Dave:
These days with so much going on in the headlines and in the news, it is hard to keep track of what is going on. And that’s even for someone like me who spends all day obsessively updating the news and tracking these things. And sometimes I just need someone else who loves the economy and looking at data as much to bounce some things off of and to learn from myself. And today, we are bringing on the one and only J Scott to help us unpack what is going on at the economy, the housing market, and most importantly, what we’re all supposed to do with our investing portfolios based on all of the information we’re receiving each and every day. In this episode, we’re going to cover inflation, we’ll cover tariff, we’ll cover the Federal Reserve, and we’ll cover how the residential and the commercial real estate markets may react to everything going on right now. If you are nervous, if you are wondering what to do next, this is an episode you’re definitely going to want to listen to. Let’s bring on Jay. Jay Scott, welcome back to On the Market. Thanks for coming back once more. Hey, appreciate you having me. How you doing, Dave? Honestly, confused about the economy. Just trying to figure out what’s going on around here. So I’m happy you’re here.

J:
I’m not sure I can help, but I’ll do

Dave:
My best. It at least helps to have someone to bounce some ideas off of to have a conversation about, because the reality is, as Jay said, no one really knows, but it is helpful to talk to someone else who I think follows this stuff as obsessively, if not more obsessively than I do.

J:
And I think it’s not just that nobody knows. I mean, I think it’s safe to say no matter when we’re having this discussion, whether it’s now a year ago, five years ago, 20 years ago, nobody really knows for certain, but there’s just so much that’s happened over the last, we can say the last couple years. But the reality is since 2008,
That
Has caused the economy to work in ways that aren’t necessarily historically accurate. The government has done a lot, the Federal Reserve has done a lot. Private industry has done a lot that has basically foundationally changed the way the economy works in some ways. I mean, in a lot of ways the economy is the economy, but there are just things that have happened over the last 20 years and especially the last five or six since COVID that have changed the way we can expect the economy to react. And because we don’t have any more than four or five years of data on this kind of new normal, it’s hard to say what’s going to happen. We don’t have much precedent

Dave:
As an analyst. It’s frustrating because our whole job is to look at historical data and of course no two periods are the same, but you look at history to try and give you some idea of the direction that things are heading or say when conditions are like in the past it’s kind of gone this way, but we really haven’t seen a scenario like the one we’re in today. And so it really raises a lot of questions. And the best that we could do on this show is I think help people understand what are the main variables that are going to sort of dictate what happens next. What are the things that we should all be keeping an eye on over the next few months so that we can continuously updating our strategy, adjusting portfolio, adjusting resource allocations appropriately? Because we all kind of just have to follow this in real time. I don’t really know a better way to do it, do you?

J:
No, I don’t. And again, not only has the economy and the inputs changed over the last bunch of years, but without getting political, I think it’s safe to say, and I think everybody would agree that we’re kind of in uncharted territory in terms of what’s going on politically, both domestically and on a global stage. So lots of moving parts when it comes to things like tariffs, things like immigration, things like spending and tax bills, and we’re not really sure what a month or two or six from now is going to look like. And so it’s pretty hard to predict where the economy’s heading when we don’t know where the political and budgetary powers that be are headed.

Dave:
Maybe let’s just do a brief recap here, Jay, when you’re talking about the way that the economy and the housing market have changed since 2008, is that mostly talking about interest rate policy or what else are you getting at there?

J:
Yeah, a couple things. So interest rate policy is certainly one of them. Historically, we’ve had higher interest rates and people, they were just used to the fact that interest rates were 6, 7, 8, 9% historically speaking on a typical year and prices for everything from cars to houses to everything in between, just kind of normalized around those higher interest rates. Today, obviously interest rates are lower. Ever since 2008 when we faced the Great Recession, interest rates dropped to zero. They went up a little bit and then COVID came and they went back to zero, then they went up a good bit, what we considered to be a huge jump, the fastest jump in history from 0% to about five and a half percent, five and a quarter percent federal funds rate. But the reality is crazy as it seemed to raise rates 5% over about 18 months. The reality is rates were still lower than the historic average.
And so the American public consumers have not quite adjusted to this new normal of, hey, rates are going to be a little bit higher than they’ve been for the last 20 years, but again, they’re still lower than they have been historically. Then there’s all the money printing. I mean, we all know that since 2008, the government’s just been a runaway train when it comes to printing debt over the last six years alone, and again, not political, this crosses the current administration, the last administration, the end of the first Trump administration. We’ve printed half the debt that we currently have in this country, so 250 years of this country, and half the debt that we have, about 19 trillion out of 37, 30 8 trillion has come in the last five or six years, which is just absolutely astounding. What’s more astounding is that it doesn’t look like either party has the will to do what’s necessary to change that, and we’re likely to be running huge deficits, which means we’re likely to be increasing the debt and the money supply considerably more over the next several years. And with more money flowing through the system with higher debt, we have a whole bunch of different considerations when it comes to how the economy works, how the Fed handles rates, and how we deal with things like inflation than we did before, all of this crazy money printing.

Dave:
Totally. Yeah. I’m glad you brought up the concept of debt because this to me has probably the biggest implications for the long-term trajectory of the housing market and just and commercial real estate too, just generally the real estate market and in a way that I don’t think a lot of people are thinking about. I don’t know about you, but everyone I talk to is very focused on mortgage rates in the next year or two, and I don’t know where mortgage rates are going in the next two years. I have my idea, but I personally have a lot of fear about long-term interest rates, which I think brings up a lot of questions and is pretty critical to figuring out your strategy for how you’re going to invest right now. So given all of that, how would you summarize the state of the economy where it stands today? Some people say we’re on the precipice of a recession. Some people say we’re about to see explosive growth. Where do you fall on that spectrum?

J:
Yeah, I mean the funny thing is if we had this conversation a year ago, I think we did have this conversation a year ago.

Dave:
Yeah, we probably do. And

J:
Some people were saying we were on the verge of recession and some people were saying we’re on the verge of explosive growth. They would’ve said that two years ago. They would’ve said that four or five years ago. And the crazy thing is both sides have been right every time because what we really have these days is kind of a bifurcated economy.

Dave:
That’s right.

J:
We see certain people, the top 5%, 10%, even 20% of Americans in terms of wealth and socioeconomic status, who are actually faring very, very well
Because a lot of their assets are in hard assets. They’re in the stock market, they’re in crypto, they’re in gold, they own real estate and hard assets have been going crazy the last few years. And so the folks that have invested in hard assets have made a lot of money over the last few years. The other 80%, 90% of people who don’t have much money in hard assets, they might have a retirement plan or a 401k, but other than that, they don’t own stocks. They don’t own real estate, they don’t own gold or crypto. They’re living paycheck to paycheck because for the most part, inflation has outpaced wage growth. And so they have not seen wages on an inflation adjusted basis go up for the last five or six years. And so they’re struggling. And there’s been a lot of data that’s come out over the last few months that basically says the entire economy right now is being driven by the top 20% of wage earners. The bottom 80% are basically only buying the things they absolutely need to buy to continue to live. They’re buying clothes, they’re buying food, they’re paying their rent, but not much more, very little discretionary spending. And so as the top 20% rack up more debt and start to slow down, that’s going to have a tremendous impact on the economy. It’s really scary that 20% of the Americans right now are controlling the economy for the most part.

Dave:
So you said when they slow down, do you think that’s imminent, that there’s going to be a slowdown in spending among the top 20%?

J:
Well, remember, the economy works in cycles. We have expansions, we have recessions, and those cycles are driven by debt. As consumers and businesses build up more debt, we basically start to see more inflation because everybody’s spending more money and we get to this peak where it’s not sustainable. All this debt, people can’t pay it, businesses can’t pay it. There’s more debt than there is the ability to pay that debt. And that’s when we start to see defaults. We start to see businesses go into bankruptcy. We start to see houses going to foreclosure. We see cars get repossessed, we see credit cards defaulted on, and that’s what leads us kind of down into the recession, this de-leveraging this shedding of debt. And so at some point, I know we’ve put it off now for 17 years since the Great Recession. Yeah,

Dave:
It’s crazy,

J:
But at some point, all of this debt is going to get to some critical point where it simply can’t be serviced any longer by consumers and businesses, and we’re going to start to see massive defaults. We’re going to start to see bankruptcies, we’re going to start to see foreclosures. We’ve actually already started to see it to some degree. If you look at the data for the first eight months of 2025, we’ve had more corporate bankruptcies in the first eight months of this year than in any year since 2010.

Dave:
Really?

J:
I didn’t realize that. And so businesses are already starting to struggle and consumers are already starting to struggle. So I suspect that it’s going to happen at some point soon. But here’s the crazy thing. I mean, if you’ve been paying attention since 2008, you know that the government doesn’t like recession,
They
Don’t like foreclosures and bankruptcies and credit card defaults, and they’ll spend as much money as it takes to try and keep us out of a recession. And so I suspect as we get closer and closer, the government’s going to do what they’ve done the last two or three times that this has happened and they’re just going to start spending a ridiculous amount of money. And the question is, will that work? And for how long?

Dave:
All right. We’ve got to take a quick break, but with Jay Scott right after this. Welcome back to On the Market. I’m Dave Meyer here with Jay Scott. Let’s jump back in. I know whenever you talk about a recession these days, it becomes political. People are always get up in arms, whoever’s in power at that point. But as you said, so much of it is just cyclical. These are long-term things that have been going on and sort of transcend individual presidencies or political power, and there’s just an inevitable point where things need to reset, at least in the current iteration of our economy. This is just sort of how it works, but like you said, whoever’s in power at that point obviously doesn’t want that to happen, and so they’re going to try and figure that out. I guess my question is what is the catalyst? Because people have been saying there’s going to be a recession for years, but what is the tipping point? Is it consumer spending goes down? Is it unemployment rate goes up? Do you have any sense of what can actually go from this feeling like it’s going to happen at some point to actually manifesting?

J:
Yeah, I think it’s going to be jobs. I think it’s going to be the employment sector. Consumers are still spending, that’s the crazy thing.

Dave:
Oh yeah.

J:
Despite all of these hardships that a lot of people around us are experiencing and that we’re hearing about and that the data is indicating is out there, despite all of that consumer spending has been tremendously resilient. Americans are still spending a lot of money, and as long as they continue to spend money, I think we can kind of buoy the economy to a degree. But at some point, businesses are going to run into issues. So one thing to keep in mind is that just like Americans live off of debt businesses for the most part live off of debt as well, and a lot of business debt is short term, three to five years. And during COVID, a lot of businesses took out debt at very, very low rates. You remember federal funds rate was at zero. So businesses were taking out loans at 2%, 3% interest. A lot of those loans are coming due. They’ve been pushed out as far as they can, and businesses now need to refinance that debt and they now need to refinance that debt at rates that are closer to seven or 8%. Big difference between two and 3% and seven and 8% in terms of interest payments. Even large companies, companies like Walmart, companies like Target, they generate a lot of their debt through issuing bonds
And they were able to issue bonds at three, four, 5% a few years ago. Well, now they need to issue those same bonds at seven, eight, 9%. And again, paying 9% versus 5% is going to impact the profitability of those businesses. And at the end of the day, the businesses are going to have to run leaner, which means they’re going to have to start laying people off. And as I think we see unemployment rise, that’s going to be the catalyst that kind of pushes the economy down once and for all into the next recession.

Dave:
Do you see the labor market data that we’ve been seeing recently as evidence of that? Because I’ve done a couple shows on this recently. There is no perfect way to measure the labor market. I agree with that, but in my opinion, when you look at the total universe of labor market data that we have access to, it all shows a weakening labor market in my opinion. And so do you see that as evidence of this move towards a new phase of the cycle starting?

J:
I think the labor market data is very well aligned with what I think a lot of us are seeing with our own eyes.
Let me start with the labor market. The way the Bureau of Labor statistics collects labor data is outdated. It’s not a very good mechanism. We’ve seen the issues with revisions like really big revisions. Last year we saw 900,000 job revision downwards. This year we saw 800,000 job revisions downward. We’ve seen big monthly revisions downward. A lot of people think that that’s evidence of manipulation or fake data. I personally don’t believe that we tend to see certain types of revisions during certain periods of the economic cycle. So typically as the economy is softening, we tend to see revisions downward because revisions are basically data that’s coming in later. And if the economy is softening, then the data that comes in later is data that’s coming in further down the softening pipeline. And so it’s not surprising that we’re seeing downward revisions. So do I trust the data? I trust that the data is as good as they can make it. I trust that the data is not being faked or manipulated, but I don’t necessarily think that it’s accurate without future revisions.
That
Said, there’s clearly a softening trend. We’re clearly seeing unemployment rise. We’re clearly seeing layoffs increase and that comports with the headlines.
We’re seeing a lot of layoffs in the tech space. We’re seeing a lot of layoffs in the transportation space. So ever since tariffs, we’ve seen a big downsizing in freight and transportation and warehousing. We’ve seen a lot of layoffs in the agricultural industry just with immigration. And we could have a whole separate debate on whether illegal immigration is good for the labor market or bad for the labor market, good for the economy, bad for the economy. But the reality is that we’ve seen a lot of people who were employed, whether legal or illegal in the agriculture industry that are no longer employed in that industry. And so with all of these layoffs with the changing landscape with respect to immigration and tariffs, there’s no way around the fact that we’re going to see a softening labor market over the next six to 12 months. It’s just a question of again, can the government spend their way out of it?

Dave:
Yeah. So does that, you think the Fed is already too late on lowering rates to impact the labor market? I mean, I know there’s the whole inflation side of this that they have to balance, but do you think fed just cut rates 25 basis points? They are projecting another two. Is that enough to offset the declining trends in the labor market?

J:
So you mentioned inflation. If labor market were the only consideration, the fed is way behind. I do think we’re behind the curve on cutting rates to deal with the economic softening.
That said, the reason the Fed has been hesitant to cut rates and they haven’t cut rates more steeply than they have is because there’s the other side of the coin, which is inflation. And it’s the Fed’s job not just to control the economy from an employment standpoint, but to control the economy from a pricing and inflation standpoint. And typically when you cut rates that leads to more inflation. We’ve already seen inflation tick up over the last four months and the Fed I think is very concerned that any rate cuts could lead to a larger spike in inflation. And so they need to kind of play both sides right now. In a perfect world, they could cut rates just to help the labor market and raise rates just to push down inflation, but you can’t do both of those at the same time. And so I think the Fed has more been in a wait and see mode as opposed to being behind the curve. They want to see what’s the bigger risk to our economy right now? Is it inflation or is it jobs? And once they see what that bigger risk is, they’ll do with rates, whatever it takes to address that particular risk.

Dave:
Yeah, I agree with you. I don’t think a 25 basis point cut’s going to do anything for the labor market to be perfectly honest.

J:
I personally think that was political. I think that was to appease the president. I think that was to appease corporations that have been demanding a cut. Do I think it’s a bad thing? I don’t think it’s a bad thing. I think a 25 basis point cut, it wasn’t going to impact things one way or the other tremendously. And I think it gives people a little bit more faith that the Fed isn’t just trying to push back against the administration, that they are willing to cut when the data indicates that they should. And we have seen some softening in the labor market over the last couple months. And so I don’t think it was a bad time to cut, but I also think not cutting a couple weeks ago would’ve been just as reasonable.

Dave:
Yeah, I guess my feeling is I don’t think a 25 basis point cut is going to change behavior very much either for businesses, they’re not going to all of a sudden start hiring way more. And I also don’t really think 25 basis point is necessarily going to impact inflation, especially when there’s all these other inflationary pressures that we need to be thinking about. This is probably not the biggest risk. Now if we cut it another 75, that could change things a little bit. So we’ll have to wait and see. To your point, we have two things going on with the labor market. One is it’s just that part of the cycle. This is just how this works. The other thing that we haven’t even talked about that I think is going to complicate this, another thing that falls under the bucket of like we just don’t know is how AI is impacting the labor market too.
And I don’t know if I’ve seen to the point where people are like, okay, we’re going to fire all these people and then just use robots. But I do think if someone leaves a company these days, people are saying, do we need to replace them or can we empower our existing employees with AI to augment their skillsets? And maybe we don’t hire as many people. And I just think that question is probably not getting resolved very soon. And I think we’re going to see that ripple through the labor market because my guess is that at this point in the cycle, businesses are going to err on the side of trying to automate things even if they don’t have a good reason to do it, even if they don’t know if it’s going to work. I think they’re going to overcorrect on automation and be slow to hire right now just because they think AI can do everything and maybe one day it can right now it certainly can’t.
And so I think that’s just another thing that we’re contending with. And another thing that the Fed, I think is going to have to think about. So Jay, we talked about the labor market in isolation, which obviously doesn’t make sense. We need to talk about inflation too. We’ve talked a little bit about the potential for rate cuts contributing to that, but study after study, basically what I’m seeing is that economists are generally surprised that inflation hasn’t gone up more just yet because of the tariffs, but that it’s still coming and that it’s trickling through the economy a little bit slower, partially because of the way the gradual rollout nature of the tariffs and how they were implemented over the course of four months. And because there was just this flurry of trade before tariffs went into place, and we have this backlog of goods at lower prices that are still wicking its way through the economy. Do you buy that read on inflation and do you think we’re going to see it continue to tick up? And just for everyone’s reference, it’s gone up a little bit over the last couple of months. I think we’ve gone from about 2.6 to 2.9, but that reverses a trend that had been in place for a couple of years of gradual declines. Now we’re gradually climbing

J:
And the hiccups been a little bit more than that. I think it’s 2.4 to 2.9. Okay, thanks. But I mean depending on, you can read that a couple ways. It’s a 25% increase, 2.4 to 2.9, but 2.9 relative to where it was a couple years ago when we were over 9% is actually not too bad. And here’s the other thing, the fed targets a 2% inflation rate. Realistically, historically speaking, the last a hundred or so years, inflation in the US has been closer to 3.1%. So my barometer is if we’re in the 3% range, it’s actually not too bad.

Dave:
Okay,

J:
That’s

Dave:
A good way to look at it.

J:
But just like the labor market trend has been in a certain direction, it’s been down, the inflation trend has been in a certain direction that’s been up, and I think I’m not overly concerned with that 2.9% CPI inflation number. I am more concerned that it’s going up month after month, four out of the last six months, and it’s heading in the wrong direction. Like you said. There are a couple of things at play. One is that terrorists were actually rolled out a lot more slowly than it may have seemed. There’s so much news flying around on a daily basis that it’s often easy to overlook the fact that we did have a 90 day pause in tariffs and we basically just restarted them a month or two ago. The other point that you brought up was that we warehoused a lot of inventory earlier in the year when there was the expectation for tariffs.
And so these companies had a ridiculous amount of inventory sitting on shelves that they were able to purchase at lower prices six, eight months ago that they’re just finally working through now. And then there’s a third thing that we have to consider, and that’s that not all price increases are going to be passed along to the consumer. So generally there are three places that price increases can be absorbed. Number one, the manufacturer. So if we’re buying stuff from overseas, we’re buying a widget from China that last year cost a dollar and now costs a dollar 50 because of tariffs, the manufacturer might say, well, I’m going to eat 20% of that and so I’ll sell you that dollar 50 widget for a dollar 20. So now the manufacturer’s losing 30 cents, then it comes over to the US and the retailer here in the US who would be selling it instead of for $1, now a dollar 20.
Well, they say, well, I’m going to eat 10% of that cost. So now they’re taking another 12 cents off of that, and then the consumer’s eating the last 8 cents. And so basically tariffs are being absorbed in three places in the economy. And it’s unclear at this point, the breakdown of how much is being absorbed by the manufacturer overseas, the domestic wholesaler, and how much is being eaten by the consumer in terms of actual end product inflation. And so if you look at some studies that Goldman Sachs has done, they say that businesses and consumers in the US are eating about 80% of it. Foreign manufacturers are eating about 20% of it. The administration is saying that’s not true. The foreign manufacturers are eating more of it, we don’t really know. But the reality is that businesses and consumers are eating some of it, but it’s not all being passed on to consumers. And so when we say that we’re not seeing that much inflation, I think what we’re saying is that consumers aren’t necessarily seeing that much inflation, but there are other places in the supply chain where other businesses are getting hurt and we have to consider that as well.

Dave:
And do you think that will maybe then leak into corporate profits essentially?

J:
Yeah, and I think that’s where we’re going to get a much truer picture as we move into Q3 earnings reports next month and then Q4 earnings reports at the beginning of next year. We’re going to see the real impact of tariffs not just on consumers, but on American businesses as well, and that’ll give us a much bigger picture of how much prices have gone up and how much is being eaten by businesses before they pass it on to consumers.

Dave:
One thing I keep thinking about is if you’re a business, you’re an importer, you’re immediate thought is, I’m going to pass this on to my consumer, but as you said, 80% of us consumers are struggling, so they can’t absorb it. So maybe the businesses just do have to absorb it, at least for certain products and services. It’s just something we’re going to have to see. We’ll be right back, but when we return more insights from Jay Scott and what he recommends investors do in the market heading into 2026. Thanks for sticking with us. We’re back with Jay Scott. Well, you’ve painted a very intriguing picture of the economy here, Jay, very accurate. Look at what’s going on. What do you do about this? This is such a confusing thing as an investor, not just a real estate investor, big picture, resource allocation, risk mitigation, opportunity pursuing. What are you doing?

J:
Yeah, so a couple of things to keep in mind, and we talk about this every time I’m on, but it’s worth it to reiterate, we’ve had 36 recessions in this country over the last 160 years. Two of them have had a significant impact on real estate, the Great Depression back in the 1930s and the Great Recession back in 2000 8, 9, 10. Those were really the only two economic events that had a significant downward impact on real estate.

Dave:
Residential, right,

J:
Residential, thank

Dave:
You. Yes,

J:
Absolutely. We can talk about commercial separately.
I’m talking about single family residential at this point. So it’s reasonable to assume that single family residential real estate is pretty well insulated from most bumps in the economy, a standard recession. And if you look at the data a little bit more closely, what you find is that pricing or values in single family residential is most closely tied to inflation. When we have high inflation, values tend to go up when we have low inflation, values tend to go up more slowly. And so if you want a good idea in a normal market, a normal economy where housing values are headed, you’re going to look at inflation and the higher the inflation, most likely the higher you’re going to see values continue to go up. The two examples I gave though of where we didn’t see housing values go up were when we saw big recessions. So again, 1930s, 2008, those two really big negative economic events. So question I want to ask myself now is are we likely to see a 1930s or a 2008 type event which could have a significant impact on real estate, or are we likely to see a standard recession if we see any recession,
Which likely wouldn’t have a big impact on real estate? So my general thesis is that real estate’s pretty well insulated. It’s unlikely we’re going to have a big drop in prices unless we see a significant recession or a significant economic event like we did in again the thirties or 2008.

Dave:
I agree with you. I was actually working on my BP presentation and just talking about different scenarios and I see three scenarios that could really play out in the housing market. One of them is a crash, but I think the probability of that, I probably put that as my third most likely outcome out of the things that could happen in the next couple of years. But it’s obviously possible we’ve seen it before, but do you think that’s the most likely scenario?

J:
I actually think that’s the least likely scenario.

Dave:
Okay. We’re on the same on that, yeah.

J:
Yeah. I’m not going to say it’s a 0% chance. I think we’re in a economic place right now. Again, it’s been 17 years of debt building up and at some point that debt’s going to have to go away and it could be some major economic downturn that leads to it or causes it, but I think more likely we’re going to see one of two things. We’re either going to see a continued softening in the economy and the government starts to spend lots of money like they’ve done in 2020 and they did after 2008, and that’s going to cause one of two things to happen. Either they’re going to be successful at kind of staving off the recession for a couple of years longer, in which case we’re going to continue to see what we’ve seen for the last few years. We’re going to continue to see housing prices kind of either flat or go up a small amount. We’re going to continue to see this wealth gap build.
We’re going to see people on the higher end of the socioeconomic spectrum do very well, make a lot of money in hard assets. People lower on the socioeconomic spectrum suffer probably even more, but the economy will keep moving along or the government will spend a lot of money to try and keep us out of that recession and they won’t be as successful as they have been the last couple times simply because we’ve built up too much debt. In which case I think there’s a reasonable chance that we do see a downturn. Again, I don’t think it’s going to be a 2008 style downturn, but we do see a downturn where we see jobs go away, where we see inflation start to come down. We normally see in a recession where we see businesses go to business and foreclosures go up and bankruptcies go up, and it won’t be a fun time. But again, real estate tends to be pretty insulated under those scenarios. It’s only the scenario where we see a major, major downturn that single family residential tends to hit. And again, I’m not discounting the possibility for that, but I put that at my third most likely.

Dave:
Okay. Well, I see things fairly similarly. I’ll tell everyone else my exact predictions there at BP Con, but I think Jay, you and I are on somewhat of the same page, but I guess the question is given three reasonably likely scenarios in normal times, my third most likely scenario is probably like a 5% chance or less. I think they all have somewhat decent chances. So how do you invest given this very confusing, uncertain economic landscape?

J:
Yeah, so let’s say if I had to assign probabilities, I think there’s a 40% chance that things just keep bumping along the way they have been for the last few years and there’s a 40% chance that we do see a standard type recession, and I’ll reserve the last 20% for we see a significant recession or maybe we even see the economy boom. Again, I don’t think that’s likely, but I’m not going to, you can’t say never these days. So let’s say 80% chance that we see continued bumping along or we see just a mild recession in either of those cases, it’s a great time to buy real estate.

Dave:
Yeah, that’s right.

J:
Because remember, real estate only goes up over time. There’s been no 10 year period in this country where single family real estate hasn’t gone up in value. So if you’re buying, right, and when I say buy, right, I mean you’re buying properties that can cover the bills that are generating a little bit of income or at least breaking even when you consider all expenses that go into them. If you’re being conservative on things like your rent growth, even maybe assuming rents might go down a little bit because while we don’t necessarily see housing values go down during recessions, we do see rents go down sometimes.
So factor in a 10% rent decrease just in case factor in 10% higher vacancy just in case factor in mortgage rates, maybe going up a little bit from here. So we’re currently in the low sixes. I don’t think we’re going to go much higher than that, but who knows? Things are crazy these days. We could see rates go back up to 7%. So factor that in, factor in all of these conservative assumptions into your underwriting and if the deal still makes sense, if you can break even make a little bit of money, you’re going to be happy you made that purchase in 10 years.

Dave:
Jay, there’s a reason we wrote a book together. I completely agree with everything you just said. I totally agree. It’s just be conservative. This is real estate investing 1 0 1 in the broader investing world. If you talk to someone who’s a stock investor, private equity hedge fund investor, they have this concept of risk on risk off. I think we’re in a risk off era of real estate investing, which means not that you shouldn’t invest, it just means that you got to be super patient and super diligent about your three years ago, five years ago, you could have messed up and been fine. That might still be true, but it’s not definitely true. It was in 2021, it was like you could be kind of loose with your underwriting in 2021 and have a fairly high degree of confidence you’d be fine for residential. Now, I just think it’s the complete opposite. I think you need to just be really diligent and if you’re wrong and things are fine or go well even better, this is just a mentality of not taking on too much risk because that way you’re going to be okay and maybe you do great and either way you benefit, but you’re not going to be putting yourself in a situation where you’re taking on a lot of risk in an uncertain time. To me, that’s just never really worth it.

J:
And the other thing you have to remember is that everybody thinks that we’re heading into uncharted territory with real estate with higher interest rates. It’s hard to generate cash flow and it just feels very different than it has for the last decade or so. It is different, but the thing is it’s back to where it was for the 30 years before 2000 10, 11, 12. It’s back to the normal state of the market. Everybody seems to think that low interest rates, high cash flow, fast appreciation, get rich quick is the normal in real estate. It’s not the normal. It was an aberration that we were lucky enough to experience if we were investing from 2014 to 2021, but it’s not the normal. The normal is higher interest rates, lower cash flow, slow and steady wins the race. You build equity over time, you get the tax benefits and you leverage the tax benefits. You get the principal pay down, you let your tenants pay down your mortgage, and in five or 10 or 20 or 30 years you get wealthy.

Dave:
I completely agree. I called it on the other show, the Goldilocks era from 2013 to 2022 just because everything was perfect. It was just this very unique, unusual time and just sort of coincidentally that time aligned with the explosion of social media. And so people got really used to and expecting unusual results, but real estate investing was good in the seventies, even though there was inflation and there was high mortgage rates, real estate was good in the eighties, it was good in the nineties. You don’t need perfect conditions. You need to adjust your strategy and your tactics to a more normal era. But that’s fine. You can absolutely do that. And it’s not all negative. There are positives to these types of things too. Maybe not in terms of cashflow as Jay said, or appreciation, but lower competition. You’re not going to have all these people jumping in on the bandwagon in this next era as you did in the previous one because the benefits of real estate are going to be a little less obvious than they were during 2019 and 2020 when everyone just looked at how their neighbor was getting rich and wanted to jump in on this as well.
So it’s really just to me a matter of, like you said, being conservative, having appropriate expectations of what you can achieve and then just having the confidence that you know how to underwrite and that you can actually buy good deals. That’s how I say it. Absolutely. The one thing that keeps me up at night, Jay, I’ll just be honest, is long-term interest rates. I am curious about this because I look at the national debt, and again, as Jay pointed out, this has been a problem that both parties contribute to. You can Google this and look at it. You can just see the debt has been exploding for a long time. It just seems like the most likely way that we deal with that debt is by printing money. I don’t know if you agree with that, but that just seems like the way, the direction that we’re heading, and if that is true, aren’t interest rates going to go up in the long run?

J:
Interest rates will absolutely have to go up. A lot of people think that the Federal Reserve is the one that decides where interest rates head. If the Federal Reserve wants lower mortgage rates, they can lower the interest rate and we get lower mortgage rates. But the reality is the Federal Reserve controls one very specific interest rate, and that’s the rate at which banks lend to each other. All the other interest rates, your car loan interest rate, your business loan interest rate, your mortgage rate, your insurance rates, all of those are controlled by this other thing called the US bond market. And the US bond market is driven by not the Fed, but by investor sentiment. When investors think certain things are going to happen, it drives rates up and down. And specifically the thing that drives rates up is investors’ concern about inflation.

Dave:
Yes.

J:
When investors think there’s going to be inflation that forces the bond yields up and bond yields higher means that interest rates are higher. And without going into any more detail there, it’s as simple as inflation equals higher rates. And unfortunately, there’s not much the Fed can do about that. So if we want to lower rates, keep rates from going up, what we need to do is we need to keep inflation under control. And inflation isn’t only coming from tariffs or supply chain issues or anything else. Inflation comes from money printing. And the more money we print, the more inflation we’re going to have long-term, the more inflation we have long-term, the higher rates are going to be, and that is going to end up being in a snowball type cycle that’s really going to bankrupt this country.

Dave:
That is my number one fear. And I wonder how you incorporate that into your investing then, Jay? Because to me, the way I am reacting to that is fixed rate debt. How do I get stuff primarily residential real estate? If I can buy commercial with fixed rate, I would consider doing that, but I want to lock in my mortgage rates even at 6%. I would rather lock them in now because I don’t know if I got an arm or a variable rate mortgage now in five years, maybe it won’t happen in five. I don’t know. That’s the thing. It’s like you don’t know the timeline for this. It could be five years from now, it could be 20 years from now.

J:
Well, here’s the thing. A lot of people listen to me and they say, so what you think rates are never going to come down again. And the reality is rates will probably come down at some point, but they’re not going to come down for good reasons. They’re not going to come down because everything is moving along happily, and the markets are doing well, rates are going to come down when we have a big recession and investors are no longer concerned about inflation. When you have a recession, you tend not to be concerned about inflation, and that drives rates down. And so typically low rates means a bad economy. We saw this in 2008, we saw this in 2020. We’ve seen this in every recession going back 160 years. Recession means lower rates because we tend to see lower inflation. And so yeah, we may see lower rates again, but if we do or when we do, it’s going to be because there’s a lot of bad stuff going on in the economy.

Dave:
Right? Yeah. Because how I think is maybe we’re going to see sometime in the next two or three years a little bit lower rates because of the labor market, but I’m worried about 10 years from now where are rates going to be

J:
And there’s so many unknowns. So yeah, so there’s definitely the debt issue that could drive rates up. We also have ai, you mentioned AI earlier. If AI makes things much more efficient, if it makes businesses much more efficient and productivity much more efficient, we could see deflation and that could actually drive rates down.

Dave:
That’s a good point.

J:
And so to be honest, your biggest concern over the long term, and when I say long term, I’m talking 10 to 20 years, your biggest concern is high interest rates. My biggest concern is just the opposite. My biggest concern is deflation due to economic efficiencies from automation and ai. And I think the biggest risk to real estate is if AI is as successful as it could be, well, wages could get cut in half
Because
Businesses don’t need as many employees. And when wages go down, what goes down, housing prices go down, rents go down. And so for me, my biggest concern over 10 or 20 years is just the opposite of yours.

Dave:
Yeah. Okay. Well, now you’ve just unlocked a new fear for me. Thanks, Jay. Hopefully neither of us are right now. I could lose more sleep over what to do about things, but I think that just proves we don’t know. You buy deals that work today and you hope for the best and you adjust as you go along. Anything else you want to add before we get out of here, Jay?

J:
No, I just want to remind everybody, look, historically there’s never been a bad time to buy real estate. We don’t know what’s going to happen six months from now, a year from now, three years from now, but we have a pretty good idea of what’s going to happen 5, 7, 10 years from now, and that housing is going to go up in value. So don’t let anything we’re talking about today stop you from going out and looking at deals and buying them when you find them, because you will regret not getting started today a whole lot more than you would ever regret getting started today.

Dave:
Well said. Well, Jay, thank you so much for being here.

J:
Absolutely. Thanks Dave,

Dave:
And thank you all so much for listening to this episode of On The Market. We’ll see you next time.

In This Article

This article is presented by Lennar.

Most of us were taught that the best real estate deals are the ugly ones: the fixer-upper with peeling paint, a sagging roof, and shag carpet that should’ve been ripped out 30 years ago. You buy it cheap, you pour in sweat equity or contractor bids, and you force appreciation. 

That model worked for a long time. It still can, but the numbers just don’t pencil like they did 20, 15, 10, and even five years ago.

But here’s the thing: The market has shifted.

Renovation costs are skyrocketing, good contractors are scarce, and the “distressed property discount” isn’t what it used to be. I’ve watched more than a few investors chase those old-school deals—only to see their returns evaporate with every surprise repair.

Meanwhile, a quiet shift has been taking place. Investors have started realizing that the homes renters actually want aren’t the beat-up houses on the MLS. They’re professionally built, rental-ready homes that rent quickly, command premium prices, and remain fully occupied.

The Hidden Costs of Old Homes

Let’s be honest: Older homes look great on a spreadsheet. The purchase price is lower, and the rent might not be significantly different from that of a new house down the street. On paper, the cash-on-cash return looks solid.

But fast-forward two or three years, and reality sets in: The HVAC unit dies, the roof needs replacing, and that minor plumbing “issue” turns into a $10,000 fix. Your CapEx budget, which starts as a line item in Excel, becomes an actual drain on your checking account. Suddenly, that “8% return” you bragged about at the BiggerPockets meetup has slid closer to 2%.

It’s not just the money, either. Tenants notice when a home feels dated, the appliances are mismatched, or the A/C can’t keep up in the summer. And when tenants leave, vacancies and turnovers eat away at profits. At a certain point, you realize you’re running just to stay in place.

Why New Construction Works for Investors

That’s why new construction has started to look so appealing. When you buy a new home, you’re not inheriting decades of wear and tear. You’re starting fresh.

The first advantage is predictability. Most builders include warranties on major systems, structure, and appliances. For the first five years, your most significant expense might be landscaping and cleaning. That steadiness ensures reliable cash flow, a quality that old homes rarely possess.

Then there’s the tenant side. Renters want modern layouts, open kitchens, energy-efficient systems, and even smart home features. A recent Rently survey found that 65% of renters are willing to pay more each month for smart home features, such as smart locks and security cameras. 

This is just one of many data points showing that modern, tech-enabled homes command a premium. Higher gross rents plus less turnover? That’s a winning combo.

Running the Numbers

Imagine two scenarios.

Investor A buys a $250,000 home built in the 1980s. The rent is $1,800 a month. After taxes, insurance, and maintenance, they net about $1,100 before debt service. Not bad.

But in year two, the roof fails, costing $20,000. In year four, the HVAC dies, another $5,000. Over five years, that “great deal” doesn’t look so great.

Investor B buys a brand-new, $300,000 home. The rent is $2,000 a month. Taxes and insurance are slightly higher, but maintenance is nearly nonexistent. Their net is closer to $1,400 before debt service. 

Over the past five years, there have been no surprise CapEx hits. The return stays steady, and tenants are happy to renew.

Even though Investor B paid more upfront, they came out ahead because their cash flow wasn’t eaten alive by repairs and turnover.

Why Now Is the Moment

This isn’t just theory. The U.S. was approximately 4.7 million housing units short as of 2023, according to Zillow. Demand for rentals is through the roof, and tenants are competing for quality housing. Builders like Lennar are responding by delivering investor-ready homes designed for today’s renters.

We’re also in a unique environment where builders are motivated to work with investors. Mortgage rates have cooled a bit, resale inventory is still tight, and builders want to move their pipeline. That opens the door for opportunities that didn’t exist a few years ago.

And let’s not forget demographics. Millennials and Gen Z now make up the bulk of the rental market, and their preferences lean heavily toward modern amenities and energy efficiency. It’s no wonder demand for new construction continues to climb.

Enter the Solution

Here’s where Lennar has made things simple. Lennar’s Investor Marketplace delivers curated, turnkey new homes across 90+ markets, complete with trusted rental comps, built-in warranties, and end-to-end support, with financing, title, and insurance. 

Whether you’re buying one property or building a nationwide portfolio, the process is streamlined and designed for investors. Think of it as the difference between piecing together random deals on the MLS versus using a marketplace built for scale.

Let’s say you’re a busy professional who wants to invest in rentals, but doesn’t have time to manage renovations. With Lennar’s Investor Marketplace, you could pick up two new homes in a fast-growing market like Dallas. Rent them out, enjoy predictable performance, and grow your portfolio without the headaches.

Compare that to chasing older homes, fighting with contractors, and juggling higher turnover rates. One path feels like a full-time job. The other feels like investing.

Final Thoughts

Old homes will always have a place in real estate investing. Some investors enjoy the challenge of rehabbing and the potential upside that comes with it. But if your goals are steady returns, predictable performance, and scalable growth, new construction is worth a closer look.

With Lennar’s Investor Marketplace, you can access investor-ready homes nationwide, backed by warranties, data-driven insights, and end-to-end support. It’s never been easier to build a portfolio with confidence.

Disclaimer:

Statements made are based on currently available information, current market conditions and should never be relied upon. Market rates are based on market trends and other factors that can cause predictive statements to differ materially. This statement is no guarantee of the present or future market conditions and market values. Lennar makes no guarantee of present or future market conditions. Forecasts, projections and other predictive statements should never be relied upon. You should consult your own accounting, legal and tax advisors to evaluate the risks, consequences and suitability of any real estate transaction. All product and/or company names are trademarks TM or registered trademarks ® of their respective owners, and use of these marks does not imply any sponsorship, endorsement, support, or affiliation between the trademark owners and Lennar. This is not an offer in states where prior registration is required. Void where prohibited by law. Copyright © 2025 Lennar Corporation. Lennar and the Lennar logo are U.S. registered service marks or service marks of Lennar Corporation and/or its subsidiaries. Date 09/25.

In This Article

This article is presented by NREIG.

So you’ve acquired an investment property. You may already be mid-renovation, or you’re just planning out the reno for next year, and the unit is sitting vacant for now. 

If your investment situation falls into either category, you need to pay extra attention to it right now as the seasons change. Fall can be a tricky time of year for investors whose properties are currently vacant. As a rule of thumb, an occupied property is a more secure, better-maintained property. Even with all the risks inherent in having tenants, not having any is riskier still—especially during the fall. 

We’ll give an overview of the risk factors you need to be aware of—and cover what you can do to better protect your investment during this time of year.

1. Weather-Related Risks

If you live in an area prone to severe storm damage, you already know this. But even if you live in a region that’s not typically affected by severe storms at this time of year, you need to keep a close eye on any storms that may still hit your location as the seasons change. In fact, fall is known for its “second peak” of extreme weather in many parts of the U.S., with hurricanes often hitting the South and tornadoes forming as far north as the Midwest. 

What this means is that you may have to deal with unexpected severe weather causing damage to your property. Even a short-lived storm can be enough to make that old tree right next to the house fall over and hit the roof. An unexpectedly heavy rainfall during the fall can overwhelm the gutters and cause the basement to flood. 

Temperature Fluctuations

If your investment property is standing vacant and the main water supply has not been shut off, the property is at risk from frozen and burst pipes. 

Even if it’s 80 degrees outside this week, there’s no guarantee that in a week or so, nighttime temperatures won’t hit the freezing point. Once that happens, pipes with water still in them are liable to freeze and then burst (water expands as it freezes, putting pressure on the pipes).

This can even happen to homes that are occupied or where hot water is being used (for example, by your renovation crew): If the property is poorly insulated, large temperature fluctuations between daytime and nighttime may be enough for the pipes to freeze. 

Water Intrusion

No one at the property to clear leaves from the gutters and drains? Over time, clogged drains will put the unit at risk of flooding, or worse, cause damage to the building’s foundation. 

Why is that? Because all that rainwater, when it’s not being properly directed away from the house by the drainage system, pools and saturates the soil directly underneath. That soggy soil expands, pressing against the building’s foundation. Don’t underestimate the power of this expanding soil: It can cause the foundation to crack. 

2. Fire Risks

If a vacant property is completely disconnected from a gas and/or electric supply, it is safer than a property left vacant with the gas and electric still on. 

Any number of things can go wrong here: If a furnace has faulty wiring, that can catch on fire. A gas leak in the case of the furnace being compromised is extremely dangerous and can lead to a massive gas fire/explosion. A cracked heat exchanger inside the furnace can lead to an internal component igniting. And the list of potential issues goes on. 

It is understandable that, as an investor, you might want to keep the heating on to eliminate the chance of frozen pipes and mold. But in that case, you must ensure that the HVAC system is regularly inspected for safety.

Outdoor Fire Hazards

It may seem like fall is not the time to be concerned about wildfires. However, there’s plenty of evidence that the wildfire season is getting longer every year. And although significant wildfires are still unlikely to happen later in the fall, if your property is anywhere near a woodland that experiences summer wildfires and the weather is still hot and dry in early fall, you need to make sure those leaves around the property are gone—they could easily ignite.  

It’s not all Mother Nature’s fault, either. According to the U.S. Fire Administration, 34% of fires in vacant properties are set intentionally. 

The Importance of Tenant Education

Here’s a bit of good news: Having tenants at a property can reduce these risks. But, like everything else, it’s a trade-off: Having tenants at a property increases the possibility of other things going wrong, now with people inside, which is, of course, even worse. 

Don’t assume that most people possess common sense. Your perfectly nice tenants might be ignorant about the correct way to use a space heater (and the fact that it can catch nearby flammable materials on fire), or about the fact that the pipes will freeze and burst if they keep the thermostat too low. 

3. Vacancy & Renovation Exposures

Here’s a real-life story for you: A tiny leak from a bathroom faucet that wasn’t turned off all the way caused a severe mold infestation at an empty vacation property, to the point where it was in the walls and floors and took months to clean up completely. Problems that are small and easily fixed when someone is there to look after a property can have exponentially huge consequences when the property stands vacant with no one to maintain it.

This doesn’t just go for water damage. A mouse or two can be easily exterminated with timely traps. A population of a few hundred living under the floorboards? That will take a while to tackle.

Likewise, an invasive plant like Japanese knotweed growing next to the house? You can remove it easily while it’s still young, but if it develops a robust root system, you could be in for thousands of dollars in expenses trying to eradicate the weed.

Periodic inspections of any investment property go a very long way toward preventing a small problem from becoming so big that it could ruin your whole investment.

Theft and Vandalism Threats

This problem obviously varies by area, but even remote locations with low crime can be targeted by people desperate enough to break into a vacant property. This is especially a problem when a building is visibly undergoing renovation: Thieves will target it for building supplies, tools, and anything else that might be worth money. 

Sadly, you can’t assume that because your area doesn’t experience much crime, a theft definitely will not happen. But you can take measures to prevent it, e.g., installing a decent alarm system or surveillance camera.

Squatters: Prevention is Key

Again, depending on where your investment property is, once someone takes up residence in your vacant property, it may be difficult to remove them, since some areas have squatter’s rights laws. And even in areas that do not have such protections in place, people living in your vacant home, essentially off-grid, means potential damage from a DIY fire (since they won’t be using gas/electric and paying for utilities). 

It is much easier and less costly to prevent squatters from establishing themselves at your investment property by having it regularly inspected. Most people won’t try squatting at a place that’s often visited. 

Mitigate Risk With a Seasonal Maintenance Checklist 

Despite all the potential risks, there’s a lot you, as the property owner, can do to mitigate them. Consider the following steps a mandatory part of your investment property fall maintenance routine:

• HVAC & furnace inspections
• Chimney/fireplace cleaning
• Gutter clearing and roof checks
• Tree trimming and yard cleanup
• Securing vacant/renovation properties: locks, alarm systems, lights, inspections

Protect Your Investment This Fall

Vacant properties are always more at risk, both from accidental damage and from crime, than those that are occupied. Fall, with its unpredictable and often dramatic weather, exacerbates many of these risks. From water damage to frozen pipes and even fires, the shoulder season between summer and winter can throw a lot at an investor. 

Your best bet if you are renovating or have not yet leased your investment home is to have it regularly inspected for any issues. Remember: A problem noticed and fixed in a timely manner will cost you much less than one that’s left unnoticed to fester and potentially eat into your ROIs or, even worse, ruin your investment. 

Don’t let this happen to you. Keep a close eye on your investment and maintain it in the same way you would a home that’s occupied. 

For added peace of mind, partner with the industry experts at National Real Estate Insurance Group. With coverage built specifically for real estate investment properties, NREIG protects vacant, renovation, and tenant-occupied homes and provides maintenance checklists and other resources to help investors mitigate property risks.

In This Article

Every landlord longs to fill their rental units quickly. In many cities, finding tenants is the least of a landlord’s problems.

According to a recent report from RentCafé, landlords are struggling to keep up with demand for their dwellings as competition among tenants for vacant units has reached new highs. Some rental markets are filling up so quickly that developers cannot build housing fast enough.

Recent headlines about dismal home sales in South Florida have led to increased competition for housing among tenants, with Miami being RentCafé’s hottest rental market, followed by Chicago. However, demand for rentals in the Magic City and Windy City is for different reasons.

Why Rental Demand Is So Intense

Affordability and high mortgage rates

This is hardly a new narrative. High mortgage rates have directly influenced new homeownership and increased the demand for rentals. 

This is particularly true in pricey housing markets such as Miami. Miami’s broad-based demand is driven partly by its climate, lack of Florida state income tax, and amenities. RentCafé data showed that Florida was the most in-demand region for apartment seekers at the start of the summer moving season.

Additionally, Miami attracted corporations, startups, and affluent tenants, causing apartments to be filled in just 32 days. There were 19 renters for each available unit, more than twice the national average. The limited supply resulted in 71.8% of renters renewing their leases, which pushed occupancy up to 96.5%.

Supply cannot keep up

Every real estate market is about supply and demand, but in Chicago, which has a history of rezoning, keeping its suburbs, such as Aurora, Naperville, Joliet, and Elgin, reserved for predominantly single-family homes, finding rental accommodation here is tough. 

Thus, 60% of current tenants chose to renew their leases at the start of the moving season, resulting in an occupancy rate of 95.4%. Each apartment attracted 16 potential renters, filling them in an average of 29 days.

Lease renewals are congesting turnover

Lease renewals played a major role in fueling demand. At the start of the 2025 leasing season, national renewal rates climbed to 62.7%, up from 62% the previous year, according to the RentCafé survey.  

Profit margin pressure pushes landlords to compete for stable tenants

It’s cheaper to keep her (and him). The cost of replacing a tenant, including painting and updating an apartment, marketing, and lost rent, can be substantial, even when a rent increase is factored in. That’s why landlords push to keep reliable tenants.

According to Zegos’ 2025 Resident Experience Management Report, the average resident retention rate for multifamily companies is 63%—the highest since tracking began in 2021. The number of property management firms targeting retention rates of 70% or higher has more than tripled in the past four years.

Other National Rental Hot Spots

Minneapolis, MN

The Twin Cities of Minneapolis and St. Paul don’t have enough housing to go around, according to the Minnesota Realtors March 2025 Housing Market Report. Zoning regulations and citizen input (commonly known as NIMBYs, or Not In My Backyard) are being blamed. 

Minneapolis is the lowest out of 128 Midwest cities in new housing development, according to the MinnPost. The result has been a rental increase from 2019 to 2025, by almost $200 a month, with rents for unsubsidized apartments now more expensive than the mortgage payment on an average single-family home. 

Milwaukee, WI

Dubbed “One of America’s Most Cutthroat Rental Markets” by The Wall Street Journal, Wisconsin’s largest city is experiencing extreme rental demand due to slow development.

“The lack of new supply is what’s making Milwaukee a hot rental market,” Chad Venne, the real estate program director at the University of Wisconsin-Milwaukee, told the Journal.

Brooklyn, NY

NYC rents surged at the start of 2025, according to commercial real estate website Globe St. The city’s ever-fashionable borough of Brooklyn was in high demand, experiencing a 1.4% year-over-year rental increase in September, according to Apartments.com.

Redfin’s Hottest Neighborhoods of 2025 saw the ZIP code 11238, encompassing Prospect Heights and Clinton Hill in Brooklyn, earn its coveted top spot due to year-over-year growth.

“Many companies now require workers to be in the office at least two to three days a week—so people are coming back. In my opinion, Brooklyn has become even more popular than Manhattan,” said Redfin Premier agent Ian Rubinstein in the company’s press release.

Rochester, NY

Apartment Advisor surveyed its list of the most competitive rental hot spots, with Rochester, New York, coming out on top. It attracts priced-out renters from other cities and remote and hybrid workers looking to maximize their rental dollars. Rents increased by 14% over the last year, as the city experiences a housing shortage, with a projected 24,000 new apartments needed by 2040.

Other cities featured in Apartment Advisor’s survey of high-demand metros include:

• Allentown-Bethlehem-Easton, PA-NJ 
• Riverside-San Bernardino-Ontario, CA
• Baltimore-Columbia-Towson, MD

Final Thoughts

Prospective new landlords might have a tough time finding rentals in high-demand markets such as Miami and the Chicago suburbs, but tertiary markets surrounding these cities could provide good opportunities.

The U.S. housing market is not monolithic and liable to change. Monitor new business development (data center construction is transforming many rural areas), changing zoning laws, housing initiatives, and new transportation development for investment opportunities. Equally, finding single-family rentals in suburban areas within commuting distance might offer greater availability, fewer regulations, and less tenant churn than multifamily housing.

Smart strategizing also plays a crucial role in running a profitable rental business, and it doesn’t always mean jacking up rents at every opportunity, as many larger complexes do. As it can cost around $5,000 for many landlords to replace a new tenant, maximizing retention is imperative.

Despite record construction in some areas, the U.S. still has a chronic housing shortage, which is fueling the housing crisis. For landlords willing to scrutinize each market and strategize well, continued opportunities await.

Ashley:
Do you think that you need a dozen properties to break free from your nine to five? Today’s guess proves that you might only need a couple. Just two years ago, Dylan Pettyjohn was still hustling at his W2 job, saving every dollar for his first rental when an off market deal felt right into his lap and changed everything.

Tony:
Now Dylan has a 15 unit portfolio that brings in a serious cashflow and has helped him ditch the corporate grind for good. And in this episode, you’ll learn about the power of partnerships, the benefits of having several units under one roof, and how to stay steady for when that next big opportunity comes your way away.

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

Tony:
And I’m Tony j Robinson. And let’s give a big warm welcome to Dylan. Dylan, thanks so much for joining us today, brother.

Dylan:
Thank you for having me here. I appreciate it.

Ashley:
Dylan. Let’s start off with your first deal. So this was an off-market pocket listing. What relationships actually put you in that position to be able to get a pocket listing call from your agent?

Dylan:
I think it really helped that I had a relationship with the agent beforehand. This was the agent that has worked with essentially everybody in my family, helping them buy their single family homes and such. So he’s already done a fair bit of transactions with us, so he was willing to do a little bit more footwork to help me on this one, but I also gave him my exact criteria for what I was looking for, whether it was duplex, triplex, or a quadplex. I had a criteria on a cash on cash return metric that I was looking for, and essentially he would send me anything that was roughly that and if it didn’t fit exactly what I was looking for, I would tell him why and then he would continue to send me other properties. And eventually we just had something that popped up in their office that was about to be listed the next day and he said, Hey, if you want to go check this out, this other broker in my office has this and I can show you it beforehand and you could put an offer before it actually lists on market. So it never actually touched the market, it just listed as pending.

Ashley:
I’ve gotten a couple of those pocket listing deals and they are so nice because you get that first look at them, that first walkthrough and the two pocket listings I got, I actually ended up being the one to buy them. So I think it’s a huge advantage. What tips do you have for rookie investors to be able to get these pocket listings?

Dylan:
I think the agent needs to know that you’re serious because if they’re going to take that to you instead of going to one of the other investor clients they work with, they need to know that you’re actually going to perform on an offer. It just goes back to what I was saying earlier about they need to know that if they put this thing in front of you, you are actually going to execute on it instead of them sending it to you and you just saying no.

Tony:
Yeah, Dylan, I think one of the other things you mentioned that’s important in terms of building that trust in the agent is you had a pretty specific buy box and as a rookie investor, what steps should they be taking and what steps did you take to actually come up with that buy box? Because I think going to an agent and saying, I’m looking for a three bedroom, two bath, and this zip code built between this year and this year value add X, Y, Z conveys a lot more confidence than, Hey, if you find any good deals, can you send them to me? So how can a Ricky who’s starting out built that buy box?

Dylan:
I think you need to figure out what you want to do. In my case, I wanted to house hack, so I was willing to take less of a return to find the property that fit for me in the area I wanted it to be in and whatever the thing is that you want to do, whether that is a short-term rental, midterm rental or a long-term rental, or you want to do house hacking like I did in this case, you need to have a criteria for the type of return it needs to be and make sure it is good with the area that you’re investing in. You can’t just say that you want a 20% cash on cash return on a long-term rental because we all want that, but if you talk to the other investors in your market, they’ll give you a rough idea of what you should be expecting as far as returns in that area, and property managers can help with that too. So just narrow down what you really want to do and then build the buy box around that. And the best way to build your buy box is honestly, you should just underwrite dozens and dozens of properties. I probably underwrote a hundred or more different properties before I actually got this one.

Ashley:
Dylan, with this property, did you go ahead and tore the property or what were the next steps after you got this deal presented in front of you?

Dylan:
Oh yeah. As soon as we went to the property, because it was more of a thing where my agent called me and he said, Hey, there’s this property that’s going to list tomorrow. Do you want to see it right now? And I said, yeah, I just got off work. Let’s go right now. So we went and saw the property and once he told me the price after I had toured it and seen the condition of the units, the units were in a good condition, I probably could have rented them. It just wouldn’t have been what I ended up getting on the property. Now that I’ve made it more modern on the inside and completely renovated everything, but he told me it was two 50 for the triplex, and I just said, just give them full asking price, write it up tonight, I’ll sign it and then I’m good to go.

Tony:
Dylan, you offered on this property right after walking the property? There was. Okay, so let’s pause there for a second because I think that a lot of rookies can maybe do the legwork of finding the deal, but when it comes time to actually submit the offer, and understandably so their first time doing this, there’s a lot of hesitation around actually getting that offer out. So what was it about either your preparation or the deal that made you so confident to say, Hey, let’s get the offer out right now in this exact moment?

Dylan:
I think for me it was a combination of I had been waiting for a really long time to do a deal and this property just hit my buy box in multiple different ways. So not only was I it for two 50 and I was assuming at the time that the rents could do 3000, but it was also in a really good area in town. Some of the other properties I had looked at were not in my favorite areas. It’s not that it was a bad area, but this area is right downtown within walking distance of downtown. So I knew that I had to get this one specifically.

Tony:
So it sounds like Dylan, the preparation of you said you analyzed 100 deals before that. You do that enough times, it starts to become super apparent to you what a good deal looks like and what a good deal doesn’t look like. And what you’re saying is all of those deals you would analyze made it super clear to you in that moment that, hey, this is actually a really good deal.

Dylan:
Exactly. And I think you’re always going to feel nervous submitting offers. I feel really nervous sometimes submitting offers on some of the things that we’re offering to buy, but at the same time, I’ve done my underwriting, I understand what my expectation is, and then I also have a buffer on the expectation so that if it doesn’t go exactly how I planned, it should still work roughly at the rents that it is now.

Ashley:
Dylan, after you executed on this offer, what were some of the risks that you were taking by putting an offer on this first deal?

Dylan:
So essentially spending all of the money I had between the down payment and renovating the property, and I had never done anything like that before. So not only was I buying the property and doing all the renovations, but I was doing all the renovations myself. I had never laid LVP flooring. I had maybe painted a house for somebody like help paint some rooms, but I had never done electrical outlets, never leveled floors or anything like that. And luckily I just had enough people step in that are around me that are in different fields in construction that were able to show me different things and YouTube is a really big help for figuring things out. If you’re wondering how to replace an electrical outlet, you can go on YouTube.

Ashley:
We’re going to take a quick break, but when we come back, we’re going to go over your rehab budget and how it ballooned per unit and what changed your entire buy box. So let’s go there right after a quick word from our show sponsor. Okay. So Dylan, you’ve got the deal now the real education really starts once the walls come down. So take us into the day when you were looking at this rehab and realized that your budget was way off.

Dylan:
Yeah, it was about halfway through when I had realized that I spent all of the money that I had actually allocated to rehab a specific unit. I was doing them one at a time. I was rehabbing one and living in it, and then I was going to continue the next one and so on. I didn’t have all of the flooring orders done and I was already over the 8,000 I expected to spend on it because I assumed, oh, I just got to paint and I got to lay flooring. So that’s going to be the cost of flooring per square foot times 900 square feet, and then the paint is going to be $500. And I didn’t account for rollers or redoing all the outlets or anything like that. I did account for appliances, but something I learned on this one, I way overspent on appliances compared to what I spend now when I’m buying appliances for the apartments. It’s just something I didn’t know what I didn’t know. But yeah, about halfway through, yeah, I had some of the flooring there and I was like, okay, this is not nearly enough. I have to do another flooring order because there is waste and the fact that I’ve never done this before, there’s a ton of waste.

Ashley:
I can totally relate to that. When I did my first LVP job, I was yelled at multiple times for not measuring correctly or not cutting correctly right on the line. So I had a lot of voice to my first couple projects.

Tony:
But Dylan, I think you hit on something that a lot of Ricky investors will struggle with is how do you come up with a proper scope as someone who’s never created a scope of work before as someone who’s never handled a rehab before. So how has your process on creating your initial rehab scope of work, like the line items you’re going to hit in your rehab, how has that changed compared to that first property to what you’re doing today?

Dylan:
Well, one thing that I did on that first one is I just walked through the property and very briefly, I was only there for 30 minutes for the tour and I just started adding things to a Home Depot cart just to roughly get a good idea of what I’m expecting it to be. And then I added a few thousand dollars to that. So that’s how I was at five, and then I had three. There we are 8,000. That should be good. Now you can use tools like chat, GPTI found that’s wonderful to just figure out what’s the cost of painting in this area, what’s the cost of somebody laying flooring in this area? And that can give you a better approximation than I was doing on my initial rehabs. But the way I do it now is generally I’ll just have my contractor walk it and he’ll bid everything at once and then I’ll get another bid for it, and then I’ll compare the bids. Generally you’d want to get three. I really like the guy I work with, so I trust him to actually do a pretty decent bid and he just does all of the work for us. Now

Tony:
Obviously getting a GC I think is the best absolute way to get confidence in your numbers, but it’s also sometimes equal, right? Maybe the GCs are busy and maybe they’re not always able to go walk the property for you in the time that we need them to. And I think my best recommendation for Ricky’s and Ash, I’ll kick this to you afterwards because I’m curious what your approach is here, and I actually picked this up from Tar Yer and James both do some version of this, but basically walk through the entire house exterior first, just go all the way around the exterior, take a bunch of photos, then take a video of the entire exterior, then do the same thing in the interior of the photos from every single corner video walkthrough so you can capture everything. And then even if you only have 30 minutes inside the house, that’s fine because you don’t need to do everything.

Tony:
Then when you go back home, you can take the photos, the videos, the measurements that you got, and use that to build out a more detailed scope of work while you have your comps, the properties you’re trying to comp against. You can see their photos, their videos and what they’ve done and say, oh wow, I actually didn’t notice that they had whatever in the bathroom and I didn’t notice that when I walked it initially. And you can build it out in a little more with a little bit more detail. But Ash, I guess, how does that compare to if you were walking a property and maybe in a new market, what would it look like for you?

Ashley:
Yeah, I definitely take the same advice from TaRL, the photos walking through, but I do all the photos, things like that. But then I also do a walkthrough pen and paper where I have a notebook, I’m writing a bedroom one, but I’m usually starting in when you walk in the house and I go room from room closet needs paint closet needs a new rack, even if I don’t know what the fix is to something, I mention it, this needs to be repaired even if I have no idea what would actually go into that. So I make a written list too. And then I sit down at my computer and I go through each photo and I go through my list that I actually wrote out of different things. Then I’m sending it to my contractor. My contractor walks the property and goes through it, and then usually he calls me and he says, okay, I understand this, but I think you should do this here and settle, make the layout better.

Ashley:
One example is we did a pocket door one time for a bathroom and it just was the best decision I would’ve made the bathroom seem so cramped and tiny if we would’ve done a regular door again in there. So he goes through and makes his recommendations or I could save money on this, and then I kind of finalize it as he’s telling me changes we should put into it and then send it back to him. And he comes up with the estimate and breaks it down. Sometimes we’ve done it room by room as to kitchen remodel, 7,500 and it includes the cabinet, all countertops, whatever that may be. Sometimes it’s a material and labor. A lot of the times it’s just the labor cost and then it’s up to me to do the materials based upon what I want. And that too, we do have to go over together.

Ashley:
The tile I’m picking out is it going to be more labor because of the tile design that I want, which would increase his actual bid on it. So there’s a lot of little nuances like that that we have to make sure we’re on the same page about too. But that’s pretty much the process. And then for apartment turnovers, I don’t even go to the properties at all. I just have Daryl go there and he has a whole spreadsheet that he’s created that is every material that we’ve ever used in an apartment turnover. And then he just picks what he would need, how much of each, and he builds out the materials cost and then he adds in his labor to that. So for those ones, I don’t even walk the property or go to them.

Tony:
So moral of the story, everyone needs a Daryl basically, so they can just do the work for you.

Ashley:
Hey, I helped start the spreadsheet of like, okay, this is how you link and then go ahead and pick everything I put in there. But I think that spreadsheet, and I’m pretty sure it’s in the biggerpockets.com/resources or the.com/rookie resources, we’ve put a template up there of his creation that he’s made. So rookies can use it too. And then you can just plug in if you don’t like the LVP color, they’re picked for the apartments, you can just change it with something else in there.

Tony:
Well, Dylan, I know the property that you purchased, not only were you doing these kind of interior renovations, but the property itself was a conversion, meaning it wasn’t built initially as a triplex, it was built as a single family home and at some point it was converted into three separate units. And sometimes conversions can be great because if you’ve got a really big single family home, you’re able to generate more revenue by turning it into three separate units. Other times maybe a conversion can cause more issues if it was maybe forced on a single family floor plan that wasn’t ideal or if the execution wasn’t that great. Which one of those two did you fall into with this property? Was it a great conversion that really supported the triplex or was it maybe a conversion that was forced?

Dylan:
I would say this one was a pretty good conversion. I talked to my partner that owns quite a few single families and he was like, I’ve never bought these conversions because every time I walk into them they’re just terrible. They have, for example, like you may have electrical runs that are for one apartment that go to another apartment, even though the panels are split, so then you have to turn off breakers in different apartments if you’re working on something or some of the water lines are all tied in together or the quality of it in general is just not very good. He did say that this is the best one he has ever seen as far as conversions go, so I’m happy about.

Tony:
Well, that’s good news. So I guess were there any issues actually either performing the rehab or managing it once the rehab was done because of their conversion process?

Dylan:
On this one, no. I have actually had a really good time with all of the people that live there currently. So one of the residents has lived there for, I think it’s 13 years. And what I did was, you guys know Dion McNeilly’s binder strategy? I’ve used that on literally every property I own. If I get inherited tenants, I’m not opposed to keeping the people that are living in the property because I know if it does end up being any issues that we can just take care of that down the line. But if it’s somebody that’s been there for 13, 14 years, I can trust that they’re going to be fine to continue. The other people I’ve had move in have been people that just knew me through the community and they’ve been great so far too. I will say that with some of the different units you can notice maybe there’s sound that can bleed through into a different unit.

Dylan:
Sometimes we don’t have that issue as much because all the people that live there are relatively quiet, they’re not super loud, they don’t have kids running around. So it’s been pretty good to manage for me. But I have seen some that I do not want to buy because I know that they didn’t properly insulate everything. So you have sound constantly bleeding through and tenants complaining about that or there’s an upstairs neighbor and they didn’t plan that out to where you’re going to have the flooring dense enough to cancel out the sound and stuff like that.

Ashley:
Tony always loves the story of an apartment I used to manage where the tenant sent me a video and it was a video of her wall, but was the noise was the tenant upstairs slamming her toilet seat down after she went to the bathroom? And that was when I would rip my hair out and cry. I couldn’t handle the tenants anymore and decided to outsource it to property management. But yeah, you think it may not be a big thing, but that to me was the worst part of property management was dealing with tenant issues between tenants and if you’re able to prevent some of those things from happening, it can save you a lot of headaches down the road because who wants to live next to someone that’s making noise and then who wants to live next to somebody who’s complaining if you can? And I think of that with common areas too.

Ashley:
When you’re buying small multifamily, if they’re sharing a common area, are you going to have a cleaner come and clean it? Are you going to make them both responsible? Are they going to get upset because one person cleans it, one doesn’t. So there’s a lot of things that I’ve learned along the way to actually think about these people are living together. What are some of the issues that could come up with this property that I want to be proactive about and maybe prevent or possibly not purchase the property because I already know it’s going to be a headache down the road.

Dylan:
I was just going to say as of late, I’ve just tried to avoid anything that’s like an over under, unless it’s a purpose-built multifamily property because I don’t want to deal with anything like that where there’s sound bleeding through both ways. Or one neighbor is smoking in the upstairs apartment, not smoking inside, that’ll get you kicked out, but smoking on the porch and outside and it’s going downstairs or vice versa. I just don’t want to deal with that.

Tony:
Now on the topic of tenants and managing those tenants, what policies and maybe paperwork have saved you from rookie mistakes when it comes to tenants and deposits? And I guess is there anything that’s maybe burned you that you’d change moving forward?

Dylan:
I should not lock people in on one year leases when I first get the property. And that’s something that I learned on the 12 plex because on the triplex property that I bought, I locked the lady in that was living there currently for another 12 months just at what she was at currently. So it didn’t shake anything up. And instead I would start to do those either on a month to month or maybe a six month. So I do have the opportunity to do that bump within that year because now I’ve gotten to the point on that one where I’ve, property taxes have chased up to where I bought it at, but I’ve needed to raise her rent and then I had to do that after I had already gotten billed for the property taxes. Luckily, I did get the other two units up just because I had rehabbed those two. So those are up to market currently, but

Ashley:
So with the tenants and the renting, you mentioned doing the binder strategy to slowly increase the rent or make it their decision as DN says. What are some other things and lessons you have learned along the way now that you’ve become a property manager and landlord? Are there certain systems and processes that you’ve put into place?

Dylan:
So as far as late fees, I used to be more of a stickler on this kind of thing and just saying, Hey, if you pay late, you are late. And that’s that what I’ve started to do more because it doesn’t happen often, but people have situations where they do need somebody to work with them and actually care. And that’s something that I’ve tried to do with all of the people that do live in the properties is understand the situations, but then also whenever any issues come up, that’s the number one complaint I get from residents that live at my property that have lived at other private landlord’s properties is they just don’t care and they don’t fix stuff quickly. So a month might go by before something silly gets fixed like their stove isn’t working. I’ve had to replace two of those in the past week just because the property I bought, they’re getting relatively old.

Dylan:
But yeah, just actually care and take care of people quickly and I feel like they’ve all really appreciated that and I think that’s reflective in the fact that everybody always pays rents on time. And if they’re not going to, they actually will let me know ahead of time like, Hey, I’m switching jobs, so I might be a few days late and I’ll say, okay, I just went and talked to the other guy that owns the property. I got the late fees waived for that. Just pay it when you can. Provided that it’s that day that they’re telling me they can pay by.

Ashley:
Yeah, I think and not only moving fast on the maintenance, but just communicating. If you can’t get a contractor out there right away, but you are constantly communicating as to thank you, I’ve received your maintenance, I’m going to contact the vendor. I contacted the vendor, they said they could be there Tuesday, does this work for you? Just a reminder, today’s Tuesday the contractor is coming in following up, the contractor didn’t have the part. I am so sorry we’re doing everything that we can for him to get the part or whatever. And I think that goes a long way instead of just you, they submit a maintenance request, they don’t hear anything, and then randomly they get a call a couple of days later, a contractor is coming on their way to the property to check it, the contractor leaves. They don’t really know that much, the contractor doesn’t communicate what’s happening.

Ashley:
So I think a lot of that follow up and communication, and there’s a lot of property management software that has, you can add notes, you can indicate every step of the way of this maintenance request from it being submitted to completion as to what happened. And that’s not only nice for your tenants to know what the process is and where it’s at and what’s happening, but also if there are any issues down the road. I just went to court to small claims court and having these logs and logs of records of being extremely efficient with maintenance on the properties, it saved me to show that I definitely was taking care of things when this tenant didn’t try to pay rent. So not only just communicating with the tenants, but also for your own protection too,

Tony:
And Dylan, yourself managing all of your units.

Dylan:
I will not pay a property manager because it may be 10% of gross, but if you actually do the math, a lot of the times it seemed like it’s 40 to 50% of net if I’m paying a property manager.

Tony:
Yeah, that’s a very valid point. And actually we talked about this on a previous episode, but a lot of times too, PMs will have their own maintenance company and maybe they’re charging a little bit more than what going rates are. And you start to realize, man, that’s really eating into the bottom line here. So interesting. Well up next, Dylan, you jump into a 12 unit and strangely it feels easier than the triplex and created four times the equity. So we’re going to unpack the financing, the partnership, and why commercial maybe isn’t as scary as a lot of rookies think it is. But first we’re going to take a quick break to hear word from today’s show sponsors. Alright guys, we’re back here with Dylan. Dylan, I just want to jump in. Why did the 12 unit that you purchased feel easier than the triplex?

Dylan:
Because less of the attention to detail was on me. If you’ve gone through well, you’ve definitely gone through, but going through a residential transaction, everything is focused on you and your ability to pay that for that property. Now they may factor in if there’s leases 70, I think it’s 75% of the gross rent for the lease with the commercial property, they’re looking at the deal specifically and if it’s something that they want to be part of, they look at the debt service coverage ratio of the property to make sure it’s something that’s going to be safe for them to give you the money for.

Tony:
And when you say they, Dylan, who are you referring to?

Dylan:
The bank. So do you want me to clarify that?

Tony:
No, yeah, how you said it was fine, but yeah, you can continue.

Dylan:
Oh no, no, no. I was just going to say that the bank looks at the debt service coverage ratio, so it makes it a lot easier. As somebody that definitely did not qualify for that property, I was able to bring in somebody else that could sign on the debt with me. And yes, we both had to sign personal guarantees, but we were able to get the deal done and we’ve created quite a bit of equity from that deal too.

Tony:
So I definitely want to break this deal down. But you said that you couldn’t have afforded it by yourself. What was the purchase price on this? Because you said the triplex was 300 or two 50, somewhere in that ballpark. What was the purchase price on the 12 unit?

Dylan:
So the triplex was two 50 and then we got the 12 plex under contract for 7 75. Initially we started at nine 50 and then we just negotiated it down based on our rates being higher. This was last year, so rates were still in the sevens is what we were looking at. We ended up getting a rate a little bit lower than that, but still we were using that as a point to leverage against the price to get the price lowered.

Tony:
So just quick math, right, you said you picked it up at 7 75, that’s about 65 KA unit compared to, what is that, 75 KA unit? Maybe almost 80 KA unit on the threeplex. So significantly cheaper on a per unit basis. And in terms of actually getting approved, you said that it wasn’t just you but you brought in a partner. I want to drill into that a little bit because I think it’s an approach that a lot of Ricks like the idea of like, Hey, I want to take down this bigger deal, but I don’t necessarily have the ability to do it by myself. Ash and I wrote a book for BiggerPockets called Real Estate Partnership. So we believe in the power of partnerships, but I think the million dollar question, Dylan from everyone is where do I go and find this person who’s going to help me buy these properties that I can’t afford? So how did you find this person?

Dylan:
So I had pre-negotiated the deal with the seller of the property and we had gone back and forth, figured out a price that they were approximately before. I was willing to go out there and start talking to other investors to see who would be willing to do it. Luckily at the company I was working at, there was another guy that’s been buying real estate for quite a while. He’s been buying since 2019. I just started when I bought that triplex in 2023. So I showed him the financials and I said, is this something you’d want to be part of? Because I didn’t think this guy was going to want to sell this this year. I was thinking the conversation I was having with him was maybe in two years, three years, five years, I could buy your 12 plex from you. But he was like, no, I want to sell it right now. So I talked to this other guy and he luckily had the money for it because he’s been investing for a lot longer than me and he’s just let the cash stack up on the sidelines. So he was able to be a large portion of the down payment and I came in with a smaller portion of the down payment just to get the deal done, but it’s been great thus far.

Ashley:
Now with the commercial side of lending, you mentioned that you have a personal guarantee on this loan. Can you explain what the difference between doing the commercial loan, getting the personal guarantee is, and then the residential loan? You talked a little bit about the debt service coverage as to what it looks for. What are some of the other key differences? Because as a rookie investor, you don’t have to do the residential, even if you’re not buying a 12 unit, it’s just a single family or a duplex, you can still get the commercial side of lending. Can you give a little more insight about the differences between the two and maybe why a rookie investor would want to choose that option?

Dylan:
Commercial is going to be really good if you’re trying to qualify a property just from an income perspective, instead of just buying a property that’s going to need rehab beforehand, we had proof that this property was already able to cover the debt, so it was something the bank was willing to lend us the money on. Now, there may be some projects where you can give the bank a estimation of what you think everything is going to be like after a few months. I’ve talked to them about doing deals like that, but it’s just going to be significantly easier to get financing this way. And also it keeps the debt off of your personal credit statement. So when I pull up Credit Karma, this debt doesn’t pop up like my other mortgage does because it’s under an LLC. So it’s our company that owes the debt.

Dylan:
I signed the personal guarantee though personally guaranteeing the fact that me and my partner will cover this debt over time. Another key difference between commercial and residential financing is on the residential financing side, you’re blessed to have 30 year fixed rate debt. We just don’t have that on the commercial side. There are some DSCR products that you can find, but for the most part, in my situation, working with a community bank and that’s who I try to work with because I like to build the relationships with the banks around us. You’re going to be looking at 20 to 25 year debt and it’s going to adjust after a period of five to seven years. In our case, after five years, we have to go get a new interest rate with the bank. Now I’m hoping that’s going to be in the fours or fives in five years and not the sixes, but we’ll see.

Tony:
So there’s a lot of flexibility. And you talk about building the relationships with the local banks. And that was actually my next question, Dylan, was how did you find this bank? You just did a Google search, did you know someone who was already using them? Where can Ricky’s go to find these small local community banks to lend on their deals?

Dylan:
Yeah, so I would honestly just go on Google Maps and search for, you could use chat GPT, that’d probably be faster to be completely honest. But search for local community banks in your area and then just call all of them. That’s what I did to figure out who was going to be willing to give me the money for this.

Tony:
And when you say call them, let’s say you call, they pick up the phone, what exactly are you saying to them? Are you saying, Hey, I’ve got a deal, can you give me money? Or how does that dialogue actually flow?

Dylan:
Yeah, so just calling the bank, asking them to transfer me to the commercial loan department if they have one. Some banks will just say that, oh, we don’t have that because I was just going down a sheet calling the people that would potentially work with me on that. And then letting them know what you have in mind for the deal beforehand, since it was off market, it wasn’t anything that was urgent. And then generally what they’ll do in this case, what my bank did is they’ll send me a term sheet, which is essentially like my pre-approval letter to say that they will do this deal with me, and then that’s when I can finally get the offer submitted with the seller and then we can start going through the due diligence process, which is quite a bit more expensive than it. If you’ve done a few residential deals paying for some of those commercial things,

Tony:
It adds up and we can talk to due diligence. But before we leave the topic of the community banks, how many do you think you called in order to find the right one to fund your deal?

Dylan:
Yeah, luckily this is one that’s right up the street in my town, but I called at least 2030 banks just around town to see who was going to have better products. And it just turned out to be that this bank that is local to my town has been here for 200 years, has the best product because they hold the loans on their books.

Tony:
And we interviewed my lender, Jeff Wegen on a recent episode, and in that episode, and really in a lot of episodes, we shared that different lending institutions offer different products, and obviously they’re all going to give you a mortgage, but the terms of that mortgage and how much creativity and flexibility they have, it does vary and sometimes significantly from one lending institution to the next, what Chase or Bank of America can offer is probably very different than this small community bank that Dylan went to for this deal. So just a reminder for all of our Ricks to shop, and Dylan said he called 30 different banks, so you got to put in the legwork. One last question from you, Dylan, on the 12 unit here. We talked earlier about you increasing the value walk rookies through what that actually means on commercial real estate because for a traditional single family rental, the value of that home is 99.9% of the time tied to what other comparable homes in that area have sold for. So it doesn’t matter how much revenue the property’s generating as a rental, it’s how much did John doe’s house sell for next door? How was that different on the commercial side and what specifically did you see for this property once you took over ownership?

Dylan:
I think this is the beauty of the commercial space and what’s probably going to get people to want to go out and do a commercial deal after this is the fact that commercial properties are valued based on the income and the trading cap rates in the area. And all a cap rate is if you bought a property for a million bucks and it was making $70,000 a year, it’s a 7% cap rate. So if all properties are selling for a 7% cap rate, what if you raise the income from 70,000 to a hundred thousand dollars a year? Well, it’s got to get reassessed back at that 7% cap rate. So you just increase the property and value by whatever that difference is. That could be like 30, 40% in value just on moving the income on the property. And what that looks like for these apartment buildings that we look to buy is we find owners that have a property, they’ve owned it for a really long time, they’ve kind of got stagnant with the rents because they’ve owned it for so long.

Dylan:
They may even own this in cash. It really doesn’t matter to them whether they’re charging $700 a month or $800 a month for an apartment. But when we look at how that affects the value of the property on the backend, that’s really where you can take advantage of that as an investor in commercial real estate, unlike the residential side, because we can go add that value to the property simply by increasing the rents that we don’t have to do renovations or anything. Generally we are doing renovations to maximize how much we can get, but if you just simply increase the income on the property, you can add substantial value. And that’s why I am trying to focus most of my portfolio on commercial real estate.

Ashley:
Along those lines, what did you do in this deal or maybe you’re doing forward to get more creative with using the commercial lending? Are you incorporating any other type of creative strategies?

Dylan:
So something that I always do whenever I’m talking to sellers of a commercial property apartment building or otherwise, is I’ll try to find a way to give them multiple offers. Generally the price that they start out with is substantially higher than makes sense to pay as an investment. A lot of the times, I mean I’ve talked to some of these people, it’s just like, well, my lucky number is a million, so I want a million. And I’m like, okay, but it just doesn’t make the money to support that. We can try to figure out how to make that work. But what I’ll try to do is if they have a number that I can try to get close to by doing creative financing, I’ll try to give them a few different types of offers. One might be a interest only loan for seven years and then it balloons out after that.

Dylan:
Or I might do something where they sell or carry back 40% of the loan. The bank gives us 50% because the bank always has to have more and they need first position on the loan to be willing to lend on it. And then we’d only need to bring 10% if you find a home run deal, even though you’re, what is that 90% leveraged on the property, that could end up putting you in a situation where you turn that 10% you put down into 30, 40, 50% or more. It just depends on how good of a deal you can negotiate.

Tony:
The last thing I want to hit with you, Dylan, is the actual partnership itself. So you told us how you found this person, coworker, which is great. You’ve kind of already built that relationship, but how did you guys actually structure the deal?

Dylan:
Since I didn’t have all of the money to bring to the deal, I was willing to take a smaller piece of equity in the deal. So in terms of equity, we have a table that’s split 80 20, but in terms of decision making, I have 50 50 with him. So anytime either one of us wants to make a decision on the property, we have to both okay it. And I just had him agree to that if he was willing to do the deal with me, because we both need to participate in the management of the property and just overall, I don’t want to be put in a situation where one of us thinks we should do something on the property and they have all of the rights to just say, yes, we’re doing that because I own 60% of the property and then the person owning 40 is just stuck dealing with it.

Tony:
Since you’re taking care of the management, are you also collecting a management fee?

Dylan:
Yeah, so I’m charging back for management as well. And we actually have a different way that we’ve negotiated this because I’ve never really liked the idea of just a property management company that charges a fee on gross. So property management companies that charge a fee on gross income aren’t really incentivized to save you as much money as possible. So we have a fee structure where I just charge him a percentage of the net income on the property. And I’ve talked to a few other investors in the area about that and they’re pretty excited about it, but I don’t know if I’d want to roll that out to more people just because I’m trying to keep it inside of our company where I’m managing that stuff. I’ll totally help other people find deals, but I don’t know if I want to manage anything for anybody else. Property management can be a headache.

Tony:
Yeah, absolutely. And I think it makes sense on larger properties where that bottom line is bigger, right? 12 units produces significantly more net profit than one unit. So doing it there I think makes a ton of sense. But you’re right, it definitely does incentivize the PM to not just focus on top line revenue, but also like, Hey, are we conserving costs? Are we protecting the asset in that way? I think there’s also something to be said. You said, Hey, I just want to get this deal done, so I’m fine taking 20% ownership because the true value Dylan isn’t even necessarily in the number of units or the equity, but it’s that you’re adding another property to your portfolio, so you’re building your track record, which will make the next deal, I think even easier for you. You’re building a relationship with this partner who maybe you guys can go on to do more deals together. And in general, it’s just making you a better investor. And I think sometimes rookies get so caught up on, I want to own the whole pie, but then they end with the pie that’s so small it doesn’t even do anything, right? So I just kudos to you for having a bigger picture view on the partnership.

Dylan:
I had that conversation with him when we were first looking at doing that deal, and he was like, are you really okay with only taking 20% of this? And I said, yes, because 20% of doing a commercial deal is better than not owning a commercial deal. I would rather learn the process now with the money I have, and then we can focus on buying bigger deals later. Did I structure the equity wrong as the person that fined and negotiated the deal? Probably not. I probably should have taken a piece of the deal just for doing that piece, because what I’ve learned since then is that that’s a really valuable skill to have and people value that. I’ve talked to other investors, they’re like, I would’ve probably just given you 20% equity in the deal just for the fact that you found the thing in the first place and negotiated it. But I wouldn’t go back and do it any differently because this gave me the opportunity to learn commercial real estate, and I’m happy to just keep this and continue to do other deals in the future.

Ashley:
I couldn’t agree more. Dylan, my very first deal, I gave up a lot. I gave up equity. I paid a mortgage to the money lender, what gave him interest, so he got all pieces of the pie, but I would not change that at all because it got me started in that first deal. So Dylan, thank you so much for joining us today. Can you let everyone know where they can reach out to you and find out more information about what you’re doing?

Dylan:
Yeah, of course. You can find me on YouTube under the same name, just Dylan Peton. The easiest way to reach me is on Instagram. If you’re looking at buying properties in the Indianapolis area, I am an agent and specifically work with investors, so feel free to reach out to me. Well,

Ashley:
Dylan, thank you so much. I’m Ashley. He’s Tony, and this has been an episode of Real Estate Rookie.

 

Dave:
This investor went from buying a single property to owning multiple apartment complexes and cashflowing $7,000 per month, all in less than 10 years. Peter was working a dead end job in 2018 when his brother suggested fixing up a house that was about to get foreclosed on. A year later, they each made nearly six figures. And then Peter was hooked on real estate investing and was willing to do whatever it took to build a profitable portfolio, including sleeping in his truck for several weeks while renovating a new property. That dedication has paid off with nearly a three x return and a repeatable new investing formula. Let’s hear exactly how Peter makes these deals work.

Dave:
Hey everyone. I’m Dave Meyer, head of Real Estate Investing at BiggerPockets, and on this show, we teach you how to achieve financial freedom through real estate. Our guest on the show today is Peter Fife from Provo, Utah. Peter started investing with just a single triplex and cold-called more than 20 lenders to find funding for that first deal. Today, he’s able to clear million dollars on some individual deals. He scaled up by getting creative and hustling to make deals work that other people overlooked, enduring a lot of short-term discomfort to achieve long-term success. Peter did all this by going all in. He burned the boats, and it’s not for everyone, but this is a super inspirational real estate journey that’s only getting better. Let’s bring on Peter. Peter, welcome to the BiggerPockets podcast. Thanks for being here.

Peter:
Oh, thanks for having me. I’m excited.

Dave:
Yeah, this is going to be a great show. Let’s start by hearing your background. Who are you? Where do you live, and how’d you get into real estate?

Peter:
I lived in Manta, Utah, farm town. Not a lot of access to real estate, not a lot of stories there, but I started out in real estate because I was kind of at a job that I didn’t want to be at for the rest of my life and had an opportunity to kind of fall on my lap with my brother and went from there.

Dave:
And where were you at that point, both financially and professionally? Were you working? What were you doing with your time?

Peter:
I was an intern working for a company that I was staffing recruiting for them. I was happy to have the job. They eventually moved me up to a salary of making 40 or $45,000 a year. So not really a ton there either, but it was while I was at that job, my brothers actually worked there as well, that one of my brothers came to me and he had said, Hey, there’s this opportunity of a triplex in the area. I have terrible credit. You have great credit. I have money. You don’t, let’s kind of go in on this together. We’ll use your credit, my money, and we’ll see if we can flip this thing together. So that’s kind of how it got started.

Dave:
So it was a triplex in your own area. And how did he come across this?

Peter:
He was living in the same city, and I think as he was walking along, he just kept passing this triplex that was in terrible disrepair, and it turns out that the owners were kind of in the middle of a nasty divorce, and so they just needed to liquidate the property, and he happened to be there at the right time.

Dave:
What year was this?

Peter:
This was in 2017.

Dave:
Okay.

Peter:
So we walked into this triplex and the walls were brown. We thought that the owners had just painted to brown. We’re kind walking around, knocking on some walls. It’s like an old pioneer home. And after about three minutes of us faking, we knew what we were doing. We both kind of turned to each other and we were like, dude, we’re screwed.

Dave:
But you had already bought it?

Peter:
Yeah, we bought the house. We’re like, we don’t know. We’ve never even installed a toilet. We maybe painted a couple walls like, what the heck are we doing? It was crazy.

Dave:
I think that moment of panic is a ubiquitous across all real estate investors. I don’t know, people listening honestly, still have that. Sometimes when you buy something, you’re trying something a little bit new where you have that moment of panic. I want to hear how you got through that, but curious, first on just sort of the details of the deal. How much was it and how, given that you were starting one of you low credit, one of you, not a lot of money, how did you actually structure this deal and close on it?

Peter:
Yeah, so we found a local credit union that was willing to do a 10% down payment investment for an investment property. So he was able to front that with my credit. So we bought that thing for $240,000. We did all of the work ourselves, literally everything. We got it all checked by inspectors and whatnot. It was all done well, but after all was said and done, when we walked away, we sold it for $420,000.

Dave:
Wow.

Peter:
We each made a good amount of money on that one.

Dave:
And the goal was always to flip it, not to hold onto it.

Peter:
Yeah, always to flip it. And I had no idea about holding real estate properties. That was just kind of like, man, this is an opportunity to make more money than I’m making right now in my job.

Dave:
So you weren’t like, oh, I’m on the financial freedom path. Or at that point at least you’re just kind of like, yeah, making a couple grand. It sounds pretty good.

Peter:
And I do remember after closing, signing the paperwork and then I saw the money hit my bank account, and I was like, holy smokes. I just made more money on that than I will in almost two years of work.

Dave:
How painful was it though, because you had no idea what you’re doing by your own admission, was it? How steep was that learning process?

Peter:
It was brutal. So we would work our day job until four 30. We’d come home, I’d give my wife a kiss, shove down some dinner, and then he and I would be working from probably five 30 or six to midnight every night for that entire year. And his kids would come by and say hi to him. But we were working every night, so we maybe had a few days that accumulated maybe a couple of weeks throughout the year off, but we were working every night.

Dave:
How did you go about learning how to do this if you’d never done it?

Peter:
Yeah, YouTube University.

Dave:
Yeah, that’s what I figured you’d say. You just pick the project at night. You’re like, how to drywall, how to install how in toilets? Oh, yeah. Okay. There’s a wax ring under this thing. Okay, cool. Okay. What was the hardest thing?

Peter:
Rats. Oh, no, that was the nastiest thing. So yeah, we had found buckets of these rat traps that the previous occupiers. Yeah, we had to eradicate the place with rats, I think scrubbing down the walls. We thought they were brown. Turns out they’re white. They were brown because of the nicotine that had been smoked inside. Oh

Dave:
My God. Yeah, I’ve seen those kinds of houses for sure. But man, Peter, you are not doing a good job selling the idea of real estate. I mean, the check sounds good, but you’re making this sound miserable. You’re laughing though. I know it’s hard when you do it, but looking back on it, it sounds like it was worth it,

Peter:
Right? Oh, so worth it. I mean, to be honest with you, as of a couple years ago, my wife and I could have retired. Oh my God, we could have retired and maintained our standard of living. Our standard of living isn’t phenomenal, but any stretch of the imagination. But I mean, if I were to have died two years ago, my wife and kids would’ve been able to maintain their standard of living forever, which was really awesome.

Dave:
Well, that seems super motivating. I mean, you just took a huge swing right out the gate. Probably one of the hardest possible approaches to your first deal, buying it yourself, working with a partner, which is great, but neither of you really have experience in this and doing a full rehab, doing all of that DIY. But you did it and you made it work. So where’d you go from there? Were you in on rehabs or did you change your approach?

Peter:
Yeah, I was definitely in on rehabs. I kind of got that first shot of that high that I got when I walked out of that, and I was like, man, this is what I’m going to do. My brother had kind of stepped away for a bit, and so I just kind of like, okay, I’ll do this on my own. I found a property that was super cheap selling for $212,000. I thought that it would need maybe $30,000 of money into it, and I could sell it for like 320, and it was a mess. I didn’t have any money. Still.

Dave:
Can I ask what happened to the check?

Peter:
So that check went into us buying our home.

Dave:
Okay, so just quality of life, wanted to support your own living.

Peter:
And so I ended up going on Google Maps, and I typed in money and lender, and I called every lender and money result that came up. And on the 21st phone call, I got ahold of somebody, told him the deal, somehow convinced him that I could fix a house by myself in six months.

Dave:
And these were hard money lenders.

Peter:
Yeah, I guess mean this guy wasn’t necessarily hard money lender. This guy’s just money. You don’t even know.

Dave:
You still don’t even know you borrowed this person’s money. He was just like, did you just meet him behind a seven 11 and he give you a bag of money?

Peter:
I never met him. He was like, yeah, here’s my account number. Here’s my routing number, and for the expenses of the remodel, here’s my debit card. Just make sure all expenses go to the debit card.

Dave:
What I mean, I guess he’s the one taking on risk, but Wow.

Peter:
Okay. Yeah. Well, there’s a lot of risk on my side too. I said, look, if I can’t flip this in six months, then you can have my house.

Dave:
Oh, your primary. You put up your primary as collateral to a stranger on the internet.

Peter:
If this dude is willing to give me his account routing number, and the deal was going to close, let’s do it. And so he mailed me his debit card. And yeah, I worked on that house all day every day.

Dave:
I’m not going to lie. This is some shady shit now.

Peter:
I’m sorry. Hopefully this, I mean, I didn’t know what I was doing. I just needed money. So and I call and that close five months and 27 days later.

Dave:
Wow. Okay. Well, I want to compliment your hustle because that is awesome. I do respect the hustle. I know, honestly, it sounds like you really made it work. We’ll, just a word of caution. Caution to our audience, maybe don’t, not the best idea. Meet people on the internet who mail you your debit card. There are better forms of financing, let’s just say, and I had no idea there were. I didn’t know. No, I totally get it, man. I think at the beginning of my career did some stuff I would not recommend to our audience as well. In the spirit of hustle, you sometimes do something, but luckily, I think in today’s day and age, we’ve evolved this industry. There are a lot of hard money lenders. There are private money lenders. There are people that you can meet through the BiggerPockets community who maybe at least have reputation that you can check out, make sure that they have all the right paperwork in a row, that kind of thing.

Peter:
Absolutely. That’s what I did moving forward, was someone was like, Hey, you should go on BiggerPockets, check out their lenders. I was like, oh, okay. I didn’t know BiggerPockets had lenders. And so I kind of went on there, what’s a lender? Yeah, that’s kind of what it was like. And then from that point on, it was much more streamlined. I started doing several more deals and scaled up from there.

Dave:
Okay. So how did that second one, you said six months and you finished in five months and 27 days. How did that work out financially for

Peter:
You? That one I made, I think it was $42,000 on that one. Oh,

Dave:
Nice.

Peter:
Amazing. Which again, I was happy with. And I think more importantly, it gave me a good, it started giving me a good track record so that when I went to those hard money lenders, I could say, yeah, I’ve done a triplex. I’ve done this house now, and I’ve done it in the time that I’ve said I would do it at. And then they became much more willing to lend. To me,

Dave:
That’s the perfect way to do it. And you did all the work yourself again, but without your brother.

Peter:
Without my brother. So I did all of it myself, and I learned that the first go around for me, I’m guessing this is similar for everybody, but the first go around for me is arduous and slow, but then the second time around, I mean, it was easily twice as fast, so much easier.

Dave:
There’s just so many hurdles and research you have to do and mistakes, and you have to drive back and forth to Home Depot nine times in one day, and that’s just your life for a little while.

Peter:
Oh my gosh.

Dave:
And you were working full time right

Peter:
At this point? I had left my job. We were expecting our first kid, everyone thought again, thought I was nuts for leaving my job, and I did. Yeah, I was about two months away from our first baby being born.

Dave:
And was that just because you were at that point, bought in full send on real estate?

Peter:
For me, my decision came as I’ve always wanted to work for myself. I’ve seen people that are business owners, I’ve admired them, but I was terrified of starting a business, and I just thought, man, I’ve done this now a few times. This has now given me a good financial cushion. I’ll keep doing real estate while I try to start other businesses. And so that’s what I did. Every home that I flipped would translate into a business that I would try to start, which inevitably failed, and I flipped another home and I would fail that company. I failed enough to where I do have a couple of companies that are now working really well outside of real estate. That’s awesome. But there’s a graveyard of failed companies in the past.

Dave:
There’s no shame in that at all. I mean, starting businesses is really a brave thing to do. And personally, I think the best path to financial independence is owning your own businesses. And sometimes they don’t work. They’re high risk, high reward propositions. One of the reasons I love real estate is it offers a lot of the reward without a lot of the risk because sort of a proven business model. But I have also started businesses outside of real estate. Some of them have done okay, some of them have failed. That’s just the game.

Peter:
And the beautiful thing about it is that with real estate, if your business does do well, well, that money is going right back into real estate. And so that’s kind of what I’ve done. So it’s been a bit of a journey. So I’ve started a baby bottle company, which has been interesting really. And I’ve started a AI property management company, which just started, and it goes all over the place.

Dave:
Cool.

Peter:
But all that’s been funded by real estate.

Dave:
All right. Well, I want to hear how your real estate career evolved after that second flip and after you quit your job. But we got to take a quick break. We’ll be right back. They say real estate is passive income, but if you’ve spent a Sunday night buried in spreadsheets, you know better. We hear it from investors all the time, spending hours every month sorting through receipts and bank transactions, trying to guess if you’re making any money. And when tax season hits, it’s like trying to solve a Rubik’s cube blindfolded. That’s where Baseline comes in. BiggerPockets official banking platform. It tags every rent payment, add expense to the right property and schedule E category as you bank. So you get tax ready financial reports in real time, not at the end of the year. You can instantly see how each unit is performing, where you’re making money and losing money and make changes while it still counts. Head over to base lane.com/biggerpockets to start protecting your profits and get a special $100 bonus when you sign up. Thanks again to our sponsor Base Lane. Welcome back to the BiggerPockets podcast. I’m here with investor Peter Fife talking about how he quit his job right before he was having his first kid in the middle of doing a DIY flip on his second deal. Sounds like that deal worked out, but now you have your first baby, you now are full-time in real estate. Where do you go from here?

Peter:
Around the second flip, I started realizing, man, I need to start creating passive income.

Dave:
Okay.

Peter:
I’d listened to a lot of BiggerPockets. I had heard about the Bur method, and so with every flip that I did, I tried to divide the money that I made from that into two different properties, one that I would hold onto long-term, and then one that I would sell.

Dave:
I like that approach,

Peter:
And that’s kind of how I did it. So I would make $40,000. I’d find someone that would needed thousand dollars to buy the property that I’d hang on to, and then $20,000 for a down payment for the flip home.

Dave:
Okay. So you would rehab two properties essentially?

Peter:
Yes.

Dave:
You couldn’t be doing both yourself at that point

Peter:
Though, were you? No, was I was doing both myself. So it was very much like the ones that were multifamily, the duplexes, those would be the ones that I tried to buy and hang onto. They needed light remodel work, like new carpet paint, very much

Dave:
Cosmetic.

Peter:
They’re really heavy flippers. Those needed some serious work, and so I devote most of my time to those. But initially I would get this property turned around to this duplex, turned around as fast as I could so that I could get renters in there and start cash flowing.

Dave:
I mean, you must be good at this, because I bought my first deal, had that same moment where I walked in and I was like, what am I doing? I do not know how to do this. And then my experiences after that only confirmed, I don’t know what I’m doing when it comes to renovations. I’m not good at it. I am modestly handy. I could do a couple things, but I am not renovating or flipping a house by myself. So you must have either a natural ability for this or I would imagine you’ve come to like it, or how did you go from nothing to being so good at this?

Peter:
It was just the pressure of putting food on the table. I mean, kind of like what I was saying. I was taking part of that money to try to start a company that would fail, that money’s down the drain, and it’s like, shoot, I’ve got enough money to feed my family probably for the next six months. This flip has to work, and it’s only going to work the way I want it to if I’m doing it myself, which I grew out of. I started doing bigger deals and I hired, I now have a team that does all of my work for

Dave:
Me. Yeah, I mean, it sounds like you went with, I don’t know if you’ve heard of this book, there’s this book called Burn the Boats. It’s kind of like this idea that you sort of give up your plan B because then you’re all in on plan A and you put the pressure on yourself to perform. It sounds like you subscribe to that philosophy.

Peter:
Absolutely. I procrastinate until the last minute, unless I can’t procrastinate. And so for me, it’s like, well, the boat is burned. There’s no choice to procrastinate. I just have to

Dave:
Perform. So you mentioned that you now have a team. At what point and at what scale did you go from doing it yourself to hiring out some of the work?

Peter:
So I started realizing these flips are great, but they’re not giving me enough passive income that I want. And so at this point, it was very much passive income, heavy of what I wanted, and I couldn’t afford properties in Utah. Prices just spiked in the early 2020s, and so I started looking, I created a spreadsheet of 80 of the fastest growing cities in the country, and I did all this research on what the best investments would be.

Dave:
I love it. That’s my favorite pastime. That’s what I do for fun.

Peter:
It was brutal for me. This is my hobby. I hated it. I ended up hiring a VA from the Philippines, and I was like, I can’t do this, dude. I would’ve done it for you. Oh, man. What ended up happening is I found a deal of a dilapidated apartment complex in West Texas that nobody in the country wanted selling for $315,000 was a 16 unit complex.

Dave:
So you found this in West Texas. Were you just looking for deals or did you identify West Texas and then start looking for deals?

Peter:
So I had seen that Odessa and Midland, they were having some good indications that they were growing. They’re very oil dependent,

Dave:
And

Peter:
So I knew that was risky, but I had to pair that with the amount of accessible cash that I had at the time that I had. And in my experience with these lenders, it was very easy for me to get loans for deals that were one to four units. It was almost impossible for me to get deals that were five and up.

Dave:
Yep, that’s common.

Peter:
Yeah. So what I learned was that, man, if I want to break into this realm, the only way to do this is if I buy this property cash. And so I sold burning the boats. I sold all of my properties in Utah.

Dave:
Whoa.

Peter:
Bought this thing cash, and then flew down there, bought a truck for a thousand bucks, slept in the truck for a couple of weeks, fix up some units, got some tenants in there. And then at that point, I was like, this is ridiculous. I got to hire somebody. So then I found some contractors and they took over.

Dave:
Okay. Well, I really want to hear the details of this deal. It sounds like, again, you’re just going all in, hustling as hard as you can to make these deals happen. I want to hear more about it, but we got to take one more quick break. We’ll be right back. Welcome back to the BiggerPockets podcast here with Peter Fife. We just heard how he sold all of his properties in Utah, bought a multifamily in Texas, was living out of a truck, fixing it up. We got to break this thing down, man. So how much was the property in It was in Odessa, Texas

Peter:
In a suburb outside of it. Yeah.

Dave:
Okay. And how many units, how much did it cost?

Peter:
Yeah, so it was a 16 unit complex, and it costs $315,000.

Dave:
So three 15 and 16 units. That’s a little bit under $20,000 a unit. That’s pretty darn good. Okay. I can see the appeal there, but what was it like selling these properties in Utah? Was that scary?

Peter:
It was so scary because things were going well. We kind of had a system going. I was familiar with it. I thought I could repeat the process a lot of times, but at that point, my wife and I just committed to the idea of passive income. And so it was just kind of like, well, if we’re committing, then we’re burning the boats. That’s

Dave:
Just your thing, man. So what was the upside here? You’re buying it for three 15, and so when you analyze the deal, what was the arv, how much money, how much you’re going to drive up the equity value, and then since your goal has shifted to passive income, how much cashflow did you project it would give you?

Peter:
Yeah, so I ran the numbers. The units were renting out for anywhere from 850 to 1,050 per unit per door if they were renovated correctly.

Dave:
Wow.

Peter:
Yeah. The cap rates aren’t great out there, but even with those cap rates, it would sell around 1.1 to one two.

Dave:
Oh my God. Unbelievable. That’s a huge opportunity. So triple, maybe quadruple the value,

Peter:
And I kind of figured the plumbing wasn’t bad. The electrical was all up to date. It was just a lot of cosmetics. It was just a really ugly property. So I fixed up a couple of units myself to show everyone that was going to hire how it needed to be done. And then all in, we were in about $300,000 after, so three 15 for the purchase price, 300 for the renovation.

Dave:
Wow. Okay. And just to reiterate what you said before, you literally moved to Texas, bought a truck, lived out of it, and renovated some of those units.

Peter:
Yeah, so I mean, my family didn’t, I have a very patient wife.

Dave:
Oh, yeah, I, yeah, I wasn’t expecting that.

Peter:
No. I flew down to Dallas, got an Uber to some guy’s house that was selling a truck that promised me it worked. Well. He dropped me off. I gave him some money, he gave me the truck, and off I went,

Dave:
Man, you are more comfortable with internet strangers than I am. I’ll just say that. I forget it for bad, maybe. I don’t know. But thankfully, that truck worked out great. How did the deal go? How long did it take to renovate? Did you hit the rent numbers you were expecting in the rv you were expecting?

Peter:
Yeah, everything turned out the way that I had hoped. We ended up refinancing for $800,000. I was able to pull out $200,000 in equity, and then we were cash flowing around for four to $5,000 a month. Oh my

Dave:
God. Okay. So four to $5,000 a month in tax advantage money. I mean, this was years later, but you said when you first started, you were making 45 grand ish a year, so 4,000 pre-tax. And so this deal alone basically made you more income one deal, got you more income than your job had been previously.

Peter:
And then that’s not counting the $200,000 that I was able to

Dave:
Yeah. To do. Yeah. That’s unbelievable. Could you compare to, for us, how much cashflow were you making in Utah with the properties that you had to sell?

Peter:
Yeah, so the cashflow with those, I was making around maybe $2,000 a month.

Dave:
Okay, so you doubled your cashflow, added $200,000, and now you have a new truck.

Peter:
Yeah. That truck has no longer, it’s gone the way of the earth. It was not a great truck, but it was an old beater, but it was cheap and it worked,

Dave:
I would imagine for a thousand bucks to get what you pay for.

Peter:
Yeah.

Dave:
Unbelievable. Well, I think this is a really cool story. I mean, I’ll just be honest. I think a lot of people out there, Peter, are probably listening to your story and they’re like, there’s no way on earth I would do something like that. I totally respect your hustle. It’s great. It’s unbelievable. And I think for certain people out there, this is an incredible model that you can follow of just hustling and learning and betting on yourself. I think that’s what’s so cool about what you’ve done here, Peter, is just bet on yourself. But even if you’re not willing to live in a truck or do these things, I think what Peter has done here is showed a model that can really work for a lot of people. He figured out a way to make active income through flipping get large sums of money that you can use to invest, because it is hard to go after passive income if you don’t have capital. I assume you reached that understanding at a certain point, Peter, that Oh, absolutely. If you want to just buy something and hold onto it, you can’t do that for nothing. And so you need to figure out how to get enough capital upfront to make that work. Some people like me choose to do that by continuing to work full-time. Other people like Peter find ways to do that in real estate. Personally, I honestly don’t care. I think whatever is easier for you to figure out a way to make that money upfront,

Peter:
Totally,

Dave:
To invest in the long-term assets, you should go do that if your goal is long-term passive income. So I think that’s an awesome template that people can follow here. The other thing I think that is so admirable and cool about this is a lot of people buy assets and then just hold onto them forever regardless of how they’re performing. And I think it’s really cool that you sort of did the math and figured it out. And even though it might sound crazy to people to sell everything in your backyard and go move to another town, clearly you’re good at analyzing deals because you found a really good one, and the way you analyzed it turned out to be true. I mean, I assume this was sort of like a transformative life-changing deal for you that you were able to do because you were willing to think creatively and think a little bit outside the box and not just hold onto the properties that you’ve owned for years and years.

Peter:
Absolutely. And so I’ve now done that three more times. I’ve not sold any more properties, so I’ve hung on to all of the,

Dave:
So

Peter:
I did a 17 unit close by, and then I’m doing a 38 unit right now.

Dave:
Wow. In Odessa?

Peter:
No, 38 unit is in Houston. The 17 unit is in the same area of Odessa Midland.

Dave:
Why go outside of Odessa if that was working and get into another market in Houston?

Peter:
Odessa is a good place. It is dependent on oil, and so I had noticed that even with my rental trends, there were some months where I had more vacancy than I’d wanted.

Dave:
I see.

Peter:
And that wasn’t comfortable for me. And I know Houston, there’s just so many people there. If you build the right product, you’re going to find a decent amount of renters.

Dave:
For sure.

Peter:
It was safer for me.

Dave:
I just need to ask, how do you find these deals? They sound incredible.

Peter:
LoopNet, which I know sounds

Dave:
Really,

Peter:
Yeah. Yeah. These just the properties that nobody wants.

Dave:
Why

Peter:
Really? I mean, I’ve come across, so these properties are properties that have had voodoo worship in them. They’ve got tar written all over the wall, like tar splashed on the wall. You’ve got dead animals. People walk ’em, and it just scares ’em away. For me, I just see money signs. Interesting.

Dave:
Yeah, because at this point in your career, it doesn’t sound like there’s much you haven’t seen.

Peter:
No. And I mean, when you’re demoing a property, it doesn’t matter if there’s tar on the walls or not, you’re ripping off the drywall anyway. It’s just

Dave:
Slightly more stuff to throw out,

Peter:
And it’s not that big of a deal. Demo takes a few days, so it’s like a couple days of a hiccup, and it’s like that’s not that big of a deal. But for a lot of people it’s scary.

Dave:
All right. So as we sit here today, Peter, what does your portfolio look like in terms of door count, cashflow, equity, anything you’re willing to share?

Peter:
Yeah, I would say door count we’re, I think it’s at 78 right now, cashflow. We’re roughly making around seven or $8,000 a month.

Dave:
Congratulations. An unbelievable success that you’ve achieved really largely on just your own grit and hustle. Thanks. So now, Peter, that you have this passive income. What are your goals going forward?

Peter:
When I first started, I really was trying to scratch that entrepreneurial bug, but I got burned a few times with some businesses that didn’t work, and now it’s like, okay, maybe I can keep taking these gains from real estate, continue investing in real estate, but maybe I can take some time now to try to start these other businesses that I feel have a really, really promising future. But all of that’s funded by real estate.

Dave:
Awesome. Well, congratulations, Peter. It sounds like you’ve had a really interesting career and totally respect the hustle. It’s incredible what you’ve done and really taken on yourself to improve the financial lives of you and your family. Congratulations.

Peter:
Oh, thank you. Appreciate you, and this has been an awesome opportunity.

Dave:
Yeah. Thank you for being here. And thank you all so much for listening to this episode of the BiggerPockets podcast. We really appreciate it. If you have a story that you want to share on the podcast, we are always looking for guests have all experienced levels. You don’t need to be super experienced or have hundreds or dozens of units. We want to hear your real estate story. If you want to share yours, go to biggerpockets.com/guest and apply. Thanks again for listening. We’ll see you next time. I.

 

In This Article

Google Trends offers a snapshot of the popularity of search inquiries across its platform. It’s an invaluable tool for content strategies and market analysis. Based on this, we may be approaching a foreclosure tipping point, not seen since the last financial crash. Currently trending at levels not seen since 2009 is “help with mortgage,” according to MarketWatch.

Although the Google Trends stat shows search volume, not the actual number of homeowners in distress, it could be a harbinger for greater distress in the residential home market.  The term “help with mortgage” could also relate to people seeking a new mortgage rather than those trying to save their existing loan. 

However, when paired with regional foreclosure spikes and weakening housing demand, investors, trying to read the tea leaves, could intuit that a foreclosure windfall might be imminent.

Online Anxiety Meets Market Stress 

Even Massachusetts Senator Elizabeth Warren sounded the alarm bell, highlighting the Trends stats on X. However, Investopedia attempted to differentiate between the 2009 numbers and the most recent ones, noting that Google’s data collection had changed over the last 16 years. The numbers for mortgage help searches decreased when “payments” was added, indicating that not all searches were from homeowners in distress.

“The big problem right now is not delinquency (which is extremely low still despite the trends data steadily moving higher for years now), but mortgage payments being out of reach for current renters,” George Pearkes, a macro analyst at Bespoke Investment Group, told Investopedia. “So we should be careful to not conflate those three things as all being about payment stress.” 

“Debt Is the Common Thread Behind Rising Consumer Stress”

Adding fuel to the imminent foreclosure scenario is legal search data. Foreclosure-related legal inquiries jumped nearly 30% year over year in Q2 2025, according to LegalShield, a subscription-based service for legal help, as reported by Mortgage Professional America. 

“Debt is the common thread behind rising consumer stress,” Matt Layton, senior vice president of consumer analytics at LegalShield, said in a statement. “Whether it’s missed mortgage payments, maxed-out credit cards, or mounting buy-now-pay-later balances, debt-fueled household spending is forcing people to ask a lawyer for help.”

Data from the Mortgage Bankers Association (MBA) shows a similar trend: Mortgage delinquencies are trending upward. In Q1, the MBA reported a delinquency rate of 4.04% on one-to-four-unit residential properties, up from the previous quarter, and foreclosure actions increased from 0.15% to 0.20% of all loans. Commercial and multifamily delinquency rates also increased in the second quarter of 2025.  

MBA’s Marina Walsh noted, “The overall national delinquency and foreclosure rates remain below historical averages for now,” but “foreclosure inventories increased across all three loan types.”

Foreclosures Are Up in Certain Markets

In July, nationwide foreclosures increased by 13% from the same period a year ago, according to data analytics firm ATTOM. 

“July’s foreclosure activity continues to trend upward year over year, with increases in both starts and completions,” Rob Barber, CEO of ATTOM, said in the report. “While rising home prices are helping many owners maintain equity, the steady climb in filings suggests growing pressure in some markets.”

Why the Housing Market May Not Be About to Hit Free Fall

Despite the data signaling that a foreclosure tsunami might be imminent, certain buffers might yet prevent a free fall. 

First, as of August, over 81% of homeowners still have an interest rate below 6%, and they are not going anywhere. This is a marked difference from 2008 and 2009, when many homeowners had risky adjustable-rate mortgages.  

Safety-valve protection measures proposed by the U.S. Consumer Financial Protection Bureau (CFPB) could pressure mortgage lenders and services to exhaust loss-mitigation options before initiating foreclosures. 

“When struggling homeowners can get the help they need without unnecessary obstacles, it is better for borrowers, servicers, and the economy as a whole,” Rohit Chopra, the agency director, said in a statement last year. Although, if recent modifications to disaster relief are anything to go by, these safeguards could change going forward.

Third, many homeowners are sitting on a significant amount of home equity, which could offer an additional buffer against mortgage payment challenges.

“Roughly 48 million mortgage holders had tappable equity, with the average homeowner holding $213,000 in accessible value,” entering the third quarter of 2025, the August Intercontinental Exchange (ICE) Mortgage Monitor report noted. Overall, borrowers went into the third quarter of 2025 with $17.8 trillion in equity, around $11.6 trillion of which is usable (while maintaining the traditional 20% equity cushion most lenders require).

Although borrowing from your home to pay the mortgage on your home is never advisable, in a pinch, it could provide homeowners with some breathing room to allow them to find a new job or rental accommodation while deciding to rent out their own residence.

From Rate Stress to Payment Stress

With interest rates falling over the last few weeks, the Mortgage Bankers Association said that 60% of all mortgage applications in the week ended Sept. 12 were for refinancing, the highest level since March 2022. Tapping into home equity through cash-out refinances, when not done correctly, can lead to increased debt and added pressure in making payments. 

Final Thoughts: Strategic Moves for Investors in the Foreclosure Cycle

Depending on a deluge of foreclosures to fall in your lap or make national headlines might not be the most practical way to find distressed and under-market-priced properties. Instead, combining a mosaic of moves could bring tangible results. These involve:

Track early indicators locally

Not all markets are experiencing the same foreclosure pressure. Monitoring Google Trends and legal inquiries service data in regional markets will give you a more accurate snapshot.

Stay ahead of the curve by looking at distressed-adjacent zones

Once a neighborhood makes the headlines for foreclosures, chances are it’s already been picked over by savvy investors. Track neighborhoods outside of the hardest-hit ZIP codes, which may be next in line when the spread tightens.

Model multifactor stress scenarios

David Burt, founder of investment firm DeltaTerra Capital, was immortalized in the book and film The Big Short for predicting the 2008 housing crisis. Earlier this year, he sounded the alarm about the next housing crisis, fueled by insurance costs in disaster-prone areas that are most vulnerable to climate change.

Incorporate climate shock modeling, local unemployment, and payment stress into your predictive modeling.

In This Article

Real estate investing can be both exciting and complex. With multiple factors influencing returns—rents, wages, and home prices among them—knowing where to invest, what to charge, and how to track changes over time can make a meaningful difference. 

That’s where single-family rental (SFR) data comes in. This article breaks down what these reports show, why each metric matters, and how you might use the information to anticipate where trends may be headed. 

1. Gross Rental Yield: A Key First Filter 

Gross rental yield offers a quick way to compare income potential between markets. For example, if one county shows an 8% yield and another only 5%, that may influence where you spend time researching. 

• Formula: Gross Rental Yield = (Annual Rent ÷ Property Purchase Price) × 100  
• Example: Imagine two counties with similar home prices. One has rising rents and strong yields, while the other shows stagnant rents. An investor may decide that the first market deserves deeper due diligence. 

Actionable steps investors could take 

• Screen multiple geographies by gross rental yield to narrow down a list of potential markets. 
• Use yield trends to prioritize where to perform property-level analysis. 

Explore gross rental yield in your market with the Equity Trust SFR Reports. 

2. Tracking Three-Bedroom Rents and Year-Over-Year Changes 

Median rent values for three-bedroom homes provide insight into affordability and demand. Year-over-year (YoY) changes highlight momentum. 

Why this data matters: 

• Rising rents may point to strong tenant demand. 
• Declining rents may suggest oversupply or affordability challenges. 

Example: A city where rents increased 6% in the last year, while neighboring counties stayed flat, may indicate stronger tenant demand there. 

Actionable steps investors could take

• If rents are rising steadily, an investor might explore whether the market has sustainable drivers (such as job growth, population inflows). 
• If rents are falling, investors could evaluate whether to wait, negotiate more aggressively on purchase price, or focus on other markets. 

3. Wages: The Tenant Affordability Factor 

In its single-family rental reports, ATTOM Data Solutions integrates average weekly wage data from the Bureau of Labor Statistics (BLS). 

Tenant wages determine the ability to afford rent. If wages don’t keep pace with rent increases, affordability pressure may lead to higher turnover or vacancy. 

Actionable steps investors could take

• In areas where wages are rising faster than rents, tenants may be better positioned to handle modest rent increases. 
• If rents are rising faster than wages, investors may decide to focus on tenant retention strategies, such as modest rent increases tied to lease renewals. 

4. Median Home Prices and Year-Over-Year Changes 

Median home price trends help investors understand whether a market is heating up or cooling down. 

Example: If home prices in a county increased 10% YoY while rents increased 3%, gross rental yields may compress. On the other hand, if home prices remained stable while rents rose, yields may improve. 

Actionable step: Compare price changes against rental and wage data before moving forward with property-level analysis. 

The Power of Comparing Metrics 

The real value of the SFR reports is the ability to see how data sets interact. 

Home prices vs. wages 

• If home prices are rising faster than wages, affordability may decline, potentially keeping more households in the rental market. 
• If wages rise faster than home prices, more households could transition to ownership, reducing demand for rentals in the short term. 

Actionable step: Use this comparison to gauge whether a market is more likely to see sustained renter demand or a shift toward homeownership. 

Rents vs. home prices 

• If rents outpace home prices, yields may improve, signaling potential for stronger cash flow. 
• If home prices rise faster than rents, yields may compress, which could push investors to either negotiate purchase prices more aggressively or look elsewhere. 

Actionable step: Consider whether the rent-to-price balance supports the level of yield you want to target. 

Rents vs. wages 

• If rents rise faster than wages, tenant affordability could become strained. 
• If wages rise faster than rents, stability may increase, as tenants are better positioned to meet rent obligations.

Actionable step: Align lease renewal strategies with wage growth, ensuring long-term tenant retention. 

From National to Local: Why Drilling Down Matters 

One of the most powerful features of the Equity Trust SFR reports is the ability to drill down from a national overview to your state, city, or county. 

Example: A national report might show stable rental growth, but within your state, one county could have double the growth rate of the average. Having visibility at multiple levels helps you align your IRA strategy with your preferred geography. 

Anticipating Where Trends Are Going 

Real estate markets don’t move in isolation. Major corporate expansions, infrastructure projects, and demographic shifts can reshape rental demand. 

For instance, consider communities that are currently building large data centers for companies like Amazon, Microsoft, Meta Platforms, or OpenAI. These projects may bring new jobs and higher wage earners into an area. While this doesn’t guarantee an outcome, investors could ask: 

• How might wages change in this market as new employers arrive? 
• Will rising incomes outpace rents and home prices? 
• Could demand for housing increase, and how might that impact SFR rental yields? 

By framing questions around the data, investors may anticipate where trends are going rather than reacting after the fact. 

Bringing It Together  

Equity Trust Company, a leading self-directed IRA custodian, provides access to interactive single-family rental reports, powered by annual data from ATTOM Data Solutions. These reports bring together national and local trends in one place, helping investors evaluate opportunities. Dashboards enable you to compare key data, including: 

• Gross rental yield 
• Median rent values and year-over-year changes 
• Wages and their relationship to rents and home prices 
• Median home prices with annual trends 

Ready to see the numbers for yourself? Access the single-family rental reports and start exploring the markets that matter to you.

Equity Trust Company is a directed custodian and does not provide tax, legal, or investment advice. Any information communicated by Equity Trust is for educational purposes only, and should not be construed as tax, legal, or investment advice. Whenever making an investment decision, please consult with your tax attorney or financial professional. 

BiggerPockets/PassivePockets is not affiliated in any way with Equity Trust Company or any of Equity’s family of companies. Opinions or ideas expressed by BiggerPockets/PassivePockets are not necessarily those of Equity Trust Company, nor do they reflect their views or endorsement. The information provided by Equity Trust Company is for educational purposes only. Equity Trust Company, and their affiliates, representatives, and officers do not provide legal or tax advice. Investing involves risk, including possible loss of principal. Please consult your tax and legal advisors before making investment decisions. Equity Trust and Bigger Pockets/Passive Pockets may receive referral fees for any services performed as a result of being referred opportunities. 

Ashley:
Today we’re tackling some of the biggest rookie debates out there. Do you follow Dave Ramsey and keep things debt free or do you scale with leverage like so many investors here on BiggerPockets?

Tony:
And what about house hacking? Is it still worth it if you don’t want to rent by the room? Plus we’re talking about one of the toughest rookie hurdles. What’s harder when you’re just starting out? Is it finding good deals or getting your financing?

Ashley:
This is the Real Estate rookie podcast. I’m Ashley Kehr.

Tony:
And I’m Tony j Robinson. And with that, let’s go into today’s first question. So our first question today comes from Noah. And Noah says, what are your thoughts on Dave Ramsey? Would you rather have one property paid off that’s worth $500,000 or maybe having $600,000 in five leveraged properties? I think there’s something to be said about the stress of leverage. I used to want the latter, but now I’m not sure who is combining Ramsey with more of the BP style. Are you being more conservative in this economy? Good question. And I would think that a lot of the folks in the audience know Dave Ramsey really quickly for those maybe aren’t super familiar with what he teaches. Dave basically says that all debt is bad debt no matter what the circumstance, and you should never have debt. The only caveat to his role is that if you do want to buy real estate for your personal residence, you should only buy it on a 15 year fixed note and then pay it off as fast as you can. I don’t even know if he’s okay. I think he’s, even when it comes to investment properties only wants you to pay cash. Yeah, Dave, he’s got a pretty hard line in the sand about using debt under any circumstances. So Ash, I dunno, maybe I’ll let you lead with this and what are your initial thoughts?

Ashley:
Yeah, I mean I was a Dave Ramsey fan. I read the, what is it like the Extreme Money makeover book, and I followed his debt snowball. I paid off, we had farm equipment debt, we had a home equity line of credit I paid off and my student loans. So we had those three things and I had my little spreadsheet and my snowball tracker. So I started with the highest interest rate and went down to the lowest interest rate until they were all paid off. A big fan of that. I would say as far as his investing advice, I would not agree with, and I don’t think there’s a wrong or a right because investing can be emotional. And if you’re not sleeping at night, even though you’re making a great return, that’s not exactly a healthy lifestyle to be living if you’re so worried because you’re over leverage.
So in my portfolio I do have a mix. I do like to have a couple properties completely paid off or now that I’ve been investing for over 10 years, some of my properties are on 15 year nodes and the balances are really low. So I still have a mortgage, but I have a ton of equity that I could tap into. I think there’s a good mix of this and I think the best thing to actually do is to run the numbers and look, okay, if you had that $500,000 property and you held it for 10 years, what would be your cashflow? How much money would you make from cashflow over those 10 years and what would the property be worth in 10 years? Then I would take that. If you took that money and bought five properties, what would your monthly cashflow look like? What would the mortgages be paid down to in 10 years and what would your equity be in 10 years?
And I would at least use the numbers as a starting point as to, okay, this is what the numbers look like and actually I’ll make more money at the end of 10 years and have more equity if I go and buy these five properties instead of this one property. Other things you have to take into consideration though are five properties. That’s more to manage more asset management, that’s more overhead. So you have five different insurance policies to track. You have five sets of properties access to pay though even though it may not seem like a big deal, think about how much time you have or what resources or property managers you’re going to use to actually manage these properties over the 10 years too.

Tony:
Yeah, I totally agree with everything you said Ash. And I think there is something to be said about Ramsey’s device working really well in the personal finance space, but not maybe being the best in the investing space. Because I think about someone who only wants to pay cash for a rental property, and if that were the case, I never would’ve gotten started and I wouldn’t have a portfolio today if I was only waiting to pay cash on deals. At least in the market that I’m in, I live in an expensive market. So I think there is a way to maybe blend those two things. And I think what comes to mind for me is if you are concerned about leveraging, then maybe you set a rule where it’s like, Hey, I’m only going to put down at minimum 30% like every deal that I buy, I’m going to be at no more than 70% loan to value, which means you put down at least 30% on every deal, maybe it’s 40%, but I think there’s maybe a way where you can blend the benefits of leverage because leverage is one of the tools that makes real estate investing so attractive is that you get to control an asset that’s worth half a million dollars worth only 10, 20, 30% of the actual value of the asset.
And I think you would be maybe reducing some of the benefits of real estate if you aren’t using leverage at all. So I think there’s a middle point here where it’s like, hey, what is the amount of leverage that I’m comfortable with? And it’s more of a sliding scale I think, than a black or white. Every property is at 99% or I’m at 0%. And there’s maybe something to be said there. I think the last thing that I’ll add is that it might also vary depending on where you are at in your life and what season you are in. And I think a lot of folks are familiar with investing in stocks and typically you’ll see younger folks maybe going after a more aggressive stock portfolio where they can maybe take some bigger swings and we have a few misses because they’ve got a longer time horizon until they actually those funds.
And it could be the same if you are investing in real estate later in life, maybe you’ve got a good amount of capital and what’s more important to you than maximizing your return on that capital? It’s the preservation of that capital. And if that’s the case, then yeah, maybe buying more properties in cash or putting more properties on a 15 year note makes more sense if you’re closer to that timeframe in your life. So I think blending the two of those ideas together, but then also trying to understand, okay, where am I at in my investing journey and trying to put together the pieces in a way that makes sense for your specific situation.

Ashley:
We have to take a short break, but when we come back we’re going to discuss if this one strategy is still viable in today’s economy, we’ll be right back. Okay, so our next question is about house hacking. Hello everyone. I’m trying to understand if house hacking is still a viable option if you pursue any options beyond rent by the room. Does anyone have any examples where they were able to do a house hack without this method and where the average single family home price is around $400,000? I’m hoping to pursue a house hack in Raleigh, North Carolina or surrounding areas. The general trend that I have been seeing is that cashflow is going to be hard to generate in today’s market unless you are able to rent by the room. Unfortunately this is not an option for my spouse and I. Due to past experiences with roommates, my wife is open to a situation where we are able to create separate living spaces.
Hence my question. Okay, so let’s kind of summarize this here. A rookie couple wants to house hack but without roommates. So they want separate doors, separate walls. They’re curious if this is still viable. So I guess we need to define what viable means. And he didn’t mention the word cashflow, so I want you to think of it this way. Is that when you buy your investment property, the goal yes, is to cashflow and put money into your pocket without having any expenses on your own. For house hacking, you are living in the property. So if I were to go out and buy an investment property, I’m still paying my cost of living to live in my property and then the tenants are covering the mortgage on the investment property. I purchased Tony, he has decided to go house hack. He is living in the property, he’s renting out one side and he’s living in the other side.
So I have that cost of living now and he doesn’t because his tenant is paying his mortgage. So I think you have to not just look at what the cashflow is on a how tech, but look at how much money you’re saving by not living somewhere else, either renting or paying a mortgage. So as long as you are decreasing your living expenses or maybe you’re living or moving to a bigger property that you couldn’t afford without having someone supplemented income, maybe you just found out you’re having triplets and need a bigger house and renting out one side or the garage or basement or something like that can help offset that. So the goal of house hacking is really to offset your own cost of living. And if you can cashflow, that’s great, that’s awesome. That makes it so much more worth it. But don’t get strung up that it’s not a deal because think about how much you would be paying to live in a property that’s similar and it’s probably going to be a lot less with renting out another unit or having your roommate.

Tony:
And I think we can even expand because it seems like this person’s thinking about house hacking only in the sense of buying a single family home and then renting out the spare bedrooms. And while that’s one version of house hacking, I think there are lots of other ways that you can go about house hacking. You can rent out the basement, like say you have an unfinished basement, maybe you buy a house, you finish out the basement, put a separate entrance. Now you can rent out the basement if you have an A DU in the back. We just did an episode, we just did an interview with Lake dha and she talked about building dadoos detached ADUs. So you could do that where you live in the front house and you rent out the back house. You could buy small multifamily, duplex, triplex, fourplex where you live in one unit and you’re renting out the other units. So I think one potential solution is just expanding your buy box to potentially identify other types of structures that would still allow you to house hack while keeping your space separate from where your tenants are.

Ashley:
And along those lines is looking at what strategy to actually house hack because you could have somebody that’s in there all the time, but you could also do a short-term rental or a midterm rental where you’re choosing when you want to open up the bookings for someone to book. You have great flexibility as long as your regulation or your state allows for it, you can go ahead and kind of fit a strategy that will fit to your lifestyle. So for example, if there are times like Christmas when you just want the whole property to yourself or whatever it may be then, or you’re having family visiting and they can stay in that other unit, then maybe short-term rental or midterm rental or a combination of both in that other unit can make it more worthwhile.

Tony:
Something else that I think we should highlight here, Ash, they said that rinsing by the room isn’t an option for my spouse and I due to past experiences with roommates. And obviously you are the resident expert at tenant screening here. I wonder Ash, if there’s a way that they can maybe adjust their tenant screening processes to alleviate those issues because it sounds like they said roommates, so I’m assuming they were maybe living with someone just in a traditional roommate setting. But if you’re doing house hacking, you’re actually that person’s landlord though we did have a bit of a horror story in a recent episode where someone had to evict someone who was renting a room from them in their house, but what would your recommendation be to them ally, in terms of screening this tenant to avoid any potential issues?

Ashley:
Well, especially when it’s your primary residence, you have more leeway if you’re living in the property as to can actually rent from you so you have more discretion. So for example, you could say only girls ages 20 to 30. That may be appropriate because they’re around your age and you want someone your age living there. And with, if I was renting out an investment property, I could not put any of that into the listing as to this is who exactly the demographic of the person that I want to live with me. So you do have a lot more leeway into choosing who you want to live with you. And it could be honestly that you don’t feel good vibe or that you’re not going to get along with the person, whatever. There’s a lot more excuses that you can use to not accept the person to move into your room in your house.
So I think that’s a big factor into play is that you can have more discretion as to who you choose to actually be your roommate. You could also do the short-term rental strategy for rent by the room too. So maybe if you’re gone for a weekend or something like that, you could rent out your room or you could be there. We don’t have a lot of rent by the room, short-term rental listings near me at least, but I’ve seen them all over the place and other cities available. So then that also depends how comfortable you are because that’s also complete strangers coming in and staying with you. So that might actually be worse for you than actually going through the screening criteria, but doing a really thorough screening of them. So I use, there’s Turbo tenant, there’s Rent ready, all these different property management softwares that will actually do the tenant screening for you, a background check, actually the credit screening, you can check for any criminal activity, any past evictions, things like that. But also you should be doing social media scrubbing through social media, looking at their Facebook profile, do they have a picture where they’re showing their house like, oh, just hanging at home today and it’s literally just a trashed apartment with garbage and pizza boxes and stuff all over. Kind of give you an idea of how they would treat your home. So definitely go to social media.

Tony:
Ash, have you seen tenants with posting those kind of pictures where they’re in their units of trash all over the place? No.

Ashley:
No, but my sister, her tenant actually, she found her tenant’s TikTok and they live upstairs, downstairs. My sister just moved out actually, she just bought a new house, but she found her TikTok and she found some, let’s see, what’s some para police violations doing in her apartment and provocative posting that was happening in the apartment, whatever, but nothing illegal, nothing bad or whatever. Then the apartment wasn’t trashed at all, but it was just funny.

Tony:
I think that, and to your point, you can probably head off a lot of issues with the right screening upfront and if you are not in a rush to find someone and you really take your time to go through those motions. I know I can think of one couple in my life, one of our partners, he and his wife house hacked their primary residence I think for the majority of their time owning it until they had, I think two kids, they have three now. I think their first two kids, they were still renting out rooms in their primary residence to help offset that cost. So it’s something that’s worked well for many people. So you got a few options here. Raleigh’s a big market. It’s a big city. I’m sure there’s a lot of demand for room rentals. Just got to figure out the right way to execute on it.

Ashley:
Alright, before we jump into the next question about the hardest parts of getting started the deal versus the financing, let’s take a quick break to hear from our show sponsors. Okay, this question comes from Brandon and this is from the BiggerPockets form. When you first got started in real estate investing, what did you find more challenging? Was it locating good deals or securing the financing? I’d love to hear the different perspectives. This is actually a great question that I don’t think I’ve ever been asked what was more difficult of these two things, but if I look at it, I would say that what comes first, the chicken or the egg can also go along with this. What did you get first, the deal or the financing and did the good deal be the thing that secured the financing or was it you that secured the financing then found a good deal because you had the financing in place? I guess for my first deal, I had the money partner first. I can’t remember. I know we talked about it, but I don’t think he exactly said, oh, I have this X amount of money, go find a deal. I think it was more we were talking about it, he was interested and then I found the deal and then he said, yes, I want to partner on this deal. Pretty sure that’s how it went. What about your first deal? What came first? The chicken or the egg?

Tony:
My first deal, the financing came first and that was what pulled me into that market. But I don’t know if that’s the standard. I think the answer to this, and no one wants to hear this, but I think the answer is that it depends, and I think it depends on a few factors. I think there are maybe market or call them external factors and then there are the personal or maybe internal factors on the market side. Sometimes finding good deals is easier than other times. In 21, 22 when interest rates were super low, especially if you’re flipping homes, it was so easy to find good deals because the market was just on the skyrocket going up. So even if you bought it face value, you were still probably going to get some equity in the next six to 12 months because the market was just moving up like crazy.
So finding good deals wasn’t really hard today where you’ve still got a lot of sellers who are stuck on those prices of a few years ago and you’ve got a limited buyer pool. Finding good deals is a lot harder today than it was three years ago. So I think part of it is market dependent. Same thing for financing. You didn’t have to search super hard for good lending when rates were 2.6%. It’s like you could go anywhere and almost get a really good deal, whereas now rates are elevated. You’ve got to maybe do a little bit more homework on what financing option makes the most sense for me. So I do think part of it’s market dependent. And then on the internal side, the personal side, I think part of it is personality based maybe. And for some people finding good deals is going to be easier than others.
We have our friend Nate Robbins, and we’ve brought him on the podcast. He’s been a guest. And for him finding good deals isn’t all that hard. He’s a super personable guy. He likes to chop it up with people. He’ll hop out the car while he is driving and go knock on someone’s door and try and buy their house from ’em. It’s a Tuesday afternoon. Whereas for some people that’s super hard for them. They don’t enjoy that. So I think part of it is a little bit personal as well. I think to Brandon’s question, what’s harder I think is almost the wrong question and I’m glad you asked it, but I think it’s the wrong question. It’s like it doesn’t matter what’s harder, because the truth is you’ve got to do both. You’ve got to tackle both of those things if you want to get your first deal done.
So I think the bigger question is where should you maybe leverage the expertise of someone else to help you do that? Right? And if it’s deal finding where you think you might need some help, well then go find a really good agent, go find a really good wholesaler, build those relationships. If you think it’ll be lending where maybe you’ll struggle a little bit more, go find a broker who can shop multiple lending institutions to help you find the deal. So I don’t think it’s so much what’s harder? It’s just like, okay, which one do you need help with first?

Ashley:
Yeah, I couldn’t have said that better. Even though one could be harder, you still have to do both of them. And I think right now it’s easier to get the financing. I think right now in today’s market that it is not too difficult to secure financing because I think you’re able to get more creative with options. So right now, properties are sitting on market longer. They’re not selling for what they were in 20 21, 20 22. And I think there’s more flexibility to be able to get seller financing, which I think is just going to be such a huge advantage. That was really, really hard to do for several years because interest rates were so low that no seller could even match that lower rate. And why would you do that when you could just go to the bank and get the really, really low interest rate anyways?
So I think getting creative in different options will make financing a little bit easier. But I do also think that deal finding will become easier too because the properties are sitting on market longer. I think there’s also a lot of mom and pop landlords that are getting ready to retire to be done. I just got emailed by one the other day. He has five properties he wants to sell, sell them over several years and wants to line up some kind of creative finance deal where some of it’s seller finance. So I think you also have that shift too of not only for rentals, but also small businesses too, where that wealth creation is going to be shifting, which would make it easier to find deals by targeting those mom and pop landlords that are getting ready to retire or sell out their properties.

Tony:
And again, I think that goes back to where we’re at in the market and that’ll dictate what’s harder given where we’re at. At least for me, I like in the markets that I’m looking at, even like in OKC, we’re trying to find our first flip. We’re still seeing not only on the selling side, because I think the sellers are still kind of stuck on prices that aren’t super realistic today, but there’s even buyers out there where I’m like, how are you going to make money at this price that you’re locking this deal up at? And we had Henry Washington and Dominique Gunderson in the podcast a few episodes ago, and they mentioned the same thing in their markets that for the volume of offers that they’re putting out, they’re getting far less yeses. And it’s because people are buying at numbers that just simply don’t make sense if you’re looking to be an investor. So I think as the market may be stabilized a little bit, hopefully sellers start to come to their senses. But at least for me, I think it has been a little bit tough still to find those good deals. How is it in Buffalo right now? Ash?

Ashley:
It’s a type of house that is selling so quickly and it is a house that maybe grandma is selling a house that hasn’t had a lot of changes or models to it, but was very well taken care of as good bones. And yes, it needs to be completely updated, but it’s still in such great condition. You don’t have to update anything right away. And that is the type of house I’m seeing that is going so quickly. It’s a great starter home or it’s also a great retirement home to downsize in. So in my market that’s what I’m seeing is moving so quickly where you’re seeing things set a little bit longer are the fixer uppers, which is great for investors. And then also just the higher end homes. We don’t have a ton of, in my direct area that I check all the time, which isn’t around the city of Buffalo, more rural, we don’t have a ton of houses that are flipped.
For me to actually gauge that as a reference of how investors are doing that way, there is one house that was flipped that’s been sitting on market for I think over 30 days now. It is beautiful. It’s done very, very well, but it’s just, it’s sitting there. Well, thank you guys so much for joining us today for the Real Estate Rookie, rookie Ripple Eye episode. I’m Ashley. He’s Tony. And we’ll see you guys on the next episode. Don’t forget to subscribe to at realestate Ricky on YouTube and follow us on Instagram at BiggerPockets Ricky. We’ll see you guys next time.

 

Dave:
The buyer’s market is here, deals are getting better, but there is risk in the market too. So the key is to understand exactly what’s happening right now, so you know a good deal when you see it and you can avoid costly mistakes. Are home prices likely to go up or down? Could the correction turn into a crash? Today we’re breaking down the most recent housing market data to help you understand how to find and execute on the increasing opportunities in the housing market. Hey everyone, welcome to the BiggerPockets podcast. Thank you so much for being here. I’m Dave Meyer, real estate investor and housing market analyst, and today on the show we’re going to be looking at the data as we do every single month. And today we have a lot to cover. The market is moving into a correction, as I’ve been saying, was likely all year.
And this creates interesting dynamics for investors, both good and bad. So today we’ll start with what’s happening with both prices nationally and regionally. We’ll talk a little bit about what’s likely to happen with price growth and appreciation in the next year. We’ll even get into how rents are trending a little bit, inventory, trends, housing market health because we got to monitor if the correction’s going to turn into a crash. And then of course at the end we’ll talk about what this all means. Let’s do it. So let’s talk about price growth first. This is an important one. Of course, everyone wants to know this one and it’s the one that really is changing. I think according to the data. We are in a correction at this point. It really depends on who you ask, what the exact number is. But most reliable sources have price appreciation somewhere between positive 1% and negative 1%, so pretty darn close to even.
But that is on a nominal level and that is really important to remember. We’ll talk about that a couple times throughout the show, but when I’m saying they’re up or flat, I am not talking about inflation adjusted prices. So on the high end, they might be up 1% year over year. When you just look on paper, yeah, they’re up a little bit. But when you compare that to inflation, which is up about 3%, you’re actually losing a little bit of ground. And as a real estate investor, I want to know that difference. That difference matters a lot to me. The difference between nominal and real, real just means inflation adjusted pricing. And I think for most of the year at this point, we’ve seen that we are in negative real price appreciation even though we’re kind of flat on nominal home prices. So personally I would categorize that as a very mild correction.
This isn’t a crash yet and we’ll talk more about whether or not that is likely and it is certainly not happening in every region of the country. We’re seeing very different performance depending on you are what state you are. Even different cities in the same state are seeing really different performance. But I think on a national level, this kind of lull that we’re feeling, I think at this point we can qualify it as a correction and a buyer’s market. And as I said at the top, and we’ll get into a lot today, that means there’s both risk and opportunity. But before we talk about how you should go about playing this new market dynamic that we’re in, just wanted to drill into some of those regional differences that we’re seeing quickly. Not much has changed in terms of patterns, just the scale has changed a little bit.
So if you’re living in the Midwest or you’re living in the northeast right now, you’re probably not sensing that correction that I’m talking about because even if you look at the numbers seasonally adjusted and inflation adjusted, you’re probably seeing positive home price growth year over year. Almost all of the markets in the northeast are still positive. The Midwest is starting to see more of a mixed bag, but like I said, the scale is changing. So even those markets that were really positive, take Milwaukee the beginning of the year, Milwaukee was like 8% year over year growth. Cleveland was really hot. We saw Indianapolis really hot. They’re still positive, they’re just less positive. So now they’re 3% year over year. Now they’re 4% year over year. And so that’s why I am saying that we are in a buyer’s market and we’re probably heading into more of a buyer’s market.
It’s because even the markets that are doing well are doing less well. Now that is certainly not an emergency, but you see the same trend of slowing appreciation in pretty much every market in the country at this point. The markets that have actually turned negative in terms of sales price are mostly concentrated in the west in we see markets in California and Washington, Oregon, Arizona, Denver for sure, and then in the southeast and in Texas with the biggest declines still being in Florida and along the Gulf Coast. So overall mixed bag. But the reason I’m saying that we’re a buyer’s market is there’s just a lot of evidence. There’s data that buyers now have a lot more leverage in the market, and this can be a very good thing for investors as we’ll talk about, but there’s this metric I want to share. It’s called the sale to list percentage.
It’s basically a ratio of what percentage of the asking price does it ultimately wind up selling for. So if you were in a perfectly balanced market, which pretty much never happens, it would be at a hundred percent. That means every seller gets exactly the price that they list it for. If it is above a hundred percent, that usually means that you’re in a seller’s market because people are bidding over asking in order to lock down deals or like we are seeing right now. When that number falls below 100, that usually means that you’re in a buyer’s market and buyers have regained power right now, according to Redfin, the average sale to list percentage or ratio has dropped to below 99%. So it’s not like we are seeing a huge difference, but it means on average sellers are not getting their list price and this is across the entire country.
And so we’ll talk about this more at the end, but one key takeaway that every investor should be thinking about when they hear this news is that they should be offering below list price because they probably, according to the average, are going to be able to get that. And of course, 1% not crazy, but that’s the average. And so for investors who want to buy below current comps, who want to get the best possible deal that they can, not only should you be offering below list price, but the chances that you’ll get a below list offer accepted are going up. So that’s what we see so far in terms of sales prices across the country. Of course, I’m sure everyone wants to know now, where do we go from here and actually pull together forecast from a couple of the top most reliable data providers out there to share with you.
And then I’ll give you my reaction in just a second. Zillow, which I know people knock on Zillow data, but I really appreciate one thing about Zillow’s data. They revise their forecast every single month and what they are saying right now is that they think through the end of 2025 that we’ll wind up with home prices at negative 1% nominally so similar to where we’re at, but a modest correction. Now that is a change from where we started the year Zillow was forecasting modestly positive prices, but they haven’t changed that much. They’ve just pulled it down a little bit over the course of the year. Now we have the case Schiller lens, which comes from Reuters. They actually updated their forecast in September and they are still forecasting a positive increase in appreciation of 2.1%. They say that they think home prices will grow next year, 1.3%, CoreLogic says 1.4% year over year.
Goldman Sachs, they haven’t updated since April, so I don’t take that one as seriously, but they were saying 3.2% and realtor.com hasn’t updated their since December. So take that one with a grain of salt, but they’re saying 3.7% year over year. So that is what some of the more notable names in the industry think is going to happen. And I’m going to share with you what I think is going to happen, but first I need to share with you what’s going on with inventory and new listings because I’m going to base all of my predictions and forecasts about pricing for the rest of the year and into 2026 based on inventory data and demand data. That is what is sort of the lead indicator for prices in the housing market. So let’s dive into that, but first we got to take a quick break. We’ll be right back. This week’s bigger news is brought to you by the Fundrise Flagship fund, invest in private market real estate with the Fundrise flagship fund. Check out fundrise.com/pockets to learn more.
Welcome back to the BiggerPockets podcast. I’m here giving you my September housing market update. So far we talked about that housing prices are pretty flat on a national basis and we are still seeing some of those regional trends and I shared with you what many of the big forecasters in the industry think are going to happen. Now I want to share with you my projection for the rest of the year and just some early thoughts about 2026, but first I need to tell you what’s going on with inventory new listings. We need to dive into some of this other data because that is what informs us where prices are going to go inventory. That word is basically just a measure of how many homes are for sale at any given point. And what we saw in August was actually really surprising the pattern over the last several years, basically since 2022 when rates started to go up is that inventory has been climbing and that makes sense if you have been paying attention to these housing market updates.
But basically what’s been going on is more and more people are starting to sell their home and even though there is some demand, there is still stable demand. We are seeing homes sit on the market longer and that means inventory is going up Just for some reference from 2012 to 2017 ish, the average number of homes for sale at any given point in the United States was about 2 million for the years leading up to the pandemic from 2017 to about 2020, it was 1.7, 1.8 million ish. Then during the pandemic it dropped all the way down to about 1.1 million. That was during peak craziness and it has been slowly climbing back up and we are now back above 1.5 million for the first time since 2019. So that’s pretty significant and that is worth noting and you’re going to see a lot of headlines saying that inventory is climbing like crazy, but remember that even though it has been going up and we’re about 1.5 million, we’re still about 16% below pre pandemic levels.
And I think the most interesting statistic I saw while I was researching and pulling the data for this episode is that inventory actually fell from July to August according to Redfin. And that should make you pause because the narrative in the media and the truth has been that inventory has been going up like crazy. And I reference this media narrative because I think I hear this a lot from people who are saying that the market is going to crash and they point to inventory going up over the last several years as evidence of that. And if inventory were to go up indefinitely at the pace that it is going up for the last couple of years, sure, yeah, the market would crash, but there is no guarantee or no reason to even believe that inventory would go up forever. So seeing inventory fall from July to August, which is the last month we have data for is really notable.
It is showing that inventory is starting to level off and it is only one month of data, so we’re going to have to look at this for a few months, but just even seeing it level off for one month is really notable and there are reasons to believe that this pattern, the shift in pattern could be sustainable and that is because we have this other lead indicator that we need to look at, which is new listings. Now I know it’s a little bit confusing, but new listings and inventory are actually different metrics, inventory measures, how many homes are for sale at a given point in time? The new listings actually measures how many people put their home for sale on the market in that month. So we’re talking about August and the difference is that you could have a lot of new listings and inventory can actually go down because there’s a lot of demand and those homes are selling quickly, but actually what we’re seeing is inventory go down because new listings are actually going down as well.
And this is another super important dynamic. We’ve actually seen this in the data for the last month or two that counter to the crash narrative that are saying more and more people are selling their homes, they’re desperate, they’re going to do anything to sell their homes. No, that is not what is happening. What’s happening is that people are recognizing that this might not be a great time to sell your home. They are also noticing sellers also notice that there is a correction going on and they’re probably thinking, you know what? I don’t really want to sell right now and so I’m going to not list my home for sale. And I think that is what’s going on. That mindset is what’s happening throughout the market. People are just choosing not to sell and that is one reason and I’ll share some other data with you.
I believe we are in a correction, but we are not likely heading for a crash because for as long as people have the option not to sell, it is very unlikely that you get crash dynamics that really just hasn’t happened before and so it remains very unlikely. Now this is going to be one that we’re going to watch really closely. As you probably know, we do these housing market updates every single month. And so when we report back in October for September data, I will share with you what’s going on with inventory new listings because I’m personally very curious if we see this fall, and for those of you who are astute observers of the housing market, you’re probably saying, oh, maybe they fell because of seasonality. They always fall this time of year and that is true, but the data I’ve been sharing with you is seasonally adjusted, which is how we want to look at this kind of stuff.
There are all sorts of ways that analysts seasonally adjust this data and we’re seeing it fall on a seasonally adjusted basis, which is why it’s so significant. Now, of course there are still markets that are seeing huge increases in inventory. Lakeland, Florida is the biggest example. I actually pulled some data that shows the change in inventory from pre pandemic levels because I think that’s still the metric we want to use here because sure, it might not ever go back to pre pandemic levels, but looking at inventory year over year, which is how you would want to look at it, it just doesn’t really make sense because coming up from a artificial low we’ve been in the last few years doesn’t really tell us all that much. And so if you look at inventory changes from 2019 to the same month in this year, that’s what really tells you a lot.
And what we see is in certain markets like Lakeland, Florida, that’s the number one, it’s up 60% over pre pandemic levels, which is huge. Austin is up above 30%, San Antonio above 30%. Denver is sitting at about 27%. We see Tampa pretty high, new Orleans pretty high above pre pandemic levels. That’s why these markets are likely going to see price declines. Meanwhile, you look at places like Providence, Rhode Island and Hartford, Connecticut, they’re still like 60% below pre pandemic levels, so the chances of them seeing corrections are relatively small, but it’s still absolutely possible. So given all of that, my forecast for the remainder of the year is that we were going to remain relatively flat. I’m sticking with the prediction I made in November of last year is that we were going to be plus or minus two or three percentage points on a national basis, but the general vibe of the housing market is going to be pretty much flat, and I think that’s what we were seeing and my hypothesis about that is that affordability in the housing market just wasn’t going to change that much.
I know that in the beginning of the year, a lot of people were saying mortgage rates were going to be in the fives. I never bought that. I have been saying that they were going to stay in the sixes somewhere between 6.25, 6.75, somewhere in that range for most of the year. And that has been accurate and I think that’s where mortgage rates are staying for the remainder of this year. I know that the Fed has said that they’re going to cut rates two more times this year. I don’t think it’s going to move mortgage rates that much, maybe a little bit, but I would be pretty surprised if it goes below 6% by the end of this year just because of what is going on with inflation, what is going on with the risk of recession. I just don’t think mortgage rates are going to move and I think inventory is starting to level off. So if you look at those two things combined, I think we’re going to get more of the same, at least for the remainder of 2025, which it’s crazy to say is really only three more months. So as we look forward to 2026 to understand if we’re going to get into a crash or if the housing market or a cover or if we’ll have more of the same, we really need to understand the state of the American homeowner and we’re going to do that right after this break.
Welcome back to the BiggerPockets podcast. I’m Dave Meyer giving you our September, 2025 housing market update. We’ve talked about prices, we’ve talked about inventory, and I want to turn our attention to a third bucket of data that I think is super important going forward. This is homeowner health. Just generally, how is the average American homeowner doing with their properties that they own? Because to me, this is another lead indicator, maybe the main lead indicator that we need to look at going into 2026 about whether the correction that we’re in is going to turn into a crash. Like I mentioned, inventory is super important to that, but if we want to understand why inventory is leveling off and whether that’s going to change and it’s going to start accelerating again, to me it really comes down to homeowner health. As I said earlier, people right now, the reason inventory is leveling off is because they’re choosing not to sell.
They don’t have to sell. In other words, they’re not being forced to sell, which is the term that we use in the housing market to describe when people no longer can pay their mortgage and are forced to sell their property on the market. This dynamic can really push up inventory and can flood the market in the right circumstances to create crash scenarios. So we need to know if this is going to happen, and luckily we have tons of data that help us understand whether or not this is likely. The first thing that I like to look at is just delinquencies, right? This is how many people are behind on their mortgage payment because I know people look at a price declines and think, oh my God, they’re going to get foreclosed on. That is not actually how this works. This is a common misconception about the housing market.
You cannot be foreclosed on just because the value of your property goes down. If you are underwater, that does not mean that the bank can foreclose on you. The only way that foreclosures start to happen is if people start to default on their mortgages. Basically they stop making their payments. And as of now, that is not happening. What we saw in 2008 in that time, we saw delinquencies go up above 10%. They were above 5% from about 2006 to, I don’t know, 2014. So for eight years we saw delinquencies rate above 5%. As of right now, they’re at 3.5%. Before the pandemic, they were about 4%. So even in 2019 when the housing market felt relatively normal, the delinquency rate was higher than it was today. And this actually makes sense, right? Think about how many people refinance their mortgages during 20 20, 20 21, 20 22. The ability for people pay their mortgages has only gone up over the last couple of years.
Now, there are certain kinds of mortgages that are seeing increases of delinquencies and we’ll get into that, but I really want to just emphasize this. Foreclosures really are still below pre pandemic levels and delinquency still below pre pandemic levels. Now, there are some pockets of mortgages that are seeing increases in delinquencies. Those mostly come from FHA loans. We have seen those go up to about 10 11%, which are above pre pandemic levels. So that is notable. They’re about at 2015 levels, but they’re not like skyrocketing and they’ve started to level off a little bit and the fact that they’ve risen in recent months actually makes a lot of sense because there was a moratorium on foreclosures in the FHA loans for a while that ended I think in April. And so seeing them spike up in April makes sense, but we really haven’t seen them keep going up from there.
Same sort of thing is happening with VA loans as well. We’re seeing modest increases in delinquencies. They are above pre pandemic levels. So these are things that we do need to keep an eye on, but keep in mind that these types of mortgages make up about 15% of the overall mortgage market. So that’s why when I say the aggregate delinquency rate is still low, that’s true. It’s because FHA and VA loans only make up a small portion of the mortgage market. So that’s one side of the homeowner health equation. Basically we’re seeing very low delinquencies. We’re seeing very low foreclosure rates. Of course, that can change. If we saw just a huge break in the labor market, unemployment skyrocketed, that could change, but as of right now, there is no evidence that that is happening. So that would have to be a total change in the pattern going forward.
Obviously, we’ll update you on that. The other piece of homeowner health that I want to share with you I don’t think we’ve talked about on these market updates over the last couple months is just how much equity US homeowners have right now. The number is actually about $17 trillion in terms of equity in the United States. I just want to say that again. The aggregate amount of equity that the US homeowners have is $17 trillion, which is an all time high. And the number of mortgages that are underwater is tiny. It’s like 1%. But what’s kind of crazy about this is just how healthy the average American homeowner is still right now with that $17 trillion of equity built in of that $17 trillion. This is crazy. The quote tapable equity, which is basically if everyone in the United States who has a home and has positive equity, they all went out and did their maximum cash out refi.
They could pull out 11.5 trillion in equity, which is remarkable. And it’s going up. It was up 4% quarter over quarter, it was up 9% year over year. And this just shows how much money the average American homeowner has right now. So again, this is another reason why we probably are not going to see a crash because there’s just so much wealth for the average American homeowner and they’re not having problems paying their mortgages. So if things get bad in the broader economy, they’re just going to choose not to sell, and that provides a bottom for a housing market, and that is what happens during a normal housing correction. And I think that’s what we’re seeing here. In summary, average American homeowner still doing pretty well. We are not anywhere near where we were in 2008 where all of these red flags were flashing warning signs.
We saw delinquency rates going up before 2008. Homeowner equity was declining for years. That is not happening right now. And of course things could change in the future, but the data suggests we are in a regular correction and we are not on the precipice of a crash. So remember that. So what do we make of all this data as investors for the rest of 2025 and heading into next year? My main point to investors right now and has been for the last couple months, and I think it’s going to remain that way for the foreseeable future, is that being in a buyer’s market is an interesting time. It creates risk in the market for sure because prices could be going down and we don’t know when they’re going to pick back up. At the same time, it also creates opportunity. I see this almost every day.
The average deal that I am seeing come across my desk is better than it has been probably since 2021 or 2022. And I think that is going to stay that way for a while because even though the market is not in a free fall, I do think we’re going to see more motivated sellers and I think we’re going to see a lot of the social media investors, people who are sort of a little bit interested in real estate investing but not really committed to it. I think they’re going to kind of go away for a while at least because the benefits of investing in a correction market like we’re in are not that obvious, right? The average person is going to see, oh, prices went down 1% year over year on Zillow, and they’re going to say, you know what? I don’t want to buy that.
But for an investor who has a long-term buy and hold perspective, they could be thinking now is the time to buy great assets at a slight discount. And to me, that is an attractive option. Now, you have to be very disciplined and patient to not buy junk on the market because there’s going to be plenty of that. But if you find the opportunity to buy great assets during a less competitive market like we’re in right now, that is a good opportunity for buy and hold investors. The other piece of this that I haven’t really gotten into much today, maybe I’ll do another episode on this soon, is that I believe that cashflow prospects are going to improve starting in 2026. We are getting through a lot of the glut of supply in the multifamily market, and it’s still going to take a little bit of time, but I do think we’re going to start seeing rent prices increase gradually next year, and with prices staying stagnant, that means the opportunity for cashflow is going to improve and that should get every buy and hold long-term investor excited.
But the key again to investing in this market is one, having that long-term perspective because if you’re buying a property to sell it in a year or two years, I think it’s a little bit risky right now. Now, I’m not saying you can’t do it, but if you’re going to do a burr, just run the numbers and make sure if you can’t refinance that it’s still worth holding onto. I think that is the prudent conservative way to approaching this kind of market. If you’re going to hold for five to 10 years and you can find great assets and they pencil at current interest rates, I would do those deals. I’m personally looking at those deals, and I think that is a perfectly good approach to investing in this market. But remember, be patient and negotiate because you can. We are seeing buyers, Regan the power in the housing market for the first time in a long time, and you as investors, it’s on you to go out and use that newfound leverage that you have in the market.
To me, that’s an exciting opportunity, and hopefully you’re feeling the same way that you’re going to be able to go out and buy great assets at below current market comps. That is real estate investing 1 0 1, and I think it’s going to be achievable for a lot more people in the coming year or so. That’s our housing market update for September, 2025. Thank you guys so much for listening. I’m Dave Meyer, and by the way, if you have any questions about this, always hit me up on BiggerPockets or on Instagram where I’m at the data deli. Happy to answer any questions you have there. Thanks again. We’ll see you next time.