Dave Meyer:
Are you calculating cashflow the right way? Because this is the key metric that will tell you if a property is the right deal to buy and how your investments are actually performing. But it only works if you’re including all of the necessary inputs when you do the math. If you’re only subtracting your mortgage payment from your rental income, that is not cashflow. This is how you calculate cashflow the right way. Hey everyone. I’m Dave Meyer. I am a data analyst. I’m the head of real estate investing here at BiggerPockets, and with me today on the show is Ashley Care co-host of the BiggerPockets Real Estate Rookie podcast. Ashley, thanks for being here.

Ashley Kehr:
Dave. Thank you so much for having me today. I am excited to talk about cashflow.

Dave Meyer:
Yeah, it’s a super crucial thing and I think some people oversimplify it, but it doesn’t need to be hard. You just need to make sure that you follow the right steps. I don’t know if you ever see this Ashley, but I see these people on the internet all the time claim that they have this incredible sort of almost unbelievable cashflow on real estate deals, and then you sort of dig into it and you realize they’re clearly just leaving out some of the expenses or just not doing the math. So today what we’re going to do is show the audience how to do the real math, and I’m actually going to use a real on-market deal that I have recently been analyzing. I’m going to show you all every single number you need to include in your cashflow analysis. Explain why your vacancy, maintenance and CapEx expenses should be consistent every month, whether you spend that cash or not, and then we’re going to talk about how much cashflow you actually need right now and what constitutes a good deal. Because once you know that and how to calculate it correctly, then you can actually go out and pull the trigger on some great deals actually. Ready?

Ashley Kehr:
Yeah, I think we should start off with explaining what cashflow is to get started.

Dave Meyer:
Okay, well, it sounds simple, but how do you define it?

Ashley Kehr:
Yeah, so cashflow is the amount of cash or revenue each month on the property, or it could be for the year. So that’s after you get your rent income and then all of the expenses that are paid. So basically you’re taking your total expenses fixed and variable for the property and spreading them out over time so that it’s calculated monthly.

Dave Meyer:
I’m so glad you broke it down by fixed and variable expenses. I think that’s sort of the division where people get confused because sort of easy to do the fixed expenses, your principal and interest, your mortgage payment’s going to be the same every month. You know what your taxes, your insurance are going to be if you have a property manager, you know how to pencil that in. But then there’s this entire other expense category for real estate investors, which Ashley called accurately variable expenses because it varies every single month for your repairs and maintenance. You don’t know how much you’re going to have to come out of pocket in any given month for repairs and maintenance. Same thing with capital expenditures if you’re not familiar with that. Capital expenditures or CapEx is basically just bigger improvements that you make to a property. These are things like adding a new roof or doing an expansion, doing a renovation. Those can all be qualified as capital expenditures. Those are also variable expenses just like turnover costs and vacancy costs as well. And so there’s this whole bucket of unknown expenses that come into your underwriting when you’re figuring out cashflow. And understandably, this is where a lot of people get confused and hung up. So Ashley, how do you build this unknown quantities into your underwriting?

Ashley Kehr:
So a big measure of how much I am accounting for with those variable expenses is the age of the property

Speaker 3:
And

Ashley Kehr:
Also the market. So when I’ve invested in C class areas, even some D class neighborhoods, the turnover and the vacancy was way more consistent and I needed to increase the amount that I was adding in for those properties, repairs and maintenance and capital improvements. I needed to account for more for older properties that weren’t getting a full renovation. So age of the property and also the neighborhood, the market that the property is in I think can really help you factor those things in.

Dave Meyer:
Yeah, if you’re buying an A class, brand new construction, your expenses, your repairs, your CapEx are going to be pretty low probably for five or 10 years at least. But I think what you called out is probably the most missed part of cashflow calculations, vacancy and turnover. It’s pretty normal to have one month of vacancy every other year or maybe even every year depending on the market. And this is something you absolutely need to factor in. It doesn’t sound like a lot, but if you have one month of vacancy that’s 12% of your revenue for the entire year, that is the difference between a good deal and a bad deal actually, presuming that you could come up with a number, right? It’s going to be 1200 bucks a year for vacancy or turnover, whatever, how do you factor that in because you don’t know when those things are going to actually come up. So how do you put that into your deal analysis to make sure that you’re covered for that?

Ashley Kehr:
Yeah, so in your example, Dave, you just gave, if you’re thinking one month a year, every other year, you could account for one month’s rent, but I think if you don’t know that or understand the market in your area yet is using a percentage. So I think 5% should be the bare minimum. If you don’t have any vacancy, great, that’s just a bonus that you’re getting more rental and come back in your pocket. But I think 5% should be the bare minimum and then you can kind of increase it to there. So depending on the property, sometimes I’ll go as high as 10% to save per a line item. So that’s 10% for vacancy, that’s 10% for CapEx, 10% for repairs and maintenance. So it really depends on the property type and where it is, but I think a percentage is a great place to start and once you look at those expenses, sometimes it can be like, wow, I thought this was going to cashflow really, really great, just thinking, here’s my rental income, here’s my mortgage payment. But once you start to add in those percentages, it really does add up and sometimes can kill the deal, but you have to be so diligent that you’re not saying to yourself, oh, well this might happen.
I might have a vacancy, so this could be cashflow. So yeah, if that doesn’t happen, I could be cash flowing $500 per month, and I think that’s where a lot of investors get in trouble is they’re thinking of that variable expenses as maybe will happen. That’s worst case scenario when they should be thinking this is going to happen. This is money I’m putting towards the property.

Dave Meyer:
I think that’s just an important mindset for people to have that it’s not cashflow just because one month you had positive number in your bank account, what you need to do is average it out over time. You have to spread those costs, the CapEx, the vacancy over every month and just say on average, this is what if I think all these things, these variable expenses are going to amount to 10 grand in a given year. I don’t know what month they’re going to hit, but I have to take 10 grand, divide it by 12 months to 800 something dollars and I’m going to put that 800 something dollars into my deal underwriting and just putting that aside and making sure I know that Dave, that is not your money. That is the business’s money that is, this property’s money. So that’s sort of the mindset that I think people need to take and not to just look at that best case month that you may have and count that as your cashflow. You’re just going to be disappointed down the line. Alright, well I want to actually go through this and walk step by step how to do this the correct way so everyone who’s listening to this knows how to do this analysis, but we got to take a quick break. We’ll be right back. This week’s bigger news is brought to you by the Fundrise Flagship Fund, invest in private market real estate with the Fundrise Flagship fund. Check out fundrise.com/pockets to learn more.
Welcome back to the BiggerPockets podcast. I’m here with rookie co-host Ashley care talking about cashflow, how to calculate it the right way, and we sort of talked about the mindset that you need to have the way to start thinking about this, but I actually want to go through and just run a deal analysis to show you that this doesn’t need to be hard if you’re following the right steps. And so I’m going to pull this up. If you’re watching on YouTube, you could see this. I’m just going to pull up the BiggerPockets calculator, but if you’re listening, I will do my best to explain everything that I’m doing. It’s a real deal that I’m looking at in western Michigan. This is a duplex. It’s a three one on each side. It is very old. It was built in 1890. It’s listed on the market for 350 grand.
It’s been on the market for like 75 days, so I think I could realistically get it for cheaper, but let’s just start here and we’ll see how it goes. I will pay probably five grand for closing costs, so underwriting that and then I would do a modest rehab. If you listen to the show, you’ve heard me called the slow. This is this thing that I like to do, which is renovate a property, but I don’t try and do it super quickly. I wait until the tenants move out, opportunistically, renovate the property, make the units nicer and add value, drive up the rents a little bit. But I think I could probably get this thing to maybe be 380,000 and I would only need to spend probably let’s say 18 grand. So not adding a huge amount of equity in terms of a RV at the current price.
So I’d probably want to buy it for lower, but also just want to reiterate that the reason I would spend that $18,000 is not only for equity, it would probably bring my rents from about 16, 1700 bucks a month, probably closer to $2,000 a month. And to me, that’s why I would do this, but I’ll go into that in just a minute. Then we will be doing our financing details. This part should be easy for everyone. I would buy this property putting at least 25% down and I got quoted 6.8 ish. Then I actually know exactly what the rents are going to be for this one, which is really nice. It’s two section eight tenants been there for a long time, so I like that. Property’s in good condition, four being really old. So I should just describe now that the floors need work. They’re pretty old.
The kitchen is dated, the bathroom is dated, the systems are okay. The plumbing and the electrical have been updated. It’s not like knob and tube, it’s not galvanized pipe, and there’s about 15 years left on the roof. Now there are some additional fixed expenses that we know too. This should be pretty easy to get. So the taxes on this property are actually about 2100 bucks right now, but property taxes everywhere going up. So I’m going to put it in $2,400 just because I think it makes sense to just make sure. Now I own a similar kind of duplex in the same market, so I’m going to say 1300 bucks for insurance. That’s about what I pay there. Now this is where we get to repairs and maintenance. So Ashley, help me out here. A 130 5-year-old house in Michigan, cold weather climate similar to buffalo. What do you put for repairs and maintenance here when you’re first underwriting a deal?

Ashley Kehr:
I think I’m going to do 8%.

Dave Meyer:
8%.

Ashley Kehr:
I like it.

Dave Meyer:
So one thing I often think about, I’m curious how you handle this is if I wasn’t going to invest that $18,000 I mentioned earlier I’d probably bump this up to 15%. If I was just going to buy this and hold onto it and not make any improvements, I would, but I’m comfortable this eight 10% because my intention is to go in and probably replace the floor soon to redo the bathroom and probably upgrade at least part of the kitchens. Those are a lot of the big ticket items. And I’m not talking about CapEx yet. This is just repairs and maintenance. So I am essentially going to proactively hopefully offset a lot of repairs and maintenance because I’m going to pay for that upfront. Do you do anything similar to that?

Ashley Kehr:
Yeah, especially if we’re going in and rehabbing the property. I think one thing that’s different with yours though is that you are waiting until the tenant moves out. So you’re running the numbers now that someone’s in there, but we should increase your vacancy more because you do know that it definitely is going to be vacant during that period of time when you’re going to be holding the property.

Dave Meyer:
Exactly. Yeah. So that’s definitely something to do. I’m doing this with another duplex right now and it’s going to take three months to do the renovation, and so three months of vacancy is a lot. It’s a considerable expense on top of the labor and materials that I’m already going to be paying. So what would you put in vacancy there for a property like this? Because that would be 25% vacancy, but that’s not going to be a going forward. So how would you think about putting in the right number here?

Ashley Kehr:
What class area is this?

Dave Meyer:
I’d say it’s like a B minus.

Ashley Kehr:
I’d probably do eight to 10% on this too.

Dave Meyer:
All right. I’m going to put it at 8% right now as well. And for me, this stabilization period, this first year probably I am not really looking that much at how it performs the first year, I am essentially saying this vacancy of three months, that’s an investment that’s basically similar to the money I’m spending on a rehab. It’s just more money I’m putting to position this for long-term success. I will put the vacancy at 8%. I think that’s a good number going forward. And maybe what I’ll do is I will just put in my repair costs instead of $18,000, which is my estimate for materials and labor. What I’ll do is add three months of vacancy costs here, which is another nine grand. So I’m going to put this at $27,000 in repair costs just so that when this calculation is done, it’s the stabilized performance of the property. And I don’t get hung up on what happens in year one while we’re doing things at 8%. I’m going to put my management fee at 8%. That is what I pay.

Ashley Kehr:
See, I usually bump it up depending on what the 8% is. So right now I self-manage like the deals I’ve partners with. I pay myself a property management fee. But I think it’s really important if you’re going to self-manage, you still bake into that management fee that you still put it in there in case someday you do want to transition to a manager. It doesn’t kill your cashflow. But also too, when I did have a property management company, there was a lot of additional fees that aren’t included. So I always like to bump it up a little bit. Like you said, the leasing fee they would do if there was an after hours, there would be a $25 fee or something. There was additional things added onto it.

Dave Meyer:
Okay, I like that. Then let’s do 10%. All right, then capital expenditures. This one is tough. How do you think about this one?

Ashley Kehr:
The same with the age of the property and what needs to be done. So when you have your inspection, one thing I always like to do is ask the inspector, okay, what needs to be replaced today? What needs to be replaced within the next two years? What needs to be replaced in the next five? What needs to be replaced in the next 10? And that’s kind of going to give me more and an idea of how much I need to go into it. But I’m thinking on this as an older property, I’m probably just going to do 8% on it too. Knowing you’re going to go in and put that 18 grand into it.

Dave Meyer:
I think that’s great advice, getting that information from the inspector. The other thing I think people really need to look at, especially when you’re doing small multifamily like this, is how many of each system are there? I’ve had triplexes or four units that have one boiler and that reduces your total expense because you have one thing to service and those things are enormous. They last like 30 years, whereas if you have a bunch of newer forced air furnaces, one in each unit, that’s going to be a lot more expensive. Those things break a little bit more frequently and you’re going to have to think about that. So the same thing goes for example for appliances. Appliances famously don’t last that long. If you have four units, make sure that you’re considering the fact that every seven to 10 years you’re probably going to have to replace that dishwasher, but you have to do it times four, unlike at a single family home. So make sure you’re sort of thinking through all of that. The benefit of course to small multifamily is that you spread the cost of the big things like a roof or siding across four different units. So there are some cost efficiencies, but just make sure you think each of these things through.

Ashley Kehr:
I think that’s a great point as to thinking about what type of mechanics you have in the property or appliances. A lot of properties around here have electric baseboard heat. It is super cheap to replace one of the baseboard heaters and not a big deal at all, but like I said, to do a whole HVAC system, a furnace, a boiler, those things very expensive. So looking at what type of mechanics are important too.

Dave Meyer:
I have this little spreadsheet that I use sometimes it just says, what’s the average lifespan of the item, the mechanic, whatever you’re looking at, what do I think it’s going to cost to replace that? And then you basically divide those things and you can figure out what it is annually. So if I think the roof has 15 years on this and its replacement value or cost is going to be $20,000, then I know 1300 bucks roughly per year I need to set aside for this roof eventually. Or a hot water heater is going to be four grand installed or whatever lasts for 10 years, that’s 400 bucks that you need to set aside. So you can actually do this kind of back in the napkin. You don’t need to get overly scientific with it, but just spend the time to think it through. That’s it in the BiggerPockets calculator.
If you’re watching this on YouTube, you could see that there are other fees like HOA fees, electricity, gas, but because this is metered separately, the tenants will pay this. I do pay garbage. It’s like the less than 50 bucks a month, but I’m just going to round up to 50 bucks a month. That’s all the input that we need to do. Hopefully you could see that this is not so difficult. You just need to think through each of these steps. We’re going to take a quick break, but when we come back, I will share with you if this property is going to cashflow and by how much stay with us. The Cashflow Roadshow is back. BiggerPockets is coming to Texas, January 13th to 17th, 2026. Me, Henry Washington and Garrett Brown will be hosting real estate investor meetups in Houston and Austin and Dallas along with a couple other special guests. And we’re also going to have a live small group workshop to answer your exact investing questions and help you plan your 2026 roadmap. Me, Henry and Garrett are going to be there giving you input directly on your strategy for 2026. It’s going to be great. Get all the details and reserve your tickets now at biggerpockets.com/texas. Hope to see you there.
Welcome back to the BiggerPockets podcast. I’m here with Ashley Care talking about the right way to calculate cashflow. Before the break, Ashley and I talked through how to do cashflow calculations properly using the BiggerPockets calculators. Now let’s see if this deal cash flows. So actually it’s not bad. It comes out at $388 a monthly cash flow, which amounts to, I’m rounding up a little bit, but basically a 4% cash on cash return. Is that a good enough deal for you?

Ashley Kehr:
No,

Dave Meyer:
Me neither. I’ve talked about this on the show. I would take a deal with the 4% cash on cash return using this kind of disciplined underwriting. If this was a neighborhood or an a plus neighborhood, this just isn’t. It’s a B minus neighborhood. I do think it’s in a good location for future growth, but that growth might be five years from now. It might be eight years from now. And so I would need to see a higher cash on cash return than this. But just given the spirit of this episode what we’re talking about, I do believe this property cash flows and I would feel comfortable that I would get this 4% return. And on top of that, you would also get amortization and all these other benefits. The BiggerPockets calculator tells us it’s about an 8% annualized return, which for me is too low.
When I look at deals generally, I say I need at least a 12% annualized return that’s handedly beating the average for the stock market, and I want to at least beat the stock market by a few percentage points. So this deal doesn’t work for me, but while we’re here, Ashley, should we just see what it would take to make this work? Because as we’ve talked about it before, this was buying at rental at full price and it’s assuming that I stay with the current rental model and don’t get increased rents because of improving the property. So let’s see what

Ashley Kehr:
Happens. This is my favorite part of it is decreasing the purchase price and seeing what I can offer.

Dave Meyer:
Exactly. And I know people get confused about this and they’re like, you can’t just lower the purchase price. No, you can’t, but you can offer whatever you want. That is entirely up to you. And this property has been sitting on for at least 70 days, maybe more. And so the negotiating leverage is there. What would you bring this down to? It was three 50 is what they’re asking right now. What would you test out?

Ashley Kehr:
Let’s test out 300. That may be too low, but let’s try that. And then that can give us if we can increase our offer a little or go down a little bit. But this is the easiest number to manipulate

Speaker 3:
Because

Ashley Kehr:
You could go and say, you know what? I think I could increase rents a little bit. Let’s change that. Or you know what? I actually think I can get the insurance cheaper on it or whatever. Those are the numbers you don’t want to mess with or manipulate. This is the one, the purchase price, what you’re going to offer.

Dave Meyer:
So if I drag this down to 300 grand, I would get a 7% cash on cash return significantly better. So that’s $630 a month, and the annualized return jumped from 8% to 16%. Wow, that is significantly better because if you think about this, yes, you’re coming out of pocket for less money, so your cash on cash return is going to get better and you’re taking out a lower mortgage, and so you’re going to have less interest to pay, especially over the lifetime of your loan. So actually to me, this is getting to a deal. I would buy a 7% cash on cash return to 16% annualized return. What do you think of this one?

Ashley Kehr:
How much are the fixed expenses a month?

Dave Meyer:
The total expenses are 3094, and of that the variable expenses are 1,266.

Ashley Kehr:
So that’s 1,266 of unknown example. That’s actually quite a bit of money that you are accounting for those other things too.

Dave Meyer:
So yeah, if you look at it when I’m taking vacancy maintenance CapEx, that’s 900 bucks a month essentially that I’m setting aside just gut check. I feel pretty good about that. That feels right. And to me, this is starting to feel like I feel confident if I could get this at 300 grand, I would get that 7% cash on cash return. And to me, that’s now an attractive cash on cash return. I don’t know if you have a rule of thumb you look for. Is yours higher or lower the same?

Ashley Kehr:
Actually, I would take a little less than this. This would be a good deal for me. I would take this. All right. The one thing that I would think about going back and changing after we’ve gone through all of this is instead of using the percentage of repairs and maintenance, I would add in, since this is in Western Michigan, snowplow removal as a fixed thing,

Speaker 3:
Because

Ashley Kehr:
That was a mistake I made on my very first deal in Buffalo, New York, not accounting for snowplowing. And it can be so

Dave Meyer:
Expensive, so expensive, it’s ridiculous

Ashley Kehr:
What they charge. The plow that killed my cashflow. I think we ended up cashflowing a hundred dollars on the first deal because I didn’t account for the snowplowing and how much that would be. So that’s something else to watch out for. What are those maintenance expenses you do know will happen that you need to maintain the property? Even landscaping too, maybe it’s a big lot and you’re not going to ask both of your tenants to share the lawn mowing responsibilities. So another one too is common areas. If there’s common areas, I have a five unit building and I have to pay a cleaner to go in and clean the common area. So I think once you get the basis of this, then that’s when you go and you start to nitpick the deal and break it down even more and see

Speaker 3:
Exactly

Ashley Kehr:
How accurate you can get it. But this gives you such a good basis. I can’t even tell you how many calculator reports I’ve saved in my portfolio. I think I became a member in 2017. I probably have a million of deal analysis

Dave Meyer:
Calculator reports, thousand deal

Ashley Kehr:
Analysis. And it’s so interesting to go back and to see those very first deals, how I’ve changed analyzing and gotten better at fine tuning than those first basically back of napkin math ones I

Dave Meyer:
Did. I think, yeah, I have gone from seeing everything with rose tinted glasses and being like, this is all going to work out to being completely the opposite. Everything’s going to be terrible. And if it’s still good on paper like this, then I’ll do it. That’s basically my criteria. So that’s helpful. I went back in and added another a hundred bucks a month in just general expenses for probably plowing something like that, still at six point a half percent ROI, which I like. And if you listen to the show, I’ve been talking a lot about this framework for upside era investing that I am a big fan of. And to me it’s like how do you underwrite super conservatively and then hopefully get better returns than even you’re analyzing? Because to me, the whole trick is like, okay, I feel confident I get at least a 6.5% cash on cash return.
That’s good, a 15.6% annualized return, that’s good. That is assuming no rent growth from this renovation. And so I would still underwrite this, but then what I would normally do is say, okay, what if I went up to 3,900? What if I could grow rent? Maybe not. But if I did, okay, then that gets me to an 8% cash on cash return and a 16.4% annualized return. I underwrote this deal with just 2% appreciation. This happens to be a B nine in this neighborhood, but in a very good growing market. And so maybe I get three or 4% appreciation, what happens then? I probably get a 20% annualized return. And so this is sort of the phase where I start to think about this is like, what is the minimum cashflow that I’m going to get? And then am I comfortable with the minimum? And then everything else on top of that is just a benefit that I hope I get, but I’m not counting on it mentally. So I’m not disappointed if this things don’t happen. I’m just delighted and happy if they do wind up coming about.

Ashley Kehr:
One thing that I had another realization as an investor over the years is that watching not only the cashflow increase over time because my expenses didn’t increase as much as the rental income did. One property I bought in 2017, I was cashflowing $300 a month when I bought it, and now I cashflow a thousand dollars per month on it, and it also has $150,000 in equity in it. And I think I put my down payment was maybe 35,000 on it, whatever. So now that I look back, I realize that’s the true value holding these rentals over long-term, getting them in a good area where they’re going to appreciate and you’ll be able to increase the rental income. So that makes me more excited than cashflow today, but especially as a new investor getting started, that little bit of cashflow is going to be so helpful with you in changing your life.
But when you are analyzing deals, you need to understand why you’re investing and what you’re investing for. Maybe cashflow isn’t really that important to you and you’re okay with a really small amount. You just want something that in 15 years has appreciated and so much and you’re just going to cash out and retire. Or maybe you want to quit your job now. So you want more cashflow than appreciation. Maybe you have a ton of time and you want those headache properties and class C areas like I did, I bought those $20,000 duplexes, great cashflow, but man, lots of turnover, lots of repairs, lots of headaches. So really think about that too as you’re figuring out what cashflow is good for you.

Dave Meyer:
I couldn’t agree more people always ask for a rule of thumb for cashflow. I always say to me it’s like they got to break even. I don’t personally buy properties that don’t break even. I know some people do. I don’t think that makes a lot of sense, particularly in the kind of market we’re in where appreciation might not happen for the next year or two. We might be in a flat market. You need to have some cashflow to be prepared and to cover any expenses that you have and to be able to hold on. But once I’ve reached that threshold, you got to look at it holistically. You can’t just say, I need 10% on every cash on cash return. Because the reality is ones where you get 10% are, as Ashley said, either big headache properties or in areas that are less likely to appreciate.
And so it really comes down to what your goals are as an individual. And personally, like I said before, I would buy a three 4% cash on cash return deal if it’s in an A or a plus neighborhood because I’m going to get other benefits if I’m in this beep minus neighborhood, 6, 7, 8 is probably the minimum that I would take on that kind of deal. And if I was in an area that I didn’t think would appreciate at all, I’d probably want 10 plus. So those are just rough rules of thumb, but unfortunately you can’t just say there’s this one hard and fast rule. You kind of have to look at the whole big picture of returns that you’re going to get and think about it as just a piece of that puzzle. Alright, well thank you Ashley. This is a great conversation. Anything else you think the audience should know before we get out of here?

Ashley Kehr:
Don’t forget your snowplow removal and your bags of salt and your shovels.

Dave Meyer:
I know half the country’s like, what are you talking about? Why would you even count snowplowing? But if you know, it’s so expensive. All right. Well thank you Ashley. We appreciate your time.

Ashley Kehr:
Yeah, thanks so much for having me.

Dave Meyer:
And thank you all so much for listening to this episode of the BiggerPockets Podcast. We’ll see you next time.

 

 

Ashley:
What if the only thing keeping you from your first deal is not knowing what a good deal actually looks like,

Tony:
Or maybe you’ve got your first flip lined up, but you can’t decide if you really need a general contractor or if you can manage it yourself.

Ashley:
And finally, the million dollar question every rookie is asking is now the right time to buy. We’re answering all three of those questions and helping you make smarter moves in any market. This is the Real Estate Rookie podcast. I’m Ashley Kehr.

Tony:
And I’m Tony j Robinson. And with that, let’s get into today’s first question. Now this question comes from Eric in the BiggerPockets forms, and his question is, I’m new to real estate investing and just finished reading Brandon Turner’s book on investing with no Money Down. I found myself particularly interested in multifamily properties, but I’m struggling to grasp what exactly defines a quote. Good deal when evaluating listing. Should I primarily focus on properties that seem undervalued? Are there specific market indicators or property traits that I should be paying attention to? I feel like I’m missing the bigger picture of what makes a property a great investment. If anyone could share some pointers or insights on how to identify a good deal, I would appreciate it. This is a really good question, right? Just how do we know if a deal is a good deal? And he asked a few different data points that he should be considering property traits or the value of the property.
And I think the first thing that I’ll say is that a good deal to me could be a bad deal to you and vice versa. And what Ashley looks at as a good deal could be a bad deal to me. And part of that is because we all invest for different reasons. We all invest with different inherent skills and we all invest with different amounts of time, effort, and energy that we’re willing to put into real estate. So for someone who is a busy corporate executive that works 80 hours a week and makes half a million dollars a year, a turnkey property at 20% down at a 6% cash on cash return could potentially be a good deal for them because they don’t have the time, energy, or desire to do anything more than that. And that could be a great deal to the person who asked this question 20% down on a turnkey short-term rental that’s cash flowing at 6% could be a terrible deal because you just talked about, hey, you’re looking for no and low money down strategy, so that doesn’t work. So I think the first thing to ask yourself is what am I looking for when it comes to real estate investing? What are the things that I need to understand before you even get into good deal versus bad deal as guess? I’m just curious, is there anything else just like strategically or from a theory perspective that we should be focusing on before we get into the details of the answer?

Ashley:
I think maybe just what is, like you said, your why for getting started, but define what actually gets you to that point. So if your goal is to build legacy and build wealth, well, do you want to put a ton of time and effort into doing that or do you want to maximize passive income to be able to generate that wealth? So I think the time and money commitment are two big pieces to the puzzle that you need to be really heavy on either one of them or have a mix and balance of the bolt so that one doesn’t outweigh the other six, seven. If you’re watching this on YouTube,

Tony:
If you don’t have a kid that’s maybe my son’s 17, so 17 or younger, you probably don’t get that reference, but six seven’s been everywhere, but I couldn’t help myself. I just saw you doing this. I was like, we got to get

Ashley:
That in, I’m proud of you. Yeah,

Tony:
My son’s going to be proud of me too when I tell him this story. So I think let’s talk a little bit about what actually makes a good deal. So when we talk about real estate, we talk about a specific property as an investment. There’s the cashflow that it produces, right? Like the actual cold hard money that comes off of the deal on an annual basis. There’s the cash on cash return, which is a measure of how good of an investment it is because maybe I’m getting a hundred dollars a month in cashflow, but if I invested nothing into that deal, technically I’m getting an infinite return if I get $1,000 from month in cashflow, but I’ve got a million dollars of cash sitting in the deal, more cashflow, but it’s actually a really bad return on my investment. So we look at the actual cash flow, we look at the cash on cash return.
The other piece that we can take into account is the appreciation. If I hold this property over the life of the loan 30 years, is it reasonable to believe that this property is going to appreciate a significant amount over that timeframe? Some markets appreciate faster, some markets appreciate slower nationally post COVID. I think we’ve seen a lot of appreciation across most of the United States, but some markets do it faster than others. So I think those are really the two big things that most investors today. There’s also the tax benefits and maybe that’s an entirely different story, but I think based on how this person asked the question, they’re probably not too concerned with tax sheltering at this point. So cashflow, cash on cash return and equity growth or appreciation I think are the big things to focus on. Am I missing anything there?

Ashley:
No, and I just thought of this, and we don’t ever really talk about this as one of the pieces of a good deal, but also I would say regulation security as in there’s been towns near me where people have short-term rentals and all of a sudden the towns say, you know what? Unless this is your primary residence, you can’t do short-term rentals anymore. And all of a sudden people are like, what am I going to do with this house? I can’t rent it out. It doesn’t make enough money as a long-term rental. So I think it would be a good deal if you can actually do that strategy. So just another little aspect and there’s I think a lot of those little nuances we could probably do a whole episode on, but thinking a little outside the box too.

Tony:
Yeah, real estate nuances as our next episodes. If you guys want to see that, let us know. Let us know in the comments. Then I think that the next piece here too is just defining your buy box. And I think that’ll also help you identify whether or not what you’re looking at is a good deal for you specifically. And I’ll give you a recent example. When we were shopping for our first hotel, we had a very specific buy box. We had a buy box of, we wanted a purchase price between one and $3 million. We wanted a value add opportunity. We wanted to be in either an urban or a vacation market, and we wanted, I think there are 10 to 30 rooms. So those were all the things we were looking for. And once we had that buy box built out, it became significantly easier for us to say yes or no to certain deals because now it’s just like, does it match our buy box or does it not?
So I would encourage you to, and this is for everyone that’s listening, to think about building your own buy box and how that can make it easier to identify the right deal. And then just there’s some basic rules of thumb as well when it comes to buying rental properties that don’t necessarily give you the cold hard to the penny return, but directionally, I think they can kind of point you in the right direction. But there’s the 1% rule that says your revenue or your rent in this case should be 1% of the purchase price. So if I have a house that is $100,000, if I can rent that property out for $1,000 per month, that would be meeting the 1% rule. The other is the 50% rule where 50% of your revenue, or sorry, lemme say that again, then there’s a 50% rule that says your expenses shouldn’t exceed 50% of what that revenue is. So using that same example, if I’ve got a $1,000 a month in rent, my expenses hopefully shouldn’t exceed 500 bucks on that, right? So there’s different rules of thumb that you can use to help guide you in the right direction to quickly either say yes or say no to these deals aside from fully underwriting them.

Ashley:
And just to remember that a good deal doesn’t mean it has to be the greatest deal of all, or you have to get the best benefit. You have this money because we see a lot of times like I have $50,000. What’s the best way that I can use this money? Even if it doesn’t turn out to be the best way there Ended up you could have got a 2% more return or something doing something a little different or buying a different property. As long as it ends up being a good deal, it is going to make you so much more money because that first deal propels you it, you took action and it’s going to start your investing journey. So don’t get too caught up in analysis paralysis thinking you need to find the perfect deal.

Tony:
Ash. That is a great point. The last thing I’ll add to that is we need to give ourselves more permission to learn when it comes to real estate investing. And I’ve given the analogy of if you have a child or if there’s a child that you’ve ever met in your life, chances are that child did not come out of the womb walking. And there was at some point in their early life, somewhere between eight to 12 or maybe sometime shortly after months where they started to learn how to walk. And I haven’t met anyone yet, though I could be wrong, but I haven’t met anyone yet who at 12 months old when they fell down for the first time after walking, their parents just kind of scooped them up and said, you know what? Walking’s just not for you. Usually the kid falls down, parent picks them back up, and then they keep that process going until they finally find the strength to sound on their own.
And I think real estate investing, and really this is for learning anything new, it’s the same process. The goal is that we can lay a foundation with that first deals not to be perfect. And sometimes that means stumbling. Sometimes that means everything doesn’t go according to plan. Both in my portfolio and Ashley’s experienced that and many of the guests that we’ve interviewed on this podcast have experienced that as well. So if we give ourselves more permission to learn on that first deal, we can take off some of that pressure of it being perfect and position it as an opportunity to get better for the second deal and the fifth deal and the 10th deal

Ashley:
Coming up. When you’re tackling your first flip, should you really pay for a general contractor or is that just wasted money? We’ll break it down right after this quick word from our sponsors. Okay, welcome back. Today’s second question is, my partner and I have started a house flipping business and plan to use local workers whom we trust and who we have done remodels on investment properties for us before. However, these workers are not licensed, but they work hard and efficiently. Most of the rehabbing we are planning for these flips is cosmetic. The most recent house we offered needs a complete remodel inside, but the structure is sound. For example, we need new kitchen cabinet, sink paint, flooring and drywall in certain areas of the house that have been damaged as well as new light fixtures and interior and exterior paint. The work is mainly cosmetic except for the drywall repairs.
We are concerned about hard money lenders requiring licensed professionals to do the work or requiring licensing later on, having a scramble to find a general contractor. Fortunately, one of our hard money lenders said they will not ask to see any licensing as long as we are not doing anything structural to the house. Another one of our hard money lenders has stated that they want to see licensing anytime we were going to have any work done to pull permits. We are brand new to this, as you can tell. So the first thing that kind of stands out to me is the hard money lender that’s saying they’ll want to see any licensing when they pull permits. In my experience, I mean I live in very rural areas where a lot of my projects are like no permit or very get a permit this morning, start the roof that evening. But the flip I did last year was in more of a village within the city and there was a lot more stricter permit requirements, but I had to show, for example, the plumber was a licensed contractor just to get the permit on the property too. So I think that no matter what, depending on your city’s regulations, you might have to show that it’s somebody licensed doing the work like electrician and plumber. Two big things that usually you would have to show.

Tony:
And I also, if your lender is requiring that you have a GC to do it, then I mean that kind of answers the question for you, right? I wouldn’t tell my lender that ham, I’m going to use a licensed contractor and then I don’t because that could create its own world of issues. But I think maybe the bigger question here is why are you opposed to using the general contractor? Is it the idea of cost savings? Because if so, unless you’ve got a lot of experience managing these types of projects before because you didn’t say nothing, right? It wasn’t like you were just doing paint or you were adding some turf or replacing some hardware. We need new kitchen cabinets, sinks, paint, flooring, basically an entire new kitchen drywall where there’s been damage.
It does seem like a decent amount of work for someone who’s doing this for the first time. And even though you’re not changing the layout as a rookie investor, sometimes there is value in having an experienced general contractor guide you through on this first project and the amount of insights you can pick up and gain from that person, they’ll stick with you for the rest of your life. One of the first rehab projects that we did, we had a juicy walk through it. He ended up not taking the job because he was too busy, but I remember he gave us a layout suggestion we had never even thought about before. He was like, Hey, you should actually close this wall off that way we can make your master bedroom bigger and we can do this and do that. And we’re like, man, I walked right through this a thousand times. I never even thought of that. And he was in there for 20 minutes and was like, yeah, you need to do this, you need to do this, he needs to do this. So there’s value I think in just learning from a good general contractor, especially if this is your first time out, obviously you want to make sure that they earn their keep and hopefully a good GCL do that. But I dunno, I think there’s value Ashton and rookie investors when they’re first getting started having a good GC to lean on.

Ashley:
Yeah, two of my easiest projects, I had really great GCs that actually did a lot of the work themselves too. When I built my personal residence, my GC pretty much built the house himself. He was a licensed electrician, a licensed plumber. He was a jack of all trades. And if I could have him do every house that I ever touch, I would 100% consistently use him. No matter how much he paid, I’d work it into the numbers because that was just the easiest most passive thing I ever did was build that house. And he did one rehab for me for a house that was flipping. He came in after it became too much for just me and my partner to try to handle ourselves. And he came in and finished the whole thing with very little oversight. And that I think is just tremendously valuable.
Having somebody you don’t have to micromanage that can make basic decisions without ever having to bother you or tell you decisions you should be making in your point Tony, as to put a door here or something like that, that’s going to maximize your space. Or I had a GC that did put a slider door here, don’t, you’re limiting the bathroom by putting the same door back in. Do this and it will be cheaper and had all these great ideas. So I think a GC is worth it for the project, especially if you don’t have experience yourself. But also another thing they could do is they could go and one of them could get licensed to be a gc. I have no idea what the process is, but I’m assuming it’s achievable and doable to go and get your GC license.

Tony:
I think just one thing to call out, we’ve all heard the horror stories of general contractors or even just tradespeople in general disappearing into the middle of the night. So my strong recommendation, whether you hire a GC or a sub yourself, is to make sure that the payment structure protects you in the event that the work isn’t done correctly. So do not give them a super large deposit upfront, right? So say that the labor for this job, maybe the total bid for this house is like 60 grand. Don’t give them $30,000 upfront to go start their work. It does not cost that much to go buy whatever materials they need to go buy to get this job started, break it out into very clear milestones, and then only issue those payments once you validated that those milestones are done like demo. Once they finish demo, then you can release another payment.
Once they’ve done the rough plumbing and electrical, you can issue another payment. Once the flooring is in, you can do another one. So identify what those milestones are based on the scope of the job and that’ll save you in the event that these contractors don’t work out. We actually had a rehab once where we withheld the final payment because the general contractor just wasn’t great and we had a lot of issues throughout the life of the project and I ended up managing the subs myself because GC wasn’t doing a good job. So when it came time for the final payment, and Sarah, my wife still recall this, one of her crst moments with me, but we’re in the house arguing with each other and I’m like, dude, I’m not paying you. I’ve done more work on this project than you have. So anyway, you can save yourself, I think from some of those bad experiences if you make sure the payment structure is set up in a way that protects you.
Alright, we’re going to answer our final question right after we’re from today’s show sponsors while we’re gone. If you haven’t yet, be sure to subscribe to our channel on YouTube. You can find us at realestate Ricky. Alright guys, we’re back with our final question. So let’s see what we’ve got today. The third question comes from Grant in the BiggerPockets forums. And Grant says, is there ever a right time to buy a house? A lot of people around me keep saying, wait until the market crashes, because right now it’s high, but it always seems like it’s going to keep going up. So I know that there were times or moments when it goes down a little bit, but it’s always going to go up, isn’t it? This is a great question. And we just recently interviewed Thatin and James Dard about a topic very similar to this because they both invested through 2008.
Thatch was even investing in the nineties during the dot-com crash. Now, that impacted the markets, and I think they both echoed the same message. Ups and downs will always happen in real estate, but it’s the people who continue to invest through those downturns that make the most money when the market starts to swing back up. So is there a right time to invest in real estate? Yes. And that time is today, right? Very simple answer. There is a right time, and it’s right, actually it’s yesterday. Yesterday was the best time to invest in real estate and today’s the second best day. I think where people get into trouble is trying to time the market, but no one has a crystal ball. No one has a crystal ball. And I would venture to say, grant, that the majority of the people who are telling you to wait for the market to come down or wait for the market to crash, probably haven’t invested in a lot of real estate themselves because I only hear that advice from people who haven’t done it.
And I almost never hear that advice from people who are doing this actively every single day as their main way of making a living. So we’ve got to be able to filter out the advice that we get from very well-intentioned friends and family and be able to say, Hey, look, I appreciate that you’re looking out for me, but I’ve got to take advice on wealth building from the people who’ve actually done it and not necessarily from my friends and family who have only seen the headlines or maybe heard stories from a friend of a friend of a friend about why real estate investing is the wrong thing to do. So it’s all about time in the market, not timing the market.

Ashley:
And one thing that thatch and James said too was making sure you have exit strategies as in, especially if you’re doing a long-term play on a property, you can ride out the cycles, get that 30 year fixed rate loan, your mortgage payment is going to stay steady and you can hold that property long term and let it appreciate and your mortgage pay down happen. But if you’re on a shorter term project such as you’re doing a flip, what is your exit strategy to get out of that deal? If the market does take a big downturn, right? When you list it, is it, can you turn it into a rental? Can you furnish it, turn it into a short-term rental? If you unload it, how much of a loss can you actually take? And they both told how they’ve had bad years, they’ve taken losses, but they keep going because the winds during the great years outweigh those bad years.
So you have to be prepared to ride the rollercoaster and be in this for the long term. For the long play. This really isn’t a get rich quick scheme. Yeah, maybe a couple years ago you could get rich real quick off of a couple deals, but that was not sustainable. You can’t consistently do that every single year and make those great returns that everyone talks about a couple years ago with your 2% interest rate. So having those exit strategies and also having a long-term game plan and growing consistently, but not growing and scaling too fast too. Well, thank you guys so much for listening to this episode of Ricky Reply. I’m Ashley Hughes, Tony, and we’ll see you guys on the next episode.

 

In This Article

This article is presented by RentRedi.

There’s a big difference between working in and on your business. When you bought your first rental property, doing everything yourself probably felt right. You knew the tenants, collected rent, patched the drywall, and scheduled the pest control. 

Being a self-managing landlord is no joke, and it’s definitely not for everyone. If you’re constantly texting tenants, manually tracking rent payments, and spending your weekends fixing leaky toilets, you start feeling like you’re being spread too thin.

Instead of growing your cash flow, you might be just trying to survive the week. If you’re losing sleep, time with your loved ones, or even struggling to keep up with repairs, that’s when it’s time to fire yourself. But don’t worry, you’re still the boss—only instead of doing the work yourself, you can adopt smarter systems and workflows that make it simple for you to scale confidently and successfully. Here’s how to get a complete overview of your business and develop deeper insights that you can focus on growing your portfolio.

Are You Working Smarter or Harder?

Working smarter on your business means building systems, automating tasks, and making decisions that allow you to grow. It means treating your rental portfolio like a company, rather than a never-ending to-do list. Too many landlords get stuck doing everything themselves—and wonder why their growth plateaus.

The truth is, you simply can’t scale chaos. But you can scale success. 

Your Growth Will Only Go as Far as Your Systems

Every successful real estate investor eventually realizes that growth requires some type of infrastructure. 

You wouldn’t try to build a house without a foundation. So why are you managing a five-, 10-, or 20-unit portfolio with a stack of receipts, a personal Gmail account, and a dozen spreadsheets? This system may have worked for you initially, but it is also difficult to manage long-term. For a more sustainable process, pulling all your investment properties and organizing them into one system will save you so much time and stress. You might not even realize how much inherent stress you’ve been feeling until the sigh of relief when you see your entire rental operation organized in a smart system designed to simplify your property management workload. 

A strong, scalable system should allow you to:

• Accept rent online and track payments in real time
• Automate late fees and rent reminders.
• Screen tenants consistently, with applications and background checks.
• Log and organize maintenance requests, with status updates and photos.
• Keep digital copies of leases, inspections, and notices.
• Collaborate with your team or contractors securely and efficiently.

These key systems are must-haves for anyone who wants to grow beyond just being a landlord and for folks who want to work on their business.

How Property Management Systems Work For You

Hiring a third-party property manager can cost 8% to 12% of your gross rent, and there may be additional costs for leasing or repairs. This can be a worthwhile investment to alleviate your workload, but setting up a property management software that can organize your business and articulate rental data back to you is an essential tool for scalability and cash flow growth. 

Using a smart property management software like RentRedi gives you the power of a professional system without the overhead of outsourcing everything. You can:

• Log in to one dashboard to see how your portfolio is performing.
• Get alerts when rent is paid or late.
• Generate reports for tax time.
• Store all your documents and communication in one place.
• Let tenants submit requests without calling your personal phone.
• Stay organized without hiring a team.

A manual system can impede your growth as a real estate investor. Not only is it taxing on your time, but your energy as well. Imagine if you could reallocate the investment of your resources…back into investing? That’s working smarter, not harder.

The Hidden Costs of DIY Landlording

Let’s talk about what you’re actually losing when you try to do it all yourself.

1. Time

Every minute spent on administrative tasks is one you’re not underwriting new deals, building relationships with brokers, or thinking strategically about your business.

2. Tenant satisfaction

Delayed responses, inconsistent communication, and poor maintenance follow-up make tenants unhappy. That could mean more turnover and longer vacancy periods.

3. Financial accuracy

If you’re not tracking expenses properly or logging deductions, you’re leaving money on the table every year at tax time.

4. Burnout

This is real. The back-and-forth phone calls, a mountain of maintenance tasks, and overlooking late or missed payments all add up. For you and your business. A primary reason for utilizing real estate investing to achieve financial freedom is to generate revenue without strain on your finances, time, and wellness. So if your future is looking forward to financial freedom, finding sustainable, customizable, automated workflows is #1 on your priority list.

How I Knew It Was Time to Fire Myself

There was a point in my journey where I looked around and realized my portfolio was growing—and with it, my workload. 

I had more properties, tenants, and rent coming in. This was exciting, but I was more stressed than ever. I wasn’t spending my time doing the things that mattered. I was putting out fires, logging into my bank account to check if rent came in, and calling vendors to schedule minor repairs. Basically, I was babysitting my business instead of scaling it thoughtfully.

Making the decision to implement systems like automated rent collection, streamlined maintenance, and consistent tenant screening with software like RentRedi had several benefits beyond saving time. This was a turning point in my investor journey, as I finally had the breathing room to grow.

How to Know It’s Time

Here are a few signs you’ve outgrown the DIY property management stage:

• You’re managing more than two properties.
• You’re repeating the same tasks every month.
• You spend more time being reactive than proactive.
• You can’t remember which tenant has a pet, or whose lease is up next.
• You feel overwhelmed during tax season.
• You dread tenant calls or emails because you’re already behind.

If any of that sounds familiar, you’re not alone—and you’re not failing. You’ve just hit the ceiling of what can be done manually. Now it’s time to build the business.

Owning the Role of CEO

Stepping into the role of CEO means you recognize not only the worth and value of your rental business as a cash flow, but also your time as well. Each property has the potential to bring you one step closer to a future that feels more like freedom. Adapting smart property management systems like RentRedi saved my sanity, my time, my energy, and my resources. So if your goal is to grow financial sustainability, own your role as a business owner. 

The most successful investors are those who learn how to delegate, automate, and systemize their portfolio. Firing yourself doesn’t mean you stop caring about your tenants or the properties you’ve invested in. It means you’re ready to build a business with smart systems in place that not only help you streamline what you already have, and scale to something bigger.

In This Article

For the last few years, the narrative about the U.S. real estate market has been that homeowners are not moving. They are rate-locked and staying put. 

That is no longer the case. The latest numbers from a Realtor.com analysis reveal that Americans are, in fact, moving in large numbers, possibly upending the playbook for real estate investors. 

More homes mean more moves, and that is especially true in the Sunbelt, where the U.S. metros with the highest listing activity are in Texas, including Dallas, San Antonio, Austin, and Houston.

The full list of metros with the highest turnover between September 2024 and August 2025 is:

1. Kansas City, Missouri
2. San Antonio, Texas
3. Indianapolis, Indiana
4. Las Vegas, Nevada
5. Dallas, Texas
6. Nashville, Tennessee
7. Austin, Texas
8. Charlotte, North Carolina
9. Houston, Texas
10. St. Louis, Missouri

While each city has its own unique circumstances, certain patterns have emerged, particularly regarding the Texas metros. This aligns with the outlet’s November housing report, which shows that Southern markets are close to their pre-pandemic norms. The increase in inventory has led to greater buyer choice. 

Reasons for Moving

Unlike the popular post-pandemic narrative, life issues such as retirement, job relocation, downsizing, and equity appreciation have overcome fears of being rate-locked. In many cases, where the equity is significant enough, forgoing a low interest rate has been a non-issue.

“People in San Antonio are monetizing appreciation and resetting life logistics, not panic selling,” Daniel Cabrera, owner and founder of Sell My House Fast SA TX, told Realtor.com. “They are selling to repay debts, relocate for their relatives, and escape the commute for more space.”

Downsizing is also playing a part, according to the report, which, coupled with rising insurance costs, means that in many instances, it’s cheaper to rent than to live in a large house that also needs maintenance.

Former Growth Markets Are Now Negotiation Markets

An increase in supply has helped lower prices and encouraged more people to move.

“For buyers, there are deals to be made,” Jason Gale, a Redfin Premier agent in New Orleans, told Real Estate News in October. “People who need to move are still out there house hunting, and they’re finding that it’s a good time to negotiate with sellers, especially for homes that have been on the market for longer than a few weeks. Most buyers are able to get a discount on the price or significant help with their closing costs.”

More Inventory Has Led to More Options

According to the National Association of Realtors (NAR), existing-home sales increased 1.2% in October, with month-over-month sales up specifically in the Midwest and South.

NAR chief economist Lawrence Yun said:

“Home sales increased in October even with the government shutdown due to homebuyers taking advantage of lower mortgage rates. First-time homebuyers are facing headwinds in the Northeast due to a lack of supply, and in the West because of high home prices. First-time buyers fared better in the Midwest because of the plentiful supply of affordable houses, and in the South because there is sufficient inventory.”

Specifically in the South, sales are up 2.8% year over year, with the median price up 0.3% from the same time last year.

Slower Price Growth Equals More Buyer Power

Rampant post-pandemic price growth, coupled with low inventory, froze the housing market, which appears to have thawed. Although sales have hardly been remarkable, stability is often an investor’s friend. In October, just 14 of the 50 most populous U.S. metros saw price drops, according to Redfin data, down from 37 metros dropping prices in July.

“Many would-be homebuyers and sellers are paralyzed by high prices and economic uncertainty,” said Redfin senior economist Asad Khan in a press release. “Homebuying activity has stabilized at below-normal levels, and while selling activity has also slowed, there are still a lot more sellers in the market than buyers. That’s allowing the people who are moving ahead with home purchases to score discounts and other concessions from sellers.”

Redfin’s report estimates there are about 500,000 more home sellers than buyers in the market as of mid-November, tilting the market toward buyer discounts.

Smaller and Midwestern/Northeastern Metros Gaining Ground

As supply and demand dynamics shift, some smaller or midsized metros in the Midwest and Northeast are increasingly attracting buyers and investors, according to Realtor.com’s findings. Modest prices and stable demand are making them more attractive than overheated metros.

These so-called “refuge markets” include:

• Grand Rapids, Michigan 
• St. Louis, Missouri
• Cleveland, Ohio
• Milwaukee, Wisconsin
• Pittsburgh, Pennsylvania

Additionally, 11 of the outlet’s hottest 25 markets identified in an October report were located in the Midwest, with six in Wisconsin, four in Illinois, and one in Ohio.

“Wisconsin, Ohio, and Illinois continue to stand out as affordable housing markets with strong local economies, drawing home shoppers who are seeking both opportunity and value,” Hannah Jones, senior economic research analyst at Realtor.com, said. “Markets where home prices sit below the national median, or below those of nearby major metros, have gained notable traction in recent years as affordability constraints weigh heavily on buyer demand.”

Listings in these markets sold 27 days faster on average than typical U.S. listings in October.

Final Thoughts: Strategic Moves for Investors in a Changing Market

Rather than a dramatic sea change, the current real estate market suggests a subtle shift in dynamics—more of a pat than a punch. 

Consequently, investors don’t suddenly need to adopt risky strategies to free up cash; they should be liquid, nimble, and able to respond to greater market fluidity. When people move, opportunities arise, and for the first time in a while, people are moving. 

Here are some levelheaded moves investors should make as the market changes course:

• Underwrite based on flat or modest price growth (instead of optimistic appreciation). Focus on long-term stability rather than short-term price swings.
• Negotiate seller credits or other concessions to improve cash flow or financing.
• Avoid thin-margin flips or BRRRRs. It’s not worth the risk.
• Target workforce housing. As back-to-office mandates come into effect, people will need to live closer to larger cities in supply-constrained neighborhoods.

The current real estate market is like a long-distance race: liable to change with fluctuating interest rates, inventory, and other economic factors. Placing yourself away from the pack, near the front, ready to make a move, is always a good strategy.

In This Article

Foreclosure auctions rose while buyer demand and pricing cooled in Q3 2025. Below, we’ll take a look at six key charts and buyer quotes to get a sense of today’s foreclosure market, what’s going on at auction, and extra tidbits to help guide your next bid.

Foreclosure auction volume increased while pricing softened in Q3 2025, according to the latest Auction Market Dispatch, published by Auction.com. That combo is creating more chances to buy—if you underwrite conservatively and stay selective. Here are six must-see charts and auction buyer insights.

What Changed For Investors This Quarter?

Distressed supply continued to climb, led by foreclosure completions and scheduled auctions, while demand metrics (sales rates and bidders per asset) cooled. Investors report shifting to lower bids and longer hold timelines as costs and uncertainty rise.

“The primary concern is the growing number of houses for sale … This creates a buyers’ market; therefore, you can expect to sell a property for less than you would have a year ago.” — Arkansas buyer

Takeaway

More foreclosure inventory with more conservative bidding favors disciplined offers.

Where Demand Cooled—and Why That Helps Disciplined Buyers

Sales-rate pressure and fewer bidders per asset mean less competition at the margin. Many buyers cite falling prices and policy uncertainty, so they’re trimming offers to protect their margin.

“Overall, expectation [is that] housing prices are falling and will continue to fall.” — Indiana buyer

Takeaway

If you keep comps current and cap rehab risk, you can win without overpaying.

What Buyers Actually Paid vs. Value (by Market)

Price-to-after-repair value (ARV) ratios moved lower in several metros, reflecting tighter underwriting and higher perceived risk. That creates pockets where spreads are opening for buy-and-hold and value-add investors.

“I am buying more to hold and rent than I was before (when) I was buying to flip and sell.” — Minnesota buyer

Takeaway

Favor metros where price-to-ARV is trending down and rents still pencil.

Where Supply Is Building (by State)

Foreclosure auction volume rose across several large states. A bigger pipeline means more looks each week and less pressure to chase borderline deals.

Takeaway

Work statewide lists; set saved searches for areas showing the biggest year-over-year gains.

Vacant REO Is Back in Play—Why Occupancy Status Matters

The number of vacant REO auctions is at a multiyear high. Investors often prefer vacant assets to avoid eviction delays and carrying costs. And vacant REOs represent a largely untapped affordable housing opportunity for owner-occupant buyers.

“Occupied versus vacant properties is a big one for me… It’s been extremely hard…to evict.” — California buyer

Takeaway

Prioritize vacant REOs when speed to possession matters; price occupancy risk in.

Bid-Ask Spread Rises at Foreclosure Auctions

Seller “ask” moved down, but buyers also pushed bids lower, keeping a noticeable spread. That’s a sign to keep offers tight, not chase.

“[I’m] bidding lower prices to hedge for declining prices and climbing inventories.” — Texas buyer

Takeaway

Use your max-offer formula (ARV × target discount – rehab – fees – margin), and stick to it.

Auction Market Dispatch FAQ

What is price demand?

It’s the winning bid as a percent of after-repair value (ARV). Lower = bigger gross discount.

Is it still worth bidding right now?

Yes—rising supply plus cooler demand creates opportunities, especially for buy-and-hold investors. The key is conservative underwriting and solid rehab plans.

Flip or rent?

With spreads tighter and rates elevated, some investors are leaning toward rent-and-hold to let time de-risk the trade.

Dave:
True or false, you need to quit your day job to scale a real estate portfolio. A lot of people will tell you that you have to quit your job and go all in on real estate if you want to reach financial freedom, but I’m telling you that’s wrong. I believe it’s not just possible to invest in real estate with a day job, but keeping your W2 is maybe the secret to building a portfolio as fast as possible. Hey, what’s up everyone? I’m Dave Meyer. I’m the host of this podcast plus the head of real estate investing at BiggerPockets. That’s my day job. I’ve been working here at BiggerPockets for almost 10 years, even though I’ve been investing in real estate for even longer and I’ve kept my job even as I’ve grown a real estate portfolio because I believe that’s the best path to building wealth.
This can be a contrarian opinion in the real estate space. So today I’m going to break down why I think having a nine to five can make you a better investor over the long term and to help me do that on the show today is Paul Novak. Paul is an investor with a full-time job from Sheboygan, Wisconsin, and you could hear his full story from his previous appearance on the show. Episode 1123 from May 19th. Paul and I are going to talk about the hidden benefits of keeping a W2 job while investing some of the under-discussed downsides of going all in on real estate and even share a few tricks like 401k loans that are only available to people with full-time jobs. Let’s bring on Paul. Paul, welcome back to the BiggerPockets podcast. Thanks for being here again.

Paul:
Yeah, super excited to be on.

Dave:
You have been on before we talked a lot about your investing journey. Today we’re going to talk more about the decision you’ve made to stay as a W2 employee because I think this is a huge decision for most people. But before we get into that, maybe for people who didn’t catch your first episode, just give us a quick background, who you are, how you’re involved in the real estate investing world.

Paul:
Yeah, my name’s Paul Novak, live in Sheboygan, Wisconsin. Kind of how I got started is got introduced to fire, really started off by paying off a lot of debt. Once the debt got paid off, it was like okay, we were kind of in that habit of all of our money’s going to debt, there’s no debt left time to start investing, pivoted into stocks and started doing that and really just wasn’t seeing the returns on the dividends that I was hoping in the beginning. And during COVID, I got introduced to real estate through reading books, watching BiggerPockets, and when I was looking at the returns that we were getting in cashflow from the money that we had invested in real estate, it was kind of a no brainer. So we jumped in then around COVID and really we haven’t stopped. We’ve just continued with real estate.

Dave:
And what does your portfolio look like today?

Paul:
Yeah, so today we’re up to six properties, eight doors. We’ve got two multifamily, small multifamily duplexes, and the rest are single family homes.

Dave:
So you’ve been doing this for a couple of years, you got six properties, could you retire if you wanted to leave your W2 job? Is that an option for you at this point?

Paul:
Yeah, I don’t think it’s an option yet. I mean maybe if we lived a very minimalistic lifestyle, but we’ve got to keep going in order to hit our goals and get to where we want to

Dave:
Be. And what are your goals?

Paul:
Yeah, so I think for us we want to get to about 11,000 a month in cashflow coming off the rentals. And if I look at what we have with the six properties, we could get to that goal I think with just regular rent increases over the next couple of years if we paid off the portfolio. So we’re kind of pivoting right now in our strategy from just acquisition mode into kind of paying off some of that debt to increase the cashflow.

Dave:
You have decided, from what I understand to keep working at your W2 and I’m curious first maybe just tell us a little bit about what you do for work and why you’re taking that approach instead of going all in full-time real estate investor.

Paul:
So what I do, I’ve been at my employer for 20 years, customer satisfaction manager for a local manufacturing company. And honestly, my wife too has been at her career now for seven years before she worked where I did for 13. It provides us a lot of stability and the other thing is I don’t think there’s any way around it. If you want to be in this real estate game, you have to have money coming in. So what that would do if we didn’t work our W twos, it would significantly stunt our abilities to grow, our abilities to pay off these properties. So I think it really lowers the stress level for where we’re going. And our game plan isn’t to live off the cashflow now anyways, so whether we’re buying new properties or paying properties off, I still look at we’re in the growth phase and having that additional income. I mean that makes a big difference for us scaling.

Dave:
I want to reiterate and stress what Paul just said, that in order to grow a portfolio you need cash coming in. This is just the reality. Real estate is a capital intensive business. You can’t just go out and start with a couple of bucks and even if you start with a decent amount of money after you acquire a couple of properties, you’re going to run out. And although some people dream of taking the cashflow from their first couple of rentals and using that to reinvest into new rentals, it takes a long time. The math of that is not the best. If you’re making a couple hundred bucks every month off of a rental property, it could take years between acquisitions, which is why for pretty much every person in their first, I don’t know, five or 10 years of investing, you got to focus on how to bring in income. Now, there are different ways to do that, Paul, right. Curious, did you ever consider bringing in money through real estate? Because a common option that people in the BP community pursue is maybe they become a flipper. That’s a way that you can generate income or you become a real estate agent or you become a property manager. Has it ever appealed to you to get your active income from a real estate type job?

Paul:
So let’s say hypothetically that our household income from our W twos is 200,000 a year using a hypothetical number, if I jumped in and became a real estate agent, I’m not going to start off with the same level of income I’m at today. And I do think that I’ve got the personality, I’ve got the mentality with us being in real estate and liking it. I think I could get back to that, but I don’t know if I want to take those two or three years to catch back up to where I’m already at.

Dave:
Yeah, that makes sense to me. I mean, you’ve put in, you said 20 years into this career, even if you’re good at it, going into a new career, you’re going to take a pay cut in almost every single instance. And there’s a learning curve too, I would imagine, where you’re going to have to spend a lot of time getting good at that where I don’t know the details of your existing job. I’m sure you work hard, but you know what you’re doing. You understand that industry, you probably very good at it already, and so you don’t have to invest that extra mental energy and you could probably use that mental energy to invest into your real estate portfolio. You’re not trying to learn a new scale of being a real estate agent.

Paul:
Yeah, I agree with that a hundred percent. And with us doing, we do everything ourselves, and I like that we do our own bookkeeping because we’ve only got eight doors. We manage all of our own properties. So there is time. I mean, just the other week, small thing, but we had a slow leaking faucet that we had to go replace at one of the rentals. So my wife and I go over there, it took us maybe two hours to rip the old one out, put the new one in. But all of those things that cuts into time. So if you’re trying to learn a new skill in a new industry and then also layer on those things, it just adds complications with two small kids at home that we haven’t wanted to take on right now. Making that pivot.

Dave:
People ask this question a lot. I think it’s a really good question for real estate investors to ask themselves, should I stay in the job that I like or should I consider making active income through real estate? Because as Paul said, you have to have that active income to be able to get passive income in the long run. You need to have money coming in. The way I think about it, Paul, I’m curious your opinion. The way I’ve thought about it in the past is you have to look at two different dimensions. One is, do you like it because certain people maybe they don’t even earn that much, but they just love their job. There are people who are super passionate about it, they’re just very connected to their work. And if you’re in that, honestly, that’s a gift. Not a lot of people have that.
And so if you do that, I would stay with that job. The other thing though, I think is where it gets a little bit trickier is where people who don’t like their jobs are thinking, should I just grind it out in my existing career or do I make the switch? Because not only could I potentially make the same amount or maybe even more money, but then I get more personal fulfillment out of that. I think that’s what a lot of people are attracted to is they just find real estate fun. I do. I think it sounds like you do too. And so I’m curious if you think about that in a similar way or how you would counsel our audience if they’re facing a similar question.

Paul:
The other thing that I’d look at is how old are you and where are you in life? If I would’ve learned all this being honest with you at a very young age when I started at my company, even though I liked my company and everything about it, the risk wasn’t as high to pivot into something else because my income wasn’t as high. The benefits weren’t there. I didn’t have the kids and other people relying on us. So I think two other things that I just add to what you said is understanding what your goals are, and I think they’ll change over time, but trying to find a way to define what is enough, where is my end point? I think if you know what that is, it’s easier to make that decision. And like I said, I know that’s going to change as you get into it and learn more about the business. Those goals will change with time, but I think that’s a big one. And then just where you are in life and how much risk you’re willing to take on from a employment standpoint.

Dave:
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Welcome back to the BiggerPockets podcast. I’m back with investor Paul Novak talking about the benefits and trade-offs of working a W2 job. I think the benefits to going into real estate investing full-time are pretty apparent to people. You have some level of independence. Most of these jobs are independent. If you’re an agent, you work a lot, but you have a little bit of control over your schedule, you can hopefully master that skill, make a lot of money, same things if you become a loan officer or whatever. And I think the benefit that a lot of real estate investors look at and say, I can learn the industry super well, and that’s true if you become an agent, you are going to accelerate your learning, your ability to underwrite deals, your deal flow, you’re going to be able to network in a way that most W2 employees can’t do it. Those are real benefits, but I think the benefits of staying in a W2 job are less known or less talked about. So can we talk about some of those things?

Paul:
Yeah, so I guess some of the stuff that I look at is from a positive standpoint is you have that reliable income. And one thing that I’ve learned in doing this is when you’re going to the bank trying to get mortgages to continue to scale, they like reliable income.
So I’ve even reached out to some people and talking about paying off my portfolio on the BiggerPockets forums, and some people have said, Hey, the cashflow is great. All the tax advantages on my cashflow with depreciation and all that stuff are great, but now on paper, my income is so low that I’m really struggling to continue to scale to buy my next property, not as lendable to the bank. So even though my money looks good, my situation, a lot of it’s just deferred through taxes and I’m not showing that I’m making that much money. So I think that’s something that people need to keep in the back of their mind. It’s not just having the money. Most people when they scale aren’t going to buy all these properties in cash. You’re trying to use leverage when you’re scaling. So the reliable income part is a big, I think win. And I also think for me, another big benefit through working how I’m able to manage all these properties and run a real estate business given it’s small, all those skills I built up through work,
Understanding KPIs, drafting work instructions, having tough conversations with people, project management. I think people, if you’re going to do this business, it’s not just buying a house and I collect a rent check. You want to make sure that you’re upkeeping the properties and taking care of the tenants and handling things in a professional manner. I couldn’t have done that at 18 years old, and I think maybe I could have learned some of that from the real estate business too, but I feel like specifically supervision and leadership and manufacturing has really set me up to be able to do a lot of those things.

Dave:
That’s a great point. I haven’t really thought of it that way because when I started and I bought my first property, I was 22 and I was terrible at running my business. It was just so bad and I’ve gotten so much better and I’ve often credited that to just being a real estate investor longer. But I think you’re right that at least half, maybe even more of me being a better real estate investor is that I’ve worked in a career, I’ve worked in an office, I’ve had employees that I manage. I’ve had different bosses who manage me, and you learn to deal with different personalities. You learn new software, you learn new skills, you are constantly learning and performing and challenging yourself, and those are really valuable skills as a real estate investor, even though it doesn’t seem so obvious. What I do day to day outside of hosting this podcast at BiggerPockets is more like a traditional corporate job, but the stuff you learn in a corporate job is actually applicable to real estate.

Paul:
Another thing that just kind of popped into my head is having the cash flow. So I think a lot of people, they think about, oh, I run the numbers on a deal and while you’re running the numbers, everything is linear. Even if you factor in capital expenditures and all those things, you’re assuming a certain percentage each month, which means you are going to get this cashflow and make money every single month. It doesn’t work that way when the hot water heater goes out and it’s 1500 bucks, it’s not, well, here’s one 12 of what the hot water heater’s going to cost, and the rest of it you’ll pay over time. Like no, these expenses hit you when they hit you. And I think now that we’ve scaled up to having the eight doors, all that really happens is instead of your cashflow being 5,000 a month, maybe it’s 2000 a month, and it’s like, well, I wish it was higher, but it’s kind of an inconvenience.
If you have one property and something breaks, you’re going to feel that. And if you don’t have a job, you are really going to feel that. And I’m only talking about stuff breaking. You’ll have vacancy in there. Well, if you only have a single family home and you don’t have a multifamily, it’s one door and that’s your only property. I’m still telling you get in. It’s a good thing to do, but you’re going to feel that if you don’t have the job. And I think having cash reserves is good. I’m probably not the best person to speak of there because I don’t have a lot of cash reserves for the rentals, but that’s because our savings rate’s so high from everything in the W2 that if anything happens, we can cover it. It’s more of an inconvenience than this is going to break us and we have to sell.

Dave:
That’s a very good way of thinking of it, and it makes a lot of sense. I feel as someone who also works at W2 job, a lot of calm, it’s honestly just a mental thing that I want cashflow, I’ll take it all day, but I don’t need it. I don’t live off of it. I live off of my income from BiggerPockets and then some. I don’t spend all of that either. And so this is an amazing benefit as a real estate investor, and I’ll just give you two examples that I’m going through right now. My best cashflowing property, it throws off 20 $503,000 in cashflow a month. It’s amazing. And I’ve had repairs so bad over the last one month that it’s going to eat all of that cashflow for a year. So I have 20 grand in reserves on that property. I’m facing costs of 50, $60,000, but this amazing property, I want to hold onto it, I’m going to keep it forever.
I actually had to come out of pocket and spend about five grand on that property just because this was more than even my cash reserves, which was 20 grand, which was a lot. And honestly, it’s frustrating. It’s annoying, but like you said, it’s not breaking me because this isn’t the income I need every month. And then I could just sort of mentally categorize this not as like, oh, my investment’s not doing well, or I am upset about this cash, and I’m like, oh, business expense. This is a business expense. I’m reinvesting into my property. It’s not really impacting me on a day-to-day basis, and I just only get that because I have a W2 job and live within the means of that W2 job. Another example is I have another property that tenant just moved out and I want to do a renovation and it’s going to take two or three months and I’m not going to have the income from the property for two or three months and it’s fine.
That’s another just example. I’m able to invest in my property. I’m able to make the upgrades that the property needs that will generate me more rent in the long run because I don’t need, it’s going to be probably 4,500 bucks, maybe more in vacancy costs, but that’s worth it to me. I can do the math and plot that out, but if you’re relying on that income too early in your investing career, that’s where you can really get in trouble. So I think what Paul’s saying about this consistency and income actually gives you a tremendous amount of flexibility and peace of mind as a real estate investor that I personally find very valuable,

Paul:
And I don’t know how to quantify this, but I’ve got some other friends that are in the game too doing real estate and they are very hungry for cashflow. They’re more reliant upon the money. And honestly, some of the repairs and upgrades that they do, they’re just lower in quality because, Hey, why buy the better faucet when I could get one that works for cheaper? You start nickel and dimming some of those things just because you don’t have the cash or you’re focused on that. And I will tell you, and I think they would tell you too, the quality of tenants that I have and the amount of people that stay in my properties versus they turnover is night and day different. Now, how to put an exact dollar figure on that, I don’t know. But again, it’s like you said, if you’re not relying on that money, you can stick better things in because you’re not just focused on that cashflow. And I do think one of the biggest things in this is having good tenants, having somebody that’s going to partner up, that’s going to take care of your property, that’s going to pay every month. And when you can get that, that makes this whole thing so much easier to do.

Dave:
I’ve actually talked about this with my property manager too. He said to me at first, he was emailing me, I hired a new property manager in the Midwest. He’s emailing me, he’s like, oh, do you want to put in this faucet or this faucet or we’re going to redo the floors. Should we do this one? It’s the cheapest one and the next one, I’m like, dude, you don’t need to ask me these $200 questions. It’s like, buy something that’s going to be really good quality and it’s going to last forever. And he was like, most people don’t think like that. They want to maximize. They beat ’em up. The property manager about spending $400 in repairs. For me, because I have a job that I plan to keep working in for another decade, I think about my investments on that 10 year time horizon. I’m not like, oh, am I going to get 200 bucks this month?
It doesn’t matter to me. I’m like, how do I make this house rock solid so that when I stop working, I’m not going to be hit with a bunch of repairs because I put in the right flooring, I bought the right appliances, I did the rewiring of the electrical the right way, I did the replumbing the right way, and so that this is going to last me to 20 years, 30 years instead of just until the next thing breaks, and then I just slap some cheap thing on it. Again, I think it just allows you to sort of take a different mindset.

Paul:
Yeah, we want to be known in the community. I want to get, I’m not going to say that we have the highest rents,
But I want to be able to get decent rents and pass along rent increases. And I think being known as a landlord in the area that goes above and beyond helps. One very quick example, I’ve got a set of tenants now, we haven’t owned it for that long, but they’ve lived in this unit for 17 years. Wow. Oh my God. Their fridge went out. I told them they don’t plan to leave. I don’t want ’em to leave. But we also passed along rent increases. I said, go to Home Depot. Pick whatever fridge you want within reason, right? I’m not buying, not

Dave:
The one with the TV screen. Yeah, that’s it. Yeah,

Paul:
Just go pick whatever you want and then we’ll go buy it. And they’re like, oh, if we could get curtains, these are kind of dated. Okay, go to the store. Don’t even look at the price tag. Pick whatever curtains you want from Menards and then we’ll come over and put that stuff up. So doing little things like that, higher end things, and to be honest with you, what they’re picking, it’s not like it’s super high end, but

Speaker 3:
Then

Paul:
They talk to other people and write that word spreads and we’ve got openings. It makes it a lot easier for us to fill.

Dave:
It’s so funny, I’ve done that in the past, not with a fridge, but yes, people are like, oh, the blinds are broken, whatever. I’m like, pick what you want. Not because I’m asking ’em to do the work, but it allows people to feel like it’s their home. They get a sense of ownership of it. And again, might it cost $50 more? Yes, it probably will, but that’s going to prevent a vacancy, which is going to save you way more than 50 bucks. It’s that kind of mindset. And I don’t mean to say by the way that people who work full-time in real estate can’t do this also,
But W2 jobs are inherently, I think a little bit more predictable than even being a real estate agent. Even if you’re experienced agent, I have many friends who are very, very successful agents. Some months they sell four houses, some months they sell no houses. There is some element of predictability that personally I like. I do want to go back to something you said earlier though, Paul, about lending because I think that is something that a lot of folks might not know, but being a real estate agent or sometimes a loan officer, I think it depends. You’re often a 10 99 contractor and for whatever, frankly, I think dumb reasons, the rules exist in lending in the United States. It is way easier to get a loan when you have a W2 job than when you are a contractor. Again, I think that’s pretty dumb. I don’t really understand why that is, but it does matter a lot.
And if you are trying to scale a portfolio, conventional mortgages are the cheapest way to do it, and it’s way easier to get conventional mortgages if you have a W2 income. Just to recap here, some of the benefits that Paul and I have talked about for having and maintaining a W2 job is just having cashflow on a basis that allows you to take more risks. It allows you to weather unexpected repairs or vacancies. We talked about lability and being able to get loans a little bit easier from a W2 job. And also just allowing yourself sort of the mindset to think long term when you don’t need the cashflow immediately, that can be really beneficial too. But of course there are trade-offs like everything. I’m not saying everyone should be a W2 employee. There are definitely some downsides to it and we’re going to cover that right after this quick break.
The Cashflow Roadshow is back. BiggerPockets is coming to Texas, January 13th to 17th, 2026. Me, Henry Washington and Garrett Brown will be hosting real estate investor meetups in Houston in Austin and Dallas along with a couple other special guests. And we’re also going to have a live small group workshop to answer your exact investing questions and help you plan your 2026 roadmap. Me, Henry and Garrett are going to be there giving you input directly on your strategy for 2026. It’s going to be great. Get all the details and reserve your tickets now at biggerpockets.com/texas. Hope to see you there. Welcome back to the BiggerPockets podcast. I’m here with investor Paul Novak talking about why he’s decided to stay with a W2 job before the break. We talked about all the fun stuff, all the good benefits of staying with a W2 job, but Paul, do you ever get jealous of people working full, full-time in real estate or what do you see the trade-offs being as staying in a W2 job?

Paul:
Well, I’ll say yes, right, just because I’m so into real estate. I think if I could have got into that earlier on, that would’ve been exciting. As far as trade-offs go, my wife and I are lucky, but you need to have jobs with a lot of flexibility. So now I look at, when we got started was like 2021 and the first, I’d say couple houses, we bought ’em on the MLS. We weren’t doing off market deals for the most part, when that house hit the MLS, you better be ready to get into it that day and have an offer ready to go that day or you’re probably losing out on the deal. And we even did that on some and we made offers 5%, 10% over ask early on and still lost out on ’em. So I just remember like, hey, having to go to these in-between meetings at work and having to run through this stuff. And that’s difficult because not a lot of W2 jobs are just going to let you leave midday to go do showings at houses or bank appointments or talk to contractors.

Dave:
That’s such a good point. What about flow? Do you feel like, I hear a lot of people, I want to be an agent, I can get into properties myself and without an agent, or you get access to off market deals or pocket listings. Do you think about that at all?

Paul:
Yeah, I definitely do. Especially I think our real estate agent is awesome. We’ve had him for this primary residency is the head of his brokerage, so the relationship’s been good and we have gotten deals, but I think a lot of people that are probably following BiggerPockets, they don’t have hundreds and thousands of properties where for these agents, they’re the top person that’s getting called, right? So if I’m somebody that has six properties, I’ve never had an issue reaching out or contacting my agent, but probably the best multifamily deals are probably at least being offered up first to bigger investors than what we would get. And I think if we were agents, we’d get to see more of that stuff on the front end.

Dave:
Yeah, exactly. That is definitely a trade off. I think about that a lot. You just network. So many times I talk to my friends who are agents and they’re just friends with the title company, they’re friends with the lender. They just hear about stuff that I don’t hear about as much. And so that’s definitely a significant trade off. Can I mention what I think is the biggest trade off? The thing I get jealous about,

Paul:
Go for it.

Dave:
I want to be a real estate professional in a tax status. Real estate professional tax status is incredible and you cannot get it as a W2 employee. You probably know about depreciation, right? If you own a rental property and you make some money in cashflow on it, a lot of times the income that you get is offset by depreciation, or at least it’s deferred because of depreciation, meaning that you get to enjoy a lot of that cashflow tax free. What you cannot do though is take the depreciation or the loss that you’re taking on a rental property and apply it to your active income. So even though in a given year, let’s just say all of my rental properties get all my income, I depreciate all of them. Let’s just say I’ve lost $30,000 in the eyes of the IRS. Not saying I actually lost that, but after the depreciation, I’ve lost $30,000.
I can’t take that $30,000 and apply it to my W2 income. But if you are a real estate professional, you can do that. And so if you own rental properties and say you’re a real estate agent, a lot of times you can offset all or most of your active income as well. So you wind up having a very, very low income tax liability, which is incredible and has a huge, huge benefit that W2 employees just don’t get to take advantage of. So that’s mine. One day I’ll probably do it whenever I decide to retire because I’ll never really retire. I’ll probably become an agent or a lender or property manager or something. Then I will get to enjoy the sweet, sweet benefits of real estate tax professional status. Alright, well Paul, thanks for being here. This was a lot of fun. As we’ve discussed, there are always trade-offs to it.
I think there are benefits to both, as we’ve talked about, benefits of being a W2 employee, having that predictable cadence, the lend ability, the staying power, being able to borrow against your 401k. All of that can be super beneficial, but it means you aren’t as flexible. You don’t get access to the same amount of deals. The networks is a little bit harder and you don’t get that real estate professional tax status that is so coveted. But it really comes down to each person’s individual goals, whether you like your job, how much income you make, whether you can make more money as a real estate professional, the decision is up to you. But thank you, Paul, for sharing your insights about the benefits of a W2 job, because I think it’ll be really helpful for our audience in making that decision for themselves.

Paul:
So I think at least with my journey, I just wouldn’t rush so quickly to get out of the W2 job. And I think if you want to become involved in real estate, but you’ve got a good W2 gig, keep investing. Let that portfolio grow to where you have that stable base and then make the pivot. There’s nothing that says you can’t do it further down the line.

Dave:
Yeah, exactly. I think that’s exactly right. Just keep thinking about it and make decisions as they come and optimize for what your goals are, your life circumstances, and the best opportunities that are there for you. So thanks again, Paul. We really appreciate you being here.

Paul:
Yeah, thanks for having me on the show.

Dave:
And thank you all for listening to this episode of the BiggerPockets podcast. I’m Dave Meyer. We’ll see you next time.

 

Ashley:
Today’s guest proves you don’t need to live near your investment to make serious money in real estate. In fact, his very first deal was site unseen and it turned into a $250,000 profit.

Tony:
And here’s what’s even crazier. He didn’t just luck out. He used data strategy and a strong team to make that deal work. So if you’ve ever said, man, I’d invest. If I could just find the right market, then this episode is for you. Steve Curie joins us today to share how he’s researched the right market, built a local team from scratch and avoided the classic rookie pitfalls of long distance investing.

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

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

Stephen:
Thanks so much. I’m really excited to be on the program.

Ashley:
Steve, take us back to that very first deal. What gave you the confidence to get started?

Stephen:
I mean, it took a lot of learning. I was really into investing. I wanted to invest and I got around people that were investing. I joined a mentorship and I just decided I wanted to do it. But then I started to look at data. So I lived in Australia, I was in Sydney. It’s the second least affordable city in the world based on income to price. So it was really expensive and not a good market to invest in. So I realized that I needed to find a better market, so I really learned how to do that, and I just searched for the best market in Australia. That was my goal. I didn’t have a specific criteria of being local or just what’s the best market. And I said about doing that.

Ashley:
Now you did your first deal sight unseen. So explain that process of getting comfortable with being able to buy your first property without even seeing it.

Stephen:
You know what, I actually really think that I saw the property better than most people do. I had a lot of friends that were in real estate and they thought I was crazy buying sight unseen because they’re like, how do you know the local cafes and the hotspots? And they really had this thought that you need to see of your eyes, but not having my eyes. I went really deep on the data. So I built a spreadsheet of data. I narrowed down to properties, sorry, areas that had a high enough yield, and I started to look at what’s the median income, what’s the change in median income? What are the demographics? Do our families live here? Is the median income moving? And when I started to zone in those areas, I looked at infrastructure in the areas and is there solid infrastructure? So I really had a very solid idea of why I was investing in that market.
And it wasn’t based on any gut, not seeing it also wasn’t that big a deal. So when I decided the area I wanted to invest in, I started interviewing local property managers and I would speak to the property managers to firstly figure out who I want to use, but as well, I was asking them, where are people buying? Where do I need to avoid? What sort bare bath counts do I need in this area? So I got a really clear understanding of what renters were looking for. And when I negotiated on deals, I started just based on numbers. I’d see a deal that I thought would meet my criteria, I would negotiate on the price, and if they were open to that price, I would send my property manager to go do an inspection. They were impartial. They would tell me the truth. They’re like, will you be able to rent this? Are you going to have any issues? What’s the market rent? Is there a cemetery across the road? There’s something wrong with the property? And they would give me the real answers. And then when I went under contract, I would obviously get a professional property inspection done. So I had a full inspection report. I had clear visibility on the property. So for me, I felt confident in the area. I felt comfortable on the property, I felt comfortable with the condition and I was good to go and I never had to see it.

Tony:
Steve, everything you just laid out I think makes a ton of sense logically, but oftentimes Ricky investors don’t make decisions simply based off of logic. There’s often a lot of emotion involved in that decision making process as well. And while I think we would all agree what you said was very rational for people who were doing this for the first time, I think there’s still fear around the unknown of I haven’t been there before, I don’t know it. I know my own backyard. And I guess what I’m trying to understand is aside from the rational piece, did you have any of that fear? And if so, how did you overcome that to say, Hey, we’re still going to do this because the data makes sense?

Stephen:
I mean, I absolutely had the fear for sure. It was a big investment, but I just did it anyway. And I guess I probably am rational, so I probably rationalized the fear, but I was prepared to make a mistake. To me, I wanted to invest, I wanted to build a better future, so I was prepared to make some mistakes. I’d done a lot of research, so I really felt like I’d minimized the mistakes that I could get. But of course I may get some, and I just did it anyway, knowing that if I made mistakes, I’d learn from them and I’d be able to apply that to future investments.

Tony:
Yeah. Steve, three things I want to highlight really quickly. Number one, I love the concept of I just did it anyway. I’ve got three kids. My oldest is a teenager right now, and his whole life growing up, I always shared with him that bravery isn’t the absence of fear. It’s doing it in spite of your fear despite your fear. And I think that’s exactly what you laid out here. Hey, I do feel a little nervous about this, but the truth is, if we only do things that keep us comfortable and we never do anything that scares us a little bit, there is a good chance we’re not going to achieve a whole heck of a lot in life either. So we’ve got to be able to find that tipping point of taking that step towards that fear when we know that it’s in our best interest.
And the second thing that you said was you were prepared to make some mistakes. And I think that is the absolute correct mindset that investors need to have that the purpose of the first deal is not to make you a millionaire. The purpose of the first deal is not to retire you from your day job. The purpose of the first deal is to give you proof of concept, is to give you confidence that you can go out there and do your second deal. And I think that when we can take off some of the monetary pressure around this first deal has to be a home run, it then allows us to do what you did where you can step into that fear because the risk is a little bit lower.

Ashley:
Steve, when you decided to invest out of state, you had that foundation of knowing people in that market, but what were some of the data and the metrics that you looked like to actually analyze the market on paper?

Stephen:
So I used a lot of census data. So Australia has pretty good data like that. So I started with, we have realestate.com, which is like a Zillow realtor. So I pulled that to figure out the yields, like the rental returns, and that eliminated a lot of areas based on the yields. I made the list smaller. But then with the census data, I really pulled out the median incomes, the income quartiles, like what quartile are they earning incoming. But I went back a few years. So what I was actually looking for was the change. I wasn’t looking for the best market, I was looking for the market that was changing. I would also look at the growth that the areas had had. What I did probably different to what most rookies would do was I wasn’t looking for the areas that had grown a lot because my belief was when they’ve grown a lot, you’ve sort of missed that.
And I was looking for growth. So I was looking for areas that had really good fundamentals so that it showed to me the incomes are growing, the population’s growing, there’s infrastructure. It looked good but hasn’t grown significantly. And then once I limited that down, I looked in the areas around them. So I found some pockets where it looked good on paper, it hadn’t really grown, but the areas around it had actually grown nicely. So to me that was a clear buy signal that the market was coming up in that area. And that was really a lot of the data I pulled.

Ashley:
Did you have any experience in the past like pulling data or metrics or analytics? What has been your career up to this point that did you have any advantage?

Stephen:
I mean, maybe I’m a marketer, so I had a tech business, so I ran marketing and sales. So I was sort of comfortable looking at data and analyzing things from a marketing perspective. So I might’ve had that advantage. I had a lot of data scientists and people around me. I wasn’t that person, but I’ve seen how they operate. So that might’ve helped. But to be honest, I don’t think I needed that. I did join a group of people that were doing the same thing. So in Australia there’s this lady, Margaret Lomas, she was a good teacher there, one of the biggest ones in Australia, and she had a group of, so we joined and we all were looking at our own markets and discussing. So that gave us a bit of confidence too. So I mean, I am pretty comfortable with data, but I don’t think you need to be. I think to the rookies listening, I think that it’s not rocket scientists and you can do it.

Ashley:
And I think too, the fact that you had a marketing background, we get all the time people saying, I don’t have a job that can help me in real estate. I don’t have any kind of advantage or opportunity, but you’re marketing your property, you’re marketing yourself to find leads to buy properties.

Tony:
And Steve, I just want to get a sense because it wasn’t in your backyard and obviously our show is a big place. How far was this property from where you were living? Was it a two hour drive? Was it six hour flight? Just ballpark? How far away was it?

Stephen:
Yeah, it’d be pretty significant. I mean, it’d be a full days of travel, a couple hour flight. It’s a different stay in Queensland. I lived in Sydney, new South Wales. It’s a whole different state. It was a far away away. And by the way, I sold it about two years ago. I’d never seen it still. I made a lot of money on it. I managed it. I’ve never seen it in my life.

Ashley:
We’re going to take a short break, but when we come back, Steve actually started to make some investments in the us So we’re going to start and touch on that when we could be right back. Okay. Welcome back. We are here with Steve who started out investing in Australia. So Steve, what made you pivot to investing in the us?

Stephen:
Well, I did move here. So I’d bought six rentals in Australia and I moved to New Orleans, came here for a vacation and fell in love and decided to stay here. So I had left my old business in Australia, and I wanted to figure out what I wanted to do next, and I did want to do more real estate. I’d sort of got in the bag. I’ve loved it. So I looked around and decided that I wanted to do real estate as a professional. What I think I did in Australia was I was definitely a rookie. I didn’t have any advantage. I was retail investing and looking for where the market was growing, and I decided I moved here. I’m going to actually become an expert in my market and become a professional investor and focus more on buying with making money on the buy as opposed to relying on the market to make that money.

Tony:
Steve, so you come from an entirely different country with I’m assuming no contacts, no resources. The community that you’re a part of in Australia is no longer here with you in the States. So what do you do first to start building this actual business that you’re looking to build?

Stephen:
The first step was I went to the local Riyadh. We had Noria here, new Orleans Real Estate Investors Association. So I went to that to actually start to say, what’s going on in this market? What’s happening? I started to meet some investors and that sort of got my head around it. So that was really my start. I knew nobody, my whole family’s from Australia. The first person we met here was our Airbnb. We had an Airbnb when we first came, so literally zero network. So starting with Arres and meetups was how I started to build that network. And through Noria, I did a little, I actually bought a deal off a wholesaler to get my visa to move into Australia. I needed to invest in a property. So I bought a dealer for wholesaler, and I wanted to learn what wholesalers did because I didn’t know what that was.
I don’t think we had them in Australia or I didn’t know about them if they existed. So I wanted to learn what a wholesaler did, and I did a course through the Real Estate Investors Association on wholesaling. And when I learned what wholesaling was, I realized that I ran sales and marketing for my company. And I’m like, wow. And we were a two-sided marketplace, and wholesaling to me was a two-sided marketplace with sellers and buyers and marketing. I’m like, that’s my skillset. So I realized that I could do wholesaling in this market to buy my own deals and to really add value in a way I wasn’t doing in Australia.

Tony:
Steve, I want to dig a little bit deeper into your transition to wholesaling, but before we even get there, you glossed over, I think something that a lot of Ricky struggle with. You casually said, I went to the Rea, met this person, made some connections, but as someone who’s brand new to a country, no connections, no friends, you walk into that R, there’s, I don’t know, 50, a hundred people, however big the R is, who do you walk up to first? What are you saying to people? How are you breaking the ice to actually start building some of these connections?

Stephen:
I mean, the thing you’ll find about real estate people is they’re really friendly. If you go to those RIAs, these people want to help you. So I found, I just was going up to people and saying, what do you do? How does that work? I was just being really curious about what they were doing, and I found that most of these people wanted to tell you. And when they found out you’re new to the country, that you’re new to investing, they want to help you.

Ashley:
I mean, you got the Australian accent who’s not going to be drawn to a guy with an Australian accent.

Stephen:
The AIE accent helped that. A accent helped. It’s funny because it was a disadvantage being Australian for trying to deal with sellers. I was like, I obviously wasn’t from here. I would mess up street names, but I did become, people started calling me Aussie Steve. So I realized that it was a disadvantage, but it’s also an advantage. So I definitely played up the Australian side, might’ve even enhanced my accent, slightly dropped a few more gade, a few more gades than I normally would’ve.

Tony:
So you say, Hey, I’m learning about this thing called wholesaling, which wasn’t a thing where you were coming from in Australia, but there was this matching of skills and abilities. And I think for all of our Ricky’s that are listening, even if you’re not maybe in the exact same position as Steve, the lesson to be learned here is that Steve saw an opportunity within real estate investing that was a natural fit to his current skills and abilities, like what he already knew and what he was already good at. And I think all of us should be doing that self-assessment to see or to ask ourselves what strategy aligns best with what I’m actually already good at. I joke me and Ashley joke all the time that she would make a terrible wholesaler because she hates talking to people and knocking on doors and cold calling people. So you got to know where your strengths and your abilities lie. So Steve, once you found out about wholesaling, and I guess for maybe folks that aren’t familiar with that phrase, just define it for us first. What does it actually mean to wholesale? And then once you decided if that was the right strategy for you, how did you actually get started?

Stephen:
So wholesaling is really flipping a contract as opposed to flipping a house. So if you are marketing for the stress sellers, you’ll negotiate a price based on what someone will pay for it. You get the contract to purchase that property, but instead of actually buying the property, you assign your rights to purchase that property to another investor and you can assign them at a higher amount, and therefore you earn that spread. So it’s really good for if you’re good at marketing and good at talking to sellers, that’s how you can find deals. And on the other side, people like Ashley, I’m guessing then people that they want deals they want to renovate, but they’re not good at the marketing and sales. So you really form that function for people. Yeah.

Ashley:
Steve, when you started doing this, was it just through the meetups that you started to build your buyer’s list and your lead list? How did you actually find buyers that would want to buy the properties that you found?

Stephen:
Yeah, I mean the meetups were a big part of it. And then through the meetups going further, I went through BiggerPockets. I made connections through BiggerPockets, the Facebook groups, many ways. I made friends with other wholesalers who had lists as well. So it can be quite good when you’re getting your first deals, you can joint venture with them so they can actually help you understand the right numbers and they can help you move that deal. So it is a combination of all of those things.

Tony:
Steve, just from what you shared so far, you seem like someone who’s really nailed the process of building your network, and I think Ash and I both have benefited tremendously from the people that are in our network. For all the rookies that are listening, what is your advice to be come good at networking? And I don’t want it to sound transactional, like, Hey, I’m just networking for the sake of my own personal benefit. But I do think that building a network can be a win-win situation for both parties. So if you were to give me a 32nd crash course on how to effectively network, because you talked about, Hey, I found the first property that I bought, found out about wholesaling. I built my list all through the connections that you made. That is a skillset. So 32nd crash course, how can someone replicate what you’ve done in building your network?

Stephen:
I mean, I think just add value and be curious, asking questions, just really finding what people do and just help where you can. Definitely don’t be transactional. Be the opposite of transactional. I really read the book when I came here, the Go-Giver, I dunno if you’ve read that book, but it’s about just adding value. If you add value into the universe, it just comes back to you. It’s not like I’ll help you because I’m happy to help you, not because you need something in return, but if you do that often enough things come back in return and it may not be from the person you helped. So I really, and I think because I came here not knowing anyone, I had to, I had no network. I wasn’t much of a networker in Australia. It’s not a natural thing. That wasn’t my skill. But because I knew no one, I was trying to make friends, I was trying to find out. So my advice is just to help if you can offer to help them and do something without asking for anything in return, and just ask them questions, go deeper and understand what they’re doing, why they’re doing it, and they’re generally happy to answer that.

Ashley:
Now in this market, new Orleans, tell us what your buy box looked like. What kind of deals were you going after?

Stephen:
So I mean, for me personally, I bought a lot of birds. I have my wholesaler view and then I have the deals I buy myself. The advantage of being a wholesaler is that I have a very wide net. I can pretty much close any deal. Now in south Louisiana, I can pretty much close any deal if it’s price, right? And price, when I first started was like 70% of the after repair value minus repairs was what a buyer would buy a deal for. So if I could get a contract cheaper than that, I had a big enough buy, at least I could move any deal. The market softened and it’s more like 65%. And in some parts of New Orleans particularly, it’s 60% of the RV. So that’s my broad buy box. So I’m able to market, but the ones that I like, so again, my skill is sales and marketing, not renovating. So the deals that I liked were the ones that were priced right like that, but didn’t require a big rehab. I don’t want to fix the foundation. I don’t want to pull permits. So when I found deals that were priced but had a renovation I could handle, I bought those myself and did the bur and anything else I wholesale to my network.

Tony:
Steve, I want go back to the whole 70% to 60% of rv. Just give us an example of what the math like that would actually look like. Say the home, the rv, the after repair value is a hundred K. Back us into the numbers you would need for that to be a good wholesale deal.

Stephen:
So if the after repair value is going to be a hundred K, the buyers want to buy it at 70% of that value minus repairs. So 70% of a hundred K would be 70 K. And let’s say there’s a 20 K rehab budget, so they’re going to want to buy it for 70 k, minus 20 would be 50 K. So 50 K is going to be the price that the buyer’s going to want to buy it for. And if I’m wholesaling, I’m going to want to make an assignment fee. So if I get the contract for 50 K, I’m not going to make any money, so I’m going to want to get it for 40 5K or 40 K or whatever I can negotiate. I’m going to try and negotiate something a bit lower so that I can make a spread in that

Tony:
One follow-up question to that. If I’m new to wholesaling, there are people in our audience who I think are interested in that as a strategy, but I think where a lot of new aspiring wholesalers and just real estate investors in general struggle is estimating those rehab costs. So for you, Steve, when you came to New Orleans, again, new city, new country, how did you go about understanding what those rehab costs were going to potentially be?

Stephen:
I’m catching a theme for myself before I even answer, because it was asking people, it was the network and it was the res I got with the buyers and I asked them their rehab costs. I started to learn what they were using. And that’s really what does it cost for a kitchen? What does it cost for a roof? My tip though is there’s a difference between being a wholesaler and a rehabber. When you’re a rehabber, you’re going to have a very itemized, very specific budget based on exactly what you’re going to do. Now, when you’re a wholesaler, all the buyers are going to do different things. So you’re not trying to estimate to the dollar because one person’s going to do high and one person’s going to do low end. You need to give enough of a budget. So if it needs a kitchen renovation, you need to make sure there’s just some money for a kitchen renovation.
So what I tend to do is we have a formula that’s like, I think it’s like seven and a half percent of the a RB is stuff just straight away. That’s stuff. And then we just add up big items. So it needs a roof. We have a number for a roof, we have a number for kitchen, we have a number for a bathroom, we have a number for ac. So we just do the big ticket items, but we don’t count just small little items, trim PowerPoints. We don’t count any of that. But just asking around, I got a fair enough number and I realized that most of the time it worked for my buyers.

Ashley:
Now Steve, how much money did you have to invest into this wholesaling business? Are you sending out mailers? Do you have any kind of software that you are using that you are paying for? We’ve seen it on both ends of the spectrum where somebody is handwriting letters, doing all their free research off of G has a mapping websites, and then we’ve seen the other extreme where they’re spending $20,000 a month on marketing to get these deals. What did that look like for you?

Stephen:
Yeah, so I mean definitely it’s going to take money or time, one or the other. I know some gurus will tell you how it’s just simple and easy and the like, but wholesaling to me, it’s simple. Losing weight is simple because you know how to lose weight. You eat less calories than you burn. You go to the gym every day and you’ll look great. And some people sell. Wholesaling is in, it’s so easy and you can make money. It’s like, yeah, you can, but you’ve got to put in work. You need to do the reps. So it can be hard in that sense. So what am I spending? Yeah, when I first started, I did mail. I did some texting and I did some driving for dollars, but that was spending time and money. Now I do have a company. So we have, there’s six of us here. I have two acquisition people. I have a head of growth and operations. I have disposition people. So I have a payroll now. We do a lot of marketing. We do cold calling, we do online marketing. So I’ve definitely stepped that up, but I went step by step. I didn’t start with this operation. I’ve grown slowly over the last couple of years.

Ashley:
Yeah, ballpark, when you first started, what were you spending just starting out?

Stephen:
I wasn’t spending that much. I was really was buying a few lists and I was texting, so I was buying list texting and some direct mail. So I was spending probably a couple grand a month, and it did take a little time. So it took me six months to close my first wholesale deal. But the interesting thing was I was working hard at it and I got my first, second, and third in the same week.

Ashley:
But that is a common theme that we hear is that it can take up to a year to actually get your first deal. But once you build that momentum and it takes that time, it takes the patience, it takes the investment. You’re paying six months, a couple thousand dollars each month, that can quickly add up if you’re not getting a deal.

Stephen:
And I think the important point I want to make on that is it wasn’t that I finally figured out what I was doing in the six months. It wasn’t that I started doing it right, it was all the work I’d done that six months started to come back because the follow up, the momentum. So once I did that, I started rolling. We’ve now done over 220 wholesale deals and the momentum rolled, but it took a lot of confidence to keep going. It took a lot of believing in myself, but I did and it worked. So to all the rookies out there in whatever you’re doing, whether it’s wholesaling investing, I would say just keep trying, keep going. Don’t stop before you get that success.

Ashley:
Now, Steve, when you’re doing the burrs for yourself, how are you financing these deals? How are you purchasing the properties? How are you paying for the rehab on them? And then what kind of loan are you using to refinance out of them?

Stephen:
So I was lucky enough to be able to buy my first ones with cash because I did have a company in Australia. We actually ended up listing on the Austral Stock Exchange. So that was helpful, and I was able to buy my first couple with the cash from selling my shares. What I did was I purchased with cash, but then I did do A-D-C-S-R loan on the backend and put 30 year fixed debt on it, on the refinance. And then I took that money and bought another property. The classic bur recycling lots of people, you don’t need to have the cash. I’m sure not all the rookies have the cash. You definitely don’t need that. It works just as well getting a hard loan to take down the property and then to use the same sort of DCSR loan to refinance. But I love the burrs.
Something that maybe a lot of your listeners might take for granted is the fact that 30 fixed debt only exists in America. It does not exist in Australia, and it does not exist anywhere else in the world. In Australia. There’s no fixed debt you can fix for three to five years max. So the fact that you can fix a loan for 30 years in a place that has inflation, et cetera, it’s such a solid thing. So that’s why I really am a big fan of the bur, and I think a lot of Americans don’t realize what a great opportunity it is for them.

Tony:
Steve, I want to get into the actual tactical side of how you are finding deals today. Because you mentioned not too long ago that before you were doing it at 70% of a RV, now you’re down to like 65 or 60%, which means it’s getting harder to find good deals. So I want to break down your exact process for finding good deals today, and we’ll do that right after a word from today’s show sponsors. Alright, we’re back here with Steve and we just covered his journey from Australia coming to New Orleans, building out this wholesaling business. But Steve, the thing that a lot of real estate investors are struggling with, especially today, is finding good deals. I think it’s even harder right now because there are a lot of sellers who are stuck on prices from like two years ago. There are a lot of people who don’t want to sell because they don’t want to trade into a higher interest rate. They’re to 3% that don’t want to sell and land at a six or a 7%. So it’s just getting harder to find good deals. So you talked earlier about your process. You’re sending out marketing, you’re sending out mailing. What have you found to be your best marketing channel today for finding those off market deals?

Stephen:
So my best marketing channel is online. I have a strong brand now. I’ve been doing it a while. So I get a lot of people coming through my website. They’ll find me through SEO paid advertising. So definitely that’s my best lead source. But I will say this, that I actually think it’s my sales process that is the key, not the lead source because I think all the lead sources work. I know lots of people that do bandit signs that work, texting mail. I don’t think it’s like there’s a silver bullet of the lead source. But what is important is when you get that lead, what experience does a seller have? So we are very honed in how we have a conversation with our sellers. We try to help them first. We’re caring, right? We’re empathetic, we’ll have a conversation. And the truth is, a lot of the time they don’t like your offer because it is hard.
And the truth is the market has changed and the sellers haven’t always realized that. So you need to be able to make an offer that is the right price that they’re probably not going to like, and you need to be able to make that offer. Still be nice about it, be firm about it, but just make that offer and keep rapport because the deal doesn’t always come on that first call. We will call them back and we will stay in contact with them. And ultimately, the deals often come over time. We talk about, there’s often a transition. I’ll give you a story that I think really typifies this because I once had this deal on, I think it was like a five plex I was working on. The seller had lived out of state. He wanted to sell, he was sick of managing it, but the price was closed, but we just couldn’t agree on the price.
And he had a property manager that was looking after the property and we sort of left it at that. I stayed in contact, but then one night I woke up and he literally called me at 2:00 AM in the morning. Why would he call me at 2:00 AM in the morning? But I called him back the next day and what had happened was his property manager who was looking after the property, he died. So for him, he wanted to sell. He didn’t like it, but he had a level of comfort straight away. That level of comfort just disappeared and he felt helpless. He’s in a different state. So we then put the deal together and what I will say is this transitions happen all the time. It doesn’t need to be as extreme as someone dying. It can be an AC blowing out. It can be something that happens. So if you just make your offers being nice, build rapport, stay in contact, the deals end up coming to you over time, regardless of where that lead initially came from.

Tony:
I want to go a little bit deeper into your sales process, Steve, but just circling back to the lead source, I appreciate you sharing that all the different lead sources can work if you execute them correctly. But you said that your website paid advertisements working really well for you. A few questions around the paid ads. One, are you running these ads yourself or have you outsourced this to some sort of agency? And then which platform have you found to be best? Are you doing Facebook, Instagram? Are you doing Google search? All of them? How are you actually divvying up your budget between the different platforms?

Stephen:
Google search would be the best. I have gone in between getting agencies and doing it myself. We currently have an agency doing it, so that’s been really good. I also get a lot of SEOs, a lot of organic listings. I do that myself, having had it run a tech business in Australia. I have a very good sense of that so that I run myself, and that works very well too.

Ashley:
So Steve, before we wrap up here, what is next for you? Is it to continue to do burrs, some wholesaling, or are you making a pivot into something else?

Stephen:
No, I definitely stick in my lane and I think that’s actually important. I think I see people switch too often, and even when it comes to wholesaling, a lot of people want to start in wholesaling and graduate to something else. I would say if you’re good at wholesaling, if that’s something, if you’re good at marketing, you should always keep wholesaling in your repertoire. It allows you to keep spending money on marketing and pick the deals that work for you. So I’m doubling down. I’m trying to grow my reach. We started in Greater New Orleans, we expanded to Baton Rouge, the Lafayette, and the Mississippi Gulf Coast. I see ourselves as being more regional and expanding further than that. And at the same time just picking the birds that work for me, picking properties that work for me. But I will not stop because I built momentum and a brand and I’ll continue going and I might add some things on top as we go, but I’ll never change or pivot unless something forces me to.

Ashley:
Well, Steve, thank you so much for joining us today. We really appreciate it. Can you let everyone know where they can reach out to you and find out more information about your journey?

Stephen:
Yeah, absolutely. You can check us out home via louisiana.com is my website. You can go and check that out. You can also find me on LinkedIn, Stephen Curie, I guess. Check the show notes. Not that easy to spell.

Ashley:
Well, thank you so much. We really appreciate you taking the time and giving us this little masterclass inside of your business. Thank you so much. I’m Ashley. He’s Tony. And we’ll see you guys on the next episode of Real Estate Rookie.

 

 

In This Article

Let’s be honest: You probably started your short-term rental journey to make more money. You wanted extra cash flow and maybe a path to financial freedom, not another stressful part-time job that barely breaks even. But is your pricing strategy actually helping you reach that goal, or is it quietly choking your revenue?

If your honest answer is “I don’t know” or “not really,” your pricing is not just a minor problem. It is probably one of the main reasons your property is underperforming.

That is why I sat down with one of the most obsessive minds in the Airbnb space, Sean Rakidzich (@airbnbautomated). Every time we talk, the conversation goes deep quickly. This time, we focused entirely on pricing structure, revenue management, and how hosts can stop donating money to the market in 2026.

What follows is a playbook version of that conversation. Think of it as the pricing gut check you wish you’d had before listing your property.

Pricing Mistake One: Entitlement

Sean’s first point is simple and a little painful. Many hosts price their property with a sense of entitlement. They say things like:

• “My place is worth at least $250 a night.”
• “I refuse to go below this number.”
• “I know my value.”

The problem is that value is not something you decide in a vacuum. It moves with the season, demand, competition, and lead time.

You might be worth $1,000 a night on a summer holiday weekend. You might be worth $125 on a random Tuesday in February. If you’re not willing to move both up and down with the market, you will lose bookings and leave money on the table.

Sean’s framing helps here. In most markets, it is normal to lose money or barely break even for a month or two each year. The goal is not to avoid slow months entirely. It’s to lose less than everyone else in those periods by being flexible and realistic with your prices.

Pricing Mistake Two: Treating Software Like Magic

Once hosts realize prices need to change, many take the next step and sign up for a pricing tool. That is a good move. The mistake is expecting the software to replace their thinking.

Sean sees this a lot with co-host clients. They sign up for a tool, flip every feature to “on,” and assume they are now practicing revenue management. In reality, they have just created chaos.

Typical software mistakes include:

• Turning on every advanced setting at once.
• Setting a very high base rate and a minimum that sits just under it.
• Locking the tool so it can only push rates higher, never lower.

A better approach is slow and tedious. Start with:

• A straightforward set of rules.
• A realistic base rate.
• A few weeks of observation.

Watch how often you get bookings. If you are not getting enough, lower the base rate. If you are getting booked too quickly, raise it. Only after you understand that baseline should you start layering in more complex rules.

How to Use Wishlists as a Live Pricing Compass

Most hosts never realize how powerful Airbnb’s Wishlist feature is as a pricing tool.

Here is the exercise Sean recommends. First, go to Airbnb and search in your exact area. Save only the listings that are truly comparable to yours. That means similar:

• Size
• Quality
• Design level
• Type of guest you attract

Put 20 to 30 of those into one Wishlist.

Next, open that Wishlist and search for specific dates. Use the map view. You will see two things that matter:

• Listings booked for those dates will be crossed out.
• Listings that are still open will show the price for those dates.

Now you have real-time insight into your competition. For any date range, you can say:

• “My place is clearly better than this one.”
• “I am not as nice as that one.”
• “My price belongs between these two properties.”

Add timing to that. If the dates are close and many listings are still available, you need to be more aggressive. If the dates are far out and almost everything is already gone, you can push a little higher.

This takes effort, but it is honest. It keeps you anchored to what is actually happening, rather than what a third-party data site or your ego tells you.

Using Pricing Tools Without Sabotaging Yourself

When hosts do adopt software, there are a couple of classic “do not do this” moves that hurt performance. Sean called them the cardinal sins.

The first is turning on everything; every slider, feature, and “advanced” toggle. The issue is that each setting is designed to solve a specific problem. If you do not yet know what problem you have, turning on everything only hides what it is.

The second is setting a base rate so high that the tool cannot actually adjust much. If your base is $400 and your minimum is $370, you have told the software that it is only allowed to push your price higher. You have removed the tool’s ability to help you compete on slower dates.

A healthier way to start:

• Turn on the minimum features you need.
• Set a base rate you would be comfortable with if you were pricing manually.
• Watch what happens three months, one month, and two weeks out.

Once you understand that pattern, you can start doing more advanced work like segmenting your calendar into zones.

What Zones Are, and Why They Matter

Zones are Sean’s way of making sense of lead time and average daily rate.

Not all bookings are equal. A stay that books 120 days in advance behaves very differently from one that books five days out. With at least a year of historical data, you can see this clearly.

Here is one way to explore it:

• Export your booking history for a property.
• Drop it into a spreadsheet.
• Group the bookings by how many days before check-in they were made.
• Calculate your average daily rate for each lead time band, such as 0 to 15 days, 16 to 30 days, and so on.

What you will usually see is a curve. There will be a “golden window” where your ADR peaks. Very far out, you might be lower. Very last minute, you might be lower again.

From there, you can define rough zones, such as:

• Hyper far future
• Far future
• Golden window
• Near term
• Last minute

The point is not to memorize names. You need to learn where your property earns the most, and where it struggles. Then tweak your strategy in each zone, rather than using one rule for the entire year.

Why Weekdays Feel Impossible in Vacation Markets

If you own a vacation destination, you have probably felt this pattern. Weekends fill decently. Midweek sits empty and stares at you.

Sean walked through why this happens. First, demand for the destination spikes. People start visiting. Early hosts make serious money because there are not many listings. 

Then, over time, investors flood in and add supply. Eventually, supply catches up with peak weekend demand. But weekday demand does not keep rising at the same pace. You end up with:

• Just enough or slightly too much inventory for Friday and Saturday.
• Way too much inventory for Monday through Thursday.

On weekdays, guests have an ocean of good options at low prices. When everything is cheap and decent, price becomes less of a sorting tool. Now you are in a marketing and positioning battle, not just a pricing game.

Strategies to Consider

So what can you actually do about it?

Reverse weekend bundles

One smart way to tie weekdays to weekends is what Sean calls a reverse weekend bundle. You discount the weekdays only when they are part of a more extended stay that includes the weekend.

For example:

• Create a rule on Airbnb that gives 40% off on a four-night stay and 55% off on a five-night stay.
• Apply that discount only to Tuesday and Wednesday.

If someone books Tuesday through Saturday, the discount only touches the midweek nights. The guest feels like they got a deal on the whole trip. You protected your prime nights and improved your midweek occupancy.

Adjacency rules for orphan nights

When your Saturday gets booked, your Sunday instantly becomes harder to sell. It is no longer attached to the most desirable night.

An adjacency rule set helps rescue those “orphan” nights. Think of it like this: Any time you see a checkout on Sunday, Monday, or Tuesday, apply a small discount for a two-night stay that includes the leftover night.

This creates a targeted incentive. You are not slashing all weekdays. You are only making it more attractive to grab the awkward nights next to existing bookings.

Tools like PriceLabs and Wheelhouse can help automate this kind of logic. Sean also builds similar structures into his own pricing systems.

Turn leftover days into a different product

There is also an operational angle. Sometimes the solution is not to discount harder, but to change what you are selling. One creative approach is to list private rooms on weekdays when the whole house is not booked. The benefits:

• You now compete with other private rooms, not with every home in your market.
• You capture a different type of guest at a different price point.
• You convert zero revenue days into a meaningful contribution to margin.

To keep things manageable, you can set fixed checkout days. For example, all private room guests must check out on Tuesday or Friday. That way, your cleaner does not have to come every single day just to flip rooms.

Thinking in Terms of Probability Instead of Hope

One of the most potent parts of the conversation with Sean was around probability. Most hosts think about price emotionally. They set a high number for a weekend, cross their fingers, and hope it books. If it doesn’t, they blame the market. 

 

Sean suggests a different tactic: Start tracking your lowest documented attempts. For each property, write down:

• The lowest price you tried at various lead times.
• Whether that price actually got booked.

Over time, you might find patterns like:

• Two months out, you always book at $195.
• Two weeks out, you always book at $150.
• Five days out, you always book at $85.

Those become your “floors” at each stage. A floor is a price that, in your experience, has a near-100% chance of booking. Once you know your floors, you can compare choices.

Imagine you have a weekend that’s 14 days out. You could:

• Try for $300 a night, with maybe a 30% chance of success.
• Or take $200 a night with close to a 100% chance.

In expected value terms:

• A 30% chance at $300 is like earning $90.
• A near-certain chance at $200 is simply $200.

Far out, you can afford to experiment and be ambitious. As you get closer to check-in, you should lean more toward certainty and your proven floors.

Using Pickup Rate and Demand Colors

If you use PriceLabs, there are two features Sean really likes. The first is the pickup rate in Neighborhood Data. It shows you:

• How many listings have been booked in the last seven days for each future date.
• How overall occupancy is growing over time.

If the pickup rate is flat for a date, no one is booking it. If it suddenly spikes, something is happening, and demand is starting to build. You can be more confident with your prices for those days.

The second is demand for colors in the calendar. PriceLabs uses different shades to represent demand, from green for weak to dark blue for strong.

If you see a run of dark blue days together, that’s a sign that:

• You can safely raise your nightly rates for that stretch.
• You might want to increase your minimum stay so you don’t waste those nights on short stays.

Think of it as a visual confirmation of when to be aggressive and when to be cautious.

The Big Truth: The Guest Decides What You Are Worth

Underneath all this math sits one big truth: The customer decides what you are worth.

Every time a guest opens Airbnb, they see a lineup of prices and photos. At that moment, they build their own sense of value based on:

• What else is available.
• How your listing looks beside those options.
• How much urgency they feel.

In peak season, as inventory shrinks, you can often push higher because scarcity is on your side. In the slow season, as supply overwhelms demand, you have to lean more heavily on experience and marketing to stand out. 

• In the slow season, guests have the advantage. As time runs out, hosts panic and discount deeper.
• In peak season, hosts have the advantage. As time runs out, guests panic and pay more.

If you understand which side you are on for a given date, your pricing decisions become much clearer.

Finally, think about contribution margin. Your core bookings already cover your fixed costs. If you can grab 30 extra nights per year at $100 each, that’s $3,000 in mostly pure profit. That kind of margin can be the difference between “this is not working” and “this is worth scaling.”

Where Pricing Fits in Your 2026 Strategy

Here is the final reality check: Using a pricing tool was once an advantage. Now it’s just the entry fee. More than 70% of hosts already use some form of dynamic pricing. If you’re not one of them, you are behind. If you are one of them, you are simply caught up.

So, where is the edge now?

• Pricing is the baseline.
• Marketing and guest experience are the difference makers.
• Direct bookings are the long-term play.

Get your revenue house in order so you stop losing easy money. Then, put your energy into becoming the host guests remember, talk about, and actively seek out, even before they filter the page by price.

Dave:
2026 is shaping up to be the start of what Redfin calls the Great Housing Reset, a long, slow period where affordability improves and the market normalizes not a quick flip or a recession. I’m Dave Meyer and today I’m joined by Redfin’s Head of Economic Research, Chen Zhao. To unpack their new annual predictions report, we’ll dive into each of their 11 predictions and walk through the headline calls from rate cuts to sales, inching up rents, reaccelerating, and which markets are likely to heat up or Cool down. This is on the market. Let’s get into it. Jen, welcome back to On the Market. Thanks so much for joining us again.

Chen:
Thanks so much for having me, Dave.

Dave:
This is one of our favorite shows of the year, hearing what Redfin has for predictions. So maybe just start by telling us sort of like big headline, what are you seeing? What’s the big top level narrative about the market in 26?

Chen:
I’d say the headline is that we see the housing market taking a bit of a turn. I think it’s already starting a little bit this year, but we think it’s going to continue next year and it’s going to be a bit of a longer what we’re calling a reset of the housing market where we think affordability will start to slowly change. And affordability really has been the big challenge for the housing market as we all know. But there’s no silver Ebola, there’s no magical fix. It’s going to take a while and we think next year is the start of better affordability for home buyers.

Dave:
That is music to my ears. I think I saw something you all put out that affordability was the best it’s been in two or three years, just in the second half of 2025. So it seems like that trend is already emerging.

Chen:
Yes, I think we’re starting to see the beginnings of that trend in the second half of 2025. So namely the two important factors are mortgage rates and home prices. So we know that mortgage rates have come down a little bit. We expect them to stay lower, we can get into more of that. And then home prices. We know the home prices are not growing as fast as they were. This has to do with the shift from a seller’s market to a buyer’s market, and we can talk about how we’d expect that to continue for the next few years and what the underlying forces are.

Dave:
All right, great. Well, I tend to agree with the overall sort of thesis here. I think you guys called it the housing reset. I’ve called it sort of the great stall where I think prices are just kind of stay stagnant for a while. But let’s get into the specific predictions that you all have. So what is the first one?

Chen:
The first one is about mortgage rates. So right now mortgage rates are in the low sixes, 6.2, 6.3%. We think they’re staying here. I think another way of putting this is that we don’t expect mortgage rates to get into the fives, not for any sustained period of time. We know that mortgage rates fluctuates. Sometimes you get a little bounced down, but I don’t think it’ll stay there. We also don’t really expect mortgage rates to get back up to 7% either. I think the important thing they’re here to focus on is of course, always the Fed and what they’re thinking about, and they’re always balancing this dual mandate that they have. So is it preventing high inflation, just trying to keep inflation low and steady and also trying to keep unemployment from going up? So right now the economy is in a very delicate balance. We know that the higher tariff rates have slowed economic growth.
They also threatened to increase inflation even though we haven’t seen as much of that so far. But that means that the Fed has a really unique challenge on its hands. So even for the meeting that’s happening next Wednesday, it’s a bit of an open question, what are they going to be doing going forward? But because they’re in this delicate balance, there’s not much room for them to cut a lot, but we also don’t think they’re going to be hiking. So that means we’re sort of stuck here with where mortgage rates are. And then the other thing you have to keep in mind is that there’s this big transition happening next year with the Fed. The president will be nominating a new chair of the Federal Reserve. The chair is only one of 12 votes on the FOMC. So contrary to some of the stuff that you see in the press, the chair of the Federal Reserve does not set interest rate policy. He or she is one person on that committee, but it is a very important person and that transition is something that we also have to keep really close tabs on.

Dave:
Got it. Okay. So not expecting a lot of movement either way. It does seem kind of stuck. We have these dual, I guess you would call threats to the economy right now where inflation has been, we don’t have a lot of inflation data for the last couple of months, but inflation prior to the government shutdown had been ticking up a little bit and job losses, it seems like every print tells us a different story. So it’s just really hard to understand what’s going on there and until we get clear line of sight on one of those things and which one is really going to be the bigger issue or which one gets cleared up first. I agree with you that it’s not going to move much. I am curious, just the last couple of days the Fed stopped quantitative tightening. Do you think there’s any chance that the Fed does something more dramatic next year to impact mortgage rates, like maybe quantitative easing or something like that?

Chen:
I don’t think so. I think that the communications that we’ve gotten from the Fed is pretty clear on this, that they want to pivot away from mortgage backed securities and pivot towards a portfolio of treasury securities. And this idea that’s been floated a few times, I’ve seen some op-eds about it saying, Hey, look, higher mortgage rates is really killing the housing industry. Can we do something for housing? Maybe that means the Fed buys MBS. It’s really hard to imagine that they would choose to do something like that when you still have so much lingering inflation risk from higher tariff rates. Because you have to remember that housing is still the largest component of course CPI or PCE, whichever your favorite measure is. And so if you were to stoke the housing market right now, what you would see is that home prices would just shoot up and they really just after all the stars and PTSD from the last few years with high inflation, I just can’t imagine that they would really choose to do that.
And Chair Powell has been asked about this a few times in his press conferences and he has said each time very consistently, the problem in the housing market is that there needs to be more supply. We all know this very well. We say it all the time. That’s a very hard problem to solve. Put another way, I think another way to look at it is in the housing market, what we need is for prices to come down. We’re in a new economic era now after the pandemic where rates are just going to be sitting higher. I often like to talk about this in terms of people’s metabolisms. As you age, your metabolism changes, you need to change what you eat. And it’s a little bit like that for the housing market. So we actually do need to just see lower home prices. That’s the right way to get the housing market back to a healthy state.

Dave:
I agree with you there. So do you think that’s going to happen? Maybe I’m skipping ahead on your predictions, but do you think that will happen that we’ll see home prices decline?

Chen:
We’re already starting to see it this year. So we started the year with home prices increasing about 5% year over year. We’re down to about two three ish percent depending on exactly how you want to measure it, what specific metrics you want to look at. So it’s come down a lot and it came down a lot because the change of home buyers to home sellers has changed, right? So Redfin has this proprietary metric that we put out that we call active buyers and sellers. So sellers is really easy. It’s just the amount of inventory in the market, the number of buyers is something that we impute from some of our proprietary data where if we can see how many homes are selling and we know how long takes people to find homes and how long it takes to sell homes, we can put all that together in a model and say, this implies that there are this many buyers in the housing market actively looking right now.
And what we saw was that that gap got really large in the spring of this year. There was about 37% more home sellers than home buyers across the country. And most housing markets were tipping from being sellers markets to being buyers markets. So that ratio of sellers of buyers has a very close relationship to home price growth with a lead of about six months or so. So what we’re seeing is that that shift has led to home price appreciation really slowing down, and it’s hard to imagine as we continue to follow this metric and that gap continues to be historically large, that it’s hard to imagine that home price growth will accelerate again. And then especially if you layer on top of that, what we see happening with demographics. So we know that immigration into this country has for more or less halted. We also know that the underlying demographics of the country means that there’s going to be smaller populations going forward, that it’s really hard to imagine that home prices will actually be appreciating that rapidly in the near or medium term.
But on the other hand, it’s also difficult to imagine that home prices will really be falling dramatically because as we all know, people don’t have to sell their homes. You can choose to rent it out, you can choose to continue to live in it. And we actually put out a report, I believe it was last week, looking at Delists, and we saw that the fraction of homes that are being delisted in 2025 was about 5.5%. That was up from about 4.8% last year, which doesn’t sound like a huge increase, but that fraction has been very constant below 5% for the last eight to 10 years. So that means that that increase is actually meaningful. It doesn’t sound like a huge amount, but it’s a pretty meaningful increase. And what we saw was that the homes that are being delisted are people who bought more recently. They don’t want to sell where buyers are willing to pay right now. So buyers and sellers are just sort of far apart. And so as long as home sellers aren’t willing to go where buyers need them to go, it’s actually very hard for prices to also fall.

Dave:
Yeah, actually we did a whole show on that report about I think it’s super interesting and to me it just reflects that sellers are responding appropriately to the market because I think a lot of the crash narratives that you hear about are there’s going to be panic selling or there’s going to be this downward spiral of increasing inventory, but what you’re seeing is a normal reaction. People don’t want to sell at a loss, they don’t want to, and they don’t have to. There’s no forced selling going on, so they’re just choosing not to sell. I think it’s personally, I’m curious to see if they come back on in the spring because I have a lot of friends who are house flippers, a lot of ’em are pulling ’em off and we’ll do it in the spring. But I think that to me is a sign that you’re correct that it’s going to be sort of a boring year price wise for the housing market.

Chen:
Yeah, I mean we’re going to continue to publish this delisting data pretty regularly and we will also be publishing who is delisting and are they re-listing the home. So we should see that in the spring if they are coming back on the market. It is boring, I guess in some sense to say, look, home prices are going to maybe increasing 1% or 2%, something very low, but it’s actually a meaningful change for buyers because what that means is that home prices are growing slower than wages, and that is what buyers actually need. They need time for wages to catch up to where home prices are because home prices are not going to be falling. This is the only mechanism that we have in order to get to this place where we need to go, where homes are more affordable for people, where their incomes actually are, and that’s what we think will be happening next year.

Dave:
So that is your second prediction, right? For next year?

Chen:
Yes. Essentially at home prices are going to be growing slower than wages, and this is the step that you need for affordability. But importantly, this kind of progress is very slow. So it might not even be very noticeable to a lot of buyers after the first year. We don’t expect affordability to all of a sudden jump back to where it was before the pandemic. It’s going to be a slow process, maybe five to six years. It might take a while for buyers to actually notice, hey, affordability has gotten better.

Dave:
That makes sense. It’s just for everyone who is listening. We’ve been talking about this on the show recently, but what Chen is talking about also reflects the difference between nominal and real home prices because Chen said prices might go up one to 2%. That’s the price you see on Redfin if you were going to go look. But when you actually compare that increase to inflation to wages, they’re actually negative. And I know that sounds negative to some people, but that means affordability is improving. That’s how we’re actually getting affordability. And right now it’s baby steps towards affordability, but we can get back towards meaningful improvements in affordability over time. If real home prices stay kind of flat and wages keep growing, that’s a normal way that we get affordability back into the housing market. Alright, so we’ve gone through our first two predictions from you, which is first about mortgage rates dipping into the low sixes, but staying there. Prediction two, home buying affordability will improve as wages grow faster than prices. What’s the third one?

Chen:
The third one is about sales. So we think that sales will inch up just slightly next year. So we’re thinking about existing home sales very specifically. It’s been about 4.1 million. It’s going to be 4.1 million again this year-ish. Next year we’re forecasting 4.2 million. It’s not a lot historically, it’s very, very low actually. It’s only up about 3% from where we think we will end this year. I think that the increase affordability means you just get a little bit more activity in the market, but by and large, what we’re describing with buyers and sellers, really just being at the stalemate means that you’re not going to get this huge pickup in the housing market next year.

Dave:
I hope you’re wrong about this, but I agree with you. I just think for this whole industry, it would be great if we had more sales volume. It just feels like it’s been so sluggish and slow and for anyone who’s a lender agent, it’s been a tough slog and hopefully though at least this is a sign of the right direction, it’s got to bottom out at some point. And maybe this means that we’re moving towards better home sales volume. Maybe not in 2026, a little bit better, but maybe in the years after that we’ll start getting towards a more normal level of sales volume. All right. So those are your first three predictions. We do have to take a quick break, but we’ll be back with Chen Zhao from Redfin right after this. Welcome back to On the Market. We are going through Redfin’s housing predictions for 2026. So far we’ve talked about mortgage rates, home buyer affordability, home sales, Chen. What is the fourth prediction Redfin has this year?

Chen:
It’s about rents. So as we all know, rents have been really flagged to slightly declining for a number of years now. We think that next year rents will start to tick up just a little bit, probably towards the back half of the year. We know that multifamily construction has really slowed. There’s also increased demand from people not buying a home for renting. So the combination of those two things means that we would probably just get the smallest uptick in rents. It might mean that you were talking about this difference between nominal and real price growth. Right now, rents are falling on a real basis. Once you adjust for inflation by some metrics, they’re actually falling on a nominal basis. We think we might get to somewhere where it’s flat on a real basis. So rents are keeping up with inflation, in other words.

Dave:
And that’s based on mostly just the supply glut that we’ve sort of been in for multifamily, dissipating.

Chen:
Exactly. I think that’s the main motivation here, but we also think that this continued affordability challenge that’s just going to take a long time to work through on the purchase side means you just get higher demand still. We also know that the economy has gotten a lot weaker. The labor market’s weaker. We’re sort of on the edge of a recession, probably won’t fall into a recession, but that will keep enough people renting rather than buying.

Dave:
That’s interesting. I noticed the same thing. I saw some stat that the unemployment rate for people under 25 is like 9% right now. These kinds of numbers that I don’t know if we go into a recession or not, but it made me wonder if it will weigh on household formation. I think you’re right. We’ll have a higher percentage of people renting, but for rental demand to keep up, we need household growth. But I’m curious if you have any thoughts on that, if that’s going to slow down or where that will go?

Chen:
We do think that the slower economic growth will weigh on household formation a little bit, but the economy, there’s a lot of headlines right now about the negative jobs data that we’re seeing. The government shutdown means that we just haven’t gotten great official jobs data, so we still need to wait for that. And the reality of the labor market is that it has slowed down a lot, but it’s still staying afloat and the economy is still staying afloat. So that makes me think that we won’t get a huge impact yet on household formation, but housing costs remain high. So we do think there are going to be some impacts on things like household formation and also on things like people deciding to start a family. So our fifth prediction is that affordability means people have more roommates. We say fewer babies, meaning that maybe you want to get into a bigger home before you start to have kids, but you are finding it’s that to be really challenging. So you’re going to delay that for a little while. And as I was saying before, we do think housing affordability will improve, but it’s going to take a number of years. So that will weigh on some of these factors for families.

Dave:
Got it. Okay. I mean that makes sense to me. I do think people are stretched and it’s going to be hard for people to go out and form a new household just for everyone knows household formation, it’s a little bit different than population growth. It’s basically measuring the total demand for housing units. So for example, if two roommates are living together, then they each decide to go out and get their own apartment. Doesn’t change the population of a city or the country, but that adds one more household and that adds one more unit of demand that could happen when a young person moves out of their parents’ house or if they’re two people split up and they decide to have two homes. So that’s what we’re talking about and that’s just an ongoing question I have particularly as it relates to rents. So we actually, we got a twofer on that one. We did prediction four and five at the same time. So what is prediction six?

Chen:
Prediction six is about policy. So housing affordability has become the paramount issue in policy. I think what we saw in the last election cycle is that it is the decisive issue actually, or it will be in a lot of elections. And I think both parties know this and candidates who are running for office also know this. So our prediction is that there will be a lot of serious proposals brought forward. It is as is always the case in policy. Some of them will be useful and some of them may not be that useful. At the end of the day, we know that in order to really address housing affordability, you have to build more supply, but that is really, really hard to do because it’s controlled by thousands of local jurisdictions. A good portion of the population has a vested interest in not allowing there to be more supply. So this is a very tricky problem to solve and it’s going to require really innovative policy solutions because quite frankly, no one’s really solved this problem. And it’s been a problem for a long time. We know that the country is short, many millions housing units, but across the country when you’re looking at election results, you can see that this really is the main issue that’s on the minds of voters.

Dave:
Well, I hope you’re right. I do hope that we start to see some sensible policies here. I was getting interviewed the other day and I was saying I feel like the real hard thing here is that policies that actually help are not really well aligned with the election cycles in the United States because adding supply takes years. We could start now and it could take three years, it could take five years, it takes seven years and politicians both sides of the aisle, they’re trying to get reelected every two years or every four years. And so oftentimes I think what frustrates me is the solutions that get the most traction are the short-term ones that might maybe make a dent in the short run but aren’t really going after the supply issue. I’m curious if you have any thoughts on what’s some good policies or any examples of policies that could actually help here, because I totally agree this is a huge problem for the country. It needs to be

Chen:
Fixed. To me, I think there are local jurisdictions that have made some progress by making it easier, taking away red tape, maybe introducing a D or manufacture housing, all these different types of innovation to try to add some supply. It’s not a silver bullet and it’s not enough supply, although we shouldn’t discount that. There is some progress being made. I think in order for there to be a consolidated federal push, the difficulty is that the federal government is involved in the housing market, mostly on the financing side. It’s not on the supply side, but the federal government has a lot of sticks and carrots that it can use when talking to local jurisdictions because local governments get a lot of funding from the federal government. I think if there was a way to use these carrots and sticks and ties some funding to outcomes in local jurisdictions, that could be a really promising solution. I don’t know that this has been tried very much in a meaningful way, but that would be something to explore most of the proposals that get put forward or on the demand side. And as we all know, that’s not actually what is helpful. We just have to address what is actually happening on the supply side.

Dave:
That makes a lot of sense because just as an example, demand side policies, if you subsidize buyers or you lower mortgage rates to figure out some way to help people buy, that could be helpful for a minute, but then it just pushes the price of homes up and you still have the same long-term structural affordability challenges. Right,

Chen:
Exactly. It makes the problem actually worse in the long run. It’s very myopic and it’s really honestly the last thing that we need. I often do when I’m thinking about housing policy and the affordability issue, we have to take our medicine, you can’t have your cake and eat it at the same time. At some point you have to take your medicine. And I think that’s the really hard part because one really does because most people who own homes, the majority of their wealth is in their home.

Dave:
So it’s hard. I get that people want more affordability without making their home go down in value. That is a tricky thing to pull off. I’ve said this on the show a few times, I like your saying, take your medicine. We’re in an unhealthy place in the housing market and to get back to health, there’s going to be some pain somewhere. You don’t get a magic redo. And so I personally think the slow you guys are calling the great reset or call the great stall, I think that’s kind of a good balance personally, if we can add more supply gradually, if wages can go up, this is a tolerable way for affordability to get restored without the bottom falling out of the market and homeowners losing a ton of equity and wealth. And so I am encouraged by some of the market dynamics, but I do think the policy thing is still the missing piece. There’s no coherent policy from anyone. I’m not blaming one party or the other. There is no coherent policy from anyone about how we’re going to do better

Chen:
And it’s an incredibly tricky problem to solve.

Dave:
Alright, let’s move on to our seventh prediction. What do you got?

Chen:
So our seventh prediction is that more people will refi and remodel. So when we think about refi, I think we’re thinking about it in two different ways. One is simply that over the last few years actually a lot of people have bought homes at really high mortgage rates. So right now about 20% of people who have a mortgage have a rate above 6%. So as rates fall into that below sixes, you actually have a healthy number of people who will be in the money for a refi. So we do expect that refi volume will increase about 30% next year. Wow. So that is, it’s off a very small base, so we have to remember that. But that is meaningful, right? Because 6.3% mortgage rates sounds pretty high, but if you remember that we were at 6.8% and 6.8% and then six point, I think this year, 6.6% probably average for the year.
Like we’re coming down very, very slowly and it’s enough of a change that you will have people who are going to be in the money for a refi. The other is just that, as we all know, a lot of people have a lot of equity in their homes, but they’re also still stuck. They can’t afford to move on to a bigger house. So a lot of them probably will start to, if they haven’t already tap into that home equity, I think renovation will continue to be a hot topic where people are going to be trying to make the space that they have work for them.

Dave:
We do have to take one more quick break, but we’ll be back with Chen and the rest of redfin’s 2026 housing market predictions right after this. Welcome back to On the Market. I’m Dave Meyer here with Chen Zhao of Redfin, talking about redfin’s predictions for 2026. We’ve gone through the first seven. Let’s keep moving. Chen, what is prediction number eight?

Chen:
So prediction number eight is about different regions of the country. So we think that the markets that are going to be hot in 2026 are really a lot of these suburbs around New York City that right now are some of our strongest markets. Also some of the metros in the Midwest, which are among the more affordable places. On the flip side, we think that the places that we’re really seeing that are among our weaker markets in the Sunbelt in Florida and Texas, these are going to continue to be the weaker markets in 2026. So there is this back to office return to office trend that is just continuing to happen. It is I think going to be more of a trend in a weaker housing market because employers just have more of the upper hands right now. People who are looking for jobs are having a really difficult time finding jobs. So when they say three days is now four days, four days is now five days, or you just have to, I think there’s going to be more of that happening, but still some people will remain hybrid. So not everyone’s going to be looking to move to Manhattan, but a lot of people are going to be looking to move to Long Island and New Jersey or Westchester. And so these are the markets that are seller’s markets, even though most of the country is made up of buyer’s markets at this point.

Dave:
And how do you see the spread here Over the last couple of years? We’ve seen dramatic differences. If you looked at 24, 25, there are markets like Milwaukee were up seven 8%. There’s Austin down seven, 8%. That was a pretty big spread between the top and bottom performing markets. Do you see that consolidating a little bit?

Chen:
Yes. I mean there are places, especially Florida and Texas, these are your weakest markets right now. When you compare them to what’s happening on Long Island, they’re like worlds apart right now. But what we’re continuing to see in places like Florida and Texas is that a lot of these metros have a hundred, 150, sometimes 200% more sellers than there are buyers.

Dave:
Oh my god.

Chen:
And as I was saying, that metric tends to be forward looking by about six months. So that means that probably over the next six months to a year, if we continue to see the spread between buyers and sellers being so big, these markets are going to continue to be pretty weak.

Dave:
And what about the hotter markets? Is this modest growth two 3% or something higher than that?

Chen:
It feels like these markets, if anything, are actually heating up a little bit, not a ton, right? Demand is kind of slow in general. That’s an overarching thing kind of everywhere, but it’s still relatively speaking, they seem to be heating up. And a lot of these markets like Boston or Long Island around New York City, these are places where you’re still maintaining a healthy distance where there’s more buyers than sellers. And so that feels like it’s something to sustain the price growth that we’re seeing.

Dave:
Well, this will be an interesting one to watch because the market is, we talk on the show all the time about the national market, but clearly as Chen just pointed out, we have very different markets and is an investor or homeowner, you need to be looking at what’s going on in your individual market to formulate your strategy. Alright, let’s go to our ninth prediction. We’re flying through these. Which one’s that Chen?

Chen:
It’s about climate migration. So we think that this is going to be more of a local story than a cross metro story in 2026. So we know that with climate change that this has become more on the minds of buyers. So people are paying attention to climate data when they see it on real estate portals. We know that insurance has become a real issue when it comes to affordability and the housing market, but when buyers are thinking about where to live, they have so many different issues that they have to contend with. They got to think about where’s your family? Where are the jobs? So instead of saying people aren’t going to be living in Florida, maybe they need to be in Florida for some other reason, they might be thinking about, I need to live in this part of the city rather than this other part of the city, which might be more prone to disaster risk. So I think that feels, I think more realistic for home buyers who have to contend with a number of different factors when they’re thinking about where to buy a house.

Dave:
How do you measure that? How do you know people are, if you see someone move within a city, how do you know it’s because of climate risk?

Chen:
I think one really good way to do this, and it’s hard to have all the data in place in order to really do this analysis well, is to look at insurance costs. Because really when talking about climate risk, it’s manifested through insurance costs, right? So I think if you were able to look at insurance costs and then tie that to housing market activity, and we have a pretty good measure of demand in the housing market right now through our buyers and sellers metric, that could help you to see this relationship clearly even within a broader metro area. I think.

Dave:
And I’m curious, you said you see this happening just in 2026. Do you think there is potential for cross metro migration in the future? Do you not have that information?

Chen:
I think if you’re thinking further out when you’re thinking about disaster risk or insurance costs, this is I think one kind of lingering big risk for the housing market. It’s a little bit hard to know exactly where it goes many, many years from now though. I think it really depends on what we actually see happening in insurance markets, what mortgage companies decide to do in terms of thinking about the risk and who’s owning the risk for the properties that are mortgaged and have this disaster risk. So it’s a little bit harder to see, but certainly I think it wouldn’t be out of the question for there to be a cross metro migration.

Dave:
Thank you. Alright, we have two more predictions to go. What’s number 10?

Chen:
So number 10 is really about the industry. We think that with so many MLSs out there, the National Association of Realtors is going to sort of just take a little bit of a step back, let the MLSs set more of their own rules. This is something that’s really already starting to happen, so it’s more of a continuation prediction than a change. And NAR is really going to, for its part, actually spend more time on advocacy instead.

Dave:
Oh, okay. Interesting. Do you think it’s just given a lot of challenges NAR has faced in the last couple of years? They have to pick and choose where they’re going to spend their energy?

Chen:
Yes, I think so. I think it makes sense as a continuation of the turmoil in the industry that we’ve seen over these last few years.

Dave:
I think that makes sense. Just being a casual observer of how much, yeah, like you said, there’s been a lot of turmoil in the industry. That brings us to our last prediction, number 11. What do you got?

Chen:
Well, number 11 is about everyone’s favorite topic. AI can’t escape ai,

Dave:
Right? Yes. You got to talk about can’t go through a podcast without talking about ai.

Chen:
Of course. Yeah. So love the prediction is that AI will become a real estate matchmaker. We’re already starting to see this. AI is infiltrating basically every aspect of our lives. We think that AI is really increasingly going to help people decide where to live, which homes to buy. It’s just going to start to play a bigger role. Redfin has conversational search now on our website. We’ve seen that a lot of the users who are using it are really happy with the results because it means that instead of going through the search filters, you can have a conversation and describe what you want in your home search. And that’s very appealing to a lot of people. People are also going to use AI to just do research and look into which cities or which towns have the characteristics that our family is looking for. So this is still technology that’s very much in its early stages, even though it seems like it’s dominating the news all the time. But over the next few years, it’s hard to imagine that AI wouldn’t play a much bigger role in real estate search.

Dave:
I think so too. I think the search part really makes a lot of sense. That seems right up AI ally. I’ve seen some predictions that people are saying they’re going to help negotiations or coordinate transactions. What do you think about that side of things

Chen:
That feels like if that happens, it has to be further down the road? Right? Because when you bring AI into a role like that, I think there’s also a bit of a trust issue where people, when you’re thinking about what is the difference between AI and a human, most humans will probably say, well, I trust another human more than I trust ai. Like I was saying, the technology is still in its early days. There’s so much for us to learn about it right now. So the search component feels like the obvious place where it can really make a positive change right now. But a few years down the road, who knows?

Dave:
I agree with you. Long-term probably going to disrupt everything. But right now, I think a lot of people are sort of saying AI can do things. It can’t yet, at least not in a reliable way, but I think search, research, gathering data, those kinds of things, it is already pretty good at. And so this makes a lot of sense to me. Alright, well thank you so much, Chen, for being here. This is a lot of fun. It’s always fun talking through these predictions and seeing how they play out through the rest of the year. Thank you for being here and for all the amazing research you and your team at Redfin put out. We’re always talking about your work here on the market.

Chen:
Well, thanks so much. It’s always fun coming on here. So thank you for having us.

Dave:
Absolutely. And thank you all so much for listening to this episode on the market. We’ll see you next time.