A screwdriver, a hammer, a saw, and a wrench come from the same toolbox but are for different jobs. You wouldn’t grab one at random and expect it to do what you need for a specific project. You’d reach for the one built for the task in front of you.

When you begin shopping for short-term rental insurance, depending on where you look and who you ask, it can feel like you have plenty of options. They end up in the same conversation, but they’re completely different products. Before you can accurately compare anything, you have to understand what you’re actually looking at.

A short-term rental insurance policy has a specific definition. It isn’t a homeowner’s (HO) policy with a home-sharing endorsement bolted on like a sidecar, a landlord policy written on a dwelling (DP) form with a permission slip for short-term rentals tucked inside, or a supplemental product stretched over another policy like a tarp to cover the gaps.

Short-term rental insurance means a short-term rental policy: the primary insurance contract on a home rented to guests for short stays. This applies no matter what the product is called—short-term rental, vacation rental, or Airbnb insurance. 

Short-term rental insurance is a stand-alone product, built as the primary insurance contract on a home rented to guests for short-term and mid-term stays.

The good news is that you don’t need to become an insurance expert yourself to tell the options apart. Five questions reveal what you’re actually looking at and whether the options in front of you belong side by side in a comparison at all.

1. Is Your Short-Term Rental’s Coverage a Stand-Alone Policy?

Start here, because before you compare premiums or coverage limits, you need to understand what role the product is actually playing.

A short-term rental insurance policy stands on its own as the primary insurance contract on the property. It replaces whatever policy is on the home now.

That separates it from a product designed to sit on top of another: a home-sharing endorsement modifies a homeowner’s policy, and supplemental host protection may add coverage around certain guest stays or exposures. Both can provide some useful protection, but neither is the primary policy on the property, and neither was built to cover the whole risk on its own. When coverage is split across two products, a claim can fall into the gap between them.

If the hosting coverage only works because a homeowner’s or landlord’s policy is still in force underneath it, what you have is an add-on or a supplemental product—not a policy that stands on its own.

On the declarations page: Your name should be listed as the named insured, and this should be the only policy on the short-term rental property. If this coverage can’t exist without another policy underneath it, that’s your answer. 

2. Does It Cover the Property No Matter How It’s Being Used?

A short-term rental doesn’t sit in one occupancy box. It’s booked, empty, between guests, or used by you, sometimes all in the same month.

A short-term rental insurance policy covers the property across those normal shifts in use. It doesn’t hold a vacancy clause, a day-count limit, or a primary-residence requirement that reduces coverage the moment the calendar goes quiet.

If coverage depends on the home being occupied a certain way, lived in as your primary residence, or held under a fixed tenancy by a resident with a lease, it was written for a different kind of property. A short-term rental turns over constantly, and the coverage has to hold through every version of that.

On the declarations page: Check how occupancy is classified. If it reads tenant-occupied, the policy was generally built around a resident with a lease. Then check for a vacancy clause, an occupancy or day-count limit, or a primary-residence requirement. A short-term rental policy doesn’t restrict coverage based on any of these factors.

3. Does the Policy Say Personal Liability, Premises Liability, or Commercial General Liability?

“Personal liability,” “premises liability,” and “commercial general liability” are not interchangeable terms, and the difference decides how far your protection reaches. Read the liability line on the policy and see which one it names.

• Personal liability is tied to you as a person, rather than to a property or a business. It is designed to respond wherever you or your family happen to be, but it stops where business activity begins.
• Premises liability is tied to the boundary line of the property itself. It is designed to respond to covered claims that happen on the premises, but it stops at the property line, even though the incident is tied to your rental’s business activity.
• Commercial general liability is built for the exposures of operating a rental, and it extends beyond the property line to follow your guests, including when they leave the property to ride the bikes, take out the kayak, or head down the street.

Your guests don’t stay put, so coverage that stops at the property line leaves a gap the moment they step off it. For a short-term rental business like an Airbnb that runs on people coming and going, the type of liability on the policy matters as much as the limit.

On the declarations page: The liability line should say “Commercial General Liability,” not “Premises Liability.” A number like $1 million tells you how much coverage you have; the type of liability tells you the boundary that figure responds in.

4. Does It Cover the Building AND What You Put Inside It?

A short-term rental is a furnished, active income-producing property, so the structure is only half of what’s exposed. You will want to check that the coverage for your Airbnb protects both the building and the contents you own inside it.

The building coverage is designed to pay to repair or replace the structure after a loss like a fire or water damage. The contents coverage protects what you furnished the place with to operate it: the beds, sofa, appliances, kitchenware, and smart TV. On a short-term rental, that coverage should also respond when a guest is the one who damages or takes something, since handing the keys to a stranger is the normal way the property runs.

A homeowner’s policy covers contents but only as your personal belongings in a home you live in, not as the business furnishings of a property you rent to guests. 

A landlord policy is built around the structure and leaves contents coverage largely to the tenant, who in most long-term rental situations has renters insurance. 

Even a home-sharing endorsement added to a homeowner’s policy is a patch on that residential foundation, not coverage designed around a furnished rental operation. 

A short-term rental carries real value in its furnishings. Without the furnishings, there would be no income. So, the short-term rental insurance policy has to insure that value the way it also insures the building.

On the declarations page: Look for a contents or business personal property limit, and check that it reflects what you’ve actually furnished the place with. A structure-only policy leaves everything inside it uncovered.

5. Does It Insure the Business Income Your Short-Term Rental Generates?

A short-term rental earns income based on bookings, not a fixed monthly rent, so the coverage has to match how the property actually makes money. The term to look for is “business income.”

When a covered loss takes the property out of service, the repair bill is only part of the damage. The other part is the income you can’t earn while the property is down. 

Business income coverage is designed to respond to that interruption, based on what your short-term rental actually earns. 

“Loss of rents” is the term you’ll find on a landlord policy, and it’s tied to a long-term rental model: roughly what a long-term tenant down the street would pay, which is often a fraction of what a short-term rental brings in over the same stretch.

Loss of use is homeowner’s coverage for your own personal living expenses when you can’t live in your home, a third thing entirely.

That gap is the whole point of this question. Two policies can be described as covering lost income but be built around completely different numbers. Short-term rental insurance is measured against your property’s real earnings. A landlord policy is measured against the neighborhood’s average long-term rent.

On the declarations page: The coverage should read “business income,” not “loss of rents.” The same three words, “covers lost income,” can describe either one, so the term is what tells them apart.

Putting the Five Questions to Work

Run these five questions, and the insurance picture clears up fast. The options that looked comparable start to separate, because you’re no longer comparing prices. You’re comparing what each product is actually built to do. 

That’s also when the vast differences in price between the products make sense. A lower-cost add-on and a stand-alone policy aren’t the cheaper and more expensive versions of the same thing. They’re doing different jobs. 

When one option costs significantly less, it’s almost certainly not a discount on the same coverage. It’s a different product entirely, one with far less coverage.

You can do the verification yourself. Take these five questions to your agent or drop this blog into AI with your full policy, ask either one on any policy you’re weighing, and get every answer confirmed in writing. It’s real work, and you should repeat it any time you are comparing short-term rental coverage for as long as you own the property, but it’s absolutely doable.

Or you can work with a company built to address all five questions from the start. Short-term rental insurance is Proper Insurance’s only focus: A stand-alone short-term rental policy that replaces your current coverage, stays fully on however it’s used, carries commercial general liability that follows your guests, insures the building and the contents inside it, and provides business income coverage calculated from your property’s actual rental revenue.

Dave:
If you don’t own assets, you’re about to be in for a rude awakening. That’s Scott Galloway’s warning. You may know him as Prof G. He’s an entrepreneur, NYU Stern School of Business professor and author of the Algebra of Wealth. Scott has gotten wealthy three different times because per his own words, he’s gone broke twice. He tried to time the market, he launched numerous companies, and he still made it out alive. Scott says today’s economy is different. It’s “prosperous, but fragile.” If you’ve got assets, it’s good, but if you don’t, it’s a real struggle. So how do you move from being on the earner side of the table to the owner side so you can build wealth and not get stuck in the rat race? We’re going to talk about everything today, the chance of an economic crash, whether AI will pay off, should you buy a house right now, and if so, where?
And why getting a corporate job may get you to financial freedom faster, contrary to what 99% of people are saying.
Hey everyone, I’m Dave Meyer. Welcome to the BiggerPockets Podcast. Today we have a very special show for you. Our guest today is Scott Galloway, also known as ProfG. Scott Galloway is a successful entrepreneur. He is one of the foremost economic thought leaders in our space right now and a prolific author. And he’s the kind of guy who’s just going to tell you exactly what he thinks. He does not pull punches. And today I’ve got a lot of questions for him about the economy in general, about housing and how to get ahead in this confusing economy. Let’s bring on Scott Galloway. Scott, welcome back to the BiggerPockets Podcast. So good to have you here again. Thanks for being here.

Scott:
It’s great to be with you, Dave.

Dave:
It’s been three years since you’ve been on the show and of course a whole lot has happened geopolitically and economically. And I’d like to just start at the top. How would you describe the moment we’re in right now in the American economy?

Scott:
I guess K-shaped and it feels like prosperous but fragile. I was walking through New York the other day and New York, 65 million visitors last year, 85 billion in economic activity, 400,000 jobs. Broadway attendance is greater now than all the attendance to all the sports teams regionally. Job growth of 1.1 million, but the asterisk is inflation is at 4.6% versus 3.4 nationally. So if you’re in the right place at the right time in New York, it’s never been better. Bankers’ compensation is up 38%. But if you’re the kind of person who has to show up for jury duty, you probably have inflation and your rent is just getting more expensive. And of those one million jobs created, most of them were in healthcare. Most of those people are taking care of old people. And I think that’s a larger metaphor for the United States and that is if you’re in the right place, if you have the right credentials, the right skills, it’s just never been better.
One of the reasons the middle class has an increase, and some people would argue it’s decrease, and we don’t like to talk about this because catastrophizing is a better narrative, is that a lot of the middle class has been elevated in a millionaire status. There are a lot of people making a lot of money. GDP growth in the US is actually pretty strong. Unemployment isn’t that bad. Now go to the fragility part, whether or not living on borrowed money from future generations, spending $7 trillion on five trillion in tax receipts, that feels like a recipe for disaster. And I would argue some of the damage we’re doing geopolitically will take generations, if ever, to repair and that our economic relationships and alliances aren’t even being frayed. There’s enormous fissures. So K-shaped, if things are good for you, they’re probably great for you, better than they’ve ever been.
A lot of people just struggling, I think, to maintain wage growth with inflation and what I would call a series of macro or structural decisions that will haunt us.

Dave:
I worry about many of the same things and do personally identify with the feeling of fragility. It does feel, even for those of us who are fortunate to remain employed, to have assets, to be doing relatively well in this economy, it just feels like something is about to break. Do you get that sense?

Scott:
If we woke up tomorrow, Dave, and the S&P was off 20% in one day and it was off 40% a year, we’d go, “Well, of course it is.”

Dave:
Exactly.

Scott:
We have 10 companies, 40% of the S&P. Those companies are basically priced to perfection. And if you look at the CapEx of AI right now, which is driving I think 90% of GDP growth, 73% of earnings growth, the underlying assumption to justify the spend and the stock prices is that the AI sector is going to be a two and a half trillion dollar sector, which is bigger than all of tech right now. Right now it’s at about 150 or 200 billion in revenues. We think it’s going to 12X. And if it doesn’t, say it ends up only being a trillion dollar category AI, if these 10 companies sneeze the US market and ultimately the global markets of which the Dow and S&P now represents 50% of global equity value, 70% if you add in debt, the whole world is going to catch walking pneumonia. Now that may not be the worst thing.
I almost feel like a managed correction, although there’s no such thing, a correction as opposed to a crash might be a good thing because the problem is guys like me and you who own assets, it’s been champagne and cocaine. If you own stocks and houses, you’re fine. You’re doing great. You’re hedged against inflation. You’ve seen extraordinary gains. The problem is the entrance, the closest they’ve gotten to the party is they get to throw their credit card in and we swipe it. If America was a household, it makes 50,000 a year tax receipts. It spends 70 government spending. It has 390,000 in debt and that debt is not dischargeable when the parents die. The kids are going to get it. So I like what Jamie Diamond said when asked what a recession is, he said something that happens every seven years. We really haven’t had a full-blown recession in arguably kind of 17 years.
So the question is, is it a recession or a crash? And if you’re a perma bear like me, I keep waiting for it to happen. And the reality is I’ve been wrong. And something I always try to ask myself is what could go right? Because the economy so far has been extraordinarily resilient and continues to grind on. But I would argue that the soft tissue and the fragility is that it feels as if the West, the US, and accidentally the global economy has become a giant bet on AI.

Dave:
It just seems like it’s rampant speculation without any fundamentals. And I don’t want to say that AI is not an incredible technology. It is. If anyone has used it, you can tell that it is going to be transformative. I used to be, Scott, before I was doing this show, a data analyst. That job is not going to exist for entry level people anymore. But the idea that the bets that these companies are making and the very unclear motives about what the executives at these companies are doing makes it feel like everyday people are absorbing risk into their retirement savings and into their portfolio that they might not even necessarily know that they’re signing up for. And it really, for me, calls into question, what do normal people do? Even though we don’t know if there’s going to be a crash or a collapse, I think it’s fair to say that risks are rising.
And so in an environment of rising risk, what do you do?

Scott:
So the first thing is when Trump was… I’m not a fan of Trump. When Trump was elected in 2016 and 2016, I thought this guy is not bright. It’s going to be terrible for the markets. And I sold most of my equities. So they had run up a lot because I bought a lot of Amazon, Apple and Netflix in 08 and 09 and had done really well on those. So I lost whatever it was living in New York, 34% of that in taxes. And then six months later I recognize that the economy and the market is bigger than any one person, even the president. And the market surged and I bought back in. I basically reduced my net worth by 20 or 30% by having an emotional reaction to the markets. And the advice I have to anyone is, yeah, the market is expensive. Yeah, it’s fragile.
You always want to be in the market because no one has the ability to time it. And if you go back in history to the bigger tech crash, 2000, the economist called it perfectly. It described exactly how it was going to play out and it called it perfectly, but it called it in 1997 and over the next two years the NASDAQ doubled. So about the time guys like me say, watch out for a crash, oftentimes the market scorches up. It goes from crazy valuations to insane valuations. So generally speaking, to believe you can time the market is a hallucination, so you always want to be in the market. Now, what I would argue, and this is what I’m doing, is to be in the S&P is not diversification. What I argue is that your Kevlar against this type of risk is diversification. I never really appreciated the power of diversification.
I’ve been wealthy three times because I’ve gone broke twice and I was fortunate enough to get it back, but I’m not going back there. I don’t have the youth, the mental strength to start over again. So what I do is I don’t put any more than three or 4% of my net worth in any one thing. And my advice is if you’re like me and maybe a little bit older and think, okay, I’d like to get rich, but what I really don’t want is to get poor. Really think about diversification, not only across stocks, but across asset classes and across geographies. Having said that, I’m kind of with Buffet. I think cash is trash. I think you may want to look at debt because people are finally getting paid for debt right now. But for the most part, I believe you always want to be in the market.

Dave:
We got to take a quick break everyone, but we’re going to be right back with Scott Galloway right after this. Welcome back to the BiggerPockets Podcast. I’m here with Scott Galloway. Let’s jump back in. Does your definition of diversification, Scott, contain any real estate?

Scott:
You’re pressing on my soft tissue. So my advice to everyone is basically around investing is low cost index funds. I’m like, don’t kid yourself. You think you’re smarter than the market, you’re not. And if you think you’re smarter than the market and start investing in individual stocks or hedging, just keep in mind you’re competing with the person on the other side of the trade is a PhD in liquid dynamics from MIT who got hired by a hedge fund and has super computers and AI helping them. That’s who you’re competing with. So low cost index funds. Having said that, I, like so many people, think I’m smarter than your average bear and I make individual bets.

Dave:
Me too.

Scott:
I just can’t help it. I just can’t help it. I think, oh, I’m onto something. And I do get some psychic reward from it. And then I think about my winners and I talk about them. And then when I go back and look at everything, I’m like, okay, I performed two percentage below the S&P, if I’m honest. But I’m a big believer in demographics and one of my economic role models is Peter Drucker. And the demographic shift that I see and that I’m investing behind is the following. I think income inequality is only going to get worse and that the fastest growing cohort in the world isn’t going to be Latinas or Southeast Asians or old people. The fastest growing cohort is going to be people worth over $10 million. The number of billionaires is I think quintupled in the last 10 years. The number of centimillionaires I think is up two or three X.
And it’s like, okay, what do they buy? They buy Hermes, they go to St. Bart’s. They’re actually fairly boring people. They kind of do the same thing. And very wealthy people want to own homes in one of five places or a second home, Dubai, London, Palm Beach, New York, and Aspen. And so my kind of alpha, if you will, is I have spent a disproportionate amount of my net worth on homes in four of those five cities, thinking that one, I like to fix them up. I get psychic income from that. Two, I get an additional kicker and that is I’m trying to make it hard for my boys to avoid me. When they say to their friends, “We can go to Maslana Surf or we can go to Aspen. We have to have lunch with my dad, but it’s free.” And then I think in five to seven years I’m going to sell some or all of these places.
But what I see is very, very wealthy people are the most homogenous people in the world. They look, dress, smell, feel the same, and they all want to live in the same places. And I believe they’re all aggregating around a handful of places. And so I have put a lot of money into residential real estate. If I had it to do over again like everyone, I would just buy single family rentals. I think real estate, just because of its tax advantages, is just a great way. As long as you don’t over lever yourself, you look at it and think, okay, let’s assume the market gets down 20, 30, 40% with the bank on it. So rental real estate, I think it is hard to find a category that on a risk adjusted basis is a better way to get rich slowly.

Dave:
Exactly. That’s what we say on the show. It’s not get rich quick, but it’s get rich for sure over the long term if you just keep making those bets. Which of those five cities are you missing?

Scott:
I don’t own a home in Dubai. And by the way, I’ve owned these homes for anywhere between four and 10 years, and the two markets that have performed the worst, you’re a smart guy. So I’m in London, New York, Palm Beach, and Aspen. Rank those in terms of returns over the last 10 years.

Dave:
I would say I would put Palm Beach at one.

Scott:
Ding, ding, ding. Hands down. Yes.

Dave:
Okay.

Scott:
Yeah. I own real estate there. In the last 10 years, it’s tripled.

Dave:
The amount of capital just going into that area of the country has just been absolutely insane.

Scott:
Yeah.

Dave:
All right. Two, I don’t know much about the London market, but I would go with Aspen second.

Scott:
You’re very good at this. You’re very good at this. It

Dave:
Is my job.

Scott:
Aspen is number two. I’ve only owned real estate here for about three years, but I would bet it’s up 50% in the last three years.

Dave:
Well, your thesis is spot on then. There’s normal people in New York and London, but there’s no normal people in Aspen.

Scott:
Well, and then tied for last place, New York and London. And if you had asked me 10 years ago, here are these four regions, you’re going to invest in all of them. And I want to diversify because I think I know what I don’t know. And I’m like, nobody knows. But if someone had forced me to speculate, I hands down would’ve said London or New York, that those cities never go out of style. And I don’t think my London property has kept pace with inflation. And I think my New York property, which I’ve owned for 10 years, has barely kept pace with inflation.

Dave:
It’s been an up and down ride there.

Scott:
Yeah. This is just all a long-winded way of saying

Dave:
Nobody knows.

Scott:
And so you don’t need to find the needle in the haystack, buy the whole haystack. And so that’s what I’ve done. I’ve concentrated in real estate, but I’m trying to diversify. I do believe that cities, two-thirds of economic growth over the next 20 years is going to happen in 20 super cities. I do think that cities are a marvel of humanity around cooperation and bumping off one another. So I invest in urban areas, so to speak. But yeah, nobody knows. I would’ve gotten this wrong. If they’d said go all in on one place, I would’ve picked London or New York and I would’ve been wrong.

Dave:
Yeah, that’s a good point on diversification, especially when you’re doing it from your perspective, which is you have a lot of capital, you’re not operating these properties daily as rental properties. You don’t need to be there as frequently as people in our audience might who are sort of investing all into their business. But I do love the idea of diversification. I talk about that a lot on the show, just diversification geographically, but also even within strategies in real estate, people who do flipping, that’s a risky business trying to balance that out with rental properties or multifamily or industrial and that kind of stuff. So I think it’s the only responsible advice with the level of uncertainty we have in geopolitics and in our economy, diversification is the only honest answer is that no one really knows and the best place is to spread out your capital.
And we’ve talked a lot, Scott, about capital, but I’m curious your thoughts on how people should invest their time because it does feel, to your point about a K-shaped economy, that you need to do more than just have a W-2 job. Perhaps you’re one of these mega earners, but the majority of us are not. And so is it required now for people to have a side hustle or to do something on the side? Is this idea that you can sort of just work a job and become prosperous, even if you do all the investing, follow all the investing advice that you gave, or even if you’re the best investor in the world, is that enough anymore?

Scott:
In general, I think I’m less fond of the side hustle culture than most people. And that is, I get it. If you’re at a job and you’re younger and you can’t afford to leave because of your health insurance and you want to investigate other things, so you start on evenings and weekends as side hustle to learn about it, to see if you can make money at it and maybe double down on it at some point. I get it. If it’s a chance to test stuff, I get it. But what generally I find is that if you constantly have side hustles, it means your main hustle isn’t working. And that the majority of very successful people have a monocular focus on one hustle, and that is they find a place, they find a seat somewhere where they have senior level sponsorship, the company’s growing, they’re good at it, and they kind of go all in.
And I would argue success is in the last 10%. If you’re at a good company that offers stock options, it’s easy to romanticize entrepreneurship. The greatest wealth creator in history is the US corporation. 99.99% of people don’t have an opportunity to go to work for JP Morgan and Google. When people come to my office hours at school, they don’t want to talk about my strategy course. They want career advice. And it usually goes something like this. I have offers from JP Morgan and Google. The kids coming out of NYU are blessed. They have still huge demand for them. AI or not, they still have a lot of professional opportunity. I have an offer from JP Morgan at Google, but I’m thinking about starting my own business. I really want to do my thing. And I say the following, don’t be fucking stupid, go to work for Google.
If you have access – It’s

Dave:
Hard to bet against them. Yeah.

Scott:
If you have access to these platforms, they have thousands of people doing nothing but trying to attract and retain the best human capital. And one of the ways they do that is with benefits, with strong cultures, treating you well. If you have a baby, they give you four to six months off, giving you options, making it so hard. They know how much drudgery and bullshit is involved in any corporation. They know it, so they figure out a way to make it worth it. I started Morgan Stanley right out of college and I was there two years. I did not have the skills to navigate a large corporation or be successful there, not because I was such a baller and needed to do my own thing. I didn’t have the skills to be successful at Morgan Stanley. Being skilled, patient, mature, politically savvy at a large corporation is an unbelievable underrated skill.
I did not have those skills. I went and started a small business. I’ve been starting businesses ever since then. My boss, who is only two years older than me, he’s been at Morgan Stanley the entire time. I have endured way more stress and ups and downs than him, and we both have approximately the same net worth. And most people would look at my career and go, this guy’s in the top whatever, 1% of entrepreneurs and has had some hits. And I have, but the amount of stress, ups and downs versus he’s just plotted along every year, associate, vice president, MD, partner, head of a region, chair, vice chair, and every year he’s just clocked a lot of money with a lot. So my point is I don’t like side hustles. If it’s a means of testing something, then test it. But the way you usually get wealthy is going all in on one thing.

Dave:
That makes sense. I do actually like that approach. It’s kind of like the burn the boats approach where it’s like if you’re just kind of always tinkering and dabbling in a couple things, you never get good at anything. But it seems to me, if you’re going into the corporate world or any W-2 job, if you’re going to do it, you have to get really good at it because there’s this stat that I keep seeing that kind of haunts my dreams that the percentage of earnings that goes to labor now, even in corporations, it’s like an all time low. All the money is going to the top, the shareholders, the CEOs, the executives or dividends and buybacks. And so it feels like you need to either go all in on rising to the top and dedicating yourself, or do you think for some people it’s just better to say, listen, I don’t have that in me.
I should go start a business or I should do something different because it feels like the low to middle part of a corporation is a bit of a trap these days.

Scott:
It’s so situational, and that’s why the only blanket advice I would give is form a kitchen cabinet of people who are smart, that you trust, that understand the ecosystem you’re operating in, are not afraid to tell you when you’re making bad decisions. That’s the most important asset because if you go to work for just Stellantis right now, you go to work for an automobile company and you think, okay, let’s be honest, the Chinese are going to just eat our lunch the next 10 years. I don’t have what I’ll call senior level sponsorship. One of the keys to being successful at any organization, especially a big company, is having someone senior to you that is emotionally invested in your success. And then are you really successful? That’s probably not a great place to be. To be at Anthropic right now, I don’t care if you’re taking out the trash.
I don’t care if you’re in the kitchen. Stay there and write that whole anthropic thing out just to see where it takes you. Because they have 5,000 employees on a company that supposedly is going to go public at $2 trillion. So it depends where you are. It depends where you are in life. If you have a spouse that doesn’t work and you’re planning to have kids, I had someone who essentially built my last from L2. Three women all went to Nike, a big client. Nike’s stock is off 70% since they went there. For a couple of the younger ones who were probably looking to really accelerate their careers, it was probably not a great move. For one of them, she had two kids in three years. They have unbelievable maternity benefits. She likes to run. So being in Portland, Oregon, getting in good shape, getting 10 or 12 months over three years to be at home with your kids, even with the stock down, that’s not a bad rap.

Dave:
You don’t get that with entrepreneurship. You definitely don’t get the time off or the benefits.

Scott:
And also you need honest self-awareness, and that is people talk about entrepreneurship like vision and talent. No, the only talent really as an entrepreneur is your willingness to get out a big spoon and eat shit. Entrepreneurship is Latin for salesperson. Some days some of the metrics come back and it’s awful and you don’t make enough money that month. And you got to say to your partner, “I realize I’ve been working my ass off and the reward for this is that we get to take our hard-earned savings and put it back into the company.” I mean, you have to have an extraordinary appetite and stomach for risk. And two, you have to be willing to sell. And most people are not willing to sell, because this is what selling is. “Hi, I want to come talk to you about my new selling. “Fuck off. Do not call me again.
And then your follow-up has to be,” So I think you’re saying I should call you back in a couple months. “That’s what it means to be an entrepreneur. You’re selling employees, you’re selling customers, you’re selling capital. Most people are not willing to sell. The sweet spot, I think, if you look at where the sweet spot is in terms of risk to return, the sweet spot is in a company that’s like, call it 30 or 50 to 500 employees that already has proof of concept. They built something and it’s selling. Maybe they got their A round done and they’re talking about getting their B round done. The founders are super smart and I can come in and get a half a point or 1% of this company because the infant mortality rate among businesses, being employees zero and one to 10 –

Dave:
Big graveyard. Yeah.

Scott:
So it’s just a level of self-awareness around your situation. Sometimes when they come to me and say they want to start a business and it’s crazy, and I’ll say to them,” Are you rich? “It’s a different equation if you’re rich. If you have rich parents, it’s a different calculus because if you start a business and you’re trying to start a family and you guys don’t have a safety net or a backstop or a lot of money saved, that can get very stressful, very has a long-winded way of saying I think it’s situational and you need outsiders. Very hard to read the label from inside of the bottle.

Dave:
I would also argue great time to start a business is when you have nothing to lose. If you can do it on scrappiness and really don’t have a family, you don’t have people that you need to support and you can easily support yourself, also a decent time to give something a shot when your time is worth nothing. Basically, you couldn’t be earning more else. People who are 22 years old, interesting time. We got more to talk about with Scott Galloway right after this quick break. Stick with us. Welcome back to the BiggerPockets Podcast. Let’s jump back in with Scott Galloway. You’ve said you think rental property investing is good, side hustle is not so good, and entrepreneurship, mixed feelings and situational. How would you evaluate what our audience does, which is majority of people working W-2, investing in rental properties on the side? Is that investing?
Is that entrepreneurship? Where does that rank for you?

Scott:
I wrote a book called The Algebra Wealth, and it’s fairly straightforward, but it’s hard. But the good news is I know how to get rich. I know how to get you rich, but the answer is similar to what you said. The answer’s slowly. It’s pretty basic. There’s a formula. You got to find something you’re good at, and the way you become good at something is through focus. Your job in your 20s is to workshop a series of careers if one doesn’t work until you find something where you think, in five years I could be in the top 10% of this industry in terms of professionals, and in 10 years I could be in the top 1%. And in an industry that has a 90 plus percent employment rate, you want to go to acting, you want to go to modeling, you want to be in sports, you want to be in restaurants, you want to be in nightclubs.
Okay. If you’re not in the top 1%, you can’t make a living. A boring industry and you think, I could be great at this, double down focus. I’m going to go all in. I’ve never known anyone with a lot of influence and a lot of money who wasn’t born rich that didn’t go pretty much all in and work pretty hard for a good 20 years. That’s just part of it. And by the way, you may decide you don’t want to do that, that you want to work to live, not live to work, move to a lower cost region. Your husband’s a nurse, you coach little league, you go to church, more power to you, you’re happy. If you’re an economic animal as I was when you were young, you got to focus and find something you think you could be in the top 10, if not the top 1%.
The next thing I say is stoicism. And what I really mean is discipline, and that is find things that give you happiness that don’t involve every capitalist incentive to buy more shit, working out, spirituality, meditation practice, time with friends, volunteer work, but have the discipline from a young age to save every month a little bit of money and put it in low cost index funds. And it’s so boring, but it’s so powerful. I didn’t do this. I always though, I’m a baller. I’m going to start and sell a company for millions. That’s stupid putting $2,000 in an IRA or a Roth or whatever. Be smarter than I was. Spend less than you make and always save a little bit of money. Then the next thing is let time take over. One of our flaws as a species is because very few of us live past 35, our brains still can’t comprehend we’re going to be here until we’re a hundred years old and that time will go faster than you think.
And then if you just have the discipline to put a little bit of money away every month, assume you don’t go double platinum, you’re not on the bestseller list, Manchester United doesn’t draft you for whatever reason, you’re going to be fine when you’re my age. And then the last thing is what we talked about, the importance of diversification. The moment you have anything resembling an asset base, try to diversify. And it’s very hard for young people. Sometimes you have to go all in and stretch to buy a home, which represents 140% of your net worth. When you start a business, you kind of have no choice but to go all in, but the moment you have some asset base and the opportunity to get some liquidity, you immediately want to start diversifying.

Dave:
I like that. Makes a lot of sense. I’m curious though, you mentioned buying a home. What role do you believe home ownership plays in the current either American dream, if you want to call it, or just the path to financial success?

Scott:
Again, it’s situational. You need to listen to podcasts like this and just do the basic math. If you’re living in, I don’t know, El Paso, you look at the ratio of what the annual rent is relative to the price, the yield, and if it’s above –

Dave:
Go buy a house.

Scott:
Above a certain amount, you buy a house. It’s just a smart thing to do. It’s very tax advantage. If you live in New York or San Francisco and you’re not rich or you’re not about to get a windfall from Anthropic, I would argue rent and take the money you save on property taxes, maintenance, mortgage, everything, and try and invest it, try and have that discipline. So it’s just situational. Now there is a psychic return to it and that is One of the really unfortunate things about our society is, I mean, you talked about as a percentage of GDP, corporate profits have never been higher, wages have never been lower. The three players or constituents in our economy are the owners, the shareholders, the workers, and the consumer. Through regulatory capture and Citizens United letting money play a role in politics and policy, over the last 40 years, there’s been just an enormous leakage seeding of power capital influence from consumers and workers to the owners.
So what do you want to do as fast as possible, and it’s not easy, is have the discipline to move away from being the worst spot, the earner, to an owner. I mean, and this is hard. Try and put away a little bit of money and then go buy a rental unit, and now you’re an owner. And that house, if you’re working during the day, I did this, me and my wife bought our first rental home. She was working at Arthur Anderson. I had a startup. But every year, say you make $100,000 as an earner, you lose 20 to 30% of it. If you have $100,000 in equity in a home and it increases in value, you don’t pay taxes on it. It’s tax deferred. And if you sell it for less than half a million dollars, it’s tax-free. And if you own a stock, it’s tax deferred.
There’s this myth that the rich don’t pay taxes. The rich pay a lot of taxes. It’s the rich earners that pay all the taxes. That stat that says, oh, the top 1% of taxpayers pay 50% of all taxes, that’s true, but it’s misleading because the richest Americans don’t pay taxes because they don’t have taxable events. They don’t sell stocks. They don’t sell their homes. They take a very small salary and they let their assets compound. So you want to get as fast as you can, be focused, be an earner, save some money and just bust a move. And it’s hard and requires discipline and don’t order that coffee and don’t go to St. Bart’s. As fast as you can, get from being an earner to an owner. American tax policy has been taking money out of the pockets of earners and putting it into the pockets of owners for 40 years.
And being an owner can just be buying one share of Netflix, which is off 40% this year. Whatever it is, there’s different ways to be an owner, but that is how you get rich is by being an owner. Now, if you’re CEO of Goldman Sachs, fine, you make 17 million bucks, you pay 50% of taxes, you’re still doing just fine. Very few of us are going to be those high income earners. I’d be

Dave:
Happy to write that check. Yeah.

Scott:
Yeah, fine. Ownership. Just figure out a way, even if it’s buying one share at a time, to move from being an earner to an owner.

Dave:
I think it’s one of the biggest realizations I had. Whether you like it or not, not saying it’s right, but that just is. It is how the tax system is set up. It allows owners to compound their wealth either through lower tax rates for capital gains or like you said, deferrals on taxes, whereas there’s no cheating your income tax, you’re going to pay that.

Scott:
And

Dave:
So the faster you get to ownership, the faster you get to be a part of this rising tide, or at least the way that the American economy has trended over the last generation or two. But Scott, before we get out of here, I have one more question. You piqued my interest before. You said you thought that some of the things that we’re doing right now might take generations to resolve. And as someone who just had a child, I’m very curious, what do you think the big challenge is, and maybe if you see opportunity as well, coming for American society and the American economy in the coming generation?

Scott:
Well, look, I’m a glass half empty kind of guy. I struggle with anger and depression. I have a tough time being optimistic about stuff. I find there’s a lot of really good reasons to not be optimistic right now. I think our geopolitical policy is just planning economic IEDs everywhere. People think our largest trading partner is China or the U. It’s not, it’s Canada.

Dave:
Canada,

Scott:
Yeah. We sell about $900 billion of goods into Canada who could not have been a better neighbor, a better friend, a better ally, largest undefended border in the world. And they trusted us. They invested in this partnership. 70% of their exports come to America. And what did we do? We turned around and said, “I know for no real reason we’re going to declare economic war on you.” I think we’re in the midst of superpower suicide.
Post World War II, 80 years of prosperity through cooperation, by rebuilding Japan and Germany and largely being seen, and a lot of people push back on this, largely being seen as the good guys enforcing freedom of navigation with our Navy settling in US dollars, rule of law largely based on US contract law. We were the operating system for 60 or 70% of the world’s GDP. We have been so hostile, so sclerotic, so undependable with other democracies and capitalist societies. We are now going from a bipolar world where it was 70 / 30, us versus call it China, Russia, Iran, whatever, to 30, 40 / 30. And that is everyone from Brazil and South Korea to the EU are going to form their own relationships around us. And even if America returns to some level of economic sanity, I don’t think they’re coming back because they’re going to say, “Well, what happens when the next populous person props up and decides to change tariffs against us 17 times, which is what we’ve done with China?” So I am very skeptical of US markets for a while.
The counter to that is that with all these problems, the biggest wealth creation vehicle in history, AI, at least from an equity standpoint, it’s not only all happening in America, it’s happening within a seven mile radius of SFO international airport. So there’s something about American ingenuity and risk taking and capital formation that is still unparalleled. That’s the bull market. But the opportunity, I think, if I was advising a young person, again, it’s situational. If you’re young and you can get a college certification and get to a great platform, do it, get learning, get skills, get contacts, and then if you want to start a business, fine. But I still think the American corporation and certification, I’m a big fan of higher education. I think all the people shit posting higher education, that means their kid just blew the ACT or… It’s so in vogue now to say you’re not going to need higher ed.
Higher ed has never been more important. Anyway, I’m a big fan of higher ed, but I think an opportunity for a lot of young people right now is I think you’re about to see the largest disposal or fire sale of small businesses by baby boomers
Whose kids do not want to hang drapes. I had this guy in my house, my house in Florida, he’s the drapery guy and he hangs these beautiful gorgeous drapes and window coverings and he comes in and he steams them and he charges a lot of money. And I asked him, “What do you make?” He was very open with me. He’s like, “We do about a million and a half a year in business and we clear about six or 800 grand and I’m the owner and I have-”

Dave:
Wow, 50% margin.

Scott:
Yeah. Great margins, right?

Dave:
That’s unreal. Yeah.

Scott:
And I have five or six good people working for me who make good livings. Two kids, neither have any interest in the business because he was able to send them to elite schools like the University of Florida and SMU. And now those kids don’t want to be in the curtain hanging business. This is a guy in his early 60s, he might just close the business down. So I think there’s a lot of opportunity in these kind of small niche businesses for a talented greedy young person to go to find these people and say, “I don’t have any money, but I’m going to work with you two years. I’m really good. You’re going to see how harddworking I am and how responsible I am.” And then you’re going to sell me the business slowly.

Dave:
Like a seller finance deal. Yeah.

Scott:
100%. And for the rest of your life, I’m going to give you 5% royalty on everything.

Dave:
I buy it. I’ve been underwriting those businesses myself. I’m just super interested in it. And personally, I think we’ll probably hit a recession in the next year or so. I can’t predict it, but I think that’s going to be the impetus. I think a lot of these older operators, they don’t want to go through another cycle. They’re done. And so they’re going to start selling them at a faster clip at a time when there’s not going to be many buyers. And so if the buyers out there are going to have a lot of leverage, it does seem like a really good opportunity. Well, Scott, thank you so much for being here. This was a lot of fun. We really appreciate your time. Where should people follow you if they want to keep track of your work?

Scott:
Oh God, Dave, I’m everywhere. I’m like AOL in the 90s. If you stick my hand in a cereal box, you’re going to pull out some of… I’m ProfG or Prof Galloway on all the social media platforms. My most recent book is Notes on Being a Man. I have several podcasts, the Prof G Pod, Raging Moderates, Pivot, Prov G Markets. So yeah, I think the bigger challenge is to avoid me right now. So anyways.

Dave:
All right. Well, if you want to give people advice about where to not find you, we can also allow you to do that as well. Well, thanks again, Scott, and hopefully we’ll have you on again sometime soon.

Scott:
I hope so, Deb. Congrats on your success.

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

Ashley:
Every day it seems like there are new things and many changes coming out with AI. And as a real estate investor, I want to stay on top of it. I want to know what’s the best use of AI for me. So today I’m talking to our resident AI expert, Tony J. Robinson. Welcome to the Real Estate Rookie Podcast. I’m Ashley Kehr.

Tony:
And I’m Tony J. Robinson. And today, as Ash said, we’re going to be talking about AI and the ways that we can use it in life and in business and really just as people. And I think between the two of us, I probably spent maybe a little bit more time just going into the depths of Claude and ChatGPT and the different ways that it can be leveraged. So I’m going to kind of sit in the interviewee seat and Ash is going to be the interviewer and we’ll do our best to give you guys some value today.

Ashley:
So AI has helped me as an investor, but a lot of times behind the scenes when we are recording podcasts, I am picking Tony’s brain or he is just telling me about this new thing that he stayed up until 1:00 AM and figuring out how to set up an AI. So Tony, let’s start with what AI software or programs are out there that you think are maybe the top three that us as entrepreneurs, real estate investors listening to this podcast should be looking into first to use? What platforms?

Tony:
Yeah. I mean, there’s so many different models out there, so many different providers, but the big ones are probably Google, which their models Gemini, you have Anthropic, their model is Claude, and you have OpenAI, their model’s ChatGPT. And then you also have Grok, Elon Musk’s AI chatbot, but those are probably the four big players. Oh, Meta also has one like Facebook and Instagram. So point proven, there’s so many different models, but those are probably the big players right now.

Ashley:
One that I’m actually using that you didn’t mention was Stanley AI, and it’s built for social media to help you. And it’s kind of like a chat and actually it’s integrated now to text. You just text it and it analyzes your Instagram and then it helps you build carousel posts and reels and gives you ideas and analyzes similar posts and things like that too for social media.

Tony:
So that’s a slightly different example because Stanley’s probably a company that’s leveraging some version of these other… They call them frontier

Ashley:
Models. They’re already being educated on

Tony:
AI. Most of these companies like that are leveraging the models from Anthropic or Gemini or to build these kind of wrappers. And it’s interesting because I’ve built out my own version of that tool using Claude. So you can do it either way. You can go to the service providers or you can build it yourself.

Ashley:
So let’s talk about what you are doing right now. Let’s start with real estate, your real estate business. How are some of the ways that you have implemented AI outside of we both use Hospitable and they have AI integrated with the AI chat, which is amazing, but what are some of the things you have done yourself?

Tony:
There’s a handful. Let me first just say that I think when ChatGPT first had its moment, it was cool because you could ask things in a reply.That was version one of what a lot of us know as AI, but it has evolved so much in the last several years where now AI is really about doing work on your behalf. So if you are listening to this podcast and you’re still only using AI as a-

Ashley:
A

Tony:
Search really. A search engine, then you’re very much underplaying what its true value is. And today, the people that are really getting the most value are the people who have turned it into a tool or even into a quasi employee. So just laying the foundation, that’s a big difference from what we saw a few years ago. But things that we’ve done in our business, I’ll give you a real life example. We needed a new direct booking website for our Airbnbs. We had initially built ours through Hospitable. Hospitable is a great way, just out of the box, it works well, but it lacks some of the customization and just control over design that we’re looking for. And before you would’ve had to go pay some agency to build out a website for you, and it’s a four or five figure check maybe to have them build that out.
And then you also have to pay them to maintain it for you once it’s up and once it’s running. So we’re like, “Hey, I’m pretty good with Claude and ChatGPT. I can probably build this myself.” So that’s exactly what I did. And over the course of a few late nights and me in between other sessions, I was able to build out this beautiful direct booking website that is integrated with Hospitable to still manage. So any booking that comes through our new direct booking website automatically flows into hospital. I can still manage all my guests the same way, but it’s this really unique kind of custom digital experience that I would’ve had to pay a lot more for

Ashley:
Before. Okay. So how do we do that? Those are the things that I want to know. I hear all these ideas of things people are doing, but how do you actually do it? So what are some of the first steps? Are you using MCP? What is MCP? How is that a connector? How does that work? Educate me.

Tony:
First, I’ll answer the MCP and API thing here in a second, but first thing I want to say is how do you do it? That’s the beauty ash of the time that we’re in right now is that you don’t even have to know how to do it. You just have to know the end result that you want. I never built a website through ChatGPT or Codex or Cloud before, and I just went to it and said, “I want to build a website. Help me figure this whole thing out.” And Claud’s like, “Okay, hey, here’s what we need to do. And we need this, we need this, we need this, we need this. Hey, can you get me this? Okay, cool. Here’s this connector.” So truly anything that you want to do, you can just state the end result that you’re looking for and say, “Walk me through the steps we need to take to actually make this happen and it’ll do it that way.” Now the 30,000 foot view is that I started off just by working on the designs.
And again, you can use whatever model you want for the designs, CloudCode, Codex. Those are probably the two ones that are really good at design. And I just had to mock up and I gave it some inspiration for some other websites, both in travel and just non-travel websites that I liked. I said, “Here’s the general vibe that I’m going for, here’s the functionality that I want.” And then it just gave me all the mock-ups for the different pages. So there were some rounds of just getting the design and the UI and the UX dialed in. Once I approved that, then I said, “Okay, can you build this?” And don’t ask me how I built it because I’m not a developer. I don’t have a technical background. But the

Ashley:
Point of this is that

Tony:
You don’t need to be. You don’t need to be. So it built it all out and then I connected it to Hospitable. And you used the word MCP earlier and MCP is basically, it stands for model context protocol. And before all these AI models became super popular, most programs communicated with each other using API. And API is basically just like, it’s a way for programs to talk to each other, but MCP is, think of it like a wrapper around an API that is specifically built for these AI models like ChatGPT, Claude, to be able to get information more efficiently. So 30,000 foot view, that’s difference. But yeah, there is an API connection between my direct booking website and this Claude website that I built out in Hospitable to allow them to communicate with one another.

Ashley:
How long did you say this took you? Probably less than a week?

Tony:
It was a week of… Yeah, not even me. It wasn’t me sitting down eight hours a day It’s like, “Hey, I’m working this other thing and oh hey, I forgot. Let me go respond to this one.” So off and on, but total time, if I just would’ve sat down and only did this four to six hours maybe of actual working time and we got this beautiful well working website.

Ashley:
Now what about the maintenance on this? Are you having to do anything to… Are you paying anything for a subscription to host this website? Do you have to go in and make sure there’s no errors or it doesn’t crash? Tell us about that.

Tony:
Yeah. I mean, I had already owned the domain. I bought the domain, but I’d already owned it because we had our hospitable direct picking website pointing to it. And yeah, I want to say I’m paying for some sort of hosting for the actual website itself. I don’t know. It’s not super expensive, like 10 bucks, 15 bucks a month, something like

Ashley:
That. On something like Squarespace

Tony:
Or – No. Again, I ask Spot, it’s like, “Hey, where can we host this?” And it was like, “Hey, here are some options that work really well based on what I just built.” I was like, “Cool, set it up.” So my answer to any question that I get stuck on is I just ask like, “Hey, tell me what’s the best solution here?” So I can’t even remember what service we’re using for the website, but once it’s up and running, there’s no real maintenance that’s needed. Now, if I want to change something, then I just open up a new cloud session and say, “Hey, fix this thing, change this thing, do this thing.” It’ll make those changes for me. But the ongoing existence is there. Once the foundation is laid, it just runs.

Ashley:
Now this isn’t really AI related, but with this new website, you say it’s beautiful, it’s great. Have you noticed an increase in bookings because of the website?

Tony:
Yeah. Actually, no, I guess I should go back and check that. But the biggest reason that I wanted to make the change was less so about conversion on the website itself. But yeah, we wanted a better design. I just aesthetically wanted something different. But the bigger piece was that we wanted to start running ads. We haven’t turned the ads on yet, but we couldn’t get the tracking that we wanted from our ads like, “Hey, which ad led to this specific reservation?” So that was a big motivating factor for us to make this change. So maybe ask me in a couple months once the ads are actually up and running and driving traffic if we’ve seen that. But that was a big motivating factor for us to want to make that change.

Ashley:
Now, how are you using AI for your ads?

Tony:
Yeah. Aside from the real estate business, we also have our education company. So I run a company called Alpha Host Academy. We teach people how to buy and start short-term rental businesses, and we run a lot of ads for that business. I’ll give you a real life example. A few years ago, I was paying an agency, I want to say four or five grand a month to run our ads. We’re still spending money on the ads themselves.

Ashley:
Are these just social media ads?

Tony:
Just social media

Ashley:
Ads. Okay. No matter what business or what you’re doing, if you have to do any kind of marketing, what Tony’s going to talk about is relatable for any kind of ad.

Tony:
Any kind of ad, right? We had to actually pay Meta, Instagram and Facebook to run the ads, but then we separately had a four figure bill for this agency to run our ads for us. I went through a bunch of different agencies because I wasn’t happy with any of them and then they just weren’t doing a great job. Now I literally have this, they’re called skills. Skills are, think about them as almost like mini employees inside of your AI ecosystem and have this skill called media buyer, and that’s what you call them the media buyers, people who run the ads for you. And every morning it’s connected to my Instagram, it’s connected to my Meta ads account. And every morning it gives me this report to say, “Hey, here are all the ads that are running for your business. Here are the ones that are converting really well.
Here are the ones that we’re seeing performance degrade that I think maybe we should reduce budget for. Here’s some really bad performance we just need to turn off. Here are your stars that are doing really well that we should increase budget for. And hey, here are some new ad concepts I think you should consider based on what we’ve seen work well. What do you want to do? Okay, cool. Cut that one, bump the budget here. Cool. Give me the new ad concepts.” And if it’s a video that I need to record, it’ll give me the scrip say, “Hey, here’s a script.” I’ll give some feedback, then I’ll go record it. It’ll edit it for me. If it’s an image, it’ll literally create the image itself and it’ll say, “Hey, here are some proofs of what the imag will look like.” And I just say approve and it’ll go and do that.
So because I had built that out for our education company first, once I figured that out, I was like, “Well, man, we can do this for the real estate business as well.” So that’s what I’m working on recreating now, but for driving our own direct bookings to our real estate portfolio. So I’m excited to take that next step.

Ashley:
So when you say working on it, this skill, you’re having to train it in a sense. Give us an example of what you have to do to train it.

Tony:
So when I first built the skill, and when I say skill guys, it’s literally just a file on your computer with a set of instructions and references.That’s all the skill is. Rules, references, it’s just a set of instructions of how this AI model should operate. So the first thing I did is like, “Hey, I want you to help me run my ads. Go do as much research as you can about what it means to be a really, really good media buyer for my specific type of business.” And I ran out on it and did a bunch of research. And actually had a few different models do the research. So I think I had Gemini do it. I had ChatGPT do it. I had Claude do it. And then I had them argue with each other basically to say, “Okay, how do we get to a really good finalized version?” Then I reviewed it.
I gave my feedback just based on what I knew about my business and, “Hey, here’s the things that typically work. Here are my targets, here are my KPIs.” So yeah, it’s laying the foundational knowledge, but then also giving it the guardrails of what’s important for you and for your own business.

Ashley:
Okay. So now you talked about doing the website and now the ads. What else have you implemented with AI?

Tony:
Yeah. One of the coolest things that I did recently is that I built out almost like a mothership type dashboard for all of my businesses because in our short-term rental portfolio and our Airbnb portfolio, we have data from different sources. I have data coming from my bank feed, transactions happening, money coming in, money coming out. I have additional financial information coming from QuickBooks and categorized transactions and things like that. I have data coming from my pricing tool. We use price labs. I have data coming from hospitable on, hey, what’s my calendar look like and what’s my occupancy and what are my upcoming reservations and my upcoming payouts? And historically, those data sources never spoke to each other. And I couldn’t go to one place and see a full scope of the performance of my portfolio. I had to go to all these different disparate locations.
Now I have this, it’s just called my dashboard or my real estate dashboard, and I can log in there and I can see, “Hey, for this specific property, here’s how much money’s in the bank right now. Here are all of your upcoming reservations over the next 30 days. Here’s your review score for this property. Here’s your projected income based on the reservations that are on the calendar. And here’s how much money we’ll think will be left in the bank account after you pay your mortgage to make sure that you have enough for your operating expenses.” So I literally have one place that I can go now to see all this information. I don’t have to go to all these different locations anymore.

Ashley:
And what is that place? You said you log into it every day.

Tony:
Yeah. It literally made me a website. Yeah. It’s a website and right now it only lives locally on my computer, so no one else can access it because I haven’t published it. But yeah, it’s just like I opened up a website personally on my own computer and all the information that I need is just there.

Ashley:
That’s awesome. That’s something I need to do for the liquor store. Even right now I log into the… There’s a dashboard for the cash register basically, but there’s so many other things that I need to pull from to look

Tony:
At. Yeah, we got to have a working session, Ash. It’s 2026. Okay, we’re

Ashley:
Ending the podcast now. Get out your computer.

Tony:
I’ll give you another example too. We use credit cards a lot for our business to try and get points and I always just have to go back and pay it off. But the way that I set up my bank accounts, we’ve actually interviewed Mike McCallis in the podcast a few times, but I use profit first as my banking system for my business. So I have one bank account for operating expenses. I have one for paying my team. I have one for ads. I have one for this, one for that. And when I swipe my credit cards, typically just all my different transactions go on there. So even though my bank accounts are separated, I only have one credit card that I use to get all my points. So I would have to go in every couple of days and say, okay, here’s how many transactions came out of this operating expense account.
Here’s how many came from this thing. Here’s how many came from that thing. And now, again, I have a dashboard for my credit cards just like, “Hey, here’s all the payments or all the transactions that are posted against this credit card. Here’s how much you need to pay from every single bank account to offset those transactions that have come on.” Where before, that was a manual thing I had to do and reconcile. Now I just open it up. Okay, cool. Pay this much, pay this, pay this, pay this, and now I’m done. So anything that I do in my business that requires me manually parsing through data, I’ve done my best to try and remove those steps from my workflow. And now there’s just a view that I can go look at to give me that information.

Ashley:
I feel like we had this conversation four years ago, but instead of AI, it was VAs as to you had a list on your phone of things that you did not want to do, and these were things that you wanted to train a VA to do essentially for you. And now I feel like it’s switched to AI.

Tony:
1000%. Now we still have our VA team, right? And there are certain elements that they’re very important for. And will there come a day where maybe they move on to something else because AI’s gotten so good potentially? But yeah, right now it’s like, “Hey, what are the things that either I’m not suited to do? I don’t think my VA is necessarily worth their time either because a lot of these things are just reporting and data extraction and things like that. And it’s like, I’d rather them go focus on the bigger things like,” Hey, how can we give this guest a really good experience? “So I’m even reducing workload for them. Another great example, we do reporting every month because we have partners on our short-term rentals, so we do reporting every single month. Here’s what’s happening, here’s how it looks, here’s what’s happening. And historically my VAs have always done that themselves.
I’m in the process right now of, again, we have all the data source. I’ve already built this dashboard for myself. It’s all the information that our partners need. Well, okay, cool. Can we just turn that into a report that gets sent out monthly?

Ashley:
And you can just probably have it automatically sent out

Tony:
To you. Automatically sent out to them, right? So we don’t have to do anything anymore. So I’m always thinking of ways that we can get more efficient with our time.

Ashley:
Really one of the only things real estate related I would say that I’ve really used AI successfully at is every morning having it pull a summary for me. So it’s going through my calendar, it’s going through my email, it’s giving me a summary of the day and then the week ahead. And then it’s also going in and writing responses, draft responses to all my emails for me. And then if I like it, I can go ahead and hit send or I can review it and change it or whatever. But God, my brain is already spinning of so many ideas of other things I need to do.

Tony:
One thing I will say is that if you talk about Claude, for example, now if you guys aren’t familiar with Claude, again, it’s probably the biggest competitor to ChatGPT. It’s actually two ex ChatGPT or OpenAI employees who’d start at Claude. And Claude has different versions. There’s the chat, which is what we’re most familiar with with ChatGPT. It has something called Cowork, and then it also has something called Claude Code. I build most of my tools in Claude Code specifically because that’s how I’m able to build a lot of these custom tools. And it sounds kind of intimidating to say code because I’m not a developer, but neither am I. And again, it works the same way.You’re just like, “Hey, I want to build this thing and then it’ll go out there and build it.” So if you want to build out this reporting dashboard for yourself, just go to Claude, open up Cloud Code and say, “Hey, here’s the thing I want to do.”

Ashley:
Now, what are some things that you want to do but you haven’t taken the time to implement? We just had a guest that we recorded in person with, and of course after the cameras are off, they actually tell us all of these AI things they’re doing and introduced us to Gronk. Is that what it was called? Grok. Grok. What’s Groonk from? What’s that show or that movie? So we just had our guest on who introduced us to Grok. You had heard of it, I hadn’t, but showed us a little bit about it. So what are some of the ideas that you have that you want to implement? Every day there’s new AI changes coming out.

Tony:
It’s even hard to answer that question, Ashley, because I’m not in any shortage of ideas of the things that I have. The bigger thing is I got to sleep at some point and it’s like there’s only so many hours in a day. And all these AI models, they still need some level of babysitting.You can’t necessarily just give it a task and say, “Hey, go do it.” It still needs some level of support along the way. So right now, ideas are not even –

Ashley:
Okay. What are some of them?

Tony:
Yeah. Gosh, I don’t know. I would love to get to a point where my guests, when they get there, as soon as they check in, because we can see when they unlock their door code, as soon as they check in, they get a phone call from an AI employee that says, “Hey, I’m Jarvis. I saw you just checked in. Any questions that you have, blah, blah, blah, whatever it may be.” Or if I guess I have any questions during their stay, they can just – They call the AI. They just pick up the thing and call and be like, “Hey, I’m not sure where this thing is and blah, blah, blah.” And like, “Oh, it’s actually here, here, and here’s what it is. Hey, do you want me to call the handyman and have him come over and take look at it?” I think we can get to that point.
But again, it just takes time to build those things out. But the idea for me is across all the businesses that we run, our real estate business, our content business, our education business, we flip homes. It’s like, “Can I reduce the amount of time that I spend actually managing this thing while simultaneously increasing the experience for the people on the other side?” So if I can get to a point where I truly never have to interact with my guests, but they get this absolute world-class experience, it’s a win-win for both of us because I never have to worry about someone not picking up the phone. I never have to worry about anyone missing anything and everything’s there. So yeah, I mean, there’s a lot of ideas and things that we can go down and I’ve got a backlog of things that I want. I’ll give you another example.
Inside of our education company, part of what we do is we educate people. So a lot of that is one-on-one coaching and those kind of elements. And I was like, “Man, I find myself answering a lot of the same questions over and over, and I have this tool that I built out for students. And one of the things that’s in there is there’s this Ask Alpha Host little bubble that follows them around. And so if they’re on any page inside of one of our tools, they can click that bubble and I’ve loaded up every single coaching call I’ve ever done. I’ve loaded up all of my content from our coaching program. Someone can say,” Hey, how do I build a comp for an Airbnb? “And it’ll search all the content I’ve ever created and give them an answer. So things like that where it’s like I can improve the experience for all of our customers across all of our businesses while reducing my own workload, that is the goal.

Ashley:
Well, we want to know what you guys are doing in your own investing or business journey to implement AI. So if you’re watching on YouTube, please put that into the comments or post about it in the BiggerPockets forums.

Tony:
So Ashley, I just want to know from your perspective, what are some things that you find yourself doing that are repetitive right now? Real estate content, whatever it may be. Think about the liquor store, just think about all your different businesses.

Ashley:
Okay. The liquor store, payroll. I’m doing payroll still myself right now. Ordering inventory. And then as far as real estate –

Tony:
Well, let’s even look at the liquor store, right? Because you said inventory. So what’s the process right now for doing inventory at the liquor store?

Ashley:
So the employee goes through and looks at our inventory and looks at what we’re low at, also what customers have requested, and then what she expects we’ll need. If there’s a holiday coming up, we need things like that. So a lot of that is her, and then it comes to me to actually manually put into the website we’re ordering five bottles of this, four bottles of that. And she does a lot of it sometimes, but then I approve it or whatever, and then it goes.

Tony:
So right now she’s manually going through the shelves and counting individual items?

Ashley:
No, no. We have the inventory tracker to tell her how much we have.

Tony:
Oh, cool. So it’s already systemic.

Ashley:
Yeah. So then she’s writing down what we should order on a sheet of paper, and then she texts it to me. And then I used to physically go to the store and we would sit down together and place the order, make sure it isn’t within the budget or whatever, but now she is doing it and then she will text me what the limit is. So I guess another one would actually be reducing communication back and forth between me and her because I am a bottleneck for sure. Actually, she texted me probably a couple hours ago for a login for something and I have not responded, so a bottleneck. So that’d be a second thing, communication with my employee to help her. But I would say inventory, so cut that for her. So how could I get the AI to actually go to the website to place the inventory order because she’s literally searching, okay, we need Jim Beam this size, this flavor, we need a case of those.
Then we’re going, it takes at least an hour sometimes to do.

Tony:
Okay. I think all of that can literally be solved pretty quickly because you’re saying your inventory at the liquor store is already in a system that you can go look at.

Ashley:
It’s in the POS system. Yep.

Tony:
So then AI can, I would assume, depending on what POS you’re using, it can connect API, MCP, whatever it may be, some sort of connection. So it can instantly know, okay, hey, here’s… So let’s use Patron as an example. It’s like, okay, hey, pull our Patron sales on a month by month basis for the last 36 months. And it can say, okay, here’s the kind of trend for Patron. Here’s our current inventory levels. If we get below this level, I’m just going to add this to the reorder sheet. So you literally never even have to think about it. It’s watching that for you based on your historical trends. And you can tell it, look forward on the calendar and see if there’s anything coming up that might spike sales, right? So it’s already going to kind of track inventory levels against where you need to reorder and the quantities you need to reorder.
And then once you actually get to the point of like, okay, hey, Ashley, just review this and improve it. Yep, looks good, looks good. Click a button. Again, depending on the website, maybe there’s an API connection, but man, I found out there’s even some times where the way that a website looks to us as humans is very different from how it looks from a computer’s perspective. There’s this website that I use where I need to download data and it only showed me a limited set of the data. It capped me at a certain number of exports, so I had to manually go through and export this data by myself. And I just asked Claude, I was like, “Hey, can you do this for me?” And it’s like, “Sure, give me a few minutes.” And it’s like, “Hey, actually, you can’t see this, but on the back end of their website, I see all the data in just one click.
So I’m just going to download the whole thing for you.” So I would maybe even assume that for your reordering website, there’s some way it can do that as well. So all those things are like, Ashley’s like you spend an hour inside of CloudCode just explaining what you want and it’ll set it up for you.

Ashley:
Okay rookies, you guys are my accountability buddies here that I’m going to be coming back to Tony and I’m going to be saying that I did implement this and I did take the time to build it out because that’s really the big thing is the time, taking the time to actually sit down and build something out. Well, thank you guys so much for joining us today. I’m Ashley, he’s Tony, and we’ll see you guys on the next episode.

Dave:
We hear constantly that the United States is millions of homes short and the answer to high housing costs is simple, build more units. This is a belief I’ve had and talked about on this show many, many times. But research from Kirk McClure and Alex Schwartz reaches a totally different conclusion. After comparing household growth and housing production across US markets from 2000 to 2020, they found that most places had enough total housing, calling into question a major assumption investors are using to underwrite deals and plan their portfolios. Our guest today, Kirk McClure, is a professor emeritus at the University of Kansas and one of the study’s co-authors. Today, he’s joining us to go through the research behind the headline, how the study defined a shortage, what the data actually showed, why nearly 14 million vacant homes do not automatically solve the problem, and why Kirk believes affordability is driven more by lower incomes meeting higher prices than by too few units.
I’m Dave Meyer. This is On the Market. Let’s get to it. Kirk, welcome to On the Market. Thanks so much for being here.

Kirk:
It’s a pleasure. Thanks for inviting me.

Dave:
Yeah, I’ve been looking forward to this interview for a while now. I know you were traveling all summer, but there is this narrative that’s very pervasive in the real estate world that we have a housing shortage in the United States, but your work calls that into question. So what got you interested in this topic in the first place?

Kirk:
Well, I have to tell you, I assumed that the narrative was correct. When my colleague, Alex Schwartz and I started, we were talking about the shortage and asked what seemed to be the fairly straightforward question, well, is the shortage similar across all markets of the United States? And our initial working hypothesis is that we would find a greater shortage in the so-called hot markets, the East Coast, Boston,
New York, Washington, Miami, on the West Coast, Seattle, San Francisco, Los Angeles, San Diego. And so we went about trying to quantify that and answer some questions about what it meant in terms of translation into affordability. Simply put, we couldn’t find it. So then we became very skeptical of our own work and passed it around to a few people. But let me tell you the very basics that we found. If you go to decennial census data, what we found for the period of 2000 to 2020, population grew by about 18%, 17.8 to be exact. The households grew by a greater number, 20.3%. And the quick sideline there is the only way households can grow faster than population is that there is some ample inventory of housing. Now it’s possible, unlikely, but it’s possible that the increase was drawing down the inventory of vacant units when units were not being added quickly enough.
That’s possible. But in fact, that wasn’t the case. We found from, again, 2000 to 2020, housing units grew by 21.2%. So
Housing stock grew faster than household formation, which grew faster than population. That makes it a little hard to square with the notion of a shortage. Doesn’t mean that a shortage isn’t possible. So that’s when we started to search out, did we have some sort of aggregation bias? We have a little over 900 metropolitan markets in the United States, just shy of 400 major metropolitan areas, 500 or so micropolitan, that’s the new word the Census Bureau has given us. About 140 of those metropolitan area, only one major New Orleans, and then a lot of micropolitan areas are declining in population. So we thought it possible that somehow the static stock and declining households in those lagging metropolitan areas were creating false numbers. So what we did was we took every county in the United States, we identified the counties in metropolitan areas and tracked them from 2000 to 2020.
And what we found was out of the 900, subtract out the 140 or so declining ones, take the remaining 760 some odd metropolitan areas, only 19 actually had what we would define in normal sense as a shortage, meaning the housing production had not kept pace with the rate of household
Formation.

Dave:
Interesting. So

Kirk:
That’s what surprised us. We had a little trouble going through with that and bluntly, we had a lot of pushback too, and we appreciated that. That’s helpful.

Dave:
Yeah. Okay. Well, just so everyone understands, just kind of want to explain, population is obvious as grows as a person either is born in the United States or immigrates to the United States minus the people who pass away or leave. And that one’s pretty straightforward. But household formation, I guess, or household is basically one unit of demand for somewhere to live, right? And so you can have these things move differently. So for example, if you have a family with two children and those two children each go out and rent their own single bedroom apartment, that would go from being one household to three different households. And so when you’re trying to measure demand for housing, household formation and households is a better metric than population growth. We look at this when we’re trying to figure out which markets are hot or cold or stuff like that.
What you’re showing is that the total number of units was growing faster than household formation. And so just basically on the highest possible level, you’re saying from 2000 to 2020, there were more units created than units of demand created. And so the logic would follow, how do you have a shortage in that environment? My question then is, were you starting from a shortage? Starting in 2020, was there some net deficit that preceded your research that could explain it?

Kirk:
Good question. And it’s one we worked with. One of the questions we had to surmount in this is what statisticians do is start figuring out where could the model be wrong, but our starting point was 2000. The question then was, is that a good year? We have, I think, a good strong argument for why 2000 was a good year. We had just come off a decade of pretty balanced growth through the ’90s, which I think could all agree was economically a very good time, good employment, good wage growth. Essentially, we saw the population growth, household formation and housing unit growth all track fairly close together. That’s the way a balanced market should be. There is something bad about building too few units, but equally there’s something bad about building too many units. So we are looking for that balanced growth. We found that generally for the nation making 2000 a good period.
Now I hasten to point out that there have been follow-up studies to our own. For example, that makes the argument for the New York City metropolitan area, 2000 wasn’t a real good starting point that we should look at 1990. Had we done that, we would’ve come to a slightly different conclusion on the New York metropolitan area. And I agree that there are going to be all types of these little problems, but we don’t believe we had a bad starting point. Let me give you another sort of the problems we had to reckon with. One of the most important studies that made the initial conclusion that the nation suffers from a housing shortage was from Freddie Mac. They’re a good bunch of economists over there. They do great work, but they made a decision that their starting point would be 2010. 2010, if you think about it, we just had a big bubble.
The bubble collapsed. We were going into the great recession. So their logic was that while we’re looking at the recovery period from the great recession,
Not an entirely bad assumption, but it led them to what we believe was an incorrect conclusion because for every hundred households that we form in the United States, we probably ought to build 103, 105 units. That’s to maintain a healthy inventory of vacant units. During the decade of 2000 to 2010, we built in excess of 140 units for every 100 households. So what we had was 2010 then becomes a bad starting point because there was a large overhang of units. If you only look at 2010 to 2020, then it is true that the stock grew less fast than did household formation. But when you have this huge multimillion overhang of extra units, then in fact that smooths out over the 20 year time period. So there is some disagreement on that.

Dave:
Yeah. Well, that makes sense to me because so much of the narrative around the shortage is that during the great financial crisis, builders stopped building and haven’t kept up with population growth or household formation. But if I’m getting what you’re saying is that we had sort of a glut prior to the GFC. And so even if we had a slowdown in building from whatever it was, 2010 to 2017, 2018 or whatever it got back to that normal pace, that that was just compensating for the oversupply that came. And so from your perspective, starting in 2000 makes sense because it captures the glut and then it captures the slowdown and then you get this longer period of time. All right, we got to take a quick break everyone, but we’ll be back with Kirk McClure right after this. Welcome back to On the Market. Today I’m speaking with Professor Emeritus from the University of Kansas, Kirk McClure, about his research into the housing shortage or lack thereof.
Let’s jump back in. So you mentioned Freddie Mac, that’s one source that has said that there’s a shortage, but I’ve seen other studies from NAR. I’ve seen it from, I think some of the big banks have put out some studies too. Are they all following a similar logic? They’re starting at 2010 or where else does your research differ from what they’re doing?

Kirk:
All right. Let me speak to a second approach that came out of the Moody’s team and I think theirs is especially good, but again, you have to parse out the assumptions and say, how would we guide federal housing policy in this situation? What Moody’s did is it says we find a historical rate of household formation for different cohorts. I think we all know that when people are in their 20s to early 30s, that’s the time they’re going to graduate from college, move out of mom and dad’s house, get that first job, get their first apartment, start saving, eventually become a homeowner. So we have these rates of household formation that have been true for various cohorts. By the time somebody like me retired, the likelihood that you already own is very, very high. So we’re not going to find a great deal of fluctuation that my cohort is not hurt by a slowdown in construction, but the Gen Z cohort is.
And I think that’s the nuance they brought to it. They said, “If we had household formation rates as high as we would have expected from the good decades preceding 2000, then what should be the household formation rate and what units do we need in order to satisfy that?” And I think that’s a very good approach to it.

Dave:
Are they essentially saying that household formation is lower because affordability is lower and so you have to sort of think about what would it be? If we had the level of affordability we had in the 90s, more Gen Z people would be forming households, but household formation is repressed because of low affordability.

Kirk:
Exactly.

Dave:
Okay.

Kirk:
But now here’s the difficulty of it. I’ve spent an awful lot of my career writing papers basically for HUD, for members of Congress trying to say, “Here’s how we can do our housing investments better.” The difficulty with the Moody’s study, they attribute any diminution in a household formation rate for any cohort, but especially we focus on the younger ones. They attribute that to a shortage of units. What I read for the Gen Z especially, it’s this whole problem of school was costly, so they’re coming out with debt. Units are higher now. They have a hard time finding the necessary money to make the first and last month payment just to sign a lease on a rental unit.

Dave:
So

Kirk:
They’re still living in mom’s basement. On and on with then given those demands, it’s hard to save. An awful lot of other factors are in there. If more units were there, would Gen Z have a higher household formation rate? Probably marginally.

Dave:
I

Kirk:
See. But what really needs to happen is they need jobs. You know when trying to get a mortgage, you don’t just need a job. Gig work won’t get you a mortgage. You’ve got to show steady employment. You’ve got to have the savings necessary for the down payment on and on and on. And with the 2836 rules with the banks, if you’re already suffering from high student debt and car payment on even a modest automobile, that doesn’t leave you a whole lot of room for additional mortgage debt. And then you start comparing that mortgage debt to the price of homes out there and life is tough at that end.
So I do agree with their work, but I find it hard to ascribe the low household formation rate to a shortage of housing units. I think the housing market is a pretty smart operation. A builder knows how long his units have sat on the market. The bank knows if the builder is coming in saying, “Gee, I’m having a little trouble paying off that construction loan because that unit just won’t sell.” We do have problems with, I realize historically mortgage rates don’t seem high to me, but I’m well into my 70s, so I’m accustomed to 7% mortgage

Dave:
Rates. Yeah, you’ve seen some stuff we haven’t seen in a long time.

Kirk:
But when your older brother got a 3% mortgage a few years ago, you’re still thinking that’s what you ought and that’s not going to happen.

Dave:
No, I’m with you on that for sure. So you think, yeah, it’s a confluence of factors that are slowing down household formation. It’s not this one-to-one thing where, hey, there’s less units, people are not moving in. There are other things. I buy that. I mean, I am not Gen Z, but I can see, I look at a lot of data about debt and you look at credit card debt and as you mentioned, student loan debt or just stagnating salaries for younger people, higher rates of unemployment for younger people. There’s a lot of things that are probably contributing to this. So how do you explain the current housing market then? Because, and I know there’s a lot to this with… I can give you my own theories, but in your world, if there’s not a shortage, why do we have such low affordability in the housing market and why are prices so high?

Kirk:
Well, one of the best things about our paper is that it has started other people trying to either refute its support and so forth. There’s been some follow-up work. Some economists at the Federal Reserve did a great piece. It’s an old chart that many of us looked at. If you use the Case Schiller price index as a measure of housing price, and I really believe it to be the best because if it’s very careful, you have to have two points. You have to know what a house sold for in the past, you have to know what it sold for recently, and that’s how they then figure out what constant quality homes are doing over time. We policy wonks tend to have a bad habit of saying, let’s compare that index to the median household income because that reflects that household in the middle, what their ability to spend is.
And as you might imagine, those numbers were pretty close through the ’90s. What happened with 99, 2000, prices took off. We debated for several years whether we had a bubble. By the time the bubble crashed, we all were pretty much agreeing we had a bubble. The index came back down and more or less came close to that median value. Again, that was the global financial crisis. It wiggled around for a little bit, but it’s taken off. Now comes the question, do we have a second bubble? Maybe yes, maybe no. The Federal Reserve economists simply said, look, it’s really the aggregate dollars in a market that set house prices. And this is the K economy argument, but when you have so many people who are becoming so very, very rich and there are few investments treated so generously by our tax code as investing in your primary home,
So that in fact what you have are a lot of very high income, high wealth households pulling up the home prices. So if you track the case shielder index and just the mean household income, you find they track very, very closely. So all of our concern of price rising faster than median is important for identifying affordability problems, but realizing that in fact that price index is tracking very closely with the aggregate income out there, that explains an awful lot of why owner-occupied homes are going up. Now, it’s not as easy then to flip that and say, “All right, just because the owner-occupied homes are going up so rapidly, why are rents going up?” I find mixed research on that one, but the notion of rental is the substitute, so that’s why they have a complimentary price rise. But what I think everybody can agree is rents have risen faster than median renter income.
Again,
Not faster than average renter income. We’ve had a lot of households come into the rental market, priced out of the owner occupancy market, so that has pulled up rents, but it leaves us with the very bad situation that we have a large percentage of our population, the wage earners, if you will, who are renters, not necessarily by choice, but they are trapped in a situation where rents are rising beyond their means. And for what’s worth, that’s a third avenue of research, and they define that as a shortage when they say, “Look, the number of units we have affordable to say the 50% of area median family income renters, that’s essentially the very low and extremely low income renters, we have many more households than we have units affordable to them.” And that I think is an understandable way to define a shortage. The difficulty I always have with that is I’m a big proponent of rental assistance.
When we talk about a shortage, somehow it goes into members of Congress mind that we need to get out hammers and nails and build more units. If we don’t really have a shortage of units, is that the most cost effective way to address the problem?
It seems to me the answer is no. We have tried rental assistance in various forms over decades so that in fact, it seems clear to me that we can get more bang for the federal dollar spent through rental assistance to help low income households consume rental units that already exist rather than go out and build more rental units.

Dave:
Interesting. Yeah, I’ve heard that argument and that does make sense to me because efforts to build supply by the federal government have not always been the most cost-effective route. So maybe just helping renters makes more sense. But from an economic perspective, Kirk, I guess the thing that I always wonder here is if there’s this mismatch in affordability, there’s enough units, but renters can’t afford it, shouldn’t market price, shouldn’t the equilibrium come down? Shouldn’t rents come down then because there would be a high level of vacancy, at least in these middle level apartments where it’s… Wouldn’t you see vacancy there and then people would have to lower their price if this was really the case?

Kirk:
I agree with you. It sure seems like it should.

Dave:
Right? Yeah. Okay. Well,

Kirk:
That’s pretty much economics 101, right? Yeah. If that aggregate demand in that segment of the market is failing to keep up, then you would think the market would adjust. There’s conflicting evidence on this. I am one of those people. I played a very minor role in the creation of the low-income housing tax credit program clear back in 1985 when it was put together. And I think it was a genuinely heartfelt way for the government to try to augment the supply of units affordable to truly low income households. Unfortunately, it has become over time a surrogate middle income housing program.
So we are spending between 11 and 15 billion per year in the low income housing tax credit program. But if our shortages are among people who are very low and extremely low income, which is to say these are people who can only afford units at 500 to $700 a month, our low-income housing tax credit units being bills are coming in at $1,200 and $1,400 a month. They are adding to a segment of the market that arguably already has saturation. And in fact, there’s some very good research that says there is something on the order of 85% displacement of market rate units by a tax credit unit. For every hundred tax credit units built, 85 fewer market rate units are being built. So we’re only creating a small net gain, and even then we’re adding them into a market segment that is serving bluntly a level of middle income households.
Filtering we know doesn’t work terribly well, so adding in the middle isn’t causing the lower priced units to come down.

Dave:
Yeah, that tracks with what I hear from developers. The numbers just don’t make sense to build affordable housing right now with the cost of construction and labor and financing. In most places, you can’t build something where 500 to $700 in rent is going to give you a good risk-adjusted return if you get a return at all. And so yeah, I totally get that. Everyone says, “Yeah, build more affordable housing.” That would be awesome if you could, but no one can make the math work. I mean, you are more of an expert than I. I don’t really know, but it makes sense to me if we have the units, and certainly we’ve seen a lot of multifamily supply in the last couple of years. There are certainly rising vacancies in a lot of metro areas across the US right now that maybe the answer is to get more dollars into the hands of renters who can then fill the existing units.
That makes sense to me. We got to take a quick break everyone, but we’ll be right back. Stick with us.
Welcome back to On the Market. Let’s jump back in with Professor Kirk McClure. Where do you see this going from here, Kirk? I know the crystal ball question is always a little bit of a trap, but so much of the narrative around the housing market has been, yeah, appreciation has fallen off over the last couple of years. Real home prices are actually down off 2022, even though the nominal prices are going up, but it will come back because there’s this shortage and there’s always going to be this lagging demand. Where do you see the housing market heading for the next few years?

Kirk:
We have what seems to be a persuasive narrative that prices are high because we have a shortage of units. Government should then create programs that foster more production. I have yet to meet a home builder whoever though there was such a thing as too much housing. If the government’s going to

Dave:
Subsidize

Kirk:
Them to build more, they’ll go out and build more, but I don’t see the efforts at the federal level to foster greater production going very far. You’re probably aware of the low-income housing tax credit program. There was a vote two years ago now, I should remember the exact time, but to increase the production of the program by about 12%. There is no doubt in my mind the developers will line up. They will bring proposals to the various state housing finance agencies. They will produce units, but remembering the displacement number of 85%, if anything, I think that displacement number will go higher. If you’re an underwriter, private sector, market rate properties, and you see tax credit properties operating in a market and you see occupancy numbers coming down, the first thing that goes into your head is maybe we ought to back off of these multifamily rental properties.
If we normally did 500 units a year, then let’s back down. So I truthfully have enough confidence in the guardrails that already exist in the marketplace to think that there’s not going to be any great damaging effect. The part that worries me most is the tax credit program already costs us 11 to 15 billion. We’re going to make that something like 13 to 17 billion now. We will build more units, but we won’t have any positive effect in it. The affordability problems will continue, so the K economy will continue to diverge, and that’s the part that bothers me. Again, quick sort of background piece. The housing choice voucher goes to the hand of the household, low income household. They pay 30% of the rent and utilities out of their income. The remainder is paid by the program. That program is expensive. It’s in the 30 billion a year, but at the moment it serves a Only one in four truly low income households.
If we added to that program, and I only dream of days when we would have enough money for every eligible household, but let’s say we expanded the program sufficiently that we helped two out of every four eligible households. We know the units are out there. We know from the waiting lists in these cities that are measured in years. Somebody signs up for a Section eight
Housing choice voucher, in all likelihood, they will wait years before the housing authority calls and says, “It’s your turn.” So in fact, the program works. I think we would have much greater beneficial effect than overbuilding the middle price of the rental apartments. So I realize that’s sort of long-winded answer to where do I think we’re going, but that’s where I think we’re going. We’re going to overbuild where we don’t need them, and we’re going to leave many truly poor households without the assistance to enter the market in a good way.

Dave:
So both from a renter and a owner occupied standpoint, it seems. Yeah.

Kirk:
The work that Alex and I did, we looked through a litany of programs that have operated in various times in the past for home buyers, first time low income home buyers. And there’s a lengthy list of tools out there and we know they work. We can do things to get the loan to value ratio low. We can help out on the down payment. We can provide various types of loan insurance to the lender in the event of nonpayment. One of the biggest problems that the very low income home buyers suffer is irregular income. Well, we’ve got insurance programs that can smooth that out. It doesn’t mean there would be nonpayment, but it does mean we can keep that household from being evicted because they can’t pay for a few months during a layoff. So there are all sorts of these programs that have worked in the past.
We would like to see us focus on how do we make better use of the stock we already have rather than thinking the answer is build more units.

Dave:
If we overbuilt in the middle market, I just don’t understand how prices aren’t falling there.That’s the part that is confusing to me is it seems to me, I don’t know, maybe because we’ve been in this era of low interest rates that people held on or the lock-in effect, but now with rates going up and affordability being low and really historically low, the prices just have to come down. I don’t know. I’m like, I can’t wrap my head around having too much supply in the middle and prices not falling. Well,

Kirk:
I agree with you completely. I think at some level, part of the problem is quality of the data. The data we have will tell us the rent on paper that a property manager says he or she charges. But in fact, I know of no good data set that tells me about concessions.

Dave:
Correct.

Kirk:
I’m here in the Kansas City area. I have friends and colleagues who are property manager and they will tell me repeatedly, “I used to be able to charge for carports. I have to give them away now.”

Dave:
100%. So

Kirk:
I do believe we see some downward pressure on price. It comes out at that level of concessions, but to see a truly measurable, let’s say even a 10% drop in rents, I don’t think the kind of overbuilding in the middle has yet caused that drop. Now that’s not everywhere. Again, the advantage I have of living here in Kansas City is we’re not a hot market, but property managers will do what they have to do to try to keep things going. And if that means concessions, they’ll give those concessions. When we really see drops, then I start picking up other signals. Here’s an example. The Missouri Housing Development Corporation unable to use its low income housing tax credit allocation during a year or two. That means not enough developers showed up saying, “If I build, they will come and occupy my apartment.” Even in a federally subsidized program like the low income housing tax credit program, you still got to build a property, you’ve got to hit an occupancy level, you’ve got to cover costs, you’ve got to make your reserve payments.

Dave:
For sure. Yeah.

Kirk:
And if they feel the market is saturated, they back off and say, “I’ll wait and see next year or the year following that.” And we have seen some signs of it, but enough to say that rents will drop, I don’t see it. And the other piece of that, for what it’s worth, again, Alex and I did a piece where we did a simulation of what would be the effect of a drop in rents by five, 10, 15. We even did it up to 25%. And the answer is that it would not solve the affordability problem because what will happen is, okay, let’s say you even have a 25% drop in rents. Now imagine what that would do to the feasibility of the rental portfolios all over the United States. That would

Dave:
Be

Kirk:
Awful. But if it happened, it still doesn’t solve the affordability problem because the greatest benefit goes to the highest income renter households. They receive the greatest benefit. They will then become less burdened. They will have a burden less than 30% of their income. Whereas that household that’s only able to afford say six or $700 a month, but they’re paying a thousand, well even coming down to 750 is still beyond their means. So we’ve got to be a little careful about what we’re wishing for. We don’t really want prices to drop dramatically. We may want the pace to calm down, but in fact, we’ve got way too much investment in some really beautiful rental properties all across the country and the rents need to stay at or near the real rent levels we have today, or we’re going to have a whole lot of defaults and foreclosures on our hand.
Nobody wants to see that.

Dave:
Correct. Yeah. I’m not saying I hope for that. Just the way you’re explaining it makes me feel like it should have happened already.
How do you see this impacting the owner occupied side of things? Because we obviously have had a slowdown in appreciation and the demographics point to a declining population probably. People argue about when that might be, but if you just extrapolate out the birth rate and immigration rates right now, probably going to have a declining population at some point. So do you think though that long term in terms of just property values for even single family homes, there’s going to be downward pressure because if we have sufficient units today and we have a declining population and perhaps declining households in the next 10, 20 years, wouldn’t that bring down pricing or property values?

Kirk:
Possibly. But again, go back to the two pieces about the fundamental drivers of housing prices today. We have an awful lot of people who’ve made an awful lot of wealth, stock market, wherever. They’ve done quite well.
They go into a submarket and remember racial segregation is slowly subsiding, but income stratification is becoming more and more prevalent in our metropolitan market. The very rich only live in districts with very rich and the not so rich, but pretty close living. So we have this separation that enforces the bidding up of the prices. So that wealth is there. Now the question is, should we be subsidizing those households to invest in a home as a way to build wealth? I think it’s a wonderful argument when we’re talking about the working poor as it were. They can continue to live as renters or they can become homeowners and enjoy the benefits of wealth development so they can pass it on to their kids. But right now we say for all households, whatever income level, the first half million bucks you make every five years, you can trade for another house and that is exempt from capital gains taxes.
I can see social value in that for a guy who is standing behind a cash register or he’s putting mufflers in cars and he’s trying to help his family make some money. I’m not sure I see value for that for the households that are up there mid six digits.
So I am concerned about that. The reason I’m particularly concerned is there’s a fair effort growing in Washington to raise the capital gains exemption even further saying, “Oh my God, it’s old. It’s out of date. We have 15% of our homeowners who are in need of it to be in higher.” That 15% has already then made more than a half million bucks on their home. Do we really need to subsidize through tax benefits anymore? I think no. I’m

Dave:
Laughing because we have a panel show and I got in this argument with three of my friends and panelists on the show. I was saying that it’s crazy to try and raise that. I think it’s a champagne problem. If you have that problem, that’s a problem anyone would be grateful to have, that you made so much money on your home that only 500,000 is tax free. Mind you, you still get that 500,000 tax free. It’s just anything you earn above 500,000 is tax free.

Kirk:
The irony of this you see is my colleague in this research is Alex Schwartz, lives in New York City and of course that is a hot market where he made colleagues on the West Coast. In coastal California for a piece of real estate, that does not seem like a huge number. So it’s difficult, but in the near term, I see those debates coming up and it bothers me. I would rather see us more focused on how do we truly solve the problems of the low income. And I don’t feel we’re doing that right now.

Dave:
Kirk, thank you so much for being here. This has been an eye-opening conversation. I really appreciate you sharing your work and your research with us today.

Kirk:
It’s been a great pleasure.

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

Ashley:
If you live in a high cost, highly competitive or heavily regulated market, it can feel like real estate investing is for everyone except you. Our guest today began by accidentally managing properties, then used that experience to make his first purchase in a market many investors considered too difficult.

Tony:
Vaibhav spent about four years at NASA and another 20 years as a technology executive before leaving his job in June 2026 to invest full-time, which is the goal for so many of you listening. And today, we’re slowing down his early journey, how property management became his unexpected training ground, and how he chose and financed his first deal, and what changed between deal one and deal two, and how rookies can find a workable entry point when their own market feels impossible.

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

Tony:
And I’m Tony J. Robinson. And with that, let’s give a big warm welcome to our guest today, Vibav. Thank you for joining us today, brother. Appreciate it, man.

Vaibhav:
Thank you, Tony. Thank you, Ashley.

Ashley:
Vibav, take us back to before real estate investing. You’re working at NASA, your career is in technology. Tell us about that point in your life before you even knew what real estate investing was.

Vaibhav:
Yeah. I mean, I landed in Houston in year 2000. I was doing my master’s in computer science there, and one of the professors there at the university liked my performance. So they pulled me into their company for an internship. And that company happened to be a contractor for Johnson Space Center, which is the NASA. And I started working for them and they liked my performance of the job, so they gave me a job and I just went working there for four years until my girlfriend decided to move to LA to chase her. I came to LA in 2005.

Tony:
Is she now your wife or? She is my wife.

Vaibhav:
It was worth the chase. It worked out.

Ashley:
Now, how did you even learn about real estate investing? Where does that come along in your journey?

Vaibhav:
Yeah. I mean, I had no idea about real estate investing at all completely. And what just happened is there was an accident that sort of happened around 2008 or nine. We bought our first house in LA and it was a condo. It was only seven unit building, so it’s very small building. And nobody was willing to work on the HOA. So I had no choice. So I raised my hand and say, “All right, I’ll be the board member. What do I do?” And they said, “Here’s the first problem. Not everybody’s paying HOA dues and our situation is not good, so we need to make sure everybody’s paying HOA dues.” So I said, “Who is not paying HOA dues?” And I said, unit number one.
And I’m like, “Well, did you talk to them?” And they’re like, “They’re unreachable.” And they happened to my neighbor. So I went there and knocked on their door. Nobody responded. Then next day I went again and knocked, nobody responded. So I’m like, “What do I do now? I don’t have any phone number. There’s no way to contact this person.” So third day, just to be persistent, I go and do the same thing again, knock the door and nobody responds again. This time I decided to do something different. I pushed the door a little bit to see if the door is open or not. And the door actually opens and I enter inside and it’s completely empty. There is nothing in there. They had moved out. And by the way, for those who remember 2008 and nine, this used to happen quite often. If they couldn’t afford the mortgage payment, then they would simply leave and put the keys down on the counter or something.
And this person has done the same thing. So now I came back to my board and says, “They have left. What do we do?” And the board said, “We got to go to the lawyer.” So we went to the lawyer and the lawyer said, “Well, the banks are kind of overwhelmed right now. They’ll take about a year or year and a half to take possession of the unit. Meanwhile, you can rent the unit. We can put the lien on it because this person owes you, you can just rent the unit.” Oh

Ashley:
Wow.

Vaibhav:
So I go back and tell this to the board and board said, “Okay, then rent the unit.” And I’m like, “What? I mean, I don’t know how to do this.” So they said, “Well, figure it out.” So I started figuring it out. There was a company here called Westside Rentals, which was later bought by Apartments.com. So I kind of went there, I learned everything, I showed the unit, I listed the unit there, figured out everything, managed to get a tenant in one month. And then I kind of tended their calls, like this is not working, that is not working. I was just next door. So it was easy to do that. So I managed it about a year and after that, then we got a letter from the bank saying that we need to take over that unit. So I told those people that, guys, you need to get out.
And we had done the lease that way. And then they went out and we gave the position of the unit to the bank. So that was my one year of accidental property management sort of experience

Tony:
Here. I’m curious though, what was your motivation for participating in the board? Did they give you some sort of incentive like, Hey, you get, I don’t know, discounted HOA dues or was it just you had – Absolutely

Vaibhav:
Not. The only motivation is that there is nobody there to work for HOA. And if the HOA falls apart, your property value is in danger because of the upkeep of the property is not made. So it was just completely selfish, this thing to keep that thing running.

Tony:
So this person just abandons their property. You do this property management for the better part of a year. So once you’re done, once you guys give the keys back to the bank, are you now thinking like, “Hey, there might be something to this?” How does that – No. No. Still

Vaibhav:
Real estate is not on my radar.
So I’m happily living there and two, three years pass. And our daughter was born in 2010 and we are discussing that, “Oh, we should get a single family house now. She should have a yard to run and all of that stuff.” So we started looking for a house. Well, the first idea was that we didn’t have that much money. So we are like, “Let’s sell this condo and buy a bigger house.” That is a natural way of doing things. So I listed my condo with the help of a real estate agent. He was really experient. I remember his name, Mark, he was amazing. Listed the condo and a week went by, two weeks went by, three weeks go by, four weeks go by, and there’s nobody, nobody to even look at the condo. And I’m wondering what’s going on? And I went to the agent, “What are you doing?
What’s happening?” And he said, “Your price is too high.” And I had bought the condo for 550K in 2007. And in 2011, his comms tell us that it should be priced at 450K. Oh

Ashley:
My

Vaibhav:
Gosh. 100K down. And the agent says, “Look, who told you you have to sell this house? You can rent this house and tell me how much money you have. I’ll tell you if you can buy a house in it.” I said, “I have $80,000 in the bank. Can you get me a house in that?” And I said, “Yeah, it’s possible because the house prices are down right now. And you can get loans. You don’t have to pay 20%. You have to pay insurance, PMI, but you can get it with less than 20% down payment. So you need to be, of course, willing to adjust a little bit. You’re not going to get your dream house in that.” And I said, “All right, I know how to rent houses, so why don’t I do that?” And so I finally found a single family house and then I rented this condo.
So that’s when I enter and become a landlord for the first time. Again, the second accident.

Ashley:
So what was your experience as a landlord with the first accident and the second accident? How did you manage it? How did you feel about it? And was this something that excited you to continue to keep doing?

Vaibhav:
Not at all, actually. It’s very interesting because I actually dreaded those calls because the tenant would call me. And I remember I was on vacation in India and the washer broke or something and that guy’s like, “I can’t wash my clothes and I have to be up in India at a weird time and then try to find people here and get somebody to go fix the washer.” It was just really bad experience. But I couldn’t even afford property manager at that point because it wasn’t even cash flowing. So I just persisted with it. And as the time passed, I think my mental model developed and I figured out how to deal with these things. And the fear of that call went away. And I kind of learned the tricks of the trade and then the fear went away.

Tony:
I think the interesting part of your story, Viba, is that you weren’t necessarily super passionate about real estate investing at the beginning. And I think for a lot of rookie investors, they have this sense that they’ve got to love it, but in a lot of ways, real estate investing is just a means to an end. Real estate is not the end goal. It’s simply a tool that would allow you to get to your end goal. And I think you just framed it perfectly. You’re like, “I mean, I didn’t really like it, but I was learning as I was going and as I got better at it, it became more manageable.” So for the rookies that are listening who are maybe worried about self-managing their first property, what advice do you have to them to make it maybe not enjoyable, but maybe a little less painful for that first go round?

Vaibhav:
I think the mental model, right? It’s that you have to remove that dread. And what used to happen with me is that whenever I used to get a call, I used to immediately calculate everything that’s going to happen as a result of that call. For example, oh, it’s going to cost me $500. If it is going to cost me $500, then what would be the impact on financials? That means I’m going to be cash flow negative and then is that my return going to be negative? This is all sorts of stuff. But then eventually I realized that sometimes you get wins, sometimes you lose and it evens out. And ultimately what happened is I sold that condo about 10 years later for $840,000. Something that I bought for 550K. And in that 10 years, I had put so much principle was paid off that when I sold that condo, the check I got was totally worth it.
It was like good five, $600,000. And I’ve never seen that much money in a way. So it’s the patience, right? You develop your mental model, you be persistent and keep doing it. And then one day you’ll get that reward, delayed gratification. So yeah, just switch your mental model and it’s okay. Don’t race your mind to all the negative things that could happen. Just be in the moment, deal with that issue. And another important thing is, let’s say the washer has broken. It’s a fact. There is nothing you can do about it. The only course of action in front of you is fix that washer. Then simply do the only course of action available to you. That’s it. You’re not going to abandon that and tell your tenant that, sorry, I can’t fix that. So just take the logical action. Simple.

Tony:
So you go through these first two properties and you kind of cut your teeth on what it means to be a property manager. At what point do you transition from accidental forced HOA property manager, the current primary that turns into a rental? How do you transition from that to, hey, I think I want to actually invest in a true investment property?

Vaibhav:
Yeah. So I was working as a software job and my colleague and friend Ken, I don’t even remember whether it was my boss then or not. So he was into real estate investing as well. And he had single family rentals all over, even in LA and even outside as well. And he told me that, oh, you should read Rich Dad, Poor Dad and all the standard stuff. And I read Rich Dad, Poor Dad, and he and I used to discuss various things. And then one day he tells me… So I’m starting getting motivated, right? Okay. I need to have a rental. And I’m like, I can’t afford anything in LA. LA is too expensive. But then there are all these other cities where it’s dirt cheap. So I’m starting to think, okay, well, if I have to buy somewhere, it has to be outside LA or even outside California.
But how do I even do these things remotely? So this friend, Ken, he says, man, there’s this website called BiggerPockets and it is new and it’s apparently a social network for real estate investors. So I’m like, really? Huh? So I go home, I Google BiggerPockets and it’s like a forum. So I logged in and start watching all these forums and I see there are people from all over the United States. So next day I go to Ken and say, “Well, I signed up and it’s a forum. So what do I do now?” And he said, “Well, you want to get a property outside, right? So just look at the people from that region who are answering questions of other people. So let’s say you want to buy a property in Texas. See if there is an agent in Texas that answering other people’s questions. And if you find such person, talk to them and see if they’re willing to be your agent.” I’m like, “That’s a great idea.
That’s a way for me to judge that person somehow.” If they’re answering other people’s question properly, then that means they know their stuff. So I saw this guy called Chris Soyner. I don’t know how to pronounce his last name. And he was in Dallas Fort Worth area.

Tony:
An agent in that market.

Vaibhav:
Agent in that market. And he was answering people’s questions. So I’m like, “This guy looks good.” So I contacted him on BiggerPockets Forum and said, “Hey, can I talk to you? I want to invest in Dallas Fort Worth.” And he calls me and he was amazing actually. He helped me really get my first real investment property in Fort Worth area, Dallas Fort Worth area. And he told me which neighborhoods are good, which neighborhoods are bad. He did everything for me. And when there was an inspection, we even put an offer remotely based on the photos and his advice. And then when it was inspection time, then I flew from LA to Dallas and then actually was there for the inspection. And then I closed that house. And you know how much that house was for? $135,000.

Tony:
135,000.

Vaibhav:
$135,000. And what did it rent for? I don’t remember now, but it was 2016, right? 10 years ago. But I think it was $1,500, $300, something like that. It was pretty good actually. Yeah, for

Tony:
135,000. But it all starts, Vibob, with you reaching out and making those connections. And you actually highlighted a part of the BiggerPockets ecosystem that maybe a lot of people don’t know exists. But guys, that’s actually how I found BiggerPockets initially too. I was Googling something about real estate investing and a forum thread came up. And then from the forum thread, I found the books and the podcasts and all those things. But if you haven’t been on the BiggerPockets forums, you are missing out on an incredible wealth of information because BP started in 2004. So there’s literally 22 years as of this recording worth of information in the forums from real bonafide real estate investors, not AI, but actual people doing this daily. So if you want that context, go there. But then the other part of your story, Vibov, that’s important is that you’re in California and you wanted to go into this new market and your first kind of step was, “Hey, let me go find a good agent.” And I totally agree because when you are going remote, having an agent who knows that market really well that can say, “Oh, don’t go to this part of town.
Go to this part of town. Hey, don’t buy the up down duplexes because people hate renting those. Get the side by side.” Or, “Hey, don’t do this, do that instead.” And BiggerPockets has an agent finder tool now as well. So exactly what you did VibeBob, it’s not just built into BiggerPocket. You go to biggerpockets.com/agentfinder, type in your city and you’ll get, I don’t know, five different agents who reach out to you and say, “Hey, I’d love to work with you,” that are all investor friendly folks. But your $130,000 deal in Dallas doesn’t happen without a good agent connection first.

Vaibhav:
Yeah. And there is this fallacy in a lot of people’s minds that these agents are only motivated by money and they don’t care. They just want the deal to happen. But I have not seen that. Most of these agents that I’ve worked with, they’re pretty genuine people and they’ll tell you, “Don’t do this deal.” And I’m surprised by it. And my actual faith on humanity is stolen in a way. So it’s interesting that not everybody’s motivated by money. They will actually genuinely tell you if the deal is not worth doing.

Ashley:
Yeah. I was just talking to my brother-in-law and when he was house hunting, he was telling me that the agent he worked with was so great. And one of the things he liked the most about them was even though he wasted a lot of his time, he would take them to a showing and say, “Oh nope, this is wrong. Nope. You see this? This is bad. This bad. We’re not even going into the rest of the house. Come on, let’s go. We’re leaving.” And just straightforward gave it to him as to, “Nope, you don’t want this. This is the problem you’ll have. Come on, we’re getting out of

Tony:
Here.” Yeah. A good agent can literally make all the difference, especially if it’s in a new market. I was talking to this agent one time and she was somewhere in Florida. We were talking about short-term rentals. That what I do mostly. And she was like, “Hey, if you guys want to buy in this part of town, don’t buy in this HOA because I just heard that all of the owners have banded together and they’re suing the builder in the HOA.” And you’re not going to see that as you’re scrolling through Zillow, but because she’s there, she has that insight. And then she says something, I’d literally never heard this before, but she’s like, “Oh, by the way, if you want to buy in this town, don’t buy anything that was built in the ’90s.” And she’s like, “I bought and sold a lot of homes, but for whatever reason, the ones that were built in the ’90s are always the worst when it comes to getting insurance done.
They always get the worst insurance because something about how they built in that decade insurance companies just don’t like.” You wouldn’t even think to ask that question, but because she’s done that level of transaction, she has that insight. So agents I think are one of the most important team members for a new rookie investor to get onto their roster.

Ashley:
And I think it’s really understanding what you need from an agent. Do you need help with the market? Do you need help with analyzing the numbers? I have a great agent who’s really good at understanding the market, what’s going on, but as far as analyzing an investment, she just looks at, oh, you get it for this, it can rent for this? That’s a good deal. I have to rely on myself for that. But if you’re somebody that wants help with that, you got to vet your agent to make sure they can help you analyze the deal as an investor. So that’s really important. It’s figuring out what you need from an agent. So when you’re interviewing them, vetting them, you’re actually getting someone that can help you with that.

Tony:
I want to talk a little bit though about the success of the deal, because for a lot of people that are watching, they like the idea of $135,000 house, but they can’t get over the fact that it’s, I don’t know, however many thousands of miles away. So was it all sunshine and rainbows on this first Dallas deal? Give us the story.

Vaibhav:
I think so because I still own that rental. It’s priced around 320 right now. So it has tripled. And what I did was in the middle, I actually did a cash out refi when the interest rate was still low and I got 50, 60, 70. I don’t even remember how many thousand dollars we got out of it and bought another property, put it towards down payment for another property. So I was able to do that. And at the same time, at this moment, my principal is less than 100K remaining and it’s priced over 300K. So whenever I sell this, I’m going to get 200K check.

Tony:
For the person who’s listening by Bob, it’s like, yeah, cool. I’m in a high cost of living area. I want to go buy a sub $200,000 house, but I’m worried about the management side. What’s your advice to that person to navigate managing? Because before your first experience, they were right next door. They just come knock on your door. Now you’re doing this from thousands of miles away. How do you make it work from a distance?

Vaibhav:
Well, I mean, I just asked that agent, “Do you have any recommendations?” And then I Googled, I did my own research and I was able to find… Well, in fact, actually I did remember looking at BiggerPockets as well at that time, but I think at that time I couldn’t find somebody there. So then I found a property management company. But I think in today’s day and age, there is so much data available online. You can ask AI tools. It’s pretty easy now to do your research. So it’s very easy to find a property management company and you can even get lots of checklists from people out there, internet that just ask those questions and you’re able to find a right partner.

Tony:
So you hired a property manager for the Dallas property?

Vaibhav:
Yes.

Tony:
What was the decision making process for you? Because you self-managed the first ones. Why go with the PM for the second? Was it just the distance or what was the process? It’s

Vaibhav:
Simply my comfort level, right? Because I know that if something happens here, I could run there quickly within five minutes. My new house was only five minutes away from this property. But if something happens in Dallas, it’s like two, three hours worth of flight. It’s not easy for me to go and assist them. So I need to have a partner. So that’s what I did. Yeah. I mean, some people are comfortable with that. They have mental models that are developed. It’s really important that what you are comfortable with it, because ultimately your end is to get that investment succeed. Either it does this way or that way is not important. You have to make it successful.

Ashley:
Now, what does your portfolio look like today if we fast forward?

Vaibhav:
Yeah. So today it’s quite different because I still own those single families. I sold my rentals in LA, but now I own multifamilies as a syndicator. I’m a general partner in those… So I have a 24 unit in Sacramento. There’s a 17 unit in a Palmdale, Lancaster area in LA. There’s another… In Modesto, I have three properties, so 15 units, eight units, 14 units, it’s 16 units. So all these multifamily properties. So I make a switch at some point from single family to multifamily.

Ashley:
And how many single families did you get up to before you decided to make that transition?

Vaibhav:
Yeah, so five total single families because two on LA, I kept moving from one house to another house and just – Oh,

Ashley:
And then you keep

Vaibhav:
It as a rental? Keep it as a rental. And then I bought three of those in Dallas-Fort Worth area in the 2016 to 2018 area timeframe.

Ashley:
And you still have those ones?

Vaibhav:
The Dallas-Fort Worth are still there. LA ones I sold, and then I took that capital and put it in multifamily.

Ashley:
Yeah. Okay. So let’s talk about that transition of deciding you’ve got this stable portfolio in Dallas, but now you’re transitioning to multifamily. What got you excited about making this move?

Vaibhav:
It was COVID time, right? 2020, I think. And of course, one thing that COVID really gave you, and especially people in LA, is more time because you are saving time and commute. At that time, I was thinking that if I keep accumulating these smaller Texas properties one by one, I think in order to make any significant dent in my life, it would probably take 20 years. So I need to scale up or something. And of course, I mean, by that time, I was a BiggerPockets fan. So I’m reading their books, I’m listening to all the podcasts, I’m reading and listening, everything I could get hold of. And then I come across this podcast where Brendan Turner is interviewing Michael Blank, and he’s talking about this whole multifamily investing or syndications. I had no idea about it. So Michael Blank and Brendan Turner kind of introduced that to me.
And then in that podcast, they also talked about Michael Blank’s book. It’s the yellow book, The Passive Investing in Real Estate or something. So I immediately got hold of that book and then read that book. And after looking at that interview and that, I said, “Oh, this is intriguing. This is something maybe it’s possible for me to do it.” Then I just started reading everything about multifamily investing, every book that I could get hold of, everything. So for example, David Lindell has a book, I think Multifamily Millions is a blue book. Then Joe Fairless came up with a book, it’s a red book. I remember by the colors. Yeah. Colors and the yellow book of… So I read almost 10 books. Then I realized that Brendan Turner has other podcast episodes with other syndicators as well. So I got hold of them on YouTube and started listening to them.
Then there was a conference. In those days, the conferences were virtual,
So very easy to actually attend to them. And then I got introduced to… I went to one of these conferences, I mean virtually, and I came across all these people like Neil Bauer and Rod Khalif, Vinny Chopra, and all those big wigs syndicators. And they kind of educated me, they inspired me, and eventually Brendan Turner ended up going that way as well. So they inspired me, educated me, and I started thinking that this is something I could do. It’s possible to do it. So then the main question was, well, what is the first step? How do I even do this?

Ashley:
Well, I want to stop you right there because I want to give you your moment to be the Michael for everyone listening right now. What is syndication? Right now, you are about to teach someone what syndication is, just like you were that listener at one point. Someone out there right now is hearing about syndication for the first time with multifamily. So what is that?

Vaibhav:
It’s actually pretty simple. It’s pooling money together to buy a bigger asset that you could not have otherwise bought yourself. As simple as that. We are social creatures, right? So we come together and accomplish bigger goals. It’s as simple as that. That’s

Ashley:
A great explanation, a great breakdown.

Tony:
Yeah. Our friend, Mauricio, he talks about you can syndicate anything. You can syndicate a racehorse. You can syndicate anything that you want, but in multifamily or in real estate investing, a lot of times it’s these bigger apartment deals. Movie

Vaibhav:
Projects and then oil rigs, you can do anything.

Tony:
Yeah. Even private equity is a form of syndication because they’re raising money from a bunch of different people to go buy businesses and things of that nature.

Vaibhav:
Start tech VCs. Syndications

Tony:
As well. Right. Yeah. Anytime we’re pooling money and using that together to go buy something. I think for a lot of Rickies though, there’s maybe hesitation Vibav on scaling up to these bigger projects because even though the potential for reward is higher, so too is the risk. And I think it’s the risk part that maybe concerns people. Even Brandon, he publicly shared on his Instagram recently that one of his funds basically lost of the investor’s money. And he talked to the story of why he felt that it happened, but it is a real risk. It’s easier if it’s $130,000 single family home in Dallas that we’re losing all our money on, a lot harder if it’s a 15 unit apartment complex. So from your perspective, how do you mitigate the risk going from small sub $200,000 single family home into large multifamily?

Vaibhav:
Yeah. So first thing to understand is there are risks in everything and they’re just part of our life. When I go from my house to a grocery store, there is a risk there because I’m going to go on a public road in a car. It is possible that somebody else will come and hit me, correct? Even if I did not do anything wrong. Now, how do you mitigate At risk, you get insurance. You have two different kinds of insurance. You have the car insurance, the liability insurance, the comprehensive insurance for your car, and you have health insurance. In case you have to go to hospital, those bills will be taken care of. And then you have life insurance as well, if you wanted to, which will take care of if something happens to you, your wife and your kids will get at least some money to support them.
So there is always a mitigation. And as long as the known mitigation for these things exist, then it’s going to be fine.
The only risk, all real properties have insurances in present. So they’re going to get insured various ways. They’re going to be a liability insurance for you as well. The biggest fear comes is from not knowing things. So first thing to actually even sort of mitigate risk is to learn as much as you could about that domain. Because if you could learn those things, then there are always tricks of the trade. And if you can do those tricks of the trade, then these risks can be mitigated. And the second thing is that don’t do it alone first. Do it with somebody else and learn with them. And once you learn with them, then you know how they’re operating, how they’re mitigating the risk, and then you simply implement those tactics in your life, your projects as well.

Ashley:
How did you find your first partner?

Vaibhav:
Yeah. So that’s what I did, which is what happened is I started figuring out how do I be part of these communities? And then there were some programs from Michael Blank and other people that were very expensive where they would like, it’s thousands of dollars. You join those programs and they’ll teach you everything. And I’m like, oh, that’s too expensive. I’m too cheap. But then I found this community of Michael Blank where it was just a plan just to join their Slack channel. That’s it. That’s all. It was $50 per month. That’s it. And I’m like, I’m cheap, but I can afford $50. So I joined that Slack channel and because I was in tech, I knew what Slack was and I was using it. So I joined that Slack channel and I just started watching all the messages go by. And occasionally I used to just chime in on something.
And just by watching these people interact with each other, I could learn so much. And then one day, this woman, Savannah, she connects with me on this and says, “Oh, I have this project. I want to talk to you about it.” And then I give my phone number to her. She calls me and she’s pitching me this multifamily and she’s basically asking me that I need your money, investment. And my goals were very clear. I want to learn this. I had a little bit of money saved by this time. So I said, “Okay, I’ll invest with you if you take me along with you and teach me everything.”

Ashley:
Tony’s worst nightmare for.

Vaibhav:
And at that time, I guess she was new too, relatively new. And she said, “All right, I’ll do it.” And I said, “I’ll give you $100,000.” It was a relatively bigger amount at that time. And she agreed to it and they obeyed their word and they took me as a general partner. And then I went to the property for inspection with them. It was a COVID time. I had to go through a lot of crazy stuff at that time because the flights were like, nobody was flying at that time. It was 2020, I think. Late 2020, early 2021. Nobody was flying. So I drove from LA to Oregon. That first property was Eugene, near to Eugene, Oregon. And that’s, I think, I don’t know, like 13, 14 hours drive. So I stopped at Bay Area, my relative’s place, slept there overnight and then drove next day and it was raining continuously.
And I’m from Southern California. I didn’t even know how rain actually is. And so I drove in all that rain and then managed to do the inspection. I attended lawyer calls with them. I understood what a PPM is and all of that stuff. And that deal is what really gave me confidence that, okay, it’s all doable. And of course they were there as well, like Lupe and Savannah, it’s a couple. If something would go wrong, I could simply call up because I had developed relationship with them. We had a mutual respect about each other. And so I thought that, okay, if something goes horribly wrong, I could just call Lupe and Savannah and ask them, “Hey, how do I handle this?” So that’s how I found my partners.

Ashley:
So on this first deal, when you gave them your money, were you just a limited partner?

Vaibhav:
I was a general partner, but I was in a way passive or lower federal general partner because I was new. So I was just listening to what they’re saying and they were calling all the shots.

Ashley:
And can you explain for our listeners the difference between a general partner and a limited partner?

Vaibhav:
Yeah. A general partner is the person or a group of people who are in charge of that investment and they call the shots. And usually if an LLC gets formed, then they become managing members of the LLC. And limited partners are the people who simply invest their money or capital and they do not call shots of day-to-day operations. They have no say. At the same time, they do not have the liability as well that the general partners carry. So general partners usually guarantee the loan in many cases, whereas the limited partners don’t have that liability. So that’s the difference between general partners and limited partners.

Tony:
Now the first one was in Oregon. After that deal, you kind of learned your ropes. You mentioned that the rest of your portfolio, or at least a good portion of it is here in California. Your long-term rental, you went to Texas. What pulled you into California for the multifamily?

Vaibhav:
I think some of that experience as well is just there were a couple of issues in that property and just not knowing what’s happening exactly there was a little bit terrifying for me. So again, I thought if the property’s in California, between LA and San Francisco, I could get there in about five, six hours. That was the idea. And then I can see the things myself and mitigate it. I don’t think it’s necessary anymore, but it’s just at that point I wasn’t mentally evolved or capable of doing everything remotely. So that’s why I started with California.

Tony:
Just out of curiosity, how many instances were there where you actually had to drop everything and drive to the properties?

Vaibhav:
Actually, it’s very interesting. None. Okay. This might sound ridiculous, but it’s just my mental model was not… I was too conservative. I was just not evolved at that point. I just kept thinking about the worst possible thing that could happen. So the worst possible thing that could happen is fire and water, correct? And then I realized that you can’t even do anything. Exactly. If it’s fire, they need to call the fire department and they’ll do it. What are you going to do

Ashley:
There? You’re going to get out the garden party. You

Vaibhav:
Can go there in two days and it’ll be fine. It’s just not knowing, not having the mental model evolved. That’s about it.

Tony:
Do you think Faibov that you, because you said you had five long-term rentals before you went into the syndication route. Do you think that the five properties were a necessary stepping stone? Or if someone’s watching this today, could they do what you did? Or maybe they come to you and they’re like, “Hey, I’ve got a hundred grand. I’ll put it into one of your deals, but I want to be a general partner.” If that was your very first real estate transaction ever, do you think that they could still be successful or do they have to go through the single family

Vaibhav:
First? 100% yes. I don’t think those five properties were necessary. I just didn’t know about syndication. So I didn’t even know that you could do something like this. The only reason I started is because I kind of did it ad hoc way. Whatever came in front of me, I did it. So yeah, it’s absolutely not necessary.

Ashley:
What do you think was the biggest learning curve going from single family investing into multifamily syndications?

Vaibhav:
I think the biggest thing was, you know how that was dreadful to me, every single call. In multifamily, there were more calls like that, but then there was also cash flow to support that. And so that really took my fear away or the dread away for those calls because I really understood that everything, this might sound too bad, but everything is a number in a way and everything has a cost associated with it. And ultimately if you can afford that cost, then it’s not a problem. Water interest will go away. It’s okay. And then I also understood what is CapEx versus OpEx. And that was a big revelation to me.

Tony:
Define the difference, Viba, for people that aren’t familiar. How do you differentiate one versus the other?

Vaibhav:
So capital expenditure or CapEx is something that adds long-term value to the property. So for example, if you’re doing renovation of a unit or if you’re replacing a HVAC system, that’s like a $10,000 expense, but then that’s going to pay you off for 10, 15, 20 years. So when you do enough CapEx in your property, your property value increases. Not every CapEx increases property value. If we change electrical panels, nobody gives a shit. But if you change HVAC, the newer HVOCs are more efficient and they will keep running for next 10 years. Or if you renovate an apartment, that’s definitely going to get you higher rent, most probably. So I understood the difference between CapEx and OPEX, and that was very important for me. And then I understood that certain expenditure is actually going to add value. It’s not always bad. So if HVAC goes away and you were forced to replace it, it’s fine.
It’s CapEx, right? That means next 10 years, you don’t have to deal with that, correct? So those were some of the learnings from single family to multifamily.

Tony:
Were there any habits or assumptions that you had managing the single family that you tried to take into the multifamily that just didn’t translate? Like, oh man, I always did it this way when I had my single family homes, but I can’t continue to operate this way at scale and multifamily.

Vaibhav:
I think I realized that my model of me just managing things is not going to work with these multifamilies. So I have to have a property management at that scale. And then eventually I even understood that if I have to scale and have multiple of these properties, I might need further assistance as well. So then I started figuring out, oh, can I get a VA somewhere, virtual assistant or can I get a… So that was my main learning is that you can do everything yourself. If you want to scale up, then you need to get help from someone. And at that point I was also reading some of these books like Who Not How from Dan Sullivan.

Ashley:
What color is that book? Blue

Vaibhav:
And yellow. I don’t remember. Yeah. It might be orange.

Ashley:
Who were the people that you started to add onto your team? Did you hire different property management companies in each market? Did you have people in-house that were working for you?

Vaibhav:
Yeah. So I took a hybrid approach where I tackled it from all angles. So I took some partners as a general partners because then we could just divide and conquer things. So my different properties are different partners essentially. And then of course there was a property management and at some point I actually could even afford to hire… Well, actually, I wouldn’t say I afforded, but I decided to make an investment in hiring an actual team member. And she actually lives in Patterson and Modesto is closer to Patterson and Modesto is where most of our properties are. So I just made it because I still had a full-time job. So I had to figure out how am I going to do all of this without jeopardizing my full-time job, correct? So that was a revelation to me that I must take help from all these other people.
And that’s partners, property managers, and potentially an assistant or a colleague or team member of yourself.

Tony:
You talked a little bit about you still having a full-time job, but we mentioned before that you’ve since stepped away from that. And for a lot of people here at Vibab, that’s their goal. They want to be able to have at least the option to maybe walk away or to maybe walk away from the super high paying yet stressful job that takes all their time and go take another role that maybe pays less, but they enjoy more. But that is a goal for a lot of people. How did you know that you were ready to take that leap? Was it the unit count? Was it, hey, you had saved X amount of money from your day job? Was it the cash flow from the business? What was the internal dialogue to say, okay, today’s the day?

Vaibhav:
I think the amount of properties just increased to a point where I started spending a lot of my time in these matters. At that point, I’m starting to think that, okay, well, I need to be ethical. I need to be ethical to the company that I’m working for. I need to be ethical to the investors that I’ve invested in and they are counting on me to make this succeed. I’m still not, because I have assistants or another team members, and I’m paying their salaries and all that stuff, I just thought if I’m going to make this profitable and I’m going to make this work, I need to be full-time. My mind share need to be 100%. Once you jump in it, there’s no point of return. You have to figure everything out. Even though I’m not fully… I’m not 100% cashflow positive for all these operations, I decided to jump in to make it that way.
And just within one month of leaving job, I have a path to it. It’s as simple as that. It’s just me putting my mind to it. You can solve any problem in the world if you just sit a month or a week or two weeks and just focus on that problem. It’s as simple as that. I just wasn’t getting that time.

Ashley:
I want to be clear, I’m fully supportive of people keeping their W2 job as long as possible. You’re going to get better funding, you’re going to have that security blanket of a job. But we have had so many guests on time and time again who have said that once they left their job, it was like the hockey stick. It just shoots up their productivity, their success. It really did make a huge difference.

Vaibhav:
There’s actually one more factor to having a supportive wife helps because if they are telling you, yeah, it’s no problem, do it and they’re earning as well, then it gives you additional cushion. Plus, I mean, I’m at a stage where I work for these 20 years in tech and tech pays really well. So I’ve invested my money properly in real estate as well as stocks, everything. So I’m at a point where it’s not a problem for me if things fall apart.

Tony:
You have the financial foundation. I had the financial

Vaibhav:
Foundation.

Tony:
Yeah. It was literally the same thing for me. I worked for Tesla as my last W2 job and I actually lost my job in 2020 and my wife and I were trying to decide like, “Hey, what do we do next? Do I go back and get a job or mindshare?” We have, I don’t know, three short-term rentals at that point. Do we focus on this little real estate business that we had? And we’re like, “Okay, let’s give ourselves a deadline.” This was right at the end of 2020 when I lost my job. Let’ say, “Hey, let’s give ourselves all of 2021 to see how far we can take the portfolio.” And again, we had three properties. At the end of those 12 months, at the end of 2021, we had 15 properties, and I would not have been able to even get close to that if I was still working my full-time job.
But to your point, the mind share and just my back is against the wall. I got to figure this out. That’s what allowed us to really scale. So I love that you kind of took the same approach.

Ashley:
Well, Viba, thank you so much for joining us today on this episode. Where can people reach out to you? And you also have something to share with us today.

Vaibhav:
Yeah, absolutely. So my website is oldmoneycapital.com. Why Old Money Capital? That was the domain that was available, so it doesn’t have any story. So oldmoneycapital.com. I just actually published a book which is available in Amazon and Audible. The book is called Own Real Estate, Not the Headaches. And this book is written for passive investors. So it explains syndications to them and it removes the fear of syndications from them. Syndications are becoming more and more accessible now. So it’s very interesting because an earlier syndications were limited to few ultra net worth people, but now just a middle class people are invested in syndications as well. So it is very important that they learn what the syndication is before they actually jump in it. So this book actually solves that problem. It’s meant for passive investors. Well,

Ashley:
Thank you so much for joining us today. We really appreciate it. And to all of our rookie listeners, thank you for joining us also. If you’re not already, make sure you are subscribed to our YouTube channel at RealEstateRookie. You can also follow our Instagram @biggerpocketsrookie. I’m Ashley. He’s Tony, and we’ll see you guys next time.

Henry Washington:
You don’t need dozens of rentals to reach financial freedom. And if you ask today’s guest, less is usually more. For over a decade, John Crutchfield was in full acquisition mode. Despite starting with very little money, he scaled to over 600 units across multiple states and tens of millions of dollars worth of real estate. He even quit his job so he could focus on his portfolio full time, but then the market changed. Interest rates spiked, debt became more expensive, and John’s expenses bloomed. Suddenly, owning more properties wasn’t making him any wealthier, so he started selling. And in the process, John learned a crucial lesson about building wealth. Sometimes having less can actually give you more, more cash flow, more flexibility, more peace of mind. In today’s episode, John shares the highs and the lows of his real estate investing journey, how he turned a smaller portfolio into a more profitable business, and why door count matters far less than the freedom each property provides.
What’s going on, everybody? I’m Henry Washington, co-host of the BiggerPockets Podcast. And today we’re bringing you an investor story with Dr. John Crutchfield who invests in Tupelo, Mississippi. So let’s bring him on. All right, Dr. John Crutchfield, welcome to the BiggerPockets Podcast, my friend.

John Crutchfield:
Man, too cool, too cool. How you doing? Henry Washington, the Henry Washington.

Henry Washington:
Why don’t you give us some background? Start a little bit before real estate and then kind of talk us up to where you are now.

John Crutchfield:
I’m John Crutchfield. Grew up in Tallahassee, Florida. I’m a Florida boy. Time came to go to college. It was like, okay, where are you going? Well, I don’t want to go too far. So Florida State was right down the street. Fast forward a little bit, got my first job as a teacher because teachers get summers off, they get all the holidays. Somebody said, “Well, if you go back to school, you’re such a good teacher. I bet you could be a good principal.” And I was like, “Yeah, you know what? That’s right.” So I went back and got a master’s degree, became a principal, realized that as a principal, you do get paid a little bit more, but you have to be there all the time. So somebody then said, “Hey, you’d like to talk and you seem kind of smart. Maybe you want to be a college professor.
That’s the next level. All of these, by the way, you got to go back to school, pay more money so that you can get a better job.” And so I just kind of followed that track, ended up as a professor at Ole Miss, that probably was my dream job, got to help people who wanted to become teachers become teachers. So very fulfilling work. But every time I got these increased roles, I ended up seeing lifestyle creep happen. So more money coming in the personal account meant, okay, better furniture or a bigger house, more spending because hey, you got to have a better car because you’re making more money. That’s the thought. And so ended up at the end of the month, no matter what job I had, not having enough money or having to wait till the next month. So then I started Googling stuff like passive income and stumbled on real estate investing.
There was this podcast at the time called the BiggerPockets Podcast. So it’s funny. Never heard

Henry Washington:
Of it.

John Crutchfield:
Yeah. And I stumbled on their forums, getting tons of quality answers from the community, but just started kind of feeding that bug of getting financial education.

Henry Washington:
How old were you at the time when you found this real estate bug?

John Crutchfield:
Oh, probably 26. 25, 26.

Henry Washington:
How long did it take you to go from that learning to doing and what were those steps?

John Crutchfield:
I ended up meeting a guy at church who had about 30 properties, and this was his retirement plan. And he, as we’re having the conversation says, “You should sit with me so I can show you what I’m doing.” And that mentorship became very valuable to me because we struck up a relationship, started having multiple conversations. He sat down with me and he told me, “Just look at your life in your W2 world. If you can run a school, you can run a business.” That was kind of my moment because before he said that, I had never in my life considered actually owning a business. That’s how ingrained it was for me that you go to school, you get good grades, you go to college, you get a good job. I was that guy. So what I ended up doing is going online like some people do and looking for sale by owners because I had a big problem.
I didn’t have any money. So I remember my strategy, very concrete, it actually still works in 2026. It’s a lot harder, but it still works. To go on Zillow, filter for sale by owners, and you get their phone number right there. And I will text them, “I’m interested in buying your house, but I don’t have any money. Will you owner finance it to me?” That was the text that I sent hundreds of times and one guy said yes. He said, “Actually, I will.”

Henry Washington:
It does still work. You can actually do that. But most people won’t commit to sending the amount of text messages that you would need to send in order for somebody to get a yes. Where people screw up, it’s not that you can’t get into real estate with limited funds, it’s that most people aren’t willing to put in the level of effort it’s going to take to find that deal and to get that deal closed when you don’t have money as a resource. You’re going to have to spend way more time and put a lot more effort in. You got to be more creative.

John Crutchfield:
Absolutely.

Henry Washington:
Well, I know it was a while ago, but the principles remain the same. Would you mind sharing with us kind of what that ended up looking like, what that deal structure was? What’d you pay for the house? How’d you structure the financing? What’d you give him? What’d you not give him?

John Crutchfield:
I bought the house for $80,000. It was a three bedroom, two bath in the market that I’m in, Tupelo, Mississippi. The monthly payment was $528 a month. And then I was responsible for the taxes and insurance. The house did need about $20,000 in work. So he had just had a tenant move and that’s why he was interested in this because he didn’t want to do the renovations. Ended up spending that 20,000, a lot of it was sweat equity, but getting the house presentable where we could rent the house out and ended up renting the house out for $1,200 a month.

Henry Washington:
So that’s a screaming deal.

John Crutchfield:
Look, I owned that house for maybe 10 years before we sold it and we sold it recently for like $220,000.

Henry Washington:
Sounds like a deal to me, buddy.

John Crutchfield:
Yeah. And I ended up having an investor relationship, kind of a guy that we ended up doing more business together because of this. So that first deal went pretty well.

Henry Washington:
This absolutely can still work. Almost all of my owner finance deals have been from landlords because landlords understand the value of cash flow. That’s why they were landlords in the first place. And a lot of people would love to get out of the business of being a landlord, but still maintain cash flow. And the way to do that is owner finance because then you get paid every month, but you’re doing got to deal with tenants and toilets. So if you want to try this, I would say try it, except just do it a little different now. Help yourself pull a list of people who own property free and clear, absentee owners and landlords. Call them all or text them all and ask them. And I bet you won’t have to send as many thousands, but it’ll still be a lot and you’ll get a lot of rejection, but this can absolutely still work.
So I’m very curious how that deal sparked your growth and how long it took you to scale, but I want to ask you those questions right after the break. All right. Welcome back to the BiggerPockets Podcast. I am here with investor Dr. John Crutchfield, who just told us the story of his first deal. And it’s so interesting that our stories are so similar in how we got started in our upbringings even into leading into that first deal. So you did a first deal, pure hustle, sent hundreds of text messages asking somebody if they’d owner finance you a house. And lo and behold, somebody says yes, you end up buying a screaming deal. How did that spark the rest of your real estate investment journey?

John Crutchfield:
When I had the mentor that I mentioned come over to look at the house after we were done, he was like, “I think you need to get this appraised.” That was the eureka moment. When I got the appraisal and I had $100,000 on this property, but it was worth 160, and at the time I was a professor at a college making $60,000 in a whole year. I was like, “Wait a minute, this is possible to do over and over and over again?” And he was like, “Yes.” And so that is how the first deal really kind of sparks the push into, “Well, if I could do this five times a year, I’d be making five times as much as I make on a job. And this is a no-brainer.” At the time, I never thought about quitting my job. I just said, “I could do my job and do this on the side.” So ended up doing my next deal.
Similar type situation. I would say you asked me how long. It was probably a year or two. There was some space, but ended up buying a property, again, very limited funds, using sweat equity. I have pictures with my wife and kids helping me paint and fix up countertops, but ended up doing a similar thing. $15,000 purchase. This is a Mississippi property.

Henry Washington:
$15,000 for the whole house or the down payment?

John Crutchfield:
For the whole house. There was an evolution that happened here. Once I saw that appraisal and the whole value add situation, my mind switched from, “Well, I need to get the properties for as low as possible.” My strategy improved, and this is a strategy I used probably for my first 30 units. You have all these people on the MLS that are trying to sell their property, and some of those properties are sitting there for months and months and months. So I found a realtor who would do what I asked, because some of them wouldn’t. I just want to offer $15,000 on everything on the market. And that’s what I started doing, just offering as low as possible on everything on the market. Some of them wouldn’t respond. Some of them would say, “Heck no,” all that stuff. But then somebody would counter a lot lower than their asking price.
Or in this case, the guy just said, “Have you even looked at the house? Yes, I’ll take 15K.”

Henry Washington:
That doesn’t sound like a good answer. Oh

John Crutchfield:
My goodness. If I asked a third grader to describe what they think a $15,000 house looks like, that’s what this house looked like.

Henry Washington:
The house needed a whole new house?

John Crutchfield:
It needed everything. It needed everything. Everything. Holes everywhere, stuff everywhere, vacant for a long time. But the numbers made sense. I ended up buying that house for 15K. My wife and I spent about 35. Again, a lot of that sweat equity in there, went to the bank and they said it was worth 100K. So this whole concept of adding value and making something worth more because you did the work, it really provoked an addiction. And so that’s kind of what I did. I started doing as many of these as I could.

Henry Washington:
I actually teach people how to offer on the MLS in a very similar fashion. You want to find a deal on the MLS? Do these steps. Define your buy box. Your buy box is just what you want to buy and where you want to buy it, right? Give that buy box to an agent who’s willing to submit offers for you. John said not everybody was willing to do this for him. That’s still true to this day. You got to find an agent who’s going to be willing to do this dirty work. And so I pull every house on the MLS that is in my buy box and has been listed for 90 days or more. Average days on market here is about 60 days. So I do 30 days beyond average days on market. That’s my assumption that they may be motivated for a lower offer.
And then I just have my agent offer 40% off of the price it’s listed for. So we take the list price, we subtract 40%, that is our offer. And we don’t write up official offers for everyone. My agent has a canned text message that he sends to the other agent that basically paints me as the bad guy so he doesn’t have to damage his reputation for making lower offers. He says, “Hey, I’ve got an investor client. He’s only making offers based on the numbers. It’s not personal at all. I’m sorry the offer’s not what you’re hoping it is, but would you consider an offer of X?” And he sends that to every one of these listings. We are not looking for someone to say yes. Matter of fact, I don’t want somebody to say yes. Like your guy said yes, that ended up being a doozy.
If somebody takes that and says yes, I’m probably pretty skittish, but absolutely want people to counter because if you counter or if you say, “Hey, we’d consider it, great. Now we can have a conversation. I can go see the house. I can analyze it thoroughly and I can make an offer.” This is the exact same strategy you just talked about, maybe refined a little different for the times. You guys, this stuff still works if you’re willing to put in the hustle.

John Crutchfield:
That idea of making offers and starting conversations is something that I still have to remind myself of all the time. When I want to build my pipeline, it’s like how many conversations have I had? How many offers have I made?

Henry Washington:
People get so overwhelmed with the concept of how do I find a good deal? Simplify the process. That’s what John just did. If you simplify the process down, it becomes a lot easier. So what if instead of worrying about what kind of marketing you’re going to do or if you’re going to make MLS offers, what if you just said, “What if I talk to three to five people a day who can sell me a house?” Just get on the phone with three to five people a day who can sell you a house. If you make it a point to have a conversation with three to five people a day who could sell you a house, I bet you’d buy a house pretty quickly, 30, 60, 90 days if you do that consistently. So what does that mean? You can either call direct sellers and see if they’re willing to talk to you about selling a house, real estate agent.
You can call real estate agents and see if they have anything that would fit your buy box, or you can call a wholesaler. Those are three different types of people who can all help you buy a house. So talk to one of each a day. What if you just talk to a wholesaler, a seller and a real estate agent every day? That’s very easy to do. And if you did that consistently for 30 days, I bet you’d be pretty close to getting a deal.

John Crutchfield:
And also what you’re doing is you’re leveraging other people to help you reach your goal. So now it’s not just the deal you’re looking at that you might have started the conversation with, but it’s all the other deals that they may be aware of that they may present and say, “Hey, this is something you should consider.” So you’re exponentially growing your reach by having these conversations.

Henry Washington:
Would you mind sharing with us kind of how big your business got over the course of the next several years and what that timeframe looked like for you to get there?

John Crutchfield:
So I actually don’t know how many I had at the peak. I really don’t. I would go to these conferences and people would be like, “How many doors?” And I was using a CRM, so I know I remember 585. I remember that number being in the CRM. Problem was I was focused on acquisition and growing, so not all the units ever made it into the CRM. We were picking up deals in Iowa. I was picking up deals in Arkansas, picking up deals we started buying in Texas.

Henry Washington:
And you were keeping these. These weren’t like wholesale deals.

John Crutchfield:
Never sold a property till the market turned and I realized I should have been selling some sometimes. It probably ended up being 600 plus.

Henry Washington:
That’s a lot of real estate across multiple states. Were you building teams in all these states to help you operate all this real estate and were you buying it all creative? That’s a lot, man.

John Crutchfield:
Yeah. So out of state means you got to leverage other people. And so a lot of times we were partnering with property management in those areas because I didn’t have a team there. And then you’re absolutely correct. You probably are not going to buy 500 plus units with it just being one house at a time, one property at a time. And so somewhere in 2017, 2018, it kind of clicked for me that a lot of property owners, a lot of landlords had more than one property that they would want to sell at one time.
And so I remember buying a package of 50 doors. I remember buying a package of 30. I would go on the property tax records and I would look for LLCs or people that had multiple properties under their name and they would get a text or an email from me. And at that point, my goal was growth. So if they asked me what I wanted to buy, it was like, how much are you willing to sell? And so I started being that leader, that visionary that was thinking, how fast can I grow the door count? Since I’ve realized that that actually doesn’t matter at all. So what I loved doing was making an offer on a property, figuring out what my renovations were going to be, figuring out what that ARV was going to be and putting that in a spreadsheet, figuring out what the rent was going to be, what the expenses I thought would be, and putting that in a spreadsheet.
And so what I would do is every time I was acquiring, I would just add to my spreadsheet and it starts to add up really fast. I mean, when I say I got addicted to this, I got addicted to every 30 days updating my personal financial statement and seeing my net worth just going up like crazy or every single month seeing the deposits in the bank account keep going up. And so if you’re somebody who grew up like I did or who was a school teacher and you’re making $3,000 net after your pay, seeing $100,000 hit a bank account or $200,000 start to hit a bank account every single month, you’re just looking at that top number saying, “This is beautiful. I’m doing something right.” But when you as the owner are focused on just growing, you are kind of at the mercy of your property management, you’re at the mercy of your team.
And then most importantly, you’re at mercy of the expenses staying the same as what was in your proforma, and that will not stay the same.

Henry Washington:
Were you still working your day job when you were this big?

John Crutchfield:
I quit my day job once I realized the possibilities, right? In fact, I just became a horrible employee, right? They would ask me to do something extra or give me an extra assignment and I was like, “Do I want to do this instead of trying to be a good team player?” So I remember, and this was in the peak of good times, I remember doing a deal where I added $300,000 into my net worth on one deal. I remember my boss saying, “Hey, we need you to teach an extra class or something and we’re not going to pay you for it because we think you can fit it in your schedule.” And I was like, “I got to talk to my wife, but I think I’m done.” And I ended up quitting, but I went full-time into this business somewhere around 2019. And so that meant every day I was giving 100% of my effort to growing the business.
I’m an entrepreneur now. I’m a full-time business owner. I probably work too much, but I don’t clock in or clock out. So it feels like I’m doing what I like to do.

Henry Washington:
And that’s specifically what I’d like to talk to you about right after the break is what were some of the lessons you learned as a technically small business operating a large portfolio. So let’s jump into that after we come back. All right, we’re back on the BiggerPockets podcast. I’m talking with investor Dr. John Crutchfield, who took growing and scaling to a whole new level and did it during a market transition. You said you quit your job in around 2019. The market got real good between 2019 and 2022, and then it’s been not as great from 2022, 2023 until now. So I’m very curious about what lessons you learned while you were in that growth mode and operating mode and how that’s shaped where your business is today.

John Crutchfield:
I learned that more doors does not necessarily mean more success. Once you get into it, you realize, okay, I’m actually now managing employees, I’m managing contractors, I’m managing inventory and materials that I don’t want to just walk off. All of the little issues that you might have on one project, I want you to start multiplying those by hundreds of doors. You know the stories, right? Contractor walks off with this material or you got a water leak or some kind of plumbing issue or AC out, and this is going to create wear and tear on your properties, but also ultimately affect your bottom line, which is what matters, not door count, your bottom line, what’s left over at the end of the month. And so people ask me, well, what’s it like? Were you really making 50, $100,000 a month? Henry, I remember celebrating at one point I was paying off a house every single month.
In Mississippi, a good house was 60, 70K. I was paying down 50, 60, 70K a month in debt pay down and looking at that like, man, I got a house paid off and I’m doing that every single month. So beautiful. But then you’d have some seasons of the year where we were giving that back in CapEx because when their AC goes off, it has to be fixed. You can’t say, well, I’m just a little landlord and I only have a property or two and I need you to understand or you’re going to be in a newspaper. You got to get those units fixed and get those people back up so that they’re operating, they can have a safe, affordable place to live. A key principle here is that it’s like a living, breathing organism as you grow that has so many lessons that you can’t find in a book.

Henry Washington:
Yes.

John Crutchfield:
And that’s what I learned.

Henry Washington:
So how did that change your business? Did you start to sell property? Did you stay in growth mode? What changed and when did it start to change?

John Crutchfield:
So big change started in late 2022, 2023. A lot of us are aware that the Fed started increasing interest rates. And if you have $30 million borrowed and your interest rate average is 4%, that’s like free money. It’s beautiful. You’re making payments and you got money left over to do stuff. But when that same $30 million, and a lot of my loans were these local community bank loans that reset every five years, ask me how they time this, okay? When they reset and then your average interest rate goes to eight, that literally is a huge increase in your expenses and it changes your lifestyle. So if I had one property where the mortgage payment went from 12,000 to 21,000, that changes the salaries that I can pay off that property. It changes the salary I can pay myself. And then you multiply that across the whole portfolio and you’re really in a tight trying to figure out, okay, how am I going to adjust?
The first adjustment we made is like, okay, let’s double down on the strategy that was working for me. I grew the business by burrowing, buying and fixing up the property and renting it out and refinancing. So let’s go borrow some more money so that we can have cash to keep operating. That was the first thing I did. The problem is we weren’t borrowing that cheap money anymore. We were borrowing more expensive money. And it got volatile, Henry. It got kind of volatile for a little bit as those rates were going up. Some of the lenders started squeezing in some 10% rates in there. So we had the cash to operate today, but not the cash to operate in the future if we were depending on cashflow. And so realized looking at the spreadsheets that this was not going to work. Eventually we were going to run out of cash and we were going to run out of the ability to keep borrowing.
And so this is when I started saying, okay, we got to sell some stuff. I wish I had took some chips off the table sooner. I will tell you something, this is probably put this on a bumper sticker. It’s actually very easy to buy real estate. It is a totally different game to sell real estate.

Henry Washington:
That’s true.

John Crutchfield:
And it’s a new skill that we’re still having to learn because we’re still selling some properties. Fortunately, I met some awesome realtors who have been helping dispose some of the portfolio, and I’m also now a licensed realtor, so I’ve learned a little bit more about selling properties as well. I told you I quit my job, but I thought that I quit my job to live off the rental properties. That was a misunderstanding. And so when you start pulling your lifestyle off of the rental properties, that makes the things tighter as well. And so what I learned as we started selling properties is like, oh, I actually still need an active income from something to make sure that I’m not pulling money off of these very limited tight margin rental properties and cash flows. So that’s probably a whole nother thing. But if I could save one person, I’m like, “Hey, quitting your job is beautiful in this business once you’re ready, but it’s not always the right thing for everybody.”

Henry Washington:
The realization I had was I’m running a business, the business makes money, and then if I take all the money it makes out of the business every month, it’s hard for the business to grow. If I suck every ounce of profit out and I don’t reallocate some of that to improving the business, the business doesn’t grow. Any business that isn’t real estate, they don’t do that. They don’t suck all the profits out and then hope the business grows. There’s a plan for reallocating profits to continue to grow the business. Two, most investors realize, okay, if I’m going to quit my job, it’s not going to be the cash flow that gets me there. It’s a hard realization because most of us get sold into real estate investing on the concept of properties paying for life’s expenses. That was the thing that got me. Oh, you want to buy a new car, get a house.
The house produces cash flow, cashflow pays for the car. In practice, it doesn’t always work like that because maintenance is unpredictable because even if you are predicting the maintenance, if you haven’t owned the property that long, you haven’t saved up enough cash to cover said maintenance item that comes from somewhere out of your pocket, which means you have less to go pay for this new car or this thing you have in your lifestyle. And so you realize the same thing I realized and the same thing that a lot of investors listening to this are going to realize that if I want to quit my job and use real estate, I can’t just do it on cash flow. I have to find another active income stream within the real estate space to do that. And there’s nothing wrong with that. And so I tell people, yeah, I retired from corporate, but I didn’t retire from working.
I flip houses. That’s a job. It’s a construction business. That’s what I do. And on its surface, I flip houses. So I run a construction business that renovates properties that produces cash. I use that cash and I live off that cash so I don’t have to touch my cash flow. I can use that cash to also pay down the assets and then at some point I won’t have to flip houses anymore. And so for those of you that are listening, if you want to quit your job, you can get there, but think of it in two phases. Phase one is if I want to get out of my corporate gig, what job within the real estate space can I replace my corporate gig with? Phase two is to work yourself out of having to have that active income stream over the course of the next several years.
So my goal is to take the flip proceeds, pay off more rentals. More paid off rentals is unleveraged cash flow, unleveraged cash flow is substantially higher than leverage cash flow, and at some point I don’t have to flip houses anymore. So that’s the way that I think people need to think about leaving their job.

John Crutchfield:
And you don’t need hundreds of doors if you’re looking at it like paid off rental property. So the 500 number, totally unnecessary. What you just said there is like gold for anybody that’s like, okay, if I want to fast track my knowledge five, 10 years in the business, just listen to what Henry just said about active cash flow, paying off your eventual retirement income.

Henry Washington:
Let’s put some actual numbers to this, if you don’t mind. Where does your portfolio stand today and where are you trying to get it to?

John Crutchfield:
I mean, at the peak, we probably were close to 30 to 35 million in assets and today we’re down to about 10 million.

Henry Washington:
Wow. So you sold two thirds of your portfolio?

John Crutchfield:
Yes. And selling and selling. So what that means is we’ve had capital to be able to reinvest in other things, but also it means we’ve taken some chips off the table. Unfortunately, we are not selling at a time where you can get those max values. And so that means that in some cases I’ve had to be a motivated seller. We wanted to get out of certain debt. Just to be clear, if I’m at a 10% interest rate right now, that property is not making money, not in the market that I’m in. So being out of them in certain cases was better than holding onto them. I don’t actually have a target anymore for the size of the portfolio because what I realized is that I already have more than I’ll ever need if it’s paid off.
I’ll give you an example. A lot of my properties are five, 10 property packages. Well, if I sell six of them, I’ve got four free and clear. And that’s been happening over and over for the last three years. So I’m starting to fall in love with the ones that we own that don’t have any payment, whereas the ones that are kind of in these packages and still in debt, especially if they’re not cash flowing, they got to go. Of course, I have a proforma and I have a spreadsheet, but when you go to sell, you don’t know what’s going to sell first or what’s going to sell for what.

Henry Washington:
There

John Crutchfield:
You go. And you’re kind of adjusting the plan every 30 days as it goes.

Henry Washington:
This is the realest real estate talk I’ve had in a while. All right, John, you shared a lot with us and I’m sure there are people who would love to learn more about you and the choices you’ve made in your business. And so if somebody wants to reach out, how can they find you?

John Crutchfield:
You can find me all over social handle is @grabthemap, or you can just search my name on Facebook. I’d probably hang out there where the old folks are. That’s what my kids tell me is where the old folks are.

Henry Washington:
All right, John. And if you are listening to this episode and you are thinking, “Man, I’ve got a pretty cool story I’d like to share with the listeners of the BiggerPockets Podcast,” well, you may have a chance. Why don’t you head on over to biggerpockets.com/guest and fill out the form. You may find yourself right here in a conversation with myself or Dave sharing your story for the betterment of our community. Once again, thank you so much for listening to the BiggerPockets Podcast. We’ll see you on the next episode.

Ashley:
Today’s rookie reply is about a question almost every beginner has. When the numbers are not perfect, how do you know if the deal still makes sense? A house hack might not cover the full mortgage. A rental might only break even and return expectations can get confusing fast.

Tony:
Today’s questions come from the BiggerPockets forums and we have someone trying to house hack in a really expensive market. We have a rookie asking what does breakeven really mean? And a first time house hacker wondering what returns to expect in today’s…

Ashley:
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. So our first question today comes from Dominic, and Dominic says, “House hacking is an amazing way to get into real estate and the most promoted benefit is if the tenant pays the mortgage or most of it while there’s also a low down payment. But I live in Portland, Oregon and a duplex goes for 450,000 bucks to sometimes quite a bit higher. After doing some numbers, I would still be paying a hefty portion of the mortgage even after taking into account market rent on the other half. An example, the purchase price is 450,000. One unit is being rented for about 1,150 and the other unit I would be living in. The monthly mortgage payment is 3,321 with 5% down, which means I will be paying 2,171, about 2,200 bucks. This doesn’t even take into account repairs, et cetera.
This defeats the entire goal of house hacking. So I was wondering how house hacking is being done when property prices are so high. Is house hacking a thing of the past in these markets or is there some tactic that I’m missing? Dominic, great question. And I don’t think, Nash, I’m sure you’d agree, I don’t think house hacking is a thing of the past. I think we just need to redefine what a successful house hack actually means. And yes, when prices were much lower and interest rates were much lower, maybe you could get a bunch of cash flow on top of your house hack. But I think today the bigger question is, can you either A, subsidize the costs that you’re already spending to live somewhere or B, even if you’re paying the same, can you at least have that same payment go towards an asset that you own as opposed to paying some other landlord’s mortgage balance down?
So for you, you said that your mortgage would be about 3,300 bucks and you’d be paying about 2,100, 2,200 bucks per month to offset the rest of the mortgage. So the question is, if you were to go rent a comparable place somewhere else, would you be spending more or less than 2,200? And if you would also be spending 2,200 bucks somewhere else, still kind of a win, right? You’re spending the same amount that you’re already spending, but it’s going towards something that you own. So I think just redefining what a successful house act actually means is probably what I focus on.

Ashley:
And then on top of that, besides just paying towards your own mortgage payment and owning the asset, you’re getting other advantages like the tax advantages of owning real estate compared to renting a property. You’re having your tenant pay down part of your mortgage and you’re getting appreciation in the property. Plus you own the property so you can kind of make the rules and do with it what you want to. So there’s other factors to think about instead of just your housing cost also. But most of the time you can decrease your living costs or even if you can’t decrease them and they’re staying the same, there’s all these other things that come into play that make it such a benefit to you as an investor, not only financially, but also kind of for your life too.

Tony:
I think the other piece that I’d add also is, is there a way, Dominic, for you to increase the revenue potential on this property? Because if you said like, “Hey, the one unit’s being rented for 1,150, is there a way to increase that 1,150 to some other number? And maybe instead of just doing a traditional long-term rental, can you rent by the room?” If it’s a three bedroom or a two bedroom duplex on the other side, rent out both rooms individually. Can you go from 1,150 to maybe 1,600 or 1,900, whatever it may be. Can you switch the strategy? Can you furnish the place and maybe do a midterm rental where now instead of 1,150, maybe you’re covering your entire mortgage with just the rents from that other side being a midterm rental or a short term rental, whatever it may be. So I think maybe also getting creative on the ways to increase the top line revenue on the other side.
And then even on your own side, right? It’s like maybe – We got to

Ashley:
Come up with a name for this, like a super house hack

Tony:
Or something. The super house hack. Yeah, the mega house hack, right? But you stack these strategies together. So it’s like even on the side that you’re living in, you didn’t mention, but maybe you’re a single guy, can you rent out the other rooms on the side with you? So you’re midterm renting the other side, making three grand a month, then you’re renting out the other rooms on your side. So you’re also generating revenue and now you’re at a point where you’re not only covering your own living expenses, maybe you’re making some additional on top of it as well.

Ashley:
The last piece that I’ll add to this too is if it does need some renovation so that you can increase the rents is that if you are living in the property, opposed to you living somewhere else and having a vacant unit and you’re renovating, if you can live in the property while it’s being renovated, maybe you’re doing renovations slowly over time, overall that is going to decrease your expenses because you’re not paying for a place for you to live and you’re not holding onto a property that has a vacant unit that’s not bringing in any income. So if you take out your living expense and you put yourself into that duplex in that unit, you just eliminated a big expense for yourself by not having to have a vacant unit sitting. And then you can go ahead and do it over time, YouTube university or get contractors in there to be able to renovate it and then you can decide to move out and then you have a renovated unit that you can rent for a lot more than that 1,150.
Then you could even switch sides and go to the other side and do the same thing too if you wanted.

Tony:
Ash, I want your opinion because as stated right now, he’s saying like, hey, 1,150 on one side. So if you rent out both sides, what is that? 2,300 and the mortgage is 3,300. So it’s a net 1,000 negative if he were to run out both sides. To me, I’d say I probably would move forward with that specific deal because once you do move out, I would hope that it’s at least paying for itself and paying for itself mean it’s covering all expenses. So I would say leverage some different strategies to get that revenue ceiling up. But would you agree with that?

Ashley:
Yes, I would absolutely. And that’s why you got to have an estimate, a timeframe of when you would actually move out of the property. So if this is something you only want to be there for a year, you’re probably not going to, unless you’re doing a big renovation, adding a ton of value, you’re probably not going to be able to make up for that thousand dollar difference. But if you’re planning to live there for some time, you could see an increase in rents, you could see you add some value, there definitely could be room for improvement. So it really depends on the property type, how it sits now, if you have a lot of value that you can add to increase those rents to cover it. But if you’re already planning to move out in a year and you’ll know you’ll be cash flow negative a thousand dollars, then no, I wouldn’t do this deal.
Okay, so coming up, a rookie asks, what about breakeven? What does that actually mean? So we’re going to break it down, which expenses count, which ones the rookies forget and when a breakeven rental can still be a smart first deal. We’ll be right back.
Okay, so Dominic is wrestling with what counts as a win when the cash flow is not obvious. Our next question zooms in on that same idea. What do investors really mean when they say a property breaks even? And this question comes from a BiggerPockets Forum member. So while listening to the podcast, I keep hearing people say you are doing well if you are breaking even on a long-term rental year one with the way rent to price ratios are in most areas. Can anyone weigh in on what they’re including in breakeven? Is it just your mortgage, property taxes, insurance versus the rent you bring in? Or are they also including a reserve for stuff that breaks capital expenses, et cetera, in their calculation? Thanks for help with the rookie question. So we can’t tell you what people are including because investors are probably including lots of different things where some are probably just including their mortgage payment, their insurance and their property taxes and saying, my rent is 2,000, my mortgage payment is 2,000 and I break even.
For us, that is not breakeven. Breakeven includes all of your fixed, all of your variable expenses. So it does include the repairs and maintenance. It does includes the capital improvements. It does include any utilities you’re paying. It does include the person you’re paying to cut the grass in the summer. So that’s end of the day, bottom line, income minus all of your expenses. If you are breaking even and there’s no surplus and you’re not negative, that’s what we consider a true breakeven number.

Tony:
And I think just to also define, because there’s the gross revenue generated by your rental and there’s the net income at the end of the day. And in reality, when we talk about breakeven, it means that your gross income minus all expenses, your net income becomes zero. But your gross income is just like the rent that the property produces. So in a long-term rental is whatever your tenant is paying you. In a short-term rental, it’s the combination of the revenue generated from all of your reservations. Same for a midterm rental, it’s the net coming from your leases. And then your expenses, to your point, ash are all the things we’re paying on. And then after that, after we take account all of those expenses, that is your net income.
But how do you make sure that you’re accounting for the right thing? My best advice is just to use the BiggerPockets calculator when you’re analyzing a deal because it’s going to force you to actually make sure that you’re accounting for everything. And Ash and I, we both talked about how early in our careers, that’s how we gained confidence in actually analyzing properties was going through the BiggerPockets calculators because it literally forces you. There’s a field that says, “Oh, hey, you forgot this.” Or, “Hey, if you’re not sure how to calculate this, here’s a good rule of thumb to make sure that you incorporate this.” So I think rather than guessing, just go to biggerpockets.com/calculators, take a deal you’re thinking about, plug it into that tool, and you’ll get a really good idea of what breakeven actually means for that specific property. All right. After the break, a Pittsburgh rookie is trying to house hack in today’s rate environment and is getting wildly different advice about returns.
So we’ll talk about what expectations actually make sense today. All right. Our last question comes from Ian Zuber and he’s looking for an FHA financed multifamily house hack in Pittsburgh and is just trying to figure out what return target is realistic in today’s market. So Ian says, “I’m a new real estate investor and after a few books and hours of YouTube videos, I’m knee deep in my search for an FHA financed multifamily househack in the greater Pittsburgh area with interest rates as high as they are and home prices elevated as well. I’m not sure where my expectation should be as far as cash on cash return and the total ROI percentages. I’m interested to hear what more experienced investors have to say. I’ve heard some people say that cash flow isn’t necessary while you’re living in the home and to analyze a property once you move out and it’s fully rented.
I’ve heard from others that cash flow is essential and they expect a 10% cash on cash return and over 25% of total ROI or else it’s not worth it. I think the viewpoints of my fellow investors will help me come to my own conclusions about what I can and cannot accept in a deal.” So please share your thoughts. I mean, we just hashed out in the first question about house hacking. Cash flow and what’s a good house hack versus a bad house hack? So we won’t rehash that here again. But the other part is what is a good return? First let me say every market’s going to vary wildly. Ashley’s market in Buffalo is going to be very different than here in Southern California. It’s going to be very different than the Midwest and the Southeast. Then name the part of the country, every market is going to operate in a slightly different fashion.
So we can’t say that a good return in Buffalo is also a good return in Pittsburgh and that the kind of return that Ashley expects may be completely unreasonable in Pittsburgh and vice versa. So I think the first thing is we just have to understand that every market has its own return that is reasonable. Now the bigger thing for you, Ian, is asking yourself, “Well, what kind of return do I want and what kind of return do I want on my money? What kind of deal is it that I’m actually looking for?” Set your own goals and expectations first. And then from there we just want to see does Pittsburgh actually align with what those projected goals and expectations might actually be? And if you find that, okay, after analyzing a few deals, Pittsburgh is terrible. I want a 10% return, but everything in Pittsburgh is like a 2%.
Well, then you’ve got your answer, but I think we can’t take this big national number. Let’s underwrite Pittsburgh specifically to get to that answer.

Ashley:
Yeah. And I got two things to say about this. First is what’s a good return to you and what’s a good return to somebody else could mean very different things. So this capital that you would invest in this deal, what else would you do with that money and what other type of return could you get? If you have another opportunity where you can make a 25% cash on cash return and you’re analyzing Pittsburgh deals and they’re not getting anywhere near that, maybe you need to take that other opportunity or maybe a different market you want to look at. So I think also understanding what makes it worth your while. Then the other thing is actually comparing the other elements that come with real estate investing. So you have the cash flow of the property, but there’s also the management of it. There’s your time commitment into it.
So how is the acquisition going to be on this deal? Is it going to be easy? Do you need to get permits for things? Do you need to do a heavy rehab that’s going to take time?
Is this in a high crime area where you’re going to need to put a security system in for the tenants? What are some of the headaches and the time commitment and the problems you will have to solve to be able to get that return? Is this just a set it and forget it duplex where you will not have to do anything and it is turnkey? So think about that. Think about other things that don’t have a monetary value to actually calculate into the cash on cash return, such as your time is a really big one. The next thing I want you to look at as in what are the other advantages to real estate? So even though we can say your cash on cash return is this, it’s not calculating all of the benefits that you can get from real estate such as the tax advantages.
If you are a high income W-2 earner and you have a stay at home spouse and now you’re going to buy this property, there are tax laws out there where you can get a huge, huge deduction in your taxes just from owning this one piece of real estate, which could make this a way better benefit for you than just thinking about the cash on cash return.

Tony:
I think the only other thing that I’d add is that Ian, you’ve got a decent buy box here, right? You said I want an FHA financed multifamily house act in the greater Pittsburgh area, which is a great starting point because a lot of other Rickies are just like, I want a deal. So this is more specific than something as open as I want a deal. But I think I would actually challenge you to refine the buy box even further. And once you do that, I think you have a better idea of what the actual cash on cash returns might be. And my approach for building out a buy box is I don’t start by going to look at what’s for sale in a city. I start by researching the supply that’s already active in that market in terms of the rentals, the rental supply in that market.
So go look at all of the other multifamily in that area and maybe you’ll start to see, well man, if I buy a fourplex, my per unit rents are going to be X, so my gross is actually this. If I buy a three unit, my per unit rents are going to be this and my gross is going to be that. So even though the per unit on the two bed is lower, it’s actually a better deal overall because the price of the two bed. So there’s different ways you can skin that same cat, but go do research on the market, understand, hey, what types of multifamily perform the best? Is it a side by side? Is it an updown? Is it a threeplex, a fourplex, a duplex? What type of specific property should I be targeting? Once I have the type of property, what area of town should I be focused in?
Do I need to be on the southeast and in the northwest? Is there a river that goes through Pittsburgh? I feel like there might be a river. Do I need to be close to the river away from the river?What does that look like? Narrow it down to specific zip codes, to specific neighborhoods, construction quality. Are these all high-end finishes or is it more like traditional builder grade? Get really, really clear location, construction quality, architectural styles, and from there you have a much, much better picture of the actual rent potential and then you can do a better job of backing into what your returns might be. So that’s the only thing that I’d end with is just get even more clarity on the buy box.

Ashley:
Today’s episode is about not letting perfect numbers kill a good first deal. If the property improves your housing cost, protects your downside, and it can become a solid rental later, that can be a real win for a rookie investor.

Tony:
But the real key is just knowing what do you mean by good, right? So define breakeven, include reserves and compare the deal to your real alternatives before you pass on it or jump in too fast.

Ashley:
This has been an episode of Real Estate Rookie. I’m Ashley, he’s Tony, and we’ll see you guys next time.

Dave:
Do you want to pay less tax and keep more of your hard earned money? If you were to get a raise at work, let’s call it $2,500 a year, after a 22% federal income tax, 7.6% payroll tax, and 5% for state tax, your take home pay would be just 1,640 instead of 2,500. But if you earn that same $2,500 in real estate rental income, you’d probably pay almost zero tax and keep most of that $2,500. That’s cold, hard cash in your pocket that you can use to keep growing your portfolio. This is a hidden but absolutely huge benefit to real estate investing. The IRS just treats real estate differently from almost everything else, and almost anyone can use the US tax code to save on taxes and keep more for yourself. So today on the show, we’re breaking down the many, many ways real estate gets special treatment from the IRS and how you can use this to your advantage.
I’m going to pull out the whiteboard and show you real examples and real numbers so you can start planning your next move.
Hey everyone, welcome back to the BiggerPockets Podcast. I’m Dave Meyer. Some benefits of real estate investing are obvious, things like cash flow and appreciation and value add investing, but some are a little more subtle. And today’s show is about the biggest one of all of these subtle advantages, taxes. So today on the show, I’m going to break this thing down in detail. We’re going to walk through several concrete examples with real numbers and show the different strategies you can use right now to optimize your tax situation. It’s going to be fun. I think it’s going to be eye-opening and it’ll lower your tax bill. So let’s do it. But before I get started, I’m going to use one single example, one deal for the entirety of this episode just so you can follow the potential tax savings on a single deal. And then of course you can extrapolate that and how powerful this can be for an entire portfolio.
So I just kind of want to write out what my sample deal is to get things started. So for our deal, we’re going to look at a property that we’re going to purchase for $300,000. So it’s a little bit below the national average, but as investors, this is the type of sweet spot I actually look for. I like to look for properties that are 125 to 150 a unit. So let’s just assume that this is a duplex that we’re going to be buying. Then we’re going to put down payment. We’re going to put 20%. We’re going to get a mortgage at 7%. That’s about where they’re sitting today. For this property, our rent is going to be 2,800 bucks and our operating expenses are going to be just under $12,000 a year. I actually ran the math and I figured it would be about $11,600.
So as we’re going through this entire episode, remember that this is the deal that we’re looking at. And if you actually calculate this out, I’m just going to get to this now, our cash flow for this deal would be about $2,840 and that comes out to a cash on cash return of 5%. So a solid deal in today’s market, not a home run, not a bad deal. If you can get 5% cash on cash return in most markets, you are doing very, very well. So let’s just say that you find a great deal as we talk about how to do all the time on the podcast, and now you want to figure out how you can make this deal even better by optimizing your taxes. So the first tax strategy that you should be using, and this is probably the most common one, is known as depreciation.
Depreciation is basically part of the tax code that allows you to deduct the gradual decline or deterioration of your property over time. In the IRS’s eyes, everything out there, every physical object has a useful life. And for residential real estate, the government has decided the useful life for a house or a duplex or a three unit is 27.5 years. It’s very specific, but they say that every 27 and a half years, you’re going to need to essentially replace your property. And that decay over 27 and a half years is seen as a business expense that you can deduct in a given year. And this deduction counts against your rental income and lets you keep more cash flow. So let me just show you how this works. So remember that our income for this year, our profit or cash flow was $2,840. And if you were to pay your normal income on that, if this was just regular income you got from your job, you might pay up to about 40% in taxes, in which case you’d get $1,704 after tax.
That’s still cash flow, right? That would still be money in your pocket, but it definitely lowers the return.You’re no longer getting a 5% cash on cash return. It’s probably something like a three or 3.5% cash on cash return. But luckily in our example, we’re talking about rental income. And so what you do is subtract the depreciation. So you can take again that decay and subtract it from your income and that’s how much you pay in taxes. So let’s figure out what the depreciation would be for our property. Now, an important distinction when you’re figuring this out is that you do not get to depreciate the entire property. When your taxes are assessed, the tax assessment will have a land value and it will also have a building value. And so you need to know what this is. Usually it’s like 80 / 20 building to land.
So I’m just going to use that because this is just an example. So our land value here would be about $60,000 and our building value would be the remainder of our purchase price. So that would be $240,000. So all we got to do now is take 240,000 and divide that by the oddly specific 27.5 years, and that gives us $8,727. This is the amount. $8,727 is the amount that we can deduct from our rental income. So you take your $2,840, you subtract this $8,727, and that equals a negative $5,887. This is now in the eyes of the IRS, that’s your taxable income on your rental property. So instead of paying taxes on 2,840, you are paying taxes on negative 5,887, which is to say you are paying zero tax on your rental income. It’s amazing, right? So basically you’re paying no tax on your rental income.
Now, there are a few things I need to explain, a few caveats here. So first, you’ll notice we are not using our total depreciation, right? We’re only using a piece of it. We could deduct more than $8,000, but we only deducted 2,840, but we’re going to get back to that. Remember that this was negative because we’re going to talk about that in a couple of minutes. Second thing, just keep remembering that you depreciate the building value and not the land. So this is public data. You can go up and look at the land value versus the building value and only do this calculation on the building value. Third thing to remember is this is just residential property. If you’re using a commercial property like large multifamily, you absolutely can still use depreciation, but commercial is depreciated over, again, an oddly specific 39 years, not 27 and a half.
And then there’s the big one. This is really, really important and it’s something I think a lot of people forget about and miss, is that eventually you do have to pay this tax. There is something when you go to sell your property called depreciation recapture, which is basically you paying this back eventually. And so if you’re wondering, what does it matter? Why even do this if I am just going to repay it when you sell? Well, first and foremost, if you look at the time value of money, it says, I’m not going to totally get into this, but basically time value of money tells us that the current value of cash is more value than money in the future. So a dollar today is worth more than a dollar in 10 years. Why? Because you can invest that dollar today, and if you invested that and it compounds in 10 years, that dollar is probably going to be worth $2 or $2 and a half dollars or $3.
And so having money now allows you to invest that over time. And so if you think about a rental property that you might own for 20 years, you just saved $2,840 that now you can compound for 20 years. And then when you go and sell your rental property 20 years from now, the depreciation recapture is probably going to be a drop in the bucket compared to all the appreciation you’ve had or the money that you’ve made compounding your savings on taxes. So this is absolutely still worth it with depreciation recapture, but if you’re only holding onto a property for a few years and you’re not going to get a lot of appreciation, it’s something to really remember that you’re going to have to pay for. But depreciation is awesome. It’s amazing advantage that you can use on any sort of rental property. All right, so let’s move on to tax strategy number two, and I’m actually going to just lump two together because they’re related.
We’re going to talk about bonus depreciation, so even better than the depreciation I just talked about and cost segregation, which I’m just going to call cost seg just for short. So as we talked about, standard depreciation treats the whole $240,000 building as one asset, right? The whole thing, one building is one thing we depreciated over 27 and a half years. Doing something called a cost segregation study, which is you can do yourself, but usually go out and pay someone to do this for you. This is a process that allows you to look at that building and say, that’s not one thing. A building is actually made up of dozens or hundreds of different components. There are appliances, there are floors, there are water heaters, there are hot water boilers, all of those things. And you shouldn’t depreciate all of those things on the same 27 and a half year schedule.
Instead, you should depreciate some of them faster because some of them have shorter useful lives. Just think about a fridge or a hot water heater. They last seven to 10 years, something like that, not 27 and a half. And so anything that has this useful life of 20 years or less qualifies for bonus depreciation. And bonus depreciation has been around for a couple of years. It came about during the 2017 jobs bill, but then it was phased out as part of that bill. But in the One Big Beautiful Bill Act, that actually has brought it back. Bonus depreciation is back to 100% and it is permanent for properties acquired after January 19th, 2025. Before that bill, it was scheduled to sort of phase out over time, but it is back. So this is really important. And so the way that this would work is if you want to do depreciation, someone would come in and help you.
I mean, you could do it yourself, but I recommend having someone come do this for you, is you’re basically going to break all of the components of your home into different buckets. So certain things are five years. So if for five years we have carpet, we have fixtures, stuff like this, we have some appliances, that would be depreciated over five years. And as you’ll notice, the good thing about that is that would mean you get a higher percentage of the depreciation upfront. Instead of dividing the cost of a carpet by 27 and a half and depreciating it, you’re dividing it by five and depreciating it. There are seven year things. We have things like a driveway, fencing, landscaping, stuff like that. And then we move on to 15 years and we have stuff like a roof and so on and so forth. I think you all get the point.
And so it just basically allows you to break down your depreciation faster. So this is really useful if you have a ton of rental income. If your rental income on this hypothetical property that we’re talking about was $15,000 or $20,000 of cash flow, remember our depreciation for that year was just about 8,700 bucks. And so you would get a big tax benefit just from regular depreciation, but you’re not going to pay zero tax. If you do bonus depreciation, I’m not going to do the whole math here because again, usually a professional goes out and does this, but let’s just say your bonus depreciation came out to $30,000 in year one, then you would be able to depreciate all of your rental income and get that tax bill on your rental income back down to zero. I just do want to call out that cost segregation studies, having someone go out and do this for you costs money.
You can do it on the cheaper end, I think like 1,000, 1,500 bucks, but they can go up to 5,000 bucks. It sort of depends on how professional it is, if you’re doing it online, how big your property is, how complicated it is. So if it’s only going to save you a couple hundred bucks a year, it is not worth doing a cost segregation. But if it’s going to save you potentially thousands of dollars, if you have high rental income and you want to depreciate against it, then it’s definitely worth it. So definitely think through that before you go out and do this. Now again, you’re probably wondering about that negative depreciation, our negative income. Because even on our first example, we had negative, I think it was about $5,000 that we weren’t using in depreciation that we could have. It was negative $5,887 that we could have been using.
So what do you do with that? Can you actually use that in some productive way for your tax bill? You can, and I’ll explain exactly how, and I do think this is an unbelievable tax unlock, but we got to take a quick break. We’ll be right back. Imagine if real estate investing was easy, all the benefits of owning properties without all the complexity and expense. That’s the power of the Fundrise Flagship Fund. Now, you can invest in the $1.1 billion real estate portfolio starting with as little as $10. Visit fundraise.com/biggerpockets to explore the portfolio, see historical returns and more. Carefully consider the investment objectives, risks, charges, and expenses of the Fundrise Flagship Fund before investing. This and other information could be found in the funds prospectus at fundrise.com/flagship. This is a paid advertisement.
Welcome back to the BiggerPockets Podcast. I’m Dave Meyer. Today we’re talking about how real estate can save you money on your taxes. Just as a reminder, we’re walking through an example of a deal that is $300,000, down payment of 20%, mortgage rate is 7%, our rent’s 2,800 bucks. Our cash flow on this property is about 2,840 for a cash on cash return of 5%. And as we’ve shown, depreciation, both regular depreciation and bonus depreciation can save you a ton of money on your taxes today so that you can reinvest that over time. But as we’ve shown in our example so far, there are times, it’s quite common, where you can depreciate more. You can take a bigger deduction than your income, and so your taxable income on paper becomes negative. And the question then becomes, is there something that you can do about this? And that brings us to our third tax strategy, which is called real estate professional status.
A real estate professional for tax purposes is a specific IRS classification. It allows qualifying people to treat their rental income, their rental activities as non-passive. The IRS splits your income if you’re a real estate investor. Anything like my job, my W-2 job at BiggerPockets, that is my active income. My money that I make for my rental properties in the eyes of the IRS is “passive income.” I cannot take the losses I take on my passive income. So any of that depreciation, I cannot take that and say, “I want to take that negative $40,000 I earned from my rental property cost seg bonus depreciation and apply it to my salary at BiggerPockets.” That is not allowed. So when I get Dave Meyer, when I have negative depreciation, I can’t do anything about it. And it’s frustrating, but that’s the way it is. But if you qualify for this thing called real estate tax professional status, you can take it hypothetically, all of the rental, the losses, the depreciation from your passive investments like rental properties and apply it to your active income.
And that is incredible because you can actually get your entire tax bill closer to zero. So rather than for me, I rarely pay tax on my rental income because of depreciation or I defer it, I should say, until I sell the properties, but I still pay full taxes on my income. If you’re a real estate professional, you get to carry it over. So it’s unbelievable for tax purposes if you’re investing in real estate. But again, the qualifications are very strict and it’s not something you can fudge. You will get audited, you’ll get in trouble, don’t do that. You need to actually qualify for real estate professional status. So here’s what the IRS says is real estate professional. There’s a bunch of different criteria. The first is the 750 hour test. You must perform more than 750 hours of services during the tax year in real estate property trades or businesses in which you materially participate.
So this is really important. First of all, you have to be in real properties or trades. So these are things like being a real estate agent, being a property manager. I think even maintenance or contract work would count for this. Those are just usually some of the more common examples of this stuff, but you also have to materially participate in the property that you’re using the depreciation for. So you couldn’t be a real estate agent. Do 750 hours of services and then take depreciation from a syndication that you’re not involved in and apply it to your income as an agent. But if you owned a rental property yourself, let’s just say you did a cost seg, you get $40,000 negative from your rental income, you can then take that and apply that against the income you make as an agent. So let’s just say for our bonus depreciation, we had negative 40K.
Then as an agent, you made in commissions, let’s call it $100,000. So you subtract, you now take your 100K and subtract the 40K. And so now your taxable income, not just on your rental property, but on your other income is going down. So now when you go and pay your ordinary income tax, the IRS is only looking at $60,000. You are deducting $40,000. And if you’re paying, let’s say 33% tax, if you’re paying 33% on your tax, this would come out to one third of 40,000 is roughly $13,333. So you just save another $13,000 on your ordinary income. That’s absolutely unbelievable, right? So if you can do this, it’s great. I should mention the other parts of the test. Again, you have to do 750 hours. You have to materially participate in these properties. And then there’s also something called the 50% test, and this is that more than 50% of the services you perform have to be in real trades or businesses.
So basically what this is saying is it has to be your main job. You can’t have a corporate job working 40 hours a week and be an agent on the side and do this. Even if you’re an agent for 750 hours, you cannot do that. It has to be the majority of the hours that you work in a year. But if you are an agent, if you are a property manager, if you are a contractor, this is magic. You get to count your rental losses against active income. I’m so jealous of this. I wish I can absolutely do it. I think it’s probably the greatest tax advantage for real estate investors over the lifetime of your portfolio building. It will save you hundreds of thousands of dollars, if not millions of dollars over the lifetime of your investing. If you can qualify, you should look into this.
All right, so that is another great tax benefit, but we have more. We have a lot more. One of the most popular ones that real estate investors use, I love this and use it myself quite frequently, is the 1031 exchange. So the 1031 exchange allows you, when you go and sell your property, to take the profit that you have earned owning and operating that business and pay zero capital gains tax on it if you go and invest it in a new property, it’s called like for like investing into a new investment property in a specific period of time. So there are a bunch of rules about it, but the big picture here is you do not pay capital gains tax on your property sale if you reinvest it. And hopefully you can see why this is so beneficial. It’s similar to what we talked about with depreciation.
It’s not that you never pay those taxes. Eventually you might, unless you die, frankly, that is the way you get out of it if you die owning these properties, but you get to defer your taxes indefinitely. You could keep 1031, 1031, 1031 for your whole life and never pay the capital gains tax. So that allows you to reinvest and compound your income over time. So let’s go back to our example. Remember we bought this property for 300K and let’s just say we held it for 10 years and it appreciated at 3% and that of compounding over 10 years, our property would be, I’m just going to round here, it’s going to be worth $403,000. So that’s the value of our property. We need to account for 7% sales costs, that’s commissions and just getting the house ready and all that kind of stuff. So that would give you about $375,000, right?
So that’s where we would be. But then we need to account for the depreciation. Remember that still you do have to pay when you go and sell this property. Let’s just say the depreciation recapture is $40,000. So I’m just making this up as an example, right? But we have 375 minus 40K. So now our real, what we’re walking away with is 335K, right? So we have 335K, then we have to pay off our mortgage. It was originally a $240,000 mortgage. I’m going to keep the numbers simple here and just say we paid off $40,000 of our mortgage. So we then have to subtract $200,000 and we have to subtract our down payment because that’s equity that we put in, that was 60K. So if we subtract 260K from 335, that gives us $75,000 in profit, roughly. I’m rounding, just so you know, but $75,000 in profit.
Now, if you were not to do a 1031 exchange, you would pay capital gains tax on this at 20%, meaning you would pay $15,000 in taxes on this, right? So if you didn’t do a 1031, you would pay capital gains, you pay $15,000, and at the end of the day, you would walk with 60 grand. Still awesome. You owned a cash flowing rental property for 10 years, you made money that way, now you’re walking away with 60 grand. That’s 100% return on your 60% equity in 10 years, pretty good. But if you do a 1031, you don’t pay this $15,000. So instead you get to reinvest $75,000 instead of $60,000. Just think about what you can do with that. Obviously it’s 15,000 more dollars, but if you were to go out and put 25% down on your next investment property, if you paid the capital gains tax, what you would be able to afford is $240,000 because you’re putting 25% down on 60,000, you divide 60,000 by 25%, that’s $240,000.
But if you do the 1031 exchange, you can afford something worth $300,000. So just by doing this 1031 exchange, you can afford a bigger property. And this is how real estate investors scale up, right? Because you do this enough times, maybe this is the difference between buying a two unit and a three unit, but you do it again, maybe that’s the difference between buying a four unit and eight unit, an eight unit and a 10 unit, a 10 unit and a 15 unit. And this is probably the most common way people really start to scale up is they do something like a burr, they hold onto these properties, they build that equity, and then when they go to trade up, they get to keep all the equity. They don’t pay the 20% in tax. They get to keep rolling it into future properties. So the 1031, again, it costs money, but it’s not that much.
It’s a couple thousand dollars. It’s really, really worthwhile. The thing that is stressful about it is the rules about how quickly you have to buy a property, and there’s this whole process where you have to “identify properties” within 45 days. So once you go and sell your property, you have 45 days to pick the properties that you’re going to 1031 into. You don’t actually have to close on them for 180 days, so you have six months, but that part’s easy. You have to find the properties that you want. And so in certain kinds of markets, that can be hard if you’re in a really strong seller’s market. During COVID, it was hard to do a 1031 because you would have to find properties to buy in 45 days when deals were scarce and you didn’t have a lot of negotiating leverage. So you might bid on a lot of properties and not get them.
Now it’s a lot easier to do a 1031 because your ability to get things under contract is a lot better in my opinion. So you have a better predictability when it comes to 1031, but just remember those rules. There’s also some rules about how much debt you have to put on the property. You should look into all of this, but it’s all very specific. Usually you hire someone called the 1031 intermediary who can help walk you through all of these things. But if you’re an investor, you’re selling a property, absolutely look into a 1031 exchange. It is a very powerful tax tool. All right, so that’s the very powerful popular 1031 exchange, but we have three more tax advantages that you can use that we’re going to get to right after this break.
Welcome back to the BiggerPockets Podcast. I’m Dave Meyer. Today we’re talking about taxes and how you can save tons of money as a real estate investor. So far, we’ve talked about depreciation, bonus depreciation, real estate professional status, and the all popular 1031 exchange. I’ve got three more strategies to go through for you, and the first two here are things that people just overlook. They’re pretty simple, they’re not complicated, but they’re things that you should remember that you benefit from as a real estate investor. So tax strategy number five is mortgage interest deductions. This is something that a lot of people just forget about, but you are able to deduct the interest you pay on your mortgage from your expenses, from your tax bill. This is kind of similar to how you can do it on your primary residence. The rules are a little bit different.
There’s no state and local tax cap, but luckily it doesn’t require you to itemize. So it’s actually pretty easy to use, but just remember when you’re calculating in your head, when you’re underwriting deals, remember that this is money that you get back at the end of the year. A big portion of your payments on your mortgage, especially in the beginning, are interest. The way that a mortgage works is your payment stays the same every month, but at the beginning of your mortgage, most of it is interest and that percentage that goes to interest versus principal changes over time. In the beginning, it’s very heavily interest. So you can get pretty substantial tax deductions from mortgage interest. And so this is something to just remember as a way that makes your deals a little bit better. Make sure you’re accounting for this in your underwriting because it really can go from taking a deal from okay to a good deal.
So remember that tax advantage too. Number six, I’ll just go through these ones quickly, is operating expenses. When you If you’re running a business, all of your expenses are tax deductible. So these are things like if you’re going out and buying equipment to do maintenance on your property, if you are paying for things like property management software or bank fees or home office, you can deduct using a home office. You can deduct the mileage on your car if you’re driving to and from projects that you’re doing. You can even deduct things like BiggerPockets Pro or BPCOM because that’s professional development or software tools that you use for your business. And so remember to deduct all the stuff that you need for your business from your operating expenses. These are things that really help. Now just remember the way this works. If you go out and spend $1,000 on tools for your rental property to do DIY stuff, you don’t save $1,000.
You deduct $1,000 from your taxable income. And if your tax rate is 33%, you would save $333. You save 33% of that $1,000. So remember that, people get confused about that. That is important to remember, but this is meaningful. It makes it cheaper, especially in the beginning, at least when I was starting, it was really nice because I did my own property management for 10 years. You need a lot of stuff. I needed to buy and invest in tools. I needed to invest in banking and property management software, and I had to build a home office so I could run it. I could deduct all of that. And that was really powerful and popular. The last tax strategy I’m going to go through today, we don’t talk about it a lot on BiggerPockets because it’s been up and down. It’s sort of subject to political whims, but they are coming back.
And that’s something called opportunity zones. It’s really cool. It’s similar to a 1031 exchange where when you go and sell an asset, instead of paying your capital gains, you can reinvest it into real estate and defer the capital gains tax in different ways. The 1031 exchange is great. I really like it, but you have to do sort of like for like real estate and a tight clock. Opportunity zones accept capital gains from any source. So if you went and sold stock and had a taxable event, capital gains, you could put into, instead of paying taxes on that stock, you can put it into an opportunity zone. If you sold the business, if you sold crypto, all those things can work. Or for example, if you don’t find a property for your 1031 exchange within that 45-day window, that is a tight clock. So if you can’t do that, you can look into opportunity zones.
The way it works is they’re basically areas that are designated by the government for economic development. They want investors to invest in these neighborhoods to revitalize them. And so there’s literal physical boundaries. You can go Google the boundaries and areas that are opportunity zones in your state and you can find if you can find properties. So you can invest in individual properties or a lot of people, what they do is invest in opportunity zone funds. And there’s no right or wrong way to do it. I recommend you look into this, but it can really be beneficial. The thing about opportunity zones is you kind of have to hold onto the property for a long time. There’s basically three different benefits and they have three different timelines. So if you invest in an opportunity zone, you can basically defer your taxes for five years. If you hold onto your new property for five years, again, allows you to compound your principle five years.
That’s beneficial. Number two, you get a 10% step up in basis. A step up in basis basically reduces your overall tax because in the eyes of the IRS, you paid more for your property essentially. And so when you calculate what your profit is, it lowers your profit, that lowers your taxes. That’s great. Or the big one, I mean, this is kind of why I think people do it, is if you hold something for 10 years, the appreciation on the investment that you make is permanently excluded from capital gains. That’s unbelievable. So it’s really, really nice. Permanent untaxed appreciation is totally different category than deferral. Deferrals are good, but this is really great. Look into these things, but the One Big Beautiful Bill Act did make these permanent, but it restructured it. So you got to go and make sure you understand all of this. There are a lot of experts out there.
Go to BiggerPockets, biggerpockets.com, talk about it on the forms. People are always talking about it there. So look into opportunity zones, get some advice, but it can really be beneficial for people who are looking to buy and hold things long term. So that’s it. Those are the seven benefits to real estate. There are more for tax benefits, but these are the seven that I recommend investors take a look at. It’s depreciation, regular depreciation, then bonus depreciation and cost seg, real estate professional status, the 1031 exchange, mortgage interest deduction, operating expense exclusions, and opportunity zones. And as you can see, all of this is written into the tax code. It is perfectly legal. It is encouraged. It is encouraging investment. So if you are a real estate investor, I really encourage you to take some time and think through how this can benefit you because so many people get into the game looking at buying as many properties as possible, scaling as quickly as possible, and they overlook one of the easiest optimization hacks out there, which is just keeping more of the rental income that you already have.
There are tons of tools and ways that you can do it, so don’t ignore them. That’s our show for today. Thank you all so much for watching and listening to the BiggerPockets Podcast. I’m Dave Meyer, and I’ll see you all next time.

Dave:
What is actually going on with AI right now? On one hand, the people building artificial intelligence just told us that it might kill us all. On the other hand, the president of the United States said that’s a hoax. The stock market holding strong pricing in AI perfection. So which one is it? This is a really important question, maybe the most important question for our economy right now and for investors of all types, including real estate investors. Just think about this. In the span of about two weeks, a researcher walked away from Anthropic saying the labs are gambling with our lives. Then CEOs of the two biggest AI companies called for a slowdown, OpenAI pushed its IPO out of 2026, and Congress, they just left town and did nothing. But here’s the thing, what these companies do matters a lot to our entire economy. There’s barely anything in our economy that it doesn’t touch and wouldn’t be affected if this AI situation implodes or if it explodes and goes the good way.
So we need to get a sense of what is happening here. So today on On the Market, we’re getting into the AI debate. We’re going to dig into whether this is a bubble or not. I’m going to give the upside and the downside case to this. We’re going to talk about what’s actually happening in the job market. I’m going to give you my honest take, a lot of it, about what I think is going on here. And of course I’m going to share what every real estate investor should be doing about it. This is On the Market. Let’s get to it.
Hi everyone. Welcome to On the Market. I’m Dave Meyer, real estate investor, economic analyst, and the CIO at BiggerPockets. Now, if you listen to this show, you know I don’t normally do full episodes on tech, but AI isn’t just a tech story anymore. It’s an economic story. By some estimates, AI investment is now about a third of all US GDP growth this year. It’s propping up the stock market. It’s reshaping the economy. It’s reshaping the labor market. It’s driving construction in dozens of towns and it’s moving interest rates. And to be perfectly honest, I have some very strong feelings about this. It’s going to be a little bit of the rant. I’m going to give you the facts first and then I’m going to tell you what I actually think is going on and what we should all do about it. Some of this you might agree with, some of it you might not.
That’s fine. I just want to share what’s going on and my take. Let’s get to it. All right, first up, let’s just set the table. Let’s talk about what actually happened because it feels like there’s been this sort of simmering conversation about AI going on in the background for years now, but it seems like it’s come to the forefront in just the last couple of weeks. The major spark here was on September 8th, a guy named Jacob Coxon, he’s a 27-year-old pre-training researcher who had worked at OpenAI and Anthropic for a couple of years. He quit Anthropic and made a post that said that basically both of these companies are not acting responsibly. They’re racing to try and reach super intelligence and in the process are “gambling with our lives.” Now this went viral to say the least. That post alone got 90 million views in 24 hours and it’s sparked a much wider debate.
Following this post, more people inside these companies, Anthropic and OpenAI, said the same thing. An Anthropic alignment lead is called Evan Hubinger and an OpenEye researcher, Marcus Williams, both posted support with Marcus Williams putting extinction risk at 70% without regulation or coordinated slowdown. 70% of extinction. Now we’ll get to whether or not we should be fearing extinction right now, but clearly this is causing people to start thinking about this when you hear this kind of prediction. It’s a little bit scary and probably should be talked about more. Now these announcements, we’ve heard a lot about the dangers of AI for a long time, but these specific announcements came following what’s called the hugging face incident. This didn’t come out of nowhere. Back in July, OpenAI agents, OpenAI by the way, is the company that creates ChatGPT. Anthropic is the company that creates Claude, if you’ve heard of those AI tools.
Anyway, OpenAI agents, they were trying to do an internal evaluation of cybersecurity. They “escaped their sandbox.” So basically they were supposed to operate in this little technological world and they got out and were on the open internet and basically were able to hack into another company called Hugging Face. And this is not debated. OpenAI confirmed it was its own models. It said no customer data was stolen. Sure, maybe. But anyway, they acknowledged that this actually happened. And so what we need to realize here is that an AI system did a real world hack no one told it to do. This is not sci-fi. This is actually what happened this summer. And right after these announcements, note it wasn’t before these other whistleblowers went public, but right after it on September 12th, Anthropic CEO Daria Amodi published a huge long essay saying that they need to slow down how fast AI capabilities improve.
And what he said is first, we need to have embedded independent third party evaluators with employee level access inside the labs. That’s what they want. They said Frontier Labs and democracies coordinate on safety and pace, which he said would need an antitrust waiver from Washington, convenient. And third, international agreements with a “speed limit on AI progress.” And within hours of this proposal, something else curious happened. We had Sam Altman, the CEO of OpenAI say, “I agree with Dario.” Elon Musk, who is the CEO of Grok, another AI company, said Dario is right. And Demis Hasibus of Google DeepMind also publicly backed it. So after all this competition from these companies for years, all of a sudden they’re saying we should work together. We should slow down. We shouldn’t IPO. It’s a little bit curious, and we’re going to get to that in just a minute.
But first I just want to call out that not everyone agrees. You’ve seen Jensen Wong, who’s the CEO of Nvidia, the most valuable company in the world, saying that the safety concerns are hyped up. President Trump said that he doesn’t buy into the safety concerns and that we don’t need any of this regulation. Congress has certainly done nothing about any of this. They actually just went on leave. And so right now, the only serious proposals about regulating AI are coming from the AI industry. So just to summarize what’s gone on here, there was a hack, the first known instance, there’s probably more, but the first known instance of an AI going on a rogue hacking mission, the companies really didn’t say anything about regulation for a while. And then once there were whistleblowers inside the company, all sorts of CEOs came together and say, “Actually, we need regulation,” after years of them saying that they don’t need regulation.
Now again, why does this matter? Because AI makes up so much of our economy. The S&P 500 right now is primarily made up of hyperscalers in AI. And if you actually boil it down, estimates is that the S&P 500, which is the majority of Americans’ life savings, it’s the majority of retirement planning in the United States is 30 to 40% an AI bet. And so what these companies do matters a lot to ordinary Americans. It will spill into real estate. It will spill into every part of the economy if this collapses. Of course, if it goes really well, it will benefit everyone as well. So which is it, right? Is it going to benefit everyone or is it going to crash? That is the big debate and no one knows for sure, but I’m going to give you my reaction. Big picture, I am very worried.
I think the whole thing is extremely volatile and incredibly risky. Not because I don’t think AI is amazing and useful. It is maybe not as useful as the biggest proponents believe, but if you’ve used it, you know it’s incredible technology. It’s going to change the world. But I am worried because first and foremost, there are real risks. This hugging face incident happened. It’s the one that we know about. Are there more? Probably. Are there going to be more? Almost certainly if there is not regulation. We cannot rely on these companies to self-regulate in a system where they’re competing against each other for potentially the most lucrative industry ever to come on earth. We cannot rely on them to self-regulate. So I do think some of these risks are real. Now, risks of extinction, I don’t know. I think that is really hard for someone like me who is not an expert in AI to extrapolate how we go from LLMs that are great researchers and good at making PowerPoints to us going extinct.
But I’ve read a bit about some potential areas, which are primarily the things I worry about are bioweapons, the ability for AI to generate superviruses or cyber attacks that sort of just disrupt society in general. I am particularly worried about those two things. I’m sure there are more risks that I don’t even know about. So that’s the first thing. The second thing is what just kind of grinds my gears about this and makes me worried financially and just for society in general is the complete lack of oversight in an industry that not just has the potential to create actual physical harm, but also one that could upend our entire labor market. Just think about this. I know people debate about how much regulation is appropriate in an economy, and I think some regulation is overbearing. There is some regulation that I am very happy to have.
No one is upset that the FDA reviews pharmaceuticals before they’re released to the market. No one is upset that the FAA checks on your airplanes before you get on one of them, right? The idea that we have something that could do harm and it is not regulated by people outside of the industry is honestly insane. I am not an expert. I do not know exactly what the right regulatory framework is, but I know that doing nothing is not the right answer. And some people say, oh yeah, if we regulate it, then China will win. Here’s my response to that. Experts in this industry are saying that if we do not regulate, we are heading towards potential disaster. What does it matter who wins? It’s a race to destroy society. What does it matter if China comes up with the super intelligence that leads us to extinction or the US leads us to extinction?
It’s also just a false dichotomy. You can have regulation and still win an AI race in a way where it doesn’t actually destroy society and is a productive tool to enable and better our society. I think AI has that potential and I do not think that regulation stops us from achieving that beneficial outcome of AI. I truly believe it is essential. It is vitally important that we have some sort of regulatory framework for it to become beneficial. I think unregulated, things can go really bad. The third reason I am worried is economic. As I said before, so much of the US economy is now banking on AI. So much of our GDP growth, almost all of it, is coming from capital expenditures in AI. So your retirement account, your index funds is a bet on AI. Whether you know it or not, you are betting on AI if you own index funds.
That is enormous. So much of index funds are made up of AI stocks. And I’m going to get into some details of that in a little bit, but those are the main reasons I’m concerned. I think there are real risks. I think the lack of oversight is deeply concerning. And the third is economic. And maybe there’s a fourth, right? I also am just generally very skeptical of the people who are running these businesses, how the government is handling this, and what is actually going on behind the scenes. It all feels honestly pretty fishy to me, very suspicious the way things have gone on in the last couple of weeks, and I want to explain why.
Why all of a sudden do these companies all want regulation and agree to slow down? After years of competing against each other, what’s going on here? Did they all just grow consciences one day? I don’t buy it. I don’t think that all these leaders are agreeing now on a slowdown in regulation because they think it’s in the best interest of society. I don’t think that just happens overnight. So what is actually happening here? And I have a couple of theories. They’re not just my own, but I’m just going to share a couple of theories by very smart people who understand this industry about what’s going on. First is they want regulation because it’s a competitive advantage and it’s a barrier to entry. Let’s go into this. Every regulatory framework that you create creates compliance costs, right? It costs money for Boeing to have their airplanes reviewed by the FDA.
You need to invest in infrastructure and people and technology and tools that allow you to meet those regulatory frameworks. And these companies, big companies like OpenAI and Anthropic and Google that are investing literally hundreds of billions of dollars into this industry may welcome some regulation because it will stop smaller companies from competing to that. In a lot of ways, the real threat to OpenAI and Anthropic is not each other. It’s what are known as lightweight models. They’re smaller, they’re cheaper, and they’re often Chinese that get good enough results from AI at truly a fraction of the cost. If you look at the economics of this, how much money OpenAI and Anthropic are pouring in to get you marginally better results from your LLM, it does not make sense from a business model. And so one theory about what’s going on here is that these CEOs magically all agreed on it.
It’s a little bit of cartel behavior where they’re all getting together to say, actually, let’s get some regulation in because that will make it so much harder for any new competitors to come up and we can battle it out amongst ourselves, but we’re already so far ahead of everyone else that will just cement our position as the leaders in this massive industry. Just look at what Dario Modi said. He called for this framework. He came out and said, “We need a framework where all the different labs get to work together.” Well, in what industry would you allow the CEOs of all the industries to come up with their own regulatory framework? You can’t grade your own homework. It’s a ridiculous proposition. And as part of that, as part of the collaboration he called for, he said, “We get an antitrust waiver.” He’s basically saying, “We’re going to create a monopoly.
The government gives us a right to create a monopoly.” It’s not so subtle when you call for that regulation and an antitrust waiver and the same thing kind of makes sense to me that maybe what they’re doing is trying to put up a defensive mode. Okay, so that’s theory number one that’s going on. Theory number two is that this slowdown, OpenAI pushing out their IPO to next year is just cover for the fact that they’re not making money. Let me just put this in perspective here. OpenAI now through 2030 has committed, openly committed 750 to $856 billion, unbelievable, almost a trillion dollars in infrastructure buildout. Their revenue in Q1 of 2026, it’s estimated they’re not a public company, was six billion. So if you extrapolate that out, maybe 25, $30 billion in revenue against what they’ve already committed to, which is like 30 times that, that is a very risky business.
Maybe they get it, maybe they don’t, but one of the theories about why they’re openly calling for a slowdown and why OpenAI pushed out their IPO is not because of safety concerns. Sam Altman had no safety concerns three weeks before all this stuff started coming out. A lot of people believe that they’re pushing out their IPO and the public stock offering because they just don’t have the numbers there. Their internal projection is that they’re going to lose $14 billion in 2026. Outside estimates of cash burn run as high as 27 billion this year and 63 billion in the next year. They don’t expect to be cashflow positive for at least another three or four years, and that is with very rosy projections. So you’ve got a company that reportedly couldn’t hit its target valuation, and then it says, “Actually, we’re going to delay for safety.
It’s for safety.” Sam Altman has openly said that he thinks AI is going to lead to the end of the world, but quote, “There’s going to be some great companies in the meantime.” There’s not a guy who seemed very concerned about safety. I don’t buy it. I don’t know if it’s because of the defensive moat or if their earnings aren’t stacking up, but I have to believe that this is all self-serving. That said, I do want to call out that Anthropic is still planning to go to market IPO. So I’m mostly talking about OpenAI with this theory and all of this. It just feels wrong. It does not feel like we’re getting the right information about what’s actually going on here. And there’s seven to 10 people who are just making massive decisions that are going to impact all of us. And that’s what just frustrates me about this and why I think whether it’s government or third parties or whatever, there needs to be some people not from the industry looking at what’s going on here and relaying that information to the public.
So all this still, we need to get to the question, is this a bubble? What is going to happen to the economy? We got to look at some of the numbers, so let’s get into that now. First, let’s just talk about spending. Combined in 2026, CapEx plans as capital expenditures, similar to real estate, you’re building out infrastructure, building data centers, you’re buying chips, that kind of stuff. The plans for Amazon, Alphabet, who owns Google, Microsoft and Meta are up 77% and combined are going to spend $725 billion. Just for reference, that is bigger than the economies of all but 25 countries in the world. It’s bigger than the economy of Argentina, of Singapore, of Austria, of Norway, of Thailand, of Columbia, Vietnam. You get the picture, that is a lot of money. And this CapEx, the money is not coming from earnings. Well, it depends.
You kind of have to split these hyperscalers. OpenAI and Anthropic, they’re funding this off debt. Companies like Amazon and Alphabet have a lot of cash flow that they can use to reinvest in Meta as well, but there are estimates that 93% of their operating cash flow is going into AI CapEx. So they are going all in on this. In fact, Alphabet, Google, basically posted its first cashflow negative number since it IPOed in 2004. So that’s the expense side. Let’s look at the revenue side. Revenue in AI is absolutely growing. Do not get me wrong, this is absolutely growing. For the public companies like Google, if you look at Google Cloud, that revenue is growing. If you look at AWS, that revenue is growing. From what we understand of what’s going on with OpenAI and Anthropic, their revenue is growing. But the problem is valuations in the stock market because when you look at how pricey these AI companies are becoming, you need to get basically what estimates say is that revenue by 2030, so in the next four years, AI revenue needs to reach $2 trillion.
That is so much money. Well, we’re comparing two trillion to countries that is bigger than all but 14 countries in the world, and it is bigger than all of tech combined right now. I just want to put that in perspective. That means AI in the next four years needs to get bigger than all technologies companies combined. So this is what I said at the beginning that the stock market is sort of pricing in perfection. If AI companies hit their numbers, then the stock market valuations are justified, but these are big, big guesses. We don’t know. We really don’t know if the revenue is going to take off. What happens if China starts dumping lightweight models, easy to use cheap models into the United States? What if new cheaper competitors come up in the United States and these companies don’t reach their revenue numbers? Well, that’s going to be pretty bad.
You can imagine this turning into a bubble because yeah, there is an optimistic case that AI does everything great. It says it was. I think that might have negative implications for the labor market, but if you’re just talking about stock prices, maybe. But I don’t know if that’s true. It is pretty hard to say right now that AI is having a super big impact on businesses. It’s definitely impacting the labor market in certain industries, but there have been a couple of surveys of executives. There is a survey of 6,000 executives in the United States, Great Britain, Germany, Australia, and what it found was that 89% of executives reported no productivity gains at their firms over the past three years. Now that’s backward looking and the technology has improved, so I bet that number would go up if they did it again. But if you ask them how they’ll expect productivity growth in the next three years, they said a 1.4%, not exactly a lot.
There was another survey in May of 2026 from Globalization Partners. They surveyed 2,850 executives, 73% called AI returns quote, “underwhelming.” So when you look at all these things together, to me, it just feels super risky. I can’t say for sure what’s going to happen, but to me, there are just a lot of risks piling up here.
And I’ll just give you my gut instinct. Again, I’m not claiming I know what’s going to happen, but my gut instinct is that AI is genuinely useful and we are in a bubble. I do believe that we are in a stock market bubble and it is going to pop at some point. I can’t tell you when. Is it going to be three months or three years from now? I don’t know. But I think both of those things can be true. AI can be a transformative technology and it can also lead to a bubble. I’m worried about the stock market valuations for all the reasons I mentioned from taking on a lot of debt, the lack of revenue, the incredible spending. I forgot to mention the fact that they’re building these data centers at enormous costs and the estimates of how long they’ll last are somewhere around five to six years.
So the idea that we’re going to spend less money on these things as we go forward, I don’t know. So for me, that feels like a lot of risk. Not to mention, by the way, I don’t know how much people like AI. I think there is a serious backlash growing. We see it manifesting in data center pushback across the US. You see certain industries really pushing back against this. You see this is AI adjacent, but you see huge pushback on things like flock cameras in the United States. And I don’t think people like the way AI is being implemented in the US without regulation, being told constantly that we’re going to lose our jobs and that that is inevitable, which drives me nuts by the way. I think it’s so self-serving that all these CEOs are like, “Oh, we’re just going to take all your jobs.” Clearly that benefits you, so you have an interest in having everyone believe that and accept it as inevitable.
But anyway, I digress. So for all those reasons, I think that it could be a bubble. And it also, there’s historical precedent for this. I think that I’ve spent a good amount of time looking into similar situation because history rhymes, right? And what we’ve seen throughout history time and time again is when a transformative technology come out and change the world, it often leads to speculative bubbles and collapses. This most notably happened not just in the US, but throughout the world with railways. We saw this in the 1840s in Britain where share prices of railway companies doubled in two years, and then shortly after they were worth less than half. The US had a similar bubble and burst in a railroad panic back in 1873. There was just massive new track being laid throughout the country. Then the financier of Northern Pacific went bankrupt. The New York Stock Exchange had to close for 10 days.
89 of the 364 railways failed. 18,000 businesses failed by 1875. Unemployment rate hit 14%, which is massive. And so clearly there was a bubble there as well. Most recently, we saw this in the dot-com bubble. We saw a lot of companies investing in telecom, laying fiber optic cable. There was $500 billion spent from 1996 to 2000, peaking at about $213 billion, which is like one to 2% of GDP just for scale. We are way bigger than that. We are three times that right now. And the telecom fiber thing collapsed. The whole thing was predicated on this idea that internet traffic doubled every hundred days. It actually doubled about once every year, and there was just a huge bust. The stock market lost more than 50% of its value, and it took a very long time, more than a decade for it to recover. So these ideas, the internet clearly transformative, railways, clearly transformative, important technologies.
But when people see these technologies, they often bet on them before the business model is fully developed. That’s exactly what we saw in the dot-com bubble. The technology is amazing. The business model wasn’t yet, and people were rushing to invest in it. They wanted a piece of the pie before these were real businesses. And I don’t know if that will happen for sure, but when you look at what’s going on here, it feels the same. We are investing so much money into data centers when we don’t really know that they can pay themselves off. We don’t know how long they’re going to last. It’s a whole nother topic, but we don’t even know if LLMs, the current iteration of AI, is the right way to pursue AI. There are just so many open questions right now, but people are putting money in and pricing for perfection.
And I don’t know, as an investor and real estate investor, stock investor, whatever, pricing for perfection is risky. And so I do think, if I had to guess right now, will we see a big fall in stock prices in the next one, two, three years? My guess is yes. I don’t think they’re going to hit perfection. I think it’s almost impossible. It’s not just necessarily them. I just think it’s crazy to think that you can come up with this new technology and master the art of bringing it to market and monetizing it and productizing it in a way that returns capital to investors that quickly. It just doesn’t make sense to me. Maybe I’m wrong, but I don’t know. After researching this a lot and thinking about this for weeks, this is just where I come out. AI can be used for incredible good. That is clear.
It is solving amazing math problems. It’s helping with healthcare and personalized medicine, discovering new antibiotics, forecasting severe weather. There’s amazing things that it can do, but there are also really bad things that it can do. That is very clear. Technology in itself isn’t really good or bad. It’s up for society to decide how it should be used. And right now, there’s no voice for society. Right now, it’s a bunch of people, CEOs who have frankly are just self-interested, like every business. I’m not saying they’re unique and that they’re self-interested, but when a technology is this important, you cannot let the people who stand to gain the most from letting it run rampant, let it run rampant. It is crazy. I was listening to a podcast the other day and someone was likening it, and I think this makes sense to nuclear weapons. Would you allow Robert Oppenheimer to take nuclear weapons, the technology that he developed and go just regulate it on his own?
Of course not. You have to have other people in the room looking at this and at least providing some level, one, of transparency to the public about what’s actually going on, and two, helping steer the industry in a way that it is beneficial to people and is not just going to consolidate knowledge and capital and money into the hands of a few people who may or may not be that concerned about what happens to the rest of society. Go listen to Sam Eltman’s buddy. That guy, I don’t think he cares about what happens to the rest of society. And I just think if there’s no regulation, the beginnings of this AI sort of backlash that we’re seeing, whether it’s opposition to the flock cameras or data centers, I think it’s going to boil over. And this is clearly possible. If you look at AI optimism in the United States, I forget the exact number, but it’s low.
People are not optimistic about AI. It’s like in the 20s or 30s or percent. If you look at the way China is doing it, that does regulate AI in pretty significant ways. They have 75% optimism about AI. They have made rules, particularly around how children can use AI, but also about replacing human workers with AI, about what can be developed, who has access to it. I’m not boosting China here, but I’m just showing that countries, you can do it, right? You can come up with a framework that regulates something and makes it safe. Look at airplanes. The fact that air travel is so safe is amazing. It’s a miracle. And yes, there is regulation in that industry. And no, I’m not saying that every industry needs to be regulated. It doesn’t necessarily need to be heavy-handed, but something needs to exist. If there are people at these companies, the CEOs themselves are saying, “This can cause extinction.” They cannot regulate themselves.
Someone else needs to do this because if it doesn’t, I just think it’s going to go bad. Whether it leads to some physical harm or just some economic catastrophe that will start probably in the stock market, but will lead to large levels of unemployment that can probably lead to significant trouble in the housing market because if we see unemployment rise rapidly, if we see just net worths fall from stock prices deflating, that is going to have negative impacts on housing, whether it’s from higher vacancy rates, people unable to pay rents, housing prices going down. These things cascade. We saw this in the housing market in 2008. It started with the housing market then, but it spread to the stock market. This would be the opposite. It would start with the stock market, but it could spread to the housing market. So I just think there’s a better way forward.
I think the call for international cooperation is strong. People are always saying, “If we don’t do this, China wins.” But what if we just created international regulations? We haven’t even tried. So people are like, “Oh, that’s not possible.” Well, we could try and there’s obviously clear historical precedent for that kind of stuff working. Nuclear non-proliferation for large part has worked. We got together on things like fixing the ozone layer. That worked. This is a technology that needs international cooperation, and the United States has an opportunity to lead and to help create the frameworks that allow for economic and societal benefit without creating unnecessary risk for our country and for our economy. So that is my rant about AI. I’ve been thinking about this and researching it a lot. And this is, to me, the big thing hanging over the economy right now. It’s hard to get excited about investing in the stock market or even buying rental properties or being in the housing market when there’s just this impending worry about will the stock market crash or will AI disrupt all of our jobs?
And the fact that we don’t have information about what’s really going on in these companies makes that worse. It makes it harder to trust what’s going on in the economy, and it’s so much of the economy. And so I hope you’ll indulge my divergence from our usual discussion of real estate here, because I do just think this is a major economic question. And I’ve shared my opinions with you clearly and very loudly, but I’d love to hear yours. I am not an expert on AI, but I do think I have a good grasp on how this could cascade throughout the economy. But I would love to hear what you think. Are you bullish on AI? Are you bullish on the technology and the economic opportunity right now? Or are you sort of like me that you think the technology is great, but also comes with massive risk that need to be mitigated?
Or maybe you hate it all and you just think it’s all terrible. Let me know in the comments below. Thank you all so much for listening to this episode of On the Market. I’m Dave Meyer, and I’ll see you next time.

Dave:
You don’t need to be the smartest person in the room to build wealth through real estate, but you do need patience, discipline, and a willingness to play the long game. Apollo Ono understands this concept better than most, having dedicated his entire youth to becoming a short track speed skater. He reached the pinnacle of the sport competing in three different winter Olympics and taking home eight medals. But when his skating career ended 16 years ago, he faced a challenge he hadn’t trained for. He calls it the great divorce, separating from an identity that had shaped nearly every part of his life. Thankfully, many of the skills he had spent decades honing translated to real estate investing. Now, Apollo operates at the intersection of high performance business and wellness, helping entrepreneurs achieve their goals in a more sustainable way. And today, he’s sharing the lessons that helped him weather tough times, why your investing network is your single greatest advantage, and how to avoid burnout on the road to financial freedom.
What’s up everyone? I’m Dave Meyer, chief investment officer at BiggerPockets. And today we have a very special guest, eight time Olympic medalist, Apollo Anton Ono. Apollo has devoted a lot of his time to investing since retiring from speed skating 16 years ago, and he’s going to share the key business lessons he’s learned here on the show today. Let’s bring on Apollo Ono. Apollo Ono, thank you so much for joining the BiggerPockets Podcast. It’s great to have you here.

Apolo:
Yeah, thanks for having me.

Dave:
I remember your Olympic run very well, but for people who might not know of you yet, maybe just introduce yourself and tell us a little bit about your backstory.

Apolo:
My name’s Apollo Anton Ono. I was a short track speed skater. I competed across three winter Olympic games. I had a very blessed career. I was able to walk away from the sport with eight winter Olympic medals. I retired 16 years ago, believe it or not, over 16 years ago. It sounds crazy just to say that. There’s been multiple reinventions both inside of the sport that I was so passionate and I love so much. And then obviously when I retired, there was the big transition or something that I call the great divorce from the previous identity into forming the new one. I spend a lot of time now focused on high performance at this kind of center of high performance business and wellness. And I’m sure we’ll talk about all the investing stuff in our convo today.

Dave:
I’m curious about this great divorce. Tell me more about that. I imagine after dedicating your entire life to a sport, transitioning to doing something else must be really difficult.

Apolo:
I think every Olympic athlete probably goes through some format of this in their each own kind of way or story, or even just people who’ve done particularly one thing for a very long time that the world has signaled, your check in the mail has signaled, your fees, whatever, have showed that this is what you’re really good at and this is what you were put on earth for. And then sometimes either by force or by choice, particularly in the world of sport, it’s usually you age out or you get injured or you decide to go on another path. And it feels like that. It feels like a finger snap in which everything you’ve done has revolved around this one particular thing and you’ve said no to effectively every other thing and opportunity that’s not allocated towards, does it make me faster? Does it make me stronger?
Does it help me recover better? If no, then it’s not in the sphere of where you operate. And then seemingly overnight after you get back from the closing ceremonies at Winter Olympic Games and the calls start to get more quiet, perhaps the agent stops calling as much, people stop working for you as much that you think is this kind of endless supply of deals and opportunities. But more importantly, you just don’t really know what the hell you’re good at. So for me, there was this great divorce from the previous identity. I had this person who I thought that I was, the world had signaled to me that this is why it thought that I was going to be on this earth and that was gone. That version of myself had no longer or was no longer going to serve me in the same way. Wearing spandex and going in circles is not exactly the way I want to run my business.

Dave:
I think there is relatability here to people who go from a W-2 job or just following one path and then figuring out, like you said, by choice or by force, time to do something different. It can be a really jarring experience. For you, Apollo, were you ready when you retired from speed skating? Was that by choice or by force?

Apolo:
I though that I had been prepared. I had went to university. I didn’t pay any attention when I was there. My mind and energy was totally spent on the world of speed skating. And so when I had really had time to come to terms with what I call the inner voice, the inner voice is really when no one else is around and you’re not putting on the facade or the smile or playing the game of poker to show that you’re fine and okay and transitioning. It’s really just you and your own thoughts. So as a young man, when that voice started to get louder because the world became quieter for me, I really had to come to terms with, I don’t have the skill sets yet. I need to identify what I’m going to do in my next pivot.

Dave:
Were you after something financial? Did you want to build something for the sake of building it or what was driving your next steps? Were you able to use a goal to sort of narrow down what you did next?

Apolo:
It was financial in the beginning, but I think that pure drive of financial also was a big part of why I made mistakes because I was more willing to say yes to certain types of risks that perhaps didn’t resonate with me as an individual. And everyone has their own story. So this is not in any way, shape or form advice to anyone. But for me, what I’ve noticed is that when I chase something purely on a capital basis versus trying to have synergy between does this make sense financially and does this fit with the synergy of the attributes that I bring to the table? Does it fit within the sphere of the thing that I think that I could do even for a couple years or three, four, 10, whatever it might be, if those are totally mismatched, almost always it has resulted in a complete failure.
And forget about misallocation of capital, that tuition that I have paid was very expensive, more expensive than all the universities probably that you could add up many times over because of either rushing, wrong business partners, wrong timing. And something that I had to learn that many folks would probably resonate with. Coming from the world of sport, one of the key skills that you develop is never giving up, having this insanity of work ethic, drive and grit to create resilience over long durations of time and never stopping. And eventually you will compound that into having an amazing result at the Olympic Games, which is a four-year cycle, sometimes an eight-year cycle to getting there. In business, you need to learn how to spot when to pivot very quickly, cut your losses and then begin again. I was not accustomed to that nor was I accustomed to asking for help.
And that’s another part, that’s my second part, Dave, where looking back, if I could speak to a younger Apollo, it would be like, dude, you don’t have to do all of it alone. There is so many resources out there and mentorship. I mean, I’m such a big believer in mentorship and guidance and community because that’s how you learn. People are there and they want to help, they want to teach, they want to guide to help you sidestep those landmines. And for me, I was almost playing whack-a-mole like, let me step on every single landmine known to man. Let me figure this out. All

Dave:
Right. So we got to take a quick break, but we’ll be back with more from Apollo Anton Ono right after this. Welcome back to the BiggerPockets Podcast. Let’s get back to my conversation with Olympian Apollo Ono. You talk about this divorce and making a lot of mistakes. How did you go from trying out different things and experimenting a little bit into finding your calling and what you feel you’re good at in business and as an investor?

Apolo:
It took me a long time because even though I cognitively understood the concept, behaviorally, I still found myself to be making the same types of mistakes. So for example, blind trust, right? My father had told me at a very early age, he’s like, “Trust but verify.” I heard the words. I didn’t feel the impact of what that meaning could really be. In real estate, I think it’s almost pretty cut and dry. You can get every piece of information you need to get before you go to any type of a closing. You can really dig deep. And I was not sure what that was like because I was not willing to do those things. So just to give you backstory and context, I started investing in real estate back in 2006, 07 and 08. 2006, 2007 and 2008, right before this

Dave:
Devastating…

Apolo:
Yeah. So I was buying real estate through a fund. I was writing promissory notes, I was writing loans, and unbeknownst to me, because of my blind faith in this particular group, they had been doctoring and changing. They were doing all of the mortgage do not dues.

Dave:
Like full on fraud. Full

Apolo:
On fraud. Coming out of the crisis, they had survived, they changed the names and done their thing and they had gone through bankruptcy. I only found out about this because someone that I knew in the state of Utah had called me and said, “Hey, do you know those guys that you’re investing with? They actually both filed for personal bankruptcy and you’re not listed as a creditor.” I was such in denial. I was like, “Oh, how can that be true?” Because I had consoled some of these people on their marriages and it was a gnarly time. And so I got complete eviscerated and blown out while I was still training and competing. I was much more of a passive investor, but I didn’t understand the concept of understanding how to bring in the right type of legal teams to monitor, to adhere to the right type of principles that are required when you do these types of deals.
So I learned the really, really hard way and it was painful, man. It was really painful.

Dave:
I bet.

Apolo:
And so the moment that I went from pointing the finger to then saying, “Well, this was your decision, this was your making.” And yes, did I get taken advantage of? Sure. All those things. But at the end of the day, I had to radically own that mistake. And only upon then could I really say, now I’m willing to move forward and do I want to allocate my time towards something that’s going to be potentially really negative on a mental perspective that I have no control over or I’m going to use that mental space to progress in a way where what is the hard life lesson here? How do I move forward in the right way? And how do I make moves so that I can compound my next generational move in the same way? And so I look at that as
We all love to hear about these overnight successes, these people that like, oh my God, I want to do what they did, but we forget to peel back the layer of that onion to see it was really hard and really difficult for long duration of time, but they didn’t do anything. They stayed with it. And I think that to me has always stood as the test of truth, especially for folks that decide to go into real estate is it will not fail you if you stay with it long enough. It’s a really powerful asset class and it’s a beautiful story too. You’re a steward of capital that provides immense value to this country.

Dave:
Yeah, it really does. And you’re totally right. Real estate people see it as risky and it is capital intensive. So it’s totally understandable when people say, putting in my only $50,000 or $20,000, that is scary. But it is a much more forgiving business over the long run than I think people give it credit for. You can make mistakes in this industry and if you stick with it, I mean, I can tell you I’ve made plenty of mistakes as well. Apollo’s talking about mistakes he’s made. If you stick with it, it is pretty forgiving over a long period of time. But Apollo, you must have liked something about real estate, right? Even during that negative experience, was there some kernel of it that got you excited and helped you endure through that difficult time and get back on your feet and say, I’m going to try this again?

Apolo:
Yeah. I mean, I would say the following. I mean, first and foremost, real estate is not what I do on a day-to-day basis, but it’s something that I believe in. I would say 80% of the Olympic athletes that I know from my cohort that have since retired, the ones that have gone on to be successful are in real estate today. They’re either in development, they’re commercial real estate brokerage down in Southern California. My really good friend, he works for Cushman Wakefield. His name’s Rusty Smith. He does amazing work down there in the Long Beach area. Chad Hedrick does… He’s a residential real estate agent in Houston and in the surrounding areas. Ryan Bedford owns his own real estate development company. I mean, all of these great people that I train alongside with, what they did really exceptionally well was they applied the same rigor of hard work, discipline, consistency, and they just went like this and took those attributes and just said, “I’m going to do real estate.
This is where I’m going to go.” So for me, I have so many different interests. I mean, my real passion is, like I said, living in this intersection of high performance business and wellness and trying to communicate and get not only the current American business community to understand their own reservoir potential that has not yet been tapped into, but also the next generation, the kids that are in youth sports, the kids that are in K through 12, to realize and recognize entrepreneurship, critical thinking, learning how to get stronger, better, faster, more resilient, not even through sport, but through their own decision-making process. That’s what I get excited about. And I take those monies that I earn from those companies that I work with, and then I reinvest them back into really two categories. One, which is health and wellness technology companies. And the second would be companies and/or funds with people who I have built long-term relationships with, like my friend’s company that focuses mainly on industrial real estate.
They call it, it’s almost like the bond portfolio of real estate. It’s consistent. If you believe in the American economy and that people are still going to do specific types of things and behaviors, which I would agree that we will for a long period of time, it’s an amazing asset class. I have learned tremendously a lot about what’s happening here, but what I love more importantly, Dave, is the interaction because I’ve been to some of their offsite meetings and some of their meetings when they bring their AGM, all their general partners and all their investors and their LPs, and I get to meet them. I hear about the story. It’s this doctor from Northern California, it’s this optometrist, it’s this person who’s also in real estate. It’s this person who runs a family office. It’s this person who just started, they just left the W2, they’re trying to get into real estate, they’re learning their ropes, they’re doing it this specific way.
It’s fascinating. That spirit of entrepreneurial activity in the United States is still very vibrant and strong. It is capital intensive. It’s not easy. Rates don’t help, but there are deals I think to be had and opportunities will always present themselves. So that’s where I try to keep my eyes peeled as much as possible for those opportunities.

Dave:
Couldn’t say it better myself. There are always deals to be had. The cycles change, residential, commercial, industrial, all these different things. They cycle in and out. There are different opportunities, and the whole goal is to spot what the market’s giving you. At certain points, it’s giving you cheap deals. At certain points, it’s giving you negotiating leverage. At other times, it’s giving you runaway appreciation that’s going to make everyone look like a genius. There’s just different things, and that’s why you need to stay informed and understand what’s going on in these individual markets. But Paul, I’m curious, I think obviously not everyone in our audience is an Olympic athlete, but I do really see a lot of corollaries between your story and people in our audience who are trying to shift. Even if they don’t want to quit their W-2, they want to build something on the side.
They want control over their financial future and they’re turning to real estate to do that. You’ve obviously invested in real estate. There are some lessons you can help teach us both as an investor and as an Olympic athlete, maybe just personality traits or skills or habits that our audience could learn from you that you think will help them in their business.

Apolo:
There’s something that we call the gas principle in athletic performance. So it’s general adaptation syndrome. So it’s alarm, then resistance, then exhaustion. Growth happens when you recover a little bit before the complete exhaustion. We don’t train as athletes 100% every single day. We basically use periodization, large blocks of volume of training followed by large blocks of real recovery. Many entrepreneurs, and I have been guilty of this too, retiring, we run never-ending block cycles until we start to see the quality of our decisions begin to fall apart, and we don’t actually notice it because we are so used to grinding. Real estate people typically are grinders. They’re up early, they go long hours. I know the type, I’m around them, and I love that aspect of it. But something that I’ve learned from sport is that you, with a refreshed mind, it’s almost like if you’ve been writing something for a long period of time, you get eye fatigue when you see the same thing over and over again.
If you’re looking at homes, it’s a purchase for yourself as a single family. After five or six homes, they all start to look the same. That’s just eye fatigue. You need to refresh that system in the same way. So that’s something that I’ve learned as you transition or as you go into this next phase, know that your ability to persevere, to go do long periods of work need to be followed because you’re a human being, you’re not a robot, so you need to follow with some formats of recovery. Also, performance is cyclical, just like in stocks, just like in any other market in the world, it’s not linear. Sports was identical to that.

Dave:
What do you mean by it’s cyclical and how do you counteract that or how do you mentally prepare yourself for that kind of up and down life of an entrepreneur?

Apolo:
You zoom out. It’s the number one reason why I think we see folks either overtrade if they’re in the markets, they overtrade themselves, they exit positions they shouldn’t have. It’s actually like this, where you have an uphill swing, you fail, you revert back, you learn, you begin again.

Dave:
Right. It’s not like hills, it’s circular.

Apolo:
It’s like small little circles where you feel like you’re going backwards, you take a couple steps forward, maybe two or three steps backwards, but you’re getting momentum again and you’re going up in the same cycle. Because that performance is cyclical, I think we have to realize when you press and when you start to, I think, either coast or have the ability to be, I think not resistant, but be patient. Patience is a key attribute towards a sport like short track speed skating, and the same thing in real estate. And then the last part I would say, Dave, is for all the people that are making a big transition, I
Believe deeply in the physiological change. So if you want to have a big change in your life, the fastest way to do that is you change the body’s feeling first, then your behavior will follow. So sleep, fueling, training, breath, all those things you can control. All the other stuff that’s happening either in the government, in the market, you cannot control those things. You are always going to be defensive and moving and dynamic based on that information that comes towards you. So the things that you can are when you’re optimally performing… When I was an Olympic athlete, my mental acuity and processing was so high. Man, I was reading information so quickly. I felt like I was neo from the matrix. Everything was slowing down. I was in flow state. It was amazing. And that was because we had a combination that I was living a life that was really attuned to being at my physiological best.
And so my brain also had the ability to make really, really good decisions in the same way. And so I’m no longer competing as an athlete. I’m 16 years retired and I still take it really seriously because I want to perform my absolute best. I know that my behavior can be predicated upon the way that I make those moves and that energy forward. So for those folks that have not yet made that change, do so. And no one’s trying to be an Olympic athlete. I get it. Just

Dave:
Being

Apolo:
Consistent with your movement, your food, your sleep and the like.

Dave:
100%. I think it just gives you a lot of self-confidence too. I, in college, gained a lot of weight. I was not in a place I wanted to be, and then just dedicated myself to going to the gym every single day. I’ve lost 60 pounds. I’ve been doing the same thing every single day since then. I don’t really care about the weight anymore. It’s just the self-confidence. I can do something that takes a lot of discipline over a long period of time, which is exactly what entrepreneurship is. It’s just, you got to grind it out. Some days it’s going to suck. Some days you’re going to feel on top of the world, you get a great workout in, you do a good deal, you’re going to feel great, but it does give you that sort of ability to balance your emotions over long periods of time.
I think for me, it’s just been the absolute confidence boost that I needed to succeed in my career. I understand not everyone’s doing that right now, but I’m with you personally. For me, it’s been probably the biggest difference maker in my life over the last 15, 20 years.

Apolo:
Yeah, same. I would say in the same realm, my consistency of trying to take care of my mind and my body have resulted always in me feeling better. When I feel better, I usually perform better. Then I would say in addition to that, something that I’ve learned over the many years of competing was that if I can shorten the decision time or what I call the negotiation time between do and do not. So for example, when you get up in the morning and perhaps you don’t really want to go do something and you’re thinking about, “Well, what should I wear and what kind of shoes should I wear?” That should be all pre-planned the night before, so that’s one less decision in your mind space and you just pick it up, you put it on, and you go. The faster you do that, the shorter that really is.
I used to do that when I was competing. I had Monday, Tuesday, Wednesday, Thursday, Friday training outfits for the morning already folded and ready. I would do it every Sunday. Had my bandanas folded, everything was ready to go. It was completely automatic robotic clockwork. I would wake up and there was no thought. I never gave myself space to think I don’t want to go today or

Dave:
The bed

Apolo:
Is too warm. It’s just like, okay, it’s time to get up. Now it’s time to go to the

Dave:
Room. Yeah, automatic. Step

Apolo:
One, step two, step three. I think what we can realize is over time, that habituation and consistency start to form real behavior patterns. I think we all know someone in our spheres of relationships who we are like, “I wish I was like that person. They make it look so easy.” And maybe genetically it does come easier to them, but doesn’t mean that we also can’t rise to the level of our potential. And that’s what I’m passionate about reminding people is that your

Dave:
Inner

Apolo:
Power is incredible.

Dave:
Yeah. I mean, I don’t know if you’ve read that book, Atomic Habits, but they talk a lot about this. Yeah. It’s been the bestselling business book for 10 years in a row for a reason. It’s a fantastic book, but it’s the same kind of thing. You kind of are what your habits are, and if you just take the decision making out of it and habitualize it, you don’t even think about it. It’s no longer like, “Oh, I got to go do this. I got to go look for deals. I got to call three contractors.” It’s just, “I call three contractors every day. That’s who I am.” And that just becomes who you are and it really does make a difference. I know if you haven’t started that yet, it feels like a grind, but in a couple of weeks, it actually, it really does reform your brain a little bit.
We got to take a quick break everyone, but we’ll be right back with more from Apollo Ono. Welcome back to the BiggerPockets Podcast. Let’s get back to my conversation with Apollo Ono. I want to come back to something you said a little bit about rest and recovery, because that is so counter, in my opinion, to the hustle culture that we hear. How do you strike the right balance between putting in a lot of effort for something that you genuinely care about and also finding the space to rest and recover because that will help your next grind, right? Is that kind of how you think about it?

Apolo:
The one piece I think that’s perhaps missing that we don’t talk about enough is I think burnout is a direct reflection of doing long durations of hard work and failing repeatedly without feeling like you have progress. That is when you feel burnt out and you start questioning your existence and if you should continue on in business in general. So the rest and recovery is really a defense mechanism against that. So if you are in this situation and perhaps you’ve got debt service and you’ve got all these things that it’s hard to see the light at the end of the tunnel, you need to have times where you can have these micro moments, even if it’s not like you’re going to take a week off. Obviously, not many people have that luxury, but you need to find times to create recovery, micro recoveries throughout your day, throughout your week.
And you have to discipline the schedule to allot that in order to be your best and your body will compound that rest period. We can churn and burn for long periods of time, but eventually I believe those decisions will start to falter in terms of the quality. And so the goal is to maintain that consistency of good decision making and good thought process.

Dave:
Yeah. You said something earlier about your efficacy, your decision making goes down at a certain point. And this sort of narrative that’s in, I think a lot of modern entrepreneurial culture is just keep throwing time at the problem, bang your head against the wall as much as possible. I respect the hustle for sure, but it’s not helping. It’s actually hurting you. And you can realize rather than throwing another three hours at a problem when you’re not at your best, to take a step back, say, “I need these three hours to go do something else, and then next week when I hit it, I’m going to be so much better at this and I’m going to solve the problem in an hour instead of three hours.” And you’re just much more efficient at problem solving or whatever it is that you’re trying to accomplish.

Apolo:
It’s a fine line, right? There’s times where you need to tap into your internal David Goggins, your internal Jocko Willink, and you know that it’s time to use these guys as amazing aspirational and inspirational figures for what they stand for and what they do. But then I just believe there’s also time where you have to treat the body and the mind and you got to give it a bit of relief.

Dave:
I love that advice. Any other advice that you have? You work with a lot of successful businesses. I know you do a lot of coaching and mentorship and advising. What are some of the traits that you see in successful businesses that our audience and mostly small entrepreneurs could apply to their own businesses?

Apolo:
The things that I felt have helped me the most are, number one, if it’s uncomfortable or it doesn’t come natural to you, you should probably either identify someone who can do that job for you or learn to force yourself to do those things when you have to. I used to hate networking. I’ll give you an example. I used to go to these conferences and I was like, “This is a waste of time. I don’t want to spend time with these people. I don’t like this. I don’t want to introduce myself. I don’t want to shake anybody’s hand.” And then I realized very quickly, it doesn’t matter. It doesn’t really matter what you really want to do. If this is a prerequisite as a part of your business, you need to treat it as if you hate running, but running is a really big part of your training cycle, and therefore it has a spot in the system.
It doesn’t matter if you’re excellent at it, but you are going to do it and you’re going to do it consistently. Over time, I think someone who I really look to a lot of his great writing, Tim Ferris wrote about fear setting, the thing that you are the most afraid of by stating it, by writing it down, by really saying, “Okay, what is the absolute worst thing that could happen here? How would I deal with that?” You actually articulate that your body can respond in a much different way versus, “I’m so scared of the thing that may happen, which may probably or could never happen.” And then the last thing that I really try to tell a lot of folks is the way that you show up is a really, really big, I think, leading indicator of how people want to do business with you.
Whether we like it or not, the first initial five to 10 minutes of you interacting with someone, you’ve already prejudged, “Does this person fit into my sphere of can I do business with this person? Do I like this person? Does this person like me? Do we fit together synergistically?” So if you show up and subconsciously you are in a really bad place, that’s going to effectively reflect upon the other person. So I think whether you’re going for a networking event, whether you’re going to go do a deal, always remember this is the first time someone is meeting you. They don’t know anything about what you’re going through. They probably just don’t really care either, right? That’s the reality. Everyone’s thinking about their own stuff.

Dave:
Yeah, right. Yeah, it’s true.

Apolo:
So when you show up and you go through this, everyone has a bad day, I get it, but I think the more that we can be mindful about how we are showing up to these meetings, how we’re showing up to deals, we’re showing up even to our own families, it goes a long way.

Dave:
I love that advice for real estate investors in particular because we say it a lot on the show, but it’s a people business. I know you can look for deals on Zillow, but the best deals, the best opportunities come from your agent. They come from a contractor, a property manager, a friend. And if your agent gets a good deal, they’re going to call the person they like, the person who has treated them well, who has shown up for them when they need something in the past, who has treated them as a member of their team. I could tell you, I’m sure this is true of you, Paula, those are how you find deals. It’s through networking. It’s through being A reliable person. To bring it back to what you talked about in the beginning, to being someone that you can trust, to be a trustworthy person in this industry.
You will find trustworthy people if you’re trustworthy yourself, if you actually go out and show up in the way that Apollo is talking about. I think that’s fantastic advice. And probably even more important than the tactical stuff we talk about on the show. Obviously running your business well is important, but I think you’ll get a lot further just having a great network and great community. And to your other point, just forcing yourself to get through some of that initial discomfort. Because a lot of the things I personally found uncomfortable at the beginning wound up being some of the most rewarding parts of my business. So thank you for sharing that with us.

Apolo:
I saw this front and center. I went to ICCS a few years in a row in Las Vegas. It’s like a commercial real estate mainly for retail, and it was amazing. Everything that I saw with the big booths, the big presentations, everything was actually all about people handshaking, going to grab a drink, going to grab a meal and talking. How is your family? How are your kids? Humans are still highly receptive and we would much rather do deals with people that we like versus some unknown large scale corporation that has no soul. That’s my personal belief.

Dave:
I agree with

Apolo:
You. And especially if you’re someone who is an entrepreneur and you’re not dealing with institutional grade capital yet, this is like your superpower. So learn the niche, carve that personality, showcase to people who you are. And I think you’ll be really surprised at how much can be done. That doesn’t seem like it’s work, which actually turns out to be amazing deal flow.

Dave:
I know you haven’t been, but we’ll get you next year to BPCON. It’s like our big event similar.

Apolo:
I’ve heard it’s amazing.

Dave:
That’s the whole thing is people do deals right there. The amount of progress you make in these in-person things, it’s great to listen to the podcast.That’s how you get a foundation and background and knowledge and inspiration. That stuff is important. But transacting comes from meeting people. If you want to actually go out and do a deal, you got to go meet those people face-to-face. It’s why I always recommend even if you invest long distance or passively, go meet the person face-to-face.That’s an investment in your business and in yourself that you need to do. All right. Well, thank you so much. This has been super helpful. Any last advice for the audience out there?

Apolo:
It’s not really business advice. I would say listen to your true north. We have a finite amount of time on this planet and many of us, me included, we live and sometimes we operate as if we have an unlimited amount of time. Know what your purpose is, identify where you receive fulfillment from. If you’re in real estate, I think it’s a really great start. And really, I think when you do the right thing consistently, when you show up as your truest and full self, you will have success. It may not be in the timeframe that you dreamt of, but it’ll be faster than you think. And I think that understanding that you’ll pave the way towards everything that you want and more, but you got to step up and you got to show up.

Dave:
Well, thank you, Apollo. It was super fun hanging out with you and thanks so much for sharing your story and experience and advice with the audience. People want to connect with you, where should they do that?

Apolo:
I write a lot on LinkedIn. A lot of my thought, my brain dumps for the week. I spend a lot of time there, but I’m on all the regular social channels at Apolloono. You can find me. But really LinkedIn, for some reason, has been my outlet, a little bit longer form. I find a lot of business folks that I interact with and I partner with are on that.

Dave:
Awesome. Well, thank you so much again, Apollo, and thank you all so much for watching this episode of the BiggerPockets Podcast. We’ll see you all for another episode in just a couple days.