Dave Meyer:
Is the real estate market going to crash? Every day, there’s a new headline screaming that it will, but people have also been saying that since 2012, that home prices are about to free fall and it hasn’t actually happened yet. So this is all confusing. And if you’re a real estate investor, it’s pretty important to know what’s real and what’s fake news. So I got you. I studied the housing market and today’s episode, I’m going to give you my opinion about a potential crash. And I’m also going to explain to you the data and the math behind a crash, because believe it or not, there are a few key indicators that can tell us if a housing crash is imminent. They predicted the crisis in 2008, and I’ve gathered all that data and will share what they’re saying today. So if you want to make sure you’re not buying a new property right before the crash or just not sure what to believe, keep watching.
These are the few key numbers that can foreshadow exactly what’s about to happen.
Hey everyone, welcome to the BiggerPockets Podcast. I am Dave Meyer. In addition to being an investor for 16 years now, I’m also an analyst. That was actually my first job at BiggerPockets. I have a graduate degree in data analytics, and I’m going to be honest, I really like doing this stuff. Spreadsheets are actually fun for me. I am one of those rare people, believe it or not. And for the last 10 years or so, I’ve focused my energy as an analyst on the housing market. And a big part of this effort of understanding what’s happening in the market is to calibrate and understand risk. For anyone who lived through the great financial crisis, the fear of another genuine housing crash is always on the mind. So from both an analytical perspective and because I own real estate, I don’t want to lose my shirt and therefore I spend a lot of time thinking about a potential crash.
And today I’m going to share with you what I know. I’ll give you my honest opinion at the end, but I also just want to show you all why I think the things I do, what indicators and data we can look at to get clues about the future of housing prices and what is likely to happen next. This is Real Estate Crash Math. Let’s get into it. First up, let’s just talk about the mechanics of a crash because it sounds like this big mysterious thing, but we can actually understand in real math and real economic theory how a crash actually happens. We’re going to do a little explainer of Econ 101. Prices in a market like what we have in the United States are determined by supply and demand. People probably know this and most of the time when you’re in a “normal time” for the housing market or really any other market, things are usually in relative balance and markets are stable.
Prices go up a little bit in one direction or the other. Total quantity or the volumes of homes sold in any given month go up and down a little bit, but they’re usually pretty predictable. But crashes can happen. They do obviously happen and they do when either supply or demand or both get a little bit out of whack. And specifically when prices go down and we see a crash, it happens with either a big increase in supply. So for housing, that’s way more houses getting listed on the market and sitting on the market. We measure these things through new listings and inventory in the housing market, but that’s a big increase in supply. The other thing that could happen is big decreases in demand when far fewer people want to buy a home. You could also see both. You could see increasing supply at the same time as you see decreasing demand.
And when any of these combinations happen, either huge increases in supply, big decreases in demand or modest changes in both supply and demand, prices can fall and they can fall really quickly. That’s a crash. This is exactly what happened in 2008. So in our conversation today, we need to frame it through this lens because a lot of people talk about crashes and they’re like, “It’s just too expensive and that is a factor in whether or not a crash is going to happen.” But ultimately, if a crash is going to happen, we will need to see these mechanics actually play out in the market. Will we see increasing supply? Will there be less demand? Those are the questions we have to answer for ourselves. And luckily, we have data to look at all of this. First up, we’re going to look at the demand side, which is again the buyer side.
Basically how many people are looking to buy homes? And this is a popular refrain that I hear all the time on social media that there are no buyers, that affordability in the housing market is terrible, and therefore the market is going to crash. And again, if there truly were no buyers in the housing market, of course the housing market would crash, but that’s not actually what’s happening as we approach the end of 2026. There’s actually a lot more nuance. So let’s actually dig into the data and talk about what’s going on. First, I like to look at something called pending sales. This is a great measure of what’s happening in the market because it’s the actual number of people that go out, sign a contract and intend to buy a home. This is real transactions happening. And recently we’ve seen some interesting moves in what’s going on in pending sales.
For the first half of the year, pending sales were doing just fine, but in the last couple of months, August, September, October, we’ve actually seen a pretty significant decline in pending sales, which tells us that demand is starting to go down. Now it is not in free fall, but we did see some significant numbers. It did go down in September, 11% year over year and 7% month over month. That’s a significant change, especially when you consider just that home transaction volume, the number of people buying homes was already low. So seeing it lower is concerning. And the other part about it that’s just kind of frustrating and a little bit disappointing is that in the beginning half the year, demand was up. We were seeing pending sales go up and that was encouraging and we were starting to get into better territory for the housing market.
But after the war in Iran started and mortgage rates started to go up, we have seen a reversal. So that is one way to look at demand. And I just want to call out that right now we only have a month or two of data. So if we start seeing month over month declines of pending sales at 7% again every month, that’s going to be a concern. That is something that could lead to a crash. But right now we see that it went down 7% month over month, and we also have some other data suggests that it’s not going to free fall. So there’s this other data set that we use to measure demand. It’s called the Purchase Demand Index. It’s put out by the Mortgage Bankers Association, but it basically measures how many people are applying to get a mortgage for a new home.
This isn’t refinancing, it’s just going out and buying a new home. And although that has fallen in recent months, it’s actually started to go back up. Just the last couple of weeks, mortgage rates have fallen and we’re seeing people jump back into the market. And that is encouraging to me. There is some fear when you start to see these things that people are really going to get nervous and they’re going to permanently leave the market. But instead, what we’re seeing is that people are just super mortgage rate sensitive, which makes sense, right? So now that we’re seeing mortgage rates back down in the low sevens instead of the high sevens, people are jumping back in. So to me, at this point, that doesn’t suggest we’re going to see pending sales fall every single month. And instead, we’re most likely going to see, yes, lower pending sales and lower demand than we had a year ago and maybe than we had in the first half of 2026.
But as of right now, there’s no reason to think that it’s going to just free fall and the bottom’s going to fall out. So given all that, the question that we have to ask ourselves is yeah, demand has gone down and it was already pretty low and it’s gone down a little bit more if that is going to lead to a crash. And I would say as of right now, the answer to that is no. And I know a lot of people are out there saying demand is already low, it went lower, that’s a reason for a crash. But that is not true because you can’t just take demand on its own and then predict a crash. You have to look at the balance between supply and demand. That is what matters. It is not the absolute amount of demand that matters. When you are looking at prices, if demand and supply stay in proportion to each other, even if they’re both low, prices can stay the same or more likely in the scenario they can go down but not crash.
And because demand is down a little bit, we need to see and ask ourselves, is supply also going to come down a little bit or what’s going on in the supply side of the equation? And so yeah, demand is weaker and there is a risk. I’m not saying that there is no risk here. Demand has gotten worse and that introduces new risk to the market, something that we need to keep an eye on. But if you’re asking here today as I’m recording this, is demand bad enough that a crash is imminent? I would say no. Now we should ask ourselves, could that change? Because of course it can, right?This stuff is always changing. The episode I’m recording is a point in time. And so there’s basically two risks that can change this and make it way worse. The first is probably obvious, but that’s just mortgage rates going up even higher.
They’ve been moving back down in the last couple of weeks, but if they went up to 8%, 9%, yeah, I think that’s serious risk. That gets us to maybe, I don’t know if it’s crash territory, but could we see five, 10% declines in home prices next year if we got to 9% mortgage rates? Yeah, we could. That world is possible. But as of right now, the bond market has stabilized a bit. We’ve seen mortgage rates go down a little bit. And so again, is that imminent? No, it doesn’t look like it. The other risk though is the labor market because we all hear the crazy negative scary things about AI stealing everyone’s jobs. And next year, instead of me, you could be hearing a robot host this podcast instead. And there’s risk, right? We don’t really know. These AI companies, their business model is kind of to cause mass unemployment.
And so we have to see if that’s going to come to fruition. And if we see unemployment go up to six, seven, 8%, then yeah, I do think we could see demand erode. That is a big risk, but that is speculation. Unemployment has fluctuated a bit over the last couple years, but still in the low fours, which for context is still very low. And so unless that changes and go up a lot, again, I don’t see imminent risk, but these are things to watch for. These are the things that I will continue to update you on on the show is if mortgage rates go higher, if labor market starts to crack, that could really take us into more dangerous territory. But as of right now, it doesn’t look like that’s coming in the next couple of months at least. And anything beyond that, we’re just speculating about what could happen.
The evidence does not support that that is happening. All right, so again, demand gotten worse, but not in a free fall, at least that we know of right now. We’ll keep an eye on that. But what about the supply side? Because again, either changes to supply or demand could put us into a crash and we need to look at the balance. This is the really important thing is looking at the combination of both and we know what’s going on with demand. We will look at the supply side right after this quick break. Stick with us.
Welcome back to the BiggerPockets Podcast. Today on the show, we’re doing crash map. We’re looking at the mechanics of how a crash actually works and not just fear mongering, not just saying things are going great. We’re going to look at the actual economics behind this. How do supply and demand look in the housing market? And then we can assess really what level of risk there is in the market. So we need to turn to the supply side now. And for that, we look at a couple of different data sets, but the two most important in my opinion are inventory and new listings. Inventory is just a measure of how many homes are for sale at any given point in the market. And that is super helpful because it is a measure of supply and demand at the same time. When inventory is going up, it means there is more supply than demand.
When inventory is going down, it is the opposite. And you can imagine why this is true, right? Because if inventory is going up, that means more homes are sitting on the market and people aren’t scooping them up and buying them. Right now, what we see is that inventory actually hasn’t gone up that much. So if you just look at where we are this year compared to last year, it’s surprisingly kind of flat, but I think it’s going to go up. Again, I am speculating. My job as a data analyst is to look at the data, figure out where things are trending, and my guess is that it is going to go up. Now, there are a couple reasons for this. First and foremost, inventory going up is something that we’ve been hoping for for years. So just keep that in mind, is that during the pandemic we had these artificially low levels of inventory and some reversion back to normal levels of inventory was inevitable.
We were already seeing that when mortgage rates were going down that the lock and effect was starting to break and people are starting to list their homes for sale more and more, and that’s good. I was happy about that. That gets us to a more balanced and a healthier housing market. But what I think is going to happen now is two different things with inventory, and it’s important to understand the distinctions here. First is that new listings are going to go down. Now, there’s two ways to measure inventory and supply on the housing market, and new listings is one of them. This is people who put their home or property on the market for the first time in a given month. The other one is active inventory. That’s the total amount of properties that are for sale at any given time. And so the first one just measures new properties.
The second one, active inventory, measures new properties plus all of the old properties that haven’t sold. And so what I see happening here with inventory is that new listings actually starting to go down. And I predicted this a couple months ago because when mortgage rate goes up, that lock-in effect that we’ve been talking about where sellers don’t want to sell because they have these amazing low mortgages that they don’t want to get rid of, that lock-in effect gets stronger, right? They have less of an incentive to sell right now if they’re going to have to go out and get a seven and a half percent mortgage. Plus affordability for buyers is lower, and so they’d probably have to take a lower price to sell their property. And so anyone who’s not forced to sell or is kind of on the fence about selling is just going to choose not to.
And so what we’re seeing, and I think will continue, is lower new listings. And when we think about the balance of supply and demand, I talked about before, when demand comes down, if supply comes down at the same time, prices can stay in equilibrium. And we are seeing lower new listings, but there’s a big but here. I do think that second category of active listings is going to go up because even though there are less new listings, the properties that do get listed are going to sit on the market longer. And so my expectations, I actually made these predictions over the summer publicly, and so far they have been correct, is that new listings would come down, but we would see active inventory go up. And when we see active inventory go up, I don’t think it’s going to be crazy because new listings are going down, but this could lead to price declines because we’re talking about the balance of supply and demand.
If we have more supply and less demand, we will get price declines. That’s just how it works. But it’s all relative. Are we seeing a huge reduction in demand and a huge increase in supply? No. We are seeing a reduction in demand and a modest increase in supply. And that to me is why we can expect modest declines in prices, but not a housing market crash. But of course, the fears people have are understandable at least because given what has happened in this country and the housing market over the last couple of decades, so you’re not wrong to wonder could that change in the future? Because the data, the new listings, the mortgage purchase applications, that helps us understand maybe a month or two or three in advance, but what about a year in advance or two years in advance? Could the things that happened in 2008 that not many people saw coming, could stuff like that be lurking in the background, not showing up in the data, could that come to bite us in the butt?
Because inventory looked fine in 2005, right? Well, luckily we have more data about that. We can look at some of the things that were brewing behind the scenes in 2008 and see if those are likely to happen again. And that data is mortgage delinquencies and foreclosures, because what happened in 2008 is not that all of a sudden a ton of people who own their home were happily living and doing whatever they do decided, I just want to sell my home right now, and they all did it at once. That is not what happened. What happened was that people fell behind on their mortgages and they were forced to sell. That is what ultimately drove up supply in 2008 is that people were going to get foreclosed on and they were forced to sell. And just a quick reminder of why that happened is there was very loose credit standards back then where basically anyone could go out and get a loan.
There were things called ninja loans, which are no income, no job kind of loans. They weren’t checking. People were just saying what their income was and it was really the wild, wild west. And another thing that happened during that time is a lot of those loans were adjustable rate mortgages. And so they would give what were called teaser rates. So the loan officers would go out and say, “Oh, you don’t have a job. Well, you’re going to pay 2% interest rate on this mortgage.” And people say, “Great, I can afford that.” But there were adjustable rate mortgages and then a year or two or three years later, whenever that interest rate adjust, all of a sudden those people who did not have a thorough vetting of whether they could pay back that mortgage couldn’t pay back that mortgage. And so they fell behind on their mortgages and ultimately many of them got foreclosed on.
And that created that spiral I talked about before. More supply hit the market that started to push home sales prices down slowly. People got spooked. Some demand left the market. That made home prices fall more than the layoff started and it created the spiral where supply was really up and demand was really down. And so let’s look at that. Is that likely to happen in 2026 or in the coming years? Well, as of right now, the evidence again says no. If you look at the delinquency rate, which I really see as the canary in the coal mine for another 2008 style crash. Now, could a crash materialize in a different way because of AI or something? Sure. Yeah, that can definitely happen. But forced selling is brought on by people falling behind on their mortgages as measured by delinquencies. And so when I look at the data, I can tell you right now that the national delinquency rate of mortgages is 3.53.
If you’re curious what it was in 2003 and 2004, it was above 4%, so it was higher than it is now. If you were curious where it was in 2008 and nine, it peaked at 10, 11%. So way, way, way higher. Now again, similar to new listings and inventory, people are going to say, “But delinquency rates are up.” Sure, they are up compared to 2021 and 2022 when there were mortgage forbearance programs and foreclosure moratoriums going on. That was a very unusual time in the housing market. So to compare today’s delinquency rate to 2022 does not make any sense. Of course, it is going to go up when those programs end. That is what’s to be expected. But if you look at the delinquency rate to say 2019, the last time we had a quote unquote normal housing market, it is below that level. So keep that in mind.
The delinquency rate in a historical context is still relatively low. Now, for a little while, it was starting to tick up, and I’ve said this on this show, I’ve said it on the market, that I would keep an eye on these things to let you know if these things change because to me, again, this is the canary in the coal mine. If we start to see delinquencies go up, the probability of a crash changes. We got to take one more quick break. We’ll be right back.
Welcome back to the BiggerPockets Podcast. I’m Dave Meyer, and today we’re talking about crash math. Right now, there are basically two sort of small areas of concern in the mortgage market, FHA loans and VA loans. Earlier this year, we saw the delinquency rate on FHA loans go up pretty considerably, but good news, those have actually started to level out. They’re still some of the highest they’ve been in the last 10 years or so, but seeing them start to level out, again, suggests that we are not in some sort of free fall where everything is going crazy. They went up and now they’re stabilizing. VA loans are sort of on a similar trajectory, but they haven’t leveled off. So we need to keep an eye on those, but just keep in mind that VA loans, FHA loans make up a pretty small portion of the mortgage market.
And so even if these go up a little bit, it’s not like it’s going to lead to some flood of delinquencies and foreclosures, but it is worth keeping an eye on. If you look at foreclosures, which are just sort of further down the funnel than delinquencies, they’re ones that don’t get cured and actually get auctioned off or short saled or whatever. And if you look at those, the same pattern is existing. They are gone up from pre-pandemic lows when there are all these programs in place, but they’re already starting to level off. They’re elevated from last year. You will see things that foreclosures are up 20 or 30% year over year. Those things are true. That is accurate. But the foreclosure rate in a historical context is still very reasonable. You cannot compare a time period where the government was saying you can’t foreclose on people to right now and say, “Hey, look, foreclosures went up.” That’s ridiculous, right?
You got to compare it to historical records. And right now, foreclosure rates look okay. I personally think they’ll probably keep going up. I’m not that worried about that. Will they go up to reversion to the mean to get closer to the average? Probably. You’ll probably still see some more headlines about it. But the idea that there is forced selling and a foreclosure crisis could be around the corner, again, it could happen if the unemployment rate goes crazy, but evidence right now, no. But we can even actually go one step further because you could, as a crazy analyst who wants to understand everything, do you want to understand what a lead indicator is for delinquencies? Can we look forward and see if delinquencies are likely? It’s not perfect, but there are some data sets we can look at. I like looking at credit quality, which is basically just like who are taking out mortgages and how good are their credit scores.
And check this baby out. I’m going to put this up for anyone who’s looking at this on YouTube, but you could just see this chart. It shows the average credit score of people who are taking out mortgages over time. It goes all the way back to 2003 to now. So it’s the last 23 years of data. And what you can see on this chart is that subprime mortgages where people have a credit score of 620 or less, basically disappear. I would have to take out a magnifying glass to look at this chart to be able to see the little line there at the bottom where subprime mortgages are. They basically do not exist. Even the loans to people who are in the 620 to 660 range, extremely low. By far, the biggest group, and I will say this is well above half of people who are taking out mortgages, not just now, but for the last 10 years or so, have a credit score of 760 or better.
Think about that. That is an elite level credit score. That is who is taking out mortgages. And that does not mean they’re immune from financial trouble. There are a lot of problems with credit scores. They’re not a perfect measure. But if you look at that alone and you say, are the things that led to the 2008 crash likely to happen again where subprime loans or people who couldn’t pay back their mortgages even when they got those mortgages, is that going to take down the housing market? Super, super, super unlikely. Subprime loans are gone. Credit quality is good. So when we look at all of this data together and ask ourselves, could a crash happen? Yeah, of course. To me, as I said, the risk is really in the labor market going south. If people start to lose their jobs in a serious way due to AI or anything else, that changes things.
That’s why I said at the beginning of this year, if you listen to some of my prediction episodes, I said that the probability of a crash was like 10%. It’s always like five or 10%. There’s always a chance that these things happen. It’s probably actually lower than that given we’ve had one real crash in the last hundred years. You could argue that it’s a 1% chance. I think it’s a little bit higher than that just because affordability is low. But that’s mostly emotional though, me saying 10%, because when you look at the data, really no evidence that it’s around the corner. So for 2026 at least, 10 at the most, I think, probability of a crash. For 2027, might be a little higher just because it’s further out. The risk is always higher the further out because your predictions are less good. But for now, just think about it.
Supply and demand, right? Demand is up, supply is up a little bit. This is the environment for relatively flat prices. It’s why I’ve been calling this the great stall because even though supply and demand are low, neither one of them is moving in either direction, and that is a perfect example of when prices stay flat. Now over the next year, are they going to go up a little bit, down a little bit, one or 2% in either direction? Sure. Yeah, but probably pretty flat. We’re in the great stall and no one knows what the future brings but evidence, which is the best thing we can do. All we can do is look at data and evidence and make informed decision, and the evidence suggests a crash remains very unlikely. All the other headlines you’re hearing are people who are reacting based on emotion, who don’t understand how housing market works or deliberately trying to mislead you.
The data is actually pretty clear about this today despite those headlines. So although I never tell you what will happen, I always try and tell you what will happen in probabilities. You may notice that, but I have been trained to say that as an analyst, you say this is the most likely thing to happen, this is the least likely thing to happen because no one knows. That is the only honest answer. But from where I sit, the probability of a crash in 2026 remains very low. Hopefully now that you understand some of the data and mechanics behind how a crash can happen, you can see this for yourself, and if you want to, you can track it for yourself. But I also give housing market updates on this podcast one time per month, and at the end of each of those episodes, I do a risk report, and you can check that out where I talk about the risk of a crash because I’m not trying to hide this from anyone.
If there is a crash coming and I thought that, I would tell you. I promise you I would tell you that. But for the last four or five years, I’ve been pretty right about the direction of housing prices. I said they would still go up in 2023, even though people were freaking out about mortgage rates. In 2024, I said they would go up modestly. I said they’d be close to flat last year. Those have all been right. I’ve said it’s going to be flat, maybe a little bit down this year. That’s looking pretty right right now too. I’m not trying to brag there will be a time that I am wrong, but I do give you my honest assessment. I am not trying to hide information here, and a flat market going forward is my honest assessment of what is most likely to happen. Stability and projecting out with a decent degree of confidence what’s likely to happen is all you can ask for as an investor to make decisions by, and hopefully this episode has helped you do just that.
Thank you all so much for watching this episode of the BiggerPockets Podcast. I’m Dave Meyer and I’ll see you next time.

Dave:
Home sales in the US just hit a record low. This isn’t a soft patch. It’s not a seasonal dip. This is serious. Pending sales just fell to the lowest level ever recorded by Redfin and NAR. And this isn’t just happening in one or two metros. They fell in every single one of the 50 biggest metros in the country. And here’s the thing, this might be the new normal. Everyone’s sitting around waiting for mortgage rate relief to kick the market back into gear, but that might not happen soon. You might be waiting a while for that. And for that reason, I think it might be a very cold winter for the housing market. So today on On the Market, we’re going deep on the winter housing market. Why sales are falling off a cliff, why inventory is rising for the wrong reasons, where rates are heading next year, and what it all means for your investing strategy going into 2027.
This is On the Market. Let’s get to it.
Everyone, welcome to On the Market. I’m Dave Meyer, real estate investor, housing analyst, chief investment officer at BiggerPockets. We are now entering that time of year when the market usually just slows down. Kids are back in school, the weather turns, buyers take a break, and this is totally normal. But what I’m seeing in the data right now isn’t just a seasonal slowdown. I think there is something more going on here. The big headline that you need to know is that demand in the housing market has really started to fall. And this is a change from recent years. Despite what people say on social media about no one wanting to buy, that’s actually not true. Demand has actually been pretty steady the last few years. Sure, it is lower than it was in COVID, but it’s actually been pretty steady. And as of earlier this year, before the war in Iran started, demand was actually starting to go up.
But now we are seeing it turn in the other direction and this could really change dynamics in the housing market. Two months ago, I made a prediction about what was going to happen about the market and it looks to be coming true. So I kind of want to share with you all that prediction. If you didn’t see it, I made it on social media, but I’ll share with you because I am starting to see this market take shape in a way that actually makes sense to me. And I want to share with you what I think is coming next. But before we get into this episode, I want to share with you something pretty fun that we’re doing at BiggerPockets. We are doing our first ever workshop on scaling up. We are taking two full days in person with some of the biggest experts in the industry to help investors who maybe have a couple of units, maybe you’re doing well, but you want to take that next step.
You see the great stall, this period that we’re in right now as a great buying opportunity to set up your portfolio for years to come and you want to figure out the strategy that’s going to get you there. That is exactly what we’re doing at this two-day live event in Phoenix, Arizona. It’s happening this December 5th through 7th. We have amazing speaker lineup. We have myself, Kathy Fecke, James Danner, who you know from the show. We also have Devon Kinard and we have a couple other speakers that we haven’t even announced yet, but these are some of the best speakers in the whole country. And it’s not just going to be lectures, people speaking at you. This is going to be super hands on. You’re going to have a whole strategy template that you’re going to be filling out. So you’re going to walk away with a specific action plan for 2027 and beyond.
We just launched tickets a couple days ago, so grab yours today. We actually, we’re only selling a hundred seats. So if you want to go, go get your tickets right away. They’re going to sell out. Go to biggerpockets.com/conferences to learn more. All right, with that, let’s get into today’s episode of On the Market. And I’m going to start by giving you my take. Over the late summer when bond yields started to rise, I said publicly on social media, I made a prediction, people were going crazy saying all these insane things. I made a prediction about what I actually think is going to happen in the housing market. No hype, no fear mongering. And I said four things were going to happen. The first one is that transaction volume, the number of homes that are sold in any given month or year would fall because we’d have lower demand.
Number two is that new listings, the amount of people who choose to put their home on the market, that would go down. That’s a really important thing. I said that would go down, that less people would choose to sell. The third thing is that inventory would rise because even though new listings are down, homes that are listed sit idle and the total number of properties for sale, which is inventory, that would go up. And then number four is that prices would turn negative nominally within the next year. Nominally just means not inflation adjusted. The headline number I think will turn negative. Those were my four predictions. Transaction volume down, new listings down, inventory up, prices down. Let’s see how I’m doing because we’re getting a lot of data now just starting the last couple of weeks since interest rates went up. Over the summer, that data is not as relevant because rates, they’re in six and a half, but now we’re at seven and a half.
That’s a totally different affordability climate that we’re in right now. We’re starting to get the data and we can see if this prediction is right. First, we’re going to just look at the first prediction, which was about pending sales falling. And this one unfortunately is correct. I don’t want to be right about this, but this is the big scary number. This is the reason I’m making this episode is because we just got data that showed that pending sales, again, number of homes that go under contract or transact, depending on who you ask, went down 14% in just a single month. And pending sales is a really important metric here because it tells us two things. First, it tells us that transactions are going down. We don’t have our total home sales numbers, but pending sales, things that go under contract is a lead indicator for that.
So we know that the market is already going to be slow and it was already slow before this happened. Just for some context, annualized home sales right now are at about four million. Normal in the housing market is about five and a quarter million. So we’re well below that. In COVID, it shot up to six and a half million. So that’s why it feels so slow. Well, because it’s below COVID and because it’s below normal, we’re at a very, very slow and stagnant housing market. Now we’re seeing that drop double digits in a single month. Now it might recover, but this is concerning, especially anyone who works in the industry. If you’re an agent, if you’re a loan officer, I’m sorry, this really stinks in already a difficult time and I don’t know if it’s going to change, but this stinks. The second thing is that it just tells us about home buyer sentiment.
It tells us that fewer people want to buy homes. This is what you look at pending sales for is you say, how many people are actually going to the closing table and signing or putting something under contract unless people want to do that. So we know that demand is falling and it makes sense because affordability is lower. And so you would expect demand to fall off, but it’s below the point where it was two years ago when mortgage rates were this high or higher, right? They were seven and a half. They hit 8% a couple of years ago and demand didn’t fall this much. Now it is falling. And I mentioned this at the top of the show, but just wanted to call out that pending sales declined all across the country. I looked at all 50 of the most populous cities in the country and they fell two weeks in a row in all the places.
So we are seeing that no matter what you look at, you can look at the Redfin data, you can look at the NAR data, it is not good. In fact, if you look at the NAR data, one of the scary things here is that if you look at the NAR data, which goes back to 2001, and it’s their lowest pending sales of the whole data series. So yeah, even lower than the great financial crisis, 2007, 2008 had higher pending sales than what we’re seeing right now. And if you’re curious, places that are getting the hit the hardest are places like Seattle where I live, I’m seeing this absolutely. It’s down almost 30%. San Diego is down 25%. Atlanta 24, Denver 21, Las Vegas 21. So it’s happening all across the country, but really bad in certain markets. Now, if you’re wondering why this is happening, there’s two reasons and you could probably answer the first one for yourself.
If you listen to the show, you probably know by now that the answer is affordability. It’s just less affordable to buy a home because mortgage rates have shot up this year and particularly in the last couple of months. But just for some context, in just the last year alone, the average payment on a mortgage went up over 10%. That is really significant to a buyer’s budget. Just since September of 2025 to now, we’ve had high rates for a while, but just in the last year it’s gone up 10%. So no wonder people are leaving the market. That has to be one of the reasons. But the other reason, maybe even the bigger reason, I don’t know, but another major reason here is psychological, at least in my opinion. I think there are a couple things going on here. First and foremost, people are tired. I think a lot of people have been waiting for prices to come down, waiting for rates to come down.
They’ve just been wanting to find something that’s affordable. Now they’re seeing rates go up again and it just kind of feels like we’ve seen this story before. We’re tired. Maybe we’re just going to rent or we’re going to sit it out for a while or maybe we’re just going to stop looking for the next year. I don’t know, but I think that’s a major reason. The second thing is I think people are finally giving up on the date the rate, marry the house idea. And I am personally glad about that. You’ve probably heard me rail against that advice for years now. I think it’s terrible advice. No one knows which way interest rates were going. I said this back in 2023, that it was bad advice because interest rates could keep going up or they could stay really high and people made fun of me and said I was crazy, but you know what?
Look at where we are right now. Mortgage rates are higher than they were in 2023. They’re at 7.5%, and I think people are not buying it anymore. They’re not buying homes thinking, “Oh, I’ll just refinance in a year or two because now we’ve had four years of higher rates. They’re going in the wrong direction and there’s no end in sight to this.” Well, there might be. We’re going to talk about that in a minute, mortgage rates. But I think people are just saying, “You know what? I’m not doing that anymore. I’m not going to pretend that I can refinance for sure.” And I think that’s a good reason, but it’s going to pull demand out of the market because people are going to wait until rates come down to a tolerable level and rates come down to a level that buyers feel comfortable with for the next 30 years potentially.
So that’s what’s going on with pending sales. So if you’re keeping scoring my prediction, nailed this one, this one was easy. When prices go up like this, pending sales usually go down, doesn’t usually happen, but this one was pretty easy to see. And yeah, pending sales are down. And I think this is probably the number one thing to watch in the next two months, I would say, is pending sales. If they keep going down, it’s going to get rough for real estate, both in terms of transaction volume, and I think it’s going to translate to price declines. Not a crash again, but I think we’re going to see it’s going to be tough to sell a home. Keep an eye on pending sales because to me, this is a huge story in the housing market right now. Hopefully you understand why it’s such a big story and what it can mean for the housing market in general.
So talked about pending sales. Let’s talk about my other predictions where what’s going to happen with new listings, inventory and prices. We’re going to grade my predictions, but we got to take a quick break. We’ll be right back.
Welcome back to On the Market. I’m Dave Meyer. We’re talking about the winter housing market. I made predictions over the late summer about what I think was going to happen once the bond market started going crazy. And I said, first pending sales were going to go down and they have. I also said inventory is going to go up, but the critical, the hot take here, the one that I think a lot of people are actually getting wrong, I said that new listings were going to go down. Let’s see how we’re doing. Well, inventory, the one that I think is the easier prediction is up. If you look at active listings year over year according to realtor.com, according to everyone, is up. It’s up 5% year over year. Not crazy, but frankly, I think we’re kind of just at the beginning of it. Again, like I said, not exactly a hot take to say that when pending sales are going to go down, inventory is going to go up.
That’s a well-known relationship, but there is a lot of nuance here. Inventory is actually sort of a complicated metric. Inventory can go up and down for lots of different reasons. It’s a great thing to track if you care about the housing market because it measures both supply and demand and it measures the balance of supply and demand. Just for example, if supply goes up and demand stays the same, prices tend to go down because there’s more homes for sale, same amount of buyers. The other thing can happen too, right? Supply can go down, demand can go up. It can do all these different things, but it tells us a lot about where the market’s heading. And over the last couple of years, since COVID at least, I think most people who watch and care about the housing market have wanted more inventory because that would take us out of this crazy seller’s market that we’re in for a really long time and get us closer to balance.
But you kind of want inventory to go up only if it’s for the right reasons, like the good kind. And right now it’s not going up for good reasons. Let me explain. My prediction was that new listings would fall and inventory would go up, and both of those things turn out to be correct so far. New listings is a measure of how many people choose to sell their home in any given month. Inventory is the total amount of homes that are for sale at any given time. So inventory tracks not just what got put on the market this month, but all of the backlog too, everything else that has been listed for sale over months or years ahead of that actual month. And what we’re seeing right now is that new listings, the people who chose to sell their home in September went down. It went down almost 1% year over year, which isn’t crazy, but it was going up year over year just a couple of months ago.
So this is a big shift in what’s going on in the market. And what it tells us is that inventory isn’t rising because sellers are all of a sudden flooding the market. It’s rising because buyers aren’t absorbing the homes that are already there. And this is the single most important distinction in this episode that you need to pay attention to because a lot of people will point to rising inventory and say, okay, this is going to be a crash and there’s always a chance of a crash, don’t get me wrong. But in 2008, inventory was surging because people were flooding the market with new listings because we were seeing lower demand and higher supply. And when that happens, that’s the environment for a crash. Those are the ingredients for a crash. Right now though, we’re seeing lower demand, but we’re also going to see some lower supply.
Depends how you measure it. Active inventory is going to go up, which is why I think prices are going to come down, but we are not seeing forced selling. The people who can choose not to sell are choosing not to sell. You can see it right here in the data, and this is why I keep saying that the most likely outcome is a stall and declining prices, but not a crash. Yes, there are fewer buyers and that stinks, but sellers are reacting exactly how you would expect in a correction, not a crash. If there was going to be a crash, new listings would be up, not down. Now that’s not always the case, right? You could have no new listings and no one buys a home for a couple of years, but in almost any crash scenario, you would need new listings to probably go up.
And I’m not saying that can’t happen in the future if there’s a black swan event or unemployment goes crazy or the stock market blows up or there’s a war, who knows? But as of right now, the fact that new listings are going down tells us that a crash remains unlikely, but a correction is the likely course that we’re going to take. Again, not any different from what I’ve been saying for two or three years now about the market, but we are going to see lower transaction volume and the inventory that goes on the market is going to sit longer. That’s my take on it. That’s what I think is going to happen. And so far the evidence is backing up my predictions. Before we move on though, I also just want to add some context because you’re going to see headlines, you’re going to see people on social media saying inventory’s going up, there’s going to be a crash.
I want to provide some context. As I said, active listings inventory is going up. It’s about 5% up year over year, but it is still below where we were in September of 2019. Just keep that in mind. If you just sort of take the most obvious data and sort of look at this logically and not think of conspiracy theories or plan out black swan events that could happen, if you just look at what’s happening today, it does not look like a crash is materializing. Instead, it looks like a classic correction. And that’s why I don’t know if my fourth prediction has come true yet. I said that nominal home prices were going to come down at some point in 2027 and I’m sticking by that. I think all the ingredients are there for correction. We have inventory going up, we have less demand, we have low affordability, all ingredients for a correction.
The new listings for selling piece that takes you from a correction to a crash is not there. And that’s why, although it’s going to be a cold, tough winter, if you’re selling a home, it’s going to be rough, but I don’t think we are in panic mode right now. I will let you know if that changes, but right now the data does not suggest that. Anything else is speculation. You’re free to speculate. We’re in a very uncertain world, so go ahead and speculate away, but I just want to tell you the evidence as of where we sit today remains correction, not crash. And I should mention, as I do all the time on the show, that this environment makes a good buyer’s market, right? I’ve been looking at a lot of stale listings, looking at things that have been on the market for 30, 60, 90 days, had recent price cuts, and there are a lot of them.
If you’re a buyer right now, you have all the leverage. There are so many sellers competing for you right now. And so if you’re a buyer, negotiate hard. We’ll talk about that more in a minute, but just remember, correction does not mean it’s a bad time to buy. It means you have to buy smart, but you can still do it. So again, pending sales down, new listings down, inventory up, all correct. We’ll see if my prediction about nominal hold prices is right, but I just want to, again, provide a little bit more context. As of right now, top 50 biggest markets in the country, 17 of them are already negative in nominal terms. So that’s about a third of the biggest markets. It’s kind of a lot, right? Only eight markets are growing faster than inflation. That’s not a lot, right? You want your properties to grow faster than inflation, and there’s only eight markets rightnow.
It’s Chicago, Hartford, Milwaukee, New York, Cleveland, San Francisco, Kansas City, Province, Rhode Island. That’s it. The other 25, the other literal half are still up in nominal terms, again, in non-inflation adjusted terms, but they’re growing slower than inflation, which to me is another sign of a correction. And if I had to guess right now where we’ll be a year from now, I’d say almost all, if not every one of them is below the pace of inflation, maybe not San Francisco, 49 out of 50, let’s say, if the AI bubble keeps going. 49 out of 50 will be below the pace of inflation. I’d say at least more than half of them are down in nominal terms, maybe more than 60, 70%. That’s my prediction where we’re sitting today, unless of course mortgage rates come down. And we’re going to talk about how that is possible right after this quick break.
Stick with us.
Welcome back to On the Market. I’m Dave Meyer. Today we’re talking about the winter housing market conditions. We’ve talked about pending sales, inventory, new listings, and prices. Now let’s talk about the variable. It’s the big lever that could get pulled in the housing market and its mortgage rates. We all know this. We’ve been talking about it for four years, but we’re starting to see a lot of major forecasters who have been predicting lower rates for a long time change their tune. Just as an example, Fannie Mae, they came out with their October forecast and they’re predicting 7.5% interest rates on a 30-year fixed mortgage rates for the entirety of 2027. That’s up from 6.7%. That’s what they were predicting. Just a month earlier, they were saying 2027, we’re going to have 6.7%. Now a month later, they said actually it’s going to be 7.5% all year.
That is a huge difference. That is a really big difference in psychology of the buyers and in actual affordability. An 80 basis point revision in one month, that doesn’t happen a lot. That is a big move for a forecast, and we’re seeing this across the board. It’s not just Fannie Mae, it’s happening everywhere. And if you haven’t been paying attention, the reason rates are high and the reason that they’re stuck is because of the bond market. Treasury rates have shot up. They’ve been pretty volatile over the last couple of days. I’m recording this towards the end of October, and they were up to as high as 5.3%. There’ve been some hope about the end of the war in Iran and they’re down to about 5%. But even still, even if they stay around this 5% rate, we’ll still have low sevens, maybe high sixes for next year, and that’s going to be pretty tough, right?
I think it’s beyond just inflation and the war. I think bond investors are starting to get worried about the national debt and the potential inflationary pressure there in the US, and a lot of Western Europe is facing this crisis as well. And on top of that, US bonds are facing competition from AI, and so that’s going to push up bond yields as well. And so right now, the status quo, if nothing big changes, I’d say probably somewhere between 6.75 and 7.75 is the forecast for next year. That’s not my official prediction. I will make a prediction in December, but that’s kind of where I’m seeing it right now. It could also get worse, I should say. If inflation gets worse, if oil prices go up, it could definitely get worse, but there are actually two scenarios where mortgage rates do get better. The first is the end of the war in Iran, and that’s why we’ve actually seen mortgage rates start to come down a little bit in just the last week, this last week of October, is because there’s been some hope that oil prices are going to go down, that’s going to reduce the pressure on inflation, that’ll bring down bond yields, and that will bring down mortgage rates.
So that is number one, and that would be great, right? Hopefully there is a positive resolution and prices start to come down. Inflation is always sticky, will take a while, but ending the war or oil prices falling would do a lot for mortgage rates and bond yields to fall down. That’s number one. The second scenario is a recession. Almost all of the time when there is a recession or adverse economic conditions, bond yields fall and mortgage rates fall. And this is because when we’re in a recession or the stock market crashes or corrects or whatever, a lot of people take their money out of risky assets like the stock market and put it into safe assets, which is bonds. And the more money that pours into bonds, the lower interest rate the government has to pay, and that takes down bond yield, it takes down mortgage rates.
And this is why I often subscribe to this idea, there’s this theory about recessions where real estate is, they call it first in, first out, because real estate is very, very sensitive to mortgage rates and to interest rates. We all are seeing this. And so when rates go up like they have, real estate usually gets hit first. It’s exactly what we’re seeing. The stock market’s doing well, corporate earnings are doing well, unemployment rate is still pretty low relatively speaking, but real estate has been in a recession for four years and it’s getting worse, right? So we’re first in, but the idea is that once the rest of the economy starts to falter and goes into a recession, other sectors start to go into a recession. Just imagine the stock market tanks. Then what happens is people put their money in bonds that drives down mortgage rates and that helps real estate recover.
So we’re also, even though we’re first into the recession, we’re first out because affordability improves in real estate before a lot of other sectors, and that helps bring the whole economy out of a recession. I subscribe to this belief. Now, I don’t know if there’s going to be a recession, but if there is one, it could help set the bottom for the housing market. That happens often. But as of right now, I don’t see a big recession coming at least in the next couple of months. I think it’s like a fifty fifty shot if there’s a recession in 2027. Now, I’ve gone on this show many times and complained about the definition of recession, that there really isn’t one. It’s entirely subjective. I have even created my own metric and way to measure recessions. I call it the Main Street recession. If you can go back and listen to those episodes, and by my measure of recession, we are in one, but my redefinition of a recession is not enough to change the bond market, unfortunately.
I don’t have that power just yet. So will we see GDP contraction? I think it all depends on what happens with AI, right? AI is propping up the stock market, it’s propping up GDP, and if AI keeps going, then I don’t think there’s a recession. I’ve said before on the show, I think there is a bubble here and I think that it is going to pop whether it pops in 26, 27, 28, I have no idea. But when you look at the revenue these companies are creating versus their debt, it just doesn’t make sense. It really doesn’t. Look at the map. It doesn’t make sense. That’s not to say AI is not an incredible technology, that it’s not going to change the world. I think it will, but I think the asset values are very unreasonable. I don’t know how else to say it. It’s just unreasonable.
And I do think that could lead to a recession. And of course, no one likes a recession, but that could bring down mortgage rates. That’s the point here. And so if you’re wondering how long this lasts, you have to ask yourself, when do one of those two things happen? When does the war end and we get lower inflation or when do we get a recession or both? And I just want to make clear that if one of these two things happen or both of them happen, that still doesn’t mean we’re necessarily going back to 4% mortgage rates or 3%. Maybe if there’s something crazy that happens, but these could bring us down into the sixes. Maybe they can bring us down into the fives, but it really depends on other things. And so that’s why right now, because don’t know if there’s going to be a recession, how bad it will be.
We don’t know about a resolution of the war. We have to plan for seven and a half percent mortgage rates. That’s the only reasonable thing to do as an investor or a buyer right now or a seller. It’s the only reasonable thing to do. Now, you can make your own speculations about if those things are going to happen. I certainly have my own opinions about them, but I am not using those opinions to inform my investing decisions. I am a hundred percent in on seven and a half mortgages. That’s everything you underwrite right now. Cap rates are going to expand. Mortgages are going to stay high. That’s how to think about it. And this hasn’t changed. This is the opinion. This is the advice I have given on the show for years now. Use this scenario. Sellers know that interest rates are 7.5%. They know they have to compete for buyers.
That is what has changed in the last six months. They’re no longer holding the cards. Buyers are holding the cards. I’m trying to buy and sell. I can tell you for sure, because I’m on both sides of transactions, buyers are holding all the cards right now. So use it. Negotiate hard, underwrite at today’s rates, hunt for motivated sellers, know the pockets of your market that are going to recover quickly and find good deals. You absolutely can. When I say it’s a cold winter for real estate, what I mean is transaction volume. It’s going to be slow. It’s going to be a sluggish market. It’s going to be cold for sellers. It’s going to be tough out there, but for buyers, that’s where opportunity lies. So that’s my read on the market. It’s not all that changed from what I’ve been saying for the last several years.
I still think the great stall is the most likely scenario. Even if we get lower mortgage rates, I don’t think the market’s going to take off all of a sudden unless we have huge drop to mortgage rates, which I think would only come from a Black Swan event at this point, but you can invest in the Greg Stall. When there are times when sellers are motivated, like right now, that’s when you buy. Now you should buy below market comps for sure, but this is when you buy. When people are worried and fearful and are willing to offer deals, I could tell you, I’m a seller, it stinks. I’m willing to offer deals because there’s properties I want to get out of, want to raise cash and go buy other things. Other sellers are thinking the same way. So that is what I recommend all of you think about as we head into this winter.
But things are changing fast and I will absolutely be providing updates just like this at least once a month, maybe more if something changes, but at least once a month because we just saw, look, pending sales change dramatically in a single month and it’s really changing how sellers and buyers are behaving. And so if you’re an investor, if you’re working in this industry, stay tuned because I’ll be providing deep analysis into what’s going on in the market every single month with shows like this. But we’re doing it twice a week here on On the Market. So make sure to subscribe, stay tuned so you can stay ahead of the market that’s coming. That’s our episode for today. Thank you so much for watching this episode of On the Market. I’m Dave Meyer. I’ll see you next time.

Turnkey rentals are built on a simple promise: The provider delivers a rent-ready home, places a tenant, lines up property management, and gives the buyer a projection of what the property will rent for. That home can be a newly built property or an older house that the provider has rehabbed or renovated before the sale. Because many turnkey investors never see the home in person, the rent projection carries a lot of weight in the decision to buy.

Rent to Retirement (RTR) is a turnkey single-family rental provider. According to the company, about 80% of its inventory is new construction, and the remaining 20% is older homes that it rehabs or renovates.

RTR decided to put its own track record to the test. The company opened its sales records to an independent third party, which reviewed 3,090 homes RTR sold between 2017 and 2026. The reviewers matched 2,763 of those homes to public resale records and compared projected rent with investor-reported rent on 740 of them.

The results speak to three questions every turnkey investor should ask:

1. Do buyers hold on to their properties? 
2. Do the owners who sell get more than they paid? 
3. Does the projected rent actually show up?

Most Buyers Hold for the Long Term

The homes RTR sold in 2017 and 2018 have the longest ownership record in the review, since their buyers have had seven to eight years to decide whether to sell.

Of the 489 homes RTR sold in those two years, 369 are still owned by the original buyer, which works out to 75.5%. Among 2018 buyers, 79.2% still own their homes, and among 2017 buyers, 71.1% still do.

RTR credits much of that staying power to its scale. The company works with builders, lenders, and property managers in each of its markets, and those relationships help owners solve repair, vacancy, and financing problems early. RTR also encourages its investors to work through setbacks instead of selling, because its entire model is built around long-term ownership.

Owners Who Held Sold Above Cost

The review found 148 recorded resales among RTR homes. The median home sold for 1.41 times its original purchase price, and three out of four sold for more than the buyer paid.

The longer owners held, the better their results were. Owners who held for four years or more sold above their purchase price 96% of the time, and their median sale price ranged from 1.57 to 1.86 times what they paid. Owners who sold within two years broke even at the median.

For owners who held for at least two years, sale prices rose by a median of 8.7% per year. That figure reflects the sale price alone, so an owner’s total return also depends on the rent they collected, how they financed the home, and what they spent to operate it.

Sale prices varied for the investors who chose to sell. RTR points out that the investors who still own their newly built homes started from a strong position. Through its builder relationships, RTR secures institutional-level buyer incentives that the company says exceed anything publicly available on the MLS. Those incentives give RTR investors better terms on the purchase than a typical buyer would get on the open market.

Most RTR investors never sell at all. According to RTR, its typical investor holds for seven to nine years, and many use that window to refinance and pull out cash or to trade up through a 1031 exchange. Both strategies let owners stay invested and keep building equity.

Most Rents Landed Right on Projection

Rent is the number a turnkey buyer relies on most. Among the 740 homes with both a projected rent and an investor-reported rent, the median home rented for exactly what RTR projected.

In total, 598 homes, or 80.8%, collected at least 95% of their projected rent, and 476 homes, or 64.3%, landed within 5% of the projection in either direction. One Alabama home bought for $332,400, for example, was projected to rent for $2,350 a month and rented for exactly that amount.

No forecast is perfect, and the homes that came in below 95% of their projection fell short by a median of 15%. On a $2,000 monthly rent, that gap would be about $300, so investors should keep cash reserves on hand for any rental they own.

Ohio Projections Were the Most Accurate

Projection accuracy varied by market. Ohio, which makes up RTR’s largest rent sample with 355 homes, had 94.9% of homes rent at or above 95% of their projection. Tennessee and Alabama followed closely at 89.5% and 89.1%.

Florida rents ran softer than the other states in the review. Just under half of Florida homes, 46%, reached 95% of their projection, and the median Florida home rented for 93% of the projected amount. Investors looking at Florida properties should build a little more cushion into their numbers.

Lower-Priced Homes Hit Projection Most Often

The purchase price showed a similar pattern. Homes that sold for under $150,000 reached at least 95% of their projected rent 97.5% of the time, while homes priced above $350,000 did so 51.2% of the time.

Lower-priced homes also delivered stronger gross yields, which measure annual rent as a share of the purchase price. The median gross yield was 10.8% for homes under $150,000 and 7.7% for homes above $250,000.

What to Check Before You Buy

A pro forma is a projection made on closing day, so investors should know what a good one includes. A useful pro forma lists every expense, including a vacancy allowance and money set aside for large repairs. It also spells out the loan terms, which lets a buyer test how the deal holds up if rent comes in lower or a repair costs more than expected.

It also helps to ask any turnkey provider for its track record by market and by price point, since RTR’s data shows how much those two factors can matter. From there, buyers should complete the standard due diligence: an inspection, a review of comparable rents from a local property manager, a careful read of the management agreement, and their own quotes for insurance and taxes.

What This Means for Investors

Rent To Retirement’s records point to three clear takeaways:

1. Most early buyers still own their homes years later.
2. Owners who held for four years or more sold above cost almost every time.
3. The median home rented for exactly its projected amount.

Taken together, the data rewards investors who commit to a long-term plan. That means holding for years, keeping cash reserves for vacancies and repairs, and growing a portfolio steadily over time. Going from one door to two spreads the risk of holding just one property and improves the odds of building a strong portfolio.

If you have been investing in real estate for any length of time, you have probably heard about the “cost segregation for commercial real estate” that comes up in conversations about taxes.

But what I find most investors are missing is not just an understanding of what cost segregation does on its own. Investors need to understand how it fits into the bigger picture of how they are already building their portfolio. When you start pairing cost segregation with the strategies you are actively executing, the results can be significantly more powerful than treating it as a stand-alone tax move.

Here is how I think about it across the most common commercial real estate strategies.

Pairing Cost Segregation With the BRRRR Strategy

If you are running the BRRRR strategy (buy, rehab, rent, refinance, repeat), you are already used to thinking in cycles. You buy a distressed property, force appreciation through renovation, get it rented, pull your equity out through a cash-out refinance, and then roll that capital into the next deal. 

Cost segregation fits into this cycle in a way that most investors overlook. When you complete a renovation, many of the components you installed during that rehab are eligible for reclassification and accelerated depreciation. Improvements like new flooring, cabinetry, specialty lighting, HVAC components, and site improvements often qualify for five-, seven-, or 15-year depreciation lives instead of 27.5 or 39 years. 

If you commission a cost segregation study shortly after you stabilize and rent the property, you can generate a large depreciation deduction right at the moment when the property is producing income. That means you are offsetting income with accelerated deductions rather than waiting decades for the standard straight-line depreciation to catch up.

One important thing to understand here is that the study should be based on the total cost basis of the property, including your renovation costs, not just the original purchase price. Make sure the firm you hire knows how to work with properties that have been significantly improved.

Pairing Cost Segregation With 1031 Exchanges

This one is a little more nuanced, and it is where a lot of investors get confused. 

When you sell a property that you have run through a cost segregation study, you will face depreciation recapture on the accelerated deductions you took. Recapture is taxed at a maximum rate of 25%, which is lower than ordinary income rates but still a real number. A lot of investors see that and assume cost segregation was a mistake.

It was not. Here is why.

If you are planning to execute a 1031 exchange when you sell, the depreciation recapture is deferred along with the capital gain. You are not eliminating the recapture, but you are pushing it into the future while you continue deploying that tax savings into new properties. 

The accelerated deductions you took in prior years were real dollars saved at your marginal tax rate, often 32% to 37% for high earners. When the recapture eventually comes due at 25%, you have still come out ahead on the spread, plus you could use that money in the years between.

The key is to plan ahead. If you know a sale and 1031 exchange are on the horizon, talk to your CPA before you list the property, not after. The timing of when you identify and close on the replacement property affects how the entire transaction is structured.

Pairing Cost Segregation With Refinances

When you refinance a commercial property, you are not creating a taxable event. The cash you pull out is loan proceeds, not income, which is one of the reasons refinancing is such a powerful wealth-building tool. 

But here is where cost segregation adds another layer. If you refinance a property and use the proceeds to fund improvements or to purchase additional properties, a cost segregation study on the original property or the new acquisition can generate deductions that offset the income those properties are producing. You are essentially using the refinance to keep growing your portfolio while cost segregation keeps your taxable income in check.

This is especially useful for commercial properties that are cash flowing well. Strong cash flow is great, but it means more taxable income. Accelerated depreciation is one of the most effective tools for managing that income without having to sell anything.

Working With Your CPA

A cost segregation study is not a do-it-yourself project or something to hand off entirely to a firm without looping in your CPA. The best outcomes happen when your CPA and cost segregation provider are communicating before the study is ordered, not after the report lands in your inbox.

Your CPA needs to understand your overall tax picture. These are questions they should ask:

• Are you subject to passive activity loss rules? 
• Do you qualify as a real estate professional? 
• Do you have other passive income that could absorb losses? 
• Are you in a high-income year where accelerated deductions would be especially valuable? 

All those factors affect whether cost segregation makes sense right now, what type of property makes the most sense to study, and how the deductions will be claimed on your return.

A good cost segregation firm will want to have that conversation too. The ones that just send you a report without asking about your situation are not giving you the full service. The study is only as useful as the tax strategy behind it.

Cost Segregation for Commercial Real Estate: Timing Considerations for High-Income Years

This is the piece that I think gets the least attention and deserves the most. Accelerated depreciation is most valuable in years when your taxable income is highest. If you had a business sale, a large distribution, a significant capital gain from a real estate transaction, or any other event that pushed your income into the top brackets, that is the year you want large deductions available to you.

The problem is that most investors think about cost segregation after the year is already over, when they are sitting across from their CPA in January or February reviewing what happened. At that point, your options are more limited.

The better approach is to think about cost segregation proactively. If you know heading into a year that your income is going to be unusually high, pull forward a study on a property you already own or time the purchase and study of a new acquisition to hit in that same calendar year. Bonus depreciation, which allows you to take a large percentage of the reclassified assets as a deduction in year one, is the mechanism that makes this timing strategy so powerful.

Bonus depreciation percentages have been decreasing each year, so the sooner you act, the larger that first-year benefit will be. Do not let another high-income year go by without at least running the numbers.

Cost Segregation for Commercial Real Estate—Ready to Run the Numbers on Your Portfolio?

If you want to see what a cost segregation study could actually generate on one of your commercial properties, I recommend reaching out to Cost Segregation Guys. They are the firm I point investors toward when I want someone who will do the job right: licensed engineers on every project, documentation that holds up under IRS review, and a team that understands how real estate investors actually operate.

Cost Segregation Guys offers a free analysis upfront so you can see the potential benefit before you commit to anything. Whether you are in the middle of a BRRRR cycle, planning a 1031, or just sitting on a commercial property that you have never studied, they are worth a conversation.

Find them at CostSegregationGuys.com.

Ashley:
Today we’re going to show you exactly how to use your home’s equity to buy another home, an investment property.

Tony:
You could be sitting on your next down payment right now. So if you’ve owned your home for five years or longer, there’s a good chance it’s worth more than what you owe. And that difference is the equity you can actually put to work.

Ashley:
The problem is that most homeowners don’t know how to access it or they’re nervous about borrowing against the house they live in. And that nervousness isn’t uncommon. Use the wrong way, home equity can put your home at risk. Use the right way, it can be the thing that gets your rental property portfolio off the ground.

Tony:
And today we’re breaking down eight ways to use your home equity to buy a rental property in 2027, which options makes the most sense for your situation and the mistakes to avoid so your equity builds wealth instead of simply sitting there.

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

Tony:
And I’m Tony J. Robinson. And with that, let’s get into option number one, which is a HELOC or a home equity line of credit. So let’s just talk about what a HELOC is. So a HELOC is a line of credit that uses your home, typically your primary home, as collateral for typically a really large loan. And the way that these HELOCs typically work is you get some period of time where you’re only paying interest on the money that you used, and then there’s some repayment period there afterwards where you have to actually work on paying down the principal. So I’ll give you guys a quick example. Let’s say that you have a house and just for easy math sake, let’s say that the house is worth $100,000 and you go to your local credit union and they say, “Hey, we’ll give you a HELOC up to 90% of the value of your house.” So they’ll say, “Hey, you can go up to $90,000.” And let’s say that your loan balance is $60,000.
So the credit union’s going to give you a line of credit up to 90%. You owe 60 so you can access that $30,000 difference as a line of credit. So that’s the big picture of how they work. Ash, have you pulled the HELOC on any of your properties before?

Ashley:
I have. I actually have three active HELOCs right now. So I guess technically only one of them is an actual HELOC, a home equity line of credit, and the other are commercial mortgage lines of credit because they’re investment properties. Because a lot of times banks will only lend to you a home equity line of credit if the property is your primary residence.

Tony:
Yeah. And I actually just pulled my first HELOC several months ago on… I’ve only had one primary before we just moved. So we pulled the HELOC on that primary before we left, and that was my first time going through the HELOC process. But the benefit guys of the HELOC is that it allows you to tap into your equity without replacing your current mortgage. And depending on the terms of your mortgage, that could be a really, really good thing. For us on our primary residence, our interest rate was 3%. I don’t want to get rid of that 3% loan with a refinance. So the HELOC allowed us to tap into that without messing with this great 30-year long-term debt that we have in the primary residence.

Ashley:
Now, there’s actually a couple ways to use a line of credit to actually invest

Tony:
In

Ashley:
Real estate. So one of the benefits of it is that you are only paying interest when you aren’t using it. So if you’re not buying a property or you’re not ready to buy yet or you haven’t found a deal, you are not paying any money on that line of credit, any interest on that. So that’s a huge benefit where if you went to go and refinance, you would be paying the interest because you’d be paying those monthly payments every month once you borrowed the money. So the line of credit has that benefit. Some ways to actually fund your deal is you can, depending on how much money you have on your line of credit and how much your houses cost in your market, you could take that line of credit and it could fund the whole deal. When I was buying 20 to 50 to $80,000 duplexes, that’s what I did.
I would use my line of credit to purchase the whole property with my line of credit. Then I would go and refinance with a bank after I already owned the property. This gave me an advantage in making offers because I was able to make a cash offer. Even though it technically wasn’t cash sitting in my bank account, I didn’t have to go to a bank and get loan approval to purchase the property because I can do whatever I want with that line of credit money. And so that was a huge advantage. You could also use it to fund the rehab on a property. And then the last kind of scenario is you can use it to fund the down payment on the property too, but make sure you have a clear plan to actually pay back that money no matter which scenario you’re using.

Tony:
My preference for the HELOC is to use it in a short-term basis if you’re using it to help build your rental portfolio. And I think the reason I like it on a short-term basis is because one, the interest rates on the HELOC are not fixed. It’s kind of like a credit card where your interest rates kind of go up and down and debt gets more expensive as interest rates go up. And we’re seeing that right now where interest rates have been elevated for quite some time. And it’s not like a regular mortgage where once you lock it in, you’re locked in for three decades. It shifts and adjusts with time. And so because of that, if you underwrite your deal today and say you use it to cover the down payment and now your rental not only has to cover its own expenses and mortgage, but also this HELOC payment, if rates spike, well now does that deal still make sense?
But if you’re using it in the way that Ashley just mentioned, I think that’s my favorite way. And Ash, one of my first introductions to real estate investing, I was at this meetup here locally in SoCal, and there were these three partners who were buying properties together and they were burying properties and each of them took a big HELOC on their house. And with those HELOCs, they were doing exactly what you said where they were paying cash, covering the purchase and the renovations. Then when they would refinance, it would all pay back their HELOCs. And they scaled pretty quickly with their portfolio just by doing that one thing to burn the true sense of the word. And a great thing is that once you pay the HELOC back, now you can go recycle those funds again into the next deal. So I personally really like the HELOC in a value add situation where you can recycle that capital into the next deal.

Ashley:
Now let’s move on to number two, a home equity loan. So this is similar to a home equity line of credit in the sense that it is a second lien on the property. So you have your first mortgage on the property and then a home equity is going to be your second lien on the property. So this is a second mortgage essentially. So what you can do is you go to the bank, you say, “I owe $300,000 on my house, but I think it is worth $500,000.” The bank will tell you, “Okay, we’ll do a home equity loan up to 80, 85% of the appraised value of the home.” So basically they take that 85% of the 500,000 and then they subtract what you already owe on it, that $300,000, and then that’s the amount. Whatever’s left is the amount of the line of credit that they will give you, obviously based on your debt to income and reviewing your own personal credit and financial history to get approved for it.
But the difference is it’s an actual loan. So you’ll get the full amount upfront and then you’ll have monthly payments just like you do on your first mortgage. One thing I should add is when you’re doing a line of credit, sometimes the line of credit, you can also transfer that. I don’t know what the right technical term is, but that can actually turn into a home equity loan in the sense that you can no longer pull off of it and you have the monthly payments every single month. So they’ll take whatever the balance is that you owe and they’ll amortize it over X amount of years and then you have that payment every single month for that. So home equity loan, those are the differences between the two is that the line of credit, you can pull when you need to use it, you can make interest only payments on it.
Where if you’re doing a home equity loan, it’s not pull as you need and then pay back and use it again. It is you’re getting the full amount and then you’re making the monthly payments amortized over so many years with an interest rate attached to it.

Tony:
Yeah. And I’m trying to think of when I would use one versus the other. The benefits of the loan is that it is a fixed, it’s more like a true second mortgage where it’s fixed over whatever term, whatever repayment term you have. Whereas we talked about the HELOC is variable. But the downside to the home equity loan is that as soon as that loan closes, you’re immediately making payments on it. So even if you haven’t deployed that capital anywhere, there’s still a cost associated with you even having pulled that loan. So you really got to put that money to work. So for me, I feel like I would probably only go with the home equity loan if A, I knew for certain where that money was going before I even pulled it. And B, if it was going into something that was like, I’m trying to think of from an investment perspective where I might want to deploy it.
I guess if it was like, “Hey, I have this property and I’m going to fund a bunch of renovations and I know that when the renovations are done, I’m going to be able to cover not only the first mortgage, but the second home equity loan as well and still have more than enough cash flow left over.” That I think would be the only time that I might use a home equity loan as opposed to a line of credit.

Ashley:
Yeah. And I think for the home equity loan, yeah, you can get the fixed interest rate for at least a period of time. So that’s definitely a benefit where it’s usually a line of credit. Maybe you get your introductory offer where for the first six months of it, it’s set at 4% or whatever, and then it goes to a variable rate where a lot of times with the home equity loan, you can get a fixed rate for some amount of time. I think probably one of the benefits of the home equity loan is a personal preference as in you’re not good at budgeting, you’re maybe not good at managing your money. You probably would be tempted to just pay the minimum interest only payment on a line of credit and you need that accountability to actually pay back some principal. So maybe if you know that you’re not that great with money, that this would be a great way to keep you on track to know that you’re actually going to be paying off the money that you owe instead of just paying that minimum payment for the interest only that’s accruing on the line of credit too.
So it could be a personal preference, I guess.

Tony:
All right. Now the next strategy is one that a lot of investors use to pull out a big chunk of cash at once, but there’s a cash attached to it. So we’ll explain that right after a quick word from our show sponsors. All right guys, welcome back. The next one up is one that you’ve probably heard of and it’s a cash out refinance, cash out refinance. So if you think about the HELOC, the HELOC is something that’s there in addition to your original mortgage. So we’re tapping into that additional equity by putting this line of credit on top of that equity that you have access to. A cash out refinance is the opposite where we’re actually replacing the current mortgage with a new mortgage and then you get to take the cash out as a difference. So if we go back to my example earlier of the $100,000 property where you owe $60,000, on a cash out refinance, you would actually replace, you would completely pay off that $60,000 original mortgage and maybe you put in place a new mortgage at $90,000.
And now you’ve got another 30-year fixed mortgage for $90,000 that you’ll start paying down with a new rate, all those new terms, and you get to keep that difference between the old mortgage that paid off and the new mortgage you put in place, which is $30,000. So between both the HELOC and the cash out refi, you’re able to access that 30K. The difference is what does that repayment look like? So with the cash out refinance, it’s another new fixed loan. You only have one loan and you’re making one new payment. Now generally, I guess depends on how it goes, but right now for a lot of people, if you’re doing a cash out refinance, it means your rates could be going up. But there are a lot of people who are doing cash out refinances when interest rates were really low and they were actually coming out ahead because maybe they were refinancing out of a 6% loan down into a 3% loan.
That’s a great time to do a cash out refinance. But if rates are higher today than what they were when you got your original loan, it’s a determination you have to make for yourself.

Ashley:
The BiggerPockets Money podcast did an episode on this and I can’t think of what they called it, but something about the middle class trap or something. And one of those things was that you are trapped in your house because of the interest rate that you had a 3% interest rate and you don’t want to sell your property because you can’t afford as much as you got with this property with rates being higher. So you can’t even get really a nicer, better house with having the same payment or lowering your payment or anything like that. It would just cost a lot more. And then you have this equity that’s trapped in your house because you don’t want to go and refinance your property because you don’t want to lose that interest rate. So it’s really interesting to think about, but that could definitely be someone’s scenario.
And I think you have to shift your mindset on that as in just because your interest rate is higher doesn’t mean it’s actually a bad deal, especially when we’re talking about investment property and not necessarily your primary residence. But even if the interest rate is higher now, the deal still makes sense. So for example, if you’re going to go and refinance a rental property because you have this opportunity to purchase something else, if you were going to make more money, have a greater return on your investment, but you have to now get a 7% interest rate because you need to do the cash out refinance to use that equity, if you’re going to make out in the long run or even in a short period with these two properties instead of just your one, who cares if it’s a 7% interest rate if you are going to make money off of both of these deals from doing that cash out refinance?
So I think that’s a lot of mindset adjustment that needs to be made that just because you’re paying a higher interest rate doesn’t mean that you shouldn’t do it or it’s a bad deal or you’re getting ripped off by paying so much interest because it actually funnels you to get to another deal, another opportunity that’s actually going to

Tony:
Make

Ashley:
You more money and it’s definitely worth it.

Tony:
All right, let’s talk about number four. And this is a line of credit on a rental property. And the HELOC that Ash and I talked about earlier on, typically most banks will only give that to you on your primary residence. That’s why a lot of guidance you hear on the internet and just from other real estate investors is if you have a primary, pull a HELOC before you move because the loan terms simply state that it has to be your primary residence when the loan is pulled, but it doesn’t mean that you can’t move forever as long as that line of credit is open. So as long as you live there when you pull the HELOC, do that. The line of credit on a rental property doesn’t have that same requirement that it has to be your primary residence. Now the mechanics work the same way, but the bigger caveat is that a lot of banks don’t offer this.
The credit union that I used to get the HELOC on my primary, they don’t do HELOCs or lines of credit on rental properties. They only do it on primary residences. So you’ll have to shop around a lot more to find those options. Maybe it might be other local banks, might be other credit unions that are more likely to offer these than some of the big national lenders that you’re aware of. But the benefits are the same. You get all of your equity with this variable rate that you only pay on what you’re actually using. They’re just a little bit harder to find.

Ashley:
Yeah. I actually had to go to, for my first one was a small local bank that did it and they called it a commercial mortgage line of credit. So it wasn’t even called a HELOC and they would put it onto your investment property. And then the second one I did was actually, I don’t even remember how I got connected with this bank. I think it was through a meetup or something like that, but it’s essentially not even in my area. Probably their closest branch they have is pretty far away, but they work specifically with investors and I did that. But all of my properties had to be in LLCs to actually get this HELOC on the investment properties. They couldn’t be in my personal name. So I had three properties and I had to change them into LLCs in order to get the HELOC on it.
And then one thing that I did not expect was the insurance requirements for the HELOC. So two of the deals I had purchased, I purchased with private money. And so there was really no insurance requirement by any bank that had to be on there. So I just had my basic landlord policy with no crazy things. But when I went to go and get the commercial mortgage line of credit, it was way more coverage that they actually wanted to see. And so my premium actually went up a lot. I think it went up between the two properties, $1,000 for the year between the two, which I mean, it’s not a huge amount, but still was something I was not expecting. So just be careful of that too, as you’re talking about all these financing options as to understanding the insurance requirements by the banks too, when you’re going through and figuring out your financing too.

Tony:
Ashley, just out of curiosity, how did you find that lender for the portfolio line of the commercial line of credit?

Ashley:
So my first one was just the small local bank that I used for my very first deal. I just worked with the commercial lender on my first couple deals and then I would just talk to them like what are other options I have and things like that. And because I

Tony:
Had

Ashley:
Bought two of the properties with the private money lender, it was a note payable. There actually wasn’t a mortgage filed and there technically wasn’t a mortgage. It was just a note payable that I owed this person money. So there was technically no collateral, no debt, no lien on the property. So I was able to go and get first

Tony:
Position

Ashley:
Line of credit on this property.

Tony:
Interesting. Yeah.

Ashley:
And then the other ones, I’m trying to think. Actually, I think both of them, both of the banks that I use were both first lien positions because I owned the other one just free and clear that I had purchased in cash. So that’s maybe another thing to look at too as to what their requirements are if they’ll even put a second position mortgage line of credit because that I don’t know. But first one was just the bank that I always worked with. They had that as a product that they offered. I still have it today. And then the other one, I just met the guy at a meetup and it was not that much longer after I did the other one. So I knew that it was a product that was out there. It was just finding the lenders. But I think a great starting point is going to biggerpockets.com/lenderfinder.

Tony:
So I just want to break that down for the rookie audience so they understand the benefit or the importance of what you said. You said that the private money lenders just had notes payable. So on paper, there was actually no lien against the property. So this new lender was actually able to go into a first lien position. So the importance of that for the folks that are listening is that when you have multiple lenders, each lender puts a lien against property, which basically means if you don’t pay that person back, they have a right to go and take the property back from you. But the way that lien position works is that whoever’s in first lien position gets paid back first. Whoever’s in second lien position gets paid back second. Whoever’s in third lien position gets paid back third, so on and so forth. So if something does go wrong with the property and there’s a forced sale, if it’s sold short, there’s a chance maybe the person who’s in second or third position doesn’t actually get paid.
So from a lender’s perspective, there’s significantly less risk to them to be in first lien position to make sure that if something does go wrong with the property, they’re the first ones to get paid out. So the fact that there wasn’t a lien against the property from Ashley’s private money lenders meant there was less risk for the lenders themselves. So I think the lesson for a Ricky investor is if you have a good enough relationship with the private money lender that you’re working with to not file a lien against the property, that might give you more options as you look to tap into some of the equity that you built up on that property. And I’ve actually never thought about that. So thanks Ashley. Just learn something new today.

Ashley:
Yeah. I mean, if I’m a private money lender, I’m probably not going to do that, but –

Tony:
I don’t know if I would either.

Ashley:
I mean, from my own experience, there’s obviously people that won’t do that. It’s literally just sign a note payable piece of paper and here’s a joke with your money and make sure you make your payments.

Tony:
But a lot of it comes down to relationships too, right? It’s like if the relationship is there and then you guys can make that work if they’re willing to do a solid.

Ashley:
Yeah. I know of an investor, he had literally the checkbook to his lender’s line of credit and he just knew what amount the line of credit for was just could write checks off of it to fund projects and things like that and just kind of had free will. He knew what he had available to use and he would use it and then pay back or whatever. So there was never even any kind of agreement or anything. It was just whatever you take off make sure you pay back and then he would pay him whatever amount in interest separately.

Tony:
I got to find that private money lender. Just give me the checkbook. Let me –

Ashley:
And in that situation, it was a family member. I’m pretty sure it was like an uncle or his wife’s uncle. I don’t remember for sure, but it was a family member that he did that with. Yeah. My situation, it wasn’t, but mine was just another investor looking to invest in other things. Okay, so let’s move on to number five. And number five involves doing a BRRR. So the BRRR strategy is when you buy a property, you rehab the property, you rent the property out, then you go ahead and refinance it now that you’ve got it beautiful, rented, renovated, added value, got a tenant in there paying rent, you refinance it and then you pull some of your money back out, all of it back out, and then you take that money and you repeat the process. So in this scenario, you’re going to use your HELOC, your line of credit for the down payment and the rehab on the property.
So you’re going to go to a lender, you could even go to a hard money lender in this situation, and you have say your $100,000 line of credit, and you’re going to use 20,000 of that, 30,000 of that, 40,000 of that, whatever it is for the down payment and use the rest for the rehab. So you go and you purchase your property, you pull off the line of credit as you’re doing the rehab, you get it rented out, and then you go and refinance with the bank. You get a new appraisal done on the property and what the value is and the goal would be that the property is valued at more than what you purchase it for, more than what the rehab costs. And you’re able to then refinance it and pull some cash back out and pay back your line of credit. So I’ve done this multiple times.
I think it’s a really, really great strategy if you don’t have a lot of actual cash sitting in a savings account or if you don’t want to tap into that and don’t want to use that, using the line of credit to go through this process. And of course, there are things that can happen. And a couple years ago as we had really low rates, people were doing the Burr strategy on properties, and then when it came to time, they were done with the rehab time to refinance and rates shot up. Now all of a sudden their deal doesn’t work anymore because they weren’t expecting to have such a high rate. So there are definitely nuances that you have to plan for if it doesn’t appraise for what you think it’s going to, or maybe the market goes down and your appraisal still isn’t there, whatever it is, or your rehab takes way longer than you expected.
So you do have to have some safety nets in place and different exit strategies in case you run into issues. But when you’re able to refinance, you pay back your line of credit, then you’re not paying any interest on it until you find your next deal and you pull the money back off.

Tony:
And if you guys head over to biggerpockets.com/burrbook, you’ll see that our very own David Green, previous host of the BiggerPockets Real Estate Podcast, wrote the book on the Burr strategy and built his entire portfolio doing exactly that. I will say that I feel like it’s good for us to say that the Burr strategy is maybe a little bit more difficult today to get all of your capital back on that refinance as the interest rate market and just purchase prices have shifted a lot since that book was written, but the idea and the premise is still very, very strong. And even if you’re not getting back all of your capital, if you’re getting back 85%, that’s still a good chunk of capital then to go redeploy back into the next deal. So I think that’s the goal is that we can get back a good portion of that initial capital, not always necessarily that it’s a perfect burr where we get back every single penny that we put in.
I will say this though, and again, this was back in 2019, but the very first two real estate deals I ever did, they were both burrs and both were with the zero dollars of my own money. And I found a local credit union in the city that I was investing in where they offered this loan product where if you found a good enough deal, and to them, I think it had to be your total project cost, so your construction and your purchase price had to be, I think it was like 72.5% of the ARV value or less. So if the house was going to be worth a hundred grand, my purchase price and renovation costs had to be 72. 5K or less. And if I found a deal to check those boxes, the bank would actually loan 100% of the entire project. And I did that twice with that same bank.
And the benefit to that, even aside from the fact they were covering everything, was that they also had inspectors on their team who will go out there and inspect all of the work to make sure that it was being done correctly. And there were certain contractors that they had vetted that you had to work with in order for you to get approved for this loan. So it was this really, really great handholding process for me the first time through because I had this bank who had a very strong vested interest to make sure the deal actually worked, who gave me the vetted contractor, who walked the property to make sure that things were getting done. And it was a really, really great way to get into my first deal. So if you can find the right bank, just know sometimes it’ll help facilitate that bur process as well.

Ashley:
Okay. So we’re going to take a short break, but when we come back, we are down to our final three. We’ll be right back. Okay, so welcome back. And next up, we have a home equity investment or sometimes can be called a shared equity agreement. So how this works is a company will actually give you cash in exchange for a share of your home’s future value. So for example, they could say, “We want 1% stake in your home and we’re going to give you $20,000 because we expect in the future your home is going to be worth more money. So when you sell your home, we want to be paid 1% of whatever the sale price is or something like that. There’s no monthly payment.
They are just banking on your house appreciating and then taking a cut of that. So I say this with a lot of caution. This should be very, very much your last case scenario because it could be the worst case scenario. There’s benefits of it. It frees up cash. You have no monthly payment. This is also very helpful if your debt to income is not great because you can actually qualify for this. Better because they’re just banking off the equity, not that you are actually going to make payments to them. So here’s where it can get into trouble is they will actually… So they put a lien on your property, but it has a hard maturity date. They’re not going to wait 50 years to get their equity out of your property after they loaned you that money. So it can have a maturity date. So if you don’t sell your house or pay them back within X amount of time, say some typically are between 10 to 30 years, I would say.
But if you hit that maturity date and you cannot pay off the lien because you didn’t refinance or you didn’t sell your property, whatever, they can actually force liquidation on you. And that means you are forced to sell your property to pay them off, pay them back for their equity in the property. Tony, I’m going to assume that you have never done this before as I have not either.

Tony:
No, I haven’t. I feel like it was making waves a few years ago as this kind of gained popularity, but I couldn’t agree with you more, Ash. I think this is probably my least favorite because there are so many other options out there to allow you to tap into it. But you’re right, there are some people for different reasons, could be credit score, debt to income, whatever it may be, where maybe the traditional options don’t make sense. But I would probably definitely use this like a Hail Mary if nothing else has worked for me.

Ashley:
Is this also called, I think I’ve heard it, a reverse mortgage. Is that what they call this sometimes too, is another word for it? Is that something different?

Tony:
Yeah. I’m not quite sure what the difference is between this and a reverse mortgage, but when I think about the reverse mortgage, I feel like those ads are typically targeting older folks who are, it’s like once they pass away, then this company inherits a property. But I’ve always understood these ones as they’re marketing to us like millennials and younger homeowners who just want to tap into their equity and this is another option to do that. So yeah, I can’t say with confidence what the nuances are and the differences there.

Ashley:
I think I’d like to be on the company side of this. And that might be a pretty lucrative business of finding areas where typically have high appreciation, getting ownership of somebody’s house and then setting the maturity date.

Tony:
I wonder what that business model is though because they got to be making money somehow on the front end. So I wonder if they’re bundling up all of these equity little slices and selling them off to other investors who are like, “Hey, in 10 years I’m going to be able to cash out on this or if they’re keeping them on their own books.” So if you are one of these companies or you work with one of these companies, come talk to us so we can get some more insights on how this business model actually works.

Ashley:
Okay. Now number seven, actually sell your property. So if you sell your property and you’ve lived in it as your primary residence for two years of the last five years, okay? So if you live there as years one and two and then it was a rental three years, you would still qualify. It’s up to 250,000 if you are single, 500,000 if you filed married. So that 500,000, you would not pay taxes on it. So think about how much money, if you worked a W-2 job and you were paid $500,000 for the year, how much money they would take in taxes, unless you’re a savvy investor and you use cost tags and have a wife that gets rep status and all these different things to offset that income. It’s actually a huge benefit to sell your primary residence to take these tax-free gains because there’s not a lot of other places that you can get that amount of money and not pay taxes on it.
So this is another option for you.

Tony:
I think this is honestly, Ash, one of the best strategies to… More so if you’re house hacking, I think this is a great strategy where it’s like, “Hey, I’m going to buy maybe a duplex, live here for a couple of years, build up that equity, sell it, then I’m going to move into a fourplex, then I’m going to move into an Aplex.” And you can scale up that way. And we’ve interviewed folks in the podcast before who’ve leveraged very similar strategies where they house hack into larger and larger and larger deals and there’s a lot of benefits there. So I like that strategy for that reason. And then the eighth and final way is to bring your equity to a partnership. So there are different ways that we can leverage that.
And Ash and I both leveraged partnerships pretty extensively in our own portfolios. And actually if you go to biggerpockets.com/partnerships, you’ll find a copy of mine and Ashley’s book there. But you can take some of your equity and use that to partner with someone else. So maybe you don’t have enough equity to take down an entire deal, but if you leverage any of these strategies that we talked about, maybe you can fund the down payment portion and your partner funds the renovation or vice versa. You fund the renovation, your partner funds the down payment. Or maybe you have the ability from a capital perspective to fund the deal, but you just don’t have maybe the income or the DTI or the credit score to get the loan approval. So maybe the partner’s bringing the mortgage and you’re bringing the capital to actually close on the property.
So there are different ways and you can skin the cat a million different ways to take this equity into a deal, but if you’re missing an element to be able to do this by yourself, maybe tap into that equity to solve one piece of that puzzle for you.

Ashley:
Well, thank you guys so much for joining us for this episode of Real Estate Rookie. We hope you can consider one of these eight ways to actually tap into the home equity in your property to finance. We hope you can use one of these eight strategies to tap into the equity you may have in your primary residence or maybe an investment property you already have to fund your next deal. You’re working on a deal, let us know. If you’re watching on YouTube, go ahead and put it into the comments how you are funding that next deal. I’m Ashley, he’s Tony, and we’ll see you guys in the next episode.

Dave:
There’s a new FIRE movement, and this time it includes real estate. You’ve probably heard of FIRE before. It stands for Financial Independence: Retire Early. And it’s a strategy for frugal living, saving as much money as possible, investing every extra dollar, and finally, somewhere along the way, retiring early. But here’s the thing, that doesn’t actually sound like fun. I don’t

Paula:
Want

Dave:
To live on nothing. I don’t want to never go out to eat. I don’t want to not go on vacation for years, and I don’t want to only invest in index funds, checking my stock portfolio to give me the green light on financial freedom. I want to decide my financial freedom, and I’m guessing you do too. Paula Pant, host of the Afford Anything podcast, was on that fire track, but she did things a little differently. She bought a handful of rental properties, paid them off early, even though she had low mortgage rates. She took a risk, worked for herself, and now is 100% in control of her own time, traveling the world while working. From her own experience, she created a new type of fire movement, F-I-I-R-E. It fixes your financial psychology, gets you to earn more income as you invest beyond stocks with real estate, and finally gives you the choice to build something bigger than yourself, all while achieving financial independence.
If you use Paula’s framework, you can afford anything. What’s up, everyone? I’m Dave Meyer, chief investment officer of BiggerPockets. Our guest today is Paula Pant from the

Paula:
Afford

Dave:
Anything Podcast. Let’s bring her on. Paula Pant, welcome back to the BiggerPockets Podcast. Thanks so much for being here.

Paula:
Thank you for welcoming me back on.

Dave:
I don’t know, Henry, if we’ve talked to anyone this OG of a guest on BiggerPockets before. You were episode 35. We’re on like 1,400 now. You were on the show in 2013.

Paula:
Yes.

Dave:
I hadn’t even heard of BiggerPockets back then. That is awesome.

Paula:
I have a distinct memory of recording episode 35. I was house hacking at the time, so I was house hacking in this triplex and I was in this room that had formerly been an outdoor… It had been a porch and we’d built some exterior walls, but not that well. And it was on a noisy street. And as the cars drove by, the whole place kind of shook a little bit. And I remember it was Josh and Brandon who were interviewing me, and I remember multiple points during that interview. They were like, “I’m sorry, are you in the middle of an airport runway? Are you on

Dave:
A

Paula:
Highway? Do you need help? Should we call AAA?”

Dave:
Well, that’s what being a real estate investor is. Sometimes you’re in a noisy, shaky house hack and that’s just how it goes.

Paula:
Exactly. Exactly.

Dave:
Tell us a little bit about yourself, who you are, what you do, how you’re involved in real estate.

Paula:
Sure. So my name is Paula Pant. I host a podcast called Afford Anything, and the podcast was really inspired by my early adventures into real estate investing. It started with that house hack on a shaky house hack and grew from there. And rental property investing for me became the genesis of what turned into a nuanced philosophy that’s more broadly about money and life. So the idea of affording anything is that you can afford anything but not everything, which means that every choice you make is a trade-off. And so the core question is what are the trade-offs that you are willing to make? What are the trade-offs that you want to make? Which is just another way of asking what’s the most important thing to you? What do you value? What do you prioritize? And that’s different from… There’s some people who are hyper-focused on tactics or they’re hyper-focused on returns.
I think that it’s asking the wrong question. When you’re solving for what before you solve for why, then you might spend years climbing the wrong ladder.

Dave:
That makes a lot of sense to me. I mean, we hear this in real estate all the time, people who start going into deals and trying different portfolio strategies without really considering where they’re trying to get to. And it’s exciting to jump into real estate, but you can get lost easily that way. I think you can find yourself either exposing yourself to too much risk or just doing deals that you just straight up don’t like, which is not fun either. So I think it’s a great philosophy and we’re going to dive into the philosophy a lot on today’s episode. But before we do, I just kind of wanted to hear a little more. What was your real estate journey?

Paula:
Today I have seven rental units, residential rental units, all free and clear, 100% free and clear.

Dave:
Amazing. Wow.

Paula:
The philosophy that I came to where I was like, I don’t want to grow to 25 or 30 or 40 properties. I want enough properties that if they were all paid off free and clear, that money could cover my baseline cost of living. Nothing fancy or extravagant, but just I want enough money that work becomes optional and once I have that, then I’m good. And so that was what I grew with my rental property portfolio.

Dave:
I think it’s the best goal out there. If you can have no debt and that income on those properties pay for your lifestyle, that’s freedom. I think that’s the ultimate good feeling that people want from real estate. They think they want a thousand doors, but I think, I don’t know, Henry and I were just at BP Con. I think everyone really wants what you’re describing right now as actually the goal that most people want.

Paula:
Well, and what’s tricky about that is that when it comes to the question of your lifestyle, there’s never any ceiling to it. You could, if you wanted to, infinitely inflate your lifestyle. And I certainly live much better today than I did in 2013 in the middle of an airport hanger. But that was, for me, why I anchored my real estate goals around how do my parents live? Because they actually do a really good job of finding a status quo and staying there. How do they live? What is their baseline? They are not fancy designer cars, designer handbags people. They’re not even really restaurants people. They’re like, “We want a home that’s safe and clean and we want a life that’s respectable and modest and comfortable.” So to me, that was what I sought to build with specifically residential rental properties.

Henry:
That is the dream, and that is essentially what a lot of people get into real estate for. But what happens, there just becomes this aspect of growth and scaling and more, and people often go beyond those goals and end up building substantially more. I think part of it is because real estate is fun.

Paula:
Fun, yeah.

Henry:
Finding a good deal is exciting. You get that dopamine rush when you sign the contract on a good deal, you get that dopamine rush when you finish the renovation and you get it rented out or you get it sold. But a lot of investors end up not having the discipline to stop when they hit that goal because they see the potential in the money that could be made if I continue. So what gave you the discipline or the peace of mind to say, “You know what? This is enough. I hit my goal and I’m going to chill out here.”

Paula:
Well, I think it is a very human drive to build, to build, to create, to aspire, to strive, to do better, to at least set the goal that each year you build more, make more, do more than you did the year before. I haven’t shed that. I simply don’t use real estate as my path to that.

Dave:
It sounds to me like what your advice is, or maybe the way you did it is you’re not quitting to do nothing. You’re just being content with what you have and then taking your energy and finding something else to do. I’ve tried to do this, I’ll just be honest, it’s hard for me because you spend so much time as an investor getting good at it. Sometimes your hobbies, other hobbies fade away and it takes a little bit of work to try and figure out what else do I want to do?

Henry:
All your friends are investing and growing.

Dave:
Yeah, it’s tough.

Henry:
Very hard.

Paula:
I’ve got to say, so the reason that I stuck to residential is frankly because that was the first thing I learned, the financing, the insurance, just when you’re brand new, doing your first deal as a house hack is one of the simplest ways to get in. And it was after I started that, that I looked around and all my friends were like, “We’re buying mobile home parks.”

Dave:
Right? Yeah.

Paula:
And I thought about it because doing four or fewer units, I was like, “Well, the next obvious step would be to do five or more units. Do I want to do small apartment complexes? And then from there, do I want to go into mobile home parks or storage units or all of these things that my friends were all doing?” And again, you can learn anything but not everything. So is the skill that you want to learn how to invest in a different category of real estate because investing in storage units is very different than investing in triplexes. So do you want to learn how to invest in a different category of real estate or do you want to just stick with the category that you’re in, even if it may not provide the best returns, but it’s the category that you know, it’s where you’ve already developed your expertise, so you’re just going to continue doing that because swim in the waters where you’re already warm.

Dave:
Totally. I have this debate with people at events all the time. People always say, “I have this portfolio of X number of units and it’s doing great. What should I do next?” I’m like, “The same thing you were doing before? If it’s working, why do you have to do anything different?” I’m curious for Paula, what has having these seven paid off units done for you? What other avenues have you been able to explore and grow in?

Paula:
A few things. I host a podcast, so I spend a lot of my time doing that, trying to get better at YouTube. We recently went from an audio podcast to a video podcast, and YouTube is a very different skillset than just audio podcasting. So growing the audio podcast as well as growing the YouTube presence, trying to crack all of the various social media algorithms. And then outside of that, I love to travel. So this year I went to Singapore, France, Germany, Italy, Spain, London. I guess it was a lot of Europe this year.

Dave:
Amazing.

Paula:
Plus Singapore. Next year I’m heading to New Zealand, going to Egypt next year.

Dave:
Nice.

Paula:
Yeah.

Dave:
Well, I want to talk more about your big picture philosophy, Paul, because I think there’s a lot that our audience can learn from, but we have to take a quick break, so stick with us. We’ll be right back. Before we go to break, if you’re someone who’s bought a couple of deals and you’re looking to scale up your portfolio into something bigger, I have a really exciting announcement for you. BiggerPockets is hosting its first ever conference focused just on scaling up. It’s this December, it’s coming up soon, this December, 5th through 7th in Phoenix, Arizona. We’re going to have a full day of programming with speakers like myself, James Daynard, Kathy Fecke, and Devon Kinard talking about how to scale up and build a sustainable business. Tickets are on sale now, but there are only 100 tickets, so go to biggerpockets.com/conferences now and get your ticket today.
Welcome back to the BiggerPockets Podcast. Henry and I are here with podcast host Paula Pant talking about all things from real estate investing to exploring your passions outside of real estate. But Paula, you have a philosophy about personal finance that you’ve cultivated over many, many years. Can you tell us what it is?

Paula:
Sure. So first, I think of personal finance in terms of five pillars. I have this acronym, it’s the word fire with two I’s, F-I-I-R-E. And of course, you’re familiar with the FIRE movement, the financial independence retire early. With the FIRE movement, the FI, the financial independence part is critical. That’s the piece where your work optional. The retire early part is like take it or leave it. And so I’ve tracked along that same philosophy in double IFIRE, F-I-I-R-E, where the FII is critical, but the RI is optional. And so here’s the philosophy. I’ll explain FII and then we’ll go into each one. So financial psychology, increasing your income because you can’t shrink your way to wealth, and investing, FII. And that is the foundational framework of personal finance that I think everyone needs. You need to be aware of your money mindset and really work on your money mindset and work on your relationship with money.
That’s financial psychology. You need to increase your income, particularly if you are a low income earner, as I used to be. My first job out of college was in today’s dollars, I made around 45,000 a year speaking in today’s dollars. So if you are a low earner, frugality is not the answer for you. You need to make more. So financial psychology, increasing your income and investing, those are the foundational elements. And then the RE part in double I fire, the RE is optional, R, real estate, and E, entrepreneurship. And what I actually love about that framework also is that the R for real estate, it’s sandwiched in between the I of investing and the E of entrepreneurship because I really view real estate as a hybrid between – It

Henry:
Is.

Paula:
Investing in entrepreneurship. So those I believe are the five pillars of personal finance.

Dave:
All right, so let’s break them down because what do you think the big challenge with people’s financial psychology is?

Paula:
So there’s a few things going on. Number one, there are lessons that we learn about money from early childhood that we’re not even necessarily conscious of. So for example, if mom and dad always argued about money, then as a kid, you pick up the lesson that money is a source of conflict, and that might make you money avoidant because if money’s a source of conflict, of course you want to avoid this thing that causes conflict, and you may not even consciously be aware that that’s the idea that you’ve carried, but if you grew up knowing mom and dad are always fighting about money, then that has imprinted on you and that’s something that you have to actively unlearn. Similarly, we receive all of these social messages in media, in movies, around money. So if you think about almost any movie or TV show that you watch, the villain, the bad guy, is the rich guy.

Henry:
Always.

Paula:
When you see piece after piece after piece that has that character set up, what I think unconsciously you learn is rich people are evil. If you have internalized that message, then there’s going to be a part of you that thinks, “I don’t want to be rich because I don’t want to be evil.” And that won’t necessarily come out consciously, but you might start to self-sabotage as you watch your net worth grow. And the other piece of it is that your net worth doesn’t have to objectively be large by somebody else’s measure. If your net worth feels large relative to what you always thought your own net worth would be, then as you approach a bigger number than you ever thought possible, as you approach the number that creates a sense of imposter syndrome inside of yourself, you might start to self-sabotage in these small unconscious ways.
Maybe you’re a little sloppier at your renovations, maybe you’re a little sloppier at your flips, maybe you’re slower at getting back to your property manager. Maybe you’re kind of an absent landlord. In all of these little ways, you might start to subconsciously sabotage the wealth that you’ve built because you don’t feel like you’ve earned it, you don’t feel like you deserve it, you associate success with being bad or being evil, and those are all of the things that you need to work through in order to heal yourself of some of these lessons.

Dave:
It’s super interesting what you’re saying and sort of contrasting that to what we were talking about before where having enough because I think a lot of people, you’re totally right, Paula, see success as bad or money as bad, but then also in some pockets of our culture, we just glorify wealth at all costs. And so you’re like, “Oh, I got to keep going. I got to keep going. I got to get more.” Where the middle ground is what most people are really looking for, but it’s a hard place to get mentally. All right, so that’s the F in your acronym. All right, so the next I was increasing income. Tell us about that.

Paula:
Right, so increasing income, the reason that I include it is because I think that one of the big mistakes that you see in the personal finance community is an overemphasis on frugality.

Dave:
Agreed.

Paula:
Yeah. So fundamentally, what you care about is that delta between what you earn and what you spend. And I don’t want to use the word savings because savings has a connotation of frugality, so that’s why I’m intentionally using the word delta or difference between what you earn and what you spend, and I call that the gap, the gap between earning and spending. And there are only two ways that you can increase the size of that gap. You can earn more or you can spend less or you can do some combination of the two, but you can’t shrink your way to greatness. Once you frugal down to a certain extent, you really can’t go any further. So assuming that you’re not a crazy spender, assuming that you are living a reasonable life, the lever that you really pull is on the earning side of the equation, and that might come from negotiating a raise, it might come from working, making a career change.
These are the things that people… When you talk about a career change, these are things that people don’t often like to talk about because people like to focus on low friction, easy to implement advice, even if that’s the peas and not the stake. And so what I mean by that is, okay, when you talk about saving money, people will rush to stop going out to dinner because it’s a discretionary expense that happens frequently, and so not going out to dinner is extremely low friction versus if you’re a renter, sublet your current three bedroom apartment, find a subletter who will take over that and move downsize to a one bedroom, right? That’s a really high friction ask, but it’s the type of thing that in one fell swoop, you might save about $1,500 a month in the difference between those two, and that 1,500 a month over the span of a year is $18,000 and boom, now you do that for two years, you’ve got 36,000, now you’ve got a down payment on your first rental property, but it’s such a high friction ask that you don’t hear people talk about it very much.

Henry:
I like this concept of increasing your income because I think you’re right, when people think about personal finance and saving and paying off debt, they immediately think about shrinking. But I think there’s value in both, which is kind of what Dave was saying. You can save some money by shrinking and you can help yourself by making more money. So how does someone who’s listening to this who’s like, “I want to get my finances in order,” how do they know if they have a I need to make more money problem or if they have a I need to spend less problem?

Paula:
I’d say the majority of people have an I need to make more money problem, because if you really are an excessive spender, I think you already know it. I think if you’re asking that question like, “Do I spend excessively?” You know that you do, and the cuts that you need to make in your life are obvious.

Dave:
All right, so make more money. I know that sounds like ideal, but we’ve had other guests recently, we had Scott Galloway on here the other day was talking about that as well. It’s just like it’s gotten lost to just get good at your career, I think. Or if you want to go into real estate investing, get really good at flipping, get really good at wholesaling or whatever the active ways of being a real estate investor are. But man, it gets a lot easier if you can increase your income. So we’ve done F, we’ve done I. We have IRE to go. We got to take one more quick break though. We’ll be right back. Welcome back to the BiggerPockets Podcast. Henry and I are here with Paula Pant talking about her philosophy and framework for financial independence, which is her own acronym, F-I-I-R-E, two Is. We’ve already done F, we’ve done I.
What’s our second I?

Paula:
So the second I is investing. And in this context, and again, I sandwich R for real estate in between investing and entrepreneurship because I really see it as a hybrid between the two. So in this context, I’m referring to investing as primarily index fund investing, market investing, public markets investing. I do think if you’re a little bit more advanced and you can deal with a loss of liquidity, some private investments, maybe you become a hard money lender, maybe you invest in a small handful of private businesses. I do think that that can be interesting and that’s also kind of under the investing umbrella, but for most people, this is going to be index funds. It’s going to be stocks and bonds.

Dave:
All right, so just be in the market is basically this part of it. Just be in the market in some way.

Paula:
I think that with real estate investors in particular, when I started talking about rental property investing, a few things struck me right away. One was that particularly when you’re first starting out, there’s so much to learn as a real estate investor that you are reading about it, talking about it, thinking about it, listening to podcasts about it. You’re absorbed in this rental property investing world or real estate investing world. And because of that, it can be easy to assume that people are not also investing in a total stock market index fund. I had a number of people ask me like, “Hey, does it ever worry you that all your money’s in real estate?” I’m like, “Only 50% of my net worth is in real estate.” And people are shocked when I say that because if you think about it, it’s a little bit bananas and I spend all my time talking about 50% of my net worth and I spend almost 0% of my time talking about the other 50% of my net worth.
And that’s the thing about index fund investing because no one really talks about it because what is there to say?

Dave:
It’s just like a box to check almost.

Paula:
Yeah, to the auto enrollment box in my 401k. There’s nothing to talk about. There’s nothing to say. And so because no one talks about it, a lot of people have the mistaken impression that real estate investors are not doing it. I want to really correct that because if you actually talk to people like you and me, again, 50% of my portfolio is index funds and the other 50% of my portfolio is paid off rental properties.

Dave:
Not Henry.

Henry:
No, not me. Not me.

Dave:
Henry’s all real estate, but I think it makes a lot of sense. Particularly in this world we’re in right now. I study economics and talk about it all day and I have no idea what’s going to happen next. I mean, I have a good idea with the housing market, but with the broader economy, who knows? I think diversification at this point is the only logical path. So I’m talking to you, Henry.

Henry:
I hear you.

Dave:
I’m looking at you, man.

Henry:
I’m listening.

Dave:
Okay, so we’ve done three. Now we get to the big one for us, which is real estate.

Paula:
Yes, real estate. So as you know, I’ve got seven residential rental properties all paid off free and clear. They all had low interest rate mortgages, and it was a very controversial decision for me to decide to pay off mortgages that were at… The lowest one was at a three handle, the highest one was at a five handle. So the reason that I made the choice to pay off all of those mortgages is because… We’re jumping ahead a little bit, but because of that letter E, entrepreneurship, what I do, how I spend my time at a day-to-day level is I actively am an entrepreneur. I am self-employed. I’ve been self-employed since 2010. I don’t have the security of a regular paycheck. I don’t work for anybody else. I have employees who work for me, and so I’m responsible for their paychecks. Because of all of that, I sat and thought about risk, not confined to the domain of real estate, but risk across the entire spectrum of my life.
What is the risk that I carry, not just in my rental properties, but the risk that I carry in my day job? What’s the risk I carry in my company? What’s the risk I carry in my rental property portfolio? What’s the risk I carry in my other investments? What’s my stock bond allocation? What’s the risk I carry even in home and family life? The risk that you carry if you are a dual income couple with no kids is very different than the risk that you carry if you are either single or a single income couple and you have multiple dependents. And by the way, when I say dependents, it could be kids, it could be elderly parents or grandparents who depend on you. It could be a sibling who’s struggling with addiction who depends on you. So I don’t want to limit to just kids alone.
How many people rely on you? And all of that put together is the mosaic of how much risk a person can take on. And so when people come to me and they’re like, “Should I pay off my mortgage or should I borrow against my home equity in order to make the next down payment on the next rental property?” I’m like, “How’s your mom and dad’s retirement plan?”

Dave:
Totally. Yes, exactly.

Paula:
Yes. Because if your mom calls you and says, “Hey, I need money for groceries,” you’re not going to be like, “Well, sorry, moms. Screw you.”

Dave:
That’s why I wrote a whole book on this because I wanted to explain people the question when people are like, “Should I do this in real estate?” It is such a personal question. It is not like checking the box on your 401k. There are so many different ways to invest in real estate from high risk, high leverage to low risk, low return, and everything in between. And it’s not a lazy answer to be like, “It depends.” It really does depend. It really does depend in terms of risk, not just in terms of financial risk, but time. How much time are you willing to contribute to your portfolio if you have dependence is going to be very different. When I was 23 and single and started investing in real estate, I had nothing but time. I was useless. No one would pay me to do anything, so I could just go and do my portfolio.
Now I have a family. It’s a totally different situation. These are the things you have to consider and there is no right answer. I actually think I hear this a lot, Paula, from investors who are our age or older, that paying off debt is just what you want to do. I think it’s also as you age, your tolerance for risk tends to go down, especially if you’ve been somewhat successful. You only have to get rich once, so you just have to protect yourself a little bit. So I think paying off your rental properties is awesome. You probably sleep great, which is what everyone wants.

Paula:
Yeah, yeah, absolutely.

Dave:
All right, let’s round it out with the last one. Entrepreneurship, which is the E.

Paula:
Yeah, the E for entrepreneurship. So first of all, I believe that all real estate investors are entrepreneurs.

Henry:
Whether they believe it or not. Yeah.

Paula:
Yeah. Whether you know it or not, if you’re a real estate investor, you are an entrepreneur. I want to break this down as well because there are different gradients of entrepreneurial work. So first of all, I think a lot of people conflate self-employment with entrepreneurship. Self-employment, like getting out of the W-2, not being beholden to a boss, it’s cool, but you are fundamentally cobbling together work, maybe contract-based work in order to pay yourself. And it’s great that a bunch of your meals can now be tax deductible, that’s a nice fringe benefit, but there is fundamentally a difference between being self-employed versus building something that is scalable. Either one is fine, but I think you should be conscious of which one you’re doing because the two can get conflated quickly. So the question that you want to ask yourself if you do decide to go down this road is, do I want to own my job or do I want to build something that will outlive me?
And building something that will outlive you, that is a very different type of undertaking. So that’s an early orienting question. When we are at the beginning, you don’t have to have the answer right away. It might be an answer that changes… Or evolves over time. But that is, I think, one of the fundamental orienting questions. Do you want to own a job or do you want to own an institution?

Dave:
That makes a lot of sense. And I love the idea of ownership and it does really benefit you in so many different ways. Do you think entrepreneurship is right for everyone though?

Paula:
Well, again, if you are listening to this, then you are likely a real estate investor. And if you are a real estate investor, then you are already an entrepreneur. Because if you own real estate as an investment, as something outside of your primary residence, then you do own the upside. Now, real estate investing in general is not for everybody.

Dave:
Yeah, I think that’s true. Entrepreneurship, you have to be willing to take ultimate accountability for your own performance, your own life. I’ve talked to a lot of people who are new to investing and they’re frustrated that their agent didn’t do this or their contractor, their property manager. It doesn’t matter.You’re an entrepreneur, it’s your job. It’s always your job. And I think some people excel at that, and for some people it’s not right. And that’s okay. It’s not a judgment, but that’s why I was curious because I think for some people, they just don’t want that. They want to show up and just get a check and that’s okay. But I think there are huge benefits if you have a personality and a drive that will allow you to work through the real challenges that come with entrepreneurship. But the benefits, for me, have very much been worth it.
And I think for a lot of people are.

Paula:
And what you’re talking about is having a high degree of agency, a really strong locus of control. And to round it out back to the psychology piece of it, I think the beauty of real estate investing and entrepreneurship is that you learn to become a high agency, strong internal locus of control type of person. You learn to become somebody who radically accepts responsibility for everything that happens because anything that unfolds, you can always ask the question, “What could I have done?” Even if you have a misunderstanding with your property manager, “Okay, what could you have done to make that conversation go more smoothly?”

Dave:
All right. Well, Paul, thank you so much for being here. This has been a lot of fun. Any last thoughts or advice to our audience before we get out of here?

Paula:
I would say for anyone who’s listening, of everything that we’ve talked about today, so we’ve talked about the framework that I refer to as Double I Fire. We went through a lot of concepts, we went through a lot of tactics, but the most foundational piece and where it starts is with that letter F, that financial psychology. I think it’s often overlooked, but grounding yourself in what are my assumptions about money? What are my mental hangups about money? What are my emotional hangups about money? With the double I fire framework, take it one step at a time and really work through each of those one at a time because the financial psychology piece in particular, people often want to skip over that because it’s not quantifiable, but sometimes that is the foundation that you need in order to build the rest.

Henry:
Is there some books or references or someplace somebody could turn to if they want to dive into learning more about their psychology of money?

Paula:
Yeah, so there’s a few. So we have a free workbook. It’s at affordantything.com/filireF-I-I-R-E, totally free. In addition to that, because I don’t just want to plug my own stuff, I also want to make sure I highlight other people who have done great work in this field. Morgan Housel is one of the preeminent voices on the psychology of money. Dr. Brad Clontz is fantastic. So it is from him, he has this framework that people are either money avoidant, money anxious, or money vigilant. And it was from him that I really learned about that oscillation between avoidance and anxiety that many people go through when it comes to their money. And there’s also, I will say, there’s an entire association of financial therapists. Whoa. It’s really cool because historically in the field of therapy, most therapists are not cross-trained in how to talk about money. And if you think about that, it’s a little bit nuts because most people cite money as one of their top stressors and most couples cite money as one of the top things that they argue about.
And so despite the fact that both individuals and couples cite money as one of their number one problems, traditionally in the field of psychology, therapists are not trained to talk about money. And so what’s cool is this emerging field, it’s still a very, very new field of financial psychology. You have people who are classically trained as therapists and also then have a certified financial planning license. And so you get these people who are really heavily cross-trained in both domains and are well positioned to help you work through those mental and emotional hurdles that cause you to hold yourself back.

Dave:
Well, thanks again, Paul. It was great to have you back on the show. Thanks so much for sharing with our audience. It was great to have you.

Paula:
Thank you. Thank you, Dave. Thank you, Henry.

Dave:
And you could check out her podcast. It is called Afford Anything. It is available on podcast and on YouTube as we found out today. Thanks to you all for listening to this episode of the BiggerPockets Podcast. I’m Dave Meyer. He’s Henry Washington. We’ll see you guys next time.

Ashley Kehr:
Reginald Calloway’s first flip sold for $299,900 above the nearby comparable sales he’d been watching. But the renovation and sale ran long, his six-month credit card promotion expired, and financing costs kept growing. He knows the major project expenses, but still hasn’t calculated his final profit or loss.

Tony Robinson:
His path into real estate started with seller finance buildings for a childcare business, and today we’re tracing that journey into house flipping and new construction with plenty of hard lessons that changed how he buys, and we’ll cover setting a maximum offer, planning for rehab surprises, and calculating what you actually keep after sale.

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 a big warm welcome to Reginald. Reginald, thanks for joining us on the podcast today, brother.

Reginald Calloway:
Yes, sir. Thank you so much. This is such a full circle moment for me, but I am glad to be here.

Tony Robinson:
And Ash, we got to say that we actually met Reginald at BP Con and we were sitting down with him at

Ashley Kehr:
Lunch. Yeah,

Tony Robinson:
At lunch Monday.

Ashley Kehr:
Yeah.

Tony Robinson:
And he was just telling us our story and Ashley like, “We need to get you on the podcast.” So full circle, definitely, and I’m happy that we’re able to make this happen.

Reginald Calloway:
Yes, sir. Same here.

Ashley Kehr:
So before you even owned real estate, what was life and work life for you and how did the childcare business that you told us about actually get started?

Reginald Calloway:
So I came to Kentucky in 2009, and I’m originally from Miami, Florida, and that was around the time of the recession. That time, it was really hard in Miami. The jobs was drying up. So I came to Kentucky to try another route, try something else, try something new. And I was with Jennifer from the day I got down here, and I can recall me just getting here and us riding by a building and Jennifer pointing at that building and saying, “I’m going to own that building one day.” Now she’s not into real estate, anything like that, nothing. Don’t know anything about mortgages, nothing. But she just said, “I’m going to own.” And at the time I was so new, I can’t even remember the business I was thinking about at the time, but it wasn’t childcare. And so we rode past that building. As time went on, Jennifer would end up working in that same building.
So the previous owner, before we got that building, called Jennifer and he said he wanted her to run his childcare. They was putting a daycare there. And we said, yeah, we named the building and everything. So Jennifer worked there. Since the day I got here, I tried to do my entrepreneur spirit thing. So I had a mobile car wash at the time, which coming from Miami was very profitable. Coming to a small town in Kentucky where some dirt on your truck is almost like a badge of honor.
It wasn’t the lucrative business I thought it was going to be when I first started out. So we started out there and then we were going and we were growing and Jennifer wanted her own center. So I started looking for buildings. And to make a long story short, I found this building. It was a warehouse. We took forever. We turned that warehouse into a small daycare. It was a small building, took all of our savings, which wasn’t much at that time, but took all of our savings and it took us to go through a loan program from one of my mentors, a guy named Henry Snorch. He took us through a loan program and this program was for people that didn’t have good credit, you know what I mean? And didn’t have everything together. And they will still work with you and give you a small loan, I think up to $20,000, 25,000.
And at the end of that, we got approved for that loan by the skin of our teeth. And I was in that daycare with the lights off at the house because we had spun all our savings. Jenny and my daughter had just went back to her mom’s house and I just stayed in the daycare because I was just so sad. I thought I tried everything. I had came to this new state that wasn’t going to make it. And then that night my friend called me and told me he had us approved for the loan. And so that loan opened the first daycare. And then Mr. Grace came a calling.

Tony Robinson:
Yeah. And Reginald, just to make sure I’m tracking, Jennifer’s your wife?

Reginald Calloway:
No, she’s my fiance, but we’ve been together forever. We going to get it done.

Tony Robinson:
Gotcha.

Reginald Calloway:
But yeah, we’ve been together since 2009. We going to get it done, but she’s my fiance.

Ashley Kehr:
Now, when you were actually going through college courses, you had a professor that was actually asking you why you weren’t investing. How did this kind of play a role in your actual investing career?

Reginald Calloway:
So me and Jennifer are late bloomers. So she had been to college but didn’t finish and I had never been. So we started college and this was around the time, as I told you, the great recession when the jobs was laying off and they had these school programs. So it wasn’t many jobs, but they were paying for people to go to school and approve their education. And we tried to take full advantage of that. So we ended up in class and I took an economic class with a professor named Mel Evans. Now, Mel Evans was a real estate investor. He taught economics, but through the whole class he would talk about his real estate. He would take calls on his real estate. You know what I mean? Oh, he had all this stuff. And he just used to always say to me, “Calloway, why are you not investing in real estate?” And I kind of paid it no mind.
You know what I mean? I just though he was talking to kill time in the class, but he said it so much. So eventually one class, I just said, “Well, why don’t you tell me since you know what I mean? Because I don’t know why I’m not in real estate. Why don’t you tell me?” He said, “What’s the best financial advice you have ever received? It doesn’t matter who it came from, your mama, brother, sister, cousin.” And I could remember being stumped. I was told get a job. You know what I’m saying? Save some money, pay your rent. That was financial advice. But I remember this thing my grandma used to say. She used to say, “Make a dollar, save a quarter.” That was her financial advice. If you make a dollar, try to save a quarter. So I told him that and I said, so my grandma said, “Make a dollar, save a quarter.” And he said, “And that’s why the middle class and the poor never reached the top level.” And I was like, “Bewilder.” Because this guy had retired from the military, he had retired from the police force, so he had pensions, he had income coming in.
And so I was like, “Well, everybody doesn’t have that. Everybody doesn’t have $40,000 laying around.”

Tony Robinson:
Reginald, let me ask, I mean that sounds like potentially sound financial advice to save 25% of what you make. Why was this economics professor saying that that’s actually a trap for most people?

Reginald Calloway:
He said, “The rich family invests 50 cent, saves a quarter and leaves a quarter for enjoyment because you can’t chase growth without enjoyment.” So to me, because my family was fuel, you know what I mean? So when money came in, it was almost like it was going to leave and they hold it like sand and it just always slipped out like trying to hold a fist full of sand. And so I thought that’s where he was coming from with it. So he was trying to say, because I didn’t say anything about investing, I just say saving. He always said, “You can’t save yourself to rich. You have to invest.”

Tony Robinson:
And I think that’s such a great piece of advice because I think it is somewhat counter to what a lot of us learned growing up about money and what it means. And I think about the people who have only kept their money in a savings account for the last six years and think about how much they’ve lost in terms of inflation, but think about the same people who put that money into real estate for the last six years or who put that money into the stock market for the last six years or into a small business for the last six years. Those people have made many, many multiples of what they put into that. So you said enjoy 25%, save 25% and then invest the other 50%. I think that’s sound advice for a lot of folks that are listening.

Ashley Kehr:
Now let’s move on to your very first deal because it is so interesting to me how you actually negotiated this deal, and this was actually where one of the daycare centers were. So walk us through that conversation with the owner of the property.

Reginald Calloway:
So I get the advice from Mel, right? So Mel says the most important thing I’ve ever heard financially. So I tell him, “Well, we all don’t have a retirement plan. Everybody doesn’t have a 401k. Everybody doesn’t have a co-signer.” And he says to me, “Calloway, what you need money for?” And it just blew my mind. So he went on to explain what a land contract was, what seller finance was, what a quitclaim deed was, and several other strategies. And he said that there are people, and I can remember this, he said, “There are people with properties that are waiting on you to save them.” And this just was another way of thinking. It was just mind-blowing. It was totally reversed from everything I had thought and believed about owning property. So we are in the daycare. So Mr. Grace called, we finally get into this building that Jennifer had claimed, but we have a lease agreement, three years, first year $1,000, the second year 1500, the third year $2,000, and then we negotiate.
We renegotiate at the third year. And so I’m going in to pay the next year’s payment and move up to $1,500. And I got my check in my hand and I’m going to pay it. And just thinking about what Mel says, I said, and this guy named Mr. Grace, I say, “Well, Mr. Grace, what would you sell a building for?” And he looks at me, he leans back in his chair and he looks up and he says, “I can’t let it go for no less than $124,000.” I didn’t know if that building was worth $124,000. I didn’t know if it was worth $14,000, but I knew from the auto cooler I was reading, because I was trying to study real estate that I thought I was in a negotiation. So I automatically said, “I think that’s a little too high.” I didn’t know. Say, “I think that’s a little too high.” And I don’t know why I came with this strategy, but it just came out.
And I said, “I tell you what, we’ll take it for the 124. If you take the year we just paid, which was $1,000 a month, and put it as a down payment, which means we buy the building at 112, you’re still selling the building at 124, but we’re coming in like we’re putting a cash deposit of $12,000.” And I just said it and he’s leaning back in his chair again and he said, “Okay.” And I sat there, Tony and Ashley, for what felt like an eternity, it might’ve been three to five minutes because I didn’t know whether to move, whether to shake his hand, was I supposed to sign something? I didn’t know what had just happened. He was like, “I said, yeah.” So I go home.

Tony Robinson:
But Reginald, I just want to pause here for a second because it was one conversation with him. Yo had never approached him about this topic about buying the building before. That was the first time you brought it up. And in that one conversation he said yes. There’s so much to unpack here, Reginald, about what went down in that one conversation. So I just want to make sure that we’re breaking this down for our listeners. I think the very first thing that I want every single person to take away from the story that you just shared is that you never know what the seller is thinking. And the only way that you can figure out what they’re thinking, the only way you can figure that out is if you ask them the question, if you put something in front of them and put the ball in their court.
Because you could have assumed, Reginald, that he had no interest in selling this property because there wasn’t a for sale sign out front. Yo guys hadn’t talked about it before. You could have just assumed he had no interest in selling it. But you asked one singular question and in the course of one conversation, you went from, “I’ve never even thought about real estate investing,” to now having a verbal contract on a property that you’re already in. So I think that’s the first big lesson is that we can’t assume what the seller is thinking, right?

Reginald Calloway:
There’s never a dumb question. Yeah.

Tony Robinson:
And the second big piece, Reginald, is that you basically negotiated like a reverse lease to own. In a traditional lease to own, you sign a lease with someone saying, “Hey, I have the intention to buy this in a year or three years or five years, and what I’m paying right now can maybe go toward the purchase of this property.” But you did it after the fact. You’d already paid him for a year and said, “Hey, can you give me that as credit since I already paid it to you?” And I think the lesson there is that you can get as creative as you

Reginald Calloway:
Want

Tony Robinson:
When you submit an offer to a seller. And as long as you’re not breaking any rules, you can say whatever you want to say and put whatever you want to put into that offer. And as long as you and the seller agree to it, you guys can say yes. I’ve heard crazy things about things that people have put into contracts. I’m trying to think of one. We had a guest actually, Ashley, where it was like the seller wanted the new buyer to keep this plant that they had planted or something. It was something they had done. They’re like, “Hey, please keep this garden that I planted as part of the contract.” I’m like, “Yeah, I can do that for you.” So whatever terms you can negotiate, as long as both of you say yes, who cares? It’s a win-win for both of you guys. So it’s an incredible story, Reginald.
I’m so happy we’re sharing this with folks because you would never even think that that’s possible.

Reginald Calloway:
Yes, yes, yes. And if I would have went to, who is now, he’s my consultant, one of my best friends, Henry Snorton, just from him living in the area for so, he might have said he’s not going to sell you that building. Because like you just said, it’s to ask the question, you just never know. You know what I mean? And I would put that on a lot of my ignorance and that my ignorance worked for me in that standpoint because I was too ignorant to know you probably shouldn’t even ask that question. You only got $40 in your pockets, man. You know what I mean? But I didn’t even know not to ask that question. So yeah, that’s

Ashley Kehr:
A

Reginald Calloway:
Very good point, Tony. That’s a very good point.

Ashley Kehr:
I think at some point it gets so overwhelming and you get analysis paralysis because there’s so much information where actually it might be easier for people to get started having limited knowledge because they’re not overwhelmed with it and the same thing in your situation. But tell us about a land contract. What is it and what are the terms of it? Who’s on deed? Who pays the property taxes? How did this work in your situation?

Reginald Calloway:
So I negotiate the contract with Mr. Grace. I go home, I tell Jennifer, “I think I brought a building.” She says, “You think you brought a building?” I say, “Yeah, I think I brought a building.” And she said, “Did you think you remembered to put gas in the car?” And I was like, “I took $20 and put the gas in the car. I still brought the building. We’ll go.” And I went to Mr. Grace and just to say how green I was to the real estate thing, I signed that agreement without taking it to anybody. It was a very big mistake. It worked out in my case, but it was a very big lesson that I learned. When I take the agreement to my mentor, Henry, this is what he tells me. He’s like, “You already signed it. What you bringing it to me for?” I was like, “Oh, I did the process wrong.” But Mr.
Grace was a really good man. He said it, and I didn’t know what good terms was, but the deal was 180 months, 15 years at a 10% interest rate. It was top loaded, so all the interest would come out in the beginning, and it was no down payment, no balloon payment. I didn’t even know balloon payments existed on land contracts because I never had one. And so it took me a while to even knew they existed. So the contract was really good and all we had to do was bring value, and we had that through the daycare that we had built.

Tony Robinson:
Reginald, let me ask, can you define land contract and how is that different from a traditional purchase?

Reginald Calloway:
So what I came to find out is land contracts, it’s the same thing as seller finance. So the seller is representing the lender. So it’s not like he’s the bank, so he can take whatever terms he choose to take. So if you got a low credit score, he doesn’t have to count that. If you don’t have enough money in the bank or reserves, he doesn’t have to count that. So the seller becomes the lender, from my understanding of it. So that was the only way we could purchase those buildings because we didn’t have the credit scores or the reserves to go through traditional lending, which is how most people get started in real estate.

Ashley Kehr:
Now, since you’re doing this without using a real estate agent, you’re not using a lender, what are some of the ways that maybe you did or you didn’t do, but a rookie listening should do as part of their due diligence without having somebody to hold their hand through an inspection or to get an appraisal done? Is there anything you did or maybe looking back you wish you would’ve done during this under contract period?

Reginald Calloway:
So it took me, in my situation this particular, because it took me years to realize that I was in real estate, and that’s after owning the buildings because I had the benefits of real estate, but I never felt like an investor because we were putting stuff into the daycares. It was into the buildings, but I couldn’t realize the equity at that time, so I didn’t see it. So when we were adding on to the buildings, I just saw us trying to make the daycare because the daycare as a business itself took all of our attention to just keep running and keep that system going. So to rookie investors, I would say always do all your due diligence. You should know if you can get a survey of that property, try to get your hands on the survey. This is something you can actually sell it.
It’s something I could have asked Mr. Grace. I did not ask. If you can get a prior appraisal of that building and the seller might have it, and that goes back to just asking these questions. I mean, they can only say no. And so I would tell rookies to do their due diligence and all that part when it comes to commercial and when it comes to seller finance. But like we said, Ashley, at some point for me, I just got to go. I get analysis paralysis. I will overthink it. Once I start thinking, I never go because it’s always wait till this perfect time or soon as this happened or soon as that happened. So I usually, once I get all my ducks in a row and I’m convicted and I think I put all the guardrails I can around me, I just kind of go, but that’s kind of walking on faith.
So it’s to each its own how you do that, but that’s how I go about it. But you should do your due diligence. You should talk to a real estate. If I did it now, I would have my real estate agent pump that building. You know what I mean? I would call my insurance company to say, “Hey, if this building never caught on fire, these are all things you need to know when going into this building, and you need to take the land contract to a lawyer before you signed it.”

Ashley Kehr:
Now this kind of leads us into your first flip. So once you’ve actually decided you’re a real estate investor, you actually buy a residential property to flip it and you buy it at auction without even seeing it. So tell us about this process. What did you bid for it? How did the property actually turn out?

Reginald Calloway:
So I come to the conclusion I’m doing residential real estate. And so for a couple weeks I had been going to an auction, didn’t bid on nothing, I’m just going. And so I finally saw this property and I tell Jenny, I’m going to bid on this property. This is something you shouldn’t do. So this is a record, it’s not advice. So I’m just giving you a record. So I fall in love with this property, you know what I mean? It was 1,785 square feet, three two. It had a nice yard and I was like, “I want this property.” It was in a nice neighborhood. So I pick a property and I tell Jenny, “I’m going to win this property.” That’s the worst thing you can do going to an auction because now you already committed to it. So no matter how the property keeps rising, you just keep going up with it.
So I go to the auction and this property probably should have stopped at somewhere around 120, 125. But I had another guy in the bid with me and he just kept going up and I just go one over and I go up and I go one over. So by the time I come out of that auction, I’m at $157,000. And I say, “Cool, right? 30, $40,000 renovation, no problem. Sight unseen. I don’t know this. This is old pictures I’m looking at online, doing none of my due diligence. I’m saying just as green as they come.” So we get in the property and the property’s a total gut. It’s going to take $100,000, nearly $100,000 to renovate this property. And I’m doing the whole renovation. So I had a bank that’d cover 85% of the 157. So all I had to do was come with 15% down on that, but I had to cover all the renovations.
So that’s going on my credit card, going on my Lowe’s card, and it all started off good. Got my Lowe’s card, I had my reserves, you know what I mean? I was like, “Okay, I can do this.” And I had some friends that was in real estate that lend me his subcontractors and everything. So we going through that and I’m up to the top on my Lowe’s card. I get up to the top on my credit card and the Lowe’s card has this six-month period of no interest. So I go through it and I get on the market about March of 2025. And the house was in a flood zone, but the house itself wasn’t in a flood zone, so it didn’t need flood insurance, but the whole area was in a flood zone. But I’m thinking, okay, that won’t affect me. I’m outside the flood zone.
And floods, it hasn’t rained here and flooded in 40 years. So what can happen? We get on the market, get my house up, get the pictures up, and three days on the market. Yeah, Hopkinsville experienced the worst flooding in 40 years. So I can barely get to the property. When I do get to the property, all the houses around it are flooded.

Ashley Kehr:
But yours isn’t?

Reginald Calloway:
Mine isn’t. We on dry ground, but every house… So what happened was the realtors started telling their clients soon as they say, “Oh, I like this house. Hey, hey, hey, hey, that’s a flood zone.” Well, even though that house was outside, she was saying the area, let’s just look somewhere else. Let’s just look somewhere else. So I sat on that property longer than I expected, but I really did nice finishes on it, and I really thought I was suited for the flips because me and Jennifer always look at houses and we always are like, “This is what I would want in a house, and I don’t like that house because it has this.” I though we were suited, so I thought the house we made and the extras we went over because that budget got to 90,000. I had some friends that would’ve stopped at 60, you know what I mean?
Just trying to put what you can and put makeup, what it called, makeup on the pig, and just trying to get what you can and get out. But I went on ahead and put the extras, put the tile showers, put the granite. And so that house sold. I still sold that house. I got out of that house, but by the time the six months had left on the Lowe’s card and then my 0% interest on my credit card elapsed, that type of interest I couldn’t even calculate because I didn’t know how to calculate it at the time. So when I came out of that deal, I know I paid the bank back. I just don’t know if I made any money. I learned the lesson, so I learned that just because you get a check at the closing table don’t always mean you made a profit.

Tony Robinson:
Let me ask, Reginald, because obviously you said that you tried to put nice finishes and all those things. What do you do differently now when you create that initial scope that you didn’t do on that first property to make sure that you don’t have as many surprises? Now obviously this one was slightly unique because it was auction, but what did you learn so that you can have more confidence in your scope of work and your budget moving forward?

Reginald Calloway:
I learned how to deal with contractors. That was the big thing. So it was my first time dealing with a contractor, and then I learned that when they give you a price, it’s for their finishes. So if they give you a $200,000 price, it’s with their finishes in there, but I expected my finishes. So I bumped heads with my contractor on that. And when it came to the scope, I don’t even think I had a scope. Everything was word of mouth. You what I mean? I need these showers done. I can do that for you. It wasn’t nothing written down. It was, “Give me 2,200. I’ll do that for you.” I was like, “Okay, do that for me. Give me 2,275 and I’ll do that for you.” And this is how that job went. So I had already read Henry Washington’s, I think it’s Real Estate Deal Maker.
So that book had prepared me, but I knew after that first flip, I knew I needed way more mentorship than just reading that book. You know what I mean? I needed mentorship also. So I took my lessons on that, and after I got out of that deal, I joined Henry Washington’s, I think it’s Roll to the Closing Table Mastermind, and it changed my whole real estate view and strategies from there. It’s been a totally different life ever since I joined that group.

Ashley Kehr:
Okay. So now that you’re in Henry’s group, you learned about doing a mail campaign. So walk us through your first mail campaign and how did it actually turn out for you, but along with what did you actually say when you mailed these people to buy their houses?

Reginald Calloway:
So I get into Henry’s class, and it’s a whole community, right? So Henry’s there, but the whole community is there to help you. So he gives me the mailing campaign strategy and I start on that. So Henry always says that it’s two ways to find deals. You can either use your time, you can go yourself, drive for dollars, knock on doors, things of that nature, or you can use your finances, mailing campaigns, calling campaigns, things like that. So the strategy depends on the person. And so I didn’t like getting cursed out in person, but I can kind of take it over the phone. So I though the mailing campaign was best for me. So I started that mailing campaign and my first 20 calls were really vicious cuss outs, like, “How did you get this? How did you get my number? How did you get my address?
I’m not selling my house. And if you ever did a mailing campaign, you know what I’m talking about.” So I got a lot of those calls, and then I got this one call with this seller, and this was the first deal that I made. And so the seller calls and he has this house, it’s a nice house. He says, “I want 69,000 for it. I’ve been in the Henry Group, so I know my scope. I know what I might have to do to the house, and I know the ARV that I think I can get on it.” So I’m like, “I don’t know about 69. I can give you 55.” And he says, “Okay, but I don’t sign the purchase agreement or anything.” Okay. So I call him the next day and he doesn’t answer. I called him a couple days later, he doesn’t answer.
At this time, I’m negotiating with myself. Everything that could go wrong, I’m think going wrong. This is all in my head, and I’m like, “Oh, okay. He probably know how much it’s worth. Oh, I probably need to go up on the price.” He probably felt disrespected when I finally get on the phone with him, and this is how green I was. Everybody can learn from my mistakes. When I finally get on the phone with him, before he speaks, I tell him I can go up to 65. And he said, and this is how God has always been there for me because you don’t look out for children and fools. And so he says, no, we agreed on 55 and I’m okay with 55. He took $10,000 out of his pocket and I was negotiating with myself. So rule number one, never negotiate with yourself and make sure you get you a purchase agreement and lock that house up so you can sleep at night.
So we went through with that sale. He said he didn’t answer the phone because he had bumped his toe. They were an elderly couple. He had bumped his toe, so he was trying to get back right. And so we got that house and I brought it for 55,000 and I took it to my bank and they had it appraised and it appraised for $142,000. So I had a little over $80,000 in equity and I thought I knew what was going to happen after that. And then my banker, instead of, because I thought I was going to refinance cash out, but instead of doing that, he gave me a line of credit of $125,000. And so that’s what started the strategy of the small lots, new construction and the flips.

Ashley Kehr:
So with this property, you ended up keeping it then. This wasn’t a flip, you kept this as a rental?

Reginald Calloway:
Yeah, I still have it. So the property came with a tenant in it that had been there for 12 years. They didn’t put a dime in it. I mean, I had my air condition guys go over there and make sure the air condition worked right, but they just did some tune up and I had my plumbers go over there to make sure the lines are snaked out. But I didn’t put a dime in it. It cash flowed from day one.

Tony Robinson:
Reginald, I think the theme that I’m seeing with your story is that you don’t let your fear stop you from taking action. I’m sure you were somewhat fearful walking into that landlord’s office the first time for the childcare center and cold pitching him on buying the property. I’m sure you were somewhat scared the first time you bought that property at auction. I’m sure you were somewhat scared the first time you sent that direct mail campaign and you had to pick up the phone and talk to someone. How do you overcome that fear and do it anyway?

Reginald Calloway:
I got a book coming out called Growth Ain’t Free. And in that book it describes what losing taught me. And so for the beginning of my life, I felt like I just lost. And not just bets and wins, but lost on everything outside of my control. So if it could go wrong and I thought I had it right, something would come that wasn’t inside my control. And for a long time I thought that that meant that success wasn’t for me or it was for other people because it looked like it came to them so smoothly and everything. But what that taught me is every time I got back up, it was building a resistance and I was building up resilience, but every time I got down. So it didn’t feel like that when I was younger, but I had been wrong so many times and I had been knocked down so many times that it became almost like water off a duck.
So I was never afraid, but in my teens and early 20s, I felt like it was a curse. You know what I mean? And then Mel Gibson told me something.
Mel Evans, one of his sayings is, “Nothing happens to you. Everything happens for you.” And I just kind of live by that. So I see my mistakes now as building me to be the person that I am. And if somebody was there to tell you that when you was younger, maybe you wouldn’t have took it so bad. So by the time I got to Kentucky, I was like, “What’s life going to tell me? It’s going to tell me no.” I had already heard that it was going to knock me down. I had already been there, you know what I mean? And I know that growth comes attached with a sacrifice of equal or greater value. So there’s nothing you can achieve too without having to give something up. And you know what I mean? Whatever that is for you is different for every person. So what’s ready for that growth.

Tony Robinson:
You said growth comes with an equal or greater sacrifice. Is that what I heard?

Reginald Calloway:
Growth comes attached with an equal or greater sacrifice.

Tony Robinson:
That is great. I love that. I got an 18-year-old son who I’m talking to a lot about right now about what young adulthood looks like. So I want to share that with him. Rajana, as we wrap things up here, I just want to go back to the initial daycare building because one of the things we didn’t talk about earlier was the fact that this daycare that you initially purchased, it was one building, but there were actually three buildings in total. And you actually over time end up buying all three of them. So I just want to clarify for the listeners, the first building you seller financed basically at a purchase price of 124 with no money out of pocket because he took your 12 months of lease payments as your down payment. With that initial starting point of 124, did you have to put any cash into the acquisition of those other two buildings or was it all the same kind of process?

Reginald Calloway:
No, we didn’t have no cash to put in, but just let me say that. But if we would have, we would have, but we didn’t have… But no, Mr. Grace was really gracious on our start. So he financed pretty much everything from the purchase of the property to the rentals. Now he was getting 10%, and this has been 2014 when you can get a 4% mortgage on that type of property. So he was getting 10%, but he told me something. I remember telling him I though the 10% was high. He was like, “This is just Mr. Grace.” He said something like, “I though you wrote off the interest.” He was like, “So why would you be worried about something that gives back to you at the end of the year?” I just had never thought about interest that way. He was like, “Yeah, the interest is the only thing you can write off.
You can’t write off the principal.” I say, “Oh, so I’ve been thinking about interest in a different way since then.” So we got that first building. We end up growing out of that first building, needing a second building. Mr. Grace owned another building on that corner. We looking for a building, go to this building that wasn’t what we wanted. Jennifer’s pregnant with my youngest daughter. I don’t know where the argument started at. We both didn’t want the building, but so I don’t know. She was pregnant. It could have started from anywhere. You know what I’m talking about, Tony. I ain’t got to tell you, but I don’t know. She’s yelling in the car. I raised my voice two decibels and Cherry Lou, my daughter who wasn’t born yet, you can see her kicking. Tell daddy to shut up. Yeah, he’s too loud. We are in front, we just ended up in front of that building a week later.
I tried to make this quick. A week later, that building flooded. The company that was in there moved out. Mr. Grace called again. He was like, “You want another building?” We was looking for another building, but I tell Mr. Grace, “Hey, I can’t make this building make money unless you make it into a childcare.” He was like, “How much?” We went and got the numbers, got the architect, we got that building done, got that building open. The third building was sitting right next door. It was just this old green building. Mr. Grace said, “You want to buy this one?” I was like, “I don’t know what I’m going to do with it.” So I’m taking this walk and just in my head, phones got me some motivational music on, and I’m taking this walk and I called Jenny and I said, “We going to buy the third building.” She said, “I knew you was going to say that because it’s going to be a daycare.” I was like, “Whoa, whoa, whoa, whoa, whoa, whoa, whoa.
Nobody said it. We just going to buy it, you know what I mean? We should buy the building because we don’t want the mechanic to get the building to have the cars all outside the building. So you want to control the property if you can, that’s in your vicinity or in your direct area if you got a commercial building.” So we got that building and eventually, to make a long story short, we turned that building into our third childcare. So now we have what’s called the childcare campus. The first building we brought is the baby house. It goes from six weeks to three years old. When they turn three, they go down to the second building we brought, which is Small Steps two. It’s a preschool. It goes from three to five years old. The new daycare that we just opened, which is the third building, is an afterschool center.
So it goes from five to 12 year old. So we have what we call a childcare campus, like a little campus.

Tony Robinson:
Reginald, you spent $12,000 in lease payments to control that first building and it turned into three. If you had to put a number on the total campus value today, what do you think it’s worth?

Reginald Calloway:
We went through the refinance process eventually, so I wanted to get Mr. Grace paid while he was living. He was elderly and I wanted to pay him out. Then we wanted to open the third building and it was going to cost… The third building cost about $175,000 to re-renovate and make a childcare ready. We took those buildings up in 2025 and we brought the first one in 2014 that had all three by 2017. Those buildings appraised for 1.3 altogether.

Tony Robinson:
You took $12,000 and turned it into a commercial building worth $1.3 million.

Reginald Calloway:
We did.

Tony Robinson:
That is incredible.

Reginald Calloway:
Thank you so much. I started with you guys. I just want to say this, this full circle moment. I got to say this. When I started real estate and I knew I was coming to residential real estate after the daycares, I Googled, how do I get rid of it? BiggerPockets, BiggerPockets. That’s all that kept coming up, BiggerPockets. I saw this podcast that said rookie investor and it was right there for me. Tony was on there and Ashley was on there and for me to be on here today, you know what I mean? I’m going to try not to cry, but for me to be on here today, man, is really, really big. To me to meet you guys at bigger pockets, it was like when I met you guys, it was like, okay, I’m not going to cry about the hotel bill. No more on the way home, because I was crying about the hotel the whole time.
But I said, “I’m not going to cry. You guys got to get my book.” And it was just awesome and you guys are really genuine, good people in person because you can meet some people, you know what I mean? They’re good on camera, but may not be as nice in person and you guys are everything I though you would be. And I’m so gracious you guys got me on here. I really am.

Tony Robinson:
Appreciate all the kind words, Reginald. Yeah.

Ashley Kehr:
That’s the power of BP Con is making those connections and meeting people.

Reginald Calloway:
Yes, yes, yes. I had a ball. BP Con, if you can get there, and I know you know everybody’s finances is everybody’s finances, but if you can get there, and I always say, if you can just get in the room, just give yourself a chance, just like Mr. Grace, just get in a room and give yourself a chance and you might be surprised what’s waiting on you.

Ashley Kehr:
Well, Reginald, thank you so much for joining us today. Where can people actually connect with you and find out more about what you are doing with real estate?

Reginald Calloway:
I have a real estate company called ASC Real Estate Solutions. We should have a link down for you guys to find. I also wrote a book called One Step Above: The Visible Ceilings That Shape Ambition, Identity and Growth. It’s about breaking through ceilings. You can also find that at onestepabovelegacy.com. I have a new book coming soon, which is called Growth Ain’t Free, and it’s basically this whole breakdown in a book. So it goes a little bit before and it goes a little bit after, but it gives you the breakdown and it’s called Growth Ain’t Free: Faith, Leverage, and the Real Cost of Building Wealth. So if any of you guys want to get to me, you can get to me there. Hopefully we’ll have a link for you, but I thank anybody that, and I hope it helps anybody that’s looking for that breakthrough.

Ashley Kehr:
Well, Reginald, thank you so much for taking the time today to share your story, your journey, and to inspire the rookie listeners. I’m Ashley, he’s Tony, and we’ll see you guys on the next episode.

Dave:
Economic anxiety is mounting. With everything from higher inflation, fears of AI replacing your job, consumer sentiment, near 70-year lows, people are worried about the economy. But at the same time, the stock market keeps ripping and unemployment remains near historic lows. So what happens from here? It is a confusing time in the economy, but if you study the economy enough, there are some clues about what comes next. And today I have a guest who studies the economy and has done that for many decades and has a history and track record of doing it very well. His name is J Scott. He is a regular guest here on On the Market. And today he’s going to walk us through what he thinks of this economic moment. What are the bright spots, where the risk exists, and how you can prepare yourself from what comes next. This is On the Market.
Let’s get to it.
Hey everyone. Welcome to On the Market. I am Dave Meyer. And today we have one of our favorite guests on Mr. J Scott. J is a real estate investor, has been doing it for over 20 years. He and I also wrote a book together called Real Estate by the Numbers. You could always check that out. But I want to talk about J because he’s a big picture thinker. He looks at the whole economy, not just any one section of housing or any one section of the economy. He is a real student of global finance and global economics. And he’s one of the people I turn to when I want to make sense of a confusing market like the one we’re in today. So let’s bring on J. J Scott, welcome back to On the Market. How’s it going?

J:
I’m doing great. How are you doing, Dave? Thanks for having me back.

Dave:
I am excited to talk to you because I’ll tell you honestly, my economic anxiety personally is rising. Do you feel the same way? Let’s just start there. Am I crazy?

J:
No, I feel the same way. And part of it is economics, part of it is real estate. I know we’re not planning to talk about commercial or multifamily today, but I’m in that space.

Dave:
We can.

J:
Well, I think interestingly, the same thing that’s impacting us over in the commercial side of real estate is impacting us on the residential side of real estate. It’s also impacting us in the general economy and our daily lives. So I think it’s all one conversation regardless of what asset class you might be focusing it on.

Dave:
And what is that?

J:
Well, I think the story today is interest rates.

Dave:
As it has been for a while, but it’s getting more interesting.

J:
It’s getting more interesting. So what we’re seeing is somewhat of a loss of control by the Federal Reserve controlling some of those longer term interest rates. And basically what that means is the Fed, they never really controlled things like mortgage rates or car loan rates or business commercial debt rates, but they had some influence over them. The Fed could do things that if mortgage rates got too high, they could kind of put some pressure on to bring them down. And it’s starting to look like the Fed is kind of losing that influence over the long end of the bond curve, which for those who don’t understand that, basically what that means is they’re losing influence over controlling things like mortgage rates and mortgage rates are going up and interest rates in general are going up and it’s getting a little scary to be honest.

Dave:
Yeah. And so why do you think they’re losing control now?

J:
I think one of them is a messaging issue. Keep in mind that the biggest thing that drives, and there are a lot of things that drive interest rates and bond yields, but the biggest thing that drives interest rates is inflation expectations. If people think inflation is going to be high over the next 10 years, then 10-year bonds are going to go up and mortgage rates, which are tied to 10-year bonds are going to go up. And so the Fed can be bullish on inflation. The treasury secretary can be bullish on inflation and say, “Hey, this is just a blip that we’re seeing here with energy prices. It’s just a blip that we’re seeing with some other things and everything’s going to go back to normal as soon as the war’s over and everything’s going to go back to normal after the midterms,” or whatever they want to say.
But the reality is it seems like a lot of Americans and especially a lot of investors who control those interest rate markets aren’t necessarily buying this rhetoric that this is all a short-term blip and it’s all going to get fixed quickly.

Dave:
Yeah, that is what it seems like to me. And I just want to explain to everyone why the bond market is so concerned about inflation because if you’re lending the government money for a long period of time, which is what a bond is, if you’re only earning a 4% return and inflation’s at 3.5%, then your real return, your inflation adjusted return is just half a percent. And so when inflation goes up, investors, generally speaking, people who lend money to the government, want a higher return. And that is largely what we’re seeing right now. And I’m with you, J, because I think we’ve sort of been ignoring some of the inflationary pressure for a while. Tariffs have been around for what, a year and a half now. Those have contributed to inflation. And now with the war in Iran, I don’t think anyone sees this ending quickly.
I haven’t heard anyone make a coherent argument that this is going to end quickly. And even if it did, I kind of think we’re in a higher energy market for a long time. If you look at just today, we’re recording this in mid-October, the producer price index came out, which is a different way of measuring inflation. And that was really scary if you look at it. The CPI, the consumer price index, that went up, but producer prices is kind of a lead indicator of future inflation and that’s going up. And so it just seems like there’s no real end in sight to this inflation. And I guess the thing I keep thinking about with real estate is that this isn’t the kind of inflation that helps real estate. The kind of inflation that we have right now is supply shock inflation. And so the Fed raising interest rates, is that even going to do anything to control inflation?

J:
In theory, it will. If the Fed raises rates enough, the theory is that if things get too expensive, if it’s too expensive to buy a house, if it’s too expensive to buy a car, if it’s too expensive to charge things on your credit card, if you’re not paying it off every month because interest rates are going up, people are going to spend less money.

Dave:
So it’s just the demand destruction thing,

J:
Right? That’s exactly what it is. It’s demand destruction. You mentioned the PPI and that’s wholesale inflation. That’s basically the measure of inflation in the wholesale system, like goods and services before they get to the consumer. CPI is the measure of inflation for goods and services at the consumer point of sale. And one of the things that I think is most scary is, as you mentioned, we’re mid-October right now, September, inflation numbers just came

Dave:
Out.

J:
And what we’ve seen over the last several months, basically since the war started, is an increase in what we call headline inflation numbers. And that’s the inflation that includes oil and energy, fuel prices and gasoline prices and diesel prices. And then there’s this separate measure of inflation called core. And core, we kind of strip out. We ignore energy. We also ignore food because those two things are pretty volatile. And what we found is that headline inflation when you include energy is pretty high. Not surprising because again, gas prices, diesel prices, fuel prices, energy prices in general are high, but the core inflation has been relatively moderated. It’s been relatively low because again, it’s not other things going up in price nearly as quickly as energy. But what we saw for the September numbers, unfortunately, was not just were the headline numbers, both CPI and PPI high, but the core numbers were relatively high as well.
So even if you remove gas and diesel and fuel prices and all of these other energy things that are

Dave:
Hitting

J:
Inflation, it’s starting to look like we’re seeing inflation across general commodities and everything in the system again.

Dave:
Yeah, that’s the scary part. And it’s why if we sort of turn this to a conversation on housing, it just doesn’t seem like any relief is around the corner because the traditional ways of mortgage rates coming down don’t feel accessible. I don’t even think the government has any tricks left up their sleeve. Before the beginning of this year, I was like, oh, maybe if they got desperate, they’d start quantitative easing. But I don’t even think they could do that now with the way bond yields are going and the way inflation is going. So do you have any expectations or thought on mortgage rates? Are they staying in the sevens? Could they go higher or do you think there’s any potential for relief?

J:
I mean, again, I think it boils down to what happens with inflation expectations. And I think inflation expectations really boil down to what happens with what’s going on in the world in terms of the Middle East war and the Russia-Ukraine war. And because we don’t really know where those are headed and what’s going to happen, it seems really difficult to determine where mortgage rates are going to head. I think it’s unlikely that they’re going to head down substantially anytime soon, but I think they could head up. I mean, if you think about it, a year ago, typical 30-year fixed mortgage rates were 6.3%. We’re now at 7.4%, 7.45% as of today. That’s 1.1% increase in just a year. That’s a lot. And you talked earlier about does the Fed increasing interest rates, can that impact inflation? Yeah, it does through exactly what you said, demand destruction.
Basically things get more expensive, so people spend less money, which slows down the economy and slows down inflation. We’re not really seeing demand destruction in the broader economy yet, but we are starting to see demand destruction in single family real estate and residential real estate. August and September were the two slowest months of 2026 for existing home sales. Basically, we’re at a two-year low as of the August numbers, which is the best we have right now, we’re at a two-year low on existing home sales. Pending sales are down almost 5% year over year. New home sales are in the toilet. I mean, new home builders are now selling for on average about $20,000 less than median existing home sales. So new home builders can barely give away their inventory. And we’re starting to see the number of months of supply in real estate creeping up.
And it’s not because there’s more supply hitting the market, there’s less demand. We’re actually seeing less supply hitting the market. Fewer people are listing their houses, but a whole lot fewer people are buying houses right now.

Dave:
Yeah, exactly. I think that’s the thing. I was reading an article in the Wall Street Journal this morning and they missed it and all these people on social media also miss it, is that they’re saying, oh, the housing market is fragile because the lock-in effect is waning and it’s loosening. I think that is the opposite of what’s going on right now. I think that as mortgage rates rise, the lock-in effect gets stronger because the gap between what you have currently and your payment currently and what you would pay if you were to move is only getting bigger right now. And so my analysis of this would be yes, demand is going down, but I also think new listings are going to go down and fewer people are going to choose to sell their home. But at the same time, inventory will go up because the homes that do get listed will sit for longer on the market.
Is that similar to how you see things playing out?

J:
I do. And I think what we’re going to see is essentially, and I know you’ve had some other guests on, you had Brian Burke on to talk about commercial. I think we’re going to see similar things in the residential world where transaction volume, basically the number of transactions that we just see in the market is slowed considerably. And some of the problems when you have very little transaction volume is one, you don’t have what’s called price discovery. It’s really hard to know what houses are worth when nobody’s buying or selling houses. If I said something like you want to go buy the Mona Lisa, the original Mona Lisa, how much is that worth? Nobody knows because there’s only one of them and it never sells. And so you’d actually have to sell it to see what somebody would pay for it. Is it 10 million or is it a billion?
And same thing in the real estate world. When there are very few sales, we don’t know what things are really worth. And so this lack of price discovery is going to be an issue. Additionally, we’re going to see sellers who, luckily right now, most sellers are selling because they’re looking for an opportunity to get out. There are not a ton of distressed sales on the market. I think we’re still at about 2% of all sales are distressed right now, which is relatively low. But if these sellers who can’t sell their properties get into a situation where they have to sell and they still can’t sell, we’re going to start to see a lot of distressed sales and distressed sales lead to prices coming down. So there are some risks moving forward if interest rates stay high. We’re not yet kind of in that situation where we’re concerned, but there are things that we need to be on the lookout for.

Dave:
For sure. And I am going to ask you to speculate because I have some questions about some scenarios and how they could play out, but maybe you could just tell us if things sort of stay on the current trajectory, right? Mortgage rates stay in the mid sevens, the economy’s similar, the stock market doesn’t pop and kind of stays where it’s at. What do you see happening, let’s call it the next six months, like the winter for real estate?

J:
I think if the stock market stays strong, again, not a lot of people are invested in the stock market five, 10%, but a lot of people have 401 s that allow them to prop up their net worth. If they need to take out money for an emergency, having a 401 going up is good. So if the stock market stays strong and if wage growth, I mean we’re seeing negative real wage growth now for the first time in a few years, which is bad, but we’re still seeing nominal wage growth, meaning people’s actual wages are going up. So as long as our checks are going up, as long as the stock market is stable or going up, as long as other assets are doing relatively well, I don’t see a big change over six months. I think this is the type of change that would require a year or two years of kind of snowballing before we get to an event that’s big enough that it actually impacts the market for a lot of people.

Dave:
So you think nominal home prices then in that case this winter will be fine. We’ll just have low transaction volume. It’ll be a boring, slow winter. I mean, it sucks for anyone who’s a loan officer, real estate agent who relies on transactions, but price-wise, it won’t be eventful.

J:
I think seasonally adjusted, I think we’re going to be on the same trajectory we’ve been the last couple years, which is kind of nominal prices hanging out, maybe going up a little bit, maybe going down a little bit. Real prices, meaning inflation adjusted prices, they could come down a good bit. I mean, we’re already seeing that. We’re seeing over the last six months, housing prices are still going up. Median price of a house is going up, but when you adjust how much it’s going up compared to how much we’re losing in spending power due to inflation, prices are actually coming down. So depending on how you measure it, but long story short, yeah, my guess is six months from now, if we’re having this conversation, things haven’t changed considerably. Again, assuming the economy hasn’t changed considerably, assuming the stock market hasn’t changed considerably, et cetera.

Dave:
Okay, good forecast. But those are a lot of assumptions. So I want to ask you about which scenarios you’re thinking about and the most likely and how that could impact the market, but we have to take a quick break. We’ll be right back. Welcome back to On the Market. I’m here with J Scott. We’re talking about what might happen with the housing market over the winter. J gave us his forecast, presuming on a very big presumption that really not much else changes. But J, you said there’s so many other variables that could impact the housing market. What are some of the variables that you are tracking and think could impact housing the most?

J:
Yeah. Well, let’s start with the big one. That’s just distress. Number of houses that are in foreclosure, pre-foreclosure. What we’ve seen is the number of houses that have gone into foreclosure is up about 30% year over year. Now, it sounds like a huge number, and that is a huge jump, but the number was so low a year ago and a year before that and a year before that, basically going back to COVID, the number’s been so low that even a 30% increase isn’t significant in the scheme of things at this point. It’s not even approaching where we were pre-pandemic. It’s obviously nowhere near where it was in 2008, nine, 10. So distress, something I’m keeping an eye on, but even though it’s going up, it’s not overly concerning right now. At the same time, I think it’s the pre-foreclosures that are getting more interesting. We’re seeing a lot of houses that are moving into 30, 60, 90 days late on their payments.
And ultimately those are the ones after 90 days of not paying your mortgage, that’s when the banks often start foreclosure. And right now we have about twice as many houses that are 90 days late as we have houses that are in foreclosure. And so it’s very possible that that’s kind of a foreboding idea of where things are headed. And if those 90-day lates, if they don’t figure out their situation, we could be back here in six months and that delinquency, that foreclosure rate could be a good bit higher, and that’s when you start to worry.

Dave:
Yeah. The one ingredient for major price declines that isn’t there is the distress like you’re talking about. So that is something interesting to look at. To me, it just seems though that this comes down to the labor market because right now, by and large, the unemployment rate has its flaws in terms of how it’s measured, but it’s low historically speaking. And as long as that holds up, I think the distress will remain low. Is that kind of how you see it or do you think there are other variables at play here?

J:
I think that’s a big part of it. Look, about a year ago at the 2025 BiggerPockets Conference, you gave a keynote and you talked about what would it take for us to see another 2008 type event, a major softening, a crash in real estate. And you put up, I don’t know if you put it up or if I created it after you, I think you put it up and I’ve been giving you credit for this because I use this slide in a lot of my presentations, but you basically put up a Venn diagram of the three things that would have to happen simultaneously for us to have a crash. And one is a spike in supply, second is a major drop in demand, and third is a major increase in distress. And we would need all three of those at the same time to kind of converge for a 2008 type event.
And what you’re talking about right now on the labor market side, that hits two of those. That hits demand. I mean, it hits all three, but it mostly hits demand and delinquencies. And so when people are getting laid off from their jobs or they’re losing hours or their wages are going down, basically people that want to buy a house can’t buy a house anymore. I think the numbers, and forgive me if I’m wrong on this, but I think it’s something like 30% of new home buyers right now are first time buyers. And so they’re the ones that are kind of on the border of when the labor market shifts, they shift. If they get their hours cut by 10% or their wages cut by 10%, they go from being able to buy that first home to not being able to buy that first home.

Dave:
Yeah, that’s right.

J:
And so even a small softening in the labor market potentially impacts 30% of the buyers out there. That’s a huge percentage of buyers impacted even by, again, a small impact to the labor market. And so yes, I think labor market is a big predictor of where things are headed. Now, again, you need three things to have a major impact. If the labor market were to go down a little bit, I think that impacts demand a good bit. I think if the labor market goes down even more, let’s call it a reasonable drop in the employment market.

Dave:
Yeah, like what if we hit 7% on employment?

J:
Exactly. That’s when I think the second piece, the delinquency rate gets hit. A lot of people who again are in pre-foreclosure, they’re missing some payments, but they haven’t yet gotten to the point where they’re actually in foreclosure. Well, this is what kind of keeps them from being able to catch up and fix things. And so I think if we see a larger hit to the labor market, that will drive delinquency, which is the second piece. And then if we have a big hit to the labor market, that’s what will ultimately hit supply. Right now, we have a lot of people who own their homes. They’re still paying 3%, 4%, 5% mortgages. They don’t want to sell. But if these people lose their jobs, if a lot of people lose their jobs, even a 3% mortgage, you still need to be able to pay it. And if the stock market starts to come down and the labor market starts to come down, unemployment starts to go up, that’s when we start to see a hit to that third piece, the supply piece.
And so again, putting that together, it’s kind of like a little hit to the labor market hits demand, a bigger hit to the labor market hits delinquencies, a large hit to the labor market hits supply. And if you have all three of those, that’s when you start to worry about a 2008 type event. And so it really boils down to if we see a softening in the labor market, how bad is it?

Dave:
That’s a great analysis. The one thing that makes me feel like it won’t be 2008 levels, we could have a quote unquote crash with significant declines, but maybe not as bad as 2008 is that people still need a place to live and it’s cheaper for most people to stay in their home right now. And so I think that’s kind of what happened a lot in 2007, 2008 is people walked away from these homes because they could go rent down the street for cheaper than their mortgage. But that element won’t exist even in a bad labor market. So it will provide a little bit of cushioning, but yeah, if unemployment goes to 10%, a lot of bad things are going to happen. That’s just a really bad scenario for the entire country. You touched on this a little bit, J, but how do you think the stock market plays into this?
Because I have gone on this show many times and I invest in the stock market significantly, but I’m very skeptical of valuations right now and feel that a lot of the stock market is just a little wacky right now and is a little bit of a house of cards. First, tell me if you agree or disagree and how you think generally the equities markets could impact housing.

J:
Yeah. So as I pointed out earlier, and I think we all intuitively know this, the number of people that actively invest in the stock market is low, five, 10% that have any significant amount of equity holdings. And so if the stock market goes down, it’s really only hitting, and again, I’m not ignoring the fact that a lot of us have 401 s or IRAs that have a lot of money in the stock market, but our day-to-day net worth from the stock market really only impacts five, 10% of the American public. The problem is what we’ve seen over the last 18 months is that a very high percentage of retail spending, basically the money that’s getting spent to keep our economy flowing and moving forward and growing is coming from the top five or 10%. It’s the people that own stocks that are continuing to spend, continuing to travel, continuing to buy luxury goods, continuing to buy second houses and buy new cars.
And if the stock market goes down, even if it doesn’t necessarily mean that they can’t afford to do those things, the stock market going down is an indication of sentiment. It’s an indication of where things are headed. And when those top five or 10%, you and I, I think it’s probably safe to say that you and I are both in that group, if we saw the stock market drop 10 or 20%, it may not impact us to the point where we can’t continue to spend money if we wanted to.

Dave:
Exactly.

J:
But it may concern us enough that we choose to spend less, we choose to kind of hoard our cash a little bit more. We choose to kind of hibernate until we see what happens with the economy. And then that ultimately has a big impact, a broader impact on the economy. So I think the stock market, whether it’s actually a real indicator of whether people can spend money or not, it’s certainly an indicator for whether they’re going to spend money or not.

Dave:
Yeah, I am with you 100% on that. I feel like so much of it is sentiment. Where I live in Seattle, you see tech stocks just getting hammered right now. Does that mean necessarily people can’t afford to buy a home? No. But does it demoralize people and make them not want to make large financial decisions like buying a home? I think so. I think that does impact people’s psychology and willingness to spend. I think there are two things going well for the economy right now, the labor market and the stock market, but both of those things feel fragile. I don’t know.

J:
Well, if I asked you right now, what percentage of the S&P 500 is up over the last six months?

Dave:
Oh, I should know this because I was looking at it, but it’s like 20%, 30% maybe. It’s

J:
A little more.

Dave:
It’s 40 to 50%. 40%. Okay. Yeah.

J:
But still, I mean, half the companies on the S&P 500 and 30 to 40% of the companies on the Dow Jones have seen their stocks drop.

Dave:
And I saw something that 88% of the S&P 500 is down more than 40%. There’s some that are really bad.

J:
And this goes to what I was saying earlier where we see this distribution problem where it’s five or 10 or 15% of the country is spending all the money. The wealthy asset holders are spending all the money and keeping the economy going. We’re seeing the same thing in the stock market. It’s the top 20 or 30% of companies that are doing really well, the AI companies, the tech companies, the mega cap companies doing really well. And it’s kind of masking the fact that the other 80% is struggling. And we’re kind of seeing that, we call it a K-shape, a small number of people doing really well at the top and a bunch of people doing much worse at the bottom. We’re seeing that K-shape in numerous places around our economy and the stock market’s another one.

Dave:
Let me just ask you this. On a scale of one to 10, one being you’re very bullish on the stock market, 10 being like, I’m selling everything and running for the hills, where do you lie on the stock market right now?

J:
The problem is I’ve been so wrong on this question.

Dave:
Everyone’s always wrong about it.

J:
I’ve been worried about it for a while. Yeah. I fail to see how we go much longer without a major drop in the equities market and other asset values and basically just an overall recession in this country. And I’ve been saying that for a couple years and I’ve been wrong. Part of it is that, again, there’s a lot of it is now sentiment. People think that things can’t fail. People think that the stock market just has to keep going up because it has been. People think that the economy is not going to go into recession and that’s kind of helped it not go into recession. And there’s also the government who has been willing to spend an inordinate amount of money over the last six years to kind of keep things going. I mean, if you look at our national deficit, and this kind of brings up a completely different subject, but worth mentioning, our national deficit is going up.
We’re hitting two trillion again this year. We haven’t hit two trillion since I think it was 2022. Yay.

Dave:
Yeah,

J:
It’s a problem. But how long can the government spend their way out of this? How long can we run $2 trillion deficits, two and a half trillion dollar deficits if we add another 500 billion to military spending or another 500 billion for interest payments because interest rates are high? I mean, it’s a house of cards that is ultimately going to fall, but we don’t know if that’s going to be a month from now, a year from now, 10 years from now, or 50 years from now.

Dave:
I know. That’s the hard part for sure. But I guess to me, when I think about the equities market, there’s always a catalyst, right? What’s that saying that the market can stay…

J:
The market can stay irrational longer than you can stay liquid.

Dave:
Stay solvent. Yeah, yeah, exactly.

J:
Yeah. A lot longer than you can stay solvent.

Dave:
Yeah. Yeah. So I agree with that, but to me, the rising bond yields is what scares me because everything, every market, whether it’s housing, Bitcoin, gold, equities, bonds, they’re all competing for dollars. They’re competing for investor dollars. And with yields at a 10 year at 5.1, 5.3, it’s kind of where we’ve been hovering for the last couple of weeks, it puts competitive pressure on stocks. If you look at where you’re getting value, risk in the stock market seems even higher when you can enjoy a 5.1% yield in the relative safety of bonds, right?

J:
Yeah. But keep in mind, there is a solution to high bond yields. High interest rates.

Dave:
Fixing inflation?

J:
Well, fixing inflation, but there’s a solution for how to fix inflation quickly, and that’s called a recession.

Dave:
Yeah, that’s true.

J:
I mean, you look at after 2008, what was our inflation rate over the next 10 or 12 years?

Dave:
Oh, it’s historically low. Under 2% for the long time, right?

J:
Under one and a half percent. I often bring this up, but we talk about the Fed setting that 2% inflation target, and everybody thinks that they set that target because they don’t want inflation to be too high. They actually set that target back in 2013 or 14 when inflation was too low. They wanted to get inflation up to 2%. They weren’t trying to get it down to 2%. And so yeah, if we want to fix interest rates, if the government decides that they have to fix interest rates because the problems that it’s going to cause are bigger than a recession, well, the government can do things to kind of force a recession if they really wanted to. Whether they will do that, I don’t know because at this point it seems like a recession is worse for reelection chances than high inflation and high interest rates, but that could change at some point.

Dave:
Yeah, it could. I think we’ll go full Paul Volcker put interest rates to 10%, federal funds rate.

J:
I don’t think it’s going to happen under this president. I think this president will try everything he possibly can before that happens. And I think we’ll be through another administration or two before anybody actually considers that a viable solution. But at some point, who knows? I think it’s possible.

Dave:
We got to take a quick break everyone, but we’ll be right back with more from J Scott right after this. Welcome back to On the Market. I’m here with J Scott discussing everything going on in the economy. Let’s jump back in. Do you think there’s any risk that we won’t see the flight to bonds in a recessionary environment? If you look at the auctions, there’s a decrease in money flowing from foreign governments and stuff into the United States. It expresses, in my opinion, a loss of confidence in our monetary policy. Just curious, I think it’s kind of a stretch, but the thought entered my mind, if we have a recession, maybe bond yields don’t fall as much as they usually do?

J:
I think the answer at this point is probably, because keep in mind, if the US has a big recession, it’s probably a global recession. And if there’s a global recession, as much as other countries, other central banks, other large institutions, foreign investors all say, “We don’t want to invest in the US because we’re pissed at the US because of trade differences or whatever reason it is.” At the end of the day, they’re going to do what’s fiscally responsible for their economy. And the US bond market is still literally the safest place to invest on the planet.

Dave:
It is, yes.

J:
And it’s likely that if there’s a global recession and we see bond yields go down, US will still have a premium, at least a risk adjusted premium over the rest of the world. So I think that a major recession will still push bond yields down. And I think it would actually be the thing, it’s the catalyst that gets a lot of more money flowing back into the US. I think that breaks at the point where the US government, this administration, the next one, the one after that at some point basically sends the message that there’s nothing we can do about runaway debt. There’s nothing we can do about runaway inflation. There’s nothing we can do about runaway deficits.

Dave:
And we’re going to print.

J:
But printing leads to more interest payments, which leads to higher deficits. And at some point, an administration’s going to purposefully or inadvertently send the message that the US is at risk at some point of defaulting on its debt or having to restructure its debt, and that could create enough fear and panic that it actually leads to that event happening.

Dave:
Wow. Well, a lot to think about. There’s just so many variables right now. It’s very confusing and it’s frustrating because you want to know what to do and how to make investing decisions, but a lot of it is just waiting in my opinion and trying to be patient. But do you have any advice on how people should navigate this uncertain time?

J:
Yeah, think of it as a bell curve and 60, 70% likelihood that the economy kind of continues to move within some range. And that range being goes up a little bit more, although we’re probably… Well, I say this and who knows, I could be wrong again, we’re probably near a high with the bottom end of that range being a milder or a normal recession where we see unemployment go to six, seven, 8%. We see the stock market drop 10, 15, 20%, but basically we fall within some normal variation of where the economy is. And I think there’s a 60, 70, 80% chance of that happening. Then there’s a 20, 30, 40% chance that we hit an extreme and that extreme could be runaway inflation that causes asset prices to keep going up massively, a massive recession that causes asset prices to drop precipitously. And so it’s always one of those, I like to think about it in percentages.
I think there’s a really good chance that we just keep moving forward for the next five or 10 years the way we have the last hundred years. Could get better, could get worse, but within this, again, recession to expansion range. And then I see that chance of that extreme event going up over the next couple years. Right now I put it at 20 or 30% over the next five years, but five years from now we could look and say, okay, even if it didn’t happen, we’re now up to a 50% chance because again, more deficits, more debt, more inflation, higher, whatever. So I’d say people should keep doing what they’ve been doing, but given that the likelihood of an extreme event is higher now than it has been in the past, in my opinion, I think you diversify. I think diversification is the way you reduce risk.
And if there’s more risk in the system right now, diversification will help you reduce that risk. Instead of putting all your eggs in one basket, whether it’s the stock market or real estate or Bitcoin or gold or cash or whatever it is, spread it out and try and buy assets that are as decoupled and uncorrelated as possible. Gold and real estate tend to be great inflation hedges. The stock market tends to be great during economic expansions. Cash is obviously bad when we see high inflation, but during a recession, cash is great because it gives you the opportunity to buy things when credit is tight. And so basically just spread your money around so that if one or two things go down, hopefully a couple other things don’t go down as much or even go up.

Dave:
I’m with you. I’m in total diversification mode and trying to limit potential losses and I care a lot less about gains right now, at least especially in equities. I put money in stock market, but I’m happy to take a very defensive equities position right now instead of trying to capture some upside. Same thing with gold, I think same thing with residential real estate. It’s remarkably stable. And even though I think this is going to be a rough winter for transactions, of course there’s a risk, like J said, if unemployment goes to 10%, there’s risk, but still you talk about the chances of percent decline in real estate versus stock market. I still think it’s less. That’s how I’m seeing it. I’m not saying everyone should do this, but I think diversification and defensiveness to me makes a lot of sense right now.

J:
Just remember, we’ve had 36 recessions over the last 160 years. That’s an average of one every four to five years. Obviously we’re not seeing them that often these days, but lots of recessions. Recessions aren’t an uncommon thing in this country. If you’re younger, you probably don’t realize that because there’ve been so few, but people my age, even your age, you’ve seen a number of recessions. And for the most part, those recessions don’t really hit real estate. 2008 did. The Great Depression, that hit real estate pretty hard. But other than 2008 and 1930s, early 1930s, real estate has never dropped more than a couple percent during a recession. You could say it sort of has over the last couple years in real terms, but if you look at the chart of real estate over the last hundred years, 120 years, it basically goes in one direction.
And even when it does go down within five or six or seven years, it comes back up. And so not saying that will always be the case, but until I have a reason to assume it’s not, I’m going to assume that real estate long-term is the single best risk adjusted asset class that we can put our money into.

Dave:
Awesome. I love it. Well, J, thank you so much for being here. This was a lot of fun. Always appreciate you being here.

J:
Hey, thanks, Dave.

Dave:
And thank you all for watching this episode of On the Market. We’ll see you next time.

Ashley:
Today’s rookie reply is about knowing your constraints before you buy. Sometimes a deal looks bad because your assumptions are wrong. Other times your assumptions are right and the deal really does not work.

Tony:
We also have a TN visa holder who wants to invest without crossing legal lines and a rookie with limited capital, wondering when to bring in a lawyer, a CPA, and a property manager.

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

Tony:
And I’m Tony J. Robinson. And with that, let’s get into today’s first question. And so this question comes from Lee in the BiggerPockets Forums, and Lee says, “I’m looking at buying long-term buy and hold rentals in Northwestern Montana, and I’m fortunate enough to be about an hour’s drive from a college town in a tourist-driven market, one to my south, one to my north. Over the last couple of months, I’ve run BiggerPockets calculator analyses on three or four dozen small multifamily properties at list price, and then rerun them with progressively more aggressive offers, 5% off, 10% off, sometimes 20% below asking price, and almost none of them cash flow on day one. I want to make sure I’m not the problem before I conclude the market is the problem. Here’s one representative deal so you can see exactly what I’m working with. The property is an $860,000 duplex.
It rents for $4,700 a month with existing tenants, 25% down, 7.1 interest rate on a 30-year conventional note. Insurance is about 300 bucks per month. Taxes at 360, vacancy assuming 8%, maintenance at 10%, CapEx at 10%, and then there’s no HOA. At list price, the monthly cash flow is a negative $1,115, which is obviously not what we want. If I get the seller to take 10% off, cashflow goes to negative $687. If I want to get into the disrespectful offer or Hail Mary at a 635 offer, then I get to a cash flow basically breaking even, so negative 18 bucks per month. That’s the only scenario in my whole pipeline where the deal cash flows on day one and it requires the seller to cut $225,000 off their asking price. Every other property I’ve modeled tells the same story. Rents in this market are roughly 3,000 to 5,000 on multifamily properties priced between 650 and 900.
The 1% rule is a fantasy here. Most properties land between 0.5 to 0.8. So are my assumptions off? The eight, 10 and 10 for vacancy maintenance and CapEx feels standard, but my realtor tells me many investors run leaner. Am I being too conservative? Are my expectations off? Is day one positive cash flow at 25% down just not a realistic ask in 2026? Am I looking at the wrong deals? Should I be hunting for midterm rental, short term rental, house hack, conversions, things like that? Is the market just wrong for me right now? So these are all good questions, right? So I think for Lee, you hit the nail on the head. I think my initial reaction is that this isn’t necessarily a real estate investing doesn’t work problem. This is you might just live in a higher cost of living area. You’re saying the duplexes are going for eight, almost $900,000.
You got to command some pretty high rents in order for that to work. So if I’m you, there’s probably one or two things I’m doing. Either A, I’m moving to a different market because again, 20,000 cities in the United States, there are definitely markets across the country where we can get cashflow positive on day one. So can we move to a different market where it’s just simply easier to do that? Or to your other point, can we pivot our strategy in this existing market to then make the deal actually work in a way that produces cash flow? So instead of traditional long-term buy and hold rentals, to your point, can you do maybe renting by the room? Can you do a furnished midterm rental instead? Is there another strategy that you can layer on while staying in that market? But I think where rookie investors sometimes get themselves stuck or kind of fall into this feeling of like, man, real estate investing doesn’t work, it’s when they try and pair their goals with the wrong market.
The market simply doesn’t support what their goals are. You got to establish your goals and then identify if the market actually supports it. So that’s what comes to mind first for me, Ash, is either pick a new market or pick a new strategy within the existing market. What about you?

Ashley:
Yeah, I think your idea, and I didn’t even think of this as you were reading the question, but maybe changing the strategy of the property. I’ll give you an example. I had a property that I listed as a long-term rental for $1,000 per month, and we really didn’t get that much interest on it. So this was about two years ago and I decided to pivot that property to a short-term rental. So to rent that property, I listed it at a thousand, but it wasn’t really renting. We had some interest, but nobody acted on it and then we took it down and we pivoted to a short-term rental. And so really the market rent was probably less than a thousand since it wasn’t getting rented right away. But now last month, I just looked it up, we did $3,200 in revenue for that property as a short-term rental.
That is a huge difference from a thousand dollars. And now that property covers way more than the mortgage payment on the property. So I think that is the first thing I would look into is if there’s different ways to change the strategy on this property, rent by the room, midterm rental, short-term rental, all of these different things. That’s the first thing I would do is getting creative. And then the next thing I would do is look at your variable expenses. So I see for the maintenance, you put 10% of reserves that you are saving, and maybe that is a little too conservative. I’d be interested to know what is the age of this home? If this is an older home that hasn’t had the electric, the plumbing or anything updated in a long time, then you are spot on with the 10%. But if it is a property that is newer, was built pretty recently or was completely gutted and remodeled, then you probably don’t need 10% and you can bring that down a little bit.
So there are a little bit of ways you can manipulate those variable expenses, but you still want to be conservative. I would never ever go less than 5%, unless maybe you’re getting a home warranty on a brand new build and the home warranty is for the next three years and maybe I would knock it down to 3%. But I think that you do have a little room and maybe the maintenance to bring that down to less than 10%. Then also for the vacancy, you have 8%, which is pretty middle of the road. I like to go from five to 10%. So looking at your market, what is the vacancy rate? Is there a ton available and things aren’t renting? Are things renting good? But I would probably stay with 8%. Now your CapEx, your capital expenders that you have that as 10% of rent. Again, look at this home.
Was there a new roof put on last year? Was the HVAC installed two years ago? Is the hot water tank brand new? How many capital expenditures do you expect over the next five to 10 years that you’ll need to have this money for? So maybe those are things that you could look at that you are being a little bit more conservative, but I would also rather, especially your very first deal, for you to be more conservative than to end up realizing you didn’t account for as much as what ended up happening. Coming up, can you own US rentals while working here on a TN visa? We will separate passive ownership from active work and talk about the professional advice you need before buying. We’ll be right back.
Okay. So these numbers show why a clear investment constraint can save you from a bad deal. Our next rookie has a different constraint. He wants to buy long-term rentals in Austin while making sure the investment does not conflict with his TN status. So his question is, “Hey everyone, I’m currently living and working in Austin, Texas on a TN visa and looking to start analyzing and purchasing long-term rental properties throughout the Austin metro area. I’m curious if anyone here has personally owned long-term rentals in the US while simultaneously maintaining TN status. How has the experience been? Particularly when it comes to financing property management and making sure you stay within the rules of your TN status. If you’ve done this yourself or know someone who has, I’d love to hear about your experience and any advice you have. Thanks.” So I think my first initial reaction is going to go to Claude and I am going to put in my information and what I’m trying to do, what my TN status is, what I want to do with real estate, where I’m currently living, as much as information as I can and I’m going to put it into Claude and I’m going to see what kind of feedback I get.
The second thing is going to be talking to an immigration attorney who actually has worked with someone and real estate ownership. So if it is possible, they understand the process of how to do that. So I’m going to ask them, first of all, is it possible? Second of all, what is the process of buying real estate? And then third, how many people have they actually taken from start to finish where they’ve had the visa and they’ve helped them close on their first rental property or real estate property in the US? That would be my process. First, go to AI, get generic general information first, and then I’m going to actually go and do a call with an immigration attorney. A lot of the attorneys either do a free consult or you pay a couple hundred bucks to do a consult with them. And usually when I’ve done this before for different random things, you actually get quite a bit of information just during that consult and then you can decide whether to move forward or not.
But that couple hundred bucks you may have to pay for the consult, well worth it to get the correct and accurate information.

Tony:
Yeah, I love that. Going to an attorney for sure. And obviously guys like Ash and I, neither one of us are visa holders, so we’re just saying what we’d do if we were in that situation. In addition to talking to an attorney, I’d maybe try and also find someone with the same visa status who has successfully purchased a rental property. If there’s anyone else that you work with who’s on a similar visa status and just get their experience. Okay, what did you learn as you went through this process? What are some of the gotchas that you didn’t think about before, but that are very clear to you now that you should have thought about beforehand? But I think getting someone else’s firsthand experience would be incredibly useful. And then the final thing I do is I’d probably also go talk to some lenders to try and understand what loan products are available to me.
Again, I’m not sure about the TN visa specifically, but maybe there could be some sort of restrictions on the type of products that a lender can actually give you. So I’d want clarity on that. Am I paying a premium on interest rate? Am I maybe limited on the amount of down payment that I can put down or getting that number lower per se? So I go talk to a few lenders and explain your visa situation, your visa status, and let them point you in the right direction on, “Hey, here are some options that you might want to consider.” So I think if you tackle all of those, you’re getting firsthand experience from other folks who’ve done this before, you’re talking to an attorney, you’re talking to a lender, those are probably the core team of people you’ll need to have clarity on what the right next steps are for your specific situation.
And the last piece, let’s talk about it from the management side. Let’s say that you do have to maybe leave the country, you’re going back home wherever it may be.
How do you do that remotely? And guys, I chuckle because for me, it’s like whether my property is 90 minutes away is my closest property or halfway across the country is my furthest property, our processes and systems for managing them are basically the same. There isn’t anything special that I do for the 3000 mile away property that I don’t also do for the property that’s 90 minutes away. I still have a really, really solid team. I still have all of my tools and software in place. I’m still managing it the same way. It doesn’t matter how close it is. So I don’t necessarily think that from a management perspective, even if you have to travel to a different country, different continent even, that you won’t be able to effectively manage your property wherever you are. It’s just all the foundational things. Good team, good systems, good processes, good tools, good software, and you can take it anywhere.
After the break, a rookie with limited capital is wondering how to assemble a lawyer, a CPA, a lender, and a property manager before buying anything. And we’ll explain what build your team really means at this stage.
All right guys, our final question is about a phrase that rookies hear all the time, build your team. Aurelio wants to know how that works when capital is limited and there is not a deal under contract yet. So here’s Aurelio’s question, “How do I go about getting a lawyer, property manager, CPA, et cetera, if my capital is limited? How does that actually work?” And Aurelio is reading through one of the BiggerPockets of books on getting your ducks in a row. So here’s my take guys on building your team. I think there are certain people that you need to engage at different parts of the process or depending on what your situation and what your challenges and what your goals are. I’ll give you an example from the short-term rental industry because a lot of folks kind of face the same thing where it’s actually their CPA that recommends they buy a short-term rental and it’s because they need to do that as a tax mitigation strategy.
So it’s your CPA who’s initially saying, “Hey, you should think about buying an Airbnb,” so that they become the first person on your team. Let’s say that isn’t the case. Maybe you’re not buying for that reason and your initial goal is, “Hey, I want to build some additional cash flow streams.” Well, then maybe the first person you need is an agent who can take you around town and give you all the ins and outs and help educate you on the best parts of town to buy and where to avoid. If you are really, really focused on flipping houses, well, maybe you need to go find a general contractor in your market first to understand, “Hey, what’s it actually going to cost for me to repair these types of properties?” So I think depending on what your goals are, depending on what your strategy is, that sometimes can dictate who the first person is on your team that you need to go build.
But I will oftentimes caution against… I get some rookie investors who are like, “Tony, I just spent $30,000 setting up this really elaborate entity structure for all of my rentals and I’ve got this trust that owns this trust and there’s this thing in Wyoming and I’ve got this thing over here, this offshore thing.” And it’s like, “Okay, well, how many properties do you own?” “Oh, nothing yet. I haven’t bought anything yet, but the structure’s there. And I feel like that’s kind of putting the cart before the horse. So for me, bringing in the expensive attorneys, bringing the expensive CPAs, I think I try and pull those levers as needed when it’s right in the sequence, like when you have a deal and not necessarily something you need to do on day one.

Ashley:
If you’re in a state like mine, like New York State, to actually close on a property, you need an attorney. So when you are going through the process of offering and then you go under contract, one of the immediate questions or answers that you have to put onto the contract is who is your attorney that’s representing you? So in a state like mine, it does make sense to have a lawyer in advance. So if you’ve literally used a lawyer for anything, my first initial reaction would be to call them and ask if they do real estate transactions. If not, if they can refer you to someone that does. And then it would just be a simple phone call, a simple email is to, “Hi, I was referred by so-and-so. I am planning on purchasing a property and I need an attorney to actually do the real estate transaction.
Can you let me know what your fees are and what the process is?” Or something like that. My real estate attorney charge or my attorney charges pretty much a flat rate every time for their work and then add in all the expenses that incur, like survey, things like that, depending. But I would at least have an attorney lined up to actually do the transaction for you. As far as a CPA, I would have somebody that’s maybe not at Walmart and has a little desk that’s at the checkout aisle where you can go in and get your taxes done. I would definitely have somebody who can advise you on your taxes and the tax advantages of real estate when you do purchase your property. So if you’re purchasing your property towards the end of the year, I would make sure you have that CPA, that accountant in place before the end of the year because you’re purchasing that property in that year and you want to make sure that you’re taking advantage of everything before the year end and doing everything correctly, even more importantly as far as reporting, especially if you have no idea about taxes at all or in general, having a CPA lined up that can help you with that.
And a lot of these things, you’re not charged until you actually use them. So just planning ahead because a lot of CPAs, like the CPA that Tony and I use for tax planning, Tony also uses her for his tax returns. I tried to get in last year and she’s like, “No, sorry, you’re too late. We’re full. You have to keep working with who you’re working with.” So if you want a really good person, sometimes it’s not as easy as just calling like, “Hey, can you help me right now? There is some time and some process to actually get into working with the companies too.” And then a property manager, if you intend to use a property manager, I would start looking now and start interviewing them, calling, finding out what their fees are, what their processes are for a maintenance request. You want to make sure the property manager is not only just great to you as the owner, but will also be great to your tenants and it’s just going to create a better relationship and relieve a lot of headaches for you yourself.
But I would do phone calls. I would at least have a little Rolodex of people that when you are ready to get that first deal, you already know who is going to be your first call to get lined up instead of having to… When you’re acquiring your first deal, there’s a ton of work you have to do on your own, get through the inspection, do the due diligence, get your financing set up. The last thing you want to be doing is conducting interviews with property managers to see who can hire. So as much as you can, do these phone calls and interviews ahead of time. Well, thank you guys so much for joining us today. And remember, if the numbers do not work, do not force them. Define legal boundaries and build relationships before buying services. Your first deal should fit your real financial, legal, and operational life.
The best plan is the one you can explain, afford, and execute without depending on a future rescue. I’m Ashley, he’s Tony, and we’ll see you guys in the next episode.

Henry:
Have you ever thought that maybe real estate investing isn’t worth it anymore? Well, Lindsay Barrientos didn’t start buying rentals after the 2008 crash or ride the low interest wave in 2021. She started in late 2022 after home prices and interest rates had already spiked, but she knew about the long-term potential of real estate and trusted the process, buying one house at a time and banking the rental income for the next down payment. Now, just four years later, Lindsay’s 12 property portfolio has given her the flexibility to go back to school, quit her grueling W-2 job and start her own business. Also, she didn’t do anything the average investor can’t do today. She lives in a high cost of living area, so she invests in a market where her money goes further. Her properties are 2,000 miles away, so she leans into her investing team. There’s no perfect timing, no big bank account, just plain and simple, consistent action.
Whatever’s keeping you on the sidelines, prices, rates, the economy, Lindsay’s story may be the push you need to get started today. What’s going on everybody? I am Henry Washington, co-host of the BiggerPockets Podcast. Dave Meyers here too, and our guest today is Lindsay Barrientos from Los Angeles. Dave, let’s get to it.

Dave:
Lindsay Barrientos, welcome to the BiggerPockets Podcast. Thank you for joining us today.

Lindsay:
Thank you for having me. This is an honor.

Dave:
Tell us a little bit about yourself. Where are you joining us from today and what’s your story with real estate so far?

Lindsay:
Yes, so I live in LA. I’m a nurse and I’ve been working as a nurse for 14, 16 years now. And I’ve been investing in Rosto for the last four, and I also invest in a city that’s not popular, out of state investor in Gary, Indiana.

Dave:
As a nurse living in a very expensive market, what influenced you to not just invest, but to invest halfway across the country?

Lindsay:
So I actually was a pretty happy nurse in the beginning. It wasn’t until 2020 during COVID times that I became a front care worker. So I had to deal with a lot of COVID cases, a lot of deaths, a lot of tragedy and a lot of depression actually. A lot of nurses left the workforce during those times and I came with the realization that maybe nursing is not for me. Maybe nursing is not what I want to do for the rest of my life. And I was just 30. I’m like, okay, I’ve been doing nursing for the last 10 years. What else is there? How am I going to be supporting myself and making this income? At the time, I already purchased a single family home in Los Angeles for myself. I had multiple nursing friends and I was renting out rooms to traveling nurses because I was single and I had a four bedroom house and I could just live with my friends, the single girl life.
But when I became extremely distressed and depressed and rich for therapy and medication and got out of that hump, I decided I have to find something else that’s going to be income producing that’s going to either take me away from nursing part-time or take over completely. So I went to Google and I was just like, okay, what do rich people do? How do they make money?

Henry:
I also Googled that when I was looking for extra ways to make money.

Dave:
That’s Henry’s story too. Yeah.

Henry:
Absolutely.

Lindsay:
And Google said, “Well, you can start a business.” And I’m like, “Well, I don’t know how to start a business or you can invest in real estate.” And at the time I was already renting out rooms in my house, so I was just kind of doing real estate. I’m offsetting my mortgage here in LA by renting out rooms. So let me see what else. Can I buy an additional house in LA? And they were like, “Okay, well, if you’re going to buy an additional house and do a conventional loan, you’re going to have to

Henry:
Put

Lindsay:
20% down.” And I’m like, “20% down at a million dollars, that’s $200,000. I don’t have the kind of money. I’m a nurse. So I’m just going to see where else can I invest, maybe out of state, maybe whatever.” And then that came with also another realization that the rest of the country is less expensive than Los Angeles, California.

Henry:
How about that?

Lindsay:
Yeah. So I started doing my market research and then obviously Google told me, “Listen to BiggerPockets, listen to podcasts, read these books.” So I ended up reading a lot of Brandon Turner’s books initially, and then I turned into BiggerPockets and learn about market indicators and what do you want to look at? Cash flow, cash and cash return, reserves, repairs. So for my situation at the time, I decided I need to be in a state that is landlord friendly and a market on lease that has a high cash on cash return. So the first market that ended up investing is in Northwestern Indiana, Hammond. And that’s when I found a network of investors already investor in Northwestern Indiana. And I was introduced to many property managers and realtors and actually a network of investors there.

Dave:
I want to call out that you’re selling yourself a little bit short, Lindsay, because you were an investor and you did start a business. Even buying a single family home and renting it out to your friend is a successful business in itself. I guess you just never even saw yourself as an investor when you were doing that.

Lindsay:
Yeah, I didn’t. And even after I got A properties, I was going to real estate meetups around my area and I was like, “I guess I’m an investor. I’m not sure.”

Dave:
It’s very humble of you and the opposite of what you hear on social media all the time. But investing in Indiana, it could be scary to do that. We’ve never been to the area, but you at least look back on your time renting out rooms in your home and see the potential for it. Did that give you some confidence at least?

Lindsay:
It gave me confidence in terms of like, okay, I have this much income and I have this much expenses by house hacking at the time I didn’t know I was doing that. I was decreasing the expenses that I had. So I had the extra amount of income to deploy it in an investment. So I was like, “I’m saving this much money and I can just funnel it into this investment that’s also going to bring me more money.” So I was just like, “Okay, I can see how that can compound over time.” Even though at the time I wasn’t looking like, “Oh, I’m going to get 10 houses or 12 houses.” I’m just like, “Two or three houses.”

Dave:
Right.

Henry:
So many new investors or even seasoned investors struggle with the idea of where should I invest? Can you give just a little more context as to how you got comfortable with the decision you made?

Lindsay:
Yeah. Initially I was ready to take a traveling nursing job and I was like, okay, I have to go to a city that it’s going to be competitive for me to get a contract so I could possibly house hack. And I’m like, okay, I could go to New York. And I’m like, what am I going to invest in New York? I could go to Chicago, I can maybe house hack a condo there and I can start renting out rooms like I’m doing in Los Angeles. And I was like, but if I’m going to be in Chicago, let me see what’s near there. Driving distance. And Northwestern Indiana is 30 minutes down south from Chicago. So that’s when I started looking at that. And then I was just like, well, who else is investing there? Let me find out. So BiggerPockets, blogs, podcasts, all of those, reaching out to people online that had a small YouTube channels and small followings that were investing, that were putting their numbers, all social media and being very transparent about their journey.
That’s who I connected with, especially two people, Millennial, Mike, and Masky Finance. And because they were smaller creators, they were willing to talk to me or interact with me via comments or emails or even phone calls at times, like voice audio chats on Instagram that were going on for three minutes at a time. I’m just like, I’m just so happy that I was able to tag into this type of a small community starting. And then so when I looked at Hammond, Indiana, Norwest Indiana, there was already a WhatsApp group chat of investors that had 40 investors at the time. They were sharing tips about realtors, property managers, contractors, and stuff like that. So I felt comfortable because there were vetted people, not just by me, not just out of state. Some people were local. So that’s where I felt, okay, if these people are doing it, then maybe I’m okay to start dipping my toes in it.

Henry:
These were gems. I hope people were listening to this and taking notes. I love that you said, look, I knew I’m going to be in Chicago, so what’s in driving distance? Because if it’s not easy to get to your out-of-state market when you need to get there because something’s going to happen, you’re going to need to get there and it’s going to interrupt your life. And the harder it is to get there, the less likely you are to do it. So including some of these real world scenarios in your market selection is a big deal. The second tier of choices you have to make is very personal. The first tier of choices is about the numbers. You want a market that has a good cash on cash return, that has good jobs, that has enough demand. All the numbers make sense. But once you get past that, the rest is vibes and feelings and are you actually going to go?

Dave:
Also, the people you surround yourself with in that market, that is just so incredibly important. I always tell people, get it down to three to five cities that you like. The vibes are good, the numbers are good. And then where do you have the best people? Because that is going to make a much bigger impact on the performance of your investments than macroeconomics. It really is. Macro, you have to just kind of not screw up, is kind of the way I see it. It’s just find something that’s pretty good. But as anyone will tell you, two investors can invest in the same market. One can be incredibly successful and one can completely fail because they’re not good at it. And so investing out of state is so much about finding people who are good at it.

Henry:
I though that was such a brilliant thing. You said you specifically picked smaller creators. That’s a great niche, a great thing to target. Smaller creators investing in a market that you like, you know they have a tracker, or you at least think they do, and you can do enough research, they can probably have the time to answer you. That’s super smart. Great thing to do.

Lindsay:
Nichingin is definitely whatever market you’re looking at, if it’s Columbus, Ohio, Facebook groups, meetups, whatever you can do to reach out to them and then start talking to maybe not the person that’s a host, but everybody that’s submitting comments or liking or doing anything like, “Oh, have you actually checked out the area? Do you live around it?” Just making conversation and people, especially in Facebook, people going through deep, deep conversations in the comments.

Dave:
That’s great. And I think what you’re showing here, Lindsay, is that this common perception that real estate is really competitive is false. People generally want to help each other. People want to tell you about what they’re doing and want to bring you along. I really love that about real estate, that it’s not this zero sum mentality that if you win, I can’t win. It’s kind of this collective approach. So Lindsay, I want to hear about how specifically you leveraged this community to get your first deal, but we got to take a quick break. We’ll be right back. Welcome back to the BiggerPockets Podcast. I’m here with Henry and investor Lindsay Barrientos talking about how she found a community across the country that helped her buy her first conventional rental out of state. So Lindsay, how did you use the community that you found to identify and ultimately buy your first deal and what did it look like?

Lindsay:
Yeah, and the first step was vetting the people. There’s 40 investors, 40 investors are using about three or four property managers, three or four realtors, different realtors. So you start talking to them and trying to see what they know about the market. And every time, because you don’t know much about the market other than what you find on Google, but the more that you talk to somebody, the more the property manager’s going to be like, “I’m not going to go into that pocket.” And the realtor is going to be like, “Well, most of,” because they can’t really say it, “This zip code doesn’t work for you. Most of my transactions happen in this zip code, right? So you get information from different people, not just the “experts” like property managers, realtors, whatever, but the other investors like, “Oh, this is where a new gymnasium was built.
This is where the casino is coming to be built.” The more data that you have, the better it’s going to be for you.

Dave:
And let me just ask, in this group, were there multiple realtors and property managers or was there just one you knew?

Lindsay:
There was multiple.

Dave:
And how did you decide? Because it sounds like a great group of people. How did you pick which person to work with?

Lindsay:
I think that you have an affinity for certain people when you start talking to them. And then I don’t know about you, Dave, but I feel like I’d like to see more action than talking. You can talk to me on the phone.

Dave:
That’s a good way to put it. Yeah.

Lindsay:
You can talk to me on the phone for two hours, but let me see how many transactions you closed in the last month. What actually are you willing to negotiate for myself? Really test your boundaries a little bit.

Henry:
So Lindsay, what I hear you saying is that you’ve got a good bullshitter, and as you started to talk to people, you could tell who was full of crap and who was actually about their business.

Lindsay:
I would like to think so.

Dave:
I like that. All right, so tell us about this deal. What did you buy?

Lindsay:
Yeah, I did buy a three bedroom, two bath, single family home, 25% down conventional loan. And like I mentioned, I rented the next week that I closed the home and it was rented for $1,400 a month.

Dave:
Wow.

Henry:
135, 25% down. So yeah, 25% of 135 is substantially less than 25% of one million in California. So you did the right math there.

Lindsay:
Yeah.

Henry:
No renovation. Sounds like it was turnkey and you got a decent amount of rent for it. That’s pretty awesome. So just a conventional loan, nothing fancy.

Lindsay:
Nothing fancy. And I think the debt service was 880 at that time because the interest rate had gone up. My interest rate on that first property was 6.01.

Dave:
What was the cash flow at the end of the month?

Lindsay:
1,400 minus 880 plus the property manager is like $400 a month.

Dave:
Wow. Okay, great. And did you have any issues or was it as turnkey as you were expecting?

Lindsay:
It was turnkey. I think I talked to the property manager once in six months about something else. Then after one year, I was trying to make that my proof of concept. So I didn’t want to look at even real estate after that. I bought it. I wanted to be like, “Is this going to work out for me? This is a new venture for me. I’ve never done this.” So let it run for one year. I took it like it was an additional bill, so I just pocketed whatever income I had from the property. And after one year I had $16,000 save and I was like, “Okay, maybe I can look at this Gary Indiana market that my investor friends keep telling me about. They keep buying things over there.” So I’m like, “Okay, maybe I can do that now since I am seasoned. I have one year under my belt of having one rental property.” So I took a look at Gary Indiana and the house was priceless in 2023 when I was looking at it were like 50, 70, 80,000 for a single family home.
So I was just like, “Okay, that’s a significantly less down payment that I have.” But I was like, “Let me try this add value things that BiggerPockets keeps talking about. Buy something that needs a little

Henry:
Bit

Lindsay:
Of work.” So I bought a second home for $55,000 that needed a new roof and new floors, small house, 800 square feet, two bedroom, one bath. And I bought it for 55. I think I put maybe 16 into the house and I rented out for $1,100 to a Section eight voucher holder. So I was just like, “Oh wow, that’s like the 2% rule.”

Henry:
Yeah, you got way better numbers on that deal.

Lindsay:
Yeah. And obviously I’m learning this new market because I did move from Hammonton Gary, which is 15 minutes apart probably by driving, but it is a rougher market and it’s actually according to Business Insider in 2019, one of those most miserable cities in the United States.

Dave:
And you were like, “I want that.”

Lindsay:
Yeah, I want that. There is so much upside.

Dave:
Well, I’m curious. That would scare me.

Lindsay:
So I know that coming into this new market was risky, but the potential for cash flow was higher. And a lot of people think when they look at the tenant pool also there, they think that’s going to be a lot of work. But from my investment strategy, I have a property manager. So majority of the things that I do are through property management because I work a full-time. At the time I was also going to school full-time. So I really needed to see what my set of skill was going to be and my risk tolerance. Am I able to risk more, I guess, headaches for the cash flow? But when I closed on that second property and I rented it right away and I was like, okay, well then my debt service is $388 a month and this is rented for 1,100. Even if the house is empty for a couple months, I’m still pretty much very good about this.
And then the potential for add value was there. So I’m like, okay, let’s do what happens with these two properties. Then the next property, I attempted to do the burn. I attempted to do the burn. And this is a story that’s probably going to, people are going to think I’m crazy, but I bought this house for $33,000.

Henry:
33,000?

Lindsay:
Yes. And I needed to be a whole bird, so I had to put another 30,000 into the house, but my ARB was at 85. So I was like, “Well, I can get most of the money out of this.” And then one of the beauty things about scaling, when you are doing burrs, you can recycle that money. So I was like, “Okay, I don’t have to penny pinch every single paycheck that I have if I’m able to do this successfully or even semi-successfully.” So when I did that burr, I finished, I was getting my refinance done, and I think I had my appraisal scheduled on a Tuesday, and my property manager calls me on a Monday and then tells me there’s been a fire on the house.

Dave:
Oh, no.

Lindsay:
Yeah. So I got on the phone with her. She was like, “I don’t have many details. Let me call you back in two hours. I’m dealing with it right now. The fire department is there.” The house was not occupied at the moment, so that was great. So that already was a relief. Okay, there’s nobody inside the house, but I just finished rehabbing this house last week, and I’m waiting for that refinance. So by the time she comes back, she’s like, “There’s been a faulty lighting on the kitchen that basically burned.” And because it burned, most of the damage that came was from the fire department bolting their way into the door and putting the high pressure hose, right?

Henry:
That’s it.

Dave:
That’s what they sell. I know that came.

Lindsay:
Very nice new drywall painted and everything blown by the pressure of the hose. So that came with the second rehab. At the time I was like, “Oh, maybe I shouldn’t invest in real estate anymore. I don’t know what this looks like.”

Henry:
That’s a fair though to have. I have that moment every week, but go ahead.

Lindsay:
I was talking to Jesus and saying, “Oh, let me just get through this. Maybe I try to do more than I can handle.” Anyways, I talked to my lender and my lender said, “Oh, no worries. Let me know when the house is ready.” Because it ended up being a very small fire. So I was just, okay, I guess I’m going to rehab it again and leave the money that I rehab for the second time into the deal. So I put an additional, I want to say $11,000 into the house to rehab it a second time, obviously going over my ARB, and I was just like, “Oh, I’m just going to leave money behind on the deal.” Refinance the appraisal came back at 160,000 for the house that I bought. So I told myself, “You’re just very bad at comping, comping houses.”

Henry:
You comping way too low.

Lindsay:
Yeah, I did comp it way too low. So I was able to get all my money back from the first rehab, from the second rehab. And then so I did a successful burr and I got the money back. At the time, the money came from a HELOC I leveraged on my single primary residence, so it wasn’t even money I had saved. It was leverage money from the HELOC. So I was like, “I can do this again.” So I did many more times. I ended up racking up 12 properties over the last four years.

Dave:
Wow.

Lindsay:
And the last five had been creative seller financing, and the last one was a 0% down deal.

Dave:
That’s unbelievable. Wow.

Henry:
Yeah, I like those.

Dave:
So I want to hear what you bought. You just casually were like, “Oh, I just bought 12 units,” which is a story in itself that we want to hear about. We do have to take one more quick break though. Stick with us. We’ll be right back. Welcome back to the BiggerPocket Podcast. Me and Henry are here with investor Lindsay Barrientos talking about how she has been scaling up long distance in Indiana. You’ve had some good ones, you had a tough one, but you kept going. What have you been buying?

Lindsay:
Yes, so 12 total now. All of them are single family. I only have one duplex. So the more that I learn about real estate, the more that I talk into wholesalers, but direct front seller, learning about creative financing. When I learned about creative financing throughpocket sales, I was like, “I need to get a house that is creative basically. I got the bug.” So I started telling my realtor to put cash offers and creative offers, and obviously make the creative offer more appealing than the cash offer. So everybody will be determined. But anyways, and that same network that I had, for example, Facebook people that I would talk to online and the WhatsApp group that I would also talk to different investors. There were other investors there that were offloading some of the properties, so that’s where we got connected. That’s how I started getting creative.
I also started a personal brand on YouTube. I opened up a YouTube channel after I think the bird that I did. I felt like maybe this information would be better to be put on videos so people can connect with me or even see what I’m doing or see how the cashflow is possible, even though this was 2024, 2025 with the rates being at seven, eight, you guys have seen it. So I started putting a lot of content out there and then people were offering me deals from Gary Indiana after a while, and that’s how I was able to get creative.

Henry:
You said you had your agent mention that you were willing to do a creative offer. So how did you pitch seller financing or how did you get your agent to pitch it to people as an option for you?

Lindsay:
Yeah, so when you’re a realtor, you can just send a regular offer or you can set an addendum offer, like a regular cash offer or conventional offer or an addendum offers, which if the seller is open to seller finances, they will be able to reply or negotiate the price back. But my experience has been the majority of people that do seller finances because they’ve been investors themself at one point. And so they bought the house a few years ago, so they already had some kind of knowledge. I never been able to convince somebody that’s never heard about seller finance to do a seller finance deal.

Dave:
So you were going out looking for these seller finance deals, and you said you were making cash offers at the same time.

Lindsay:
Yes.

Dave:
You had enough cash to go out and buy these deals, whatever your offer was, if you wanted to, but you gave them two offers at the same time. Can you tell us a little bit more about why you did that?

Lindsay:
Yeah, I heard from Michael Subert, this is something that he used as a technique in the past of when he was buying houses in Fresno. He would present two offers to the seller, especially during these last years where transactions have been low. If you find a motivated seller, you present those two offers. Let’s say it’s a house that I’m buying cash at $60,000. My cash value would be I’m going to offer you $50,000 for the house, but my seller finance deal is going to say, “I will pay you $60,000 for this house, but with my terms.” So that could be lowering the interest rate, that could be a lower down payment, whatever is more preferable to me that also works for the seller. So I would submit those two offers to everybody basically.

Dave:
Wow. I love that. It’s so brilliant. And I think this goes to the exact environment we’re in right now in real estate where sellers, you don’t really know what’s motivating them right now. There are more and more things coming on the market and there’s better opportunities to negotiate, but you don’t necessarily know what they want. Some people want cash and to get out as quickly as possible. Other people, as Lindsay, you stated, if they’ve been an investor before, they might say, “Hey, I’ll take a six or 7% payment well into the future. That’s passive income for me.” And by offering two offers, one, you’re showing the seller that you are willing to understand what they’re looking for and to work with them. And two, it sounds like you can kind of steer them in the direction that you want because you say, “Hey, I could pay cash, that’s probably tempting, but I could pay you less.” And you can sort of orchestrate it so that sellers see the mutual benefit in the seller financing offer.
Curious, how effective is it? How often does that work?

Lindsay:
It works when the market is like this and the sellers are motivated. I was able to get out of the 12, five of them are these seller finance.

Dave:
Yeah, I love that. I mean, that’s better than regular offers, that offers so much better. And how are you identifying people? Because if you’re going 50%, you must have really targeted list of people that you’re approaching for seller financing.

Lindsay:
Yeah, my zip codes are very narrow, so I only invest on three zip codes. And then single family, I know a lot of people like to do multifamily, but in my area, because there’s more supply than renters, I feel that people do want to rent a single family more so than a small rental unit. So that is where basically I’m concentrated. And then it might be a small market, but in Gary, there is a turnkey company that sells houses that flips houses. They also have a podcast. They also are currently posting a lot of content about Gary Indiana and possibly even coming, we have the bears coming to Hammond, Indiana. So just having more information about that. That’s

Dave:
Awesome.

Lindsay:
Yeah. Having more information about that just tells you to exactly reinforces what you invest in already or where you want to be investing.

Dave:
So what’s next for you, Lindsay? I mean, you’ve been scaling up, you’ve been doing a lot, you’re getting the Chicago Bears in Indiana, which is hilarious. What comes next for you?

Lindsay:
Yeah, I also built an ADU in my single family residence. Nice.

Dave:
Are you still in LA?

Lindsay:
Yes. So I did that. I put it as a midterm that’s now rented for $2,000 a month, and I have enough space to put an additional ADU that is in the process of permitting three bedroom, two bath. That will be a small house basically. So hopefully to do a midterm or Airbnb, we’ll see what I can do with it.

Henry:
That strategy in California is just called how to live in California. How to be able to afford to live in California.

Dave:
The good thing is that they are allowing these kinds of developments, right? Because obviously not everyone can do it, but if you can, you are providing housing in a community that really needs it and you are able to make your own cost of living go down. It really is a win-win if you can pull it off. So Lindsay, now that you’ve done this, you’ve done a lot of cool stuff, but your original goal was to get out of nursing. Have you done that yet?

Lindsay:
Not fully, but I’m on my way. So I had two plans. One was to invest in real estate and the other one was to go back to school and get my nurse practitioner license and work outside of the hospital setting. So I achieved that. I worked for the last three years as a nurse practitioner. And since I have the income coming from real estate and I’m house hacking, I decided this is the perfect time to leave my W-2 and start my own business, be a nurse practitioner. So now I’m a psychiatric nurse practitioner.

Dave:
Oh, that’s amazing.

Henry:
So cool.

Dave:
Yes, I like it.

Henry:
That’s

Dave:
So

Henry:
Cool.

Dave:
That is unreal. That is so cool. I’m very happy for you. Wow, what a great story.

Lindsay:
Full circle, right? The Google search in the beginning, invest in real estate, open your own business. That’s basically what I ended up –

Henry:
That’s exactly what you did. That’s exactly what you did.

Dave:
I love it because I mean, you must have been working your butt off the last couple of years. Going to school to become a nurse practitioner is no joke, and investing long distance is no joke, but you did it all. And I imagine you’re feeling like this investment in time and effort has been worth it.

Lindsay:
Yes. And this year it was a whole year plan to quit my W-2. So I had to set myself up for being able to have no paycheck technically, and then it’s still 12 houses, and I still have a house in LA, and I just built an ADU and I’m building another EDU. So I had to set myself up financially to be able to take this big step, and finally the time that I put in my mind has reached, so now I’m fully off W2 being my own boss.

Dave:
So you’re just crushing it is what you’re talking about. You’re just absolutely crushing every part of your life.

Lindsay:
It looks like that from the outside, but in the inside it’s a lot of lack of sleep, I feel like.

Dave:
That does come with it, but there are times to grind, there’s times to enjoy the fruits of your labor, and it seems like you’ve grinded really hard for a couple of years, and now you are reaching your goals. It’s incredible, and you’ve done it in a really fast timeline. I should say that doing it in a couple of years is amazing. And hopefully between having your existing homes, having your own practice, having these ADUs, you can continue to grow in multiple ways. You can be a nurse practitioner, you can grow your practice, and you can grow real estate at the same time. It’s super cool.

Lindsay:
Thank you, thank you. And I also, I built a podcast called Real Estate Chisme, and then this is where we have a free school community online. Anybody can come and check it out. Our goal, I have a co-host, Bileta Sandoval, and we are trying to encourage women, people of color to come and check us out and talk about real estate if that’s something that you want to look at, invest in, or even learn about.

Dave:
Awesome. Thank you so much, Lindsay, for sharing your story and these resources with us. We really appreciate it. And we’d love to have you back soon. We would really like to hear how your story progresses from here.

Lindsay:
Thank you so much.

Dave:
And thank you all for listening and watching this episode of the BiggerPockets Podcast. I’m Dave Meyer. He’s Henry Washington, and we’ll see you all next time.