The golden age of real estate investing is over, and there’s a good chance it isn’t coming back (for a while, at least). We have to admit it—real estate deals aren’t nearly as good as they were in the 2010s. But here’s the thing…we’re still buying real estate. Even with low affordability, high interest rates, and still high home prices, real estate still makes much more sense as an investment than your other options. We can prove it, and we’re doing it in today’s episode.
You know your crypto-buying uncle who’s always predicting a housing crash? Send him this episode. Dave presents the proof, backed by decades of data, showing that real estate remains one of the best risk-adjusted returns of any investment you can buy today.
And with sellers significantly outnumbering buyers and home prices starting to correct, this could be one of the best times to buy before demand boomerangs back and supply dwindles. Dave is buying right now, after reviewing all the data. So, if the numbers make sense for him, what’s holding you back?
Dave Meyer:
Real estate is harder than it used to be, but you know what? I honestly do not care. Even though deals are harder to find, cashflow, prospects are lower and interest rates are higher, I still don’t care because investing whether in real estate or some other asset class is not about comparing today’s potential to some bygone era. It’s about making the best decisions with your money given the opportunities available to you today. So in this episode, I’m going to make my case to you for why waiting for some magical era of amazing returns and low risk, which will likely never come, is not the right move and how you should instead be thinking about investing.
Hey everyone, it’s Dave Meyer. I’m the head of real estate investing at BiggerPockets and I’ve been an active real estate investor for more than 15 years and right now, given current market conditions, we’re seeing a lot of people sit on the sidelines. I’ll be honest, I’m not going to say that I don’t get it because I recognize that real estate is harder right now, deals are harder, but you know what? It really doesn’t bother me at the end of the day. I mean, of course I wish that conditions were amazing again, but I’m going to show you today why I think that’s a dangerous mental trap you can find yourself in if you start going down that road. And instead, I think I can help you all frame the challenges and opportunities in real estate as a productive thing. I’m going to show you that there is an upside to everything that’s going on in the market right now and we’re going to do that in today’s episode.
For those of you who are watching on YouTube, I’m going to be pulling out the whiteboard and drawing a little bit, talking a little bit about different errors of real estate investing. But don’t worry if you’re listening on audio, I’m going to be describing everything I’m doing at the same time and you won’t lose out on anything. Before we get into the show, I wanted to let you know about something really fun Henry and I are doing that I am really excited about. We are taking BiggerPockets on the road this summer and we’ll be driving around the Midwest to multiple different markets, looking for deals, meeting with agents, talking to the BiggerPockets community, attending meetups. It’s going to be a great time. We’re calling it the Cashflow Roadshow and it’s happening this July from July 14th to 18th across three different markets in the Midwest. If you live in either the Chicago or Indianapolis area, we’re going to be doing free meetups in those areas.
The one in Chicago is on July 15th, the one in Indianapolis is the next night on July 16th. Henry and I are going to be there. We’re going to be doing presentations, we’re going to be talking about local market dynamics, there’s going to be great networking and we even have a few cool surprises planned as well. So if you live in one of those cities, you want to hang out with us, get into the BiggerPockets community in real life, go to biggerpockets.com/roadshow, learn more. And these events, they are free, but I should call out that you do have to RSVP because there are limits to the venues and they will sell out. So make sure to go to biggerpockets.com/roadshow and reserve your spot today. Alright, we’re going to start this episode and just talk a little bit about the different eras of real estate investing because as you probably know, real estate investing is very cyclical and there are different time periods, there are times of recession, there are times of expansion, there are good times, there are bad times, and obviously over the course of decades or centuries, the US housing market goes through every kind of era.
So I want to zoom out a little bit today and first talk about the era that I think we’ve exited in 2023. It sort of ended, it started at the end of the financial crisis or the great recession during the recovery that happened from that event. So let’s call it 2009 to 2010 to 2023. If you’re watching this on YouTube, you’ll see that I’m showing a chart here of US housing affordability. This is basically how easy it is for the average American to go out and buy the average priced home in the country. And this is a really useful metric as you imagine both for investors and for homeowners because it’s a good lead indicator for how many homes are going to be bought and sold during a period of time if it’s relatively affordable to buy homes. Yeah, a lot of people are going to go out and do it if it’s relatively unaffordable.
We’re going to see transaction volume, basically the number of home sale start to taper off. And what you see when you look at this chart and when you just consider affordability in the housing market in general, what you see is that the time from 2010 to 2023, that was the unusual time. We have entered a period recently where yes, we have unusually low affordability, we’re close to 35 or 40 year lows, but we just exited an unusually good time for affordability. So the chart I’m looking at, the higher the number, the more affordable things are, and basically this index went up to over 200 that’s significantly higher than the long-term average from 2010 to 2015. But even in the period from 2015 to 2020, when as an investor myself it felt like things were getting more expensive again, that was actually still historically affordable housing market.
And so I think what’s going on a lot in real estate is that we have gone from a historical period of great affordability to historically bad affordability and that difference has really changed people’s perception of real estate as an investment overall. But my argument as I’m going to sort of unfold over the next couple of minutes and throughout this episode is that although there are challenges with affordability, that is absolutely true. You don’t need the unusually good affordability that we saw in the 2010s to come back in order for real estate to be good again because in the 1990s it wasn’t that affordable and real estate was still a good investment or the eighties or the seventies or almost any other decade before that. So I think we need to sort of as a real estate investing community reset our expectations a little bit and not assume that we are going to be going back to the period that we had from 2010 to 2023.
That was great. It really was an easy and good time to be a real estate investor and we have entered a more challenging period. But as I said at the top, and as I’m going to go through a lot in this episode that is not honestly all that relevant. It really doesn’t matter at the end of the day to me as an investor, whether the returns I can get on real estate today are better than the returns I could get in 2015, they’re probably not. And as I said at the top, I don’t care because I still believe that real estate investing is a better investment than anything else I can do with my money as of today. And that is the thing that you need to be thinking about. The consideration that every investor makes, whether you’re a stock investor, a crypto investor, a real estate investor, whatever it is, the calculation you need to be doing in your head is what asset class, what specific investment can move me closer to my personal financial goals?
And for me, that is predominantly real estate. I do invest in some other things to hedge, but my whole point that I’m going to be talking about today is whether you agree with me that real estate is great right now or not, I really want you to take home the idea that it doesn’t matter what real estate’s doing today versus 10 years ago. What matters is how real estate investing compares to the other options you actually have. Because like it or not, you do not have the option to go back to 2015 and get those returns. I’m sorry, that is not coming back. And so you really need to make the decision about what you’re going to do with your time and your money today. That’s the calculation you need to be thinking about. So just to hammer home this idea of eras in real estate investing, I’m pulling up a new chart.
This is the median sales price of houses sold in the United States going back to 1960. So we have 65 years of data here. So the thing that you notice when you look at this median sale price chart is that housing prices, the trend is very clearly up and of course there are exceptions to that. There are short-term exceptions to that, but the long-term trend of housing prices in the United States going up is pretty undeniable. Of course you’ll see this sort of short-term peak here in 2007 and it didn’t bottom out until about 2011 and it took a good long time before prices reached their peak again where they got back to old highs that took about six or seven years. So that was a really rough time in the housing market, but that is the exception to the rule actually if you look back at the data from today back to what we have reliable information for basically World War II since World War ii, that was by far the worst time in the housing market.
We’ve seen other periods like from 2018 to 2020 where prices were relatively flat. We also saw that in the early nineties. We also saw that during periods of really high inflation during the 1980s and we’ve been relatively flat on housing prices, especially when you look at this on an inflation adjusted basis over the last couple of years since we exited that amazing time in the housing market. But despite those things, the reason I like real estate and still believe in it so much, aside from the cash flow, aside from the tax benefits, aside from the value add opportunities on top of all those things, if you are concerned about appreciation and prices going up, I think this chart will show you that although we had all these different eras over the course of the last 65 years, prices have still at least kept pace with inflation and have exceeded them over this time period.
And this is true during periods of enormous turmoil. I know that we are in a period of whether it’s internal uncertainty about domestic trade policy or it’s all the things going on geopolitically across the world, there’s a lot going on. But you know what else? A lot of that was going on in the late sixties and early seventies. We had going off the gold standards in the 1970s, we had enormous ation and recessions, huge recessions in lots of the 1970s and 1980s and you know what? Home prices still went up. And I’m not saying that in the short term prices will definitely start turning around. I’ve tried to be candid that I think housing prices are going to remain, probably go down a little bit this year and they might remain relatively flat for the next year or so, but I’m still okay with that because the long-term trend in real estate is still going up and we are going into an era where assets are going to be on sale and that’s sort of the key thing here.
You are getting an opportunity to buy in at a lower price over the next couple of years and take advantage of these long-term trends of appreciating prices. And that is on top of those other things like cashflow, tax benefits, amortization, value add, all of those other benefits to real estate investing are still there. But I know a lot of people out there are rightfully concerned and wondering what to do in a market where prices are probably going to decline a little bit in a lot of markets, not in every market. And I just wanted to talk to everyone about zooming out a little bit, understanding the era that we’re in today and putting it in context over the long term, over what has happened with housing prices in the US basically for the last century. Alright, so that’s a brief overview of sort of the different eras that we’ve been in real estate over the last couple of decades. But I want to turn our attention to the decisions that you as an investor have to make today, which is real estate, the best use of your money today. We’re going to get to that in just a minute, but we do have to first take a short 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. We’re here talking about the more difficult era of real estate investing that we are in today and why personally, I still think real estate is worth every minute of time that you are thinking about investing into it and it is a worthy consideration for what you should put your money into. As I said earlier, I think the main point I want to convey to everyone in this episode is do not compare your real estate returns today to historical periods. Compare them to other current opportunities. And I know this is hard to do, but this is the job of an investor. It is your job to figure out where to allocate your resources. So you want to ask yourself, were returns easier to get in 2011? Well, in retrospect, yes, but at the time it wasn’t that obvious. Were returns easier to get in 2015 than they were in 2011.
Probably not. But 2015 was still an amazing, phenomenal time to invest in real estate. What about 2018? It was a little bit harder than it was in 2015, but I bet anyone right now would pay money to go back in time to invest in 2018. The point of this is that the timing, the market is impossible and no one knew in 2011 for sure that it was going to go on this amazing bull run. Additionally, no one in 2011 was thinking back to 2005 thinking, oh my gosh, what great returns we got in 2005 because there was immediate crash after that. So although it is super, super important to know what has happened in the housing market and to understand the history of the asset class that you’re going in, that’s what I’m talking about today. That’s sort of what I talk about all the time on this show and on the market.
These are really important things as an investor, but understanding what’s happened in the past and sort of getting hung up on whether or not today is as good as the past, those are different things. And so the question again is what do you do with your money today? And I will share my thoughts on real estate in a minute, but let’s just talk about the other options. There are plenty of them. The stock market of course, is the most obvious one. That is what most Americans who have money to invest in. I do invest pretty heavily in the stock market and there’s a chance that it continues to go up. But if you look at some objective measurements of the stock market, for example, if you look at it at PE ratios or the so-called buffet indicator, which compares valuations in the stock market to our total GDP in the country, if you look at almost all of these metrics of valuation of the stock market, prices are super, super high right now.
So that doesn’t mean that they can’t go up any further, but the upside for the stock market to me, if I’m just thinking about this logically, I think there is probably a greater chance that there is a decline in the stock market in the next year or so. Then there is a lot of amazing returns. We’ve just been on an amazing run in the stock market. We had two back-to-back years of over 20% returns. That’s incredible. And to expect something like that to happen a third year in a row, especially when valuations are so high, there’s so much uncertainty and risk in the market right now. I still will put money in the stock market, but I do see a lot of risk there. What about crypto? Crypto has been on an amazing run also over the last couple of years. I do invest a little bit in crypto myself, but crypto going into a uncertain time like this for me feels a little bit risky because it just doesn’t have the same hard assets.
For example, that real estate does or is not based on the same sort of fundamental valuations like the stock market is. Crypto is largely speculation and if you believe in that asset class and you want to speculate on that, that’s totally fine. Like I said, I do it a little bit myself, but I don’t think that if you were a wise sort of practical investor who’s trying to build long-term wealth in a methodical way, you would be putting all your money in crypto. I get that some people who want to take a shot are doing that and some of them have made unbelievable amounts of money, don’t get me wrong, but the risk adjustment when that’s the way I think about things. When I try and build a total portfolio for my own wealth building, I like to put a little bit of my money into those high risk, high reward assets like crypto and instead prefer to put the vast majority of my money in things like the stock market and primarily in real estate.
What about bonds? Bonds are kind of boring. They’ve gotten beat up a lot this year and although they are a great way to preserve wealth during normal periods, it’s not really a great way to build wealth frankly. And so I don’t think anyone who’s trying to build wealth, probably the people listening to this podcast aren’t going to get super excited about putting all your money in bonds, right? So that’s probably not a great thing. What about hard assets like gold? I do personally buy gold. I think it’s a good way to hedge, again, not going to make you rich. That is more of a stable thing to put money to hedge against inflation or if you have fears about currency debasement or something like that, you can use crypto and gold to do that. So a little bit of that. What about things like small businesses like buying service businesses?
I actually find highly intriguing. I think the numbers are there. It makes a lot of sense to buy kind of small businesses. They can throw off a lot of cashflow. I think it’s probably the only other asset class other than real estate that can realistically put out a good amount of cashflow, probably has higher cashflow potential than real estate, but it is higher risk, right? Not everyone knows how to go and operate a laundromat easily. And I know people think, oh, it’s just a laundromat, it’s super easy. Trust me, I see a lot of people failing at laundromats because they’re getting bid up and the prices are super high or you might want to buy a home painting franchise. Great idea. Those things can make a lot of money. You’re not just investing then you’re a small business owner and if you are not good at operating that business, you could fail and you could lose it all.
It’s also super time intensive. Running a small business takes a ton of work. So I’m not knocking on these other options. I think they’re all worthwhile considerations, but the reason I who spends literally all day every day thinking about where to put money and how to advise people on different investments, the reason I always come back to real estate investing is because the diversity of returns to me gives you the best risk adjusted returns. Are the upsides as huge as crypto? No. Is the cashflow as amazing as small business? No. But are the risks as high? No. And so when I think about the likelihood that I’m going to get a consistent 10, 15, 17% in real estate, I feel really good about that. And when I compare that to things like the stock market, that’s when I get really excited because the stock market historically returns somewhere between seven and 10% annually depending on how you invest, what methodology you’re looking at to track that real estate on the deals that I look for, I can get 10% in the first year and it only goes up from there.
And this risk adjusted returns really to me comes from the different areas. You get returns in real estate because we talked earlier about appreciation. Why long-term housing appreciates? That’s a really good hedge against inflation. And when you’re using leverage, that’s a great way to build wealth. On top of that though, you also get cashflow opportunities. They’re tough right now, but I think they’re going to get better. And if you’ve owned any real estate in your life, you know that the cashflow that you generate in year one is usually the lowest that you generate and that it just goes up over time. The third thing is amortization. That’s just paying off your loan using the income that you get from tenants. That earns you a return as well. What about tax benefits? What about value add investing? All of those things are still there even during this era of harder deals to find.
So to me, when I look at all these things together, even if home prices don’t go up next year, I’m still getting all those other things. I’m getting cashflow and amortization and tax benefits, I can still add value or perhaps one year I have a particularly tough time and I have a lot of expenses and so my cashflow is a little bit negative. Well, I still got maybe appreciation that year. I still got amortization, I still got all of those tax benefits and so it really mitigates your potential for downside losses in real estate while giving you four or five or even six different ways to make money. And since we don’t know how the market is going to react, and it’s almost impossible to time it, just having basically all of these buns in the oven in real estate is what gets me excited and has me continuing to come back to real estate as where I want to put the majority of my wealth because one of these things might hit in any given year and make your deal go from a single to a double, maybe even to a home run.
And that to me is why real estate is such a good risk adjusted return. Now getting back to sort of the point here is that you need to make this decision for yourself. I sort of went quickly through the pros and cons of the stock market bonds. That’s not the point of this show. This is a real estate show after all. So you should understand that I have a bias. I have been a real estate investor for 15 years and you should think about this for yourself. Do you think that real estate is a worthwhile investment? Do you think it has great risk adjusted returns? There are no right answers to this question, but this is the right question. That’s again the thing I want to hammer home. Think about how do I invest today? Do not think is real estate better today or 10 years ago?
I cannot tell you how many people reach out to me probably daily and say, I don’t want to invest right now. I’m going to wait until things go back to 2018. Maybe that will happen. Maybe it will literally never happen. We were in this unusually great period in 2018 that might never happen again. And if you don’t invest today, you might miss out on things. Same thing is true in the stock market, right? No one in their right mind, no stock investor I’ve ever met has ever said, I’m going to not invest in the stock market this year because 2013 was the best year in the last two decades and I’m going to wait until I see another 2013 coming. No one can see 2013 coming. And if you didn’t invest since 2013, you’d be missing out on enormous returns. So again, please just think about this question the right way. We do have to take another quick break though, but after it I will share my personal approach into how I’m investing in this new era. We’ll be right back.
Hey everyone, welcome back to the BiggerPockets podcast. I’m Dave Meyer talking to you about the new era that we’re in for real estate investing. And even though it is harder, I totally admit that I still think real estate is a worthwhile use of your time. And if you are trying to build wealth over the long term, to me it’s still pretty obvious honestly that real estate is still the answer, but the fact remains we are in a new time and new tactics are necessary to take advantage of not just the mitigating risks but also take advantage of the real opportunities that are going to be there in the housing market. So let’s take a minute and talk about these opportunities and then I’ll sort of talk about the tactical ways that you can take advantage of them. But first things first, I’m going to pull up a chart here that’s from the Census Bureau and Moody’s Analytics.
And basically what it shows is the size of the housing shortage in the United States. And this goes back to 1982. It stopped in 2022, but we’re looking at a 40 year time period and showing the difference between how much demand there is for housing in the US versus how many homes are available. And what you’ll see is as of the end of 2022, and by a lot of the estimates it’s only gotten worse since then, we were about 3.2 million homes short of what is needed in the United States. You may hear other figures for this stat, some people say it’s 1 million, some people say it’s 7 million. I like this one because it’s kind of right in the middle and there’s different methodologies. I think this methodology makes a lot of sense and this to me shows that the likelihood that prices are going to keep going up, going back to that first chart that I was sharing with everyone about the median home price in the us, that is likely to continue, at least in my point of view.
Even though there might be some short-term changes to this, we might see some flatness in the housing market. I invest in real estate for the, and I look at something like this and to me that says there’s still going to be sustained demand for housing for the next two years, five years probably for at least the next 10 years. And that’s why I want to put the majority of my investing into real estate because it’s going to be an in demand asset and has all of those ways to make money that I was talking about before. The second thing is that short-term market conditions are going to lend themselves to better deals. And for years we’ve been talking about, yeah, appreciation was great, just buy something. It’s going to appreciate you’re going to make so much money. And although it’s a little fundamentally questionable way of thinking about investing, it was true you could buy almost anything for a while because appreciation was going really well.
But the flip side of appreciation just going crazy is that everyone’s getting into the housing market. It is super competitive and we had extremely low inventory. That means there just wasn’t that much to buy on the market. But when you fast forward to where we are today, that is changing. We are shifting from a seller’s market to a buyer’s market. And buyer’s market have two sides to them. I always want to caveat that there is risk in a buyer’s market because prices are flat and they could come down, but there is also opportunity in a buyer’s market because sellers are competing for buyer’s attention. There was a recent study from Redfin that shows that right now in the housing market there are about 500,000 more sellers in the market than there are buyers. And that means those sellers, they are going to compete for your dollars, they want you to be a buyer on their property rather than the other millions of properties out there.
And they do that by offering concessions and offering price cuts and generally offering better terms to the buyer. And so these two things combine that I think long-term prices are still going to appreciate long-term real estate is still a great hedge against inflation. Long-term cashflow only grows over the lifetime of your loan. Long-term amortization gets better for you every single year that you own a property because that’s just the way that mortgages work. And so when you’re looking at long-term real estate makes so much sense. And although the short term is a little confusing, I totally admit that it can be a little scary, especially when you’re seeing price drops and thinking, I don’t want to buy something that is going to decline further. That’s a very reasonable thought and I’ll explain to you how to mitigate that risk in just a couple of minutes.
But for a second, just think about this long-term. Real estate has excellent prospects and right now prices may start to decline and you can probably get better terms on any acquisition that you make today than you would be able to get for the last several years. And so if you just think about this on the highest possible level, you might be able to buy a great asset that might be okay right now, it might be a single or a double, but over the long term that can and if you buy, well almost certainly will turn into a home run or a grand slam because that’s just the way that real estate works. And so that’s why I see so much opportunity. This is why I continue to invest my own money into real estate investing and why I think all of you should consider it.
Again, do the exercise for yourself, think about where you should be putting your money and if there’s something better than real estate. If you think, Dave, you’re crazy, there’s so much risk in real estate, I feel much more comfortable in the stock market, go do that. But if you want to have a little more control, if you want to be a little bit entrepreneurial, you want to accelerate your wealth building, I think real estate is still a very, very feasible option even though we’re no longer in that amazing Goldilocks era. So now let’s just talk about what I personally am investing in and the things that I am looking for. You’ve probably heard on the show if you listen regularly, that my framework for investing right now is what I call the upside era because we’re in this new time period and the tactics that worked from 2010 to 2023 aren’t the best one.
Some of them do still work, house hacking kind of works almost in any market, but I think that there’s a different way that we should be thinking about and approaching investing in this new era. And I call it the upside era, but my basic premise is this, number one, any deal that you buy, it has to cashflow. That is just a non-negotiable for me right now. And I know some people say you should buy for appreciation. I wouldn’t do it. I wouldn’t do it right now. I’ve never done it before. And some people can point to investments and times that it worked, and that is definitely true right now if you ask me, there’s a lot of risk in that strategy because the main thing in real estate, like I talked about holding on for the long term and if you don’t cashflow, it gets a lot harder to hold onto the long term.
If you’re not cashflowing, you’re coming out of pocket every month to float your investment and hopefully this never happens. But if you lose your job or there’s a family emergency or an unexpected expense, you might come into conflict and you might have to sell your property at a non-ideal time, and that is a really bad thing in real estate. You want to be able to hold on, and so you need to have break even cashflow at a minimum by the end of year one. The second thing that I’m looking for right now is buying below current market comps. So everyone always wants to do this, but right now it is actually possible. And what I mean by that is saying you need to be able to comp or your agent needs to help you be able to comp. This basically means looking at comparable properties and deciding not based on what the seller lists a property for, but trying to decide what the property is actually worth in today’s market.
And let’s just say the seller lists this property for $300,000, but you do your comps and $300,000 is right, but you’re thinking, man, prices could go down one, two, maybe 3% over the next couple of years. You need to buy below that comp. So 3% of 300,000 is $9,000. You should be targeting to buy that property for 290,000. And I know that sounds idealistic, right? You’re like, oh yeah, of course, just go ask people for discounts. But right now they’re actually giving them, you can look this up. You can see in the data that sellers are offering much more concessions than they have over the last five years, and not every seller is going to offer concessions. Not everyone’s going to agree to your price, but this is the time to be patient and to be disciplined and to make sure that you are buying below market comps.
Those are two things I said break even cashflow and you want to buy below market comps. The third thing that I always look for is a 10% annualized return in your first full year of operation. Again, that’s after your stabilization. Stabilization is a period where you’re probably going to be spending more money than you’re taking in. So I kind of count that differently. You need to absolutely budget for that when you’re running your numbers. If it’s going to cost you 30 grand and holding costs and renovation costs to stabilize a property, you need to account for that. But then in my mind, I’m always like, okay, once I get that up and running, what’s the first year look like? And to me, it needs to be at least a 10%, ideally a 12% annualized ROI. And I didn’t just make that number up out of nowhere.
As I told you guys, I invest in the stock market. That gets me eight 9% over time. That’s my average. But real estate takes work, and so I need to beat that. I need to beat that by at least 1%, ideally by about 3%. So I would target a 10 to 12% minimum for your annualized return. And guys, I’m talking about this stuff. You can go on BiggerPockets, you can just go on our calculators and run your numbers and it will tell you what your first year investment’s going to be. So this is not some math homework that you have to go do. You can do this in five minutes on the BiggerPockets website. Just go do that. So that’s the third thing. And the fourth thing, this isn’t necessary, but I personally think that looking for value add is really good right now. This is opportunities to improve property significantly during corrections like the one I believe that we were entering.
You see this sort of split in the market where prices for properties that have not been renovated go down further than the property values for properties that are in really good shape. And so that actually grows your margin potentially for how much you can improve the value of your home. Your A RV stays relatively similar, but your acquisition cost starts to go down. And so that presents an opportunity to me, and that’s another thing I want to look for in the upside era. That’s personally what I look for, but there are tons of other upsides in real estate right now. You might be looking for areas where rents are likely to grow, right? If you can identify an area where there hasn’t been a lot of multifamily construction, rents are probably going to keep going up and that’s going to help your cashflow. That’s a huge upside over the long run.
Look into the path of progress. Even though we might see national appreciation drop below zero for a year or so. If you’re buying in the right place, prices are still going to go up in certain markets and in certain pockets of certain markets, they’re definitely going to go up. That is absolutely going to happen. Look for zoning opportunities, places said ADUs, add units, add bedrooms. Those are great ways to take a deal that meets all the criteria I was just talking about and takes it from a single or a double to a triple or a home run. And then always look for all those tax benefits because even if you are making solid money, it doesn’t have to be home run money, but if you’re not paying taxes on that double, that can turn it into a triple or home run all by itself because you’re keeping more of the income that you generate.
All of these things combined. If I can find these deals, which I know I can because I have in the last couple of years, and I think the deals are going to just become more abundant, if I can meet these criteria, I believe that this is a great place to keep real estate and the majority of my portfolio. So that’s how I answer this question. Again, the question I want everyone to think about is what’s the best way to use my money today to achieve my own financial goals? For me, it’s about two thirds of my wealth going into real estate, about one third, roughly going into the stock market and a little bit in other things, but I still believe real estate offers amazing upside. Whether it’s an inflation hedge because of future appreciation, future rent growth, tax benefits, amortization, all of those things are still there.
We are in a different era. It is harder to find deals, absolutely, but those deals are going to be easier to find over the next couple of years, and the ability to earn those returns has not gone away. So that’s how I think about it. You are of course free to disagree, but again, think about it. Please think about your money and your investing decisions in the modern context. Think about your opportunity costs. Think about what is the best way to achieve your goals, and don’t focus on some era that probably is never coming back. That is the best advice that I can give to you in terms of resource allocation and asset allocation in the new era. Thank you all so much for listening to this episode of the BiggerPockets podcast. I hope it was valuable to you. I had a lot of fun thinking about and thinking through this episode, so please drop me a comment, let me know what you thought about it. I would really appreciate that. For BiggerPockets, I’m Dave Meyer. I’ll see you next time.
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