But I think it’s even more of a challenge for homeowners because they’re usually not making money off their properties, but their taxes are going up. So that means more money each and every month or each and every year is going out of their paycheck or out of their pockets and towards property taxes, even though their home equity probably has gone up. So just keep that framing in mind. But just to sort of summarize what we’re talking about here, big picture stuff, there hasn’t been some big shift in tax policy. It’s just that home prices are way higher and so assessed values are up. But as with everything in real estate, it is super regional how much you pay. Tax policy is very different, not just depending on state. A lot of property taxes are implemented at a county or local level as well.
So where you live is really going to tell you what that effective rate is. Are you on the low end of 0.4% per year? Are you on the high end of 2% per year? It makes a super big difference. The highest effective tax rates, at least as of 2024, and I do not think they’ve changed. This is just the last month I could find data for. Illinois is at the highest effective rate at 1.8%. And we have New Jersey at 1.64, Texas, Nebraska, New York are also up there. Those are just in terms of the percentage that you pay. And I’m sure you can imagine that the two highest property tax, if you just figure out the total dollar amount, it’s New York and New Jersey because one, the home values are really high there and they also have really high effective tax rates, so no surprise there.
In Jersey, the average tax per year is nearly $10,000. In New York, it’s actually much lower than Jersey. It’s about $7,500, still a ton, but way lower than 10 grand in Jersey. Now, that shouldn’t be surprising. Those places have had expensive taxes for a long time, but I think what we’re talking about today where there’s kind of this just revolt where people are pissed straight up about property taxes. It’s because a lot of places that traditionally have not had high property taxes are now seeing them. So since 2019, Colorado has seen the fastest property tax increase, 53%. I invest there. I can tell you, historically, property tax is very low there. And although the assessed value hasn’t changed, 50% increase in your taxes is going to raise some eyebrows, right? We also see Georgia at 51%, Florida at 47%, and a lot of other Sunbelt states basically where price appreciation has been so rapid, that’s where the total dollar amount you’re paying per month is going up the fastest.
Now, if you’re curious about the lowest, Alabama, totally in a league of its own. Alabama just says, we’re not basically going to tax property. 0.37 is their effective tax rate, super, super low. We also have South Carolina, West Virginia, Delaware, Idaho, Nevada, Arizona are the ones that are really low, sort of near that 0.5%, much, much lower. So things are going up, but how does this tie into the total cost of homeownership and how does it impact the ever important stat that we talk about all the time on the show, housing affordability? Well, in 2025, the average US homeowner, again, is paying something around $3,500 per year in property taxes. That’s about 300 bucks a month and has to fit into the escrow payment that people are paying alongside their mortgage, which is principal and interest and alongside insurance. If you also have an HOA, you’re paying into that as well.
And so that is pretty significant, right? The average mortgage payment in the United States is about 2,800 bucks right now. So the $300 is a pretty big portion of that that is more than 10% of your total mortgage payment or I could just tell you off the top of my head, back in the day it was, I don’t know, it was probably like four or 5%. So it definitely has increased that. And that obviously comes out and impacts people on their monthly basis. But the other thing that I think a lot of people miss in this situation is it also is pulling people out of the housing market because for mortgage qualification purposes, lenders have to consider property taxes into debt to income calculations. If you go to get pre-approved, they’re going to be thinking about how much you pay in taxes and what you can afford.
And because taxes have risen so much, that means fewer people can qualify. The amount that people can qualify in terms of purchase price is going down because taxes are replacing that within the total calculation. And this can reduce demand, right? People are going to buy less. Just as an example, a buyer who’s looking to get qualified at today’s rates, 6.5% or whatever, in a state like Illinois or New Jersey. So I’m giving you an extreme example because these are the more expensive states in Illinois and New Jersey. If you are looking at this, they’re basically penalized six to $800 per month in property taxes versus a comparable home in a low tax state. So that alone is essentially the equivalent of having one full percentage point on your mortgage added to it, right? So instead of going to Alabama, if you’re living in New Jersey, that’s the same thing as basically saying, instead of having a 5.5 mortgage rate, I’m going to a 6.5 mortgage rate.
That is how much it impacts housing affordability. That is really significant. Or just put it another way, right? If you moved from Illinois to Alabama for a average price home, let’s call it 400K, that actually saves you roughly $6,760 per year or over $560 a month. And honestly, that can be the difference for a lot of people, the difference between qualifying and not qualifying for that mortgage. So yeah, this stuff really matters for the housing market. Another thing that it’s impacting as well is it kind of just adds on to the entire lock-in effect because now longtime homeowners who are sort of locked into low mortgage rates now face a second reason not to sell, right? They don’t want to give up their assessed value. Now, different states have different rules about assessing value. Some do it every year, some do it two years, some do it five years.
There are actually states like California, or now there’s a new law in Georgia that does this, that has assessment caps, meaning that not only are these homeowners in a state like Georgia or California locked into a lower mortgage rate, they are locked into a lower tax rate. So selling and moving somewhere else doesn’t just mean resetting your mortgage. It also means resetting your tax rate and that’s going to go up too. So another reason we’re seeing low inventory, it creates a powerful, sustained, disincentive to sell, right? People do not want to sell if they’re going to go move to an equivalent house and pay way more. We’ve been seeing that with mortgages for years, and I think we’re going to see it with taxes for the foreseeable future as well. Before we move on, I just want to mention one other thing that this is also impacting renters because often those costs get passed through to tenants in the form of higher rents.
And so it’s not just homeowners that are being effective. This is just raising costs throughout the economy. This is one of the things that just contributes to inflation. So it’s affecting everything across the board. Before we move on and sort of just talk about what states are doing about it, because I think this is really fascinating. I just want to mention that we had a guest on the show recently, Mike Simonson, he’s been on the show many times, really great housing market analyst. He mentioned something to me that you might’ve picked up on. He said that in states where there are higher property taxes, housing prices are suppressed and it actually makes housing more affordable. And I actually looked into it and actually he cited it and I sort of dug into this, but there was a paper, some research study done by the Minneapolis Federal Reserve.
And what they found is that higher property taxes can actually improve housing affordability, particularly at the entry level because they suppress purchase price, right? They keep prices down because there’s this other price going on that people have to contend with. So just look at Texas, right? They have a very high effective tax rate, 1.7%, median home price there is just 240,000. And so there is some research into that. I just want to call that out because people assume high tax states, there’s no benefit to that, but affordability is a benefit, right? You’re paying more tax, but you are paying less in your principal and interest. That’s what this Federal Reserve paper is saying is that when you look all told, high tax is not necessarily a bad thing. Now, if you’re in a state like New Jersey, kind of hard to argue there’s anything really good going on there, right?
You have high property values and property taxes, but when you look at the big picture, that is sometimes the effect, at least according to this paper. So I just wanted to call that out before we move on. So far, we’ve talked a lot about just general big picture stuff, houses impacting homeowners, affordability, but let’s talk about what this means for investors specifically. We do though, we got to take a quick break. We’ll be right back.
Welcome back to On The Market. I’m Dave Meyer. We’re here today talking about the great property tax revolt that is shaping up in the United States. Before the break, we talked about just how this is impacting the housing market in general, but I want to turn and just mention a couple quick things about how higher property taxes impact investors specifically before we get to the states that are really trying to curb this and what they’re actually specifically doing into it. So one thing is basically property taxes are factored into home values, meaning high tax areas produce lower purchase prices and low tax areas produce higher ones. Look at California, lower property taxes, higher prices. Jersey, New York, kind of an exception to that rule, but there are 50 states so we have to look at everything and the research shows that this is generally true.
This means, and pay attention to this because we’re going to talk about states that are potentially lowering their tax rates. This means, according to the research, that a reduction in property taxes does tend to boost home values, right? If a state is going to lower their property taxes, that can boost home values. As an investor, that is something you should be thinking about as we talk about what the states are doing in just a minute. On the other side though, that also means that raising taxes can dampen appreciation, which is why some economists argue high property taxes have kept its housing market relatively more affordable than sort of the growth that they’ve seen that the population growth, the business growth, the job growth would otherwise suggest. So again, a lot of this is academic, but I do just want to share this with you because we’re talking about states really changing their policies potentially.
And this could really impact prices in those markets. Now, of course, there are other things investors should be thinking about like just total demand, right? Market desirability. If there’s a really high tax environment, less people might move there. Or if you’re in a really high tax city trying to flip a house during an affordability stretch time, that could impact you. Of course, also you’re going to want to think about underwriting your taxes as an investor. You should be looking at how frequently your taxes get assessed. I think this is something a lot of new investors really miss. You say, “Oh, the taxes aren’t that bad.” But there’s states like Connecticut, for example, they have a five-year assessment period. In Connecticut, they haven’t assessed in several years, but that market is booming. Prices have gone up like 30%, 40% in the last five years. I think they’re reassessing this year in 2026.
So when they do that, property tax is probably going to go up 10, 20%. This is something you need to be paying attention in underwriting, and hopefully that makes sense to everyone. Don’t just take taxes for what they are today, understand tax policy in the places that you’re buying and project that forward for your own underwriting. All right, enough with the big picture stuff. We’ve done the history now. Everyone understands what’s happening with taxes, why this matters, and what might happen if a state changes their tax policy. So let’s talk about it. What is actually happening at the state level? Well, as of early 2026, there are at least, it’s kind of hard to get this information, but there are at least 12 states that are actively weighing proposals to eliminate or limit or reduce property taxes in some way, shape or form. If you’re wondering what those states are, they’re Florida, Texas, North Dakota, Indiana, Georgia, Wyoming, Kansas, South Dakota, Ohio, Illinois, Pennsylvania, and Michigan.
Now, just politically, these do tend to be Republican-led initiatives, but we’re actually seeing bipartisan support for these ideas in a lot of these states. So what is actually being proposed here? Because I think most people have seen this stuff in Florida. We’ll get into that where they’re just saying, “We’re going to eliminate it. ” But there’s a very big spectrum of what is actually being proposed. The approaches range from modest adjustments all the way up to those full elimination. And within that, there are five different buckets of ideas that are being proposed. So the first is assessment limitations and caps. Again, assessment is just basically when the government, the local government, goes out and decides what they think your home is worth, and then they tax you based on that. So one of the idea is limiting how much that assessed value can go up in a given year.
They’re basically saying they’re going to cap the annual growth of assessed values. California has this. They’ve actually capped it at 2% per year. Remember I was saying, this is why Californians tend to be locked in, right? California home prices over the last 10, 20 years have gone up hundreds of percent, but every single year, their taxes are only going up 2% max. So they have disproportionately low taxes compared to their home value. So that is what’s going on in California. Georgia actually just did something as well where they are linking the amount that they can increase assessments to inflation. So in inflation index, this is actually common. When I was living in Europe, this is sort of how they did it, not just for taxes, but for rents as well. So this is something that you see in other parts of the world. Georgia just implemented that, something like that.
But basically, this is being proposed in a lot of states. The idea here is that it protects existing homeowners. I will say it kind of shifts the cost burden to new buyers and to commercial properties. So this is not like a free lunch here. We see that in California or in these other places, but it does help existing incumbent homeowners. And you could argue, I think correctly, that it probably hurts home buyers in commercial property values disproportionately. So probably going to be very popular with owners, like boomers, right? They got all the money anyway and they want to keep it, but probably not that popular with young people who want to get into the market or people who are trying to build their portfolio. The next bucket, that was assessment caps. There’s next something called a levy cap. This is kind of similar, but it’s a little bit different in an important way.
It basically caps the total annual revenue growth of the property tax total. So it basically says, if you’re in Youngsfield, Ohio, I don’t know why I just picked that. Youngsfield, Ohio, right? And your total property tax revenue is a million dollars. It must be way more than that, but I’m just going to say a million dollars. They’re going to say next year, the most it can go up to is $1.1 million. Because that assessment cap disproportionately helps existing homeowners and kind of hurts new homeowners. The idea here is that this is a more equal way to limit property taxes and to spread the tax burden across existing homeowners and new homeowners alike. So that’s a popular one gaining some steam. The third bucket is the homestead exemptions. You might live in a state. A lot of states already have this, but this is basically a lot of states are saying, we’re going to reduce the assessed value of primary residences by a fixed amount.
So Texas has done this. Indiana is working on a system like this. I know Michigan has homestead exemptions. And this is something that is going to negatively impact investors, but help primary homeowners. And whether you like this or not, just going to say, I do think this one is going to be popular because it is a way that you can make homeownership more affordable for local residents than investors. It’s relatively cheaper for a resident to buy a home than an investor. And that’s a way to sort of equal the playing field without banning investment altogether. So just want to call off, there are trade-offs there, but my guess, homestead exemptions are going to become more and more popular, or at least homestead reductions in the assessed value. So that’s something to definitely keep an eye out for. The fourth bucket is rate or credit reduction.
So this is basically like applying a credit statewide against property tax bills is similar to other types of tax credits. North Dakota has a really interesting example of this. I’m going to talk about that in a little bit, but they have a primary residence credit, super interesting thing that they’re doing in North Dakota. So we’re going to talk about that in a minute, but I just want to get to the fifth bucket, which is tax swaps, basically replace property tax revenue entirely with something else. So the tax state says, we’re going to either lower property taxes, we’re going to get rid of it, and we’re going to place it with another kind of tax. That’s basically either sales tax, increase sales tax or add an income tax, increase the income tax. So these are options. They’re controversial because you’re just taking taxes from one place and putting them somewhere else.
So people argue and say that this could shift costs towards consumers or renters. Now, I’m not sure this will go anywhere. The full elimination proposals that are out there sort of fall under this bucket because people are saying that they’re going to just get rid of property taxes are saying that they are going to fund that, replace the income through some combination of maybe state surpluses, sovereign wealth funds. We’ll talk about that, what that is in just a minute, and other taxes like Florida and North Dakota sort of have the most advance of these ideas. But I’ll just tell you, these are really bold ideas and I’ve done the math and I don’t know if it really makes sense because basically where does the revenue go? If you just ask people, “Hey, do you want to get rid of property taxes?” Of course, everyone is going to say yes, no one likes paying taxes, right?
But property taxes are not just like some random thing that you pay. They’re in many ways the financial backbone of local governments. So not just states, but cities and counties as well. Property taxes actually fund about 90%, 90% of local school district revenue, so these pay for schools. They account for roughly 70% of all local government general revenue. So not just schools, firefighters, roads, police, all of that. 70% of it. When you factor in states, it’s about 25% of revenue nationally. And so this stuff really matters, right? The total amount collected in property taxes in the United States in 2024 was about $800 billion. And so in just the most extreme example, if you just eliminated that, that’s a lot of money for states. I know where we are with the federal government right now, 800 billion doesn’t sound that much, but if you look at state budgets, 800 billion is a lot of money.
And so every elimination, every proposal to reduce property taxes has to answer the question, what replaces this revenue? And that’s where that tax swap bucket I was just talking about comes in. And the typical answers that you hear are either higher sales tax, you hear state general fund transfers, like they have surpluses, higher income taxes, or a reduction of spending and services by state or local governments. You either have to raise revenue somewhere else or you have to spend less. And so as we talk through the proposals that are out there, just remember that there are implications for these. Some of them mean you’re going to be paying the same, it’s going to fall into a different tax bucket. Some of it means that local services and spending by your government might go down. So those are the buckets. Let’s talk about some of the policies that are actually being proposed and sort of where they are in the legislative process.
We got to take one more quick break though. We’ll be right back.
Welcome back to On the Market. I am Dave Meyer. We’re getting into the proposals that are actually moving. We’re going to deep dive into a couple of states and what they’re actually proposing. So Florida, kind of the boldest experiment, I think everyone kind of knows about it. It’s been in the news a lot, but basically what’s been going on is Governor of Florida, Ron DeSantis, has made eliminating property taxes on primary residents. So again, those are like those homestead properties. A big priority of his. This is a big political priority of his. It’s also a campaign year. And basically what he wants to do is reduce property taxes only on primary residence. Notably in Florida, vacation homes, investment properties, commercial real estate. For some reason, if they’re non-homesteaded properties, those would all still have property tax. And this is gaining steam. The proposal actually passed the Florida House of Representatives by a lot 80 to 30 in early 2026, but the bill sort of died when it hit the Florida Senate.
They’re actually revisiting this in just literally, I think next week, April 20th, when the Senate is going to introduce its own bill. I read about it a little bit. It’s apparently less generous. It’s not a straight up elimination. So it sounds like something will probably pass in Florida, but it’s not likely to be the full elimination. Apparently the Senate is not down for that. And even if that passed, you would need a constitutional amendment, you need 60% of voter approval. That would come in November 2026. So this is real, right? This is a serious proposal that could pass in Florida. So what does it mean? Well, Florida collected roughly $55 billion in property taxes in 2024, funding about 18% of all county revenues and eliminating non-school homestead taxes would cut local government revenues by an estimated 14 billion in the first year, 18 billion in subsequent years.
Now, Governor DeSantis argues that the state’s budget can cover it. They have a surplus, that is true. They’re saying they’re going to improve efficiency and that can cover the gap. But I will say, when you look at independent nonpartisan analysis of this, the math doesn’t really add up. They say that eliminating property taxes in Florida entirely would require raising $43 billion, so not enough because their surplus is five to eight billion. You’d need 43 billion, that’s roughly $2,000 per people to maintain public services that are currently funded in Florida. Now, there are some more modest bills that are being proposed probably because of this gap. That’s probably, like I said, the Florida Senate is going to sort of be a less generous bill, probably because this gap is too big. Just as an example, these independent analysts say that to compensate for the bill that passed the house, they would have to double the sales tax.
It’s currently at 6%. It would go to 12%. That would be one of, I think, if not the highest sales tax in the entire country. So this would probably help homeowners because they wouldn’t be paying those property taxes. They would be impacted by the sales tax. But you’re sort of shifting a lot of the cost burden to lower income folks. That’s what all of the research shows is that when you have a higher sales tax instead of property tax, lower income people are disproportionately taxed higher than wealthier people. And so if this passed, and this again, this is just an example, but if you decided no property tax, because Florida doesn’t have an income tax, you’re not doing that, you would have to basically double the sales tax that would really just be shifting the cost burden. Or the other option is to cut services, which might be what they are planning.
But either way, if this does pass, I think this would matter. The Florida housing market is suffering. And I do think this would really matter. Florida would become the only state in the country. It would have neither income tax nor property tax on primary residences. And the same independent analyses, nonpartisan, they estimate that this could add four and a half to 9% boost in property values. That’s a lot. That maybe wouldn’t get them back to their 2022 peak, but that would help a lot in a market that is really struggling to find its footing. And so if you’re looking to buy in Florida and this thing passes, now I don’t know if that’s going to happen in year one because we’re in a weird time with housing affordability, but long term, four and a half, 9% increase in home values, especially if you’re using mortgage, if you’re using leverage, that is a significant return on investment that is something to consider.
Now remember, investment and rental properties still would be taxed, but there is this idea that just there would increase demand. So if you were flipping, for example, or if you were to go and sell your rental property to someone who has the homestead exemption, then you could benefit from that increase in value. So that is something to remember. The other thing to keep in mind though is that there is potential for service cuts or fee shifts. The analysis I’ve read call out the idea that you could see, for example, public safety decline because if they cut the fire department or police services or something like that, that can negatively impact home value. So you need to be looking at both of these things. But generally speaking, most of the analysis I’ve seen show that if something like this does pass in Florida, it will probably be a tailwind to home prices for the next couple of years.
So that’s what’s going on in Florida. Next, let’s talk about North Dakota. I think this is one of the more fascinating ones. So basically what happened is the governor, Kelly Armstrong, laid out a phased decade long path. So they’re not doing it overnight. This is a decade long path to eliminate property taxes for most homeowners. And they’re funding it in a really unique way. Through the earnings from the state’s $13 billion C legacy fund. So basically they have a sovereign wealth fund in North Dakota. They have taken a lot of their oil and gas revenue. They have collected it as a state and invested it. And it is a fund for an interest earning, a ROI earning account for the entire state of North Dakota. And what they’re saying is that they’re going to fund property tax reductions through this fund. They’ve already enacted what they call the primary residence credit that offers up to 1,600 bucks per household in property tax relief for 2025 and 2026, funded entirely 100% from legacy fund earnings.
So local governments not losing revenue, right? I mean, I think this is pretty cool. They invested their money, they’re taking it, and they’re investing it back in the people who live in North Dakota. I think that’s pretty cool. Roughly 50,000 North Dakotan households, about 30% of all people had their entire property tax bill zero out for them in 2025 because of this program. They’ve also, back in 2025, capped annual local property tax budget increases to 3%. And so they are really making significant progress here. And I think it’s a cool model, right? They are not raising other taxes. They are not cutting services. They are just making money off of their sovereign wealth fund and they’re reinvesting it in the people of North Dakota. Now I want to call out, I think this is probably only possible in smaller states like North Dakota. They have significant oil wealth.
They have this big fund that is expected to grow. And so it probably can’t work anywhere, but I think this is a cool use of that sovereign wealth for a state like North Dakota. Maybe other smaller states might be able to do this as well. I’ll quickly go through two other states, Indiana and Texas that are making major stuff. So Indiana, they actually passed a law. It’s the biggest property tax reform in nearly 50 years. It’s projected to save homeowners in the state $1.3 billion over the next three years. Basically what they’re doing is a 10% homestead tax credit. Remember, we talked about that before starting in 2026, and they’re phasing in increases in the standard homestead deduction. Eventually, they’ll just be taxed on 25% of the assessed value by 2031, and there will be even bigger credits for seniors, veterans, and disabled residents. All told, two thirds of Indiana homeowners are expected to see a lower 26 property tax bill than their 2025 bill.
So that is real relief. But as with Florida, and unlike North Dakota, which really I don’t see many trade-offs, there are trade-offs in Indiana, basically revenue, right? Marion County, as an example, is projected to lose $43 million in revenue in 2026. That is basically the majority of the school budgets there. Businesses, commercial properties, large rental property owners. So all investors take note of this. They’re not getting the same relief. And in some cases, their effective rates might be going up. So you might see higher taxes in Indiana on rental properties and investment properties because of these cuts to homestead properties. Now, it’s not all. Some rental properties actually will see deductions, potentially significant ones, but those haven’t been phased in yet. They’re going to get phased in over the next couple of years. Last state we’re going to dive deep into is Texas. So they’ve basically just been making incremental plans.
They pass little bills here and there. They haven’t done one big comprehensive thing like these other three states. They’ve increased the homestead exemption to $100,000 up from $40,000. Voters with disabilities or over 65, they receive an even bigger exemption up to $200,000. But the governor there, Governor Abbott, has proposed a constitutional amendment for 2026 ballot. So people are going to be able to vote on this to abolish school district property taxes entirely. It’s a $40 billion per year commitment that would require a massive expansion according to every analysis, a massive expansion of sales tax to fund the schools. You’re actually seeing big disagreements within the government here in Texas. Lieutenant Governor Patrick, in the same administration, opposes this idea and says it’s fiscally unworkable. And so Texas is kind of in this cycle where it’s like making incremental progress, but really things haven’t changed that much in Texas.
So those are the big states that I get asked about a lot, but there are other states to watch as well. Wyoming is exploring the elimination being a switch to sales tax funded model. Analysts say that that would cause a revenue reduction of almost $650 million. State government there is saying they’re going to increase the sales tax by 2%. That would not fully offset it. And again, it kind of shifts the burden to lower income people disproportionately. That’s what people are saying about the Wyoming proposal. In Montana, they already passed a tiered property tax system that taxes second homes, short-term rentals, 2% while offering relief to primary residents. I think this is going to be another thing that becomes more popular. We talked about Georgia. They implemented a assessment cap similar to Florida. South Dakota, Kansas, Nebraska, Iowa, also sort of like working through things.
There’s been a lot of proposals, but nothing specific, but those are states to watch as well. So that’s what’s going on. But before we go, just want to talk about what this means for real estate investors. So near term stuff, property taxes almost certainly going to keep rising in most markets, with the exception of some of the ones I mentioned over the next couple of years, because even if property values don’t go up, even if tax policy doesn’t change, a lot of states will have these new assessments, right? The assessed values will catch up from all the appreciation over the last couple of years. And so we are probably going to see higher taxes, but I do think it will slow down. We are not in the COVID period where we had so much appreciation. I do think taxes will start to level out, and in states where they’re starting to limit it, they even could go down in some areas.
But like I said before, if you are buying property, you need to be looking at how frequently your taxes are assessed, when the next assessment is, and how likely it is that your tax bill is going to go up. That is an important part of underwriting in today’s market. The second thing is in the state’s passing major property tax reform could create demand, right? Let’s just be honest. If you’re in Florida or Indiana or North Dakota or Georgia, it could create demand for owner occupants. This lower cost of homeownership, lower carrying costs do improve affordability, and they can help prop up appreciation. Not saying it’s going to go up, but it is a tailwind, right? It applies upward pressure to housing prices in those markets. But remember, most of these relief programs explicitly exempt investment properties, commercial properties. So investors in these states like Florida, for example, they’re going to continue paying full tax while they’re owner-occupant competitors, right?
If you’re doing a house hack, for example, potentially pay none. And this is a structural shift in the competitive landscape. You’re going to have more competition from regular homeowners for a single family home or for a small multifamily in these states because they pay less than you, right? They have an advantage over investors in these states. So there is a risk reward here in any of these markets, something that you should be thinking about. So that’s what’s going on. I’m really curious what you all think about this. I’ve read a lot about this. I think there’s some interesting proposals. I think there’s some kind of crazy proposals out there that are really sort of ignoring some of the budget problems that they could create, but I’m curious what you think. What do you think about property taxes, how much they’ve gone up, and what should be done about it?
Please, if you’re watching this on YouTube, let me know in the comments. I would love to hear what the on- the-market community is thinking about this. That’s what we got for you today. I’m Dave Meyer for BiggerPockets. I’ll see you next time.

Back off, HOAs: There’s a new sheriff in town. That appears to be the message from Georgia lawmakers who have just passed new legislation that limits HOAs’ ability to tack on costly fees and fines to homeowners with impunity.

SB 406 creates an administrative process to settle disputes between homeowners and homeowners associations and, in doing so, could save landlords in the state thousands of dollars, boosting cash flow. Should other states follow the same playbook, it could be a game-changer for investors tired of seeing profits slashed by escalating, unexpected HOA costs.

While most investors focus solely on cap rates based on standard cash flow metrics—rents minus expenses such as mortgage payments, taxes, insurance, utilities, and repairs—they often overlook HOA fees. These have been rising quickly across the country, particularly in Florida, in the wake of the Surfside condo collapse.

What Georgia’s New HOA Bill Does

Branded the “Georgia Property Owners’ Bill of Rights Act,” Bill 406 creates a formal state oversight of homeowners associations for the first time in the state’s history, according to Realtor.com. Prior to the bill, HOAs operated under their own rules, generally in an ad hoc manner.

Under the bill, every HOA must register annually with the Secretary of State, pay a fee, and disclose key governance and financial information or risk losing the ability to levy fines, place liens, or foreclose on homes in communities. The bill, which garnered support from both parties, comes in the wake of property owner complaints about HOAs’ “aggressive” tactics, including the threat of fines and legal action over relatively minor disputes.

Sen. Donzella James, a co-sponsor of the bill, was reported as saying by Realtor.com:

“For years, I have been a strong advocate for homeowners, and I have heard countless cases of people being taken advantage of by predatory associations. This legislation represents a meaningful step forward in protecting homeowners by promoting transparency and fairness. It helps ensure that no Georgian is subjected to unjust fees, fines, or the threat of foreclosure without proper oversight and due process.”

If an HOA fails to register with the state, it will be barred from collecting fines, issuing liens, or initiating foreclosure actions, giving owners state-level recourse instead of having to spend money on a private attorney.

“This bill will create regulation, oversight, and enforcement and also requires that HOA boards have members who live in the communities, making sure that boards are not just run by one or two people,” South Fulton City Councilwoman Linda Pritchett told WAGA-TV.

HOA Fees: A Cash Flow Killer

Noted investor and real estate guru Ken McElroy brought up the issue of HOA fees and their impact on landlords’ cash flow in a December newsletter, writing:

“Every dollar that goes into HOA dues is a dollar that does not reach your bottom line. In many markets, rents are flattening, but HOA dues are still rising. That mismatch shrinks margins. A $5,000 or $10,000 special assessment can wipe out a full year of profits. Buyers avoid properties with unstable or rapidly rising HOA dues. High fees push down resale value. This is why analyzing an HOA is almost as important as analyzing the property itself.”

One component of Bill 406 is that HOAs must meet higher minimums for unpaid dues and provide better notice before pursuing legal action, reducing the risk that a landlord’s rental property ends up in default over a contested fine or short-term hardship, making it easier to underwrite HOA-related risks in their proformas rather than treating association enforcement as a wild card, wiping out months of cash flow or years of equity gains.

Adopting an HOA Oversight Policy Nationwide Could be an Investment Game Changer

HOA fees apply to many condos, townhomes, and single-family homes. Their relevance to the American housing landscape has been growing. According to the Wall Street Journal, citing the U.S. Census Bureau, 81% of new single-family homes sold in 2023 were in an HOA, compared to 73% a decade earlier. 

A Realtor.com Homeowners Associations report finds that 1 in 3 single-family homes (33.4%) have HOAs, and more than 4 out of 5 (84.8%) of condos and townhomes do.

Georgia did not act in isolation. Across the country, there is a growing national backlash against HOAs. An industry review of 2026 legislative activity notes that 46 states will meet in session this year, and many are considering bills that either curb HOA powers, increase transparency, or create pathways to dissolve HOAs altogether, which would dramatically alter the investment feasibility of many buildings.

Tapping Into the National Affordability Zeitgeist

With housing affordability a central topic in the national cost-of-living debate, particularly for single-family homes, it’s hardly surprising that exorbitant, unregulated HOA fees have come under the microscope as property owners try to hold on to their homes.

The same issue applies to landlords, who supply essential accommodation to tenants while often struggling to eke out any profit amid rising expenses. Landlords, not tenants, are responsible for HOA fees, and higher fees translate into higher rents and further put pressure on cost-burdened renters.

The only respite for landlords is that HOA fees are tax-deductible and can be itemized on IRS Schedule E, along with other rental-related expenses.

“When you’re paying $500 or more a month, that’s a really big deal, especially when you consider how tight many Americans’ budgets are,” LendingTree chief consumer finance analyst Matt Schul told Realtor.com. “That’s money that can’t go to other financial priorities, such as building an emergency fund, paying down high-interest debt, or saving for retirement.”

Final Thoughts

For investors, HOAs can be a gift and a curse. By taking care of landscaping, snow removal, and other essential duties, they can maintain the aesthetic charm of a housing community and make it an attractive proposition for renters, while helping landlords maintain a passive involvement.

However, that concept only works when the fees are modest and not much higher than what a landlord would pay if they had to outsource upkeep to private companies. When costs are unpredictable and egregious, seriously handicapping cash flow, checks and balances need to be in place, as is happening in Georgia. Hopefully, other states will follow.

Many seasoned investors consider college rentals a real estate gold mine for both long- and short-term leases. Secure a rental apartment near a coveted institute of higher learning, and you can almost guarantee your income each year. With parents willing to safeguard the leases, even when other markets cool, the demand for student housing is such that landlords can anticipate uninterrupted revenue.

If you’re wondering which college towns to invest in, don’t think purely about the housing cost and cash flow. There are numerous other factors to consider.

Location is one. Often, college campuses are surrounded by sketchy neighborhoods, which can make for a bad rental experience.

Taking into account the overall character of the surrounding area is paramount. Is the local economy strong? What are the enrollment stats? Are college rental properties reasonably priced? 

If the deduction process seems daunting, RentCafe.com has analyzed 244 college towns and compiled a best-of list for small landlords to take note.

Why College Towns Are Still Resilient in 2026

Before diving into the rankings, let’s widen the lens and examine why college markets are a good place to invest in 2026. As with many rental communities, a shortage of housing is driving up occupancy, enrollment remains high, and federal funding is driving on-campus projects, according to a recent report by Berkadia, with Texas and the Midwest enjoying the greatest rental gains.

This contrasts with the rest of the U.S. housing market, where the balance of power has started to shift back to buyers amid softening rents. Investors, meanwhile, have identified affordability and quality of life as primary drivers of investment.

College towns fit the narrative. According to RentCafe.com’s ranking of the best college towns in the U.S. for 2026, Bozeman, Montana, leads the list for the third consecutive year, followed by a mix of Western and Midwestern communities anchored by their local universities. 

Bozeman, Montana, Is Raising the Bar for College Towns

Bozeman is on a tear in the RentCafe rankings. A persistently high performer and home of Montana State University, Bozeman’s rise has made national headlines, with the FOX-owned LiveNow reporting that the city’s access to nature, low crime, and a student-friendly cost of living make it an ideal college town. However, it’s not a place for rookie investors, as the average home value, according to Zillow, is over $715,000.

For small investors, those factors, helped by national headlines, boost the occupancy rate, as RentCafe points out, which, coupled with the university’s growth, has propelled Bozeman up the rankings and made local landlords who have owned in the city for a while flush with cash.

The Midwest and the South Generate the Most Profit       

However, larger investors usually choose vast apartment complexes to park their cash, leaving a gap in the market for astute mom-and-pop investors to buy smaller single-family and multifamily homes off-campus in nearby neighborhoods, where purchase prices are more affordable. 

According to RentCafe’s list, more affordable housing is likely to be found around several colleges in the Midwest and South, such as:

• Clemson, South Carolina (Clemson University): Average home price $399,130
• Laramie, Wyoming (University of Wyoming): Average home price $363,855
• Gainesville, Florida (University of Florida): Average home price $293,024
• Athens, Ohio (Ohio University-Main Campus): Average home price $237,159
• East Lansing, Michigan (Michigan State University): Average home price $302,521

RentCafe’s exhaustive list of colleges covers every region and price point in the country. It’s a good starting point for investors, but not a definitive guide. Once cross-referenced with other reports, such as WalletHub’s 2026 Best College Towns and Cities study, a clearer picture emerges.

WalletHub analyst Chip Lupo says:

“Towns with a low cost of living, plenty of activities, and large student populations can make your college experience a lot less stressful and a lot more enjoyable. In addition, cities with a great economic environment can make it easier to get a job during or immediately after college.”

Investing in College Towns for Long-Term Income

GoBankingRates’ October report highlighted five college towns and cities where landlords could look to generate reliable, long-term passive income from their investments. The personal finance site uses stats from the Education Data Initiative and the Mortgage Research Network, which identified where buying and keeping a property for 10 years would bring the best returns.

Top of the list were institutions where room and board ran high while home prices were relatively low. The top spot went to Philadelphia (Temple University), where the report attributed the following stats:

• Median home value: $234,799
• Three-year cost to own: $21,162
• Three-year cost of room and board: $50,904
• 10-year profit: $73,030

The other four college towns on the list were:

• Huntington, West Virginia (Marshall University)
• Newark, Delaware (University of Delaware)
• Tuscaloosa, Alabama (University of Alabama)
• Memphis, Tennessee (University of Memphis)

Best College Towns to Buy a Short-Term Rental Property

A recent AirDNA report crunched the numbers to find college towns where short-term rentals perform best and found that the best performers were those with affordable prices and the highest campus-driven revenue potential, which worked best with STRs located close to the campus.

The top five markets were:

• South Bend, Indiana (University of Notre Dame)
• Lansing/East Lansing, Michigan (Michigan State University)
• Syracuse, New York (Syracuse University)
• Columbia, South Carolina (University of South Carolina)
• Champaign/Urbana, Illinois (University of Illinois/Urbana-Champaign)

Final Thoughts

One of the main advantages of investing in college rentals is that students often pay by the room, which turbocharges rental income on yearly leases. It can also mean headaches in chasing up rents. 

From past experience, I’ve found that there are usually decent tenants who pay on time and bad eggs who are irresponsible, entitled, and think they are doing you a favor by renting your apartment. That’s where a good property manager and parental guarantees come in handy. Liability clauses and strict house rules regarding rent collection should also be in the lease and equally enforced, as should the high security deposits that will be forfeited for damage or eviction. As a landlord, you need to bring the pain; otherwise, your rental will turn into a scene from Neighbors or Animal House.

That said, when handled correctly in a high-demand area, student housing can be the gift that keeps on giving. As a fellow investor once told me when I bought my first student rental near a highly respected university, “This place isn’t going anywhere.”

Ashley Kehr:
Hey everyone. Welcome to the Real Estate Recruit Podcast. I’m Ashley Kare, and I’m joined with my co-host, Tony J. Robinson.

Tony Robinson:
Today we have a really special guest coming out of Buffalo, New York, a guy who’s been cutting here for over 20 years, runs his own salon, and somewhere along the way, decided that real estate was going to be his exit ramp from trading time for money. Justin, welcome to the Real Estate Rookie Podcast.

Justin Whitted:
Thank you so much for having me. I’m thrilled to be here.

Ashley Kehr:
Well, Justin, I love your story because you’re still in the thick of it. You haven’t quit your day job yet. So before we get into the details of your journey, I want to know what was the moment where you looked in the mirror and said, “I have to build something outside of the salon.”

Justin Whitted:
The first thing was understanding that you can’t do everything and that there seems to be a shelf life, particularly in the beauty industry where you’re on your feet a lot and I’ve been doing this for 20 years and I’m fortunate to still feel good physically about it. But I think that as you look towards the future and you want to be able to pull back, you’re either pulling back to spend more time on things that you enjoy, like your family, activities, things like that. I think that you start to analyze, “Okay, what can I get into? What can I divest into that’s going to give me more freedom and more time?” So I’m not sure if it was a particular moment, but I think that over the last 20 years, particularly the last five years, that you start to question, okay, what’s down the road?
So I don’t think it was a particular moment, but I think it was a culmination of leading up to that. All

Tony Robinson:
Right. But Justin, take us back. I want to go all the way back to 26. You’re renting an apartment. Your parents drop a piece of advice that really kind of changes everything for you. What did they say and why did you actually listen?

Justin Whitted:
Well, first of all, my parents are amazing people. And I think that when you are fortunate enough to have that, you lean into them because they’re there. I was renting an apartment and my first thought was, oh, I still do. I mean, I like the apartment condo type of living. And when I was paying rent in an apartment, I thought, “Okay, maybe I should buy a condo and put my money there.” And my parents wisely said, “What about a double?” And I didn’t even know what they were talking about. I didn’t even know what a double was. I thought they meant a double wide. I was confused.
A double. So when I was living in the city of Buffalo, the area that I was living in called the Elmwood Village, it was gaining a lot of traction and things were getting expensive. So there was an area a little north of where I was living called North Buffalo, and there was a double there that I went to look at. And the whole idea, really what sold me was I could live there for free and have a tenant pay my entire mortgage and then some. I mean, of course, it certainly meant taking on the role of a landlord at the time, which was kind of sink or swim, just throw yourself in and see what happens. And you’re also, I might add that you’re speaking to someone who I barely know how to swing a hammer. So when things did go wrong, I had to make sure I had the funds to be able to call somebody to take care of those things properly and not me YouTubing everything that I have no idea how to do.

Tony Robinson:
I mean, what awesome advice from your parents early on in your career to have you kind of lay that solid financial foundation. Now at 26, I mean, I think about me at 26, I was like a couple of years out of college. I was so very much trying to figure life out, but you’re like managing a tenant, like you’re a landlord at 26. What was that experience like for you going into landlord for the first time, especially being that they were your neighbors?

Justin Whitted:
The experience, to be honest with you, was easy/easy because she was a wonderful tenant. And I was able to, when I bought the house, it was empty. So I was able to screen people, come in and interview. And she was a great woman. And it made the being a landlord, I mean, looking back now, really easy. One critical mistake I made was trying to save money. I didn’t hire a plow service and I didn’t get a snowplow. And I remember our first major storm, she was like, “Is the plow coming?” And I’m like, “I don’t know if they’re coming.” I didn’t get one. And that was a problem. But as that parlayed into more properties, all of a sudden the problems compounded because it wasn’t like, “Can you call someone to fix this? The furnace isn’t working.” Where it was like, maybe I’ve got four of those phone calls now or five of those phone calls now, where it was just at the time, it was just myself, it was much easier.
So fortunately, the transition of sliding into being a landlord at the time, it wasn’t terrible really. But again, I was very fortunate for that.

Ashley Kehr:
That was on my very first property. I forgot to add in when I ran the numbers snowplowing and didn’t account for it. And then it was, oh, time for snow plowing. That’s actually a good chunk of the cash flow that’s gone now. But I think one thing too that I’ve noticed is that you probably hadn’t heard of bigger pockets. You probably weren’t involved in any real estate community or networking when you got this duplex. Is that correct?

Justin Whitted:
You were correct. Yes.

Ashley Kehr:
I think that sometimes it’s easier not to be surrounded with an overwhelming amount of information. And that’s what puts a lot of people into analysis paralysis where if you’re not even exposed to all of the different ways that you can invest in real estate, all of the different ways you can fund a deal, all of the different ways you can property management, it’s almost easier to get started because you’re not overwhelmed with information when you’re first starting.

Justin Whitted:
For sure. And it’s scary too. I’m afraid now in 2026, I’m afraid to be on social media and be like, “Oh, look at this short-term rental in Austin, Texas.” And I click on it and then the whole night I’m inundated with short-term rentals coming at me. And it’s like there is analysis paralysis there because there’s … And it’s a double-edged sword, right? There’s so much information out there. It’s so good. And obviously BiggerPockets being one of my main sources, but I think that you really need to maybe inch your way along and segregate what you like and what you don’t like in terms of a pocket because to your point, there’s so much out there.

Tony Robinson:
Yeah, you bring up a good point, Ashley. We are not in an age where we have a lack of information. If anything, I feel like what probably holds most rookies back as a lack of execution, maybe a lack of dedication, but the information, it literally exists everywhere, but just maybe having the discipline to jump in and make things happen. But for you, Justin, you did. And I guess I’m curious, I mean, your first deal was a house hack. It sounds like you got a great tenant. The goal was to maybe not necessarily be paying rent. So if you recall, what were the numbers on that first house act? What was your mortgage and what were you actually collecting in rent and what were you paying to live there?

Justin Whitted:
I mean, Ashley, being from Western New York, she’s going to cringe when I say this, right? But I bought a double in North Buffalo for $92,000. And then that was 16 years ago and it was $90,000. I want to say my mortgage, principal tax, everything was insurance was around $600 and my tenant was paying me I think 850 at the time. Wow. I know. It was amazing.

Ashley Kehr:
That’s pretty good rent for that long ago.

Justin Whitted:
I know, that’s right. And honestly, I think I just threw a number out there and she was like, “Okay.” Okay, let’s take it. Let’s do it.

Tony Robinson:
I mean, but that’s a perfect house there because for a lot of folks, the goal is just to maybe subsidize part of their living expenses. But you with just one other unit, you were cashflow positive on your mortgage. And obviously you said other expenses there, but your rent was covering your actual cost of ownership. So that is like a home run first house hack.

Justin Whitted:
Yeah. And again, it was nothing, to be totally transparent. It was nothing me forecasting like, “Oh, this is great. I studied all this. I know what I’m doing.” I know I didn’t know anything and I got very fortunate that that’s the way it worked out. And then that was, what, 2015, 2014, whatever it was? Well, it can’t be right longer than that. And then that area started to grow and then I started to do a little more research and understand the appreciation that was going on around me. So yes, to your point, I was very fortunate for that.

Ashley Kehr:
Do you still have that property or did you end up selling it?

Justin Whitted:
Nope, I still have it. I still have it. Yep.

Ashley Kehr:
What do you think it’s worth today?

Justin Whitted:
I just did an analysis on it and I want to say it’s worth like 270, if I’m not mistaken.

Ashley Kehr:
So like almost 200,000 in equity built up over.

Justin Whitted:
Yeah, which is great. And I did do a refinance on that property about three years ago to buy another one, but as it sits right now, I want to say it’s around 270.

Ashley Kehr:
And have you raised the rents at all and what are the rents at currently?

Justin Whitted:
The rents are 1,300 for upper end, 1,300 for lower.

Tony Robinson:
That is great.

Ashley Kehr:
So now that you did your first deal, what does the rest of the timeline look like? How long until you got that second and kind of tell us what that deal looked like?

Justin Whitted:
The rest of the timeline, I lived there for a couple of years before I started to explore other real estate purchases. And then I ended up primarily focusing on multifamily because of the return on the initial investment. So then they were there for a couple of years and then I bought another double in Kenmore, which is about 10 minutes north of North Buffalo. And that was another multifamily, another double. And then that one I want to say … So two years later, I bought a double and it was already 148,000. So it was almost the same square footage. It was a little better of an area, but I already paid. Then I had paid $60,000 more two years later for another double, basically to the same size. So, and it showed you where the market was going at that time.

Tony Robinson:
Justin, let’s talk a little bit about the mental side or you said your mental state before real estate was great, but clearly something was missing. How did you hold both of those things at once, loving what you do in your business, running your salon, but also knowing you needed something more?

Justin Whitted:
I don’t know if it was needing something more as it was taking a step back from the beauty industry itself. I’ve been in the beauty industry 20 years. I started my own business 15 years ago, and I love it, don’t get me wrong. But as you grow in life, and I have a wife, beautiful, wonderful wife, I have two beautiful, healthy children, you start to understand that there’s more to life than standing behind a chair, cutting people’s hair and doing that, which I love to do. So it wasn’t so much adding something as it was removing too much of a good thing. Building a business, as you well, both of you know well, it takes a lot. And the sustainability of working 55 hours a week with a wife and children, it’s just not healthy, nor is it something I particularly wanted to do. And of course, as many people know, as you start to take a step back from your business, you inevitably lose a little of capital that’s coming because you’re not working.
So it was more about how can I supplement, but also make money while I sleep, if you will, and start to make my money work for me versus in addition to putting in the stock market and things like that.

Ashley Kehr:
We’re going to take a quick break, but when we come back, we’re going to talk about a building that Justin bought that was vacant for seven years that had mold termites and so much more wrong with it. We’ll be right back after a word from our show sponsors. Okay. So Justin, let’s go into the deal that you’re most proud of. So this is a commercial building that has been sitting vacant for seven years with mold, termites, the whole thing. So walk us through that from the very beginning. How did you find this deal and what made you say yes despite all of these red flags?

Justin Whitted:
So when I first left the salon I started my career at, I was renting the space and I was in that space for five years and obviously it’s much better to own than it is to rent. So I started a toy around with the idea of I should buy something and put the money to work that way. The hard thing about the town that I’m in is a lot of the buildings were very expensive to buy and it was out of my price range for sure. And then I happened to be driving along this main road where I live and there was a building, a big giant for sale sign. And when I looked to the left, it was like, I couldn’t imagine why anybody would want to buy this building. It was terrible. So then I looked it up and I thought, oh, then I saw the sale price and I was like, okay, I’ll go take a look.
So when I reached out to the realtor and when we went to look at it and that gentleman opened the door to go into the building, the smell of mold, it was like a punch in the face.
How can this building be standing? So the backstory of the building is the gentleman who owned it prior to me was a doctor, a pediatric doctor, and he owned it for quite some time. And when I spoke to him about why he was selling, he said he loves being a doctor. He didn’t love being a business owner. And one thing after another, he just didn’t want to maintain the building and he wanted to go to the hospital and just work and not be responsible for everything around him. So he literally, he had a water leak in the building. He fixed that, he shut the doors and literally the only thing for seven years he maintained on the building was cutting the lawn because he had to.

Ashley Kehr:
So he didn’t get a fine?

Justin Whitted:
Yeah, exactly. He didn’t want to get a fine. Most people, it’s weird. Most people didn’t even know the building was here because I had taken down so many trees and overgrown bushes and I think I took down like five trees in the front lawn alone. So once we kind of got a clear view of what the cost was going to be, then it was diving in and finding contractors and working with the town to get approval of everything and we went from there. And the rehab, because I kind of meal pieced everything together, the rehab took about a year because I was funding it out of my own pocket. I didn’t want to take out any loans or anything. So that took about a year, but it was the smartest way to do it financially and probably the only way to do it for me at the time.

Ashley Kehr:
Before we get into the details of the numbers on the deal, I wanted to ask specifically about the mold remediation and the termite extermination. So what were the costs for those two things? Because I think those are like big, scary things that people say like, “No, I don’t want to deal with that. ” But what were the actual expenses to take care of those issues? Yeah.

Justin Whitted:
Well, so when there was a water, there was a crawl space underneath the building and the previous owner, he did a really good job of getting rid of the mold or the water that was in the crawl space and drying it out. So it wasn’t a terrible cost. I want to say the mold remediation for the area that needed to be done was around $2,000 and then the termite cost was about 1,200. It wasn’t terrible. The only reason that was not bad was because he took care of the crawlspace. But then where the water had risen to where the drywall sat, he cut out most of it, not all of it. So if a piece of drywall got wet, he didn’t make a flushed line and get rid of where the mold he was, he kind of chopped into it a little bit. So the mold that was left started to move up the wall and that’s where it would start to grow.
I mean, having the experience, compared to speaking to some people I have now, mold, termites, I mean, that’s why these companies exist. You pay for it, it can be taken care of. You look at houses on Zillow, whether it’s mold or foundation, like, “Oh, I don’t want to touch that. ” But Google mold remediation, there’s 10,000 companies that can do it. You just got to pay for it, unfortunately.

Ashley Kehr:
Yeah. I’ve had several houses that I’ve purchased with mold and it is never as expensive as I think it’s going to be. We did a whole, I think it was a 1,500 square foot house, the whole house remediation, $5,000. So I think before, if you’re listening to this and you’re afraid of an issue, a foundation issue, you’re afraid of this, afraid of that, actually figure out how much it costs. And Justin, in your sense, the 2000, what was the termite one? Less than 2,000, right?

Justin Whitted:
That was like 1,200. Yeah.

Ashley Kehr:
Yeah. So that’s not that bad for when somebody maybe was first listening to this episode and thinking like, “Oh my God, mold termite, that’s going to mean $20,000 to thing.” And that’s used to be what I would think also is that these are really, really big expenses and that’s not always the case. So do your research and get somebody in there and to actually quote something out for you before you say no to a property because of just these issues that you think are going to be expensive, but they might not be.

Justin Whitted:
And to your point, it’s not always, right somebody will say, “Well, the house has mold or the building that we bought has mold.” No, the building doesn’t have mold. This area over here has mold. Let’s remediate that area. And that’s how it was with the termites. There was an area where they were just eating everything. So my whole building wasn’t infested. It was like a quarter of the building that they got rid of all that wood and then fumigated and whatnot. So to your point, yeah, I mean, I don’t think it’s ever as expensive as you think it’s going to be, particularly if you’re like me and you blow up the number in your head ridiculously, you’re always pleased when it’s like two grand. Great. I thought it was going to be half a million, but no, it’s two grand.

Tony Robinson:
But Justin, going into this deal, had you already handled pretty heavy renovations in the past or was this like the biggest renovation project you’d done up until that point?

Justin Whitted:
No, no. I mean, this was … The renovations that we had done or contracted out to do were on our investment property, the first one that we bought, and those were bathrooms, hardwood floor being refinished, things like that. So this was, to me, this was major. It was major to look at an entire building and, okay, where do I begin? And so it was … No, this was the first.

Tony Robinson:
Yeah. Well, that’s my question is where did you begin? How do you, once you walk into that building, you’re getting punched in the face by the mold, how do you start to put together what a potential scope of work looks like and the budget for that before you actually close on the deal? Because I think where a lot of rookies make the mistake is that they don’t do enough due diligence during their closing timeframe. And then once they actually close, that’s where the rehab budget really starts to balloon. So how did you avoid that from happening on this deal? Or maybe it did. And if so, what were the lessons you learned there?

Justin Whitted:
I think I avoided it by ignorance, honestly. I bought the building and had no idea of the renovation costs.

Ashley Kehr:
So you didn’t even have a budget to go over budget on, is what you’re saying? Yeah.

Justin Whitted:
Yeah, exactly. What I did though is I didn’t want somebody else to get the building, right? So a little negotiation of the cost or the price, and that was it. I didn’t want someone else to get it because I knew it was going to be a great find and a great deal if I could get it. I think for me, personally, I’m very good with discipline with numbers and money and things of that nature. So it wasn’t so much about like, “Okay, let’s dive into the renovation costs this is projected.” I didn’t even know what that meant at the time. For me, it was about how much am I going to have to work over the next year behind the chair and how much can I extract from that to have my life and also fund this rehab of the building? And then the first thing I did was I met with an architect who was referred to me, who really kind of became a beacon to say, “Okay, this is what we’re going to do.
”

Ashley Kehr:
When you said that you had to figure out how much hair you had to cut and stuff to figure out to pull money out of the business to pay for this, all I could think of was Edwards scissors hands just going through it. That was about it. But Tony, you probably never saw that movie either, did you?

Tony Robinson:
Actually, funny enough, we just rewatched Ezert Scissor Hands this past year. So I’m with you though.

Ashley Kehr:
But let’s break down the numbers on that deal. So what was the purchase price? What was the rehab cost when you were all done and what are you renting it out for now and did you end up refinancing it or anything?

Justin Whitted:
Yes. So the purchase price of the property was 165, 165,000. Our renovation cost rounded up close to about 96,000, all said and done. And I had refinanced about two years ago, and I didn’t pull out all of the equity I had in there. The refinance price, they valued my building now at around 690,000, but I only pulled out a hundred because I then was purchasing two more multifamilies. So I still had obviously equity in the building, but I didn’t feel as though I needed to pull it all out. And to be honest with you, I didn’t pull it all out because I didn’t want my payment here at a balloon higher.

Tony Robinson:
Justin, can you just repeat those numbers again? So your purchase price and your renovation costs were how much?

Justin Whitted:
Purchase price is 165,000 and the renovation cost was 97,000.

Tony Robinson:
Okay. So you’re all in for, just call it like 270K, right? If we round up, add a little rounding there.

Justin Whitted:
Yeah, but I mean, it’s probably more like 230 or it’s probably more like 300. I would say closer to 300.

Tony Robinson:
Okay. Call it 300. You said it appraised for six.

Justin Whitted:
670.

Tony Robinson:
670. Man, that is an amazing deal to be all in at three and appraised for almost seven. So you were right. I mean, you said you didn’t really know what the budget was going to be, but you had a gut feeling that it was actually going to turn out in your favor. Why do you think you were right? Because it’s a big guess, but you were right. What were you seeing that actually gave you the confidence that you would have so much equity in that deal?

Justin Whitted:
Well, again, I want to be transparent with everyone that’s going to watch this, that I wasn’t forecasting what the equity was going to be. That wasn’t what it was about because I didn’t even know what that meant at the time. I was mainly looking for a place that I could run my business out of that was affordable, right? And to show you how expensive this area can be, the rent that I was paying in a thousand square foot space in the village where I was working was $300 more a month than it is for me to own this entire 3,000 square foot building.

Ashley Kehr:
Oh my gosh, wow.

Justin Whitted:
I know. But again, I was very fortunate. The only thing that gave me hope that was a little bit of insight was if this building is a complete disaster and it’s $165,000, the ones that I can’t afford right now that are down the street that are selling for five and 600,000, right? Why wouldn’t mine be like that if I make it just as nice or almost as nice? That was the only thing I was going on, truly that was it.

Tony Robinson:
Justin, I think I’m seeing a theme though in your story. Even going back to your first house hack, a lot of your investing is just driven by personal need maybe is the right phrasing, but it’s like you needed a place to live and you’re like, “Hey, maybe instead of renting a place, I’ll just buy a place and have someone else move in and do it with me. ” And then you basically did the same thing on this first commercial deal. It’s like, I mean, I need a place to rent for my business. It might be better if I just go buy something and have some other people share in that cost with me. And it’s like you’re using house hacking, but you also applied it to a commercial situation, which we haven’t seen all that often here on the Rickie podcast. So I just love that approach because again, in a worst case scenario, even if you didn’t rent out the other space, you’re still spending less on a monthly basis than what you were renting it from someone else.
So it still works for you. So it’s just an interesting concept in general about the personal use component.

Justin Whitted:
Well, thank you. I mean, I think it’s based on need. I mean, I needed a place to live. I wanted to own something, but you talk to any business owner, any entrepreneur, and I’ll be the first to admit I’m afraid to fail at anything. I mean, when you buy a house or you buy an investment property, or I follow both of you on social media when you guys are doing things, I mean, maybe you’re not scared anymore, but at some point you were. And I am afraid of doing things. I’m afraid of buying a property, but I know I want to do it and I know that I got to kind of man up and do it, but I’m afraid to not be successful in life, to be honest with you. And I feel like every time I do something that does scare me or that is pushing me a little more forward to whatever that successful may be, I don’t know.
But if I want to get where Tony is and I want to get where Ashley is, I can’t be afraid. I got to do

Ashley Kehr:
It. Well, Justin, isn’t there a deal you’re working on right now that is actually proving to be more difficult and challenging than you expected? Tell us about that deal.

Justin Whitted:
Yeah, that is a nice piece of humble pie.

Ashley Kehr:
We’ve all been there, trust me.

Justin Whitted:
You get a little bit of a sense of, “Oh, that’s how this works. Oh, okay. Let’s just buy this one too. Let’s do that too.” And I think that I wasn’t focused on the numbers and what they should have been. It was more focused on this will work, the other ones have worked, why wouldn’t this one? And the numbers were too tight and it was an error. It was something I should have been more aware of and it’s a lesson and it sucks like you’re losing money, it’s taking your attention. Fortunately, I have a property management team for all the properties and they deal with the bulk of it, but it’s a mistake. It’s going to end up costing me money in the long run, but I learned a lot. 100% I learned a lot.

Tony Robinson:
Justin, you said you learned a lot. What were some of those lessons that came out of this deal? Because I was always taught you never want to waste a good mistake or you never want to waste a good failure. There’s always something that we learned from it. So what were those things that you learned from this deal that you’ll take into the future of your portfolio?

Justin Whitted:
Take your time, make sure that it’s what you are looking for, that the numbers actually work, that you get a better sense of the community around said property and what’s going on there. It’s not just about how a property looks, it’s also about how the property looks from the outside in. What am I seeing around the neighborhood that is good and bad? Basically, I would say take your time and make sure that you … I have a few people in my life in terms of real estate that I trust that I can say, “Hey, what do you think about this? ” And I think I needed to tap those shoulders in the future. I’ll definitely tap everybody that I can.

Tony Robinson:
All right. After the break, Justin’s going to break down exactly how he’s finding deals today, expired listings, off market contacts, and why he says the longer you wait, the more expensive everything gets. We’ll be right back after we’re from today’s show sponsors. All right, we’re back here. And Justin, we talked a little bit about the mistakes and the learning and the trials and the successes, but I want to talk a little bit more about your portfolio today and how you’re finding deals. So you mentioned expired MLS listings and off market broker. Just maybe break down for someone who’s never done even like a Burr deal, what does your pipeline actually look like on a week-to-week basis?

Justin Whitted:
I’m sorry, between what?

Tony Robinson:
Just on a day-to-day basis, what does your pipeline look like for deal flow?

Justin Whitted:
For deal finding?

Tony Robinson:
Yeah. Yeah, like your pipeline for deals.

Justin Whitted:
I have a realtor that I work with regularly, and I think that you have to be open to everything and anything, right? I’m on a lot of different mailers. I’m on Zillow. I’m on bigger pockets. I’m starting to narrow where I’m looking for properties, and it’s not necessarily New York State anymore. I’m starting to look elsewhere for various reasons. I’m starting to look at short-term rentals versus long-term rentals. I mean, my pipeline every day is a lot, and I think that’s okay. People tend to only focus on foreclosures or MLS listings or private deals. I mean, if the numbers work, I’ll look at everything at any Anything, but I think at the end of the day, the wider your net, the more you’re going to catch. And I also, you try to make friends, you try to connect with people in the real estate world, and that has a huge effect, huge effect.
I’ve met a lot of people through BiggerPockets or through social meetups locally for real estate. And that’s fantastic. Really is.

Ashley Kehr:
What about building your team in Buffalo? Who have you added? You mentioned you had a property management company. Are there other team members that you rely on to walk you through your deals and get the deals done?

Justin Whitted:
For sure. When I first started this process of on my own, I had two multifamilies and we’ve grown since then, but since those two initial properties and my building, what we bought after that, I had two gentlemen who I work with closely here and I would more or less call them real estate coaches who have been able to kind of navigate me in the different sectors and how to buy and what’s good and what’s not good. So I rely on them a lot. And then I have a great real estate attorney who handles all my purchases and whenever we’re selling a property and things like that, and a realtor. And of course, the backbone would be the property management company that takes care of all those things. So I think that if you’re going to do things, first and foremost, get a teacher, get someone that can educate you because you’re always learning a good lawyer and a property management team if you need one, which would be helpful.

Tony Robinson:
Justin, how did you find, you said there’s two people who you consider your mentors. How did you find them? How did you build that connection with them?

Justin Whitted:
One of them, I had been cutting his hair for about 10 years and he had sat in my chair in the salon and he was constantly saying to me, “You have this money sitting here in this building and you’re not doing anything with it. ” And I didn’t really know what that meant. And then back to Ashley’s question where it was, what was that moment? I guess the moment when I reached out to him on a professional level, not as a stylist was, “I’m feeling burnt out at the salon. I need to start investing and divesting so I can take a step back.” So that’s how I met him and he works with a gentleman who is his business partner and that’s how that relationship began.

Tony Robinson:
Allright Justin, last big question before we close out here. You said your goal is to match your salon income from real estate so you can have just true time freedom. How close are you to that goal and what does maybe like the next 12 to 24 months look like for you to try and make progress against that?

Justin Whitted:
How close am I to that goal? I would say I’m about 40% there, 35 to 40% there. So I’m almost halfway. The future for me I think is not in New York State. It’s probably in different areas in short-term rentals from what I’ve been reading about. I’ve already started to reach out to real estate professionals in other areas of the country to look into short-term rentals because I think that there is … First of all, when you look at the numbers, some of the numbers seem a lot better on short-term rentals than they do long-term rentals. And I think

Henry Washington:
It’s 2026 and I’m selling a bunch of real estate. That’s right. I’ve got properties in my personal portfolio that I am listing on the market and I’m hoping someone else buys them before their values drop. I am constantly analyzing my market and that’s what it’s telling me to do right now. But this isn’t one of those real estate is dead videos. I’m not selling everything and I don’t think the crash of the century is coming. In fact, I’m also buying properties right now. That’s right. I’m selling and buying real estate all at the same time. If that sounds crazy, then let me break it down for you. What’s going on everybody? I am Henry Washington and I’m here with Dave Meyer. Today, we’re going to talk about selling some properties. Dave, are you selling properties?

Dave Meyer:
Yes, I am selling property, but I’m kind of always selling properties. So I don’t really feel like it’s that different from what I’ve done for the last eight years at least. And I want to talk about what I’m selling, what I’ve sold in the past. We should get into this. But I also, just before we get into this and people start panicking, I also want to say I’m also buying. So it’s not like a one way thing where I’m only selling properties right now. I’m also buying properties. That’s part of the reason I am selling some properties is because I want to buy other or different things. And we’ll get into that, but I just don’t want anyone to confuse, I’m selling off my whole portfolio. I’m only getting rid of stuff and I’m not reinvesting. That’s not the case.

Henry Washington:
Yeah, that’s very true. That’s a great caveat to make as I just left the bank grabbing a check to take to my title company because I am literally buying a house when I get done with this podcast.

Dave Meyer:
There you go. Exactly. So keep this all in perspective. Selling, I think is just a tool just like acquisitions, just like doing a renovation. It’s one strategic lever that you can pull as you build your portfolio. And I think it is an undertalked about and very valuable part of being an investor. I just never understand those people are like, “Buy and never sell. I’m never selling.” It’s just so stubborn and silly. It doesn’t make any sense.

Henry Washington:
Yeah. I mean, sometimes properties run their useful life in terms of kind of where they are from a maintenance perspective and how old they were when you bought it. It’s not logical advice. Now, in a perfect world, should you just keep everything you buy and amass a ton of wealth over a long period of time? Sure, that sounds great. But real life happens. Assets diminish beyond the point of your financial ability to bring them back to life. Your life finances and circumstances change, and maybe you can’t hold onto properties as long as you thought you could. Or sometimes you just need some money, Dave, and you got to sell something to get some money.That’s okay, guys.

Dave Meyer:
Yeah. Sometimes you just enjoy the fruits of your labor or take a little bit of benefit for paying for your kids’ college or a wedding or life. You need a new car, whatever. Real estate to me always has been and always will be a means to an end. So if there is a better end, if you need some other use of your money, if there’s a better use for your money, go do that. I think that’s another reason. But I also just want to reiterate that from a math perspective too, there are also just times that it makes more sense. You will make more money in real estate by selling and buying something else. And I think we should talk about all of these different scenarios today.

Henry Washington:
Yeah. I think there’s a lot to cover here and I want to jump into it. And I guess one of the things that I first want to talk about with you is you said you are buying and at the same time you said you are selling. So it sounds like you’re strategically selling some so that you have cash to buy something different, which may be a slightly different approach than what I am taking in my portfolio. I am selling some rentals, but I am not turning around and acquiring nearly as many rental properties. I am selling for a different reason. So what’s your theory behind what you’re selling and what you’re buying?

Dave Meyer:
I mentioned this, I think at the beginning of the year, but I’ve just sort of entered what our friend Chad Carson would call sort of like the harvest phase of my investing career. Just for everyone’s reference, Ched Carson, great investor. I’ve been on the show many times, has this framework where he says there’s basically three stages to an investor’s career. The first one is just starting. Get in that first deal, do your first two deals, learn a little bit. Then you go into growth mode, which is like when you got to hustle. It’s like you’re doing the Burge, you’re doing what Henry does, off market deals. You’re just trying to find ways to build wealth as quickly as possible. But at a certain point, I think for most people, five, 10, 12 years into their investing career, they reach a point where they want to get into what he calls the harvest mode, which is that you’ve built enough equity, you have enough properties, and now it’s time to realign your investments in your portfolio with the lifestyle that you want going forward.
There are some people who want to stay in growth mode forever. Our mutual friend, co-host of On the Market, James Daynard, that dude literally can’t stop. He would do it for free.

Henry Washington:
He would be miserable if he wasn’t

Dave Meyer:
Involved. I don’t know what he would do, but it’s good that he has this because he would go crazy. And there are other people like that, but I’m personally just not like that. Like I said, real estate is a mean to an end for me. And I am trying to go into what I’m calling sort of like the end game portfolio. I’m only 38. I’m sure I’ll still keep trading, but I’m starting, my buy box has changed. The type of assets I want to own in this harvest stage of my career are different. And I could just give you some examples, but I’ve bought a lot of really old properties in my career. I invest in the Midwest. I invest in Denver. Both have a lot of old housing stock and they’ve done great, fantastic. I do them all again. But at this point in my investing career, I just flew to Denver last week to look at some maintenance stuff.
I don’t really want to do it anymore. I invest out of state. I want stuff that’s really rock solid that I can go once or twice a year, look at these properties, say they’re good, and keep going. So that’s the general philosophy is just find stuff that aligns with me as a 38-year-old dude instead of what I was doing when I was 25 and had a lot of time and frankly, more drive to build a lot of wealth. I’m in a fortunate position where I’ve made a good amount of money in real estate and now I want to use it differently.

Henry Washington:
Yeah. There are some parallels to our stories. I’m also following a three-step framework, but I am following selfishly my own three-step framework, which is very, very similar to Chad Carson’s. And I’ve often said this that I see investing in three buckets, which is, again, your growth mode. So that’s a little bit about what you talked about in your three-step process. So you’re building and growing, and then you’re stabilizing, and then your third bucket is protection. And most people are going to spend time in two buckets at a time, but disproportionately in one versus the other. So when you’re first starting out, you’re spending probably 80% in growth, 20% in stabilizing. And then at some point you’ve grown enough and you’re finishing your stabilizing, so you’re spending the majority of your time and you’re stabilizing, and then you’re spending 10, 20% of your time in protection.
And me, protection means paying off assets, right? We don’t truly own the assets until we pay off the lender. And so protecting what you’ve built is part of my process. And part of my investing goal has always been to be able to leave paid off assets for my children. Part of my goal is that my children will be able to be the people that they’re called to be and not the people they have to be to make money. I want them to have income producing assets so that if they are called to do something that doesn’t make a lot of income, they’ve got some income coming in. So for me to do that, I got to get to paying some of these off. And I had this realization over the past couple of years that like, all right, well, how many do I need paid off to leave to my children?
And so I have done all the math and built all the spreadsheets and I have literally outlined the properties that I want to keep. I’ve outlined the properties that I’d like to keep but would be willing to sell and the properties that I absolutely want to sell to be able to achieve that goal of paying off the chunk of the portfolio that I want to pay off. And so I am selling assets as a part of that process. We’re selling assets and then we’re refocusing that money to pay off some of the other assets in our portfolio that we want to keep. You’re selling because it’s a good time right now. We’re finding great deals on the market. So it’s a great time to take some of that money and go buy other assets if that’s part of what you want to do in your real estate business.
But I think what I want people to take away from this part of our conversation is that both of us got started, built a business, operated our lives, and then saw how our lives have changed over time, saw how our businesses were running over time, and now we’re making adjustments based on our current or new end goals that we want for ourselves. And that’s like the best thing about real estate is you can build any life that you want and you can position your portfolio to provide or help providers support the life that you want. That’s the goal. This is what everyone should be doing at some level.

Dave Meyer:
Hell yeah. That’s the whole reason you do it.

Henry Washington:
Right. Does it mean everybody needs to sell something right now? No, but it does mean that you need to be looking at your portfolio, looking at your business and looking at your life and saying, “What is it I want for my life in the next one year, five years, and 10 years?” And then make decisions based on those things. And if the decision is selling gets you to those goals in the most efficient way, then you absolutely should be looking at selling.

Dave Meyer:
I couldn’t agree more. If you understand your goals, that’s how you start to decide if you’re going to sell. I want to get into that a little bit to help people understand what to sell, if they should sell. And it really does all start with goals. I think you heard Henry and I both just say that. I want to have a lower headache portfolio. Henry wants to de- risk his portfolio by reducing debt, both fantastic goals. It really makes these decisions about what to buy and what to sell a lot easier if you have clarity about those goals. But before we get into that, Henry, I got to address the elephant in the room. Are you selling at all at all because of market conditions and you think prices are going down or you just don’t like what’s happening in the housing market? Is that influencing your decision at all?

Henry Washington:
A very small percent of that is true. The market conditions are playing into it because it’s such a good time to sell because values are still up. And even though expenses and a lot of the things that come along with real estate are also up, what you’re really not seeing nationwide is value starting to drop a ton because of those things. In some markets, yes, values are coming down a little bit, but because values are stable, I’m able to capitalize by selling assets that make sense for me to sell and getting a decent chunk of money for doing so. Does that mean I’m doing it because I think values are going to plummet in the next year or two? No, but I know where they are now and that’s the decision I can make. I’m not guessing about where they’re going to be in the future.
I’m taking advantage of where they are now.

Dave Meyer:
Right. You know your goal, you’re responding to market conditions. That’s exactly what any investor in any asset class should be doing. And I’ll be honest, the way I’m going about it is definitely because of market conditions, but not because I think there’s going to be a market crash. I just think that the types of deals that worked for the last 10 years and the types of deals that are going to work in the next 10 years are a little bit different. Going forward, you’ve all heard my thesis. I think we’re not going to have a lot of appreciation in the next couple of years. And so I’m looking at these deals that I have and I say, if they’re not earning me solid cash flow, if they were just kind of those like mid-cash flow deals and they’re not going to appreciate, I don’t want them.
What’s the point of holding onto an old building that’s not going to appreciate and has mid-cash flow? I still made a ton of money off those deals from appreciation, but they have served their useful purpose. And I actually think, I know gasp, I think cashflow opportunities are going to get better in the next couple of years. Prices, in my opinion, are going to come down. I think rents are going to start going up in the next couple of years, and that’s going to make better opportunity for cashflow. So I’m just shifting towards those kinds of deals. And if they appreciate, fantastic, but I’m just changing a little bit what I prioritize, not because I am like, “Oh my God, these properties are going to tank.” It’s just like, no, there’s better opportunity out there and I can do better things with my time and money.

Henry Washington:
Yeah, I think that makes a lot of sense. And it’s actually a great transition into the next question I wanted to ask you. And that’s basically around for those investors that are listening, especially the ones who have a portfolio, maybe they have five properties, maybe they have 25 properties. What kinds of properties should investors consider selling or what trigger points should they be looking for in their assets to determine if it’s time to sell it or if it’s time to hold onto it? And I’d love to hear your thoughts right after this break. All right, I am back with Dave Meyer on the BiggerPockets Podcast and we’re talking about selling it all. No, we’re not selling everything. We are selling some assets.

Dave Meyer:
Buyer sales. If you want to buy Henry’s entire portfolio for 50 cents in the dollar, give them a call.

Henry Washington:
We are talking about selling assets. And before the break, I asked Dave, what trigger points or things should people be looking for in their portfolio to maybe tap them on the shoulder and say, “Hey, you might want to think about selling this asset.” Given that we are in a position right now where values are stable for the moment, so if they want to take advantage of values where they are, what should they be looking for?

Dave Meyer:
I love this question. This is one of my favorite things to talk about. And I’m going to give you one Dave nerdy analytical response and one maybe more applicable response. So the one nerdy thing is I always look at a metric called return on equity. It’s just basically a measure of how efficiently your money is earning you a return. And I look at that for all of my properties a couple times a year and the ones that aren’t doing well, I compare them to what I could go out and buy in the market today. And so if I go and see my return on equity on XYZ property is 9% and I can go buy a fresh deal and it’ll get me 12% or 15%, I’m probably going to sell it and just 1031 it into another deal. And this is actually really common for return on equity to decline over the lifetime of your deal.
And it’s a good thing. It’s a sign that your deal actually went really well because what happens is usually if you do like a renovation or a Burr or some type of value add, you get a lot of equity built up upfront. And that’s great because you make a lot of money in those first few years, but then you have a lot of equity trapped in those deals. And so your efficiency of how well you’re using that equity goes down. And so I always try to do this thing called, I call it benchmarking. I’m like, that’s why I always look at deals because even if I’m not planning to buy, I’m always looking at deals in the markets I invest in and be like, okay, I could get a 12% ROE, I can get a 15% and I compare that to my other deals. And that’s like the sort of the analytical way I do it.
The other way, honestly, a lot of it is just vibes. And I know that sounds ridiculous, but it’s totally true. It’s so true. Everyone who owns property knows this. You have that city property that you don’t want to own anymore. And it’s just like, sometimes you’re like, “Oh, you made me all this money.” I’ve gotten to the point where I can be not emotional about it and be just very objective about it and be like, “I don’t want to own it. It’s annoying to me. ” I actually, I went to Denver last week because I wanted to go see a couple properties, a major rehab going on in one of them, and I just wanted to see them. And I walked into one of those properties and I was like, “Uh-uh, nope, uh-uh, not for me anymore.” It was what I thought I was going to hold onto forever.
And I looked around and I was like, “I’m getting rid of this thing. I don’t want it. ” So there’s just part of it. And I think you and I probably have the ability to do that because you can look around a property and be like, “This is just going to be annoying forever.” And you could just feel that. And I was like, “I don’t want to be annoyed forever, so I’m selling it.

Henry Washington:
” Yes, that is absolutely true. I have walked into properties, rentals that I’ve bought and just in the middle of a turn and went, “I don’t want this. I don’t want this anymore. I don’t want to be here.” Absolutely. That’s so true. I love it. Selling based on vibes and we joke about this, but there is absolute truth to it. And the more seasoned you get as an investor, the more you’ll start to understand those things and those feelings.

Dave Meyer:
That’s right.

Henry Washington:
So for me, I’m looking at, is the property performing like I underwrote it to perform? And Dave and I are similar in that we underwrite very conservatively. And so most of the time properties end up performing better than I underwrote, but sometimes they still don’t. And you have to know that so that you can make a decision. And it’s not just like, “Oh, it’s underperforming. Sell it. ” For me, it’s like, all right, is it underperforming? All right. If it is underperforming, then what is it going to cost me in terms of money and time to get it to perform like I want? And before I even look at that, I think through, is this the kind of property I want to own 10 years from now? So if the answer is yes, I want to keep it for a long term. I love the location.
Then I look at what’s it going to cost me in time and money to get it to perform like I want? And then once I do that, I can make an informed decision. I can decide whether, let’s say it’s going to cost me $25,000. Now my decision isn’t do I sell it or do I spend 25 grand? Now that decision is like, do I spend the 25 grand to get it to perform or is my money better spent selling it and then taking the money I would’ve spent on that property and buying another asset? And that’s based on you understanding your market and your buy box because right now what I am seeing is great buying opportunities. So if this was 2025 or late 2024, I might consider fixing an asset and keeping it because the cash on cash return I would get from buying a new asset was not as good as it is now.
And so now the decision in this year might be, “Hey, let’s just take this and go buy a different asset because I can get so much better numbers. I can get a higher return for that money that I’m going to spend.” Whereas a year ago, that wasn’t the

Dave Meyer:
Case.That makes so much sense. I think Henry and I could probably do this by vibes because we just have, as an investor over time, you will get there if you’re not there yet. You will just be able to walk into a building and be like, “This has potential or it doesn’t.” You just know if you know your market well, if you know what construction costs, you know what rents are going to be in the area, you know what people want to rent or buy, you’ll be able to know. And the vibes that I’m talking about is basically just a cost benefit analysis that you’re doing in your head. I’ll actually just give you an example. I’m choosing to sell a property. It’s a duplex. I got a great buy on it. I haven’t hold it that long, but because I’ve got a good buy, I could sell it and make money off the equity.
But the layout of one of the units is weird. And I was getting quotes for doing the layout. I think it was going to be around 30, 35 grand to do the renovation. The amount that it was going to increase my rents was like 200 bucks a month, which is not very good in my opinion. And it was going to be 30 grand to … I talked to my agent, maybe the ARV was 50 higher than it was going to be. It’s like, so am I going to invest 35 grand to make 15 grand in equity and 200 bucks a month in rent? And I was like, no, I could just keep that property, but it’s not going to rent very well as well as I want to with the weird layout. And I have a lot of equity that I’ve built in this property.
So why wouldn’t I go find a property, find a project where I could do a better Burr, do the kind of renovation I’m talking about where the numbers are just better, where it’s going to increase my rent more than 200 bucks a month, where I’m going to earn more than 15K in equity for investing 35K. For me, it didn’t take that mathematical analysis. I could just walk in and be like, okay, this is not going to work. But that’s kind of what’s going on in my head. And if you’re sort of a newer investor, you should just do the numbers, get the quotes, run the comps and figure that out. And I think you’ll see that sometimes selling actually makes a lot of sense.

Henry Washington:
Yes. Some of the other reasons I sell, look, I’d be lying to you if I told you I hadn’t sold a property that positively cash flows just because it’s a big pain in my butt. So sure, I will sell a headache property.

Dave Meyer:
Well, what kind of headaches? I’m just curious because I have a good example I’m thinking of this, but what do you see as headaches? Is it maintenance?

Henry Washington:
Two reasons. It’s either maintenance or it’s just super hard to rent. When it rents, great. Cashflow’s great, but maybe something weird about it makes it hard to rent. And that is a big headache in my butt because vacancies kill you.

Dave Meyer:
That’s the one I was thinking of. I sold a property because my neighbor just kept bothering my tenants and they kept moving out. I would get all of these great tenants and they were just like, “This guy, Ed,” that’s his real name. So weird and so- We are not

Henry Washington:
Hiding names to protect the innocent here.

Dave Meyer:
I won’t share his last name, but Ed, dude, killing me. And I would have these great tenants and they’re like, “We’re sorry we love the house, but we’re leaving because this guy won’t leave us alone.” And I tried talking to him and eventually I was like, “You know what? I was just going to do something where I don’t have to deal with this guy because he’s annoying to me. ” And I think the key is I could do that because I had a good buy, because I executed my business plan and I had already built enough equity in this property that if I went to sell, the transaction costs aren’t going to kill me. I think the problem you get in, and I think that we should talk about this a little bit, is when you’re forced to sell within first year, two years, that’s where I think you really can get in a little bit of trouble.
That’s the situation that I think I personally try and avoid.

Henry Washington:
All right, Dave, since we are landlords talking about selling properties either because they got the wrong vibes or the numbers don’t make sense to us or we’ve maxed out the equity, are we saying that new investors should be scared to buy properties from older investors? Hold that thought because I want to hear your answer right after the break. All right, we are back on the BiggerPockets Podcast. I am here with Dave Meyer and we are talking about why we are selling off some of the properties in our portfolios. And some of the things that we’ve covered is basically understanding and tracking the data for your portfolio so that you can make informed decisions about what you should or shouldn’t sell based on what your return on investment’s going to be for selling based on whether you think you could buy something new that’s going to give you a better return than either fixing or selling something that you currently have.
But just in general, being able to evaluate your portfolio on a consistent basis and make informed decisions. I believe that every real estate investor has to do this and has to do this well if they want to maximize their portfolio. But we’ve been talking a lot about what we are selling or why we’re selling some of these things, and I bet it’s giving some new aspiring real estate investors pause about buying properties from old crotchety landlords like us.
So I want to hear your thoughts. Should new investors be scared to buy properties from landlords who’ve owned properties for ages?

Dave Meyer:
Absolutely not. I actually think it’s some of the better opportunities, to be honest. I have definitely sold properties where I’m just like, “I don’t have the hustle anymore to do this. ” Or my portfolio is so big that I don’t want to dedicate all of my time to this one property, but I’ve definitely left meat on the bone when I’ve sold properties to people. I think that this happens quite a lot because investors like Henry and I, or you talk to James who’s always trading out properties as well, it’s just sometimes it’s not your buy box at that perfect time, but different properties work well for different people at different times in their life. So I can just think of properties I’ve sold that would’ve been a perfect live and flip or a perfect house hack for someone, but I’m not house hacking anymore. So it’s not a good idea.
I’ll also just throw out, I was looking at a deal, a landlord who owned a couple of properties, it was three, four units in a neighborhood I like, and unfortunately he passed away and his wife had the property, didn’t know what to do with it. There had been a lot of deferred maintenance over the last couple of years, but I was like, “This is a pretty good deal. The deferred maintenance rents are well under, so they’re pricing it low, but I can actually make something out of this. ” And I think you see that a lot with older landlords is that they don’t keep up with current rents and that’s an opportunity. Are there some people who are going to demand top dollar and they’re hiding something? Yes. But if you do your due diligence, I think actually buying portfolios or buying from old landlords is probably one of the better options right now.

Henry Washington:
Yeah. I mean, a solid chunk of my portfolio came from landlords getting out of the business, but this is the entire point of the underwriting and due diligence process That’s what it’s for. Focus your time and efforts on getting really good at understanding your buy box and getting really good at analyzing deals and making the offer that makes sense for you, not the offer that you think the seller will accept.

Dave Meyer:
That’s right.

Henry Washington:
And I think that new investors especially get caught up in this. They either don’t make an offer because they just assume the seller will say no, and so they make a decision for the seller, or they increase their offer because they feel like what they need to pay is too low, but they really want the deal. And so they fudge the numbers a little bit and increase their offer because they don’t want to hurt somebody’s feelings. You cannot do this. Do not be afraid to buy from anyone.

Dave Meyer:
That’s right.

Henry Washington:
Get good at underwriting. Get good at analyzing. Get good at knowing what questions to ask about deals to give you the comfort you need for that deal and then buy the ones that work. It doesn’t matter who owns it. Control what you can, and you can control how you underwrite, you can control what you offer. What a seller wants for their property is between them and Jesus. That ain’t got nothing to do with what I can pay for it. And that goes for me too, as a seller of properties right now. Just because I’m asking 500,000 for a property doesn’t mean that’s what somebody has to offer me. If somebody offers me something for 250 for it, I’ll look at it. Does it mean I’m going to accept it? Nah, but shoot your shot.

Dave Meyer:
Yeah, 100%. That makes total sense. This property I was just talking about, the one that the duplex I decided to post on the market, my agent was like, “We could list it for, I think it was like 290, 295.” He’s like, “Or I might be able to find someone off market will buy it for 285.” And I was like, “Great, sell for 285.” For me, the time is more important. And so someone could be walking into 10 grand of equity because I don’t want to be inconvenienced. And that’s just how it works.That’s how a lot of investors work. Sometimes you trade money for convenience. And if you’re an early investor, you trade convenience for money.That’s kind of the way this works. If you are going to hustle and go do these things, maybe you’re going to be a little inconvenience, but you can get 10 grand of equity off me today.
That’s just how investors work. So I think that’s why you need to be able to underwrite, understand what the value of this property is and be able to understand where it fits, what role it plays in your portfolio. And you can absolutely find good deals from existing landlords.

Henry Washington:
What would you say should be the timeframe that investors should be analyzing their portfolio? Should they do this once a month, once a year? What do you think makes the most sense?

Dave Meyer:
I would recommend most people do it twice a year, at least. I probably do it quarterly because I’m just a crazy person, but I think twice a year is the right number for most people. You can get away with once a year if you just know you’re not going to do anything that year. Sometimes you’re like, “I’m so busy. I have a new job. I have a new baby.” Whatever. You’re just like, “Fine.” But if you’re trying to grow your portfolio and actively manage, I think six months, something like that.

Henry Washington:
I think you should be doing it in the winter and in the spring at a minimum, because it may take you a year to get a property ready to sell so that you can maximize the value. It may take you six months. And so if you want to be strategic with it, like we are right now, I am listing several properties that I probably could have listed a couple of months ago, but we held off on listing them until this spring and we were actively getting those ready to sell so that we could list them in the spring. So had I not been looking at this six months ago, I wouldn’t be able to capital eyes on what I’m hoping is more bang for my buck by having them ready to go and put on the market in spring. It may be that you’ve got to non-renew a tenant and just put them on month to month so that you can be ready to list that property.
It may be that you’ve got to get a tenant out so that you can do some refreshes to that property before you list it. There are things that are going to have to happen with a property before you can get the most value out of it. And if you’re not doing this at least twice a year, you’re going to miss out on opportunities to list them in favorable times in order to maximize the return that you’re going to get for selling that property.

Dave Meyer:
That just kind of happened to me. There’s this property I’m thinking about selling. I haven’t decided yet, but I was looking at this in January and I was like, oh, the lease isn’t up till the end of July. So there’s no reason for me to really think about it. But I said in my calendar, think about this again in April because then I would have three months to figure out whether or not I’m going to sell it, talk to the tenant if they’re going to re-up, just do the analysis. It sort of just reminds you. And I know if you only have one property, you probably know when your leases are up, but when you get to a bigger portfolio, you forget. And so you just kind of need to be doing this continuously. I think that makes a lot more sense. So Henry, before we get out of here, one last question.
What do you say to the people who say buy and never sell? What’s your last piece of advice for people listening here?

Henry Washington:
I think buying never sell is just unrealistic advice. Let me give you an example. If I bought a hundred year old house, and even if I spent some money renovating that property and now I’m 20 years in, well, now that house is 120 years old. If the market is favorable in terms of being able to buy something that’s going to give me a higher cash on cash return than the property that I currently own, even though I’ve been paying on it for 20 years,
If the maintenance is kicking you in the teeth, it may make sense to sell that asset to go buy a better quality asset because my goals and what I want from my family and what I want out of my real estate business, that older property is not the best fit for my goals. So it’s too much of a blanket statement to say you should never sell. Sometimes you just got to sell an asset because you might need some cash. I think people who say they never sell is crazy to me. That just means to me, I just think you have a bank account full of money and you never, ever, ever have to worry about any of the expenses involved in real estate because you’re just flush with cash all the time.

Dave Meyer:
Yep. I mean, it doesn’t make any sense. I’m glad we’re doing this episode. And part of the reason I wanted to do it right now is because the other day, my real estate agent in Denver just sent me a text and was like, “This property that I used to own and sold just hit the market again.” So I’m just going to give you the numbers right now. I bought this in 2010. It was my first deal. Bought it in 2010 for 462. I sold it in 2018, so eight years later for $1.025 million. So huge, huge return. I had three partners on that deal, but huge return there, right? Massive. But it was a pain in the butt. It was just because we had some issues with tenants, we had break-ins. It was a pain in my butt. Know what they’re selling it for now?
1.050. So I made about $600,000, and then in the eight years since, people have made $25,000. I’m just saying, I haven’t timed all of them that well, but I just want to show that I took that money. I 1030 to wonder into two other deals that have done very well. And I just think I saw the writing on the wall that the property had reached its maximum age. Now, this might go back on scaring people from buying from people like I said. But I just want to show people that this actually works. I didn’t pull all my money out of the market. I reinvested it. Those deals have done well. I’ve actually sold both of those deals and I’ve reinvested those again. So that’s my style of investing. I like optimizing, but I just want to show you that it actually works. Had I held onto that deal forever, like everyone said you should have, I would’ve made a lot less money.
So I just want to give you some examples and I have plenty more where this actually works. So just think critically about the best way to use your time and money. That’s the job of the investor and selling is a crucial tool in your tool belt as an investor.

Henry Washington:
Again, I know people are listening to that and thinking, oh, you got lucky in time in the market. And was there some luck to it? Sure. But there’s a lot of experience and research to that too. At the beginning of this episode, you talked about you think that values are going to either stay flat or come down a little bit over the next few years. And if you’ve been in this business for the last five years, you know we got huge equity bumps in between 2020 and like early 2023, like drastic equity bumps. And so if you have an understanding of real estate in general, what’s going on on a national perspective and then diving deeper into what’s going on locally in terms of values, it can help you make decisions like this. So what Dave is essentially saying is, “I don’t think I’m going to get a massive equity bump in the next few years.” So if I’m going to sell something, now’s probably a good time to do it because it’s not like I’m going to miss out on massive amounts of equity by selling that asset over the next couple of years.
So it’s not just luck. It is critical thinking and it is understanding your market and knowing what data points are important to those things.

Dave Meyer:
I think in the kind of market, in a buyer’s market that we’re in, it’s a good time to reload right now. It’s a good time to take stock and say, “Hey, my portfolio has been great. I am super grateful for everything that it’s done for me so far. Might need to change what it looks like a little bit for the next phase of my investing career.” And that’s where I’m at, but I encourage people to think like that all the time, every year. Think, is this the right portfolio for me at this point in my life? And if not, bite the bullet, sell some stuff, reallocate, use some of your money, have fun, go on vacation, whatever you want to do.

Henry Washington:
Buy the Lambo, post it on social

Dave Meyer:
Media.

Henry Washington:
Tell everybody how to get rich in six years.

Dave Meyer:
That is what I’m going to do. What’s this property? What’s this two block sells? They’re going to go buy a Lambo.

Henry Washington:
Oh gosh, that’d be the day. That’d be the day.

Dave Meyer:
Yeah.

Henry Washington:
For the record, Dave will not do that. Dave would buy like a brand new forerunner before he buys a Lambo and then drive it for the next 50 years is what he would do. All right everybody, thank you so much for joining us on this episode of the BiggerPockets podcast. Again, it is okay to sell assets. Just be strategic about when and how you do it. And in order to do that, you’re going to need information, which means you need to have your accounting and bookkeeping in order so you know which assets in your portfolio are ripe for selling. And you’re going to need to understand a little bit about the real estate market so that you can know if it is a good time to actually turn around and try to sell those properties. But don’t listen to anybody that tells you you should never sell.
You can’t make blanket statements. Every investor has a reason for investing. Every investor has a life. So build your business and make business decisions around the performance of your assets and the life you want to live. And I think you will be a much happier investor than trying to hang onto something just because you think you’re supposed to. As always, this is Henry Washington. He is Dave Meyer. We appreciate you being here and we’ll see you on the next episode of the BiggerPockets Podcast.

Dave:
The rollercoaster of the economy and the housing market keeps rolling on with each day seemingly more confusing than the last. But today, James, Kathy, and I are here to help you understand what is going on in the housing market and the news. Break it all down for you and help you make sense of what you should be doing with your own portfolio. Kathy, how are you? Thanks for being here.

Kathy:
I’m doing great. I’m here at a conference. So glad I could be at both, here with you and at this conference.

Dave:
Nice. What are you speaking about?

Kathy:
Uh, this morning was on new construction. This afternoon will be how to squeeze cashflow out of properties today and then, um, also do, doing a syndication group. All, all kinds of things.

Dave:
Yeah. Oh, you were the star of the chef.

Kathy:
Nice. Oh, maybe a little . I’m just glad to be here.

Dave:
Nice, James. How are you?

James:
I’m good. I just got back to Arizona. It’s sunny and warm, and I was in the mud all week.

Dave:
Here in Seattle?

James:
Yeah. I think I ruined four pairs of shoes. Oh, wow. And

Dave:
Your shoes are expensive, man. I’ve seen those shoes. You, this is a lot of money. James also was the star of the show. I don’t know if you all saw it, but we did a Seattle value ad conference, uh, over the last weekend, and you should have seen it. James talked for nine straight hours about value add. At one point, Kathy, you would appreciate this. He had an IV sticking out of his arm while he was standing- Stop. … in front. Are you kidding? No, I will send you the picture. Oh, of

Kathy:
Course he

Dave:
Did. The funniest part is James, for everyone doesn’t know, James likes doing these IVs. I don’t know what’s in them. Your

James:
Vitamins.

Dave:
But, like, you were speaking in front of the conference and you didn’t even mention it. You were just kind of thought it was, like, a natural thing to do and people were just

James:
Home. I guess I didn’t mention it, did I?

Dave:
It was so funny. Well, uh, a lot of conferences right now, but a lot of fun. If you guys don’t go to any real estate conferences, you should. They’re great ways to network and learn. You obviously miss these two, but, uh, the BPCon tickets are going up for sale early bird stuff right now. If you wanna join me, James, Kathy, and tons of other people in … I think it’s the best event of the year. I’m biased, but I love going to it. It’s so much fun. It’s October 2nd through 4th in Orlando. Definitely check those out. Yeah, you

Kathy:
Just can’t miss it. And it’s in Orlando. Come on.

Dave:
It’s gonna be fun.

Kathy:
Oh, yeah. All

Dave:
Right. Well, let’s turn to the headlines because so much is going on. Honestly, I woke up today. It’s, it’s Friday, April 3rd. We’re recording this. I woke up today and I was gonna be like, “I am really scared of stagflation. That was gonna be my headline. I was gonna make my own.” And then all of a sudden, we had a great jobs report today, and I’m like, “Maybe I’m overreacting.” But just wanted to call out two sort of, like, major things that are going on and get your opinions on it. So the first is 180-ish thousand jobs added in March, which is a big rebound from February. We saw losses. So that’s good news. But overall, if you just average together the last six months, we’re seeing about 15,000 new jobs per month. Not great, but this is hopefully a good sign. So still, somehow, mixed signals on the, the labor market.
We can’t get a direction on it. On the other end of the spectrum, you know, if we’re talking about rates and where things are going, I’m particularly worried about inflation. I don’t know about you guys, but we haven’t seen a CPI print since the war in Iran started. But there are some leading indicators, like there’s this wonkier way to measure inflation called the Producer Price Index, so not what consumers are paying, but what suppliers are paying. And that went up 0.7% in just a month, which is a lot. If you extrapolate that out for a year, that’s over 8% inflation. It probably won’t happen. I’m just saying, like, that was a lot for one month. Um, so, you know, see, oil prices continue to go up. I’m particularly worried about food prices. If you look at fertilizer costs, like, I think inflation is going up, and I am still worried about stagflation and just stagnation in the housing market and the economy in general, but maybe I’m being paranoid.
What do you guys think?

Kathy:
Well, it was, it was really shocking to see the jobs report. And also, retail sales came in stronger than expected, which says the consumer is still spending money. Uh, whether they have it or not, I’m not sure.

Dave:
What is happening? But it’s

Kathy:
Also interesting, the ADP, you know, report that came out, uh, a key takeaway was small businesses, which is under 20 companies, drove the majority of job gains. And that’s really interesting. I

Dave:
Haven’t

Kathy:
Seen that. Uh-

Dave:
That’s great.

Kathy:
It’s really great news. It’s a healthy sign that, uh, it used to be that small business owners really were the backbone of the economy and maybe that’s coming back. Maybe the tax cuts, um, inspired that. That’s true. But, uh, that’s, that’s really good news, right?

Dave:
I think so, yeah.

Kathy:
So I don’t know. Hopefully this, this war just ends soon and we can, you know, see prices come back, uh, oil prices come back down. And how about some peace? That would be amazing.

James:
Yeah. You know, we’re a smaller business, and I will say we’ve been hiring more recently because you can get better quality applications now. Like, the big businesses aren’t sucking out the talent.

Dave:
Oh, interesting.

James:
And at the same time, you can get them at reasonable, like salary, like normal salaries. Like for, I remember like 2021, 2022, it’s like people come in right out of college and there’s nothing wrong with this. We just can’t afford it. And they’d have offers from all the big tech companies- mm-hmm. So like, “Oh, what can you offer?” I’m like, “Not that. ” And now there’s definitely a lot more talent looking for jobs. And so I think it’s made it a lot easier as small business owners to hire. It’s getting a little bit more balanced out.

Dave:
That’s super interesting. I actually saw that in the data, you know, they track this stuff, like how much of a pay increase you get by switching jobs. And during COVID, I forget the exact number, but it was like average 10%, super high. Now it’s flat. And so, you know, obviously for people who want higher wages, that’s not great, but it’s interesting to hear some of the benefits for smaller businesses, because you’re right, James, Google, Amazon, all these people overhired, essentially. They were just trying to hoard talent, labor talent for a really long time. And now maybe that means for anyone out there looking to build a business, you’re gonna be able to hire better quality people for the first time in a while. It’s almost like real estate, right? You’re getting better deals now because there’s less competition and maybe we’re seeing that in the labor market too.

James:
Yeah, we’re definitely seeing it. And I’ve noticed a lot of, like, people coming in to apply for positions, they were kind of still in that COVID freelance mode. We’re like, “Oh, no, I’m just gonna pick up a contract here, pick up a contract here, double dip, and now all of a sudden there’s not as many contracts available.” And they’re like, “No, no, I just want full-time employment.”

Kathy:
Mm-hmm.

James:
You know, which is good. I mean, because as a small business owner, you don’t want turnover and you don’t want people jumping around. And so, like, we always say at our office, like, “You stay with us a short amount of time or you’re with us for life.” Mm-hmm. And, you know, a lot of our employees have been with us over 10 years and that’s been a lot more refreshing. So I think we’re … I mean, I’ve been hired for a job that I didn’t really need need, but the person was so good, they were qualified and I was like, “Okay, we can build around this because we need it down here.” And so that’s been very refreshing as a business owner because it was brutal for years.

Dave:
That’s good news. Uh, well, I mean, I guess for, for the housing market and, and industry, at this point, I’m more worried about inflation than the labor market. It, it switches every day. So ask me next week and I’ll change my mind. But I, I think we’re … Even if the war ended tomorrow, I don’t think oil prices are going down anytime soon. And a lot of these things just ripple through the economy for a while. The, the uncertainty that’s created here is pushed up bond yields. The fear of inflation, I just wanna sort of explain what I said earlier. Oil prices up, what, 60, 70%- Yeah. … over, you know, just a month ago.
People look at that and they see what they’re driving and the gas prices, but oil goes into everything. Shipping, everything that we import, diesel costs to ship things, it goes into plastic. We actually just saw that Dow, the company that makes a lot of plastics just said that they were in- they were doubling their expected increase in input costs. So we’re gonna see this ripple through the economy. Does that mean we’re gonna see five, 6% inflation? Probably not, no. But it, it is going to put upward pressure on inflation, which keeps mortgage rates high. We also see 30% increase in fertilizer costs. I know this seems like totally obscure, but this really matters a lot for food prices. We’re probably gonna see grocery bills start to go up. And these are the things that ordinary Americans have been struggling with, right? Gas prices, electricity prices, food prices.
And I just think it’s gonna decrease demand. Like, people are gonna get stretched out on other parts of their life, and mortgage rates are higher. And I didn’t think we could go much lower in terms of transaction volume than we were in January, but I actually, now the way I’m looking at it, I think we’re just … I don’t know if the spring selling season is going to materialize this year.

James:
Did it was. And then I feel like this is, like, the tariffs all over again. Like, the market … I remember last year, it was so red hot, they announced the tariffs and it was like the curtain just dropped. Yeah. I haven’t felt that yet, though. End of April could, the curtain could drop. And so it’s like push your properties to, uh, to, to market. Typically, like in our market, end of May was usually when it slowed down. Last year came in April, about halfway through. We’re still seeing a little bit of push through. We’re still selling houses, but I will say the velocity of buyers showing houses is slowing down a little bit right now.

Dave:
Buyers looking at housing, you like

James:
Foot traffic? Buyers

Dave:
Looking. Yeah.

James:
Yeah, that’s the thing I gauge most. Every Monday, I go through every listing that we have, and we have them in all different price points. How many bodies are coming through because that’s, tells you the activity- mm-hmm. … in that … I mean, that’s the blood that, that’s pumping through your market right there. And I would say that has slowed down a little bit, but the people that are coming are pretty serious about writing an offer, maybe because also their rate locks are expiring. Mm. So, you know, once those rate locks expire, then you feel the curtain close. Yeah.

Dave:
This is obviously if you’re an agent or a loan officer, like, this is not good news. Personally, like, I wouldn’t be mad if we saw prices come down a little bit. I think it would make buying a little bit easier. So I, I don’t know if this is gonna force a little bit more reality for some sellers, but I, I would imagine that this is gonna create both some frustration because, uh, you know, it’s not good, big long term, but it’s what we keep talking about. The flip side of a more, a slower, more difficult market, it’s better negotiating leverage and better deal flow. And, and I think that’s kind of the trade off that I’m looking for. And I think, you know, that’s my recommendation is to keep looking because I think the discounts are gonna be easier to come by if the market stays the way it is right now.

Kathy:
Oh, yeah. I mean, on the buy side, it’s, uh, it’s strong. This is your time. This is the time, right? There’s this blip. The curtain did come down a little, you know, like James was saying. So there’s more properties on the market, more opportunity to negotiate, a little harder to sell in certain markets. Uh, we have our subdivision in Florida that has been actually selling pretty steadily, but the Utah one, just screeching halt, but that also has to do with the fact that there was no winter in Utah this year. There is no snow. Yeah.

Dave:
And it’s in a mountain town, right?

Kathy:
It’s a mountain town. Yeah. Mountain towns got hit hard. Yeah, because- Yeah. … you don’t have buyers. You don’t have, as James said, the, the blood, you know, the circulating. There was no one there.

James:
You know what the one thing I’m seeing on our side though is there’s not as many opportunities. The deals aren’t there, especially because I know we’re gonna be dispoing kind of in the summer months. It, it’s still really competitive right now. The, the, it, like, deal flow has really shrunk over the last 60 days. And so- Yeah. … it’s, it’s always weird.

Dave:
Seattle just defies expectations, whatever it does. It’s always weird.

Kathy:
It’s its own little universe, just kind of like San Francisco.

Dave:
It is. It’s like San Francisco, New York. Yeah. Like it, they kind of just defy gravity. Yeah. Not always in a good way. They’re just like, they do their own thing. Yeah. Yeah. But like I, you know, I was looking at a deal this morning in the Midwest for a renovated four unit at a seven cap. And I was like, all right, like, that’s a little bit better. Yeah. You know, things are starting to get a little bit better. Yeah. Um, it’s not everywhere, but those deals are sneaking through on market. My guess is that trend is going to continue in the majority of markets, maybe not Seattle and, and some other places, but I think for most like mid-level affordability kind of markets, we’re gonna start seeing more and more of that. And it’s why I’ve sold some properties recently because I think I’m trying to reload, buy new stuff because I think better a- like definitely better assets are on sale, like higher quality properties- mm-hmm.
… still asking a lot, but it’s still better inventory to look through it in, in the markets I’m looking in. All right. Well, I guess that’s sort of our outlook. I, I don’t know, summarize it. I think slow is, is what we’re going to see- Slow and stay. … until we get clarity. Yeah. It, but, uh, hopefully that means better deals. We gotta take a quick break, but we’ll be back with more headlines right after this.
Welcome back to On the Market. I’m here with James and Kathy. Going through the most recent headlines before the break, we talked about jobs and inflation numbers. James, what do you got for us today?

James:
The article I brought in was accidental landlords rise to a three-year high as the market shifts. And this is actually published by Zillow. I found this actually really interesting because I see this a lot over the different markets I’ve been in, is when people force the rental and they’re like, sellers, they’re not getting their price, they’re digging in their heels, they’re like, “I’m just gonna rent it. ” Yep. And they pull it off, they go fill it up, and then, you know, they’re sitting there, and is that the right strategy or not? ‘Cause a lot of times, mathematically, it makes no sense. And so, you know, I wanted to kinda chat about that, but the article’s very interesting because it talks about that we are on some of the highest levels we’ve ever seen where people cancel their listings, they put it back in the rental pool.
And I’m thinking part of this is because there is a lot of short-term rental operators that just wanna see if they can get rid of a property or not. But the cities that we’re seeing the most in, Denver actually ranks number one at 4.9% where roughly 5% of homes just don’t sell, they don’t wanna cut price and they take them as rentals. Hmm. And so your top five are Denver, Houston, Austin, San Antonio, and Portland, which I don’t know why anyone wants to be a landlord in Portland- Yeah. … to be perfectly honest. But, uh, I would much rather take a low price. But we’re seeing this as a trend and I’m seeing it in especially the investment community where people are into a flip or they’re into a, a dev and they’re like, “You know what? I’m just gonna keep it because they’re too afraid to take a loss.” Yeah.
Mm-hmm. And I’m a person that if I gotta take a loss on a property, which happens, it’s just, I mean, you buy enough homes, you’re gonna get the bad deal, or the wheels come off on a deal, or it just, you hit the wrong market, just the way it goes. You know, for us, if we’re planning on selling it, you know, there’s kind of two things that go components. Like right now, I am gonna be one of these sellers where I’m pulling something off the market, and I’m gonna keep it as a rental, and mathematically it doesn’t make any sense. But the reason I’m keeping this as a rental is because I can build two townhomes in the back of this yard. Mm. And so what I’m gonna do is plan permit and get the town homes ready to sell and see what I can sell the lots off for, then sell the house because it takes about a year to get that permit through in Seattle.
Mm-hmm. And so I’m doing that because there’s upside and it’s a strategy change, but if I just decided to keep that house with no upside, I’d probably be losing 1,500 bucks a month at best case scenario. And, you know, I see a lot of people forcing rentals right now, and it’s not the best strategy-

Dave:
I agree.

James:
… unless you can just afford to pay that big negative on numerous properties. It’s better to take the loss and relocate the money and reposition the money than to just let it kinda bleed yet. Uh, man, I’m talking a lot of blood- … This, uh, this show. But, uh –

Dave:
It’s very morbid. This is like a horror show.

James:
It is. It’s a little morbid today. Uh, but, but these things can bleed you out. And I remember seeing this, and I did this in 2008, right? Like, the market crashed. I was like, “I’m keeping all my properties,” and it just slowly eroded my bank account. Now, we’re not in 2008 again, but- Yep. … it was like I had savings and the savings got wiped out, and it would’ve been much better for me just to take it on the chin, sell those properties- Yeah. … and got better buys.

Dave:
But the properties you’re talking about, and the reason you wouldn’t recommend it is because they didn’t work as rentals, right? They weren’t profitable as rentals?

James:
Yes, they were not profitable as rentals, but that’s what I’m seeing a lot in that DSCR space where people are kind of refinancing, getting the biggest loan they can, and then they’re getting their income and it’s a little bit less because, you know, it’s also talking about how rental inventory is now rising right now because of these sellers pulling things back in the market. And I’ve seen this happen, especially, like, in, like, the east side of, of Washington, which is like Bellevue, Redmond Kirkland, where they’re more expensive houses, they pull them off, the rents are terrible there. Yeah. Like, your rent math never works well. That’s another weird pocket where it’s like, rents are less than much lesser neighborhoods.

Dave:
Yeah, you’re, like, getting, like, a 0.3 rent to price ratio there, maybe less.

James:
Yeah, it might be less. It’s that bad. But then people trap up their money, they can’t move them, and they, you’re just paying for it. And so, you know, I think the steps are, you have to look at, okay, can I break even? Is there upside? Is this a short term down in why you can’t sell it? Then maybe take a look at renting it, but if not, you know, I’d rather, instead of lose $1,500 a month in some potential equity that’s not real, is sell it, take the loss, take that cash, and go buy a better deal.

Kathy:
Yeah, but that’s because you know how. You know, if you’re, if you’re an accidental landlord, you don’t know how to do that. You have probably another job that you’re good at, and it’s not real estate. And so for, for people who have regular income jobs, to lose money is a big deal. You know, it’s not like- I agree. … like we throw around money because we’re so used to making it and losing it. I don’t know about you, Dave, but, uh, James and me-

Dave:
I don’t like losing it. Yeah. I hate losing

James:
Money. I absolutely

Dave:
Hate it.

Kathy:
But, but it’s like- No. … you know, like with James, he’s gonna, okay, I, I lost 300,000. I mean, I’ve heard him say this. I lost 300,000 on this deal. I’m just gonna go make it on the next. That’s not normal. No. That’s not how most people think. Now, if somebody was like, “Okay, if I sell this, I’m gonna lose money, but I still have some money. I could go put it in this deal and I’m gonna make it back,” they would do that if they knew how.

Dave:
That’s fair.

Kathy:
And that’s why hopefully you’re listening to this show so you can learn how. But I can see why someone would say, “You know what? I’m just gonna lose a little money even $1,500 a month because I believe, and if you … ” I would never, I would never recommend that, but that’s what I heard James saying, um, wi- with the idea that, um, you know, in a few years it’s coming back.

Dave:
I guess to me, it’s just still a math problem. Does it work as a rental? Yes or no? Is it as good as another rental you could go buy? Yes or no? If the answer’s no, sell it, lose money.

Kathy:
But I bet a lot of these people who are accidental, I bet they’re on two or 3% interest rates and maybe it does work.

Dave:
Yeah, exactly. Like, uh, that’s the thing is like if, did you inherit a home that’s a lot, a lot of times, by the way, accidental landlord sometimes either refers to people who maybe inherit something that they didn’t intend to be a landlord or they’re moving and they don’t know if they should sell or rent out their home. If you’re inheriting a property, you’re probably at a really good cost basis, you probably have lower taxes, you probably have a low mortgage rate. Like it can work a lot of the time. And if the numbers make sense, you should. I, I think for people who are moving though, it’s a lot harder a lot of the times, or for flippers, it’s harder a lot of the times. And so I just encourage people, analyze it just the way you would do a regular rental property. And if it works, uh, do it.
The other thing I’ll say is that I was speaking at this conference this week too, and someone was asking me this question, said, “I flipped a house, it’s been sitting on the market, should I just rent it out? ” And I was like, “How long has it been sitting?” It was like a really long time. I was like, “All right, send me the listing. I’ll help you analyze it. ” He sends me the listing. It’s been sitting on the market for 40 days. And I was like, “Okay, 40 days, not that bad.” Like, maybe don’t overreact. Yeah, it feels bad, but it’s, yeah, to how long it might take. And the other thing I, I learned from James, this was a really good lesson for me. We did, uh, flip together this year. We wound up eking out a tiny bit of profit, but it was a great learning experience.
And what I learned was that you just have to be aggressive in selling right now. Like you have to be very proactive about it. And, you know, I think a lot of people who have gotten into this, myself included, I haven’t done a lot of flips. I’m learning this myself, they just wait for offers to come in. But how we eventually got to sell is James and his team are awesome and they held open houses and they pursued and they negotiated a deal. They didn’t wait for someone to come to them with an offer. They were proactive about it. And we were able to get out of that deal with a, a slight profit on it, not lose money because the agents did a good job. And so I think a lot of people were sitting in this position as well, need to push on their agents a little bit more and, and- mm-hmm.
… see if they can go make a deal. If you’re in this tough situation, I’m sorry, it sucks. But it, and I really, genuinely, I’m sorry, but I think you need to work with your team to try and find solutions if, if the rental numbers don’t work. And it doesn’t just mean taking a massive loss or losing cashflow on a rental. Like if you work at it for a little while, not 40 days, I’m talking three, four months at least, maybe you can find a better solution for yourself. I’m

James:
Glad you brought that up, Dave, because brokers gotta do their jobs, which is not just push paper back and forth. You gotta make outbound calls, you gotta talk to every broker in the area. Like even if it’s not your listing, it doesn’t matter. It’s how many people are coming through their listing. Are you overpriced? You have to communicate. Our job as brokers is to communicate and bring that in. And if you don’t make the calls and you send text messages and emails and don’t get responses, then you gotta get the next response, which is make the phone call, call the other brokers, see how they’re doing. You gotta be proactive. But one thing with what Kathy said, you know, those are different strategies. Like when you take a big loss on a flipper development and you’re redeploying into something else, you’ve lost inventory, which is your money, and then you’re reputing it in to kind of build it back up.
That’s a big loss. Like most of these houses, people aren’t taking that kind of big of loss. So the math, how it needs to be broken down to is that let’s say I’m gonna lose, I got 100 grand in a property and I’m losing 50 if I sell.

Dave:
Mm-hmm.

James:
That’s a big hit. That sucks.

Dave:
Huge. Yeah.

James:
But if you’re gonna lose a thousand bucks a month on that for 12 months and you don’t have a strong opinion about the market, because what I’m seeing is people pull it off with no opinion. Yeah. They’re like, “Well, the market’s, I don’t know what’s gonna happen.” It’s like, well, if you don’t think it’s gonna come back and come back strong, then sell that thing.

Dave:
100%.

James:
And because you, you’re now losing 12 a year just to not lose 50. And if you take the other 50 you have and you go make a 6% return, well, that’s gonna pay you three to four grand a year. If you put in a hard money and that can pay you five to six grand and it doesn’t take long to get it off, plus you get the write-off.

Dave:
And you still might lose the 50. Like- Yes. …

James:
You don’t

Dave:
Know that you’re not gonna lose the 50. That’s the problem is like the market might not come back. You might lose, you know, if you’re losing 1,500 bucks a month, what is that? That’s $18,000 a year, and you still might lose the 50 in a year from now. Like, uh, it’s just, it’s a hard position to be in. Yeah. I am sympathetic if you’re in this situation, but you can’t throw good money after bad. Yeah. That, that’s how you really get into trouble here is sometimes you just need to chalk it up as a loss and move on.

James:
Pull a bandaid and just put the money in something else that will give you some steady growth. Unless you think you have upside in that property or you really do think, as an investor going, this is a short-term lull- Yes. … 12 months from now, it’s gonna be different. If you truly believe that, then go with that strategy. But if you don’t, look at putting your money into some good money.

Dave:
All right. Well, good topic. This was fun to conversation. I enjoyed this. But yes, run it, run the numbers. That’s the key. Look at two analyses. Actually run the numbers and figure out what the probability is, what’s the best way to use your money today. And I know it’s emotional, it’s hard. People do, you know, if you look at behavioral economics, people do a lot of irrational things to avoid losses, even if it’s not the right decision. So try and out think that one if you can. We gotta take one more quick break, but we have one more headline with you right after this break. Welcome back to On The Market. Kathy, James and I are here sharing the most recent headlines. We’ve talked about jobs, inflation, and accidental landlords. Kathy, what do you got?

Kathy:
Well, I’ve got this article from AP, it’s Sanders and AOC push a bill to impose AI data center moratorium. Hmm. Now it’s very unlikely that this will go anywhere, but it brings up really interesting topic of these data centers. And you’re seeing every conference that I go to, it’s like the hot topic. Data centers, everybody wants to invest in them because we are literally in one of the biggest growth phases that we’re ever gonna experience in our lifetimes with AI. Like we just don’t even know what we don’t know about what is about to happen to our world. And, uh, some people at the top probably know a little bit better and that’s why they’re building all these data centers because they know that, that AI takes a tremendous amount of energy. But the bottom line is this article is about communities across the country backlashing against these data centers- mm-hmm.
… because of the fear of rising electricity prices and pollution and water consumption and pollution with the water. It’s like we’re talking about a deregulation administration, and yet we have this push for AI that needs some regulation at a time where there’s probably not gonna happen. So for investors looking at this, you know, part of me is like, “Ooh, I wanna make sure I’m investing by all these new data centers because this is where the growth is gonna be. ” But then there’s all these issues that come around it, like, does that mean electricity bills are gonna go up? Does that mean that their air is gonna be poisoned? What does this mean? And how do we need to be careful about it?

Dave:
This is super interesting. I have a lot of thoughts. I guess, let me just start with the investing in your data centers. I’m not sold on that concept personally. Like, I know it increases construction activity and there’s like a short-term burst of activity, but like, I don’t know if that means that once the data center’s built that there’s gonna be like enduring growth in that area. I think they’re often in cheap areas where land is cheap and utility costs are cheap. And data centers infamously don’t require a lot of people to run them. Mm-hmm. So it’s not like it’s gonna be a boom job. You know, when you look at something like what they’re building in Columbus or Phoenix or Syracuse, New York, like these chip plants, like that creates economic activity. Yeah,

Kathy:
Yeah.

Dave:
The data center, I’m not sure. Mm-hmm. So that’s just one thing. The other thing though is I sort of agree, like I don’t think there should be a moratorium. We need data centers in the United States. Like if we wanna be competitive on AI, which I think is important, we need data centers. I agree with you, there probably should be some sort of regulation around what AI is used for. I’m not smart enough to know what that is, but I sort of think that if these companies are gonna come in and sort of like totally change the price of utilities and the cost of living, that like they should be taxed or pay for it in some way. Yeah. That’s just my personal opinion. Absolutely. I’ve always thought just generally with utilities, like they do this in some places, but like shouldn’t it be like a graduated price?
Like if you use just the normal amount of residential electricity, it should be really cheap in my opinion, for like the average person. Mm-hmm. But if you’re gonna use like 90% of this, the, you know, you go over normal levels, like it should get incrementally more expensive for you to use electricity every time you go above that. And if you did something like that, then AI, data centers, these companies, we know they have the money. They could pay more for electricity. Like they should probably pay more. These are public utilities and like the, the benefits of that should go to, uh, in my opinion, just like normal people.

James:
Mm-hmm. It’s funny because you need low utility costs. Like in Quincy, Washington is a place that there’s a lot of data centers because they have some of the lowest utility costs in the nation, right? And so it makes sense for it to go there. I can tell you, the population growth over the last four years of them building out there is next to nothing really out there. Mm-hmm. It’s the, it’s, it’s like the gold rush, remember when there’s all those little gold rush towns that were getting set up in the Dakotas and everyone was rushing to build housing there and then all of a sudden the gold ran out or whatever happened and they’re like, “Oh, now there’s these ghost towns everywhere.”

Dave:
Yeah.

James:
They don’t need more housing because it’s just-

Dave:
It’s temporary.

James:
It’s temporary. And you do make money though. I will say that. Like I know we did four fourplexes out there with a client and the cash flow she gets out there is unreal because of the contractors building it out.

Kathy:
But then what? Exactly. Then when it’s gonna get out. Yeah.

James:
Well, and the thing that you wanna look at is how much construction is set to be built out. Mm-hmm. And so this is an area where there’s heavy Microsoft there and heavy data centers out there. And so when we looked at this, this was five years ago, so she’s about halfway there. They had about 10 years of construction already bid out ready for schedule. So you know, you can kind of like anticipate your ride there. So depending on how much construction’s going, that’s where the money is. But otherwise, if you go to normal rents out there, it’s like a four cap at best.

Dave:
Right. And I guess now that we’re talking about it, I’m like, maybe it’s even worse to own rentals by a, a data center because your input costs are gonna be higher.

Kathy:
Exactly. That’s what I’m

Dave:
Saying. Yeah,

Kathy:
It’s gonna be higher.

Dave:
Yeah. So like if you’re a landlord and multifamily or you pay utility costs, that’s not gonna be good. And this is a little less direct, but if electricity’s super expensive, even if the tenant is paying for it, their budgets are gonna be more constrained, right? Mm-hmm. So, yeah, I don’t know.

Kathy:
I- Yeah, that was kind of my thought is you just, you, you gotta be aware of it because somebody might think, “Oh, wow, you know, I just read that all these data centers are going into Quincy, for example, I better, I better get on that wagon.” And it’s like, may- maybe think that one twice. Maybe if you own the data center perhaps, but-

Dave:
There you go. That That’s the business to be in. Yeah. Own the data center or the construction company building the data center.

Kathy:
Yeah.

Dave:
Then you’re caking.

Kathy:
Yeah.

Dave:
It’s interesting though. I, I think we’re so at the infancy of AI. Data, I just feel like people are getting excited because data centers are like the one tangible thing people can see about AI and they’re like, “That’s a thing that’s going on. Let’s get a piece of it. ” And I’m not sure that’s, we’re there yet that we really know, especially from a real estate perspective if and how AI is going to impact values. I, I personally am not going to care about data centers right now, but I think maybe I’ll be wrong. But I, I just think it’s, it’s too much spec- it’s speculation. Yeah. No one knows.

Kathy:
Yeah, for sure.

Dave:
All right. Well, that’s what we got today. We didn’t even mention Henry’s night here. He ditched us, but, uh, it was fun hanging out with you guys. James and Kathy thanks so much for-

Kathy:
He’s on stage. He’s

Dave:
Onstage. Uh, yes. Yes.

Kathy:
I just got to give him a hug.

Dave:
Well, hopefully you guys learn something from this episode of On the Market. Thank you all so much for being here, James and Kathy as always. It’s great to have you. We’ll see you next time.

I’ve invested in 45 passive real estate deals, most of them syndications. Every month, I invest $5K to $10K in a new one. 

I’ve made plenty of mistakes. But even so, I’ve still done far better with my passive investments than I did when I bought properties directly as an active investor. And I haven’t had to give up my nights and weekends to do it, like I did when buying rentals directly. 

If you’re curious about passive investing in syndications but worry about how to minimize risk, start with these screening criteria. 

Evaluate Experience and Performance

It doesn’t matter how trustworthy an operator is if they don’t have much experience. They can lose your money even with the best of intentions. 

Start by asking how many syndication deals they’ve done. Ask separately about single-family or other real estate investments they’ve made, but don’t let them lump single-family investments with full-blown syndications. 

Then dig in deeper: 

• Of the X syndication deals you’ve done, how many have gone full cycle? 
• What was the average IRR (internal rate of return) you delivered to your passive investors (LPs)? 
• Of the Y syndication deals you currently hold and manage, how are they performing compared to the projections? 
• What’s the cash-on-cash return (yield) that each is currently distributing?  
• Have you ever had to suspend distributions? 
• Have you ever had to do a capital call? If so, why? 

In my co-investing club, we want to invest with operators who have done many deals. I can live with operators who have made mistakes—as long as they’ve learned from them and corrected course. That’s the whole reason you want to invest with experienced syndicators, after all. 

Evaluate Market-Specific Expertise

Even though I want to invest my own money shallowly and widely, I want to do so with syndicators who are narrow and deep. 

What is the sponsor’s niche? What property type do they specialize in? How many units of that particular property type have they bought? How many years have they been buying them? 

Then dig into the geographical market. How many properties and units have they bought there? Why did they choose that market? Do they have their own team on the ground there, or do they outsource everything? 

If they outsource their property management and construction, how many properties have they worked with that third-party outfit on before? 

For multifamily properties, we typically want to see deep geographical expertise. For example, last month our co-investing club invested (for the third time) with an operator who specializes in workforce housing in Cleveland. The principal grew up in and lives in Cleveland, as does all of his leadership team. They have an in-house staff that manages their properties and meets in person. They know the market inside and out and follow the same process with every property they buy. 

For other types of properties, market familiarity matters less. We’ve invested several times with a land flipper who operates in dozens of counties across eight states. In that segment, he’s able to do his due diligence from afar. But he’s also flipped thousands of parcels, so he has asset class expertise. 

Evaluate Trustworthiness

It doesn’t matter how savvy and experienced an operator is if they’re just going to take your money and run off to Guatemala. 

Of course, you can’t just ask them directly if they’re trustworthy the way you can ask about their experience. You have to circle around trustworthiness; come at it from the side. 

I start by asking about their worst-performing deal. What went wrong? How did they handle it? What was the outcome for their investors? 

Drill deeper. What other deals haven’t performed as well as projected? Why? What’s their current status? 

I also ask if they’ve ever lost money on a deal and what happened. Then I ask a follow-up question: Have you ever lost investors’ money on a deal? 

If not, perhaps they haven’t done enough deals. Or perhaps they’re lying. So I don’t mind when an operator admits, “Yes, I lost money on an early deal.” What I would like to hear is, “But we took the hit on it and made our investors whole, so at least they didn’t lose any money.” 

That suggests trustworthiness. It suggests they put their investors’ interests above their own. 

Evaluate Communication

I’ve invested in deals only to have the sponsor disappear with only sporadic, incomplete updates. 

That’s not acceptable, even if the property is performing well and paying distributions. 

I want to know occupancy rates, gross rental income, expenses, net operating income, and other key metrics compared to initial projections. I want to know if they’re offering concessions to lure in renters. I want them to state the current distribution yield, along with the total cash-on-cash return for the previous year. And I want all this every quarter, or, better yet, every month. 

Ask for a copy of their most recent property updates for three to five deals. If you don’t like what you see, consider it a giant red flag. 

Review the Latest Deal and Underwriting

I prefer to get to know sponsors before they have a deal that they’re actively raising money for. They tend to be in “let’s get to know each other” mode instead of “I need to raise $10 million ASAP” mode.

But I still want to review the most recent deal that they closed. I want to look at their pitch deck to review their underwriting. And then I ask:

• What kind of preferred return did they offer? What profit split? Why did they choose those numbers? 
• What fees do they charge? Why? 
• How much skin in the game (their own money) do they have? 
• What loan-to-value ratio did they borrow with? Did they personally guarantee the loan? 
• How fast do they forecast rent growth? Lower growth = more conservative.
• How fast do they forecast expense growth? Higher growth = more conservative. 
• Did they include a sensitivity analysis, breaking down investor returns at different rent growth rates and exit cap rates? 

Every operator will tell you that they underwrite conservatively. Many don’t. It’s up to you to determine that for yourself. 

Get Other Investors’ Opinions

The more feedback you get from other investors, the better. That starts with people who have actually invested with this operator before. Ask the operator to provide you with contact information for a few investors who have invested with them on multiple deals, including their worst deal. 

Call those people and have an actual conversation with them. Try to feel around the edges of how happy they are with the operator. Ask about how many deals they’ve invested in with them and how they’ve performed, the sponsor’s communication, and their plans for investing with that operator in the future. 

Don’t stop there, however. Search the BiggerPockets forums for the operator’s name and company name to see what people are saying about them. Do the same on PassivePockets if you have a membership, and check the sponsor’s reviews on InvestClearly.com. 

Finally, vet deals and operators together with other investors as part of a co-investing club. Having 50 sets of eyeballs on a deal and 50 different investors all grilling the operator on a group video call makes all the difference in the world. 

Start Small

The first time I invest with an operator, I typically invest $5,000. Then I wait. 

In my co-investing club, we have a one-year probation policy. We don’t invest a second time with a sponsor until at least 12 months after our first investment with them. We want to see how that first deal performs, how they handle inevitable curveballs, and how they communicate. If we have a good experience, we’ll invite them back again. 

The second time I invest with a sponsor, I might invest $10K to $20K. The third time, I might invest $20K to $40K or keep it small just to spread my money across more deals. 

The bottom line? Sponsors need to earn your trust. Most of them talk a good game, and some who actually aren’t very articulate end up being the best operators. Due diligence takes you a long way in weeding out inexperienced or untrustworthy operators.

But for me, the proof is in the pudding. I want firsthand experience investing small amounts with an operator before I invest more, and even then, I don’t want to park too much money with any one operator or market. 

If all this sounds like a lot of work, it’s nothing compared to active investing. And it helps to have other investors doing this vetting alongside you, as a team sport, instead of going it alone. 

While real estate is often described as the best way to build wealth, it can also be one of the fastest ways to lose it. Making a good investment often comes down to location. Choose well and ride the equity wave to financial freedom. A poor choice, conversely, can leave you in a money pit.

Today’s investment decisions involve more than employment, crime, and future development. Insurance shocks, climate risk, and utility costs can erode net income and the potential for appreciation. Aggregating county-level data from researchers such as ATTOM and the First Street Foundation highlights counties where seemingly attractive investments may conceal significant risks.

According to ATTOM‘s analysis of 594 U.S. counties, particularly vulnerable counties are diverging from the usual boom and bust suspects. The analysis took into account four risk factors: 

• Foreclosure activity
• Unemployment rates
• Home affordability
• Share of underwater properties (mortgage balances at least 25% above market)

California Has Some Perilous Counties

The riskiest market with a population over 1 million is Riverside County, California, with 2.4 million residents. It ranks 29th out of all the markets analyzed nationally. Here, buyers spend nearly 66% of their average local wage on homebuying costs. With a Q4 median home price of about $600,000, it’s almost twice the national median. Foreclosure filings were filed on one out of 811 properties, twice the national rate.

Nationally, a typical homeowner spends just under one-third of their yearly income on homebuying costs, and 1 out of every 1,274 homes is in the foreclosure process as of the fourth quarter of 2025. Around 65.7% of the 364 counties analyzed by ATTOM in its January 2026 Affordability report required more than one-third of a buyer’s salary to buy a home.

The takeaway here for investors is clear: If you can’t afford to invest in an expensive market with ease, don’t bother. Taking on debt and high leverage, despite appreciating home prices and prestige homes, will land you in a world of trouble. It’s just not worth it.

San Bernardino (fourth riskiest large county, 49th overall) is also unstable, with one in every 777 properties receiving foreclosure filings and buyers spending over 54% of their wages on home costs.

Other California counties in jeopardy include Fresno and Contra Costa, which have high unemployment rates.

“Affordable” Cities Come Stacked With Risk

Compared to West Coast counties, Philadelphia County is relatively affordable, but a shocking 8% of owners there are underwater on their mortgages, with a foreclosure rate triple the national average.

Philly is known as being an investor-heavy city. As of 2023, large corporate investors owned 8.8% of single-family rentals, and in specific distressed neighborhoods, investor-purchased homes accounted for 20% of sales, according to the Philadelphia Federal Reserve Bank. The heavy investor presence has squeezed out owner-occupants. The homeownership rate fell from 57.5% to 52.4% between 2005 and 2023.

It’s a classic red flag for investors. Would-be landlords from nearby New York and New Jersey flooded the city, lured by the prospect of cheap housing and decent rents, giving scant regard to employment or the large number of investor-owned properties, which destabilized the neighborhood’s character. When the labor-intensive travails of managing these properties—chasing up rents, evicting tenants, performing repairs—became too much and their cash flow projections went up in smoke, they let the properties fall into foreclosure, killing their own credit and further undermining the neighborhood.

Louisiana Leads Southern Poor Performers

Seven of the 10 counties with the highest underwater rates were in Louisiana, according to ATTOM’s Q2 2025 data, led by Rapides Parish, where 17.3% of the homes were owned far more than the property was worth. Other Southern bad performers were Dorchester County, South Carolina; Charlotte County, Florida; and Kaufman County, Texas.

Florida Is Filled With Investment Landmines

Florida is sliding into “no-go” terrain for entirely different reasons: 16 of the 50 U.S. counties most at risk of falling home prices are located there, more than in any other state. Its riskiest markets are Charlotte County on the Gulf Coast and St. Lucie County.

Realtor.com senior economist Joel Berner, commenting on the findings, said, “Many Florida homeowners unknowingly bought at the peak of the market following the intense run-up in prices of 2021 and 2022 and are now in danger of seeing their home value decrease as the market continues to soften.”

ATTOM’s 2026 foreclosure report ranks the state among the top five for foreclosure rates (No. 1 is Indiana), with over 4,500 properties in foreclosure as of February, indicating significant market stress for investors. Unlike many other regions, much of Florida’s risk comes from increased insurance costs and climate events, both of which can drive up expenses and diminish investment returns or home values.

First Street Foundations’ 12th annual “Property Prices in Peril” report predicts that Florida and Texas will experience the largest property value declines in the country, mentioning Broward, Duval, Miami-Dade, Pasco, Hillsborough, Palm Beach, and other pricey enclaves as being particularly susceptible to climate-related price drops, as insurance costs are driven higher.

“The traditional drivers of real estate value—location, economy, and amenities—are being transformed by a new calculus that must account for long-term environmental vulnerability,” the First Street Foundation report stated.

Cash Flow Crunch: Falling Rents

As another key risk metric, investors must consider falling rents. Rising insurance costs and foreclosures, combined with lower employment in many areas, put pressure on rental incomes as landlords struggle to cover expenses. ATTOM’s 2026 Single-Family Rental Market report states that in more than half the tracked counties, rents for three-bedroom homes dropped between 2025 and 2026. When rents stagnate or decline while acquisition costs rise, net yields fall, and investors find it harder to maintain positive cash flow.

Additionally, high-cost coastal counties in Florida, California, Tennessee, and Virginia have seen their rental yields fall to 3% to 4%.

Final Thoughts

Cash flow analysis is less straightforward now. Comparing properties across counties requires weighing foreclosures, taxes, employment, wage growth, and insurance, since similar-looking properties can have very different outcomes.

One overriding theme that has emerged is that investing in the Midwest and Northeast, with nine of the 50 safest counties in Wisconsin and others in states such as Minnesota and Ohio, appears to be a safer proposition. 

Add interest rates as another wild card to the proposition, and it’s possible to make an argument for investing in an area where cash flow is less on paper, based on cost and rental income, but other factors, such as foreclosure rates, employment, and climate, make for a more stable environment. If the purchase is facilitated in an all-cash scenario with an eye toward refinancing when rates drop, the long-term outlook could be better despite the lower short-term cash-on-cash return.

Ashley Kehr:
What if the money you need for your first rental property has been sitting in your home the entire time and you just didn’t know how to access it?

Tony Robinson:
Today we’re answering three real questions from the BiggerPockets Forums that every Ricky eventually runs into. How to use your home equity to fund your first deal, how to use your first investment property’s equity to buy a second one, and the question that keeps lots of out- of-state investors up at night, do you self-manage from a distance or do you hand it out?

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

Tony Robinson:
And I’m Tony J. Robinson. And with that, let’s get into today’s first question. Our first question today comes from Michael in the BiggerPockets Forms. And Michael says, “A partner and I, both working full-time jobs, are looking to get into real estate investing. We’re focusing on long-term rentals for our first property. I’ve listened to plenty of podcasts and read a bunch of books, but only if you mentioned purchasing your first rental with a HELOC. We have cash available, but with a large amount of equity in our primary residences, we wanted to avoid tapping into that cash and instead take advantage of our equity. Would anyone be able to offer general advice on this approach? Any insights from those who have done it or from those who say don’t? Anything would be appreciated. First, Ash, I guess let’s just define what a HELOC is. So HELOC stands for home equity line of credit.
So if you have equity in your home, let’s say that you have a home that’s worth $100,000. Your loan balance on that home is maybe $60,000. And let’s say that the bank will give you up to 80% loan to value on the HELOC. That means it’ll go up to 80% of $100,000 or $80,000. Minus your 60K that you owe, you have $20,000 in topical equity. So they’ll say, Hey, we’ll give you basically an open line of credit. Think of it. It operates almost like a credit card. We’ll give you an open line of credit for $20,000. And that is basically being backed by the equity that’s in your home. So if for whatever reason you don’t pay, they can put a lien on your house, they can take it, whatever it may be. But that’s what a HELOC is. It allows you to tap into your equity, but you only pay when you actually use it in the same way that a credit card would work.
I have some thoughts on whether or not we should use HELOCs for just kind of traditional turnkey short-term or long-term rentals or short-term for that matter even. But Ash, I guess I’m curious for your thoughts first. What do you

Ashley Kehr:
Think? I’ve only used lines of credits for short-term purposes. So knowing that I’ll be paying it back within a year, as in I’m usually using it to purchase a property and then I’m going to refinance and pay back the line of credit, or I’m going to use it for the rehab costs, and then I’m going to go and refinance and pay back the HELOC. So I definitely have heard people use it to pay for their down payment. And what they do is they take the cash flow from the property, take money from their W2, and they just bulk pay down the line of credit. What you also could do is run the numbers so that you have your mortgage payment, make sure the rent can cover your mortgage payment, and then say, “Okay, I’m going to pay down $500 of my line of credit every single month and make sure that the cashflow will cover both of those monthly payments.” So even though on a HELOC, most of the time it’s interest only payments that the bank charges you for so long, you could put your own plan in place knowing that over the next five years, I’m going to pay X amount every month and I’m going to know that I still will cash flow on this property and that the line of credit will be paid off within X amount of time from the property and the numbers support that.
I’m not a huge fan of getting the line of credit to fund a down payment without any kind of plan of really being able to pay it back if you’re waiting a long time to pay it back. I think it’s more of a short-term debt play. And I think some line of credits. Tony, I think last time we talked, you were looking at a line of credit for your house and it was like after so many years it would actually convert into amortization where they’re including principal now into the payment instead of just interest only. But if you look at the debt, that’s a lot of interest you’d be paying over 10, 15 years because usually you’re not getting as good of an interest rate on a line of credit and you’re paying interest on whatever the principal isn’t paying down. So make sure you have a plan to at least start paying down principle.

Tony Robinson:
Yeah, Ash, I agree completely. I think that using a HELOC in a short-term scenario at least would allow me to sleep a little bit better at night. And I think the benefit though of the HELOC is that you get to keep some of that liquid cash for a rainy day, but there are also some things to consider with the HELOC as well. One of the points being that the interest rate on a HELOC is not fixed. It’s usually tied to the prime rate and there’s some kind of premium on top of that. So let’s say that prime is whatever, 4.89, then they’re going to charge you maybe a point higher than that. So you’re at almost 6% of your interest rate, right? But if prime goes way up, then the cost on that line will also go up as well. And what you’re paying to maintain that line will go up.
So knowing that it’s not a fixed interest rate over the life of that line is something to account for. So maybe model it like, “Hey, what if rates go up by 2%? Can I still afford to pay both whatever deal I’m taking down and the cost associated with this line?” Sorry, I just been fighting a cold.
So I think that’s one thing to consider is the variability of the line. And if rates swing, can you still afford it? The other piece too is that the lines of credit still do impact your ability to get approved for another loan as well. So if you’ve got this big line and you’ve pulled a lot of debt, well, now does that impact your ability to actually go out there and get approved for the mortgage on the property and what does that look like? Again, I think that’s where using it in a short-term basis maybe makes a little bit more sense. I think that the ideal scenario for me is exactly what Ash laid out. I’m maybe combining my HELOC with some sort of private money or maybe hard money into a property where I can go in, increase the value through some sort of renovation, and then I’m quickly paying that loan back either through a refinance or a sale of that property.
But I think just dropping it in as a down payment on a property that’s going to take you 15 years to pay back, I’m not as crazy about that because it just puts a little bit too much risk for my appetite.

Ashley Kehr:
Oh, one thing I’ll add too is to watch for, talk to small local banks or credit unions a lot of, and I don’t, maybe nationwide banks do this too, but a lot of them will have interest rate bonus. I can’t think of what they call it, but for the first read of six months, they’ll only charge you 3% interest on whatever you’re using off the line of credit. This can be really great if you’re just using it to fund a rehab and you open the line and you fund the rehab over three months and then you’re paying it back and you’re only paying 3% interest on that money that you use. That can be a really great tool. Coming up, so you’ve used your home equity to get into your first rental. Now that property is building its own equity. So how do you pull it out to fund the next deal?
And what’s the difference between a cash out refi, a HELOC on the investment property, or just selling it? We’ll break it down right after this quick word from our sponsors. Okay, welcome back. So you’ve done it. You’ve got your first investment property. Now it’s sitting there building equity and you’re starting to think about deal number two, but how do you pull that equity out? Has major consequences for your cashflow, your taxes, and your flexibility going forward. So let’s look at the next question. This question comes from Xavier in the bigger pockets forums. “How can I access equity in one property to buy a second one? Should I sell, refinance, or use something else? I currently own a property that has around $110,000 in equity. My plan is to have a renter in by the end of the year. With this much equity, I’ve been thinking a lot about investing in a second property.
What’s the best move? “Okay, so Tony, is this property a rental property or is this the one he’s living in right now?

Tony Robinson:
He actually doesn’t specify. He does say my plan is to have a renter in by the end of the year. So maybe let’s just assume that this is someone’s primary residence that they’re looking to convert into a rental because I think they give us a little bit more options.

Ashley Kehr:
Yeah. And I like that because I’m seriously struggling with the same issue right now. So this is even more great to talk about because I could share the conflict that’s going on in my head right now. But yes, there are these three paths and honestly there’s probably more paths and more things that you could do with it. But the first option looking at is the cash out refinance. So this is where you’re going and you’re going to go to the bank, get a new appraisal and say you have this much more equity than when you purchase it and we’ll give you a loan that’s maybe say $50,000 more than what your loan balance is today. Your payment’s going to change, your interest rate’s going to change, but you’re going to get that $50,000 check back to you. So then that’s where you can take that money and you can go ahead and purchase another property.
What you have to look at when you’re considering a cash out refinance is you have to consider your interest rate and your payment. So how is that going to change how much the monthly mortgage payment is? So if say your mortgage payment is $1,000 per month right now and you’re going to go and you’re going to pull $50,000 out, maybe you had a nice 3% interest rate and now it’s going to jump to a 6% interest rate, plus you’re going to have a higher loan balance, but you amortize that over 30 years. Sometimes, like I just looked at an investment property that I bought 10 years ago, and if I were to pull out, I think it was the number was $80,000 right now and I restarted the amortization period, I would actually have the same exact payment because I’m restarting the amortization and it’s spread out.
So there’s different things that even if though you’re taking out, getting money out, it could still end up your payment is the same. You’re just extending the life of the loan now. Car dealers like to do that trick. You go in, well, we’ll do a home warranty and it’s only going to raise your payment by two, or not a home warranty, a car warranty, but it’s only going to raise your payment by $6 a month. And then they’re kind of just weaseling in. It’s actually going to extend your monthly payments by six more payments or something like that. So those are things I would look at with a cash out refinance. And Tony, what about a HELOC?

Tony Robinson:
Yeah. And let me just add to the cash out refi. I think one thing to consider, one thing that makes us trickier for a lot of people maybe in the time of this recording is that a lot of us have really low interest rates and a lot of properties that we’ve purchased in the last three to four years, or definitely coming out of COVID. And it does make the math a little bit more challenging on doing a cash out refinance because we’re replacing this maybe 3% or sometimes even sub 3% interest rate. Still, my best interest rate on a property is a 2.65% interest rate. I’m probably never going to do anything with that loan because 2.65% is such a low rate. So you do want to take into account and do the same math that Ashley did on, hey, if I do do this cash out refinance, what does that do to my payment?
What does that do to my term, my amortization period? And just make sure you’re taken into account all of those different variables.
For the HELOC, we just talked about what that is in the first question, so no need to rehash that, but just know that it is a little bit more difficult to get a HELOC on an investment property. A lot of banks and lenders will only want to work with you if you’re doing a HELOC on a primary residence. Though there are properties or there are banks that allow you to get HELOCs on investment properties as well. Actually, I’m working on a HELOC right now for my primary residence, and they told me that they actually do HELOCs on investment properties as well. So once I finish this HELOC on my primary, I’m going to look at, “Hey, can we get a HELOC on one of the properties that we bought earlier on in our career as well?” But the benefit of the HELOC is that it allows you to tap into your equity without impacting your current debt.
So we can still tap into all of the equity, or not all, but we can still tap into some of the equity that we have without replacing that 3% interest rate that we have. And then we only pay for what we actually use. When you do a cash out refinance, as soon as that loan closes, your cost goes up. Whether or not you actually use those proceeds doesn’t matter, you’ve got that new loan in place and you’ve got to pay for that. With the HELOC, you’re only paying on what you actually use. Again, that’s why it’s kind of like your credit card. And then the final option is just selling. And sometimes selling can just kind of be the cleanest exit on a deal. And depending on how you set it up or what the bank says, it might actually allow you to tap into more of your equity.
Now there’s still closing costs. When you sell a property, you have to pay fees and agents and all these different folks, you’re never going to get 100% of your equity, right? But sometimes you maybe can get into more of your equity than you will be able to through a HELOC or a cash out refinance.

Ashley Kehr:
Especially if it’s your primary residence.

Tony Robinson:
Yeah, especially if it’s your primary, because there’s some tax benefits there. And even if it’s not a primary, there’s 1031 exchanges you can do to offset some of the tax benefits as well. But I think to actually answer Xavier’s question, let’s assume that it is his primary. My recommendation would be, hey, pull up HELOC on this property while you’re still living there, that’s going to give you the ability to tap into those funds without replacing the current debt you have on the property, and you can use it or not use it today. Then once you decide to move out, you place a tenant, and you can then use that HELOC to help you go out and bur your next property, or maybe do a live-in flip at your next property, and you can just kind of recycle that same process. Again, we interviewed so many different folks who have used some version of recycling their primary residences over and over and over again to build their portfolio.
And you look up five or 10 years and you’ve got enough cashflow coming in from these really low down payment options to really sustain your lifestyle. So I think that would be my recommendation for Xavier. What about you, Ash?

Ashley Kehr:
Yeah. I think one other question to kind of ask himself is, what are you going to be using this money for? So depending if you got 50,000, would it be for a down payment? And then you got to think about, okay, how am I going to pay back the line of credit? What is your return going to be on this new money for this new property? So maybe it does make sense refinancing to a 6% rate because of how good the opportunity is and how much more money you’re going to make and better return off of this new investment. Or maybe you’re going to invest in something that isn’t as loanable, I guess. Maybe if you’re going to use this money to purchase a property that can’t get debt onto it. So having your debt rolled into your current property, but knowing you’re going to own this other property free and clear and just make sure you’re setting aside some of the rent from that property to pay the other mortgage too.
That’s what I’ve done in the past on some properties is I’ve kept a couple properties free and clear and I’ve just refinanced another property and took the cash from that to pay the other one. And now both of those properties fund the one mortgage. So I only have one property that has debt on it and is held as collateral instead of two. So that’s real life monopoly. So it’s an option to look at two. Real life monopoly. My God, real estate is money management and moving around. I was with one of my friends and she said, “My God, it’s just constantly you feel like you have no cash because it’s just constantly moving from place to place to place to place.”

Tony Robinson:
But that’s what it takes. That’s what it takes. Real life monopoly, guys. All right. Well, we’re going to take a quick break before our final question, but while we’re going, if you guys don’t know, Ash and I also have a YouTube channel and you can watch us, watch our smiling faces. If you head over to youtube.com/realestaterookie, you can find us there and yeah, you can hang out with me and Ash in person, quote unquote. All right, we’ll be right back after we’re from our show sponsors. All right guys, welcome back. Our final question today comes from Chris in the BiggerPockets Forums and Chris says, “We’re about to close on a duplex in Ohio. Congratulations, Chris. It’s always exciting. It’s our first property. Both sides are currently vacant. We’ve been evaluating property managers and considering self-management if we do it ourselves. I’m wondering if a quality handyman, basic management software and resources for an Ohio lease and tenant screening framework would be sufficient.
We live out of state, but have connections to the area and visit a couple times a year.” The easy answer is don’t do it instead, pay the 10% for a property manager, but we are evaluating whether taking the harder path is worth it. What are your thoughts? All right, Ash, you are our resident property manager expert. The question here is, does the quality handyman, basic management software and the right resources for tenant screening and leases, is that enough for someone in today’s day and age to manage their own properties, even if it’s remotely?

Ashley Kehr:
100%. I have done property management company outsourced. I have done full self-management with maintenance and I do everything to transitioning to self-managing with a system in place and using property management software. I’ll say right now, even though a property management company can say they’re full service, you still have to be an asset manager and still have to do some work. For me, the perfect kind of split is self-managing, but having systems and processes and having a handyman and having people to support you and help you building a team, I guess is what I’m trying to say. And the biggest thing is going to be the boots on the ground, the handyman. You can find plumbers, you can find electricians, build your Rolodex of those contractors. The hardest person, in my opinion, for me to find is a quality handyman that is available to do the most simplest task.
For example, in some properties, there’s cathedral ceilings. The tenants, I cannot expect them to have a ladder to go up and change the beeping battery in the smoke detector. So having somebody that will go there to do a simple thing, a cabinet falls off the hinges or something, having them go and screw it back into place. That is, to me, the most challenging work to get completed are these little minuscule things that other companies and vendors are not going to go out or they’re going to charge you a ton to be able to do this. I had before the handle fall off the toilet where you flush it and you pay a plumber to go out there. You’re talking a minimum $200 just to get them there. So I think that really is the biggest thing. If you have a handyman that’s going to go out and do these little tasks for you and also not charge you an arm and a leg to be able to do these things, that will be so, so helpful.
And maybe they even have their own Relodex of plumbers, electricians, HVACs, things like that, that they can outsource when it becomes something that is above and beyond their scope of work, but also make sure they’re available. One of the questions I would ask them when kind of talking with them to use them is, what is the expected timeframe for you to get to a property to make a repair? And is it 80% of the jobs they do are done within 48 hours, trying to ask what their availability is. Are they available on weekends for emergencies, things like that too, and kind of get an understanding of when you will be able to use them or not, because that will kind of be the biggest thing. I’ll use TurboTenant for property management software. There’s also rent ready. These are two great ones for your first property if you don’t have a huge, large portfolio and they pretty much, that software takes care of the rest.
Rent collection, tenant screening, lease agreements, e-signatures, all of that can be done through this software. And there’s really … The only other extra piece I have is Baseline is my actual banking software. But other than that, you don’t really need any other tool, software or app beyond that.

Tony Robinson:
Last thing I’ll add, property managers, eight to 10% maybe of your rental income, sometimes they’ll charge fees as well for actually getting your place leased. So they’re not cheap is my point. But depending on you as an individual, even if you feel that from a tactical standpoint or maybe a technical standpoint, you can execute on all these things. If you just know you’re really going to hate it and you’re not going to enjoy it and because that you won’t do a good job. I mean, let’s say a property sits vacant for two months if you try and do it by yourself versus two weeks if you have a professional property manager. Well, they’ve just kind of paid for that additional eight to 10% by getting the property filled more quickly. So just do a little bit of self-reflection. The tools are out there, but just ask yourself, “Do I actually think I’ll enjoy doing this and that I can actually do a good job at it?
” And if you can say yes to both of those, then to Ashley’s point, it’s very much a possibility to self-manage today, even if it’s remote.

Ashley Kehr:
Well, thank you guys so much for joining us today for this rookie reply. I’m Ashley and he’s Tony, and we’ll see you guys on the next episode.