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

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

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

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

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

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

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

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

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

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

Justin Whitted:
You were correct. Yes.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Tony Robinson:
That is great.

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

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

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

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

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

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

Ashley Kehr:
So he didn’t get a fine?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Justin Whitted:
670.

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

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

Ashley Kehr:
Oh my gosh, wow.

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

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

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

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

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

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

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

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

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

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

Justin Whitted:
I’m sorry, between what?

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

Justin Whitted:
For deal finding?

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

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

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

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

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

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

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

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

 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Dave Meyer:
That’s right.

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

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

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

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

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

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

Henry Washington:
Hiding names to protect the innocent here.

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

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

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

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

Dave Meyer:
That’s right.

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

Dave Meyer:
That’s right.

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

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

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

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

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

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

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

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

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

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

Henry Washington:
Buy the Lambo, post it on social

Dave Meyer:
Media.

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

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

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

Dave Meyer:
Yeah.

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

 

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

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

Dave:
Nice. What are you speaking about?

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

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

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

Dave:
Nice, James. How are you?

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

Dave:
Here in Seattle?

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

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

Kathy:
Course he

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

James:
Vitamins.

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

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

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

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

Dave:
It’s gonna be fun.

Kathy:
Oh, yeah. All

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

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

Dave:
What is happening? But it’s

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

Dave:
Haven’t

Kathy:
Seen that. Uh-

Dave:
That’s great.

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

Dave:
I think so, yeah.

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

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

Dave:
Oh, interesting.

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

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

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

Kathy:
Mm-hmm.

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

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

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

Dave:
Buyers looking at housing, you like

James:
Foot traffic? Buyers

Dave:
Looking. Yeah.

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

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

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

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

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

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

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

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

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

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

Dave:
I agree.

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

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

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

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

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

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

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

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

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

James:
Money. I absolutely

Dave:
Hate it.

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

Dave:
That’s fair.

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

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

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

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

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

Dave:
Mm-hmm.

James:
That’s a big hit. That sucks.

Dave:
Huge. Yeah.

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

Dave:
100%.

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

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

James:
You don’t

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

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

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

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

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

Kathy:
Yeah.

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

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

Dave:
Yeah.

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

Dave:
It’s temporary.

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

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

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

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

Kathy:
Exactly. That’s what I’m

Dave:
Saying. Yeah,

Kathy:
It’s gonna be higher.

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

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

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

Kathy:
Yeah.

Dave:
Then you’re caking.

Kathy:
Yeah.

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

Kathy:
Yeah, for sure.

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

Kathy:
He’s on stage. He’s

Dave:
Onstage. Uh, yes. Yes.

Kathy:
I just got to give him a hug.

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

In This Article

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

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

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

Evaluate Experience and Performance

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

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

Then dig in deeper: 

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

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

Evaluate Market-Specific Expertise

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

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

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

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

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

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

Evaluate Trustworthiness

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

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

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

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

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

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

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

Evaluate Communication

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

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

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

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

Review the Latest Deal and Underwriting

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

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

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

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

Get Other Investors’ Opinions

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

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

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

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

Start Small

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

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

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

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

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

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

In This Article

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

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

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

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

California Has Some Perilous Counties

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

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

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

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

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

“Affordable” Cities Come Stacked With Risk

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

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

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

Louisiana Leads Southern Poor Performers

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

Florida Is Filled With Investment Landmines

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

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

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

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

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

Cash Flow Crunch: Falling Rents

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

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

Final Thoughts

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

Henry Washington:
Five years ago, Martin Castro Silva was working at a bank making 80 grand a year. Not a bad gig, but one thing was eating at him. He was missing the moments with his two kids who were three and one years old at the time. It wasn’t until Martin picked up a pattern that everything changed. And that pattern was all his wealthy clients at the bank were in real estate and one of them was even willing to show him the ropes. Martin knocked his first deal out of the park and replaced half of his salary while working on the side. This had to be it. This was his ticket to freedom. By the second deal, he quit his job and by the third, he was building an income replacing machine. Just last year alone, Martin did 11 real estate deals. Nothing super creative, no sketchy financing, all using a repeatable formula that anyone can replicate.
Now he owns a schedule, he can dedicate time to his kids, and he put his wife and children into their dream home. And it only happened because he took the chance on his first deal. Today, Martin will show you how to do it too.
All right, Martin. Well, tell us about your background and what got you into real estate.

Martin Castro-Silva:
Well, I was hiring my second child. I wanted to be the owner of my time, and I was looking to do something that would give me the freedom to just be with my kids. Yeah. My background is in banking. I worked for Chase Bank for 12 years. I was working at a Fort Lauderdale office in South Florida, very affluent area. And I’ve noticed that there was a pattern of clients that the ones that were in real estate were the ones that were doing well off.

Henry Washington:
What kind of clients were you servicing?

Martin Castro-Silva:
Yes. I was a private client banker, so I was sitting with the big sharks.

Henry Washington:
Okay. So for those who don’t know, when you go to the bank, they have bankers for regular people, and then they have private banking. Some of these banks have a special branch or a special person you can go to and do private banking when you got the real dollars. So you’re saying you were helping the big shops?

Martin Castro-Silva:
Correct. Yes.

Henry Washington:
And you started to notice that a lot of the big shots were dealing in real estate.

Martin Castro-Silva:
Exactly. Yeah. They either own real estate, they were agents, wholesalers. They were somehow connected to real estate. So I met this guy, young guy. He was coming every week to do a wire transfer to close on house. And every time he would come, he would tell me the story. “I’m buying this house for this much. I’m going to paint it. I’m going to do very little stuff, spruce it up and resell it, make 20, 25,000. Remember, it was the pandemic time, like 2021. And I was like, ” What? How is this guy making $20,000 in a month, in two months? “I couldn’t believe it. So every time he would come, I would try to always help him and learn more about him.

Henry Washington:
Okay. So

Henry Washington:
You were using him kind of like a little mentor when he would come in there.

Martin Castro-Silva:
Yes.

Henry Washington:
And get some information.

Martin Castro-Silva:
Yes, yes. When we got a little closer and he introduced me to bigger packets, he’s like, ” Hey, listen to this podcast. It’s going to be good education, good information for you. Since you say you want to start in real estate or want to do something about it. “Interest rates were super low. I took advantage and refinanced my home, got some capital. And then I would just bug him,” Hey, when are you going to have a deal? When are you going to have a deal? When are you going to have a deal? “And then he introduced me to a wholesaling company, Dan South, and they were able to get me my first deal and help me with some financing too.

Henry Washington:
Okay. Well, tell us about that deal.What’d you buy? What’d you pay for it? What’d you do with it?

Martin Castro-Silva:
It was a town home in a city called Lake Worth.

Henry Washington:
How far was that from where you were?

Martin Castro-Silva:
45 minutes.

Henry Washington:
Okay, that’s not bad.

Martin Castro-Silva:
So I bought it. I didn’t have any money then. And my mom had just refinanced because she had a 5% interest rate and then the interest rate went down. She got a 2.5, 2.75. She got pulled some money. And I told my mom,” Hey, mom, I think we should get into real estate. This is what I’ve been hearing from other people. “I was trying to lure my mom into getting into real estate and trust me. So she’s like, ” Oh, but I don’t know. What if he doesn’t sell? “No, everything is selling right now. People are paying. People want bigger houses. So we got that town house and this is what happened. So we bought it in February of 2022. I was still working in the bank. We bought it for 200. It only needed about 25 to 30,000.

Henry Washington:
Did you pay cash or did you get a loan?

Martin Castro-Silva:
We paid 50% of it cash and 50% we got a loan. They gave us a hard money loan, interest only. And I started rehabbing it myself. I was hiring contractors here on the … Not contractors like handymans to do just the bathroom. We did the two bathrooms and we also did the kitchen. But the thing is, I was working, so I didn’t have the time. And I didn’t know that in this business you need to be fast. So it took me seven months to rehab it, just to do two bathrooms and a kitchen. That’s insane. Yeah. Yeah. So we were paying a thousand bucks on interest expense each month. When it was finally ready around August, we listed it. I found an agent that charged me very little commission because I was trying to save money, trying to make the most I could, but didn’t like the service that I got.

Henry Washington:
Of course, you get what you pay for.

Martin Castro-Silva:
You get what you pay for, right? Yeah. We listed it for 320. We ended up selling it for 310. They actually asked me for a concession or something like that. And I said, yes. When I shouldn’t have, I could have fought it a little bit more, but I didn’t know better. But even with all those hurdles, I was able at the end, like net, net, I was able to net $37,000.

Henry Washington:
Hey, that’s a win.

Martin Castro-Silva:
Exactly. Yeah. And even after taking so long, paying 7,000 in holding costs, I was like, what? Had I taken action faster, I would’ve made more money. But I was so surprised. And then that was the moment when I clicked and everything changed because I was like, if I make these two times, three times in a year, I’m going to already surpass my annual salary, so I need to do this more.

Henry Washington:
What were you making at the time at the bank?

Martin Castro-Silva:
Anywhere between 70 to 85,000 because I was a private client banker, so my salary was based on commission. I had a small base and then everything commissioned each month. You get what you sell.

Henry Washington:
So you made about, I don’t know, close to half your salary

Martin Castro-Silva:
On

Henry Washington:
That first deal.

Martin Castro-Silva:
Yeah.

Henry Washington:
That’s the proof of concept. So it took you seven months to do that. So how long until you did your next deal?

Martin Castro-Silva:
I bought it a few months later, but I started working on it full-time, four months later.

Henry Washington:
Full-time. So you left your job in the middle of your second renovation?

Martin Castro-Silva:
Absolutely. And my goal was to replicate my salary the very first year. So I bought the first deal in February. I sold it in September. I bought my second deal. November, I remember because it was Thanksgiving time.

Henry Washington:
How did you find the second deal to buy?

Martin Castro-Silva:
The second deal. So interest rates were low. I also took advantage of refinancing my own house. So I went ahead and this guy that I was telling you about.

Henry Washington:
The wholesaler from the bank?

Martin Castro-Silva:
The whole seller. Yeah. He found me a deal and he introduced me to the second deal. But he told me the second deal was two hours north. But I was like, you know what? Let me just do it because the price point was more aligned toward my resources.

Henry Washington:
It was less expensive than where you were. Okay. So what’d you pay for that second one?

Martin Castro-Silva:
For that one, I paid 170.

Henry Washington:
Okay. And you said you took out a line of credit.

Martin Castro-Silva:
Correct.

Henry Washington:
Is that what you used to buy the second one?

Martin Castro-Silva:
Yes.

Henry Washington:
How did you convince your wife to let you spend your entire line of credit on buying a flip?

Martin Castro-Silva:
I showed them the profits of the other one. It’s like, I have a spreadsheet. Look, this is what we made. If you’re okay with it, let’s go for the next one. I don’t know the market, but we’ll find out. These are the numbers.

Henry Washington:
And she said yes.

Martin Castro-Silva:
She gave me the support. Yeah.

Henry Washington:
That had to feel awesome.

Martin Castro-Silva:
Yeah.

Henry Washington:
All right. So you bought the second one for 170. Okay. How much work did it need?

Martin Castro-Silva:
It was the very first time that I bought a single family home hours. My niece were shaking. Oh my gosh. I was like, okay, this is a different monster because I had to do everything. I need to do floors, paint. The roof was already done, but I had to renovate closet doors, floors, paint the house, two bathrooms, a kitchen. I had budgeted $40,000. I ended up spending $50,000.

Henry Washington:
That’s not too bad.

Martin Castro-Silva:
Yeah.

Henry Washington:
That’s not too bad. People go a whole lot more over budget than that typically on a first or second deal. So you got it done for 50. And what did you sell it for?

Martin Castro-Silva:
Oh, here’s a good lesson. I was coming from the south, right? Complete different market. People paying over asking a lot, 30, 40, 50,000 over asking for single family homes. And I was like, you know what? I’m going to price it high. I’m going to set the market. Oh, you got

Henry Washington:
Too big for your britches. You did your first deal and you

Martin Castro-Silva:
Thought, okay.

Henry Washington:
Okay. But did your agent agree with that or was your agent trying to list it

Martin Castro-Silva:
For us? No, they told me, “Hey, listen, the ARB in this market is going to be 300, 309 the most.” I was like, no, I’m going to listen to 325, 335. I’m going to get my price.

Henry Washington:
With all of your years of expertise,

Martin Castro-Silva:
You

Henry Washington:
Decided.

Martin Castro-Silva:
We went live. A week goes by, I got a cash offer, 300,000.

Henry Washington:
Which is what you originally planned on.

Martin Castro-Silva:
I turned it down.

Henry Washington:
No,

Martin Castro-Silva:
Martin. Yeah.

Henry Washington:
Martin,

Martin Castro-Silva:
Turned it down. I sat on the house for four months and asked me how much I sold it for.

Henry Washington:
What did you sell it for?

Martin Castro-Silva:
300,000.

Henry Washington:
And I bet it wasn’t cash.

Martin Castro-Silva:
It was not cash.

Henry Washington:
It was financing. Oh,

Martin Castro-Silva:
Man.

Henry Washington:
Four months to sell that. But you sold it for 300. So that means you made profit. How much did make?

Martin Castro-Silva:
I made about 35,000, 35,000 on that one.

Henry Washington:
Still a win. So at least you got paid to learn a lesson because some people lose money when they learn a lesson.

Martin Castro-Silva:
Correct.

Henry Washington:
All right. We’ve got more amazing story from our investor, Martin Castro Silva, right after the break. As a host, the last thing I want to do or have time for is to play accountant and banker. But that’s what I was doing every weekend, flipping between a bunch of apps, bank statements and receipts, trying to sort it all out by property and figure out if I was actually making any money. Then I found Baseline and it takes all of that off my plate. It’s BiggerPockets official banking platform that automatically sorts my transactions, matches receipts, and shows me my actual cashflow for every property. My tax prep is done and my weekends are mine again. Plus, I’m saving a ton of money on banking fees and apps I don’t need anymore. Get $100 bonus when you sign up today at baselane.com/bp. BiggerPockets Pro members also get a free upgrade to Baselane Smart.
That’s packed with advanced automations and features to save you even more time. All right. We are back with investor Martin learning about his journey to becoming a full-time real estate investor. Let’s jump back into it.

Martin Castro-Silva:
When I was close to finish that one deal, the one, the first single family home, the same wholesaler reached out and presented me another deal, 30 minutes north. He was selling it to me a little bit cheaper than the first one, but I just didn’t have the money because I had used my money to buy that deal. So I found a private lender, just another client from the bank.

Henry Washington:
Look at you using their resources.

Martin Castro-Silva:
And he gave me a hard money loan. He’s an agent. So I remember telling him, “Hey, listen, if you give me the money, you get to lease this deal.” He’s like, “Let’s do it. ” Yeah. So he lent me 150,000 using the first house, the first single family house as a collateral. And then I used that money to buy the second one. The wholesaler had presented it.

Henry Washington:
Ah, so you took a line of credit out. You cross-collateralized that first asset. Oh, okay. Okay.

Martin Castro-Silva:
Exactly.

Henry Washington:
I like it.

Martin Castro-Silva:
Yeah. I

Henry Washington:
Like it. Was it the same size renovation or was it a bigger-

Martin Castro-Silva:
Yeah, same by box. A little bit more. It was like 45, close to 50,000. Same square footage, three bedroom, two bath. He needed everything. He needed a roof. He needed floors, paint, kitchen, bathrooms, everything. Full cut job. He gave me the money. I bought it and then I learned my lesson, price it right. So I priced it at 299, the second single family home in Sebastian, and I got it under contract in six hours.

Henry Washington:
That’s what I’m talking about. Lesson learned. Lesson learned. So you made the same amount, but you made it a whole lot faster this time.

Martin Castro-Silva:
Correct. Correct. Yeah, I believe I closed those two deals in the same week.

Henry Washington:
And so at this point, you were full-time in real estate. So you had left your job. That had to be scary though. I understand that you wanted to move faster, but just leaving your job, that’s a big step. What gave you that confidence? I

Martin Castro-Silva:
Just didn’t want to miss any of the moments with my kids. Back then, I had a three-year-old and a one-year-old, a newborn. Oh man. And I just took a leap of faith. I talked a lot with my wife. I was like, “Hey, listen, worst case scenario, I can always come back to corporate.” But I want to do something that fulfills me, that gives me motivation because I had lost a little bit of the passion that I had for banking and all those years. I just wanted to change.

Henry Washington:
All right, Martin, these are incredible lessons to learn in your first couple of deals. And how cool to get paid for your first couple lessons. I’m very interested to learn what it was like going off on your own now as a full-time investor who had some experience. So where did you go after your third deal?

Martin Castro-Silva:
Well, one thing that I learned from bigger packets is that you got to let everyone know you’re an investor. So I was talking to everyone, the line, Walmart, anywhere. Anywhere I go, it’s like- Anybody

Henry Washington:
Who’d listen, huh?

Martin Castro-Silva:
Exactly. Hey, I buy houses. I can buy them cash now that I have a little bit of experience how to finance them or how to get them. So I talked to a neighbor of one of my projects because I’ve noticed his property was very distressed. The loan was super high. This

Henry Washington:
Was a neighbor from that first single family home? Same

Martin Castro-Silva:
Street, right next to it. Oh,

Henry Washington:
It was next door.

Martin Castro-Silva:
It was the

Henry Washington:
Literal neighbor.

Martin Castro-Silva:
Yes, yes. And I told him, “If you ever want to sell your home, let me know. I may be able to help you. ” I either buy it myself or find you a buyer. I come from the south, so I know a lot of people trying to move. So it’s like, “Oh, you know what? I do want to sell it, but I’m not ready yet.” Okay. So we exchanged numbers and that was it. When I was almost done, ready to close on that house. The

Henry Washington:
Sale?

Martin Castro-Silva:
The sale. Yeah. He called me up and I bought that house for $150,000, which was $20,000 cheaper than what the wholesaler had sold me that very first.

Henry Washington:
Was it the same size house? It

Martin Castro-Silva:
Even has one more room. It was a four-two.

Henry Washington:
Oh, okay. Okay. How about how much work? Did it need more work? Yeah,

Martin Castro-Silva:
It needed a little bit more work, but still the budget was about 55, 50 to 60,000.

Henry Washington:
Hey, that works out. This is something I learned this from, I think it was Domar Cross who flips. He flips on a TV show out in Florida actually in Tampa.

Martin Castro-Silva:
But

Henry Washington:
He would always put a sign up in the yard of the houses he was renovating that said, “This project is being renovated by…” And it’d have his LLC and the phone number so that the neighbors knew. And he said he would buy deals like that. The neighbors would call him. And so we started doing that. So I’ve done deals where we’ve bought and done multiple houses on the same street just by letting people know. And it’s also just good business to let your neighbors know what you’re doing because they’ll keep an eye on your house for you and make sure. They’ll be like, “Hey, nobody’s been at your house in a couple of days.” Or they’ll tell you, “Hey, there was somebody creeping, peeking in the windows.” It’s just good, good to have the neighbors working for you. So you bought that neighbor’s house. How did you finance that one?
Did you use the line of credit or did you do a traditional bank?

Martin Castro-Silva:
No, this time I partnered up with my siblings. It was almost the end of the pandemic era and they had seen my results. So they made a profit on the sale of their homes and then we partnered up, the three of us. So we bought that house cash. We put the money into it and we made a home rent. We probably made like $65,000.

Henry Washington:
Oh, nice, man. So did you split it all evenly between the three of you?

Martin Castro-Silva:
Yes.

Henry Washington:
That’s so cool that you were able to bring your family into it.

Martin Castro-Silva:
Yeah.

Henry Washington:
So tell me what the sale price was.

Martin Castro-Silva:
We sold that house for 320,000.

Henry Washington:
Okay. So this was 2023?

Martin Castro-Silva:
2023.

Henry Washington:
Here’s what’s cool about this story is you never took no for an answer. If you didn’t have the money, you figured out a way to get the money. You weren’t afraid to talk to your friends and family. And I think all of that stems from a couple of things. A, you have a very strong belief in yourself and your ability to hustle and get things done, but it sounds like you also have a great family structure at home where your wife supported you in everything that you’re doing and you had great motivation in wanting to be able to spend time with your children. And I think that’s the formula. The formula is obviously you need to be able to find good deals, but the real formula is you have a strong reason why and you don’t take no for an answer. I think too many times investors tell themselves no.
They say, “Oh, I would do that deal, but my credit’s not in the right place.” Or, “But I’m not quite sure where I’m going to find the money.” And they let the buts and the nos stop them. And I think a lot of that is because there’s fear. And that fear is either fear of failure. They don’t want to fail or let people down. But I think a lot of the time too, it’s like fear of success. What happens if it works? I got to keep doing this. I think that your belief in yourself and your foundation is really what helps set you up because it just sounds like if you run into a wall, you would just go talk to somebody and figure out how they were doing it and then you would try to replicate it. And sometimes it’s that simple. It’s just surround yourself with people who are doing it and figure out how they’re doing it because I promise you guys, you’re going to run into a brick wall.
I’ve done hundreds of deals and I still run into brick walls all the time, but you’ve got to figure out a way to get through it. When I got started, my very first deal, I ran into a brick wall. I told my fuddy I was going to buy his house and then I couldn’t find the money. And I called my buddy who’s an investor and I said, “Hey, can you buy this deal because I told my friend I would and now I can’t buy it. ” And he told me the same thing. He said, “Henry, yeah, I’ll buy that deal. It’s a good deal. But if you’re going to be in this business, you need to go figure it out. ” And that’s the best part about real estate is there’s a way you can piece a deal together. You just got to be able to do it safely.
And so man, it’s such a cool, such a cool, cool story. All right. We’ve got more amazing story from our investor, Martin Castro Silva, right after the break. All right, we are back with investor Martin learning about his journey to becoming a full-time real estate investor. Let’s jump back into it. So here we are in just the beginning of 2026. What does your business look like now? How many deals are you doing in a year?

Martin Castro-Silva:
Well, I had a really good 2025. I bought 11 properties.

Henry Washington:
Okay.

Martin Castro-Silva:
I was able to flip, bought and sold seven.

Henry Washington:
Awesome. So you bought 11 properties in 2025. I have so many questions. So first and foremost, are you keeping any or do you just fix and flip only?

Martin Castro-Silva:
Yeah, I have two doors. I kept two single family homes, but I mostly flipped.

Henry Washington:
Okay. And what’s your buy box look like? Because 11 deals, you got to have it pretty dialed in. What are you buying?

Martin Castro-Silva:
Yeah, I focus mostly on single family homes, 1,200 square feet, three tools. Sometimes I have to do the two-twos if the square footage allows me to add another room, price point, purchase price, anywhere between 150 to 220 and resale value below 350.

Henry Washington:
Okay. So you like that first time home buyer product? Absolutely. I do the same thing. It’s the same. It just helps you stay safe in an uncertain market because in that price point, if something doesn’t work out, you can probably throw a tenant in it and at least break even. Maybe it costs you a little bit of money, but it’s way better than having to pay those hard money fees

Martin Castro-Silva:
On

Henry Washington:
A property you can’t sell. I love that. And in what market?

Martin Castro-Silva:
I only invest in my city, Vero Beach and Sebastian.

Henry Washington:
So did you move to Vero Beach? Because you weren’t in Vero Beach when you first started.

Martin Castro-Silva:
Yeah. After the same.

Henry Washington:
Wait, wait, wait. Did you move to Vero Beach because of those deals and the price points? That’s awesome.

Martin Castro-Silva:
Herry, I bought the first single family home. I bought the second one, and then I bought the third one. I was like, “I’m getting my deals here. This is the price point. This is what I can afford to do. ” Yeah. That’s why. Yeah. And I told my wife, “Hey, listen, we have a very nice house in Fort Lauderdale, but the drive and I didn’t want to be far from my family, so it’s like it’s time to move.”

Henry Washington:
So you moved to Vero Beach and now that’s where you mainly operate out of.

Martin Castro-Silva:
Yes.

Henry Washington:
I really love that. More affordable too. And so you’re probably able to get yourself a little more house, a little more bang for your buck.

Martin Castro-Silva:
I did. Thank God, yes. I was able to sell my house. I sold my house in 2024, early 2024, able to get on the last wave where prices were high. So I was able to solve that when I’m buying a house here.

Henry Washington:
I love this story, Martin, because of all the hustle that you’ve put in, but one of the best parts about real estate is some of the benefit it allows for us. A, you use real estate to switch markets and live in a more affordable market. Has real estate provided you any other cool benefits? Hat’s a story you could tell us about something cool maybe you’ve done with some of your property?

Martin Castro-Silva:
One time I was just leaving my house, going to work, going to a job site, to a project. And my neighbor, I mean, remember I told everybody that I know I’m an investor and I buy houses. So I was leaving my house and my neighbor waves at me like this. And she stopped me. I was like, “Hey, how are you? What happened?” “I’m selling my house. “I was like, ” Stop. Let me … “I stopped. I pulled up, walked the house with her. She told me what she wanted. I think it was a fair price. And I quickly called my sister-in-law because I knew she was looking for a house. Down south, houses are more expensive so they could get more house for the money over here. So I called her up. I told her,” Hey, listen, you got to come up and you got to see this house because my neighbor is selling and I want you to be my neighbor.
“So she came up and we were able to lock this house up and put under contract and then she got a deal, no commissions, no nothing. So real estate has given me the tools to also help my family members.

Henry Washington:
Oh man, that’s cool. So now you’ve created your own little community over there in Vero Beach. I love this story, man. It’s just a great story about how someone can use real estate to provide them more freedom. Look, obviously you quit your job and you use real estate to do that, but let’s not sugarcoat this. You’ve replaced one job with another. Flipping houses is a job. If you stop flipping houses, you stop making money. So we’re not saying that you retired from real estate, but it has changed your family’s future. It’s changed your future. And when you set out you wanted to be able to spend more time with your kids, have you been able to accomplish that goal?

Martin Castro-Silva:
Yes, I have. I now have a crew that I work with. They’re the ones that take care of the remodeling, the rehab of the projects. And this year in particular, I stopped working weekends. Saturday and Sanders are for just a family. We do family activities and we try to spend as much time together as possible because time flies.

Henry Washington:
Time does fly. My kids are growing up so fast, but it’s so cool. And me too. I left corporate, but I flip houses. So I have a job as well. But the best part is I make my own hours. If I want to take a day off, no one’s going to die. Exactly.
The houses will still get worked on. It’ll be fine. Maybe something won’t go as smoothly as I want it to because I don’t have all the perfect systems in place, but no one’s dying. You get to make your own schedule. And I can spend that time that I choose to spend with my family. And it’s cool to see that you’re doing something similar. And so before we get out of here, Martin, I want you to reach out to some of the people who are maybe in the same boat as you, who have a job, they don’t have the passion for their job anymore. They’d love to replace it with real estate, but it’s scary. It’s scary right now. So are there any lessons you want to share with them or just any words of wisdom you can give people who are seeing this and wanting to do what you did?

Martin Castro-Silva:
I love to answer that, but do you mind if I do it in Spanish for the Spanish areas?

Henry Washington:
Oh, I would love that. That’s awesome. Thank you.

Martin Castro-Silva:
Absolute dehenry.

Henry Washington:
I love it. Thank you so much. Thank you so much for sharing those words of wisdom. There are a lot of people out there who in a very similar position to you who maybe just need that little push. And I love that you were able to do that and you were able to share your experience. One of the best things I love about Martin is Martin’s just a good dude. He’s just a good dude. And this business needs more good people. So thank you so much, Martin, for coming on the BiggerPockets Podcast and sharing your story. I wish you the best as you continue to grow and expand your business in 2026. And thank you everybody for listening to the BiggerPockets Podcast. And also, if you learn something from Martin’s story, I want you to check out episode 1231 from January 26th with investor Neil Whitney.
Neil is another inspiring example of how even basic affordable real estate investing can change your entire financial future. Thank you so much everybody for listening to this episode of the BiggerPockets Podcast. We’ll see you on the next episode.

 

In This Article

Ever heard the saying, “Every home has its price?” According to a new report from brokerage and listings site Redfin, many homes have yet to find theirs.

More than half the homes in the U.S. have been sitting on the market for two months or more without finding a buyer. It’s a far cry from the post-pandemic bidding wars and multiple-offer frenzy, even as the nation still lacks housing inventory.

Redfin’s recent report shows that 52.2% of the houses for sale in late February had been on the market for at least 60 days, the highest level since 2019, totaling $347 billion in value. So, what gives?

Redfin estimates there are 630,000 more sellers than buyers. According to data from Realtor.com, days on market remain below pre-pandemic levels in many metros, suggesting a rebalancing rather than a slump. 

Part of the reason for the clog in the sales pipeline is the disconnect between sellers’ expectations and what buyers can actually afford.

Mortgage Rates Have Put the Brakes on Sales

The $347 billion worth of homes for sale represents a record for this time of year and has been abetted by the yo-yo interest rates, which have made it impossible for buyers and sellers to reach an agreement on price amid the uncertainty.

Jason Gale, a Redfin Premier agent in New Orleans, said in a statement:

“Sellers know it’s a buyer’s market, but they still want to get as much money as they can for their home. So they list on the high end, expecting buyers to negotiate down, and that’s leading to listings staying on the market for a long time. There are still deals to be made, but 9 times out of 10, homes are selling for under their asking price. But sometimes, the price is just too high, and sellers have to pull their home off the market after six months or so.”  

Small Investors Need to Stay Lithe and Liquid to Take Advantage

The hesitancy in the market has created small pockets of opportunity for investors in listings that have languished, where sellers might be getting antsy and looking to cut a deal. In an unpredictable market like the one we are in, it’s important to deal with hard facts rather than speculation and “what ifs.”

Immediate items up for negotiation and concessions could include flagged items from an inspection, along with some closing costs. Underwriting deals with realistic rental numbers—they have been falling in many parts of the country—and will also help you get closer to the finish line.

Where to Snag a Deal

Florida is a unique market because it’s caught between the crosswinds of surging inventory and escalating insurance costs, which have impeded home sales. According to Redfin’s data, Florida is where buyers have the best chance of striking a deal, particularly in Miami, where two-thirds (62.6%) of home listings are stale. In West Palm Beach, that number is 55.9%. 

It’s a similar story in San Antonio, Texas (58.3%) and Pittsburgh (58.1%).

Conversely, if you’re looking to get a deal in the Bay Area of California, you might be waiting a while. There’s still something of a feeding frenzy amongst well-heeled Silicon Valley buyers who have the cash to throw around. In San Jose, just under 20% of the listings are “stale”—the lowest in the nation. Nearby San Francisco (24%) and Oakland (31.1%) are not far behind.

Smaller Markets Have the Biggest Opportunities

The Redfin data shows that the smaller markets in the Midwest and Northeast, where higher rates are offset by lower prices, are where homes tend to move at a clip. HousingWire data shows Michigan, Ohio, and Illinois topping the nation in absorption rates, with Detroit, Chicago, and Cleveland among the fastest-selling markets, underscoring the demand for lower-cost metros relative to supply.

A Perspective for Smaller Investors

If you plan to borrow to invest, as evidenced by the healthy absorption rates in the Midwest, your money will go a long way in lower-cost markets without incurring high risk. It’s also worth noting that higher interest rates and falling rents are causing more would-be buyers to remain renters, meaning there’s not only a healthy tenant pool but also less competition from owner-occupants.

“Although we expect to see the cost of buying a home decrease modestly in 2026 for the first time since 2020, rents are also expected to decline,” said Danielle Hale, chief economist at Realtor.com, in December. “This means that potential first-time homebuyers trying to decide whether to buy or rent will find that renting offers significant near-term savings in most housing markets.”

Why Dating the Rate Is Starting to Look Like a Long-Term Relationship

The phrase “date the rate and marry the house” is often used to describe a strategy for refinancing a property when interest rates drop. However, they have been hovering in the low-6% area for a while; a short-term plunge into high-5% territory was abruptly ended by the breakout of war in the Middle East. 

Although the trajectory is definitely on a downward curve if viewed over the last two years, for buyers looking for a sudden rate collapse to justify their purchases, the advice from most economists seems to be “don’t count on it.”

“This isn’t the kind of PPI (Producer Price Index) report the Fed wants to see,” Nationwide Financial Markets economist Oren Klachkin told CBS News, reflecting on the Federal Reserve’s recent decision not to touch interest rates. “This report suggests inflation was going to accelerate even before the Iranian conflict hit.”

Final Thoughts

A stale market with houses sitting unsold for two months or more is a great opportunity for buyers who can pull the trigger quickly. Sellers will be more willing to negotiate, and if you can secure deals without taking on a lot of debt, now is the time to make money because competition is low and prices are fairly stable. Additionally, many renters are still staying on the sidelines, waiting for rates to drop before buying. It won’t always be this way.

In February, the average was 15.5% of homes with price reductions nationally, with the trend expected to continue. Heading into an election season, the current administration is desperate to change the affordability narrative. 

Ending the war, lowering gas prices, and easing the cost of living must be priorities. That includes lowering interest rates. Buying an investment before that happens could be prudent.

In This Article

I’ve invested both actively and passively in real estate. I owned 15 rental properties by myself and another dozen with partners. Today, I own smaller percentages in around 5,000 units. 

By “passive real estate investing,” I don’t just mean syndications, by the way. I also invest via private partnerships, private secured notes, and the occasional fund. 

Both strategies have their pros and cons. But which one will help you build wealth faster? What are the risks and returns? What kind of labor and skill are required for each?

I went from a net worth of just over $100,000 in late 2018 to over $1 million today. Real estate played a role in that, which I’ll also explain in more detail. 

Returns

Any conversation around the speed of wealth-building starts with returns. 

Single-family home investor Chris Bibey made a case on BiggerPockets that investors should aim for a 6% yield on rental properties. That sounds about right, plus a potential 3%-5% annualized appreciation rate. Combined, that makes for about a 10% annual return, not accounting for your labor (more on that later). 

That’s not bad, in raw numbers. It’s comparable to the historical average stock market return of around 10% for the S&P 500. And while you can earn similar returns passively from REITs, you don’t get the diversification benefit, since REITs correlate so closely with the stock market at large. 

Most passive real estate investments target annualized returns in the 10%-20% range. Some will underperform that, while others will overperform it. I practice dollar-cost averaging with my real estate investments, investing $5K-$10K a month in new passive investments through a co-investing club. Over time, my returns form a bell curve, rather than unpredictable data points from huge investments. 

Some passive investments are income-oriented, others growth-oriented, and others combine both. I’ve made some investments that only pay income returns, such as a secured note paying 15% and a fund that pays a 16% distribution yield every quarter. Other investments don’t pay any income, but project hefty profits when the properties sell. 

Still others pay a 4%-10% yield currently and aim for another 5%-12% (annualized) when the property sells. 

Risk

“Yeah, that’s great and all, Brian, but what about risk?”

Different risks apply to active versus passive real estate investments. Both come with the following risks:

• Market risk: Property values and rents can drop, and vacancies and rent defaults can rise. 
• Management risk: Whoever manages the property can do a poor job—and that goes doubly if you’re the one managing it. 
• Expense risk: After buying a property, the investor discovers more repairs needed than expected. Or expenses like insurance or property taxes could rise faster than expected. 
• Debt risk: Short-term loans could come due at a bad time for selling or refinancing, or variable interest loans could jack up monthly payments. 
• Risk of total losses: If your equity in the deal is 15% and the property drops 15% in value, you can lose 100% of your capital. 

Active investments come with their own unique risks:

• Loan liability: If you default on the mortgage, the lender comes after your personal assets (assuming a recourse loan, which most are)
• Legal liability: Tenants, neighbors, contractors, and anyone else under the sun can sue you at any time, for any reason. I was sued twice when I was an active landlord, and both times, they named me personally in the suit even though I owned the properties under LLC names. Don’t think that LLCs will protect you. 
• Tax risk: You have to track all income and expenses, keep records, and report them accurately on your tax returns. Mess this up, and the IRS can come after you for civil or even criminal penalties. 

And of course, passive investments have their own risks:

• Operator risk: The operator could mismanage the deal due to either incompetence or untrustworthiness. 
• Timeline risk: Passive investors have no control over when operators choose to sell or refinance and return their capital. 

Skill Required

Having done both, I can tell you hands down that active investing requires far more skill than passive investing, as in, an order of magnitude more. 

Active investors need to master dozens of microskills to consistently earn 5%-10% annualized returns on their rentals, such as:

• Forecasting cash flow (it’s not the rent minus the mortgage!)
• Forecasting repair costs
• Building a “financing toolkit” of different lenders and loan types
• Screening, hiring, and managing contractors (a consistent challenge even for the best investors)
• Marketing vacant units
• Screening tenants
• Managing property managers, if you outsource. 

And there are plenty of others. 

Passive investors only need to learn how to vet operators and deals. And even then, they can lean on other investors to help them. My co-investing club meets once or twice a month on a Zoom call to vet new passive investments. We all grill the operator together about their track record, their mistakes, their current deal, the underwriting assumptions, and the risks and returns. 

It takes years to master all the skills of active investing. You can get started with passive investing in an afternoon, especially if you join a community that vets deals together. 

Labor Required

When I owned rental properties directly, my phone was always blowing up about something. The tenants clogged the toilet. The roof started leaking. Rent didn’t arrive, and I had to go through the tedious eviction process: the official warning notice, the waiting period, filing in rent court, showing up for the hearing, scheduling the eviction date with the sheriff, showing up with contractors, etc. 

I kept folder after folder of expense and income records. And I still missed some of the expenses I could have deducted. 

Buying properties also requires enormous work, including: 

• Direct mail or other marketing campaigns to find good deals
• Walking through properties
• “Selling” the seller on selling to me
• Negotiating price
• Collecting quotes from contractors
• Arranging financing 

And renovations? Fuhget about it. Contractors constantly blew their budget and their timeline, with shoddier-than-promised workmanship. City inspectors expected bribes. Everything about it was just miserable. 

Everyone I worked with, from contractors to renters to property managers, overpromised and underdelivered. 

In passive investments, I spend a couple of hours vetting the deal. The end. 

Over the course of a year, each active rental property costs me around 30 hours between managing property managers, contractors, bookkeeping, accounting, etc. If I value my time at $100/hour, that’s $3,000 a year in my labor costs—per rental property. 

Cash Required

A typical rental property requires $50,000 to $100,000 in cash. That goes toward the down payment, closing costs, initial repairs, permits, and so forth. 

If you invest by yourself, a typical passive investment also requires $50,000 to $100,000. 

I don’t like that. It’s hard to diversify your portfolio when you have to plunk down $50K per investment. And it’s nearly impossible to practice dollar-cost averaging. You’d have to be fabulously wealthy to invest $50K a month. 

So? I don’t invest by myself. I go in on these investments alongside other members of my co-investing club. We invest $2,500 or $5,000 or more if we prefer, but collectively we’ll invest $500,000 or $750,000 or whatever the total ends up being.  

That comes with an added benefit: negotiating power. We can negotiate a higher preferred return, a higher profit split, or a higher interest rate on a note investment. 

Time Commitment

I know plenty of real estate investors who crave control over all else. They won’t invest passively. They refuse to surrender control. 

They get to choose when they refinance or sell their properties. But if it’s a bad market for refinancing or selling, you shouldn’t do it anyway. 

I’ve made passive investments as short as six months (a private note with a rolling six-month term). I’ve made others as long as 10+ years (syndications pursuing “infinite returns”). 

For private notes and funds, you know the exact time commitment going into the investment. For private partnerships, you can negotiate the timeline before investing. Syndications will indicate the intended timeline while acknowledging “we’ll play it by ear based on market conditions at the time.”

Tax Benefits

For private notes, you get no tax benefits. The government taxes interest income at the same rates as regular income. 

For private partnerships and syndications, you get virtually the same tax benefits as direct ownership. All expenses are deductible, as is depreciation. 

There are two slight differences. Most single-family rental investors don’t bother doing a cost segregation study because it typically costs more than the tax savings. So they don’t get the same accelerated depreciation as syndication investors. 

On the flip side, single-family rental investors get a little more leeway in using their passive losses to offset active income. If they “actively participate in passive rental real estate activity,” per the IRS, they can use rental losses to offset up to $25,000 of active income. 

But by and large, you get the same tax benefits from passive and active real estate investing. 

Verdict: Speed to Wealth?

I run a business, and I do some freelance financial writing on the side. And I have a 5-year-old daughter, a wife who works nights and weekends, and I’m writing a novel. 

I don’t have time for another side hustle. And make no mistake: Rental investing is a side business. 

I’ve known active investors who have built wealth relatively quickly with a rental investing business. Most of them did it as a full-time business, although some did it as a side business. 

I went a different route. I went from barely over broke in late 2018 to a millionaire seven years later, without any rentals in that period. I invest passively in both stocks and real estate as a set-it-and-forget-it portfolio. 

Some of those passive real estate investments generate a high income yield in the 10%-16% range. I reinvest that income for compound returns. 

Some have gone full cycle, most recently an industrial property that paid out a 27.6% annualized return after two and a half years. 

Most are simply in progress, paying a 4%-8% yield as they stabilize rents. 

It takes a long time to build the skills you need to consistently earn decent returns on rentals. Most people either stand on the sidelines in analysis paralysis for years or just jump in headfirst and lose their shirt by not getting enough education. 

I propose an alternative route: joining a co-investing club to start investing today, while leveraging the community’s knowledge. You don’t need much cash ($2,500) to get started, and you can start earning returns immediately. 

Prefer to start a rental investing business? It’s a great business model. Just don’t try to tell me it’s “passive income” or compare it to true passive investments like stocks, syndications, or notes, because it’s not. It takes more skill, labor, money, and time to get started. 

Dave Meyer:
Is real estate actually a good hedge against inflation? That has long been the logic that holding physical assets like real estate can help protect against inflation. But is this actually true? Are all inflationary periods the same? And does real estate always react the same way? This is a really important question right now and one I’ve personally been spending a lot of time on because even though inflation is far better than it was in 2021, 2022 and so on, inflation risk remains stubbornly present in our economy. From tariffs to the conflict in Iran, to the rising national debt, there are reasons to want to protect yourself against future inflation. The question is, is real estate that protection that you need? Some would immediately say yes to that question, and there is some truth to that, but there is actually a lot more nuance to it. It is not as simple as saying real estate is a great inflation hedge.
You can protect yourself and your portfolio against inflation using real estate, but you need to listen to this episode to know exactly how to do it.
Hey everyone. I’m Dave Meyer, Chief Investment Officer at BiggerPockets. Welcome to On the Market. Today on the show, we’re digging into a topic we haven’t touched on much recently. We’ve talked about a lot in recent years, but it’s been a while since we touched on inflation. And we haven’t been talking about it because thankfully, mercifully, inflation is down from its highs during COVID when we reached up to 9.1%. But the inflation, nuisance, and risk has not altogether left the economy. If you listen to this show, you know that I’ve been saying for years that we are not out of the woods on inflation and I still believe that. It is one of the reasons I’ve said rates wouldn’t come down that much. And so far, that opinion has been proven correct. With ever-changing tariff policies, now we have a war in Iran that has sent oil prices up rapidly.
I think the risk of inflation is going to remain with us for a while. And plus, I’ve talked about this on the show before. I also have these long-term inflation fears that stem from government monetizing our massive national debt, trying to print our way out of it. And although that’s not a this year issue, it’s all the more reason I am personally going to try to position my investments to protect myself against the potential for future inflation. And I want to help all of you do that as well. And this is where we turn to real estate. People love to say real estate hedges inflation. And lucky for us in this industry, there is a lot of truth to that, but not all real estate performs the same. Not all inflationary periods are the same. There are actually different kinds of inflation. We have demand side, we have supply shock, we have monetization of debt.
And building an inflation-proof portfolio takes an understanding of what’s really going on behind the scenes. And that’s what we’re going to do today. We’re going to start by talking about the historic relationship between inflation and real estate. We’ll talk about what the actual mechanics are and which elements of your real estate deals are the best for inflation hedging. Next, we’ll talk about the different kinds of inflation and what we’re seeing now. Then I’ll walk you through four different scenarios for what could unfold in the coming years, and we’ll finish up by talking about what you should do about it. Let’s get into it. So first up, let’s just answer the question, is real estate actually an inflation hedge? Because real estate has long been considered one of the best inflation hedging assets. But the reality is actually a little bit more nuanced than that headline.
And although I’ll just get this out of the way, I will say yes, there is a strong correlation between real estate prices and inflation, a very strong correlation for those nerds out there. It’s 0.94. One is the highest, so that is very high. But there are actually four different ways. There are four distinct mechanisms for how real estate hedges inflation, and it’s not just prices going up. So we need to dig into each of these to understand how we want to structure our portfolios around each of these four mechanisms to make sure we’re protecting ourselves against the types of inflation that we might see in the future. Does that make sense, right? Not every type of inflation is the same, and not every type of inflation corresponds to real estate strategies in the same way. So we really need to understand all of this. I’m going to go through four mechanisms right now.
I think this will make sense to all of you. It’s not super nerdy or anything. This is going to be pretty intuitive. But mechanism one, that real estate hedges inflation is asset appreciation. Property values go up when inflation goes up. Replacement costs to build new buildings go up. And when it costs more to build new buildings, the existing housing stock is worth more. We’ve seen this a lot. There’s a lot of evidence about this. Again, the correlation between National Property Price Index to the CPI is 0.94. But if you look back at historic areas of inflation, in the late 70s, we saw inflation in the double digits, like 11%, but home prices went up 18% at the same time. In 1980, for example, we saw the CPI hit nearly 16%, which is awful. Home prices though went up 20%. So this is mechanism number one.
Over the long run, property investors have beaten inflation about 85% of the time across any five-year period that you picked going all the way back to 1985. That’s mechanism number one. Hopefully that should make sense. Mechanism number two, the second way that real estate hedges inflation is rent income, because as inflation goes up, rents rise as well. They’re sort of inextricable, right? Because rent is actually 40%-ish of the inflation rating. So if inflation is going up according to the CPI, there’s a very good chance that the reason it’s going up is because of rents. We saw this in 2022 and 2023, but this is a great way that real estate hedges inflation because as your expenses increase because of inflation, your revenue keeps up and that’s a great way to hedge. So that’s mechanism number two. Mechanism number three is debt devaluation. Now this one’s a little bit wonkier, but I think this will really make sense to people.
And it’s also, I think, probably the most underappreciated way that real estate hedges inflation. I think this is incredibly valuable. It’s one of the reasons I always talk about on the show the value of fixed rate debt, because when you borrow at a fixed rate, when inflation comes, it means that the dollars that you are paying back to your lender are actually worth less. The nominal balance, the amount you pay on paper stays the same, right? You are always paying, let’s say, $2,000 a month for that mortgage. But if you started and originated that mortgage here in 2026 by, let’s just call it 2036, 10 years from now, inflation will have eaten away the power of your dollars. And so even though you’re paying the bank the same $2,000, it’s actually more like 18 or $1,700 in spending power. I’m just making those numbers up, right?
Those are just a broad example, but it means that over 30 years, you are paying the bank back with increasingly devalued money, which is good for you. That is a really good way to hedge against inflation. So that is mechanism number three. Again, that really only works when you have fixed rate debt is one of the knocks against adjustable rate mortgages. One of the reasons I love fixed rate debt. Mechanism number four, I’m cheating here. There are probably three real mechanisms, but I do want to just throw in tax benefits here as well, because they’re basically the same as usual. They don’t change during inflationary periods. You still have depreciation and cost segregations and 1031s, but they can be even more valuable during inflation because rising rents, rising values when you’re getting your assets are going up, your rents are going up, that’s great, but it also creates more taxable income for you.
And so if you can depreciate away some of those gains from a tax perspective, that can be particularly valuable for real estate investors. So just as a summary here, the four mechanisms, the four ways that real estate hedges against inflation are number one, asset depreciation, property values go up typically when inflation goes up. Number two is rent income. Number three is that fixed rate debt devaluation, and number four are the tax benefits. Hopefully all of this makes sense to you. There are four ways to hedge inflation, but not all inflation is the same. And depending on the type of inflation that we see, some of these benefits might be present and some of them might not be. Not all four mechanisms are available or are beneficial depending on the type of inflation there is. So now we need to turn our conversation now to what are the types of inflation?
How does it vary? Because everyone sees the prices going up, but not many people spend some time thinking about why are these actual prices going up? And the cause of that inflation is going to help us dictate what real estate strategies we want to use to hedge against this risk. People have all sorts of different types of definitions for inflation, but I’m going to sort it into two buckets. This is sort of like one of the more classic economic analyses of inflation. You have either demand pull, that’s one type of inflation, or cost push. Those are the two types, demand pull and cost push. I’ll explain them briefly. Demand pull inflation happens when the economy is growing fast. Employment is strong. Consumer businesses, they’re spending, they’re hiring. And at that point, demand exceeds supply and prices rise. This is Econ 101, right? When you have too much demand for too little supply, or some people refer to inflation as too much money chasing too few goods, all of those descriptions are demand pull inflation.
That’s what causes prices to rise. We’ve seen many examples of this in the late 1970s. We saw this from 2020 to 2022 with the stimulus surge. Yes, a lot of the inflation we saw during the pandemic was because of money printing. But in this framework for thinking about inflation, that is because it created demand, right? People had more money, so they were going out and spending. We did not have a corresponding increase in the amount of stuff that we wanted to buy, and that pushed inflation up. I’ll just give you an example, right? Like cars. Cars got super expensive during the pandemic. It’s because a lot of people had more cash. We were printing money, right? Stimulus checks, all this money was flooding the market. That increased demand. People are like, “I got money to spend. I’m going to go buy stuff.” But they can’t turn a switch and make more cars fast enough to correspond to that demand.
Not to mention the chip shortage that was going on, but hopefully you get the point. People had more demand, supply stayed the same or actually went down a little bit. That pushes prices up. That is demand pull inflation. The second type of inflation that we’re going to talk about is called cost push inflation. And this happens when input costs rise due to supply shocks, geopolitical stuff going on, tariffs, not because demand is strong, right? So maybe there is a shortage in aluminum, and so cans get more expensive. Right now, particularly relevant, maybe oil has gotten more expensive. And as you probably know, oil goes into just about everything in our economy. So if oil becomes scarce or more expensive, prices tend to go up because of that. Now, demand over the last couple of weeks hasn’t necessarily changed for plastic or for oil, but we just saw yesterday the price of plastic is going up a lot.
Oil is going up. We’re going to see shipping costs going up, not because demand has changed, but because the supply side has gotten more expensive. Again, we’ve seen this a lot. We saw it in 1973, the whole oil embargo that pushed up oil prices that led to a lot of inflation. This also happened during the pandemic. I just mentioned cars, but there was all sorts of supply chain issues during the pandemic. I’m sure we all remember that. And honestly, it’s kind of happening right now. The top line CPI number isn’t that high, but tariffs are increasing supply costs.This is definitely true. You could read any sort of report on this stuff. Tariffs are increasing input costs and that also can lead to inflation. Now, unlike demand pull, which is sort of associated with a strong economy, supply push is kind of the opposite, right? It is more typically seen with rising producer prices.
They have lower margins and lower profits and generally lower economic growth. So now you’re starting to see why we might want to act differently if we have demand poll inflation or we have supply push inflation because one’s more associated with strong growth, the other is not associated with strong growth. And how those things interact with real estate are really different. We are going to talk about that in just a second and how to sort of match the real estate mechanisms to the types of inflation. But I just want to call out too, these two types of inflation, right? You can get both of them at the same time. This is what most people … This is one definition, I should say, of stagflation. It is, in my opinion, the worst combination. It’s not good. It is really bad for the economy. You basically get this cost push inflation where input costs are going up alongside rising unemployment, stagnant economic growth.
It’s so bad for so many reasons, right? First and foremost, it makes monetary policy almost impossible. The Fed can’t cut rates because that would worsen inflation, but they can’t raise them too aggressively because that would worsen unemployment.This is what we saw in parts of the 1970s until Paul Volker just decided he was going to crush inflation. Even if that sent unemployment rate up, it actually worked, but it was definitely painful. And so stagflation is definitely something we need to keep an eye on because if you are concerned that the economy is slowing down, but we are still seeing prices rise because of supply push inflation, that can lead to stagflation. And I’ll get to the scenarios in a little bit. We’re not in stagflation right now despite what some people say, but the risk is absolutely there. All right. Next, let’s talk about how each type of inflation actually impacts real estate specifically.
This is where we start to figure out how we’re going to orient our portfolio and investing decisions based on the type of inflation that we see. We do, however, have to take a quick break. We’ll be right back.
Welcome back to On The Market. I’m Dave Meyer. We’re talking today about inflation and how real estate is a good inflation hedge, but you need to know the type of inflation that you’re facing and how to position your portfolios accordingly. Before the break, I explained the difference between demand pull inflation, which is when the economy basically overheats and cost push inflation, which is when input costs rise, basically the cost to make stuff goes up and so prices go up. We want to now talk though about how each type of inflation impacts real estate specifically. When you have demand pull inflation, this is again the kind that is associated with a stronger economy. All four of the mechanisms that we were talking about before, just as a reminder, that’s asset prices going up, rents going up, tax benefits, and debt devaluation, all of those things work together.
This is kind of a good environment for real estate investors. You have strong employment means tenants can absorb rent increases. They can still say low. If you’re in commercial real estate, your NOI rises, right? On top of that, rising wages support home prices. They might go up, they might stay flat, but they at least support them. And when people are feeling good, buyers stretch to qualify that increases demand. So all of these things work together. So when people typically say real estate is a great hedge for inflation, what they mean probably is that when you have demand to pull inflation, real estate’s actually a great industry to be in. This is one of the best assets, the best ways to position yourself for inflation. Now, I want to get to where we are today because I’ll just give you a preview. I don’t think we’re in a demand pool inflation environment, but I wanted to explain this because we will be in a demand poll inflation environment sometime in the future and I want you all to be prepared.
But right now, I think the risks that we have are more on the cost push inflation. And so let’s talk about how that impacts real estate. The reality is that not all four of those mechanisms that we talked about work and they sort of work unevenly, right? Because remember, that cost push is associated with a weaker economy. What happens is replacement costs rise. So this is true, construction costs go up, and that’s actually kind of good for existing owners. If you own a portfolio, you own your home, that is going to put a floor on how low the value of your property can go, right? Because if it’s going to cost more to completely replace it, that keeps the prices of existing homes higher, right? But at the same time, demand is going to get weak. There’s not going to be as many people who want to go out and buy your property.
So even though you have a nice floor for how much your home could go up, your home values might actually not go up in a cost push inflation environment, and I would argue that they can actually go down. The second thing is although rent will probably stay the same, they might not go up. If people are struggling with general affordability across the economy, it suppresses rent demand. People won’t go out and form households or stretch for that more expensive apartment. And so I think when you’re in a cost push inflationary environment, you are less likely to see home prices go up and rents go up, and they might not go up at all. And I think that is a really important insight here. People hear inflation, they think prices go up. That is not necessarily true if you are in a cost push inflationary environment or a stagflation environment.
If there is no demand, even if supply prices go up, that does not mean that asset values will go up. I just, that is one thing I really, really want people to understand because that is the one way you could get yourself in trouble in real estate is if you buy something in an inflationary environment thinking inflation equals asset prices go up and then asset prices don’t go up, but your expenses are going up and your rent is staying flat, that is a situation for trouble. And it’s something that we’re going to talk about more in just a minute because that’s something I want you all to avoid. The last thing I’ll just say is stagflation. Again, we don’t know if we’re there yet. There are some risks of this, so I want to mention it, but when you have stagflation, this is really where the hedge kind of just breaks down, to be honest.
If you have high inflation and high unemployment, there’s almost no way to win. It’s not just that real estate isn’t a good hedge. It’s such a bad economic combination that there’s almost no way for anyone to win, right? You have tenants who might lose their job to rising unemployment that can’t pay rent, vacancy rises even as operating costs go up. So that means you’re going to be making less money, but you’re going to have more expenses. Buyers lose their jobs or face flat wages or whatever, which means that demand for reselling homes goes down, which means home prices could fall, maybe not nominal terms, but in real terms, probably. Cap rates are probably going to rise. And unfortunately, the Fed’s going to be trapped. They can’t cut rates to support the market without worsening inflation. And so you’re going to have a delay in any sort of rate relief.
Now, you still do get some benefit that fixed rate debt devaluation, that still is happening. So you get some relief and depreciation and tax benefits are still there. So you still get some relief there. But I just wanted to call out, like what I’m trying to emphasize in this episode is that in these types of environment, whether it’s a cost push or stagflation, you are not going to get all four of those mechanisms that benefit real estate investors during inflationary periods. That comes during demand pull. Okay. So those are the general ways how real estate reacts to inflation, but what type of inflation risks are we actually facing today? Is it demand pull? Is it supply push? Is it stagflation? I’ve kind of given you some of my ideas behind that, but we’re going to get into that in detail. Then we’re going to talk about four different scenarios that could actually play out and how you should adjust your portfolio accordingly.
So let’s get into it. Let’s talk about this. The current climate, what inflation risks are real estate investors and just everyone in America actually facing today? As you probably know, things have gotten a lot better in the last couple of years. We peaked in terms of the CPI, the consumer price index, primary source that most people look at for inflation. That went up to 9.1% is wild. In June of 2022, it was the highest in over 40 years, but by early 2025, it had declined to 3%. It was kind of on a long downward trend, but it’s been stubborn. For the last couple of years, it’s remained around three. It’s basically flat from where it was a year ago. It was going back down. Then tariffs were announced on the liberation day on April. After that, inflation went back up. Now went back down a little bit.
But I think most people believe that because of the Iran situation, CPI is going to go back up. Oil prices, gasoline, energy prices, big part of the CPI. It goes into everything. Shipping, right? Everything you import or export, that’s going up because ships use diesel, right? Construction’s going up. They use diesel. Plastic has a ton of oil. I mean, plastic is made out of oil. So all of that is going to go up. All of these input costs are going to go up. I don’t know if that’s going to show up in March or April. We don’t know how long this war might last. We don’t know how long oil prices are going to be elevated for, but in the short run, I think it’s fair to say that costs are going to go up. So that’s the situation where we stand for inflation. Just as a reminder, during that time, Fed raised their federal funds rate from year zero to 5.5% to tamp down inflation.
Now it’s in the high threes as of this recording. And although that has helped a little bit with mortgage rates, mortgage rates are still high during this time. We’ve seen real estate really impacted, right? We’re in this great stall. We’re in this slow period where affordability has collapsed. We see home sales stuck near 30 year lows and they might actually get worse in my opinion. I think we’re probably not in for good news there just because mortgage rates have gone up. They’re already super slow in January and February. Mortgage rates have gone up at half point. I think it’s probably going to get slower even though we’re going into the spring selling season, which is not good news. But basically much of what’s happened, the inflation situation and the real estate situation have been really closely tied together. A lot of the boom that we saw in 2020 to 2023 was because of inflation and money printing.
There was a lot of demand pull inflation. We had artificially low money making affordability. Great, that increased demand, right? That is why we saw this boom during COVID. And then when the pendulum swung back the other way to fight inflation, we had to reduce demand. That’s what raising interest rates does. It stops that demand poll inflation cycle because it costs more when people can’t afford things that lowers demand. And so we’ve seen lower demand that has slowed down inflation and it has slowed down the real estate industry with it. So then, even though we’ve come down from 9% to 3%, even though it’s working, it’s slower than we all wanted, let’s be honest. I think we wish inflation went down faster, but it is working even though it’s been required some patience. Why am I so concerned? Why are we even talking about inflation right now if it’s come down?
Well, I would say that there are three different inflationary pressures that we are seeing in the economy right now. The first is tariffs. We’ve talked about this before, but tariffs are inflationary. I know a lot of people like to argue that, but it is true. And even though the top line CPI has not gone up that much, it did go up after the tariffs were introduced. And I’ll just say this, like people say like, “Oh, inflation is down. Tariffs didn’t do anything.” If we didn’t have tariffs, inflation would be lower right now. Look at any reputable study, and you’ll just see that this is true. Study after study, all across the aisle, different political spectrums, tariffs increase inflation. And so I don’t know what it would be if we didn’t have tariffs, but that is an inflationary pressure.That’s just true. Just look at housing in particular.
If you want to look at how tariffs increase the cost of housing, I can tell you, we have seen tariffs anywhere from 10 to 45% on lumber. We’ve seen copper up to 50%. They’ve been changing a lot, so I’m just kind of giving ranges. Cabinets and vanities are up 25%. We see drywall, we see steel and aluminum prices are all up. If you look at the National Association of Home Builders, their estimate is that these tariffs have raised the cost to build a new home by $11,000. If you look at the Center for American Progress, just different methodology for doing it, they think $17,500 per home. If you look at these studies, the Center for American Progress estimated that tariffs will lead to 450,000 fewer new homes being built in just the next couple of years by 2030. And so you can’t tell me that’s not raising prices for homes.
Now, if there’s no demand, prices could come down in the short run, but what is happening is replacement costs are going up and that puts the floor for home prices even higher, even if there’s a temporary dip in prices in the short run. So that is one inflationary pressure, but that is not the only one. The second one is a labor supply squeeze, right? On one hand, I am worried about unemployment going up. So that could mitigate this issue just to call that out. But particularly in housing, 30% of construction workers are immigrants and deportation policies are creating labor pressure, which means that labor costs in construction could go up in addition to what we’re seeing from tariffs. So that is inflationary pressure. The other thing, we obviously got to call out geopolitical risks. We have seen over the last couple of years, supply shocks that have come from war.
Right now we’re talking about the oil prices in Iran, but if you looked at wheat prices when Russia invaded Ukraine, we have a very interconnected global supply chain. And if a war breaks out, a geopolitical situation emerges, whether it’s in Iran or Ukraine or in the future in Taiwan, who knows? But those kinds of things are absolutely supply shock risks for inflation. We’re seeing it right now. The price of oil has gone up 50% in the last couple of weeks. That is going to ripple through the economy. And we’re going to see some inflation. Does that mean we’re going to get to 4%, 5%? I don’t know. Probably not just from oil prices. That’s just my understanding of it. But is it going to make inflation a little bit higher? Probably. The last one I want to mention is sort of a long run structural concern, which is our rising national debt.
I’ve done entire episodes on this. It’s something I think a lot about, but basically we have rising debt in this country. It’s making up more and more of the federal budget every single year. No party has been able to even tame it. It’s just growing at a faster and faster rate over the last, I think it’s like 22 years, right? It just keeps going and getting worse. At some point, the rubber’s going to need to meet the road there and there are different ways you can do that. You can do it through austerity, basically spending less, you can do it through raising taxes, both of which seem politically impossible in the United States right now. I know one party wants to raise taxes. The other one wants to cut spending. Neither of them actually do it. That’s why otherwise you would just see the deficit get under control, but both parties have been in power over the last 22 years.
Deficit has been rising under both parties. So what’s the third option? You print your money, you print your way out of it. We have $39 trillion of debt. There is no rule that says we can’t print $39 trillion and just pay people back. Now you don’t want to do that because there is all sorts of negative consequences. You will see inflation go through the roof, bond rates will go through the roof, mortgage rates will go through the roof. It’s just not good. The value of our dollar will plummet. All of the people who lend money to the United States add good rates will no longer do that because you’re basically screwing them over. There are all sorts of reasons not to do this, but will they do it? Honestly, I don’t know. But there are a lot of people, if you listen to Ray Dalio, a lot of people think that this is a very likely scenario, and it doesn’t need to be complete.
They don’t have to print 39 trillion, but could they print a little bit more money every year? Could the Fed decide, “You know what? Rather than a 2% target, we’re going to do a 4% target so we can print some money and get rid of our debt.” That to me seems like a possible outcome. And if that happens, there is going to be long run inflation. Mortgage rates are going to be higher than they are today. We are going to see bond rates higher than they are today. And so there are all sorts of implications here. My point is that right now we have these four different inflationary pressures. We have tariffs, a labor supply squeeze, we have geopolitical risks, and we have this long-term monetization of our debt. All of these things could be happening, but they are not What demand poll sides? This is cost push inflation risk.
And I want to call out that I am not saying that inflation’s going to go to 4% or 5% or 8%. Actually, I’m going to talk through the scenarios in which I think are more probable. But the reason I am telling you this is that there is inflation risk. Again, I try and make this very clear in every episode. When I say that there is risk of something, that does not mean I’m saying it is going to happen. I’m just saying that there are some variables at play here that mean that inflation reigniting is possible. And if it does happen, it’s going to be on the cost push side, which is not as good as for real estate investors. So that’s the main point here, right? If we see inflation start to rise, it is not necessarily the type that is super great for real estate investors.
Real estate might still be a better way to hedge than other asset classes, but this is not one of those times where real estate investors say, “I don’t care about inflation because I’m benefiting in all these ways.” You probably get debt devaluation. That’s true. You probably get some tax benefits, but will rents and prices rise in an inflationary environment in the next couple of years? I don’t know. I honestly don’t think so. If I had to bet, I would say no. And so I think you need to plan your portfolio accordingly.
I want to talk through four different scenarios that can happen, and I’m going to go through them and we’ll talk about how likely each of them are. So scenario one, nothing happens. This could definitely happen. Inflation might not get that much worse. We’ve already felt a lot of the impact of tariffs. Things might not get that much worse. We’re seeing oil prices go up. I do think that will have inflation go up a little bit, but if demand stays relatively low, it might be fine. And in that case, I think what happens is we stay in the great stall. It’s the stuff that we’ve been talking about for years now. Rates hopefully start to come back down. We get a gradual restoration of affordability. These are things that we were talking about for years. And it’s the situation I felt we were in pre-Iran situation.
It’s still a likely outcome if the conflict is resolved quickly, in my opinion, and inflation doesn’t reignite. If the war ends and oil prices go back down, this is probably what’s going to happen. But we have absolutely no idea what’s going to happen in Iran. It does seem like the White House is signaling conflicting ideas, probably is a negotiating tactic, but we don’t know what’s going to go on. So although this could happen, it is only one of several likely scenarios. The second scenario is what I would call a moderate reinflation. We get CPI from three to 4%, maybe three to 5%. That’s not good. You don’t want to be there, but it’s not runaway inflation. This is kind of like just we’re just going to muck through it kind of case. How does this happen? Well, tariffs become embedded. We have seen, and I’ve read a lot of studies that show that although some of the costs have been passed along to consumers from tariffs, not all of them have yet, and that’s going to continue to drip through the economy.
So we’ll probably see, I don’t think that takes us to four or 5%, but maybe that keeps us at three or the low threes for a little while. I think the real way we get to this where we’re in a higher inflationary environment is oil. If oil prices stay high, if they stay in the 80s or 90s or 100, they were $65 a barrel. By the way, before the Iran crisis, they’re about 98 as of this recording. So up 50%. But even if they don’t go up more or even if they come down just a little bit, I do think that we are going to see … I think the chance of a recession goes up. I think we’re going to see wage growth sort of moderate. And I think rates are going to stay high. The Fed is not going to be able to lower rates as quickly as they want.
And so what happens here is I think we’re going to see downward pressure on pricing. This would raise mortgage rates. Even if inflation doesn’t get terrible, we’ll probably see mortgage rates in the six and a half to 7.5% range. Remember I said earlier this year, I thought it’d be five and a half to six and a half. Just that one point jump, I think psychologically on top of financially, but psychologically is going to be demoralizing to home buyers and investors alike. I think we’re going to see prices go down. We’re going to probably see five, six, 7% price declines. Just as a reminder, this year I predicted between negative four and 2% price appreciation. Right now we’re about flat. I think if we see inflation reignite that we’re going to lose a couple more points in terms of home prices. And I think home sales are going to slow.
No one’s going to be buying. So this is not a good scenario for real estate. And this is kind of one of the things I want to call out. I think anyone who owns real estate currently, if you go into this kind of situation, real estate, it will be a good hedge because you’ve already built some equity, you’re getting that debt devalue. You probably bought at a good price. You’ve probably locked in a good interest rate. But if we’re in this scenario, buying and acquiring new real estate’s going to be tough. Buying in a inflationary environment where prices aren’t going up, but your mortgage rate is six and a half and seven and a half percent, I wouldn’t do it. That doesn’t excite me. So I think that prices would have to really come down. You need to buy eight, 10, 12, 15% below current comps to make something work, which will still happen.
It’s definitely still going to happen, but it’s going to be a slower market. Let’s talk about scenario number three, which is this stagflationary shock. And I got to admit, maybe this is just paranoia, but I worry about this because I actually see scenario two as less likely than this because scenario two, we’re saying the CPI goes up to three to 5%, but the economy’s still going strong. I have a hard time envisioning that. I think that a stagflationary shock is maybe more likely because regardless of tariffs, regardless of inflation, I am worried about rising unemployment. It’s been going up. We all have fears about AI. A lot of parts and segments of the economy are starting to slow down. And so if you get the inflation from scenario two with the three to 5% inflation rate, I think it’s probably more likely than not that we’re going to see that with unemployment at the same time.
And that is not happening yet. But I’m just saying, if inflation goes up, I think we’re probably going to see some degree of stagflation. Now, people throw that word out a lot and panic about it. If we have three to 5% inflation and unemployment stays in the five to 6% range, that stinks. It’s not good, but it’s not like a disaster. If we see inflation go up to five to 8%, unemployment goes to five to 8%, that’s a big problem. That is where the economy really starts to suffer and the Fed really has its hands time. Stagflation, it’s just brutal. It ties their hands. There are few ways to get around the pain. And if that happens, this is where I see transaction volume really low. I think it could go down to like three million. We’re at four million now. It could possibly go that low.
Again, this is sort of the worst case stagflation scenario. Again, I’m not saying that this is going to happen, but if this scenario unfolds, we’re going to see transaction drop. We are going to see home prices drop, right? Inflation is going to erode people’s purchasing power faster than inflation. We’re going to see prices go down. We’re going to see rental vacancies go up because unemployed tenants can’t pay.This is going to be a big issue. We might even see another eviction moratorium like we saw during COVID. All of those things are going to be on the table if we see real stagflation. So let’s just all hope that this doesn’t happen. If it does though, what I would recommend is really just trying to keep liquidity, right? Just have cash reserves to cover six to 12 months, vacancy, debt service ideally. Do not take on any floating rate debt.
Please do not do that. And then be opportunistic.That is the thing. Even in these scenarios, I’m saying transaction value is down, prices are going to fall, rents are going to fall. That could be true. It also means that’s kind of what happened in 2008, right? 2009, 2010, where everyone’s like, “I should have bought back then.” So opportunities will emerge if this happens, right? Especially if people got cash, there’s going to be distressed sellers. You’re going to have a lot of people who want to sell and there’s going to be very few buyers. So buyers are going to have a lot of leverage. So that’s what I would focus on. I wouldn’t use fixed adjustable rate debt, but if you have cash or fixed rate debt, you can qualify and buy in that kind of environment. It’s a good time to reload. But I’m saying to buy that, not just as an inflation edge.
I just think that’s probably a good time to buy, but we’ll see if that actually happens. The last scenario is sort of out in the future, but I did mention this sort of long run monetization of our debt, monetary inflation. I just kind of want to mention that even though it’s not immediate term threat, I worry down the line. So I want to just explain this. How does this happen? Again, US debt continues to grow faster than GDP. Interest expenses become maybe the largest budget item that we have in our federal budget is depressing, but it might be true. Political pressure is going to increase to monetize the debt, right? Maybe I’m wrong. Maybe I’m being so pessimistic, but when I look at our Congress right now, this is both parties. I don’t see either of them meaningfully chipping away at our debt. None of them have done it for two decades.
So maybe I’ll be wrong, but I think the more likely scenarios the Fed says, “Hey, we’re going to change our inflation target to 4%. We’re going to print more money.” That means the dollar is going to lose purchasing power relative to hard assets. The bond market is going to go up. We’re going to need higher yields. That’s going to mean mortgage rates go up. And although it’s a slow moving scenario, this is one of the scenarios where I do think it makes sense to own real estate. If you are slowly devaluing the dollar, that means that that debt devaluation, that third mechanism we talked about before is going to be in full swing. The people who get killed in this debt, the monetization scenario are not borrowers, it’s lenders. This is a scenario a lender would hate. They would get crushed by this because I am paying you for 30 years with increasingly less valuable dollars.
I’m paying them that $2,000 a month, but what they can go and turn around and use that $2,000 for is much less than when it started. In this scenario, you will probably also have nominal home prices rising because there will be more demand if they’re printing more money that’s more money circulating around the economy and will increase demand. Now, I should mention that some of that might be offset because mortgage rates will go up. They will absolutely go up in this scenario. But even with that, replacement costs going up, the debt devaluation, I do think property values do rise in this scenario. So if this thing unfolds, again, it’s a long time in the future, but if we see this debt monetization thing unfold, I think it’s a good time to hold real estate. Maybe the best of these scenarios do hold real estate. So those are our four scenarios.
Remember, number one is nothing happens. We stay in the great stall. I still think this is a highly probable outcome. There is no knowing, but there is a chance that inflation doesn’t really go up. And let’s all hope, right? That’s the best outcome. Scenario two is we don’t see stagflation, but we just see inflation go up. I think that could happen, but I think scenario three is more likely where inflation goes up and we see a recession. That would probably be because we have a geopolitical situation pushing up prices outside of our control. The same time we have AI, we have a slower economy, higher input costs. We might see stagflation for a period. That’s not a great time for anyone. Real estate can help, especially for people who bought and have fixed rate debt, but buying new assets in that environment to hedge inflation may not make so much sense.
So I wouldn’t just jump into that scenario. In that scenario, I think it’s highly unlikely we see appreciation for the next couple of years. So don’t buy it, just assuming that properties are going to go up because everything else is going up. That is maybe the main thing I wanted to convey in this episode. In scenario number four, which is that long-term debt monetization, that’s a great time to buy real estate, in my opinion, especially if you can time that right when that’s just starting and it happens for 10, 15 years while the value of your mortgage payments that you’re paying out are going down, that is a great way to hedge inflation. It’s also a great way to earn a return in an inflationary period. So that’s it. I know it’s a long episode. There’s a lot to talk about. I really wanted to make sure everyone understands this because I see these people on social media right now.
The war in Iran’s going to increase inflation. You should buy real estate. Maybe, but there is more nuance to it. It is not that simple. And so I hopefully you can all understand it. Just a couple takeaways. Real estate is a proven long run inflation hedge. Absolutely. Huge correlation between home prices and the CPI over the last 45 years, but it works really differently. The hedge works differently depending on the type of inflation. Demand pull is good, right? Cost push is mixed. Stagflation is bad.That’s the takeaway. Demand pull inflation, that’s like what we would see with the debt monetization. It’s going to be good for real estate. Cost push, you’ll have a mixed bag. Stagflation is bad. And the current environment, what we’re risking right now is cost push. And that means that we could also have cost push plus rising unemployment, which is stagflation.
So that’s my fear. That is the thing I want you all to remember is that if we see inflation in the near term, it’s probably not the good time. If we see it in five years or 10 years because we’re monetizing our debt, it’s bad for our society. I’m not happy about that, but if you want to hedge against that, real estate is an excellent way to hedge against that. Just some parting thoughts though, no matter what happens, like I think the things that work regardless are number one, fixed rate debt. I kept saying this again, but fixed rate debt is an excellent inflation hedge in all environments. So I really like it. There are times that I’ve used adjustable rate, but for most things, fixed rate debt. Invest in supply constrained markets that protects values no matter what is going on with inflation and keep high liquidity reserves.
It’s the number one thing. It determines who survives during a stagflationary event, who survives during bad times, and gets to see the good type of inflation. That’s what we’re talking about. How do you survive the bad inflation to get the good inflation? Again, not saying we’re necessarily going to have it, but I want you guys to start thinking about this as you build your portfolio strategy. If we start to see inflation, diagnose it. Is it the kind that real estate can help you hedge or not? And you need to make your portfolio decisions based on that analysis. Of course, I will be letting you know if you listen to this podcast, I will update you if inflation goes up, what kind it is and how it will likely impact real estate, but hopefully this episode will help you make some of this analysis for yourself and protect yourself against any potential inflation in the future.
That’s it for today’s episode of On The Market. I’m Dave Meyer. Thank you so much for listening. We’ll see you next time.