Dave:
We’ve been saying that it’s a buyer’s market, but is the buying window already starting to close? This is a key point to understand if you’re thinking about buying a new property in the coming months, are conditions better now or are there better deals to come? Today we’re going to find out. Hey everyone. I’m Dave Meyer. I’m a housing market analyst and the head of real estate investing at BiggerPockets. Joining me today on the show is Dr. Kara ing, a senior economist on the economic research team at Zillow. Kara is going to share some insights on some data Zillow recently released, which indicates whether the current buyer’s market dynamics are likely to remain steady or shift back towards sellers. And then we’ll discuss the impact of recent fed cuts on mortgage rates and also some really fascinating demographic data about US homeowners. This episode is going to be jam packed with information that will give you a leg up against your competition in the housing market. So let’s bring on Kara. Kara, welcome to the BiggerPockets Podcast. Thank you so much for being here.

Kara:
Of course, I’m happy to be here.

Dave:
Can you just tell us a little bit about what you do at Zillow?

Kara:
Okay, so my name is Kara Ang and I’m a senior economist at Zillow, and basically I get prayed to nerd out on data and then share this insight with everybody.

Dave:
Dream job. It’s kind of like my job. It is the best job for people like us. It’s so good. So tell us, what are the big picture things that you’re tracking? What are the big trends that you think are important for our audience?

Kara:
Okay, so there’s lots going on today, but one thing I want to flag is buyers who are waiting until spring or until something happens in their life to be able to buy a home. So what we’re seeing in the data is that buyers have a lot of options right now. They have more time to decide and they have a lot of bargaining power compared to past Augusts and previous seasons. And so this might be an opportunity for a buyer if they’re looking to take a look again to see if they can find a house that fits their needs. And then the caution for this is if you want to wait until the mortgage rates fall more for negotiation power to increase more, that’s a riskier gamble because what we saw in August was that new listings fell, it was a lowest level of new listings for the month of August in the history of Zillow’s data. So I think what’s happening is that sellers are sort of picking up on the fact that they’re losing negotiation power and they might be thinking, I’m going to wait. And so they kind of pulled back on listing their homes.

Dave:
I totally agree that this is the most interesting story in the housing market and for those of you who maybe not like Karen and me are looking at this every day, lemme just provide a little bit of context here. Basically for the last year or so, we’ve been seeing inventory going up really since it bottomed out in 2022 or so. It’s just been going up consistently. And that has been slowly the housing market from what has been a strong seller’s market more towards a buyer’s market. But eventually what happens in a normal investing cycle is sellers are like, well, I don’t want to sell into a bad environment and unless they’re forced to sell, they have the option to not sell or to wait or to do whatever. And that’s exactly what we’re seeing. And I want to get to what Kara mentioned in just a minute about what that means for buyers. But does this signal that we are in more of a normal correction than having risk of a crash because we’re sort of seeing the appropriate response from sellers, right?

Kara:
We are seeing the appropriate response. So you brought a very good point. Seller is very different from the seller we saw before the global financial crisis, they’re usually in a stronger financial position. They are not forced to sell, so they have the luxury of saying, this is not a market I want to enter into. I’m going to wait a few months maybe into the new home shopping season before I try again. So I mean that’s kind of encouraging and it kind of attracts with what we’re seeing.

Dave:
And do you think that will preserve prices somewhere near where we’re at because I’ve been following your predictions, Zillow’s updated home price forecast all year. I think it started mildly positive and it’s kind of drifted down a little bit to mildly negative for the year. Is that sort of where you’re thinking will wind up at the end of this year?

Kara:
Yeah, flattish to mildly negative. I mean, we think prices are going to fall by a little bit, but it’s not very much. And I think a lot of that has to do with sellers are kind of putting a floor on how much prices can fall.

Dave:
Right, exactly. And can you tell us about the regional differences in where we’re seeing sellers pull back the most?

Kara:
Yeah, so sellers are pulling back in a lot of places where inventory has recovered by a lot. So it’s going to be a bill of roller rollercoaster, but okay, think to Texas and Florida. These are places that had a big boom in the first part of the pandemic where everyone wanted sunshine and affordable living.

Dave:
No income tax.

Kara:
No income tax. That’s pretty nice. And then builders flocked in because they wanted to capture some of this demand. So they started building and then inventory rose and then it got to the place where prices were falling. Now we’re seeing sellers pull back in these places where they realize like, oh, if I don’t have to sell my home right now, I might have to wait. I might want to wait because it seems like this market is just very saturated. The inventory is accumulating.

Dave:
Yeah. That’s sort of why it feels healthy to me that this is happening because you would want to see sellers pull back in the markets where inventories going up and prices are declining the most. If we saw more people selling and piling onto that situation, that’s when I would worry about more significant declines, 5%, 10%, something like that. But you’re seeing the corresponding change, whereas the markets in the Midwest right in the northeast where selling conditions are still really good. That’s where we’re seeing new listings keep rising.

Kara:
Right. Well, yeah, I mean it’s still a seller’s market over there and not only is it a seller’s market, I mean northeast is structurally underbuilt, there aren’t enough homes to go around. And so it makes sense that if you are a seller and you want to sell, you’re not in a place that’s disadvantaged.

Dave:
What do you think this means for buyers? You alluded to it a little bit earlier that people can wait and there’s a chance that buying conditions could improve, but there’s a chance that they stay the same or they even get worse. Again, how would you approach this kind of market if you were a buyer?

Kara:
I would just take a look at what I can afford at today’s market, at today’s prices, at today’s mortgage rates, and see if I can find a home that fits because I think that is the most important thing. Buying a home is not going to the grocery store and impulse buying a candy bar. You’re stuck with this home for a long time. So you want to make sure that it fits your needs for now until the foreseeable future. And so that to me matters more than whatever mortgage rates are, whatever the prices are. I mean, these things are important in that it’ll determine whether or not you can actually buy that home if you can afford to buy that home. So that’s the first place I would check if you were shopping earlier in the season and you held off because we’re like, oh, I can’t find anything that I can afford. Mortgage rates have ticked up a little bit, but there’s still a downward trend compared to May. So if you haven’t looked lately, check what listings you can afford now because it might be that a home that was out of reach before is now within reach and it fits your needs.

Dave:
That’s great advice. I always recommend to people on our podcast, our audience, people who are mostly investing in real estate buying rental properties, but if you’re going to buy it for 3, 4, 5 year hold periods, just make, if it works today, that’s the most important thing that matters. Speculating about the future is really very challenging, and you and I do this all day and it’s still very difficult to forecast how this is going to happen. And I don’t know about you, but to me, the global economy is feeling less certain than ever and trying to forecast what’s going to happen in a given month, a given year is going to be even less accurate than it is traditionally, and it’s pretty inaccurate even during normal times. So I think that’s very wise advice

Kara:
And the range of what we’re forecasting isn’t very large, so we’re expecting prices to either flatten or fall by a little bit. So that helps a little bit. In terms of affordability, we’re expecting mortgage rates to dip down a little bit by the end of 2026, but we still expect it to stay within that six to 7% range that we’ve seen for a long time now. It might end up a little bit closer to the six than the seven, but all that together combined, is it worth waiting if I’ve already found a home that I can afford that I like to see if there’s a better deal out there. I don’t know.

Dave:
Yeah, it’s very unclear if that will happen. If rates do drop more than that, prices could go up and offset some of the affordability gains that come from a mortgage rate drop. So

Kara:
Why would mortgage rates fall by that much? You have to think about that

Dave:
Because the recession

Kara:
And then at which time are you going to want to buy a home then?

Dave:
Right? Right. Yes.

Kara:
With mortgage rates, it’s a very tricky idea because mortgage rates falling helps with affordability. But what would it take for mortgage rates to fall? The most obvious thing is if there’s softening in the labor market, which hopefully it’s not your job that’s been softened, right? That would prevent you from being able to buy a home.

Dave:
We got to take a quick break, but stick with us. We’ll be right back. This week’s bigger news is brought to you by the Fundrise Flagship Fund, invest in private market real estate with the Fundrise flagship fund. Check out fundrise.com/pockets to learn more. Welcome back to the BiggerPockets podcast. Let’s get back into our conversation. Everyone wants to talk about mortgage rates and you are echoing what I’ve been saying on the show all year that I think that rates are not moving down that much. I know a lot of people in this industry really want them to. It would probably help the industry, but I think it’s unlikely. Can you tell me why you think six to seven is the range going forward?

Kara:
Well, because we’re fighting two opposing forces, so mortgage rates can take lower. If we have a low softening labor market, which we’re seeing signs of, we’re seeing the labor market cool. But at the same time, you also have inflation that’s relatively stubborn, and so these are two opposing forces that keep interest rates up and one keeps interest rates down. And so that’s why you’ve been stuck in this range. Unless something happens to break one of these forces to win this tug of war, it makes sense that mortgage rates will stay within this range.

Dave:
I think that makes a lot of sense. Bond investors, the people who really have a big impact on the direction of mortgage rates, they’re as confused as we are. If there’s recession coming or if inflation’s going to win out, like you said, there’s these two opposing forces. And so until there is clarity one way or another, we’re not going to see mortgage rates move in much of either direction. Sure. Each data print we get, it moves a little bit back and forth, but we’re sort of settled in, I think a little bit with rates right now. And I think that’s true. Even if the fed cuts rates two more times this year,

Kara:
Remember how many rate cuts the market is expecting, it’s going to be very hard for the Fed to live up through the expectations. If the Fed doesn’t deliver on all the rate cuts that the market is expecting, mortgage rates may go up rather than down.

Dave:
Alright. That’s your outlook for mortgage rates looking at six to 7%, but how do you think that translates into buyer activity going into next year? As you said, people probably even mathematically shouldn’t wait, but people do. And we’re also at extremely low home sales volume relative, especially to the pandemic, but even compared to historical norms, we’re still pretty low. So where do you see overall buyer sentiment and housing market activity going in the next year?

Kara:
So from Zillow surveys, people are sort of coming to terms that mortgage rates aren’t going to fall significantly. So in terms of transacting, that is not necessarily the barrier for people to hold off buying a home or hold off listing their home rather, a lot of the softening in sales activity has to do with other forces in the macro economy, the fact that job growth is just sort of stagnated and Zillow also finds that people move because they get a new job. And I think there’s kind of a rate lock situation going on, but for jobs in the labor market, because I mean people aren’t really getting fired or they’re not really getting laid off, but they’re also not quitting and you’re not forming a lot of new jobs, so you’re basically stuck where you are, so you can’t really get move up, you don’t want to move down, you don’t want to move out.

Kara:
So it’s sort of rate rock for jobs. And anytime you have low job turnover, it means that residential mobility would also slow because again, Zillow finds that the number one reason people move is for a new job. So when people move for a job, there’s usually a strict timeline. They have to be in Dallas by October because they’re starting their new role. If you take out jobs as the reason for people moving and you’re just looking at the other life events like people getting married, people having a kid, people becoming empty, nester, these things do prompt people to move, but it’s less urgent. And so I think that may be another reason why you see sellers able to pull back if they can wait six months, it might be worth it for better conditions, but that’s not the case if they have to move for a new job.

Dave:
Well, bringing up the better conditions and the idea of waiting till spring, which people have always touted as the home buying season. I guess I’ll just ask you straight up, is the housing market still seasonal? I feel like for prior to the pandemic, we saw very predictable patterns both in inventory levels, home sales, volume, pricing, every single year it was very seasonal. Now it just kind of feels a little bit different. Are you seeing the same thing?

Kara:
Well, I think what you’re mentioning is sort of like mortgage rates create their own seasonality,

Dave:
But

Kara:
There is a reason why people list in the spring and then the season sort of tapers off before the holidays. Right. It’s because it’s a coordination exercise. You want a bunch of homes available so people can transact. If you’re a seller, you want to be able to list your home, have someone buy it, and then move into your new home. And that only works if there’s some kind of coordination. And it so happens that if you have a family buying a home in the spring, moving that home into the summer and getting settled before the school year, it’s just a natural place that makes it convenient for their lives. And also makes sense that it slows down before November, before December before the holidays because no one wants to eat Turkey in front of a bunch of pop.

Dave:
Yeah, just off of the boxes. If you’re anything off

Kara:
Boxes, there’s no table.

Dave:
Okay. Well that’s super interesting. So as we move back to what you, I think it’s Ill are describing as a more neutral market, maybe we’ll start to see some of that traditional seasonality come back. And if you’re correct too, that mortgage rates are perhaps going to be a little bit less variable and I’m going to kind of stay in this range that we might start to see some of those normal patterns arrive. Again, we got to head out for a quick break, but we’ll be right back. Stick with us. Welcome back to the BiggerPockets podcast. Let’s jump back in. So Kara, I know you’re actually around the corner from me right now, and you were speaking at a conference on housing policy today. Can you tell us a little bit more about that?

Kara:
Yeah, sure. So in this housing conference we were talking about some of the challenges renters are facing when they’re hoping to transition into homeownership. And we talked about the affordability challenges, so saving for a down payment and affording the monthly mortgage payments. And we talked about how homeownership gaps by race are persisting because of just some ways that generational wealth gaps are persisting. So for example, a down payment saving for down payment is very, very hard if you’re a renter because we know that compared to five years ago, the amount of income you need to make rent as a renter went up by $20,000. So that is a stretch on your budget, which makes saving for down payment very, very hard. And then if you are a first time home buyer, then you don’t have a home you can sell to leverage into your next home.

Kara:
And then also, if you’re a minority household and you’re the first generation home buyer, it’s harder to tap into the bank of mom and dad for down payment help because likely mom and dad don’t have a home. And we’re finding that the majority of buyers are tapping into at least two sources for the down payment. So for these minority groups that are the first in their generation to buy a home, they don’t really have these avenues. And so we were talking about ways Zillow is helping to address this, and we talked about leveling the playing field with information. And so one of the ways we’re leveling the playing field with information is with down payment assistance programs. So on Zillow listings, you have down payment assistance information for the particular region you’re looking at. Oh, cool. So it’s just a way to maybe help those people who are buying a home for the first time, not just themselves, but in their family to be able to access housing.

Dave:
That’s awesome. I was actually just a friend of mine who’s trying to buy a house for the first time called me this weekend. I was asking me for some advice and I was like, you should go and just Google every down payment assistance program, both in the municipal level and the state level. There’s all sorts of credits that almost not every state, not every municipality, but many of them do. So you say you’re aggregating that kind of stuff so people could see that right on Zillow.

Kara:
And I mean, it’s such an underused resource.

Dave:
That’s awesome.

Kara:
And the thing is, if you’ve never bought a home before, if you’re the first person in your family to buy a home, you don’t know about these programs, word of mouth isn’t going to help you. So we’re hoping to just educate everyone and so that way everyone who wants to buy a home has the resources to work towards that goal.

Dave:
That’s really cool. Well, thank you for sharing that with us and for anyone on this podcast who’s looking to either buy your primary residence or potentially even to house hack a property, a 2, 3, 4 unit property residential properties, a lot of times you can buy those kinds of properties with these types of programs. So definitely something you should consider. Now, Carrie, you mentioned affordability, which is to me the biggest issue in the whole housing market, and I applaud what Zillow is doing to try and help people understand resources. But from sort of an economic standpoint, if mortgage rates are staying close to where they are and prices, you said maybe they fall a little bit in real terms, how do we get back to affordability in the housing market?

Kara:
Well, the answer, and you probably already know it, is by building more. I mean us as a whole is just structurally underbuilt still estimates there’s a housing shortage of 4.7 million units in 2023, the last available bit of data. So there aren’t enough homes for all the households that need a home. We know over the course of the pandemic there was a lot of building and that sort of helped in terms of slowing down the pace in which this deficit is growing. But it didn’t stop the deficit, it didn’t reverse the deficit and certainly hasn’t closed it. So really we as a whole just need to be building more.

Dave:
That makes sense. And it’s what I often hear, but it is a long-term problem, right?

Kara:
But we got here because we were structurally under building for decades. And so it makes sense that the solution to undo something that was built up over decades would take a long time. But there are steps we can do to help this one is to make it easier for builders to build with looser building regulations so that people would want to build in these neighborhoods where there’s still demand.

Dave:
Yep. We’ve seen things on the federal level of opening up public land, for example. But do you think that will make a change or what level of deregulation do you think is necessary?

Kara:
I think it was probably increasing density. So the issue is a lot of places with a housing shortage, you have geographical constraints. It’s hard to build out to meet the demand for all the people who want homes. So what you need to do is you need to build up or by marginally increasing density. And what we found is that there’s a lot of support. There’s growing support for residents in their own neighborhood to have middle density options. So these are not large scale apartment buildings, they’re not single family housing. So the things in between, so those are adu, those are town homes, those are duplexes, triplexes. And if you think about reason why, so the first time home buyer is older than before. It’s because of the affordability challenges, the hurdles with the monthly payment, the hurdles with the down payment. So they’re more likely to have a family. And so their first home, their starter home might not be a condo. They probably want a single family home. But geographically, I mean you can’t build enough single family homes for everyone who wants one. And so these options, these middle housing options, a D use town homes, triplexes, duplexes, that could be a compromise and solution for the housing shortage.

Dave:
And because this is sort of like a longer term solution, how do you think the lack of affordability in the purchase market could impact rents and rental demand?

Kara:
So across the rental market and for sale market, everything is a little bit softer, a lot probably because of lower job mobility. And so there’s lower residential mobility. So overall everything is softer, but what we found is that rents is relatively more resilient. And that’s because of relative affordability, right? It is cheaper in a lot of markets to rent than to buy. And so when the for sale market, you’re hitting up against these affordability ceilings, it means that these people will go into the rental market and then that gives rents a little bit more wiggle room in terms of growth. We’re seeing this struggle with rent versus buy showing up in the way that Zillow users are engaging with our listings. So what we’re seeing is a rise in what we call the dual shopper. They’re looking at for sale listings and then they’re toggling back and forth between for sale listings and rental listings and trying to optimize what works best for the finances.

Dave:
It might be BiggerPockets community members just ruining your data because all of us landlords are out there just looking at the cost of properties and they’re like, oh, what would this property rent for? So then you go back and forth between selling and rent. So we’re probably just ruining all of your data.

Kara:
Well, we have a piece coming out that might make it easier. We were looking at active for sale listings and how many of them have a monthly mortgage payment that is lower than rental estimate?

Dave:
Oh, interesting. I will definitely be looking at that one very closely. Well, Kara, before we get out of here, I have one more question. We’ve talked a lot about the next year or two years, three years. And as an investor homeowner, it’s not the most exciting. It’s not bad either. It’s just kind of like a blah market, in my opinion. It’s very neutral. Do you have any thoughts on the long-term trajectory five, 10 years from now where the housing market is heading?

Kara:
Well, a lot of that will be determined by us. So over the course of five, 10 years, that’s when you could possibly make a dent in the housing shortage. So if we are able to make it easier for builders to build, right, we might be able to shrink that gap and maybe five, 10 years from now, hopefully I’ll see you before then the next time on BiggerPockets, we’ll talk about how it’s so great that everyone wants a home can have at home because of all the building we’ve done over the last decade.

Dave:
Well, I hope you’re right. That would be very nice. And if you have any evidence that that’s happening, please come back on. We would love to hear about it.

Kara:
Of course.

Dave:
Well, thank you Kara, so much for joining us. We appreciate it. And thank you so much for listening to this episode of the BiggerPockets Podcast. We’ll see you next time.

Ashley:
Welcome back to the Real Estate Rookie podcast where we tackle the real world questions. New and growing investors are asking every day.

Tony:
And today’s episode is proof that no matter where you are in your journey, whether you’re closing on your first deal or managing 20 plus units, real estate brings new challenges at every level.

Ashley:
We’re breaking down three powerful questions from rookies at different stages, including if you should buy a property with a friend. What happens when one tenant wants to vacate and the other wants to stay? And lastly, some feedback from an investor who was a guest in an Airbnb that felt DI am Ashley Kehr.

Tony:
And I’m Tony j Robinson. And with that, let’s get into today’s first question. So this question comes from Jason in the BiggerPockets forms. He says, I live and work in LA and currently pay $2,750 per month in rent. I have $80,000 saved up and want to buy a fourplex and live in it so I can stop renting. I have my VA home loan to use as well. I make a bit over $200,000 a year. My plan is for me and a friend to go in on one together, I’d own 75% and he’d own 25%. We would put down 5%. The ones I’m looking at are between 1000001.5 million. And most have four two bedroom, one bath units in the area that I’m looking for. I could probably rent them out for 2,500 to $3,000 each. My friend would live in one unit, his 25%, and I’d live in one unit.

Tony:
Rough estimates put total monthly costs at around $9,000 per month. So each unit would need to pay 2250 to cover it. That’s how much me and my friend will pay. And the $500 per month I’d be saving on not renting anymore, along with the extra rent I bring in from the tenants will all go into fund to cover emergencies and vacancies. I start that fund with 40 k to put aside initially looking for your opinions. And for context, my friend is also my business partner in a business. I also own majority ownership. So this wouldn’t be our first contract we’ve written up together. Plus my majority ownership makes me feel better and I’m not leaving California because I love it here. Alright, so a couple of things to highlight from here. I just want to recap what he said. Great income, right? 200 plus KA year, 80,000 bucks saved up, has a VA loan looking to buy a fourplex, one to 1.5 million. Splitting this ownership with a partner, 75% to him, 25% to the partner. I think my first question is do you even need a partner? And this is coming from the two people that wrote the book on real estate partnerships, but I think based on what you’ve shared, I don’t fully understand the value of bringing in a partner on this deal. You’ve got the VA loan

Ashley:
And Tony with the VA loan. I don’t think you can partner with anyone. I think with the VA loan it has to be a spouse and if it is a partner, there’s a bunch of forms and hoops you have to go through. But I think it has to be some circumstance where it’s like a life partner, not your friend that’s buying the house with you and your two buddies. I don’t think you could even partner on the property using the VA loan

Tony:
Unless you and your firm want to get married just to buy this deal. I guess that’s always an option as well. But assuming that you don’t

Ashley:
In Vegas at BP Con, there you go.

Tony:
So that’s one option, right, is do you even need to partner? Because I don’t see anywhere in this question a strong motivating factor to actually partner. If he’s only putting up 25%, maybe just go get a threeplex instead of a fourplex. It might be the same amount of cash out of pocket, but now you own this deal by yourself. So I think that’s the first question for me, Ash is like, do you even need a partner on this deal?

Ashley:
And too with the VA loan, you can do 0% down. He says we would put 5% down, but with the VA loans you could do 0%. So that might even make it more attractive for him. And obviously you’d have to run the numbers because that’d be a different mortgage payment to see what he would end up cash flowing if it did change to that. But I agree, I think that what is the reasoning for him getting a partner on this is that just because they both want to get started in real estate and this is like an opportunity for them to do it together, what I would do is I would buy your property with the VA loan, have your friend buy your property with their VA loan, both of you house hack it, and then do some kind of agreement. When you guys move out of that property, you guys could decide, okay, we’re going to put these two properties into an LLC now that we both co-own that their investment properties now when we’re not living there. And then you can continue to build your portfolio together if you want. But I definitely think that this person has the opportunity to go ahead and do it themselves.

Tony:
Yeah, I mean because if we just look at the numbers here, we’ve got a fourplex. He said each unit would rent 2250. So I’m going to do some math here to make sure I get the right numbers right. So three times 2250 each unit, those three units will be bringing in about 6,700 bucks a month in total rent. He says rough estimates on cost would be around nine K. So even at that amount you’re still paying less in rent, you would be paying the additional 2250, so you’re still paying less than you were paying in rent, but for a property that you actually own. So does the deal make sense? I mean, yeah, if we’re just looking at how much are you spending for your living expenses, you would come out ahead both from an equity taxes, cash out of pocket on a monthly basis by doing this property. But if we put your friend back into one of those units, do the numbers still work out the same, right? I guess now he’s paying 2250, so maybe the net is still the same, but yeah, I guess I’m just not seeing the value of bringing this other person into the deal.

Ashley:
Yeah, I agree. And he did say that they’re already existing partners, so there’s low risk there because they have this going on. So I do wonder, is it just a comfortable thing you want to take on the risk together? Because that was one of the reasons that I did my first deal. The challenge I really see with this is that going in on this deal is that this is going to be your primary residence. So I’m just going to say the VA loan is out. So say you do 5% conventional loan, which they have those. So he had put 5% in his scenario anyways, so you could go on that, you go on title. Each of you make sure that you are doing the steps that you need to take to actually protect yourself. So besides just an agreement stating you own 75 and he owns 25, as in are you going to get umbrella policies?

Ashley:
So are you going to make sure you have some liability protection on both of you? Is there a plan that when you move out you’re going to put it into an LLC? Because having a partner and owning a company that’s like an LLC together and having a partnership is very different than co-owning things in your personal name, especially as you start to accumulate cash, accumulate wealth and things like that. So just make sure you talk to an attorney that if you do do that where you’re both owners of the property because there’s tenants in common or joint tenancy. So I would talk to an attorney on how to actually structure that.

Tony:
Last thought I’d share on this question is we’re looking at house hacking, but we just interviewed James Kit who house hacked a bunch of duplexes to build his portfolio, but in addition to renting out one side who’s also renting out rooms within his unit and know you said these are two ones, but you’ve got an additional room in there, maybe could you rent that out to beef up the revenue that you’re generating on this unit? And additionally, the other two ones, maybe instead of renting out the whole thing, maybe you rent those out by the room. So just maybe other potential strategies to increase that rental revenue because you did save 2,500 to 3000 per unit, but maybe you could get that up to 32 50 or 3,500 by adding in the room rentals as well.

Ashley:
We’re going to take a short break, but when we get back, we are going to discuss what happens when one tenant on a lease moves out, but the other one wants to stay. We’ll be right back. Okay, we are back with our next question and this one is asked by Kevin, who’s a small landlord owning just a handful of properties he has never faced this situation before. So tenants of a family of five are divorcing. We already passed the 12 month lease renewal date, and we are in the automatic month to month right now as the original lease stated, at the time the lease was due for renewal, I sent out a lease renewal to both of the husband and wife. The husband signed right away, but the wife didn’t. The wife didn’t comment and she didn’t reach out to me. So we ended up without a formal renewal of a 12 month lease, but started the automatic month-to-month lease extension, husband insisted to move the wife off the lease and get the lease renewed for another 12 months.

Ashley:
But I don’t think I can do it without a formal, at least an email confirmation from the wife. And probably more officially like an addendum requires all parties to sign if we finally have the consent from the wife to take her off the lease. And the next question is if I still need to have the husband to reapply requalify for the new lease, while the husband made 90% of the income of the household, but the custody situation and negative impact by divorce are just as unknown, what are your thoughts? Okay, so the first thing we should probably touch on is getting the husband asking for the wife to be taken off the lease. So yes, you would need to do an addendum to the lease or do a new lease, but you would have to sign a new lease with just the husband or you could do an addendum where she asked to be removed from the lease.

Tony:
And Ashley, let me ask a follow up question because they also say that they’re in California, right? Which we know is a very tenant friendly place. So obviously you don’t invest in California, but I’m curious if they’re on a month to month, could this landlord simply do a non-renewal of the current lease, which would negate both parties and then sign a new lease with the husband?

Ashley:
I don’t know about California because I feel like from what I hear in California is that you can’t ever send a non-renewal unless you’re going to rehab the property or move in yourself for a family member. But I don’t know that for sure in New York State, yes, you could do that. You could send the notice and it’s depending on how long they live there for. So if they live there for less than a year, so it’s just the one year lease, which in this situation they’ve lived there over a year, so less than two years, then you have to give 60 days notice. So you would give the 60 days notice that the lease is ending and then you could sign the new lease with the husband. As far as Requalifying, I would look at, you’re not going to know probably right away what his obligations are from the divorce to actually get any additional information unless the divorce is finalized.

Ashley:
You could ask him, is he now required to pay any child support or things like that that would affect the amount of income he’s getting. But if he is been a good tenant, they’ve always paid on time. I would not make him go through all the hoops of actually reapplying, again, redoing his credit, redoing the screening. I would just ask if there is any child support he pays, because honestly, you’re not going to be able to, even if you screen him, you’re not going to know if he’s paying out child support unless it’s taken out of his paychecks every week and you ask for new copies of his paycheck. So you could do that. You could ask for updated proof of income. I think you’re in a fine situation unless you’re looking for an excuse to get them out. In my experience, my opinion, I would keep them there, the guy there if he’s been a good tenant because you don’t know what will happen and come out of this and it could be everything stays the same and fine.

Ashley:
You don’t have to deal with the turnover or he does stop paying. He can’t pay and then you have to evict him. But that I think is up to your discretion if you want to take that risk or not. So maybe asking for an updated proof of income could kind of ease your mind that he can still afford it. Maybe ask about the child support if he’ll now be paying child support and he’ll be harder for him to afford the payments. But also too in California, what are your options for actually getting the person out? So can you do the non-renewal and they have to move out? What does the process look like to evict someone to, and is it not worth it risking that? But if you got another tenant in place in a year, they could be getting a divorce too. So I mean, there’s all different types of things that could happen.

Tony:
I think the last piece of advice is just to talk to an attorney that really understands California tenant landlord laws, because that’s going to really be the limiting factor on how much flexibility you have in this situation. So go talk to an attorney and I think that’ll answer a lot of these questions as well.

Ashley:
Yeah, and I would just be most careful about how you remove the wife and either getting her permission or doing it the way Tony recommended because she could come back and say that she still has tendency there and claim that she is still on the lease, still living there. So okay, we’re going to take a short break, but then we have a question from an investor who stayed as a guest and an Airbnb and has some feedback on how host should be offering out their listing. We’ll be right back. Okay, welcome back from our short break. Our last question here is from Jules. Interesting experience as a guest. I’m an investor and I booked a place five months ago for an event this month with two parking spaces. In fact, I messaged a couple of other hosts with descriptions that were unclear, but this listing specifically listed to parking spaces, the listing has been updated, there are other changes, and the parking is now listed as free parking, including guest pass.

Ashley:
I reached out to the host and they responded that the second spot is shared with another condo. First come first serve parking spots are literally $100, and that doesn’t include overnight. When I requested VRBO check the earlier listing, they responded that they don’t keep a record and wanted me to show them a screenshot of the original listing for proof. Maybe I am an idiot, but I didn’t think I needed to take a picture of the listing. I booked the confirmation email links to updated listing. Tony. I specifically picked this question because I was like, wow, I never thought of that on the guest side or the host side. So as the guest side, how do you protect yourself so the host can’t go and make changes before your arrival? Things you are depending on and on the host side, how do you actually make changes to your listings but it not impact guests who have already booked?

Tony:
I’ll give you a real example. So oftentimes when we create a new listing, we’ll duplicate an old listing, especially if it’s in the same market, just because the way we lay things out. If we’re talking about the city, it’s the same city. So we did this, and this was probably two summers ago now, where we duplicated one of our existing listings for a new listing that we were launching and this new listing, it was a beautiful property. We had just finished the renovation professionally designed, but we were still waiting on the hot tub to get delivered. There was a delay in the shipping. So we said, Hey, we’ll just launch it then we’ll add the listing, we’ll add the hot tub after we’re live. When we duplicated that old listing, it still had the box in the amenities section checked for hot tub. So even though nowhere in the photos that we mentioned the hot tub, even though no rare in the description of the listing that we mentioned, hot tub, the box for hot tub was still checked under amenities.

Tony:
So the very first guest gets there, very first guest, and they’re like, Hey, place looks fantastic. Where’s the hot tub? And we’re like, oh, we’re so sorry for the confusion, but there is no hot tub. And they sent us a listing and said, you said that you have a hot tub here. So we immediately go in, we update the listing now so that the hot tub is no longer mentioned. But what we did in that situation was we went to that guest and we said, Hey, you’re right. Our bad. We messed up. We’ll refund a percentage of your stay because this is a major minute that you booked and it wasn’t there. We take full responsibility. We then reached out to the other guests that were incoming and said, Hey, mistake was made on our end. Hot tub is not yet ready. You have an option.

Tony:
You can either cancel your listing, we will give you a full refund, or you can say, and we’ll give you a small partial refund for the inconvenience. So that is how we handled it. We felt that was the right thing to do by our guests. It sounds like what this host did was they were notified of this mistake on their listing and didn’t offer anything to the guest in exchange. And luckily it was booked vrbo because if this was Airbnb, they for sure would’ve been penalized in some way, shape or form from Airbnb. Do I agree with him? Not at all, because it’s almost the opposite of how we handle it in our own situation.

Ashley:
Well, thank you guys so much for listening to this week’s of rookie reply. I’m Ashley Hughes, Tony, and we’ll see you guys on the next episode.

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

Foreclosure auctions represent one of the most visible—and competitive—stages of the foreclosure process. By the time a property has reached the Notice of Sale stage, it has an auction date scheduled, often drawing the attention of experienced investors looking for speed and volume.

But what do the latest numbers show? According to August 2025 data from ATTOM Data Solutions, foreclosure auction activity rose nearly 20% year over year nationwide, signaling a growing pipeline of distressed assets heading to the courthouse steps. For real estate investors, this data offers both opportunity and a reminder: Preparation is key.

The Numbers: August 2025 Notice of Sale Filings

ATTOM reports 16,147 foreclosure sale notices nationwide in August 2025, down 9.43% from July, but up a substantial 19.09% from August 2024. This annual increase suggests more distressed inventory is advancing through the foreclosure process and reaching auction.

State-level highlights include:

• North Carolina: 405 notices, a 52.83% YoY increase, showing a surge of properties headed to auction.
• California: 1,207 notices, up 11.24% YoY, underscoring ongoing distress in one of the nation’s largest housing markets.
• Texas: 2,982 notices of sale, the largest volume of any state, even with a significant month-over-month decline.
• Ohio: 533 notices, up 12.92% YoY, reflecting steady growth in Midwest auction activity.
• Florida: 934 notices, slightly down from last year, but still a meaningful share of national totals.

Why Investors Should Care

The Notice of Sale stage is unique because it provides clarity and timing. Unlike the uncertainty of pre-foreclosure, investors now have a specific auction date. This allows for in-depth preparation, including:

• Researching title history and lien status
• Reviewing comparable sales and rental trends
• Preparing funds, often cash, for auction purchases

For investors who can move quickly, this stage can provide access to volume and speed—two advantages that are harder to capture at earlier stages of foreclosure.

Investor Opportunities at the Auction Stage

Properties scheduled for foreclosure sale often attract seasoned investors. While competition can be intense, there are distinct opportunities:

• Auction purchases: Buying at auction may allow investors to acquire properties below current market value, particularly if competition is thin or the property has unique challenges.
• Speed to acquisition: Auctions can shorten the time between identifying a distressed property and securing ownership, compared to drawn-out pre-foreclosure negotiations.
• Potential IRA integration: Investors using self-directed IRAs may use strategies such as non-recourse loans to prepare for auction bids, allowing them to participate in these opportunities in a tax-advantaged environment.

The challenge? Auctions are typically as-is and cash-only, and investors often cannot inspect the property before purchase. Thorough due diligence and risk tolerance are essential.

State Spotlight: Notice of Sale Activity

Breaking down the August 2025 data by state reveals the diversity of auction activity:

• North Carolina: With a 52.83% YoY increase, North Carolina’s auctions are growing at one of the fastest rates in the country. For investors, this could mean more volume across both urban centers like Charlotte and Raleigh and smaller regional markets.
• California: At over 1,200 auction filings in August, California continues to see steady growth in distressed properties despite a high-priced real estate environment. Investors here may benefit from focusing on ZIP codes where auction activity is concentrated.
• Texas: With nearly 3,000 notices of sale in August alone, Texas represents the single largest pool of auction opportunities. Investors who can navigate its nonjudicial foreclosure system may find volume unmatched elsewhere.

What It Means for Real Estate Investors

The rise in Notice of Sale filings signals two important things:

1. A larger supply of distressed inventory is moving toward public auctions.
2. Investors who prepare early may be better positioned to compete effectively.

For auction-savvy investors, this stage offers speed and visibility. For those newer to auctions, the increase in filings suggests it may be time to build relationships with local auction houses, county courthouses, and title professionals to understand the process.

The Strategic Advantage of Data

Success in foreclosure auctions doesn’t come from showing up at the courthouse on auction day—it comes from tracking data in advance. Monitoring Notice of Sale filings by ZIP code or county gives investors the ability to:

• Identify where auction volume is building
• Compare trends across states and local markets
• Align capital and financing strategies to auction timelines

Imagine spotting a county where auction filings have doubled over the past quarter. That insight allows an investor to target properties in advance, understand the risks, and secure funds—rather than reacting on auction day.

Take Control of Your Investment Strategy

Auction activity is growing, but the best opportunities may only be visible to those who track data consistently. Equity’s Foreclosure Reports—powered by ATTOM Data Solutions—provide monthly updates on Foreclosure Starts, Notices of Sale, and REO properties—sortable down to the ZIP code level—so you can prepare for opportunities before the market responds.

Subscribe today for just $19.95/year for a single state, or $69.95/year for the entire country. Visit our Real Estate Reports Page and click to view the Foreclosure Reports to start tracking foreclosure data now.

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

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

International interest in American real estate is up for the first time in eight years. According to the National Association of Realtors (NAR), the number of properties purchased by foreigners went up 44% from April 2024 to March 2025, even as high mortgage rates and increasing housing prices have kept some Americans on the sidelines. The dollar volume of these sales hit $56 billion, up 33% from the same period a year ago.

The issues that are keeping domestic buyers back don’t seem to be affecting foreign buyers. So what does this say about the market for U.S. investors? 

Why Foreigners Are Snapping Up American Homes 

There are several reasons why foreigners might invest in the U.S. Often, it’s because they see the U.S. as a stable place to invest compared to their home countries, Yuval Golan, CEO and founder of real estate financing platform Waltz, said in a conversation with BiggerPockets.

Golan’s company helps foreign investors purchase U.S. homes. In the first two quarters of 2025, 59% of the deals it closed were to refinance. This means many foreigners are looking to buy another property, said Golan.

“Usually, when people want to sell their properties, they don’t refinance,” Golan said.

According to the NAR, most buyers came from China in the April 2024 to March 2025 period, at 15% of foreign purchases, followed by Canada at 14% and Mexico at 8%. India and the U.K. trail behind at 6% and 4%, according to data from the NAR.

For Waltz, most of the interest is from Israel and Canada, Golan said. Many buy property for a vacation home or for their children to live in when they study in the U.S. Others might buy properties as an investment.

Most of the time, they are buying in markets that are already tight in supply and popular with domestic buyers as well, such as Florida, California, Texas, Arizona, and New York.

Casey Gaddy, a senior agent at Keller Williams Realty, said in a conversation with BiggerPockets that while most foreign investments involve luxury residential properties, there is interest in high-rise condos and single-family homes.

“Some are investing as a hedge and means to park cash in what they consider a stable economy; others are purchasing secondary homes, while others are creating long-term rental pipelines for passive income,” Gaddy said. 

What This Means for American Investors 

While sales to non-U.S. buyers only account for 2.5% of the existing market, according to the NAR data, it can increase competition for Americans, wrote George Ellison, cofounder of Propbee and former real estate executive at Bank of America, in an email to BiggerPockets. “That can make it harder for U.S. buyers to secure homes, since foreign buyers often come in with cash offers and fewer contingencies,” he said.

This can put a strain on already tight markets, said Gaddy. “We all know the reality of tight inventory in many cities, and increasing demand from overseas can knock out first-time homebuyers,” he said.

But overall, experts see the interest in American real estate as a good thing. “If foreigners stop buying U.S. real estate, it means people don’t trust [the U.S. dollar], and it harms the economy. When foreigners buy in America, the USD retains its dominance,” said Golan.

If foreign investors are still buying up property despite higher interest rates, it shows that “the fundamentals are strong,” said Ellison.

“International investors see U.S. housing as one of the most reliable places to put their money. It reflects confidence in long-term appreciation and rental demand, even if in the short term, it highlights affordability gaps for many Americans,” he added.

Final Thoughts 

While an increase in foreign purchases might cause competition in some areas squeezed by supply, the underlying reason for the increase is a good one for real estate investors. All this foreign investment indicates that the U.S. housing market is still strong.

Most rookies think you need a mountain of cash to buy a rental property, but the truth is that the financing strategy you choose matters much more than the size of your bank account.

Today, we’re breaking down five of the best (and sometimes overlooked) ways to get your hands on the money you need to close—from low-money-down bank loans to options that let you bypass the bank altogether!

Welcome back to the Real Estate Rookie podcast! In this episode, Ashley and Tony share some of their favorite ways to fund real estate deals in 2025. Whether you’ve got very little money saved or already have a sizable down payment, we’ve got options for every budget. You’ll learn how to put less money down with FHA and conventional loans, but we’ll also share several strategies that allow you to use other people’s money (OPM)—like real estate partnerships, private money, and seller financing!

Already own your home? We’ll even show you how to tap into your existing home equity so that you always have funds on hand—money you can use to build a real estate portfolio much faster than you thought possible!

Click here to listen on Apple Podcasts.

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Dave Meyer:
This is how to make the most money from your rental property right now in 2025, because it’s great to scale your portfolio and add more units, but ultimately you’re investing to make more money, not just to have a bigger and bigger door count. The amount of cashflow your portfolio produces is what actually matters, and your current properties might be leaving income on the table. So today we’re sharing some ideas you may not have thought about. This is how you add to your cashflow every month with the properties you already own. Keep listening if you want to learn how to put more money in your pocket without another tenant or another tax bill to worry about. Hey everyone. I’m Dave Meyer. I’m a rental property investor and the head of real estate investing here at Pickpockets. And with me today on the podcast is my friend Henry Washington. Henry, what’s up man?

Henry Washington:
Hey, what’s up Dave? Glad to be here.

Dave Meyer:
Well, I’m excited to have you here today because I think this is a topic near and dear to both of our hearts. Both of us, I think in our careers over the last couple of years have really tried to focus on making the most of the least amount of properties and not trying to just get more and more doors and just trying to reach your financial goals in the most efficient way possible. And for our audience here today, we’re going to share some ideas that Henry and I have some new strategies, amenities to add investments you can make to increase your cashflow without necessarily the big upfront investment of buying entire new properties or the headache of managing more units. So let’s start with the big ones, Henry. What do you think is the biggest opportunity for people to add more income or maybe just even produce income more efficiently on their existing portfolio?

Henry Washington:
There are things that may not necessarily increase the value of your property, but can add value to your bottom line. In other words, there are things that create an emotional response and when people have an emotional response, they can typically want to pay more because they’ve emotionally been tied to your property. And then there are actual things that if you do them can produce more income.

Dave Meyer:
Do you mean pay more like in rent?

Henry Washington:
Yes.

Dave Meyer:
Right, the ways to drive up the rent. Yeah.

Henry Washington:
Right. So when I say that emotional response, what I call it is perceived value. When someone walks into your place, you want them to go, Ooh, that’s cool. And when they have that emotional response, they may be willing to pay more to live in your unit than to live in some of the other units they’re seeing that don’t elicit an emotional response from them. So that’s why we always spend a few hundred extra dollars and we put fancy accent walls into our properties because a lot of rental properties don’t have those kinds of amenities. People typically only get those kinds of things in homes that they own, but landlords aren’t necessarily putting design features into a rental property.
It’s typically just let’s make it livable and clean and throw somebody in there. And so I like to spend money on fancy geometric design, accent walls and backsplashes in kitchens. So you can put some pretty fancy backsplashes in the kitchen and not spend a ton of money. Typically, it’s not a ton of square footage, but people see them and they go, oh wow, I can have these kinds of amenities without having to own a home. And you may be priced 50 bucks a month higher than your competition or than the unit next door. You may be priced a hundred bucks a month higher than the unit next door, and you may get that amount of rent just simply because somebody sees something in your unit that elicits that emotional response from them and makes them want to live there. So

Dave Meyer:
This one makes a lot of sense to me because I do feel like a lot of rental units you go into are just exactly the same, and as a renter I’ve rented for many of the last few years, you want something that makes it feel like your own, something that makes it feel unique. Before we move on, Henry, let me ask you, what’s your surprise and delight when you walk into a house, you’re like, Ooh, I want that. You’re saying a backsplash, is that yours?

Henry Washington:
No, I like cool outdoor spaces even though I don’t spend a ton of time outdoors, but for me, when I see a cool curated outdoor space, it makes me feel like, okay, this home is bigger than just what’s inside the walls. I can actually live in more space. It makes the home feel bigger. I have a patio on my backyard and I went ahead and I screened it in and I spend a lot of time in my air quotes, outdoor living room, which is just a patio with a screened in wall. It just makes me feel like I have a bigger home because I have this outdoor space and then I’m fancy. I like fancy design stuff. It’s cool when I see marble countertops or quartz countertops, that stuff’s kind of cool. If I was looking at a place to rent and I could get those kind of amenities, I would definitely be willing to spend more money to rent that space.

Dave Meyer:
I’m totally with you. I look at the little things. Nothing gets me more hyped about living in a place than the layout of the kitchen If they have the nice inserts

Henry Washington:
In

Dave Meyer:
The drawers and in the cabinet, so I like to cook so I can organize that stuff. I would pay more for that kind of stuff, but you never see

Henry Washington:
That

Dave Meyer:
In a rental property or just little accents in the bathroom. Those are the kinds of things people really appreciate and they’re not big investments. These are things that you can do with just a couple hundred or couple thousand dollars. And that’s the thing I really like about this approach because a lot of times people come to me and they want to scale or they want to figure out how to make more money, but they don’t have money for a down payment on the next property. That’s a very common situation that pretty much everyone runs into, but these are the kind of upgrades that you can make in real time. If you are hopefully earning more than you spend every month in your personal life and you can save two, 300 bucks a month, you can make one of these improvements a month or you could save up for three months and make one of these improvements. It’s just a way that you can continuously improve the performance of your portfolio while you’re figuring out where to buy that next deal.

Henry Washington:
What I would do if I was a listener of this show, what I would do is pull the comps for your rental property in question. In other words, go look at what people who want to rent your unit are also looking at. And I think you’re going to find what Dave said earlier is that they all typically look alike. They all have similar finishes.

Dave Meyer:
They have those gray walls with the white trim and the same carpet.

Henry Washington:
They look lifeless.

Dave Meyer:
Yes,

Henry Washington:
They look like no one cares about you, the tenant. They just want a roof over your head. And so then take that and then take our list of things that we’re talking about and start pricing them out and seeing what you can do. And I bet you, I bet you can command more rent for your market. Maybe it’s 50 bucks a month more, maybe it’s a hundred bucks a month more, but I bet that you could probably spend anywhere between 300 bucks to 5,000 bucks on some of these upgrades and get 50 to a hundred to maybe even $200 more a month rent depending on the market that you’re in. And then if you are commanding that higher rent, your upgrades end up paying for themselves after a few months, and that’s just increased cashflow in your pocket. There’s plenty of little things that you can do to increase the desirability and give people that emotional reaction. People pay for emotional reactions.

Dave Meyer:
Totally. And I think you’re like attracting a more discerning tenant, which I like.

Henry Washington:
Pride of ownership, man.

Dave Meyer:
Yeah, exactly. You want someone who’s going to be excited and proud to live in that unit. And I just think a lot of times for me as a smaller landlord, someone who owns mostly two to four unit properties, I am always thinking about how do I compete against the bigger landlords, the people who are putting out 200 unit properties or Blackstone or whomever, and this is how you compete, right? They’re not going to do this stuff. No one who owns a 200 unit property is going to go in and think about how to add unique characteristics to each of their 200 things. It’s not in their business model. They’re cookie cutter. You as a small landlord, go care about your property and go make these thoughtful upgrades and it’s going to stand out. And honestly, this actually, I think in a lot of circumstances can improve your cashflow more than buying another property. And on an efficiency basis, cash on cash return wise, I think it almost always works better than buying another property.

Henry Washington:
Absolutely. That return on investment is huge. And so when I think about changes you can make that actually do impact the value of the home. So not emotional changes, but actual changes you can make. Some of the things that we’ve done in the past are including laundry in your units. In other words, there’s a lot of units that don’t even have laundry hookups. So you providing laundry hookups is an added amenity, which means you can charge more because somebody doesn’t have to go to the laundromat or you can actually just provide the washers and dryers themselves, which lessens the expense on the tenant, which means they may pay you more to live there. They know they get a washer and dryer. The caveat with adding washers and dryers is they do add maintenance costs to your ownership. And so I would talk to your property manager or a property management company just about the trade-offs because they’re going to have data to be able to tell you if you provide laundry, expect X, Y, Z in maintenance a year, and then you can do the math to figure if I get more rent, but I’m paying more maintenance, is it a wash or do I actually make more money?
And then if adding and providing the laundry doesn’t work for you, you can actually rent washers and dryers to your tenants as well, which can produce income for you because you can say, no, we don’t provide the washers and dryers, but you can rent them from us. And that keeps income coming in. Also, you can charge more rent because you have it, and so it’s kind of getting paid twice on some of those

Dave Meyer:
Things. Have you ever added storage? That’s something I’ve thought about because I’ve bought properties that have garages or a garage that’s honestly just so crappy that you can’t park a car there, but it’s totally fine for storage. But I’ve recently been thinking about you could buy these sheds sometimes you could just buy them secondhand, like tough sheds and kind of stuff and putting ’em on your property and renting ’em out. Have you ever done that?

Henry Washington:
I’ve never bought storage to rent, but we’ve rented space that came with the property. So we had a property that had some garages and no one was parking in them, so we would just rent them to the tenants who wanted them for 25 to 50 bucks a month additional.

Dave Meyer:
Yeah, that’s what I’ve done. But I’ve been just looking at Facebook marketplace and you could buy these things for sometimes 1500 bucks, nice ones, 2000 bucks, you could rent them for a hundred bucks a month. I’m like, I should just do this all day and I don’t want to negatively impact my tenants who lives their experience. So you have to figure out a way to fence it off or just making an okay experience, but I’m like, you could just make more money that way. It’s a good way to add

Henry Washington:
Value. Absolutely, man. Another thing you can do for laundry is, especially if you have a property with four units or more, is if you don’t have laundry hookups and you don’t want to pay to put laundry hookups in your property, you could create a laundry space in a basement or a garage and then you can either offer coin operated or you can partner. There’s companies who will supply the washers and dryers. They will maintenance the washers and dryers. All you have to do is take a split of the profits. So they usually will do like a 60 40 or a 50 50 depending on the company. They’ll provide all the machines, they’ll do all the services. You don’t really have to do anything except get paid every month.

Dave Meyer:
That’s like the two to four unit special man you’ve seen when we were going around the Midwest. A lot of these old buildings, the basements just aren’t livable,

Henry Washington:
But

Dave Meyer:
They’re too short or they smell or whatever, and it’s like it’s a perfect place to do this kind of thing. And it works in a lot of buildings more than you would think. Absolutely, at least in the places I invest that have these older style homes. So I think there’s a great category for just generally finding ways to increase rent through adding unique amenities, but we have more ways that you can upgrade your existing portfolio. We’ll share them with you right after this quick break. Welcome back to the BiggerPockets podcast. I’m here with Henry Washington talking about how to make the most of the units that you already have before the break. We talked about adding unique amenities that will attract great tenants who are willing to pay more for those amenities. Next, I want to go to the one I really love and I’ve been thinking about a lot, which is just adding more capacity. Buying a property that maybe has a basement that’s unfinished or there’s a split level that you can split into two different units, or there’s a single family home that has three bedrooms that you can make into five bedrooms. I think this idea of just taking what you got and making it more efficient for you
Is one of the best ways you can make money in real estate regardless of if you’re buying a new one or doing this to your existing home. Just I love this playbook.

Henry Washington:
This method almost always produces a better cash on cash return than buying a new unit. Now, this method typically is going to cost you some money. So if you’re in a boat where you’re like, Hey, I’ve got 20, $30,000. Do I go put it as a down payment on my next property or do I try to increase my ROI and what I currently have? This method is something I’d encourage you to look at and you don’t even need that much money. My favorite way to do this is on mostly all of my units that have a single car garage. I convert the single car garage into a bedroom, townhome styles that have a single car garage, two bedrooms or three bedrooms upstairs with a bathroom, and then downstairs is just a living room and a kitchen. All of those that I own, I’ve converted the single car garages in the bedrooms, just every time I have a rental property with a single car garage, no one parks a car in it. It’s just always full of stuff, always

Dave Meyer:
Maybe tell us the numbers. What does it cost you to convert one of those?

Henry Washington:
I’ve spent as little as five grand and as much as 12 grand to convert a bedroom.

Dave Meyer:
That’s not bad at all. Nope. And what do you think it adds to your

Henry Washington:
Rent? Where I’ve done it most recently, it adds two to $300 a month in rent

Dave Meyer:
Making. Let’s just call your average price nine grand on something like this. That’s fair. And you’re making three and a half grand. So that’s a three year payoff on that investment. That’s a 30% cash on cash return. That’s incredible. That’s a really good investment for anyone to make.

Henry Washington:
And people always say, especially when I posts about this on Instagram, they’re like, well, I like a garage so I wouldn’t rent there. Perfect, then don’t. But most people don’t use the garage, even though they say they want one, they don’t use it to park a car, and it literally just stores stuff. So for somebody like you, Dave, if you’ve got one, you could convert the single car garage to a bedroom, increase your rent, and then go get that storage, shed put it in the back and then they could put the stuff in the storage stand and pay you extra for the storage

Dave Meyer:
Combo. I think the other thing in addition to doing this is I’ve been looking at this here in Seattle because there’s a lot of split levels where they have a walk off and separate entrances
And just turning it into two units, you could basically have two a thousand to 1400 square foot units instead of 1 2800 square foot unit, which is just kind of the trend in a city like Seattle. I know in some markets people really want the big homes, but in a city, most people are accustomed to living in a thousand, 1200, 1400 square feet and you could just add capacity and there’s already a driveway that fits all of these people. You need to do the hookup, like you said, you need to put some laundry in there, you need to add a kitchen of course, but that can potentially make something in a city like Seattle or expensive market actually cashflow. Whereas if you just bought as a single family, there’s no way.

Henry Washington:
I’ve talked to other investors who do that specifically as a strategy, just converting the basement to a living unit, and now you’re essentially sitting on a duplex. And you can also do strategies where you take that three bed, two bath, single family home, that’s a split where the primary bedroom’s one side of the house and then the two or three other bedrooms in the bathroom or on the other. There are people who have split that into two units because your primary bedroom, essentially, if you put a kitchenette in, it can be like a studio unit. And then the other three bedrooms, the kitchen and the bathroom are its own home. If you’re in a place like Seattle or a more expensive, more metropolitan area, properties where you can do that, make more sense than in a place like where I live. But that’s an option given your demographic.

Dave Meyer:
And just like to put some numbers behind it, these houses are still expensive, but if you bought a house that was, let’s just say 500, $600,000, you’d probably get 3,500 bucks in rent, something like that. But if you’ve spent another 50 grand between the two units, you’re probably getting 5,500 bucks in rent. So if you just think about the efficiency of your capital, it just makes the money go a whole lot further. So I really like that and I am starting to underwrite it. I need to learn more about this, but I’m thinking about doing an A DU development, parceling off an A DU. I’m excited about it because in Seattle and a lot more and more cities around the country are allowing you to do this, not just to build an A DU, but I think the critical difference is parceling it off so you can sell it or you can sell the main house and hold on to the A DU, or you could sell both of them. But dude, in Seattle, there are like 1200 square foot ADUs in the neighborhood I live in. They sell for seven 50.

Henry Washington:
That’s crazy, man.

Dave Meyer:
It’s insane. You can build them for three 50. Obviously there’s holding costs and all sorts of other soft costs, but dude, it’s unbelievable what they’ll sell for. So it’s very attractive. I’m not saying this works everywhere, but more and more cities are allowing this and you have to have the right lot for it. You have to have alley access or you need to have a corner lot to make it a good experience. But if you own a property that has the potential to do this and you have the right kind of property, the return can be insane. It is really worth looking

Henry Washington:
Into. I literally have a spreadsheet that I built several months back when we initially started talking about ADUs on the show of all of my properties that have a DU potential in the size of the lot or the zoning, and then I’m doing my new construction single family homes this year to kind of give me that build experience because I want to eventually put ADUs on these properties. I just want to make sure that I understand more about how to develop something from the ground up before I go do that on my existing properties. But I am ready. I’m locked and loaded.

Dave Meyer:
All right. We’ve talked about how to add value through adding amenities, how to add capacity, whether it’s in adding additional bedrooms or adding entire new units onto a property that you already own, but we have some more management strategies that you can use to increase your cashflow. We’ll share those with you right after this break. Welcome back to the BiggerPockets podcast here with Henry talking about how to add value to your existing portfolio. We’ve gone over adding units, adding capacity, adding amenities. All of those can just be extremely good uses of your money, a lot of times more efficient investments than buying new units. But Henry, I wanted to talk to you about some management strategies to increase your cashflow. To me, these are sort of just different ways that you can operate your property, and I know you’ve looked into some of these. I know you’ve done some of these. So I’m curious, what are your opinions right now in the given market on short-term rentals, on midterm rentals, rent by the room, maybe even assisted living? Do you think these are good ways people can optimize their portfolio?

Henry Washington:
Yeah, absolutely. But they’re all going to be very market specific, and so you really have to understand your market and then what’s the demand for that strategy? It used to be that four or five years ago, you could just be like, you know what? I’ll make more money on Airbnb, throw some IKEA furniture in it, and then yeah, you would make more money.
But it’s not like that anymore with short-term rentals. And it’s not like that even with midterm rentals as much anymore because there is more supply for it. So you really have to understand, does your market have the demand that’s going to allow for that to financially sense for you? And what I mean by that is I think in most markets you could probably convert your single family to a long-term rental to a Airbnb and it may make a little bit more money, but a little bit more money might not make the cash on cash return worth it. So my general rule of thumb, at a minimum, it’s got to make me two and a half times what I would make as a long-term rental for it to make sense. Because when you convert from a long-term rental to a short-term rental, not only do you have the expense of furnishing it, but you take on additional monthly expenses because now you’ve got to buy supplies, you’ve got to pay for internet access, you’ve got to pay for streaming services, you got to pay for lawn care because my long-term rentals, my tenants pay for the lawn care.
And so you have additional expenses and there’s additional work, and you want to be compensated for the additional work. So if it’s not going to make me at a minimum two and a half times per month, then I’m probably not going to do it. And so you
Definitely have to understand do you have the demand? What really works in short-term rentals right now is providing really cool experiences and amenities for the bigger Airbnbs, but there is a market for the smaller just corporate user Airbnb that it doesn’t have to have all kinds of crazy amenities. It doesn’t have to be some million dollar mansion in Scottsdale, Arizona that has a pickleball court. It can be a normal property, but you have to know if your market has the demand for that. So as an example, I have 2, 3, 4 properties that we do Airbnb out of, but we only do it in one particular city within northwest Arkansas because that one particular city has the most demand for those types of units. I could try to do it in some of these other cities in northwest Arkansas, but the demand isn’t as high, and I don’t know that I’ll get the return.
But in this one particular city, I know that they get lots of tourism. I know that there are not enough hotels to support the amount of tourists and corporate people that come into town. And so that helps me have some level of comfortability that there’s not going to be regulation in that city because they need the tourism dollars and don’t have enough places for people to stay. And so because I have that level of understanding of this market, I know I can get the return that makes sense. And so that’s why I only do it in those markets. And then I have a couple of midterm rentals that are in a city just south of that where the research has shown me that the midterm does better there than either the short term or long-term. So it’s very strategic. You can’t just go and say, I’ll make more money as a short-term or midterm, throw furniture in it and hope for the best. You could end up actually getting a negative return on your investment if you’re not doing the proper

Dave Meyer:
Research. And I agree, actually, I’ve never been particularly crazy about these options because I feel like they’re fads. It’s like they get popular as investors, they get popular for demand and then they wax and wane, and that’s just different than the long-term rental markets different than house flipping. Those have just long-term fundamentals that don’t go anywhere, and that doesn’t mean you can’t make more money that way. It just means you have to be willing to adapt and react basically continuously for as long as you have that you actually need to just be willing to change and learn and operate based on what’s going on in the market. And that’s okay. There are a lot of people who crush it at this. It’s just not me personally. It’s not something I’m going to do. And I actually, I was having a conversation with someone the other day.
They were asking, should I be a short-term rental investor? Should I be a midterm rental investor? And I was like, I have never thought of myself as any of those things. I think of myself as a residential rental property investor. I buy houses that are in good locations that are going to have great demand. And if I decide that I’m going to operate it as a short-term rental or a midterm rental for some period of time, that’s okay. That’s a strategy that I’m willing to work on. But I personally am not someone who’s going to go out and buy a property just to make it a short-term rental or just to make it a midterm rental. You say this all the time about having multiple exit strategies. I don’t even think it’s about exit. I think it’s multiple operating strategies. And I think these are ways to manage your property. It’s not a way to define yourself as an investor of all of these things. I actually like rent by the room the most based on the current market conditions. I’m not saying this is good, but rent is super expensive. I think more people are going to be interested in these co-living models. And if you are willing to take on the operational burden and it is an operational burden, sure is, you can definitely make more money. I think that one actually makes sense right now.

Henry Washington:
I like the co-living model. Again, all of these guys, you’ve got to do your research and see if it makes sense before you start taking living rooms and turning them into bedrooms and trying to rent by the room because you need to understand what is the average rent by the room price in your market. Because in some markets, I was doing the math for one of my students the other day, and it was like they would get 150 bucks a room per week, and they had four rooms, and by the time you added that up, it wasn’t much different than what it could get as just a long-term tenant. And I was like, yes, this doesn’t make sense. And so you really have to know, is there a demand for it in your market? This typically works better in larger cities where people need to get to work and there’s great public transportation because typically the people who are doing this probably don’t have a car or have limited access to a vehicle where I live. I couldn’t do this strategy.

Dave Meyer:
No, it wouldn’t work for you, so

Henry Washington:
Please do your research. Is the point that I’m making. You can’t just do some of these things and hope they make money because somebody else in some other city’s doing it and they’re making a killing

Dave Meyer:
Certain markets this could work for. And yeah, like you said, it’s usually dense areas or college university towns like this is a great method there. But again, I wouldn’t buy a house and then cut it up into more bedrooms. See, this is what I sort of mean by I’m just a rental property investor and I’ll change the operating. I’m not going to buy a house and change the layout to have nine bedrooms and three bathrooms. That might work for me for a year or two. And then the market shifts and people don’t want this anymore. And then you’re stuck with the weirdest house on the block and you’re not going to be able to rent it or you’re not going to be able to sell it. If I buy a house that’s a great long-term rental and then it happens to be something that I could rent by the room relatively easily, then I would consider it. But personally, I’m not going to change the layout of the house for something like that.

Henry Washington:
You just have to do your research and going and buying a property that only works as a short-term rental or only works as a midterm rental or only works as a rent by the room model may help you in the short run, but in the long run, you could get hurt tremendously if things

Dave Meyer:
Change. Oh, for sure.

Henry Washington:
A lot of the regulation isn’t in your control, so you could literally go from making money to losing a lot of money overnight because someone behind a desk somewhere decided they didn’t want you to do that

Dave Meyer:
Anymore. I think we should get out of here unless you have any last thoughts on optimizing your portfolio right now.

Henry Washington:
No. The last thing I’d say is if you own that four unit or more, you really want to think outside of just what you can do to your unit. And you want to think about what can I do for the complex as a whole that provides convenience for your tenants that they would be willing to pay a little extra for. So in other words, you might not get more rent per unit because you’ve added the amenity, but that amenity itself could make you money, which increases your net operating income, which increases the value of your property. So think about things like, remember when we were in Chicago and we were meeting with Andre and he created a room where his tenants could go and relax and where they could do workout. He had a couple little workout machines in there, right?

Dave Meyer:
A massage chair.

Henry Washington:
A massage chair, right? So if you charge 25, 10 bucks, 25 bucks a month per tenant for access to that, it’s cheaper than a gym membership. It’s something that they can use, but it increases your net operating income. If you could add a vending machine with things that are convenience. It doesn’t always have to be snacks. It can be laundry detergent and dryer sheets, things that they may not want to go get in their car or lose their parking spot to go to the store to get. And then the money that vending machine makes, increases your net operating income, which increases the value. So think about what amenities can I add where people would pay for those amenities for the convenience of them that wouldn’t cost me a ton of money, and then that increases the value of your property as a whole.

Dave Meyer:
Well, that’s what we got for you all today. Remember, optimizing your portfolio can be as good or better than acquiring new properties, and it’s really just all about how you can pursue your financial goals as efficiently as possible. Thank you all so much for listening to this episode of the BiggerPockets Podcast. I’m Dave Meyer, he’s Henry Washington. We’ll see you next time.

Dave:
October 1st was a very interesting and somewhat pivotal day for the housing market. We had all sorts of policies and news converging on that day. Everything from a government shutdown to changes in FTI and Franny loans, changes to the student loan repayments, how FEMA is dealing with flood insurance. We have new tariffs that are going to be impacting the housing market. So a lot happened last Wednesday and this is important stuff that everyone needs to know. So today we’re breaking it down. Hey everyone, welcome to On the Market. I’m here, just me and Henry Washington today. What’s up bud?

Henry:
What’s up buddy? Glad to be here.

Dave:
I’m also glad to be here. It’s very unfortunate that Kathy and James just completely abandoned us.

Henry:
They just left us high and dry, but we’re going to pull it together. We’re going to pull it together.

Dave:
It’s pretty rude because the reason that they’re not here is because Henry and I are playing golf tomorrow during our normally scheduled time to record this and we’re like, yeah, if you guys can’t adapt to our schedule, we’re definitely still playing golf. So Henry and I will just do the podcast ourselves and that’s the real story of what’s going on. Henry and I are on a vision quest in Las Vegas right now for eight days before BP Con just having a lot of fun. So hopefully we’re going to see a lot of you there. This airs, I think, while BP Con will be going on. So hopefully we’ll be seeing you today Among the many thousands of people who will be here in Vegas talking about real estate,

Henry:
Come say hello and ask us who won our golf head-to-head tournament.

Dave:
What are the rules? Are we just playing straight up? You against me?

Henry:
I think we’re playing. I don’t know if you want to play match play or if you want to play just straight score, but we definitely need to implement our give me putt rule.

Dave:
Okay, so yeah, I saw this game I was proposing to Henry where if you know anything about golf, you get the distance of your putter. If your ball’s that close to the hole, it just counts. You don’t actually have to go make it. But in this game, for every alcoholic beverage you drink, you add the size of that can to the end of your putter. So if you drink four beers, you go from a three foot, give me to a five foot, give me, and that actually kind of matters and we might be playing this way.

Henry:
Yeah, absolutely. Absolutely. So stay tuned. We may capture some content.

Dave:
Alright, let’s get into our topic for today, which is all these things that are going on on October 1st. It’s basically just for whatever reason, I don’t think there’s any particular reason, just coincidence. There are all these things converging on the housing market and the economy as of October 1st. We of course now know that we are in a federal government shutdown and this could change by the time this airs. Just so you guys know, we are recording this on October 2nd and this comes out a few days later, so that may have changed, but the way it’s looking will probably still be in a federal government shutdown a week from now. We also saw that flood insurance program. There’s basically the national program that funds FEMA for flood insurance actually expired. And so any homeowners who had that will face some challenges. We saw new tariffs start on October 1st, and these seem really aimed at real estate, which I want to talk about 50% tariffs on kitchen cabinets and vanities, 30% on upholstered furniture and the sneaky one that’s probably going to impact housing a lot, 25% on construction trucks. Then we have all sorts of changing to FHA and HUD laws and more. We even have some other stuff not about October 1st to talk about today. So let’s just jump right into this. Henry, how are you feeling about this government shutdown? You got deja vu.

Henry:
Yeah, it feels like we did this not that long ago. I know it wasn’t super recent, but this has happened before and so we’ve kind of seen how it can or cannot impact the housing market.

Dave:
I had to Google it because it feels like we’ve had 30 government

Henry:
Shut. I think we’ve had two.

Dave:
Yeah, but there has been, I think it was 14 between 1980 and now, but it does feel like we’ve been talking about it way more. I think the last one was in 2018, 2019, something like that. But they’ve been threatening this every single year. So before we get into the details of what this actually means, big picture, high level, does this impact you specifically in your real estate investing

Henry:
Business? No, mostly because I’m not doing section eight housing, so I don’t depend on government funds to pay my rent. So the only real way that I see an impact on this is tenants who have government jobs who may not be getting paid for this time. So if they’re essential and they’re working, they’re working and not getting paid and if they aren’t essential and they’re not working, they’re not getting paid. So it could impact rent collection for the few tenants I have that are employed by the government. We’re always willing to work with people in situations like this. So I don’t see that it’s going to make a massive impact on me and my portfolio personally could also impact my flipping business if I had any buyers that were government employed who now can’t qualify for a loan or won’t be able to buy the house until there’s some resolution here. But other than that, no major impacts to my business.

Dave:
Yeah, that’s generally how I feel about it. I think the biggest thing across the whole housing market is really going to be sentiment is just do people pull back on spending or moving or just making big life decisions because this is just one more uncertainty in the economy and we’re already in a period where there’s a lot of uncertainty. So is this, just to add to that situation, but I do think that the section eight thing is real. Just so you know, the way this works is that Section eight payments should continue to go out at least for a period, but if there is an extended shutdown, there could be impacts to section eight funding. That is something that anyone who has section eight tenants or is thinking about getting into Section eight should be aware of. I was actually looking into this a little bit decimate is that as long as the shutdown is less than two months, then HUD and section eight shouldn’t be impacted, but we’re in this very unusual economic and political time.
So normally I’d say, oh, it’s going to get sorted for sure within two months, but I honestly have no idea. I have no idea if this is going to last two more days, two more months or what’s going to happen. Of course, the thing that really matters is of course the people who are directly impacted by this, if government workers are getting furloughed and although they will presumably get paid once this is over, people are going without paychecks and that could impact the economy. I’ve also seen some reports that travel and tourism could slow down. There’s always these negative impacts to the national parks to TSA and air traffic control because sometimes people if they’re not getting paid, they just don’t show up for work because suggesting you do that, but not saying I don’t understand that concept. So I think those things could impact just the general economy as well, but I think it’s right, if it’s short, it’s really going to be probably a blip in the grand scheme of things. If it’s long, it’s probably going to really impact the economy just by lower spending and lower total transactions in the housing market and in the broader

Henry:
Economy. And I think you’re onto something because if sentiment gets worse then people stop doing things like spending money, which is what our economy is based on. And so I think we’ll start to see an impact just in the fact that people are spending less money doing less things and that’ll create, everybody will feel that.

Dave:
Yeah, I’m not going to say it’s like the nail in the coffin, but it’s just one more thing in a world right now where there’s just so much confusion that’s just going to add a little bit more confusion. So that always has the potential for impact on the economy. I won’t get into this because it’s less about the housing market, but I do think this is just one more thing that is decreasing investor confidence. In the United States, we’re already seeing the dollar get a little bit weaker over the last couple of days. We’re seeing the stock market down a little bit, not a ton, but just a little bit. And if those things do continue, that could negatively impact mortgage rates as well. If those two things happen again, that could impact mortgage rates honestly in either direction depending on how long this goes. So it’s something we’ll keep an eye on and keep you posted on in the future.
Wait, before we move on, I have one more thing to say about government shutdowns. Why does Congress get paid during a government shutdown? That pisses me off. This is not a political thing. I just think both parties have shut down the government before and it’s their job to make sure it’s not shut down. Meanwhile, we’re not paying TSA agents or air traffic controllers or all these other parts of the government while we’re paying Congress. The people responsible for the shutdown get to keep paying. I want them to get their pay also suspended until the government reopens. How about that?

Henry:
I am wholeheartedly with you on that my friend.

Dave:
It’s basically going on vacation. You’re like, yeah, we vote to not work, but we also vote to keep getting paid. Super cool for us. Everyone else figure it out. It sucks. Alright, so that’s obviously the big news, but it might be one of the things that happened on the first that actually is the least impact on the housing market. So we’re going to take a quick break, but we’ll come back with some of the other things that will be impacting the market more directly. Stick with us. Welcome back to On the Market. I’m here with Henry Washington talking about what a big day. We had on October 1st just for the housing market. We just talked about the government shutdown. There are a few things that happened that I think more directly will impact the housing market. The one that’s really got me thinking is these new tariffs. If you haven’t heard, we were seeing tariffs implemented as of yesterday, 50% on kitchen cabinets, 30% on upholstered furniture and 25% on construction trucks. And this to me, these are just a package aimed at real estate investors. I know it’s not probably intended that way, but when I read these I was like, man, these are all going to hit real estate pretty hard. What was your reaction?

Henry:
Yeah, my reaction was, of course this happens the year I decide to build my first new construction homes that these tariffs come in and luckily I haven’t gotten my loans from the bank yet so I can adjust my budget to absorb a little more construction cost. But for a lot of new builders who have already gotten their funding for their projects and they based it on three tariff numbers like this could start eating into people’s profits. And my biggest concern or point of confusion is it seems that the government or mainly the president has been very focused on housing and affordability and wanting to get interest rates down and trying to make housing more affordable for people, which is good for the country as a whole. But these new tariffs would essentially do the opposite of that because it would make housing more expensive because the builders and the flippers and everybody else building and adding supply to the housing market is going to try to compensate for the profit they’re going to lose by increasing the prices and that does the opposite of affordability. So it was just a confusing thing to see.

Dave:
It’s sort of contradictory policies a little bit. I’ve had a lot of questions about this and the reasonable questions. People say, oh, just buy American made cabinets or furniture or trucks. That is true, you could do that, but we are already seeing this in the data, but the prices for even American made goods in this new tariff situation we’re in are going up and it’s because the input costs for American manufacturers are also going up when people say they’re unquote made in America. And this is not a dig. I think this is just the reality of the economy. People say it basically means assembled in America because no, really in this globalized world we live in, if you’re building Ford a massive construction truck, you’re getting parts from all over the world. So all of those input costs are already starting to go up. That’s everything from aluminum to steel components that are coming in from China or a lot of these other places.
Those are going up and so their costs are going up and ideally these companies want to pass those expenses on to the consumer whether they can do that or not. It depends in a free market country on competition. So if there’s a lot of competition for market trucks, Ford is less able to pass those costs on to the consumer. But now any competition that’s coming in from outside of the country is going to be more expensive, so it’s probably going to be 25% more expensive. So that gives for room to raise prices to compensate for their higher input costs and pass that on to the consumer. Now we don’t know how much that will happen. What we’ve seen so far is that most companies are not passing a hundred percent of their increased costs onto consumer. That’s good for consumers right now, but most of the data shows that they’re just kind of doing that gradually rather than being like they don’t want to shock their customers, so they’re not going to be like, oh, we’re going to just jack up the price of trucks by 25%.
That would be very jarring and bad for the economy. So they’re probably doing it a little bit every month or every year. They’re going to just trickle that in. And so there’s very good reason to believe that on cabinets, I’m just using trucks as an example, but cabinets are going to be the same thing. The wood that we use for cabinets, a lot of that is imported from Canada that has a 10 or 15% tariff. So all these things are going to contribute to higher costs during a time where development, you do this Henry, but development’s pretty to make a pencil in the first place. It’s not this lucrative, super lucrative thing as it was in the past. Construction costs are already very high. And so I just worry about how this is going to impact the pace of not just new construction which we need in this country, but also renovations, like renovations and flipping is going to become harder with this stuff too.

Henry:
Yeah, absolutely. I mean even your typical mom and pop flipper who, so if you think about the big time flippers, they’re flipping hundreds of homes, right? They’re typically sourcing materials in bulk and get some sort of a discount for doing that in bulk. But a small percentage increase in materials equates to big dollars for the big flippers. And so the tariffs on these things are going to have a pretty massive impact on their bottom line. And then if you think about the mom and pop flippers, we’re the ones that just get our supplies from Lowe’s and Home Depot and those kinds of places. But the tariffs, again, I think we’ll start to see as new product hits the shelves in these stores that the prices are going to be going up because they’re going to have to pay more to get these products, which means that gets passed onto the consumer.
And so it just means for you mom and pop flavors are for everyone really. You have to pay attention to when these things are starting to hit so that you can account for them in your underwriting and you not pay as much for a property so that you have more margin to, you have more margin for your construction budget. And the problem that that creates is more margin means you need to pay less. Paying less means you need a seller to say yes to a lower price. And sellers aren’t often going to do that, which means less houses get flipped, which means less inventory on the market, which has a negative impact on the housing market. So that’s the kind of trickle down effect of these tariffs or this situation. And I don’t know that we’ll see an impact for several months when we start to look at the numbers on the inventory numbers and what’s happening from that perspective. And it’s just tough. Like I said, it was a confusing, it’s a confusing message, but it’s the reality that we live in. And so you just need to be aware of it so that you’re not bleeding money on your flips and if you are a builder or someone who’s already budgeted for these things, you need to start figuring out where you can cut in order to make your margins so you’re not losing money in this fast paced changing economic environment.

Dave:
For sure. As someone who’s learning to flip, I’m in the middle of two right now.
Cabinets are the worst. They’re so expensive. It’s insane. So that’s what I am sure the president is not thinking about it this way, but I was like, man, you had to pick the most expensive thing and can it be like toilets? If toilets went up 20%, I’d be fine with it, but cabinets, it’s already so expensive it’s going to get even more expensive. And I agree with you. The president has been talking about declaring a national housing emergency because housing is super unaffordable and I’m on board. How do we get housing more affordable? That is a main question and to me, we talk about all the time on the show short term, there’s probably stuff that you could do long term, it’s supply and the reason there’s not enough supply is construction costs. If you really want to drill down to the thing that we could do to make the housing situation better five years from now, 10 years from now, I think the number one thing is reducing construction costs, like figuring out a way to make it more profitable for people to build. Sure, big multinational public companies can figure out a way to do it at scale, but the average person can’t build homes right now,
And that is a big problem and our housing supply. And so I hope that something happens where the construction costs come down,

Henry:
The two areas for margin and margin equals profit when you’re a builder are construction costs. So what’s it cost you to build the property? The cheaper you can build it, the more money you can make and land costs. The cheaper you can get the land, the more money you can make. And so if the government can help or local government can help with builders getting land or tax breaks or some incentives for buying certain land, that helps build affordable housing because you’ve got the land cheap so you can make more margin as well as getting construction costs down. Those are the things that are going to impact whether or not people are able to build more housing.

Dave:
We got to shut down. We’ve got new tariffs, but there’s more that happened. Just those two things alone would be huge.

Henry:
But wait, there’s

Dave:
More. There is more that happened on October 1st that we need to go over, but we’re going to take one more quick break. We’ll be right back. Welcome back to On the Market. I’m here with my friend Henry Washington after Kathy and James completely abandoned us because Henry and I want to play golf. And we’re here just discussing everything that went on October 1st. We’ve talked about the shutdown. We have talked about the new tariffs, but I wanted to talk about something that worries me a little bit, which is that funding for FEMA’s flood insurance program has now lapsed. And so that means that they’re not going to be issuing new policies. I’m not sure. I think people who already have policies will be covered, but this worries me a lot because we’re already seeing in Florida for example, the biggest correction in the country is really going on in Florida. And a lot of it from the data I’ve seen, the experts we’ve talked to is because insurance costs in Florida, for example, are just going up like crazy. And if the government is not going to be providing flood insurance and the state that needs flood insurance and it’s not just Florida, this is Texas too, Louisiana, Alabama, Gulf Coast, what happens there? Does that mean we’re going to see less transaction volume in those states? Kind of where I think this is going as long as this stays lapsed.

Henry:
Yeah, I mean I think you’re going to see obviously less transaction volume because people A aren’t going to be able to afford homes in those areas because investors won’t be able to afford homes because you can’t make money if all of these costs are so high and they’re not going to want to take the risk of buying a house in an area that’s impacted by floods frequently when there’s no insurance to cover it. Because I don’t think people sometimes think about the cost of repairing a property when it gets flooded.

Dave:
You can have a total loss so easily

Henry:
Just a small flood. You can have a total loss. As an example, we had heavy rain, so not even a massive weather event. We had heavy rain in one of my properties, and this property has a kind of rainwater runoff in front of it, so it’s not in a flood zone, so we don’t have flood insurance. The rainwater runoff just got so high because of the flash rain, heavy rain, and the water ran back into my duplex. We’re talking a couple inches of water into my duplex on both sides and just the remediation, just the remediation of that, not even rebuilding the duplex, just getting the water out, cutting out all the wet drywall. I got a bill for $50,000 for just getting the water out, getting the drywall out.

Dave:
Insurance doesn’t cover any, and

Henry:
Insurance won’t cover any of that. Now we’re disputing that bill because that seemed a bit excessive. But think about this, if companies know bad companies know that there’s not insurance, do you think they’re just going to be like, oh, we will do it for less? No, no, they’re going to try. Absolutely not. They’re going to try to jab at people and get more money for the work because a lot of these companies depend on insurance money to fund a lot of this work. They want insurance jobs.

Dave:
Most people don’t have 50 grand to pay it.

Henry:
They want,

Dave:
Yes. Most people, if they don’t have insurance, they’re not going to have 50 grand in their bank account to just pay for remediation.

Henry:
So this problem doesn’t just impact homeowners. It impacts people in the business of flood remediation. And because if you’re dependent on insurance dollars and now you’re not going to get that, you’ve got to make up that money somewhere. And when these things happen, it’s going to get passed on to the consumer. So I think the cost for mediation’s going to go up. It’s just going to make it extremely difficult to have an own property in those areas, both for the typical homeowner and for investors. I don’t see how it’s possible.

Dave:
I agree. I think this is going to really impact the housing market more than people realize. This sounds like a little thing, but I wouldn’t buy a home if I was in Florida. I wouldn’t do

Henry:
It. I’m renting.

Dave:
Yeah, exactly. I think this is going to happen a lot in the Gulf Coast, which are the markets that need stabilization right now, I’m not as familiar where else in the country there are flood zones, but there’s flood zones everywhere. There are flood zones pretty much anywhere you live near a river or lake. So I mean, I just wouldn’t do it. It’s too big of a risk right now when private insurance is already so expensive. Private flood insurance is super expensive.

Henry:
It’s so expensive.

Dave:
Yeah, it’s insane. So I think this is going to be a big problem. I did look it up while we were talking. The way it’s working is there are no new policies and no renewals. So if you have a policy in place, it will be okay, but only until the renewal date then you’re not going to be able to renew. Could that bring more supply on the market? Probably, dude, maybe I’m overreacting, but if I lived on the coast of Florida and I couldn’t renew my flood insurance, I’d be like, I’m out of here. But there’s not a lot of buyers there. Could that make the correction in coastal Florida worse in my mind?

Henry:
Yeah. I mean, I think what you’re going to see is foreclosures, right? If you own properties that you can’t monetize, you can’t pay for. I think people are going to start walking away from properties, and that might allow for somebody to come in and get a property super cheap, but can you get it cheap enough to cover all of these additional expenses and be willing to take the risk of having to pay for a flood event out of your pocket because you can’t get insurance? Man, I still wouldn’t do it. I still wouldn’t do it if the property was that cheap.

Dave:
The other thing about this is why government, why would you make this lapse in the middle of hurricane season? This is just such a bad idea. We’re in the beginning of October. There is still hurricane season, knock on wood. We haven’t had a bad one so far this year, but that could still go on for the next couple of weeks, and that makes people really vulnerable. I wish they would pass some sort of temporary thing because people could be really negatively impacted by this, but let’s hope that doesn’t happen. Dude, these are three really big things going on in the economy right now, all in one day. We don’t have much time to get into the last one, but I will just read this off quickly that there were also just pretty big changes to servicing rules and loss mitigation rules with FHA loans that also happened on October 1st.
I’ll read off some of them. Basically the COVID era tools and safeguards. Some things like forbearances and modifications for your loans are going to be sunset. They’re going to be phased out already. These are things like now we’re going to have a waiting period for 24 months. So if you are a borrower, you got a loan modification or partial claim. If you get up to speed and then you need to make a new modification, you’re not going to be able to do that for 24 months. So previously you could have it modified every six months or 12 months or whatever. Now it’s going to be a minimum of 24 months, for example, that there are some I things that I think are pretty interesting that we’ll have to keep an eye on. But basically now if you can secure a permanent modification if you’re late, they can actually extend your term up to 40 years to reduce monthly payments, which could be helpful for some people.

Henry:
That’s cool.

Dave:
And then servicer evaluation waterfall. So basically servicers need to really do a little bit more due diligence about the ways that they can offer loss mitigation before they foreclose. So I think there’s ups and downs here. So we’re ending some things that were there specifically for COVID, but it does seem like there are some modifications that could be good for any borrowers who are getting in trouble. We’ll probably just need to do a whole show on this at some point because it’s really important, but we are running out of time in our episode here today.

Henry:
We expected the COVID rules to go away at some point, and it just sucks at the timing right now with everything else happening all at the same time that it seems to have an impact. But I think there are some positive things in those modifications that can help. And all these things we discussed seem to have a negative impact on the housing market, and we know that this administration has been trying to get the housing market more affordable. So I would just say to everybody listening, it’s just so important that we all stay on top of what’s going on in the economy and read beyond the headlines and think about how these things may impact our bottom line before we continue to implement our strategies in the way we’ve implemented them in the past. Because the margins are already thin and mistakes can cost you lots of money right now. So if you’re not staying tuned into what’s going on, then you could make a mistake that you don’t even know that you’re making. So that’s why I think shows on the market is vitally important now more than ever as news and the economy is changing so frequently. So just please be careful, everybody.

Dave:
Yeah, I agree with you. I think it’s not, no. One thing here is like, oh, this is going to tank the housing market, but we’re just in this fragile time. I think things can go either way, and a couple of these things point to more challenges for the housing market, in my opinion. I think here is super direct. But these things do add up. So these are topics that we will be continuing to monitor here on the market, and we’ll bring you more as we learn about more things that are going to impact your portfolios and your decision-making. By the way, if you have ideas or there are things that are going on in the economy or the news that you have questions about or want us to discuss, let me know. You can always hit me up on BiggerPockets or on Instagram where I’m at the data de, we love doing this research. We’ll look into these things and talk about them if it is a big enough issue that applies not just to you and applies to our own whole audience who will be listening to a lot of those episodes. So thank you all so much for listening to this episode. Henry, thanks for being here.

Henry:
Thank you, sir.

Dave:
I appreciate you making time around your golf game to be here.

Henry:
No, no. It’s totally fine. I will take the rest of the day and go find a place to practice.

Dave:
Well, that’s not fair. I don’t have time to do that. And now

Henry:
You have to give me three

Dave:
Strokes tomorrow when we actually play because you get to practice.

Henry:
Yeah, not going to happen.

Dave:
All right, well thanks everyone. We’ll see you next time for another episode of On The Market.

I talk to short-term rental hosts all the time who are struggling to figure out why their place is not booking. They have followed the design tips, adjusted their pricing, responded to messages quickly, and done everything they were instructed to do. 

The truth is, the problem often started before they ever welcomed a guest. It began when they bought.

Buying in an unfriendly short-term rental market can be the last nail in the coffin. You can find a property just outside the city limits, or try your luck and hope you don’t get shut down, but that’s not a long-term strategy. To build something sustainable, you need to know which markets are true vacation destinations, or pivot your model toward business and mid-term travelers.

Some of these places do have zones that can work for short-term rentals, so it is not always a matter of never investing there. But these are markets where you should proceed with caution.

What Makes a Good Short-Term Rental Market?

A good short-term rental market has several key elements in place from the outset. Established regulations are actually a positive sign. They provide clear guidelines and demonstrate that the city has already considered how to handle STRs. What makes me nervous are places with no rules at all, because that usually means officials have not yet decided, and one vote could shut everything down. 

I also stay away from HOAs. They wield too much power and can change their stance at a moment’s notice. The only exception I would ever make is in a community with no restrictions and plenty of STRs already operating, where strength in numbers offers some protection.

Beyond the legal side, it is essential to know your vision and your guest avatar. You might think a bachelorette-themed house in Los Angeles is a sure hit, until you realize that it is not the type of traveler visiting LA. 

I prefer markets that have always relied on tourism and STR demand. Urban markets can still hold significant value, but if you want the confidence that your investment will stand the test of time, look for destinations where the local economy heavily relies on tourism. If short-term rentals disappeared, those towns would crumble, and that kind of reliance works in your favor as an investor.

A Tale of Two Investors

Imagine two friends, Maya and Alex, both excited about making their first Airbnb investment. Maya goes for the glitz: She buys a sleek condo in San Jose, California. Alex chooses a rustic cottage outside Flagstaff, Arizona. 

Initially, both share the same dream: Airbnb revenues pouring in to fund their adventures. It doesn’t work out equally. 

Maya’s San Jose property costs more than four times the price of a typical U.S. home. Listings suitable for short-term rentals account for a mere 0.41% of the market. Demand is weak, regulations are strict, and local ordinances limit guests. Within a year, she’s losing money.

Meanwhile, Alex’s Arizona cottage draws hikers year-round. His costs are lower. His market’s occupancy rate stays healthy. While his revenue isn’t dizzying, he isn’t contending with crippling overhead or impenetrable red tape. 

Alex is living the dream Maya thought she’d have.

Data Behind the Warning Signs

A report released last year prompted me to consider what exactly constitutes a “bad” short-term rental market. I don’t necessarily agree with every city on the list, and there are several data points that suggest these rankings are incorrect. 

Clever Real Estate’s 2024 ranking of short-term rental markets paints a clear picture of what they consider to be underperformers. San Jose sits at the bottom, accompanied by:

• Birmingham, AL
• San Antonio, TX
• Houston, TX
• Sacramento, CA
• Raleigh, NC
• Riverside, CA
• San Francisco, CA
• Oklahoma City, OK
• Pittsburgh, PA

In many of these markets, oversupply and tepid tourism keep revenues down.

I’ve found that some of the biggest cities are actually the worst places to invest in short-term rentals. Indeed, the counterpoint is valid: These markets often have stronger appreciation and a more straightforward transition to long-term or mid-term rentals if regulations tighten. 

But personally, I wouldn’t risk it. These major cities usually combine weak returns with strict regulations, making them challenging to justify as STR investments. 

For example:

• New York City limits rentals under 30 days to instances when the host is present and ensures that hosts reside in the property for at least 183 days per year. That’s a nonstarter for most investors.
• Los Angeles only allows short-term rentals in a host’s primary residence, caps them at 120 nights per year, and requires hosts to register with the city and display their registration number. To exceed 120 nights, owners must apply for an Extended Home-Sharing permit, which involves extra fees, neighbor notification, and stricter oversight.
• San Diego imposes multitier licensing and caps whole-home rental licenses at 1% of the housing stock.
• Denver requires STRs to be primary residences; hosts must pay a Lodger’s Tax of 10.75%.

Even if you dodge the worst financial metrics, you may be tripped up by the rules.

Places Where the Law Says “Just Don’t”

Some cities go beyond simply regulating; they nearly ban investor-owned short-term rentals:

• New Orleans, LA bans whole-home rentals outside a few commercial zones. The city allows only one short-term rental permit per block; corporate operators are forbidden.
• Santa Monica, CA allows home-sharing only if the host lives there; unhosted stays are illegal.
• Honolulu (Oahu), HI attempted to require stays of at least 90 days outside resort zones. Though a court injunction currently holds the minimum stay at 30 days, unhosted vacation rentals remain confined mainly to resort areas.
• Nashville, TN separates permits for owner-occupied and non?owner?occupied STRs. New non?owner?occupied permits are only allowed in non-residentially zoned areas.
• Brookhaven, GA (a suburb of Atlanta) restricts STRs to owner-occupied homes; hosts must show proof of a homestead exemption and pay local taxes.
• Atlanta, GA allows a short-term rental license only for your primary residence and one additional unit.

Lessons for Aspiring Hosts

By now, Maya has put her San Jose condo up for sale and is searching for markets that won’t strangle her with high costs and restrictive laws. Alex, on the other hand, continues to host hikers and hikers’ dogs, albeit constantly checking for evolving rules.

Here’s what investors and aspiring hosts can learn from their contrasting experiences.

Do your homework on regulations

Some markets require registration, tax collection, and adherence to strict rules; others limit whole-home rentals altogether. Always consult official sources before purchasing.

Consider overall demand and supply

High-cost cities like San Jose, San Francisco, and Sacramento have fewer suitable STR properties and high purchase prices.

Watch for hidden fees and taxes

Occupancy taxes, business fees, and license costs quickly reduce net income.

Think about your travel goals

If you want to operate in vibrant markets, pick those with a strong tourism draw, moderate housing costs, and balanced regulations. Avoid purely speculative buys where numbers don’t add up.

Final Thoughts

Real estate investing is more than crunching numbers; it’s about understanding the rules of the game. Do your homework, dig into the data, and take lessons from Maya’s and Alex’s experience, so your story becomes a success, not a warning.

As of 2025, the Social Security Administration revised its insolvency forecast to 2032. 

It won’t actually go bust, of course. But it also can’t continue on its current course of benefits and revenue. Something will have to give, and politicians from both parties have proposed solutions—none of them good news. 

So what are these proposed Social Security reforms, and how am I preparing for them personally?

Proposed Fixes for Social Security

Like all government overspending problems, the solutions come in two flavors: spend less, or tax more. In reality, the government will probably combine both. 

Here are the proposals most likely to actually happen.

Cut benefits

The simplest option on the table is just to pay out less in benefits. That’s not exactly a popular move for the millions of us who have paid far more into the system than we’ll ever get back. Although that will likely prove true no matter what, it’s just a matter of extent.

Slower COLA increases

Surprise! The SSA has already been doing this for years. By raising the cost-of-living adjustment (COLA) more slowly than real inflation (purchasing power), they’ve managed to delay Social Security’s insolvency. The next COLA announcement for 2026 will come out Oct. 15, based on third-quarter inflation numbers, and is widely expected to be under 3%.

Raise the full retirement age to 69

In 1983, Congress put in place changes that raised the full retirement age from 65 to 67 over the course of decades. We don’t have decades this time around, but Congress has proposed raising it once again from 67 to 69. 

Honestly, this one makes sense. When Social Security was first created in the 1930s, the average life expectancy was just 58 for men and 62 for women. In other words, we weren’t planning on paying for many seniors to live very long. Today, life expectancy is around 76 for men and 81 for women, and the ratio of seniors to workers has plummeted. 

Means-test recipients

The government could cut or deny Social Security benefits for higher-income seniors, despite the fact that they paid the most into the system throughout their careers.

Raise FICA taxes

Workers and employers pay a combined 15.3% toward Social Security and Medicare taxes. Uncle Sam could, of course, take more of your paycheck and make it even more expensive for companies to hire and keep workers.

Remove the cap on FICA taxes

The SSA caps how much retirees can receive in benefits, and the government also caps how much they tax workers for FICA taxes. That cap could disappear for higher earners, so they pay an unlimited amount into the system, despite being capped on what they could ever receive. 

How I’m Preparing

Now that you’ve gazed into the future and wrapped your head around lower benefits and higher taxes than what your parents enjoyed, how should you prepare?

Don’t count on Social Security

You’ll likely get some Social Security benefits. They just won’t be as juicy as they have been for the last 90 years. And even with full benefits, Social Security is only designed to replace 40% of your preretirement income. 

Still, today’s workers under 50 probably shouldn’t budget for Social Security benefits at all, given all the uncertainty around their future. I’m not counting on them. 

Higher earners might find themselves as convenient political targets, and could conceivably receive no benefits at all due to means testing. 

Plan to work longer

With lower benefits in store, you may need to keep earning money later in life. Which, let’s get real, is a reasonable price for living longer. If someone gave you the choice between a life expectancy of 58 versus 76, with the caveat that you’d have to keep working and paying your own bills up to age 70, which would you choose? 

A more aggressive investing portfolio

I was appalled to learn that my sister had 40% of her portfolio in bonds, at the ripe old age of 35. 

You’ll need more money in retirement, and that retirement might be further away than you’d planned. To me, the calculus looks pretty simple: Invest more aggressively.

I personally have around half of my portfolio in stocks and half in passive real estate investments. I hope to earn a long-term average of 8% to 10% on my stock investments and 12% to 18% on my real estate investments. 

For example, in the co-investing club of peers that I help organize, we invested last month in a property currently paying 9.3% in distributions, projected for a 22.4% annualized return. This month, we’re reinvesting in a land fund that has paid out 16% in distributions like clockwork.

These types of investments help me grow my own portfolio much faster than the average person who’s bogged down prematurely in bonds. In fact, I actually invest in real estate as an alternative to bonds in my own portfolio, although in the three to five years before I retire, I’ll probably move some money into bonds. 

Diversifying to mitigate risk

“Brian, your portfolio sounds high risk.”

As a working-age adult, I can handle some risk. When the stock market crashes, that’s basically a Black Friday sale for me to buy stocks at a discount. I don’t need to sell stocks anytime soon. 

Even so, one way I mitigate risk is through diversification. In my stock portfolio, that means buying both international and domestic stocks, large-cap and small, in every sector. You don’t need to become a stock wizard to do that. Just use a roboadvisor or buy shares in the Vanguard Total Stock Market Index Fund (VTI) and the Vanguard FTSE All World Excluding US Fund (VEU). 

On the real estate side, I invest just $5,000 at a time, every month, as a form of dollar-cost averaging. Our co-investing club meets every month to vet a new passive investment, whether that’s a private partnership, syndication, private fund, or secured private note. We all analyze the risk together, and each person can invest small amounts. That lets us diversify across states, operators, asset classes, and payback timelines. 

I even added a little precious metal to my portfolio recently. While you won’t get rich investing in gold, it helps protect your portfolio from inflation, geopolitical risk, and stock market crashes. 

“Precious metals provide retirees with a tangible hedge against market volatility,” notes Jesse Atkins, director of market research for SEMAFO Gold, in a conversation with BiggerPockets. Investing in gold also protects against the U.S. government inflating away its debts, which keep ballooning. 

Plan for higher tax rates

The current debt-to-GDP ratio in the U.S. is a worrying 119%. 

Ultimately, the government can’t keep overspending forever. Sooner or later, it will have to get serious about either cutting spending or raising taxes, and probably both. “Tax rates will almost certainly rise again in the future,” explains tax attorney and CPA Chad Cummings of Cummings & Cummings Law in a conversation with BiggerPockets. “That could happen as soon as post-2026 midterm elections.”

It’s a double whammy that could hit us in our golden years: higher taxes and lower Social Security benefits. 

Take advantage of relatively low tax rates now by taking the hit on capital gains tax for assets you want to sell or making Roth conversions. 

Max out Roth accounts

If you agree that tax rates will rise in the future, then it makes sense to knock out taxes now and let your investments compound tax-free. 

Consider maxing out your Roth IRA and opting for a Roth 401(k) if you have access to a workplace account. As touched upon, you can also convert your traditional IRA or 401(k) funds to Roth accounts. That triggers a one-time tax payment now, but you’ll never pay taxes on the money again, no matter how much it grows. 

Many of my fellow members of the co-investing club invest in Roth self-directed IRAs. Their balances keep exploding in value, and they’ll never pay another cent in taxes on it to the IRS. 

The less you lose to taxes in retirement, the better you can withstand lower Social Security benefits. 

As a final thought, Cummings adds that if the government starts means-testing recipients and restricting Social Security benefits to higher earners, Roth accounts can help protect them. “Future income-based benefit cuts may use modified adjusted gross income as a threshold. Roth withdrawals do not count toward MAGI,” he adds.

Explore cost-of-living contingency plans

My family and I lived abroad for 10 years, and I can tell you firsthand that the quality of life is just as high, but the cost of living is far lower. 

Just four months ago, I was living in a three-bedroom apartment with a 180-degree view of the Pacific Ocean in Lima—a city with 11 million residents—and paying $1,300/month in rent. And yes, it was a great neighborhood, with trendy cafés on every corner. The cost of living in Lima is 65% lower than in Los Angeles, for example. 

If the U.S. becomes too expensive or politically fractious, we can always move back to Peru, Brazil, the UAE, Italy, Romania, or any number of other countries we love, where our dollars stretch farther than they do in the U.S. In fact, my family and I have long-term residency in Brazil through 2030, although it’s easy to get a digital nomad visa in many countries nowadays. 

Nor do you have to move overseas to enjoy a lower cost of living. Ditch the average $1,240,382 San Francisco home to enjoy a $247,197 average home in Kansas City. You’ll still enjoy all the amenities of a major city while paying a fifth of the cost to live there. 

Today’s Workers Will Foot the Bill

For 90 years, retirees have enjoyed generous Social Security benefits. But with fewer babies being born and workers paying into the system, Social Security can’t continue on the same trajectory. You won’t get out anywhere near what you paid into the pyramid. 

Plan to cover your own living expenses in retirement, with returns from your own investments. Plan on higher taxes, too, while you’re at it, in case the future feels too cozy. 

Up your game as an investor, because you’re going to need more than you think.