In This Article

This article is presented by Range.

Real estate is one of the few wealth-building tools where the tax code actively works in your favor. But the challenge is that most homeowners and investors only scratch the surface of what’s available to them.

From deductions that reduce your taxable income to long-term strategies that minimize capital gains, the U.S. tax system offers a range of benefits designed to support property ownership. Yet many people miss out simply because they don’t know what to track, what qualifies, or how these rules fit into their broader financial picture.

If you’re a high-income professional or someone simply trying to make smarter financial decisions, real estate can be a powerful tax-efficiency engine. The key is understanding how these advantages work and how to apply them intentionally.

We’ll break down the tax benefits most people overlook, the advanced strategies that investors use to grow their wealth faster, and the pitfalls that catch many by surprise. Along the way, you’ll see how modern planning tools and why working with a company like Range can help you stay ahead of the complexity and make better long-term decisions.

The Dual Power of Real Estate: Income + Tax Efficiency

Real estate has a reputation for building wealth, but what makes it uniquely powerful is the combination of steady income and meaningful tax advantages. Few other asset classes offer this blend. Stocks may appreciate and bonds may provide predictable income, but real estate gives you both, and then layers tax efficiency on top.

Two engines working at the same time

When you own property, you benefit from two simultaneous wealth drivers:

1. Cash flow: Rental income can offset your expenses and create ongoing monthly profit.

2. Appreciation: Over time, properties typically grow in value, boosting your net worth.

But while most investments require you to pay taxes on any income or gains as they come in, real estate offers ways to soften, delay, or even eliminate parts of that tax burden.

Why the tax code favors real estate

The U.S. tax system treats property ownership differently because real estate is considered essential infrastructure. The incentives are designed to encourage individuals to supply housing, maintain properties, and support local economies.

Here’s how that shows up in your tax return:

• Deductions reduce taxable income.
• Depreciation creates noncash tax benefits.
• Capital gains rules often lower the tax rate on appreciation.
• Deferral tools like 1031 exchanges push taxes into the future.

For homeowners and investors alike, this can change the math dramatically. Two properties with identical cash flow may deliver very different after-tax returns, depending on how these rules are applied.

An example of the real impact

Imagine earning $10,000 in rental profit. In almost any other investment, that income is fully taxable. In real estate, depreciation alone could reduce that taxable income to nearly zero, even if the property is cash flowing.

This is why understanding the tax side matters just as much as understanding the property itself. When you learn to combine income and tax strategy, real estate becomes not just an investment, but a long-term wealth accelerator.

Homeowners: The Overlooked Tax Wins

Buying a home isn’t just an emotional or lifestyle decision. For many people, it’s also the first time the tax code meaningfully works in their favor. The benefits aren’t complicated, but they are often misunderstood or underutilized.

Let’s break down the three major tax advantages available to homeowners and when they matter most.

Mortgage interest deduction: A valuable benefit with modern limits

For many homeowners, mortgage interest is one of the largest recurring expenses, and the tax code allows you to deduct it, up to certain thresholds.

Here’s what’s important to know:

• You can generally deduct interest on up to $750,000 of mortgage debt (or $1 million if the mortgage originated before Dec. 15, 2017).
• Couples filing separately split those limits.
• The deduction only matters if you itemize, which means comparing the value of your itemized deductions to the standard deduction.

This deduction becomes particularly valuable in the early years of homeownership, when a larger share of your monthly payment goes toward interest.

Property tax deduction: Useful, with SALT considerations

Homeowners can also deduct their property taxes, but the Tax Cuts and Jobs Act imposed a cap on state and local tax (SALT) deductions. The key rules:

• You can deduct up to $10,000 in combined state and local taxes ($5,000 if married filing separately).
• This includes property taxes and state income taxes.

In high-tax states, that cap limits the deduction’s value, but strategic planning, such as alternating between itemizing and taking the standard deduction, can help maximize benefits.

Capital gains exclusion: The big one

When you sell your primary residence, you may be able to exclude a large portion of the profit from tax entirely. To qualify:

• You must have owned and lived in the home for two of the past five years.
• You can exclude up to $250,000 in gains if you’re single, or $500,000 if married filing jointly.

This exclusion can dramatically reduce or even eliminate tax when moving or upgrading homes.

Planning ahead matters

Timing your sale, tracking home improvements (which increase your basis), and understanding whether you qualify for the full exclusion can all affect how much tax you’ll ultimately owe.

For many homeowners, these three benefits alone make real estate a meaningful part of a long-term tax strategy before ever purchasing a rental property.

The “Silent” Tax Benefits That Compound Over Time

Once you step away from homeownership into real estate investing, the tax advantages expand significantly. What separates everyday investors from long-term wealth builders is understanding how to use these benefits intentionally, not just at tax time, but as part of your strategy year-round.

Here are the tax advantages that make investment properties uniquely powerful.

Depreciation: A noncash advantage with real impact

Depreciation is one of the most valuable tax tools available to investors. It lets you deduct a portion of the property’s value each year to account for wear and tear, even if the property is actually gaining value.

• Residential properties depreciate over 27.5 years.
• Commercial properties depreciate over 39 years.
• Depreciation often shelters a large portion of rental income from taxation.

This means a property can generate real cash flow while showing very little taxable income. It’s one of the main reasons investors see such strong after-tax returns.

Deductible operating expenses: More than you think

Investors can deduct a wide range of expenses related to operating and maintaining their rentals, including:

• Mortgage interest
• Property taxes
• Insurance
• Repairs and maintenance
• Property management fees
• Utilities (if you pay them)
• Professional services, such as legal or accounting

Every dollar you spend managing your property reduces your taxable rental income.

Section 199A: A 20% deduction for many investors

Thanks to the Tax Cuts and Jobs Act, many landlords qualify for the Section 199A qualified business income deduction, which allows you to deduct up to 20% of your rental income.

This deduction has income thresholds and rules, but for those who qualify, it meaningfully reduces the effective tax rate on rental income.

Using leverage tax efficiently

Financing a property doesn’t just stretch your capital. It can also improve tax results. Here’s how:

• Mortgage interest is deductible.
• Additional debt can enable cost segregation or capital improvements.
• Leverage increases the amount of depreciable basis.

When used thoughtfully, leverage strengthens both cash flow and tax efficiency.

Putting it all together

With the right combination of depreciation, deductions, and leverage, many investors find that their taxable rental income is far lower than their actual cash returns.

That’s the quiet power of real estate tax planning: The benefits add up year after year, compounding your after-tax wealth in ways other investments simply can’t match.

Strategic Moves for Serious Operators

Once you understand the foundational tax benefits of real estate, the next level is learning how to unlock accelerated advantages. 

These strategies are widely used by experienced investors and high-income professionals who want to maximize cash flow, reduce taxable income, and build long-term wealth more efficiently. They require planning, documentation, and, in some cases, professional guidance. But when used correctly, they can transform the economics of your portfolio.

Cost segregation: Accelerating depreciation for bigger upfront benefits

Cost segregation breaks a property into faster-depreciating components (like flooring, appliances, or certain exterior improvements). Instead of waiting 27.5 or 39 years, parts of the property can be depreciated over five, seven, or 15 years.

Why it matters:

• Larger depreciation deductions in the early years
• Reduced taxable income during the most cash-intensive period of ownership
• Particularly useful for high earners or large properties

A cost segregation study requires a qualified professional, but the tax impact can be substantial.

Opportunity zones: Deferring and reducing capital gains

Opportunity zones were created to encourage long-term investment in designated communities.

Investors who roll eligible capital gains into a Qualified Opportunity Fund (QOF) can:

• Defer taxes on the original gain until 2026.
• Potentially reduce the taxable gain, depending on the holding period.
• Eliminate tax on appreciation within the QOF if held long enough.

These investments require due diligence and patience, but they offer one of the rare ways to both defer and reduce taxes simultaneously.

Real estate professional status (REPS): Unlocking loss deductibility

For investors who spend significant time in real estate activities, qualifying as a real estate professional can unlock major tax benefits. If you qualify, you may be able to:

• Deduct rental losses against ordinary income
• Use depreciation more effectively
• Participate materially in your rentals and maximize tax impact

This classification requires meeting strict hour and participation tests, but the upside can be significant for full-time operators or spouses of high earners.

1031 exchanges: Turning one property into a tax-deferred ladder

A 1031 exchange allows you to sell an investment property and reinvest the proceeds into another property without paying capital gains tax at the time of sale.

Key rules include:

• Identifying replacement properties within 45 days
• Closing on the replacement within 180 days
• Ensuring the property qualifies as “like-kind”

Done repeatedly, 1031 exchanges can transform a single property into an entire portfolio, deferring taxes for decades.

Avoiding Common Tax Mistakes

Even seasoned investors can leave money on the table or create avoidable tax headaches simply because the rules around real estate are more nuanced than they seem. The good news is that most mistakes fall into a few predictable categories, and with a bit of planning, they’re entirely preventable.

Poor documentation and missing basis adjustments

Your property’s basis determines how much tax you owe when you sell. However, many owners fail to track improvements, closing costs, or contractor invoices.

Every improvement you make, from a new roof to upgraded appliances, can increase your basis and reduce your future capital gains. Without documentation, those tax savings disappear.

Mixing up repairs vs. improvements

Not all property expenses are created equal.

• Repairs (like fixing a leak) are deductible immediately.
• Improvements (like adding a deck) must be depreciated over time.

Misclassifying these can lead to incorrect deductions or IRS scrutiny.

Misunderstanding passive loss rules

Rental income is typically passive, which means most losses can only offset other passive income. Issues can include assuming all losses are deductible against wages or business income, or missing out on passive loss carryforwards.

Waiting until tax time to plan

Real estate is a year-round asset, so your tax strategy should be too. Planning only at filing season leads to missed opportunities.

How Range Turns Strategy Into Real Savings

Real estate tax strategy isn’t something you “set and forget.” The rules change, your financial situation evolves, and every property introduces new variables. Staying ahead requires visibility and a way to model tradeoffs.

Range helps you plan all year long:

• Track cost basis, improvements, and depreciation.
• Organize documentation effortlessly.
• Monitor passive losses and carryforwards.
• Model scenarios for selling, refinancing, or renovating.

Range’s planning tools help you compare tax outcomes, understand capital gains, and anticipate future cash flow. And when things get complex, Range’s team supports you with personalized guidance at one flat fee.

Stop Leaving Money on the Table

Real estate offers more tax advantages than most people realize. But the real power comes from using those advantages intentionally.

Range gives you the clarity, structure, and expert support required to make confident decisions long before tax season. Get personalized guidance and see how much more tax-efficient your portfolio can be. Book a call with Range today, or create your free account to get started.

Disclosure: Endorsement provided by a paid promoter and not a client of Range Advisory, LLC (“Range”), an SEC-registered investment adviser. Registration with the SEC does not imply any level of skill or training. The promoter will receive cash compensation. The compensation provided creates a conflict of interest, as the promoter has a financial incentive to endorse Range. This endorsement is not a guarantee of future performance or success. The referenced promoter and Range are not associated with one another and have no formal relationship outside of this arrangement. 

In This Article

Many small investors feel as if they are swimming against the tide. Political and regulatory headwinds are shifting in favor of owner-occupancy, while deep-pocketed corporate buyers scoop up swathes of housing. On top of that, rising expenses, such as maintenance and taxes, make it harder to turn a profit.

When “Protecting Homebuyers” Sidelines Small Investors

Investors are finding it particularly tough going in cities where strict rules on short-term rentals are squeezing out landlords, according to a recent analysis from Neighbors Bank. And the survey found that first-time homebuyers accounted for 69% of mortgages on starter homes (usually smaller, less expensive homes with three bedrooms) in 2024, while investors made up 31%. 

Stringent short-term rental laws in Denver, Seattle, and Los Angeles have made it tough for investors to buy there, giving homeowners an advantage. In Denver, owner-occupants accounted for 84% of starter home purchases, and investors accounted for just 16%. Seattle and Los Angeles told similar stories, with homebuyers picking up 81% of starter homes. 

California also mandates that tenants, nonprofits, and owner-occupants have a 45-day window to match investor bids on certain foreclosed homes, further disadvantaging investors. However, the country differs widely in this regard. In Miami, where median home prices are around $500,000, investors account for 57% of all starter home purchases, the most in the survey, and first-time buyers 43%.

“Affordability doesn’t exist in a vacuum,” Jake Vehige, president of mortgage lending at Neighbors Bank, who authored the report, told Realtor.com. “Two cities with similar home prices can have completely different outcomes, depending on how they regulate investor activity and protect owner-occupants.”

Bigger Players, Thinner Margins

The 800-pound gorilla in the room, regarding who is entitled to what, is supply. With a limited number of homes, investors and homebuyers have to duke it out, with housing laws serving as the referee. 

U.S. single-family housing starts have recently fallen to near two-and-a-half-year lows, according to Reuters. Higher mortgage rates and weaker homebuilder confidence have dragged down the number of new homes being constructed. 

Earlier in the year, the outlet reported that tariffs were expected to raise construction costs by $10,900 per home, further disincentivizing builders. For existing landlords, elevated material costs increase repair costs, especially for those pursuing a BRRRR strategy.

The challenge from Wall Street cannot be understated, either. Behemoths like the Blackstone-funded Invitation Homes have been buying up single-family properties. According to the Federal Reserve Bank of Philadelphia, the number of homes owned by Blackstone and similar firms increased from almost nothing in 2010 to close to 400,000 by 2021.

In some burgeoning neighborhoods, such as the Bradfield Farms subdivision outside Charlotte, North Carolina, corporate landlords who paid in cash own 50% of the homes, The New York Times says. The Times reported that corporate landlords are more likely to raise rents, evict tenants, and under-maintain properties than smaller landlords, which shifts opinion against all landlords.

Policy Shifts That Increase Costs and Shrink Flexibility for Smaller Landlords

Many cities, in a push for owner-occupancy and tenant protections, have made it increasingly difficult for smaller landlords financially. Rental registries, rent control, and no-cause eviction bans have squeezed landlords’ profit margins.

The management platform LandlordStudio defined a landlord-friendly state, examples of which it listed as Texas, Indiana, Florida, Georgia, and Arizona, as one that is favorable to investors in the following categories:

• Eviction process
• Landlord and tenant rights
• Rent control regulations
• Registration and licensing requirements
• Tax and insurance rates
• Market competition

In the meantime, co-investing platform SparkRental released a list of the least landlord-friendly cities in 2024, with these making the top five:

1. Portland, Oregon
2. New York, New York
3. Washington, D.C.
4. Baltimore, Maryland
5. Detroit, Michigan

On the other side of the coin, GoBankingRates compiled a list of the best cities to be a landlord, with these among its favorites:

• Columbus, Ohio
• Phoenix, Arizona
• Nashville, Tennessee
• Charlotte, North Carolina
• Salt Lake City, Utah

The Financing Squeeze

Financing is also increasingly difficult for smaller landlords who aren’t taking out large loans, reports Realtor.com. Many lenders have cut down on lending smaller loan amounts, especially those under $100,000, because they are less profitable and seen as riskier under current regulatory frameworks. That means smaller homes, often a starting point for new investors, especially those pursuing the BRRRR strategy, are more likely to be sold to all-cash buyers. 

Final Thoughts: Tips for Small Investors

Before you start ringing the alarm bells about real estate investing, it’s worth zooming out and looking at the macro picture. Small real estate investors with 10 properties or fewer still own more than 90% of the single-family properties in America—so clearly something is working. People will always need a place to live, and that is something neither artificial intelligence (AI) nor politics can change. 

The real dilemma is the lack of housing compared to the population, which has pushed up costs. In its October Market Update, investment bank J.P. Morgan estimated that the U.S. was short 2.8 million housing units, the shortage will take a decade to resolve, and that lowering interest rates would do little to move the needle. 

The bank stated: 

“Today, the cost of owning a home is roughly 40% higher than renting, and the average American needs more than eight years to save for a down payment, both of which drive a preference for renting, with median apartment rents relative to median weekly wages now falling below where they were pre-pandemic.”

With that in mind, here are a few tips as you plan your investment journey.

Pick a strategy

Define your strategy based on your liquidity, time, and risk tolerance. Leveraging is fine in theory, but if you don’t have the capital to back it up when seas get rough—which they will—it can be a disaster. 

Owning rentals requires reserves. If you don’t have them, partner with someone who has the cash but not the time.

Lean on digital tools, data, and local knowledge

These days, an ocean of knowledge about local markets is available at your fingertips, and digital tools—apps and software—make market analysis, deal sourcing, tenant screening, rent optimization, and accounting far easier for tech-savvy investors and management companies, saving time. 

Focus on niches or underserved segments

The way investors can win against homeowners and institutional investors is to focus on areas where they are not dominant or don’t wish to be. These could be in the following:

• Affordable homes in smaller cities, closer to rural communities, where there is demand
• Older homes requiring moderate rehab, which new buyers typically do not wish to undertake
• Units that cater to renters who do not want an anonymous, large-scale corporate landlord. These are often in closer-knit, small communities.
• Areas with reasonable regulatory environments that are favorable to small landlords. For example, Washington state has floated the idea of capping the number of units a single investor can own, which would push out Wall Street investors.
• House hack smaller multifamilies of two to four units, thus qualifying as an owner-occupant. Rinse and repeat.

Be selective. In the current housing environment, now is not the time to accrue a slew of doors unless you are extremely deep-pocketed. Rather, focus on making each purchase count, yielding the most cash flow possible by focusing on price, repairs, location, and rental demand.

Ashley:
If you’ve ever told yourself, I’m just not good with money, today’s episode might completely change that story.

Tony:
Our guest, Liz Carroll once will leave the same thing, but she did the hard work to rewrite her money mindset and it helped her and her husband build a completely debt-free real estate portfolio of 45 rental properties.

Ashley:
Yeah, and Liz didn’t come from a finance background. She worked in IT sales. She’s proof that you can create financial independence by shifting how you think about money first and then how you use it.

Tony:
Whether you’re buying your first property or you’re trying to get control of your spending before you invest. This episode is going to help you bridge the gap between mindset and math.

Ashley:
Liz, welcome to the show. Thank you so much for joining us today.

Liz:
Thank you, Ashley. Thank you Tony for having me. I’m very excited to be here and it’s fun to think back at the rookie days because it’s been a while.

Ashley:
Well, Liz, I want to start at the very beginning. You’ve said you used to think that you were bad with money. What did that look like in your life at that time?

Liz:
Well, for me, it looked like I had been bailed out on some credit card debt from my mom while it got in a little credit card trouble in college, which today doesn’t sound like a whole lot of money, but back then a thousand dollars with a maxed out credit card felt like a lot. And I’m talking about 1989, so this was a long time ago. And then when I got married, I had heard I wasn’t good with money. I had heard that a lot growing up from what started when I was 12 and had some money stolen out of the ice rink locker, which I don’t know why a 12-year-old at that time was bringing $40 to the ice rink. But I had all of it stolen and I just felt like I wasn’t good with money. I had made some money mistakes in losing money or having it stolen from me, and I just had heard you’re not good with it. So I started to believe that. I started to believe that I wasn’t good with money, and I then proved it because I got into some more credit card debt and then I had some car trouble. And at that time, my fiance, now husband, we’ve been together 38 years now, paid for all my car repairs, and I just was like, I don’t want to be in this situation. I don’t want to be the one who doesn’t understand money.

Ashley:
So when was that moment in time where you decided to take action and actually change things for yourself? And what were those first action steps you did?

Liz:
Well, it really happened a little later in my life. So it was about when I was 30 years old that I just was like, I can’t do this anymore. So we had already been real estate investors at that time and I still felt like I wasn’t good with money. And we had actually even built a big home. We had made many money moves at that time and we got a little ahead of ourselves. So I felt like I was on a treadmill that was on number five and the speed, I just couldn’t keep up anymore. And we had two little kids. And so at that time is when I read the book Financial piece by Dave Ramsey and a coworker had suggested it to me. I had a great career. I was making good money. I just didn’t feel like I was getting ahead. I felt like I was drowning and that speed, I couldn’t keep up anymore, so I needed to have some relief.

Tony:
Liz, let me ask because when we talk about being bad with money or being good with money, smart financially, I think it can kind of take a different meaning for different people. So for you, how would you define the difference between someone who is good at money and someone who’s bad with money?

Liz:
Oh, I love that question. And it really comes down to your own personal thoughts of what you think. If you’re feeling like you’re getting ahead, meaning you’ve got money in the bank, you have the opportunity to make money moves or that as soon as the bill comes in you feel like you can easily pay it, that the other thing is is that you’re investing for the future. I mean, I grew up in a time that it was very important for us to put money aside for our future. Not that it isn’t now, it’s just that it was a little bit more ingrained at that time.

Tony:
And I think to add to that, and Ash, I want to get your take on this as well, but when I think about that for myself, I think there’s three buckets. It’s your ability to cover all of your day-to-day expenses, your ability to have some money saved, whatever that number may be for bigger expenses in the short term, your emergency funds, saving for your first house, buying a car, whatever it may be, but those things that aren’t necessarily day-to-day expenses. And then also having assets that build for your future. So day-to-day living bigger short-term expenses, and then long-term thinking. And if you’re checking all of those boxes, and to me, you’re in a good spot. Ash, I’m curious for you, how do you define being good with money? Is it different from what Los or what I’ve said?

Ashley:
Yeah, I mean the biggest thing for me is just financial security. And when that moment in time happens or an expense comes up where you’re not panicking and feeling like the world is ending, and I think the first time that I really ever experienced not having that feeling, when I finally felt like, you know what? I have a sense of security. I’ve been so good with my money. I was in Florida and I had changed our plane tickets somehow and the way that I changed them, it ended up our flight home got canceled and I didn’t realize it. And I went to check in 24 hours before our flight and we did not have tickets. And I called and it was going to be very expensive to fly our family home. And in that point in time, I realized like, okay, I have savings. I don’t want to spend the money on this, but it is okay.
It is not the end of the world. And that right there was what I realized why I wanted to be financially secure and why I was doing certain money habits to actually implement that, to have that security was for moments like that. And since then there’s been a ton of other times, a $30,000 tax bill one year. There’s all these things that will happen and I don’t want to have to stress about them. So that’s what motivates me to be mindful about money and making sure that I have my reserves in place that I’m spending within my means, but I’m also creating different income streams to support income coming in. So I think those are the three big buckets for me is diversifying my income, living within my means, and then just having savings.

Tony:
And as you mentioned this on the podcast before, but it’s like if you have the money to solve the problem that it’s not really a problem. And I love when you phrase it that way because it’s like if the money’s there, then just spend the money to get it fixed and you can move on with your life. So Liz, going back to your story, you talk about this point in your life. You’ve got some young kids, you guys are making some progress, but I guess what actual steps that you take to convert yourself from that person that, Hey, I don’t feel like I’m good with money. Okay, now I actually feel like I’ve got a good handle on. What were some of the tactical things you focused on to make that transition?

Liz:
Well, we sat down and we created a plan. Really it came down to that. Now I don’t want you to think that it was some elaborate plan at that time. It was a yellow pad of paper when we wrote down three things that we really wanted to do. One, we wanted to live completely. So that was number one. And number two, we wanted to college educate our children. We had two children, our parents educated us and we felt that it was our duty to do that for our children. And then three, we wanted to create enough passive income to be able to make work optional by the time we were fifties. So when I was 30 years old, our youngest was two at the time, and so that would coincide with on a standard track, her graduating college at that time too. So my husband and I would then be able to decide what we wanted to do or maybe not be so pedal to the metal and we could lower the speed on that treadmill we were on.
And so that’s what it was for us. It was the three things that became guiding our guard rails that became our destination of where we were going, and then every little decision we were making going forward from that time was it getting us closer to the goal? And again, those goals were simple. There were just three things that we wrote down that we wanted. We didn’t really know how we would do it. We had already been real estate investors, and so it made a lot of sense that real estate would be part of that journey for us.

Ashley:
Well, Liz, we’re going to take a short break, but when we come back I want to hear about that first rookie deal that sparked it all. We’ll be right back. Okay, we are back with Liz, and we talked about Liz’s money story, but now we’re going to go into Liz’s rookie deal. So you started investing just three months after you got married. Tell us about that first deal.

Liz:
We got married in 1990. I was 22 at the time and we moved states, so we moved away from California, moved up to Spokane, Washington, and my husband and I at that time, I had already taken a little real estate course at the community college after college, but we were interested in real estate and we got up there and we were kids in a candy store because things were so inexpensive comparatively to where we had moved from. And so my husband, they had these throwaway newspapers that were called the little magazine called the Nickel Nick or something like that. And he found an opportunity for us and we were like, how could that house, how could there even be a house for less than you could buy a car for? So we ended up buying a house where we identified it. It was $13,625.
The owner was willing to carry the contract because that was the other thing. The owner was willing to carry the contract and he needed $1,500 down. And we were like, we don’t have $1,500. I’m 22. Just that previous week had turned 23. And so I called my dad and I said, dad, we figured out how we can pay you back within this min time. So it was like three months we could get him paid back. And so my dad sent us the money for us to put the down and then we rented that house out. I can’t remember the exact amount of rent, but it was like a one bedroom, one bath house. It was tiny and it was white with a Pepto Bimal pink trim. It was the cutest little house. It was tiny. And so anyway, the tenant stayed in there. This is one of the first only houses that we’ve ever bought where the tenant actually stayed. And so he rented from us for 18 months or so, and then we put $900 into the whole property. That’s it. And then we ended up selling it about 18 months later for $18,000. So we thought we would done, it was amazing deal. Right.

Tony:
Liz, we talked about your personal finance foundation a lot, but as you go into this first deal, you mentioned like, Hey, we didn’t have 1500 bucks to cover the down payment. As you’ve grown your portfolio, looking back, do you think it was a smart move to jump into that first deal given that you guys maybe didn’t have a whole lot of discretionary cash at the time, but obviously it worked out for you guys or looking back, would you have waited to maybe buy that first deal? And to give some context here, the reason that I ask that is because sometimes we do have folks who are in the rookie community who are looking to get started where there is a good deal that presents itself, but taking that deal down would maybe stretch them a little bit more financially than what they’re comfortable with. And I think they’re asking themselves that same question, do we pull the trigger or do we wait until we’ve kind of built up this strong financial foundation? So looking back, would you have done it again? Did you feel like it was the right move?

Liz:
Well, I would say yes. I think it was the right move for us for sure. It was a little risky. In fact, our accountant, because we ended up doing a couple more deals after that, our accountant set us down and was like, listen, kids at that time, he was a middle aged man and we were in our twenties and the accountant’s like, okay, kids, I think you guys are getting a little far out there. You might want to settle down. But we were living very lean. I will tell you now, that was a long time ago. Our incomes were very different at that time. I think Dan was making somewhere around 36, $40,000 and I was making 22 or something like that. I mean it was ridiculous. So the dollar amounts are really different that we’re dealing with now. We’re adding zeros, but it was just a good thing for us to learn from. We cut our teeth, the actual risk was pretty low. Does that,

Tony:
And I think that’s the key part of it, is the risk associated because I mean we’re talking about less than $14,000. Like you said, it’s a car payment, so the risk associated with that specific deal was low. But I think it’s an important question because I think there are a lot of people who are listening that want to get started, but feel like their current financial situation maybe be holding them back. And there is some truth to that. If you’re super upside down on every single bill you’ve ever had, then probably not. But if you’re in a similar position to Liz, then maybe it makes sense. I think one follow question to me because we’re going to get into how you scaled your portfolio, but something you mentioned earlier in the show was that you and your husband made the decision to build your portfolio with no debt and Ash and I talk a lot about Dave Ramsey and we agree with everything that he says on the personal finance side. We tend to disagree with him when it comes to debt on real estate. So why did you and your husband decide to follow Dave Ramsey? Not only for the personal finance, but also for the real estate investing side?

Liz:
Yeah, well thank you for that because it wasn’t that way. I want you to know. So we were following the personal for a long time and really wanted to live debt free, and however, that didn’t mean our real estate portfolio was debt free. So there was a time when we became debt free, meaning our mortgage free meaning no car payments, all those kinds of things. However, we kept debt in the real estate side and there was a time about a four year lag to where we made the decision that once we became personally debt free, we were also going to switch the real estate portfolio to being completely debt free. There was a time that it wasn’t like that. However, we sat down and decided very strategically that it’s time for us to be debt-free real estate investors because we were getting to that time in our careers where we were going to be stepping out of them. So we wanted to have that security of having a debt-free portfolio since we were leaving our W2 jobs.

Ashley:
When you made that decision, did you look at this as more an emotional decision or did you actually sit down and kind of run the numbers? So when I think of paying off a property, I am outweighing, am I going to, could I take this money and pay off this mortgage? I’ll get more cashflow on this property, or could I leave this mortgage on the property and go and take that money and go invest into another one? What was the reasoning, the thinking behind all of that? What did you actually ask yourself and what questions should a rookie ask themselves when they’re deciding if they should pay off the properties or not?

Liz:
Well, for us, it became flexibility too. It was emotional for sure. We didn’t want to owe anyone anything, and I would say it was more me than Dan when I really wanted to have a debt-free portfolio and there were some deals that were coming along in this window of time back, if you think about from 2010 to, so there’s a few things I kick myself on about that. However, I wouldn’t change it for anything now to being a debt-free real estate investor. So we did do math, but we also talked about the emotional energy associated with being debt-free real estate investors, and there’s another component also. It offers so much more flexibility when you don’t have the debt on the properties. And that has been really important to us also as being great and grateful landlords, that’s important to us to have that flexibility.

Ashley:
I think one thing too is you have less properties, so you have less to actually manage. So if you would’ve kept properties, kept debt on ’em, went and bought more properties, that in a sense is just more work for you because now instead of 45 properties, you have maybe a hundred properties and it’s more time, more energy having to put into your portfolio. Even if you were to get a property manager, that’s still asset management, where in reality, if you are looking to pay off your properties, you could look at maybe it makes sense just to pay off the properties I have now and I’d actually have closed to the same amount of cashflow if I went and doubled my portfolio because I paid off all of these mortgages. So I think this is a great example and something we don’t talk often enough about on the podcast too.

Tony:
Ash, it’s a really smart point because as you’re talking, I’m thinking about this. It’s like say that you went out and you built over the course of two decades. Say you build a portfolio, I don’t know, $2 million, but it’s fully paid off. You put everything on 15 year notes, you paid it down aggressively, you took all your extra cash, you paid it down. Now you have $2 million worth of fully paid for real estate. Even if you went out and say maybe you refinanced or maybe even got lines of credit for 50% of that a million bucks, you took that million bucks and even instead of going out and buying more real estate, if you just lent that money to other real estate investors, you still have your portfolio, still the same management, but now you’re still earning some money on that equity. There’s so many different options you have when you’ve got all that real estate paid for. And we just interviewed Devon Canard who’s a professional private money lender, and he was saying, this is probably the best return you can get in real estate is just lending money to other people. So if you can combine both of those paid off real estate, taking some of that equity and using it to go out there and lend to other people, you get the best of both worlds.

Ashley:
Now, Liz, I want to transition to actually the mindset piece of this, and you do a lot of mindset stuff and help other people get motivated with their money and change how they think about money. So what do you see for maybe even yourself or rookie investors that are getting started? How should they plan for the future and kind of change their money mindset that way?

Liz:
Well, there’s part of it is just the belief and being able to shift from believing. Where I did was that I was not good with money and being able, I’m amazing with money now and it’s not that hard. That’s the other part that I think we all have to come together and notice how it’s, it’s intentionally difficult. Does that make sense? The marketing and things that we hear out there make it so that money’s so complicated. And I think that money mindset and the money, the things that we do, and as real estate investors, I mean it’s not that much more than a fifth grade math education. So I think that’s the part is so many people think, I can’t do that because I’m not good at it. Well, we weren’t good at it either when we first started and we still make mistakes today.
I think that’s to know also is that we took a break for a few years with raising our children and then we’ve come back, we’ve tried all kinds of different things when the mindset is like, what’s the worst that could happen and am I willing to take that risk for the upside? So that’s where it’s making sure your math, but also where is that inside you? What’s the worst that could happen and would you still be okay? I’ve coached many people that have had bankruptcies but then come back to do really amazing things with money. And I think that’s where it’s the knowing what to believe in yourself, and that’s the mindset part.

Ashley:
For a rookie investor that’s getting started now, what are some maybe action items or different ways they should be planning for the future, whether it’s just with their personal finances or with investing journey? What are things they could be doing to actually plan out what they want their future to look like?

Liz:
Well, I think it’s important to pause and really get intentional. I think that’s probably been the secret sauce for us is that we were intentional all along and very mindful with how we were going to do this. And also we allowed ourselves to make some mistakes and we’ve made definitely mistakes along the way. The other thing to plan though is that we have always lived below our means ever since we’ve made that shift in 1997 when we created our plan. Since then, we have always lived below our means. And the other thing that we didn’t do is we didn’t take any money out of the real estate business. So that is we stayed in our W twos long enough until that real estate portfolio was kicking out enough cash for us to step out of our IT sales careers. So we didn’t try to get out too early. Does that make sense? So we kept the money in the business and let that money grow, and that’s what helped us pay down properties as well. So that’s the setup.

Ashley:
There are so many advantages to keeping your W2 job or still running your small business rather than just quitting and going full-time real estate investor. First of all, you can get better financing on deals. You also have a better sense of security because you still have a W2 to pay for your expenses and you’re not relying on that next deal coming in to actually feed your family. And I think a couple of years ago, the real estate, there was a lot of hype, a lot of people talking about it is possible to quit your job and become a real estate investor. And the deals were a lot better, a lot juicier, a lot more meat on the bone at that time. And now I’m seeing the shift of more, it becoming harder and harder to actually leave your job. Even some people going back to jobs just to have that sense of security after those few years of really great deals coming in and people making a lot of money in the real estate world and now it’s just more difficult to do.
And I think that has to be rephrased that it is so much harder to leave your job and even if you do find a way to leave your job and to live off your real estate income, that you really don’t have that security blanket anymore. And I think that’s something you need to think about is not only, okay, I have X amount of cashflow, this covers my W2 job, I can quit now, but also if a capital improvement comes up, if your child all of a sudden needs $7,000 in dental work, these things come up, is that going to be detrimental to you or do you want that extra blanket to be able to have that extra money and to build wealth faster really if you were to keep your W2 job?

Liz:
Absolutely, and as you’re saying that, that’s definitely what I teach is number one is we have to know the cashflow, the ins and outs of the household, what are the household finances so that you know those are covered for sure. As you go into real estate investing, I also coach that you need to have a safety net. I don’t call it an emergency fund because I don’t know about you, but I have never felt good calling nine one one. So I call it a safety net because I want to be able to take risks, and we have been able to do that because we did have that safety net built and that is cash that’s set aside in a high yield savings account that’s not cash, that’s like in the checking account and we have access to it. That is money that we set over to the side that is that literal safety net I think allows us to walk some tight ropes sometimes. And we certainly did, and there were times when we didn’t have that safety net, so if I had to look back, it’s a whole lot easier with the safety net. So I would build that up for a rookie first before they left their W2.

Tony:
Liz, I feel like now might be a good time to tee you up for the future self since we’re on the mindset and the personal finance piece, but I guess what would be the best way for me to tee you up to go into that?

Liz:
I think it’s important also to talk about, we didn’t talk about how we niched our portfolio and I think I would like to talk about how that maybe is that part of that future self, what did we want? How do we want to exit our portfolio too? I think that’s really important is that we went, so we can talk about that. Yeah.

Tony:
Liz, you’ve got a really unique strategy and I want to share this with the listeners. I think a lot of people haven’t niched down in the way that you have, so we’ll cover that right after. A quick word from today’s show sponsors. So we’re back here with Liz and Liz as you’ve built your portfolio up, you started with this $13,000 home, but I know as your portfolio has grown, you’ve shifted your strategy to really focus on a very specific niche. So what is that niche and how did you land on it?

Liz:
Yeah, I think thank you for that, Tony, because we have had done all the things. We’ve had single family, we’ve had multifamily, we have done short-term rentals, we’ve had a long, long term. We find that we really like the buy and hold long-term rental and we have continued to refine our niche in the long-term rentals. So we found a product that we really liked and it was unusual. I wouldn’t have ever thought this as a real estate investor in the beginning because we first were buying stick frame homes, but we have found, we live on the Oregon coast, Tillamook County where we get a lot of rain. So we have found that there’s a terrific product here for rentals, for workforce housing, and it feels like it’s a win-win win because it’s a win for the tenants, it’s a win for the employers, it’s a win for the county and the neighborhoods and us of course, but we have standardized now on manufactured homes. So we look for a product of a manufactured home that is three bedroom, two bath, which is terrific for families and that in Oregon when we started this, it makes a lot of sense here because we get a lot of rain, so they’re lifted up off of the foundation. So it really does help because as a landlord, water is one of your biggest nemesis. So that was a good strategy for us also because it reduced some risks that we would have with the wet wood.

Tony:
Liz, again, we don’t talk a lot about manufactured homes as an asset class or as a property type on the podcast, so I’m glad that we get to chat about it here, but I think there’s maybe a stigma around investing in manufactured homes where people think that there’s less appreciation or maybe the quality of tenant won’t be as high as a stick-built home. Have you found any of those stereotypes or stigmas to be true?

Liz:
Not here so much. One. They’re pretty nice nowadays. So that’s the other thing. It’s not like we’re, but I do know the stigma exists because you hear about it, it’s like real estate or wheel estate. These are not RVs. I want you to know these are manufactured homes. They follow the same requirement as stick frame. They’re just built in a factory and then brought to the facility. We own the lot. We’re not talking about these are in a park or something like that. These are in a neighborhood where we own the property and they are most often, especially in Oregon, they are deeded to the property. So they’re no longer, it’s not like we’re moving them around where we invest. Now we do keep them und deeded to the property because we, depending on where workforce housing is needed, we can move them, but they are pretty nice homes. I would’ve had that stigma myself until Dan and I bought a manufactured home at a weekend home for us, and I would’ve never thought it, but I don’t think anyone ever came to that house and thought that it was a manufactured home. So

Ashley:
Now Liz, you’ve also put together a creative exit strategy on these properties. So what are you doing differently to unload some of them rather than just putting them on the MLS for sale?

Liz:
Well, that is important for us is like how are we going to exit? I think it’s important to always go into this with the exit in mind, and that was one of the reasons we left multifamily. We had a 16 unit apartment complex, and I kept thinking in our retirement, you can’t have to sell. It’s a one transaction. So what we wanted to do was instead of having 16 units, we wanted to have 16 manufactured homes so that over the course of 16 years we could sell one a year or be able to have that extra cash and appreciation. These homes have appreciated too, by the way. I just want you to know that that is true. They don’t appreciate it, the same rate, but the cashflow is so high. We buy them for cashflow. They rent so much for the same for rental. They rent very much the same as a stick frame.
However, the purchase price is less. So we go into it not thinking of appreciation. However, we have benefited from appreciation. The exit that we’ve used though is that we have wonderful tenants that have stayed with us for a long time, but our tenants might not have thought they could be homeowners. And so for several of them, we have gone to them and asked, do you want to stay here for long-term? Is this where you want to be long-term? And if so, we were willing to sell the property to you. So we’ve done three of those in Oregon here with our existing tenants that they never really thought they could ever own a home, and we educated them. Dan and I are both financial coaches, and so we educated them on how they could do this. We structured their payments to be similar to their rent, and now we hold the note, but they are buying the houses from us. So that has been really rewarding. It’s a great win for us too, because those houses had appreciated and now we take that capital appreciation over time.

Tony:
Liz only interviewed, I think a couple of other folks who have done the lease to own as the landlord, but just give us the quick mechanics of that transaction. If someone moves in and they move into your unit, are you agreeing on a preset purchase price the day that they move in? Is it after a couple of years? Are you taking any big refundable, non-refundable deposits? Just what are the mechanics of that transaction?

Liz:
Yeah, these are tenants that have been with us for a while where we have said, you’ve been paying us, and this could be you paying yourself so that you own that. We do require them to, we walk through the opportunity and say, this is the price, this is what it would be. This is how much we would require as a down payment. So we do take a down payment just like a bank would, and then we structure the payments for their finances, and that’s how we do it. So we don’t do it at the front because one, we want to date first just before we get married, does that. We don’t do it upfront and we do quite a bit of the education and then of course, the flexibility. So we had one tenant that we have sold a home to that wanted to restructure her loan, and we were able to do that to meet her new finances. And that worked out really well for all of us. And it was one of those things, it feels so rewarding, and that’s what I like to think about is legacy wealth, because not only are we benefiting, but we are really helping lift our tenants up. We’re really being able to help. It helps the community. They become homeowners and that’s a win for everyone.

Ashley:
I think also too is that when that tenant cames you was proactive about, I need to restructure it and came to you ahead of time before they’re six months behind on payments and not communicating with you at all, whether it is someone paying rent or paying you a mortgage payment, that really shows the difference in a quality tenant as to the one that’s going to be proactive. I would way rather work with somebody to work out some kind of payment arrangement or change their structure because they came to us far and were proactive about their money situation than being reactive and having to chase them down. And then finally figuring out the reason or whatever it is, or having to start the eviction process and then finding out the reason in court. So I think that also goes to show how you’re choosing the right people to actually do this with instead of just offering it upfront too.

Liz:
Well, that also speaks to us as self-managing because since we do self-manage, they know us, they know we are the landlord, we are the owner of the property, there becomes a relationship also. So we stress, Dan is particularly good about this is communication is key. We need communication. We need to know if there’s something wrong with the property because we are very responsive in getting it fixed as a landlord because it only works to keep the tenant. We have so many tenants in our history that have been with us for years, some decades, and that’s where you really find that if you get that good relationship, it’s a win-win for everyone.

Ashley:
Well, Liz, thank you so much for joining us today. We are so grateful to have you here today to share your journey, share your experience. Where can more people reach out to you?

Liz:
Yeah, I hang out on Instagram, so mindful money coaches.com, not as active as I used to be there, but Mindful Money Coaches dot Mindful Money coaches on Instagram, mindful money coaches.com on our website.

Ashley:
Well, Liz, thank you again. Thank you for everyone listening today to this episode of Real Estate Rookie. I’m Ashley. He’s Tony, and we’ll see you guys on the next episode.

In This Article

This article is presented by TurboTenant.

Maintenance might be one of the biggest challenges landlords face. Whether it’s a true emergency or a Sunday afternoon text about a light bulb, keeping up with rental maintenance requests can quickly eat into your time and sanity. If you’ve ever had your phone buzz at 2 a.m., you know what I mean.

Rental maintenance requests are a necessary part of owning property, but they don’t have to run your life.

What Doesn’t Work

Every landlord has a story about that middle-of-the-night message. You know the type: There’s a leaking faucet, tripped breaker, or tenant panicking about something minor.

When I first started managing my own rentals, I actually carried two phones—one for personal use, and one strictly for tenants. If a tenant called the “rental phone,” I’d jot their issue down on a pink paper form I kept in a stack on my desk. Then I’d hand that form to my maintenance person, who’d coordinate with the tenant, fix the problem, and return the form to me once the job was complete.

This system worked fine when I was tied to a desk in an office, but once I started scaling, it fell apart fast. Calls would come in at all hours, I’d lose track of forms, and sometimes tenants and maintenance were waiting on me just to relay a simple message. And let’s not forget about keeping up with communication on scheduling and status updates. 

When I started to move out of my business, I needed to think about how to replace my process to be more efficient and to remove myself from the process.

Don’t Let Maintenance Take Over Your Life

The thing about maintenance is, it’s not just the repair that takes time. The back-and-forth between your vendors and tenants can really eat into your inbox (and your day). You want to respond quickly to keep great tenants and protect your property, but manual systems make that nearly impossible. You have to update your system for a more streamlined maintenance process. 

A big part of streamlining maintenance starts with clarity. Make sure your rental lease agreement clearly outlines who’s responsible for what, whether that’s changing light bulbs, testing smoke detectors, or managing lawn care. Clear expectations help prevent confusion and unnecessary back-and-forth later.

Even with a solid lease, maintenance requests can become a game of tag, because:

• Tenants don’t always provide enough information about their request.
• Landlords and vendors need follow-up photos or videos.
• Responses lag.
• Schedules don’t align to complete the request.

How to Pass Maintenance Off to AI

This is where automation and AI step in to help.

TurboTenant just rolled out a new AI-powered maintenance feature that can troubleshoot issues before you ever need to get involved. According to Yahoo! Finance, this feature is designed to make the maintenance process smarter and less stressful for both landlords and tenants.

When a tenant submits a maintenance request, the AI tool jumps in to gather more details. It asks specific follow-up questions like:

• What room is the issue in?
• What exactly isn’t working?
• Can you describe or upload a photo of the problem?

If it’s a simple fix, the AI feature can offer troubleshooting suggestions in the chat. For instance, if the tenant says a light won’t turn on, it might prompt them to check the breaker or bulb before escalating the request. Sometimes that quick guidance is all it takes to resolve the issue without the landlord (you) ever needing to step in. 

I can’t even begin to tell you the number of times a tenant has tripped their breaker from having too many appliances plugged into their kitchen outlets. It would cost me at least $50 just to send someone out to realize the breaker just needed to be flipped. That $50 doesn’t include my time to schedule and coordinate with the tenant and handyman. This new AI feature will already save me a lot of time and money with just this one instance. 

If the problem does need a professional’s attention, you’ll get a neatly packaged report with a clear description and photos. This means that you can hand the request off to the right contractor right away, with accurate information for a quote and time estimate.

Additionally, the AI maintenance feature can use the lease agreement in order to better communicate with your tenant. If a tenant reports a faulty smoke detector and your lease states that replacing the battery and detector is the tenant’s responsibility, the tool will let them know politely and automatically. How cool is that? You don’t even need to remember what your lease agreement says for that property, or take the time to read through it again.

The goal of using AI to help with maintenance requests is a frictionless process that saves time, reduces miscommunication, and keeps tenants happy.

Better Systems Lead to Fewer Headaches

When you implement technology like this into your maintenance process, you save time and improve your entire operating procedure for timely maintenance requests. Here’s why:

• Tenants stay longer. Quick responses and smooth communication build trust.
• You reduce vacancies. Happy tenants renew leases.
• You make smarter decisions. Organized maintenance logs and documentation help you budget for future repairs and spot patterns of repairs before they turn into expensive problems.

Looking back, I can’t believe how much time I spent tracking pink forms and playing phone tag. Now I can get a complete, organized overview of every request in one place, and my tenants get faster resolutions.

Ultimately, automation doesn’t replace good management, but it certainly enhances it. By letting AI handle the tedious parts of maintenance, you can focus on what really matters: growing your portfolio and creating great experiences for your tenants.

Ready to Make Maintenance Easier?

If you’re tired of juggling calls, forms, and follow-ups, it’s time to give AI a try. TurboTenant can help you automate maintenance requests, improve communication, and take one more thing off your plate.

Try it out for yourself and see how much easier managing your rentals can be.

Dave:
Hey BiggerPockets community. It’s Dave just dropping in. To give you a heads up that this week we are putting some of our most popular BiggerPockets podcast episodes back on the feed over this Thanksgiving week. Today we have a conversation I had with Dion McNeely back in February. Dion’s been on the show before and is also one of our amazing keynote speakers at PP Conn this past year, and I just love talking to him because he ignores a lot of the conventional wisdom about real estate investing. He’s a real thought leader, he thinks for himself, and whether this episode is a refresher or you’re hearing his Dion hiss for the first time, you’re almost guaranteed to rethink some of your own investing ideas. After listening to this episode, have a happy Thanksgiving and I’ll see you back here with new episodes of the BiggerPockets podcast next week. Do not buy properties in a good school district. Have your leases end in the winter. Let your tenants pick their own rent. You think you’ve been following real estate best practices? Well today we’ll explain why everything you thought you knew might be wrong.
Hey friends, it’s Dave Meyer. Welcome to the BiggerPockets Podcast where we help you achieve financial freedom through real estate investing. Today’s guest is Dion McNeely, an investor in the Tacoma, Seattle area, and you may have heard Dion before on the Rookie Show or BiggerPockets Money podcast before, and he’s pretty famous for developing the quote binder strategy for raising rents. Dion started investing with a huge amount of debt and a low income. He used only the most basic strategies and says he tried to be as lazy about his investing as possible. Today, fast forward, he’s retired with more passive income than he can even spend, so we’re going to get into the details of how he had so much success even when he admittedly put as little work as possible into his portfolio. Here’s me with Dion McNeely Dion, welcome back to the BiggerPockets podcast. Thanks for being here.

Dion:
Howdy. I appreciate the invitation. I like to share my information on the Real Estate Rookie podcast because I tend to talk to those people who are just starting out, but this is the podcast that actually helped me reach financial freedom, so I’m excited anytime I get to come back here.

Dave:
Absolutely. Well, as you said, you’ve been on the BiggerPockets network quite a few times, but for those who are maybe new listeners or just need a refresher, tell us a little bit about yourself.

Dion:
What I’m most known for is this thing called the Binder strategy where I don’t raise my rents. My tenants do, and we can cover that a little bit before we’re done today, but I didn’t start investing until I was 40. I got laid off from law enforcement because of the 2008 housing crash, was a single parent with three kids, found out about $89,000 in bad debt in my name. I didn’t know existed until the divorce started teaching at A CDL school making $17 an hour. So I had a lot of bad debt, not a lot of income, a lot of responsibilities, and decided to try real estate. Started out really bad, made every mistake I could think of. I think I was trying to make the full list of mistakes that you can. I tried to do it without a lease. I tried to rent to a friend.
I did all of those mistakes. Then finally decided to educate myself. Started house hacking in 2013 with a duplex when everyone was screaming, don’t buy because prices are higher than 2008, so it’s going to crash. Got another one in 2015 when everybody was screaming, the silver tsunami was about to hit, so prices were going to crash. Got another In 2018 when everybody said prices are high in interest, rates are high. I was paying 7% interest rates that you can’t possibly do it then. And during the pandemic in 2020, I house sacked my second one at fourplex and bought a triplex when everyone was saying it was going to crash because of everything going on in 2021 when forbearance was ending, I bought another duplex and in 2022 I retired after 12 years of investing and now my kids won’t inherit a parent they have to take care of. Instead, they’ll probably inherit millions as just an accidental byproduct of me trying to figure out how not to have to work.

Dave:
Unbelievable. Well, it’s a very cool story and I want to get into some more of this. Let’s just start at 2008 just briefly and then we’ll move on to what you’re doing today. But you lost your job. It sounds like you were in a tough situation. This wasn’t a good time for real estate, so why did you choose to try it?

Dion:
So kind of an accidental problem. I owned a house and I couldn’t sell the house. I was upside down. I owed more than it was worth. Interest rates had gone up, so I was stuck with the property and I had some examples of people who had reached financial freedom. My brother has 10 paid off rentals and he retired about that time. I have a friend with 30 rentals, but he’d been doing it for decades and they used strategies I just didn’t have access to. Right. I was working full-time, raising the kids wasn’t very handy. My brother would buy a place, do a full rehab and then pay off the HELOC that he used to buy it. I didn’t have equity and deciding to do it was actually around that 2000 8 0 9 when I got laid off from law enforcement. It was a several year process to get my credit score fixed, get enough work history as a CDL instructor so that I’d be bankable. I moved from my house into an apartment and rented the house out so that I can get rental income on two years of tax returns to get around my bad debt to income ratio. And then when I bought that first duplex, moving from the apartment into the duplex, I’ve had a lot of friends and people that I meet, so they couldn’t do it because they have family and I think my family was the motivating factor to do it, not the excuse not to.
And I think until you have that conversation with your family, you don’t know if they’re going to want to or not. My kids were actually excited. My son said, wait, we get to move into an apartment complex where there’s a bunch of teenage girls, and my daughter said, we get to move into a place where I’m the new girl. There was some TV show called New Girls, so thanks Hollywood for that. But they were excited about the moves and they didn’t even realize it was financial decisions making us do this.

Dave:
Oh, they were just pumped about it. That’s great. It’s a win-win for everyone. Fast forward to today, how many units do you have? You had talked about paying ’em off. What’s your average debt on these properties?

Dion:
So when I was in growth mode, I wanted to maintain about 70% loan to value so that I would gain the most levered appreciation, levered depreciation, and I had the security of that drug that comes, that kills your dream, that paycheck that we all work for. And when I lost the security of that, I lowered my goal to 50% loan to value so that I wouldn’t be as levered when I was retiring. And the current portfolio looks like this. I have 18 rental units, it’s on eight properties, so it’s mostly duplexes, a triplex and a fourplex. I’m house hacking a duplex. Something that most people think of house hacking for is they think it’s the way you started in real estate. For me, it was the way I started retirement. Totally. I moved to an area I wanted to live in. I used to travel and there’s still somebody living on the property. I still don’t have a housing expense, but the actual cashflow from the property, just a quick breakdown is gross monthly cashflow from 18 units is 35,000. I have about 9,000 a month in mortgages going out. So that’s principal interest. Taxes and insurance used to be eight, but taxes and insurance went up. I set aside a little over 5,000 a month for repairs. So that’s about 15% that I set aside for future costs,
Leaving me with about $21,000 a month that I’m trying to figure out how to spend in retirement.

Dave:
Wow, that’s unbelievable. That’s a huge income. Can I just ask how that compares to what you were making before you were laid off in 2008?

Dion:
So when my cashflow from rentals passed 2,700 a month, that was more than I was making as a blue stock.

Dave:
So you’re like TEDx that or eight x that or something like that,

Dion:
Right? Yeah. So it’s significantly different and that’s why I said that kind of sarcastically trying to figure out how to spend it, that’s the biggest challenge for me.
The not having money. So living frugally and then the dedication it took for a decade to reach financial freedom and to save every penny to invest for the next property. It’s a really hard switch to flip in our brain on how do I go to spending because I’m no longer saving for retirement. I don’t pay a penny in taxes. I haven’t paid taxes on rental income yet. I look forward to the day that I do. That’ll mean I make so much money I had to give some to the government. But that leverage depreciation is amazing.

Dave:
Wow. Well that’s incredible. It’s very cool and I think that is honestly, hopefully everyone listening to this gets to this point, but when you do reach that level of financial independence, it is tough to realize that you can buy a decent car or that you can afford to go out to eat a couple times more, and it’s a weird psychological shift that you have. It’s not about the money in your bank account, but like you said, you should have to just adopt this frugal mindset and a reinvestment mindset. At least to me, every dollar cashflow, you put it back into a new property. So my question is why not buy more properties?

Dion:
So I didn’t invest to live a frugal life. If I had to be frugal, I probably would just have stayed working. My goal was to retire and live the life that I felt like living, which is traveling and scuba diving and in many places as I want to.

Speaker 3:
Oh, cool.

Dion:
And you guys have had Coach Carson on, he has a book out, small and mighty investor.

Dave:
Love Chad.

Dion:
Yeah, Chad is awesome and I really align with his. My goal was never the most amount of units or the most amount of cashflow or a big portfolio. What I wanted personally was the right amount of cashflow from the least amount of units, and it was a really simple math equation for me. I spend about $4,000 a month doing everything I want to do. So I multiplied that by four as a safety net,
Right? In 2018, I reached that from 2018 to 2022, I lived off of rental income and didn’t touch anything from my job to make sure it was like a litmus test. I don’t need it. So I had a four time multiplier cashflow above 16,000. I don’t want more. One of the ways I grew is you have a choice of recycling cashflow or recycling equity capital. I’ve never done a home equity line of credit. I’ve never done a cash out refinance. I’ve never sold for a 10 31. That’s one of the reasons I have so much cashflow on so few units as I could have grown to a bigger portfolio with thinner margins. If I use the equity and I try to redefine equity for everybody that I meet from, you have equity you can touch. That’s what most people say. I say you have the ability to add debt to an existing asset. So not adding that debt is why I have so much cashflow on so few units.

Dave:
That’s great. I love this philosophy in general, just showing that Dion, you literally eight Xed your income and with just 18 units, right on eight properties, which I say just, but that’s a huge, very successful portfolio. It’s just when you go on social media, you hear people saying that they have dozens or thousands of units. But clearly Deanna is demonstrating to everyone that you don’t need to have this massive ambition just for acquisition. But just by being diligent and being somewhat risk averse and just sort of sticking to the fundamentals and paying down your debt as much as possible, you can greatly increase your income even in today’s day and age with just a relatively achievable number of units. It doesn’t have to sound like this crazy number. I think for most people, even if you’re just starting out, the idea of acquiring eight units over 10 years seems reasonable, and for most people it is actually reasonable.
So super glad you said that. Also wanted to just reiterate something I’ve stolen from Chad. He talks about the growth phase and then he talks about sort of the quote harvester phase, which you get to the end at your end of your career, which it sounds like what you’re at, which is when you start paying down that debt and that just want to underscore forever everyone, there’s kind of different strategies, different tactics that you use depending on where you are when you’re acquiring properties, maybe you do use more leverage, but when you’re at the point, Dion’s at or Chad is at, that’s sort of when maybe you take risk off the table, you don’t grow your equity as much as possible. You focus on cashflow because you want to go scuba diving like Dion does, which is great. Well, thanks for sharing the update with us, Deanne, and congrats on all your success.
Super, super impressive. We do have to take a quick break, but when we come back, I want to shift gears and talk about some of the quote unquote Dion iss, maybe these counterintuitive ideas that you have for your portfolio. We’ll be right back. Running your real estate business doesn’t have to feel like juggling five different tools. With simply, you can pull motivated seller lists. You can skip trace them instantly for free and reach out with calls or texts all from one streamlined platform. And the real magic AI agents that answer inbound calls, they follow up with prospects and even grade your conversations so you know where you stand. That means less time on busy work and more time closing deals. Start your free trial and lock in 50% off your first month at ssim.com/biggerpockets. That’s R-E-S-I-M-P-L i.com/biggerpockets. Welcome back to the BiggerPockets podcast here with Dion McNeely. We caught up on his portfolio over the last couple of years, but now we’re turning our attention to a bunch of different somewhat counterintuitive ideas or principles that you use in your own investing. Dion, I’m super excited to hear about them.

Dion:
So I think looking at things through fresh eyes is one of the most important things when it comes to investing. You can’t go out and study what somebody else did and copy it. You have to take what somebody else did or look at what hundreds of other people did and then figure out with your resources, your timeline and your goals, what they’re doing that would match your strategy and utilize a little bit from each one. And so some of the things I come up with that work for me seem to, I don’t want to say upset. I get a reaction when I tell other investors.
The first one I go with is I don’t raise my rents. Here’s so many landlords go, I don’t want to raise the rent and lose a good tenant. Well, if you don’t raise the rent, you’re going to lose a good asset. So what I did is I came up with the binder strategy, which is where my tenants asked me to raise the rent. So I’m not raising the rent, but my rent stays consistently growing just below market without having to have high tenant turnover or upset tenants or lose a good tenant. And so that’s been talked about here on BiggerPockets a few times. And so to me, that’s my first counterintuitive one.

Dave:
I have heard of this binder strategy through you, Dion, but for those who aren’t familiar, you got to make sense of this for us because you’re saying that your tenants essentially volunteer to pay more rent. How do you pull that off?

Dion:
So I buy properties from MLS with conventional loans. Right now I don’t do driving for dollars, no wholesaling, no creative anything. I’m a super lazy investor. I was working and raising kids, and so I just had to add a property every couple of years and I didn’t need a big stream of properties. I just needed to find the right one. Every couple of years I preferred to buy ’em with tenants in place and usually the tenants were neglected. Properties weren’t taken care of very well. Rents were far behind. That’s why they were selling. So I go to the tenants, most landlords would want the place vacant. They would want to do a rehab and get market rents. Well, I didn’t have the time or the to do a full rehab and carry the burn rate of a place empty for a few months. I wanted to buy it occupied. That meant plumbing was probably working. Electric was probably working, not a lot of repairs needed done. And so I wouldn’t do this right away. I didn’t get to vet those tenants. I didn’t get to run their credit score or know their work history or eviction history. So I’d want to wait two months to make sure they paid on time. They didn’t call me for super trivial things. I didn’t get noise complaints. But once I decided I wanted to keep the tenant, it’s called the binder strategy because actually use a three ring binder.

Dave:
You actually have a binder. This is what I’ll be doing

Dion:
Soon. The cover is going to be a picture of the property with the current Zillow or Redfin estimate of what the property is worth. So you tell the tenants, okay, here’s the current value of the property. Your rent made sense to the previous owner, but my property taxes and insurance are going to be based on this and the tenant doesn’t care, but I’m showing them this is online, it’s just printed right from the internet. You can Google everything I’m going to talk about so you can verify what I’m going to say. The next page is a printout from Fair Market with what the rents are in the area for however many units the person is in. If they’re in a two bedroom or a three bedroom, this is what the government would pay me if a Section eight tenant moved in. If you’re buying military installation, I’m by joint base Lewis McCord.
You might have the basic allowance for housing printout to see what the military pays for housing. Then there’ll be a map with all of the rentals in the area, and then several pages of rentals available currently in your area with the same number of bedrooms as the one the tenant is. In this example, the tenant is paying about 1400, I think it’s 1460. A current rent area average is 2000 to 2100. So I’ve got, I’m going to print out some of the barriers. They’re about $600 off as a landlord. If I go into the property and I say, I’m raising your rent a hundred dollars, I’m a jerk. I get flamed on social media,
I probably get an upset tenant. They probably start looking for other places. Maybe they move in with a friend or move in something else. But if I go in and I go, you’re paying 1460, section eight will pay me for this area, 1987. I’ve got several examples of 2000 to 2100. And then I asked the magic question, what do you think would be fair? Almost every time so far, the tenant came back with a little more than split the difference. So in this case, it went to 1760, so it was $300 increase. If I increase it a hundred dollars, it’s terrible and I have an unhappy tenant. If the tenant asks for $300 and I agree, they’re happy, but they’re educated, they see what it would be if they moved. I’ve had a lot of times where the tenant suggests an amount and I say, that would be fair for me, but that’s a bit much. How about we instead of 300 go up, two 50, bring it down a little from what they ask. So they actually walk away thinking, well, I’ve saved money over what I suggested as my rent. Happy tenants don’t trash your property and happy tenants don’t leave. It’s actually pretty rare that they’ll move out.

Dave:
That’s right. Yeah. I mean this is such a cool strategy. I love this idea. It really just speaks to the psychology of, you said it’s not really so much of this is not even math, right? Like you said, a hundred bucks people are going to get mad. But giving people agency and also just you treat them like adults, you’re explaining to them your situation. And I think most people who are reasonable are going to look at that and say, yeah, I mean I am getting a good deal. If they pick a rent, they’re still getting a good deal. By your estimation, right? You’re getting what you need, Dion, they’re happy and they’re still getting in their mind still a good deal and you’ve given them some autonomy and sense of control over their own situation, which I would imagine goes a long way to having very happy tenants and high occupancy rates.

Dion:
One of the strategies I really love is from Michael Zuber. He was on the BiggerPockets Money show, one rental at a Time community. He talks about getting to four rentals. If you get to four rentals, you’ll find out if you want more. When I got to four, if I thought if I raise the rent and I have a tenant turnover every time I talk to the tenant about the rent, if I have a tenant turnover, I don’t think I would’ve wanted more. But coming up with the binder strategy and having such low tenant turnover, I was able to grow the portfolio. At no point when I was working did I think, oh, this is too much work. I don’t want another rental. It takes me about two hours a month to manage all 18 units. I can easily add that to my workload when I had a job. But that’s what Zebra said was get to four and then you’ll know when I got to four, I knew I needed a strategy that made it easier and to give me less tenant turnover because if it was a struggle, I don’t even know if I would’ve kept the four.

Dave:
Alright. That is a very, very interesting and it’s not counterintuitive actually, once you explain it to me, it makes a lot of sense, but it’s not obvious. It’s something that I think a lot of people would not see coming. So thanks for sharing that. What is your second deism?

Dion:
I like my leases to end in the winter and most landlords say I want my lease to end in the summer because it’s easier to find a tenant.

Dave:
Interesting because I’ve done the opposite. I have to admit, if I had a lease coming up on a new property in November, I’d let them either sign a six month lease or an 18 month lease to try and get them in the summer. Because I’ve always had this belief that you have more demand in the summer. But are you saying kind of the contrarian view here works

Dion:
More people move in the summer if your goal is to make it easier to find a tenant, sure. Have your least end In the summer, my goal was to have the least amount of tenant turnover. I was working full-time raising three kids. I didn’t want it to be easy to find a tenant. I didn’t even actually want to be good at finding a tenant. What I wanted was low tenant turnover. Now if people move in the summer, that means less people move in the winter, kids are in school. Interesting. It’s harder because it’s cold. So I’ve had very little tenant turnover because most of my leases all but one right now end in December and January. That’s awesome.

Dave:
Do you ever get a situation where people ask to extend to the summer, they want to move out, but it’s November and they’re like, Hey, can I extend this to May?

Dion:
I haven’t yet. So there’s a couple of things I’ll do with my leases because I go to every one of my tenants and I say, you should not be renting. This is the dumbest thing that you do. You should be buying a duplex just like the one you’re renting. You should live in one side, rent out the other. So I try to talk all of ’em into getting on the property ladder. Part of it is they’re probably going to find my YouTube channel someday, and I want them to know I’m transparent. I’m trying to get them on the property ladder. So I tell the tenants, and I’ve had a few go, okay, I want to buy a house, but if I sign a lease, what do I do? And I say, well look, I need the year long lease because it makes me bankable for the next loan. So my lenders want to see that I have year long leases. But if you’re looking to buy a property, how about we make your lease termination fee $50?

Dave:
How love

Dion:
That. So when I introduce you to an agent and I introduce you to my lender and you buy a place, hopefully I’ve always wanted them to buy a duplex or something. But the three that have done it in this decade have always bought houses. So they terminate their lease anytime they want. So I’m helping them get on the property ladder. I have the lease that makes my lender happy and I’m kind of aware there’s a tenant turnover coming because they’re buying a house if they find the one that they do. And then I’ve never had a lender come out and go, I don’t like that your lease termination fee is so low. I don’t even think I’ve ever met one that looked at that part. They just go, what are the dates on the lease? Okay, what’s the amount? Great. That hits our DTI that we

Dave:
Need. Oh, that’s cool. Very cool. I really like that. That’s awesome. Alright, so those are the first two Dion’s, just as to recap it is tenants raise their rents, not Dion, and he prefers to end in the winter leases instead of in the summer. And just as a reminder, these are 10 principles, ideas, philosophies. Dion has evolved over the course of his investing career that are a little bit counterintuitive to what the common narratives about real estate investing are. So far I like these two. Hit us with the third one.

Dion:
I do not want to own a rental property in a good school district ever. Really? Why so? Why is the school district

Dave:
Good high property taxes?

Dion:
Because the property taxes are higher. Yeah, exactly. The funding for the school district. Yeah. My goal is not the biggest portfolio or the most cashflow. It’s the right amount of cashflow from the least amount of units. And then there’s kind of a sub goal of low tenant turnover. Why would I invest in a good school district when I’m aging out? My tenants kid leaves middle school, you don’t like the high school, you move kid graduates high school goes to college, you move. I have tenants in places that were living there 26 years I purchased it. They’re there nine years later because they’re not in a good school district. They didn’t pick it because of the age of their kids or what they were going to get out of that local community based on schools. So I like the low property taxes. I like the low tenant turnover. It’s counterintuitive. I also really like the rent to price ratio that comes from getting out of those Class B and class A neighborhoods. So the class C neighborhoods tend to have the not quite as attractive school districts, which more lines up with my rent to price ratio.

Dave:
Curious de does that mean, are you still renting to families?

Dion:
I have some families that I rent to. Yes. I would never do anything discriminatory.

Dave:
No. Just curious. Who’s attracted to these properties?

Dion:
So this is a couple of forms of legal discrimination that I do. My goal is not to rent to families. All the pet damage that I’ve ever had totaled in over a decade, it’s $200, but the kid damage that I’ve had was tens of thousands. So I prefer not to rent to kids, but I can’t use it as a determining factor of to rent to somebody or not. But if I don’t invest in good school districts, I’m less likely to get families. And anytime I have repair in a bathroom, I won’t go out and ripped out all the bathtubs. But if I have a problem with the bathtub, I will take it out and put in a walk-in shower. Having walk-in showers means also less likely to rent to families. So I do have a few tenants that have kids. That tends to be where my problems and damages happen.
Pipes that get completely 12 foot section of pipe clogged with otter pop trimmings from kids. It doesn’t happen if you don’t have kids. And that actually happened last year. So no, I don’t discriminate illegally, but I do target my tenants. Kind of like one of my forms of diversifying. Another deism is I’m a hundred percent in real estate. I don’t own one stock. I don’t own any crypto. I don’t have any money in a retirement account. And so since I’m all in real estate, I have to diversify. And one of my forms of diversifying in real estate is I want about one third military, one third section eight and one third working or retired. And if you ran an ad that said military only or section eight only, I’d get sued.
But if I run an ad on the base or if I send my listing to the housing authority and say this is the link to the place that becomes available on Tuesday, can you share it with your tenants or your clients? What type of tenant am I most likely to get? So I can control how I advertise, not what I advertise to avoid being sued and I don’t maintain a perfect ratio, but I want about a third of each. So I’m ready for a pandemic, an eviction moratorium, a stock market crash or a prolonged government shutdown where it doesn’t hit my entire portfolio.

Dave:
Interesting. So you like military I assume, because it’s recession resistant. Very stable job. Same thing with retirement. I guess you probably have people who are on fixed income either relying on a pension or social security and with section eight the government just guarantees the income. So you’re basically looking for any sort of tenant who’s not reliant on basically a private sector job.

Dion:
Correct. But diversified, I wouldn’t want a portfolio of 100% military if there was a BRAC meeting and JBLM closed down base realignment and closure meeting or if the section eight program gets defunded or whatever could happen in the future or gets a pause in payments. So about a third ratio makes me sleep like a baby.

Dave:
That’s interesting. Yeah, I like this one. I mostly invest in downtown areas in bigger cities. And so my primary tenants are what you would call dinks, right? Double income, no kids, which usually pay high, but they turnover a lot for sure. These people move every year, every two years. That’s just part of the game. Luckily I invest in places where you can usually do that without a vacancy, but it’s definitely a sort of an opposite sort of strategy. I have bought in some solid school districts and I’ve always used that as a strategy or I’ve started using that as a strategy to avoid vacancy. But it sounds like you’ve taken the exact opposite approach. Pretty interesting.

Dion:
Yeah. So I’ve had tenants that have lost their job and never missed a day of rent. So if you’re in a good school district, in a good area and you have two dinks high income, I have what I call dink wads dual income, no kids with a dog.

Speaker 3:
And I’ve

Dion:
Got like three couples that fit that bill. And I like the class C rentals because class B or A, the higher end, more luxury, higher rents. If somebody loses $150,000 a year job, it’s kind of hard to replace it.

Speaker 3:
That’s true.

Dion:
And unemployment is a big hit to what they were you’re making versus my police officer, my school teacher, my truck driver that’s making 20 to $30 an hour loses their job unemployment covers their bills for the month or two. And getting a job that pays almost the same is not easy, but a lot easier than finding that $150,000 job replacement.

Dave:
This makes a lot of sense. I think my general feeling is just trying to make sure that you’re matching the right tenants to the right assets like you’re doing. You know what these types of people that you’re trying to attract are looking for. You’re not overbuying for those tenants. You’re not under buying for those tenants. You found product market fit for the type of portfolio that you want to build. And there’s no right answer here. I think some people might do the opposite, but I like your approach. I think it’s pretty interesting. Alright, so you actually hit on another deism you said just a minute ago about not diversifying into other asset classes. It sounds like maybe this started because of necessity, just given your financial situation in 2008. Is that why or was there another motivation there?

Dion:
So when I started educating myself, I found BiggerPockets. I found Rich Dad, poor dad, but I also found a lot of talks from Warren Buffet and Charlie Munger and I watched a couple of panel discussions. Warren Buffet would talk about diversifying and then there’s guys like Kevin O’Leary, Mr Wonderful, that says no more than 20% in one asset class, no more than 5% in any one asset. So they’re big diversification cheerleaders. But Charlie Munger, who was Warren Buffett’s partner for decades, actually one time said, diversifying is the dumbest thing you can do. You’re going to master three or four asset classes just to pick one asset class and master it to go from poor to wealthy. Once you’re wealthy, you can diversify to protect your wealth, but if you diversify on the path to becoming wealthy, you never will. And I looked at that and I thought, well, I don’t understand stocks.
I don’t have a lot of money to invest. I can’t house hack a stock. I’m not an entrepreneur in any way. I’m a W2 employee. I’ve been a marine, a cop, a truck driver, a CDL instructor, like creating business, not my thing, but taking the money I make from a W2 job and putting it to work in something that takes two hours a month to manage that I can handle. So I’m 100% focused in real estate. I diversified by having one third military section eight and working with retired tenants. But I also diversified the smaller my portfolio was, the more important this was. But I wanted my properties at least 10 miles apart. And in Washington that puts me in different counties or at least in different cities. Interesting. So that if the base closes or the port goes on strike or the hospital, something happens, only one or two of my properties would be impacted. So I’m diversified by being spread out in one market like two counties in the beginning, but different types of tenants spread out. Net worth now is probably and I account of selling, so paying taxes, paying the agent fees and everything, a little over 3 million, which is a big number compared to
A lot of debt, $17 an hour to having a positive net worth. I don’t think I’m wealthy enough yet to need to diversify. I think a $10 million net worth I’d probably start looking at, I’ll probably buy some stocks or crypto or something, but I understand my asset class and I’m diversified in it well enough to be able to walk away from a job that had golden handcuffs at the end, right? I had been demoted all the way down to president of the company. I had $2 million golden handcuffs and when I walked away, I walked away from that and don’t care because it’s really weird with financial freedom, which your portfolio reaches a certain point, and I think it’s a LeBron quote, but he said, when you don’t have enough money is the only thing, and once you have enough money becomes just a thing. And it was just a thing at that point. So I’m not ready to diversify more yet. I could someday. And I think if you’re just starting out, it’s really important to focus on your asset class, whatever it is. It could be stocks, it could be crypto, it could be running a business, it could be real estate, but pick one and master it.

Dave:
I totally agree with that. I do invest in the stock market quite a lot, but I didn’t for probably the first nine years of my investing career until I was making significantly more for my W2 job than I was spending every month. And I put some of it towards real estate, but some of it towards investing in the stock market as well. All right. Now we’ve done four. So we’ve talked about tenants raising their own rent leases ending in the winter, not good school districts. Don’t diversify. All of these are very, very counterintuitive. We’ve got six more to go. Give us one more.

Dion:
I don’t know that we’ll get to all 10 if we have time, but the one that gets the most controversial responses, none of my properties are or ever will be in A LLC. Oh, really?

Dave:
Interesting. So you don’t have any partners.

Dion:
Exactly. If I had partners, I would’ve LLCs I was going to buy with my friend millennial Mike. We were looking at Gary Deanna buying a five plex together. We absolutely would’ve formed an LLC, purchased that property together, ended up not getting the deal. But all my properties are in my own name, no LLC, long list of reasons why.

Dave:
This is such a big debate that we can’t get into all of it today. But if you want to go probably see the single most discussed topic on the BiggerPockets forum, this is probably the biggest debate. I am the exact opposite. Deion, I own every single property I own in an LLC. Just give me one major reason why you’ve never put an LLC.

Dion:
None of the benefits people expect. That would be the biggest reason. There are no tax benefits. I get every tax write off you do. That’s correct. Except I can’t write off the cost of having LLC, the cost of paying my CPA for each LLC that they file on or renew. It’s

Dave:
A lot.

Dion:
Right. So the second one, if you’re in California and your real estate’s in your own name, like my brother, you’re not rent controlled.

Dave:
Oh, interesting.

Dion:
You put that in LLC, all of a sudden it’s owned by an entity rent control.

Dave:
Oh, I didn’t realize that. That’s really interesting. Okay. Well, I’ve always done it just for the liability reasons because in case someone sues me, I can isolate the assets in each LLC and I started investing with partners and so I’ve kind of just started doing it with LLC and then it just kept going.

Dion:
So if I could, well, the last thing on this before we go to the next one, but if you have properties and you put ’em in LLCs and you continue to buy properties, awesome.
My concern is always that new investor that doesn’t even have a credit score or a savings yet that’s thinking I’m going to form an LLC, I won’t know how to name it. I won’t know how to pay myself from it. I won’t know how to separate my finances. So it’s not commingled. I won’t know that it’s more likely to get me sued. It’s going to make my insurance cost go up. It gets me about a half a point higher on my interest rates for my loans. There’s all these barriers. They don’t even own a rental yet. That’s who I’m always concerned with when the LLC to debate.

Dave:
Yeah, absolutely. I totally agree. All right, we do have to take a quick break, but we’ll hear five more Dion ISS right after this. All right, we’re back with Dion McFeely. We’ve talked about five of his Dion iss. I don’t think we’re going to have time for all of them, so let’s, I think we’ve touched on a few here. So Dan, why don’t you just name a couple and then we’ll dive into one or two more as we have time.

Dion:
Yeah, I think one that we’ve covered pretty well is I don’t want a big portfolio. So many people when they start, they want a thousand units or 500 units. I’m not even sure I want the 18 that I have now. The other one is I don’t touch my equity. I’ve never done a heloc, never done a cash out refi never sold for a 10 31 yet I might. But the ones that I think really matter, and I get this from Grant Cardone, the first one, it’s why I prefer to invest in a blue state and not a red state. Most landlords say I want to invest where it’s landlord friendly and the landlord tenant laws lean towards the owner and I’m the opposite.

Dave:
I’m so curious about this because I think this is such a subjective thing. What state is better for real estate investors and people treat it like this objective thing where there’s just a right answer and I’ll give you my opinion after this, but let’s hear yours first.

Dion:
You’re a hundred percent right. It depends on the person, the goals, the timeline, where you have trusted boots on the ground, that’s where you want to invest. But one of the main reasons I like to invest in a state like Washington, which you can Google this to verify it’s the highest appreciating state for the last decade.

Dave:
Yes, it is.

Dion:
Mostly because it’s a blue state. They keep threatening rent control every year. It went into session last year, it didn’t come out and just because it was talked about in 2024, my plan was not to do a rent increase. I do 5% every other year after the binder strategy. But since it was talked about and it was in session and it could happen, I went and did the binder with all of my tenants. My rent roll across the board went up $3,300. So about $40,000 in profit last year just because rent control was talked about. Interesting. And then in blue states, there’s a long process for permits. It’s expensive. The threat of rent control limits, investors desire to build here. So there’s less building, which means massive appreciation.

Dave:
Absolutely. Yeah. This is a supply and demand issue. You see in a lot of more red states, permitting is more abundant. And again, there are pros and cons. This probably means housing’s more affordable in those markets. There’s greater housing supply. There are definitely trade-offs here. But if you’re looking at appreciation, blue states definitely have greater appreciation on average over the long run if you look over 10, 20 years dion’s. Absolutely right. I’m curious though, Dion, because you said about rent control, they went up last year, but what happens if rent control actually does get passed? Then what happens?

Dion:
So I can make an entire video out of just that. It makes the landlord stupid rich and it makes more tenants homeless.

Dave:
Yeah, it’s a really unfortunate idea.

Dion:
It is unfortunate. My brother hasn’t raised rent since 2006 on some of his tenants and because they’re talking rent control, he’s probably going to, but I would do 5% every other year. I even mentioned it from 2013 to 2020. I did 5% every other year. Now Washington wants to cap it at 7% per year. And since I won’t be able to do an adjustment for a black swan event, like a pandemic, like an insurance tripling because of fires in California, whatever is going to happen in the future, since I can’t do big adjustments, I’m forced to do 7% per year. So I would get on a $2,000 rental a hundred dollars more in two years
Versus I will now get $140 more per month per year. I’ll triple my income, my profit because of rent control. It’s what people don’t understand. It’s historically been proven. Every city where it happens, rents push up the maximum allowable amount every single year. And then landlords aren’t stupid. So if you have a tenant who falls behind for whatever reason or they were behind when it kicked in, you have three legal ways. You have 90 days to get out. I’m going to rehab the unit. You have 90 days to get out. I’m going to sell the unit. You have 90 days to get out. I’m going to move into the unit. So we make more people homeless in a rising rent situation. We make landlords richer. So last year I reached out to all the legislators and I said, Hey, here’s what happens. If rent control goes in, I get richer. More rents go up. Criteria to screen for tenants goes up. You make more homeless this year. The greed side of the landlord is saying, Hey, maybe rent control is not a bad thing. I don’t mind money. Money’s not a bad thing. It limits more building. It’ll cause more appreciation. I make more money off my rents. The human in me is like, no, I think I’m going to message all those legislators again and say what a bad idea this is.

Dave:
Yeah, it has just been proven time and time and time again to have the opposite of the intended effect. So I am with you. I think it’s just very silly, but I think it is a really important point about this idea that, oh, certain places are landlord friendly, certain places are tenant friendly. First of all, people look at those on a state level and it’s not always the case. You should be looking at them at a metro or at least a local level. And then the other thing is just depends on your strategy. If you are a house flipper, being in a place where there’s constricted supply is probably going to be in your best benefit. But if you want to do build for rent, maybe being in a place where it’s easier to get permits makes sense to you. It really just depends on your strategy. And I think Dion makes a great point of thinking critically and actually just aligning his own beliefs to the places where he’s investing. All right. Deion, I think we have time for one more. Give us your last deism for the day.

Dion:
The last one, and this comes up so much in every format for educating yourself on real estate, is the value add proposition for real estate. It could be the burr method, it could be buying and adding RV pads. It could be anything where you want to buy and add to it as the lazy investor. This is one of my deism where I didn’t want to do that. I invested for 10 years without ever doing one rehab. I finally did a burr after I retired. It’s my first and last one. It’s just too much work, the money that can happen. So my burr made me about $300,000. I’ll just break it down really quick. I bought a duplex for 400,000 off to MLS. I put about so that the contractor said 30, I estimated 50, I set aside 80, and I spent $62,000 rehabbing

Speaker 3:
It.

Dion:
It’s now worth about seven 90. Wow. So if I were to sell or do a cash out refinance, I’d get all my money back plus about 200 and something thousand dollars after expenses of refinancing or selling. So I made a couple hundred thousand dollars. It’s absolutely not worth it. It took 10 months. I would rather had 10 months scuba diving in Thailand and Columbia than 10 months managing a rental. If I was working full time, I wouldn’t have had the time to manage the rehab as much as I did. So it probably would’ve costed more and taken longer to do so in growth mode. So many people get excited about the burb because they hear none of my money is in the thing, and I’ll make a couple hundred dollars a month and I can rinse and repeat it a few times. So my deism is, I want right from the MLS, I want very little work. I want to spend $2,000 or less usually on the property. I want tenants in place. I’m not looking for value add. I’m looking for time because the magic trick is real estate is a get rich quick scheme. You just have to understand that 10 years is quick.

Dave:
I love that. That’s so good. I always say that’s not a get rich quick scheme. And I always point, I’ve done the math, I did this on a recent episode where I was talking about 10 to 15 years is a reasonable timeline. And you’re right, it is quick. The average career in the United States is 45 years. So if you could do this in 10 to 15 years, that is absolutely by any objective measure quick, except when you compare it to some of the unrealistic expectations that are sometimes pedaled out there.

Dion:
You’re right. It’s not the way to retire early. David Greeny, I actually mentioned one time, he says, if you need $5,000 a month to retire and you get to $5,000 a month in cashflow, you don’t retire. And I agree with him.

Dave:
Totally.

Dion:
That would be silly. One eviction, one pandemic, one eviction, moratorium, whatever, and you’re tanked. But if you need five and you get to 20,

Dave:
That’s the place

Dion:
Now. But it takes 10 years to get to that 20.

Dave:
I don’t know about you, but for me, I’ve been doing this for 15 years. It’s gone fast. I don’t know how you feel.

Dion:
When I was 25, I think a couple of years felt like forever, but when I hit 40, I thought, and this is how I ended a lot of videos, you are going to be alive in five years. You should start investing like it.

Dave:
Oh, totally. Yeah. That’s smart. I like that. Well, yeah, this has been a lot of fun. I really appreciate it. And honestly, just on a personal level, resonate with a lot of what you’re saying. I really like these contrarian views and just shows that you’re thinking a little outside the box and thinking for yourself and figuring out what works for you. And I know that when you’re a new investor, that’s not easy. You should be listening to this podcast. You should listen to Dion. You should listen to people and try and educate yourself as much as possible. But as you grow as an investor, you’re into your first deal. Your second deal. Just think critically, decide if the things that are common knowledge or common advice in this industry actually apply to you. And don’t do them just because other people are telling you to do them. Do them because they actually are aligned with what you want. I think that is probably one of the hardest things to do in real estate is like, figure out what you actually want. But Dion, man, you’re such a good example of that, exactly what you’re trying to accomplish, and you stick with it with really incredible discipline and you managed to avoid that FOMO that I think captures a lot of people in this industry. So again, congrats on all your success and thanks so much for sharing your insights with us.

Dion:
No, thank you very much. I really appreciate the opportunity to come on here and share some of these thoughts with people, because in real estate or investing, there is no one right way, but there’s a one right way for the person watching.

Dave:
Absolutely. Right. Well said. Well, thank you so much for listening. If you think anyone who’s interested in real estate, who’s buying rental properties could learn something from Dion, I bet everyone in real estate could make sure to share this episode with them. We’d really appreciate it. Thank you again for listening. We’ll see you next time.

 

Dave:
Imagine you have a super low mortgage, like two or 3%, which is not only locked in for 30 years, but you can also take it with you when you move to a new house. It sounds amazing, right? This is the idea behind portable mortgages, the latest concept to help unlock the housing market and improve housing affordability. That’s currently being explored by the Trump administration, but will portable mortgages actually work? Is it feasible to implement them in the United States, and if so, who will benefit today we’re digging into portable mortgages. Hey everyone, welcome to On the Market. I’m Dave Meyer. Thank you all so much for being here. We’ve got a fun episode for you today. We’re going to be talking about a new concept that’s being floated right now to address housing affordability and housing affordability has really come to national attention in recent weeks on this show.
In our world as real estate investors and industry leaders, industry service providers, we know affordability in the housing market is a huge issue and regular Americans know that too. But in just the last month, the Trump administration has really focused on housing affordability. First, they called for a 50 year mortgage. We released a whole episode about that a week ago if you want to hear my thoughts on that and just get some information on that, but it’s been a few weeks since that proposal was floated and you should know that it didn’t get a very warm reception from the industry. It still might happen, but from the research I’ve done, people I’ve talked to, even if it does come to fruition, it’s probably not going to have that big boost to affordability or unlock the housing market as much as we really need right now.
And so the administration has actually put out a new idea, which is portable mortgages. Just last week, bill Pulte, the head of the FHFA, which oversees Fannie Mae and Freddie Mac said that his team is working on portable mortgages. If you haven’t heard of this term before, the idea here is to adopt a type of mortgage that is used in different countries. It’s used in Canada, the United Kingdom, New Zealand, and homeowners there can take their mortgages with them. So imagine that you get your amazing mortgage, something you locked in during COVID, two, three, 4% mortgage and now you want to move, you can bring it somewhere new and this sounds great, right? It’s super appealing to homeowners and borrowers because no longer would they have to pay a much higher mortgage rate if they wanted to move, and therefore, in theory at least it could potentially break the lock in effect, it could drive up transaction volume and potentially even help housing affordability.
But how would this work? Is there a chance that this can happen? Would the intended impacts come to fruition? Are we on the verge of finally bringing some life back to the housing market or is this just noise Today? We’re going to dig into this. First we’ll just go over what a portable mortgage is, then we’ll talk about how they actually work. There are examples of this. Then we’ll talk about why the US doesn’t currently have these portable mortgages to make sense of whether or not this can actually happen, which we’ll talk about. And then lastly, I’ll give you my opinion on whether I think this is going to work. So let’s do it. First up, what is a portable mortgage? It’s basically you get out of mortgage, you take out a mortgage to buy a home. After two or three years maybe you want to go and sell that home and instead of having to go pay off this one mortgage with your proceeds from your sale and then go out, take out another mortgage, when you go out and buy a property, you actually get to bring the mortgage with you.
The way to think about it is the mortgage travels with you as a person. It is not necessarily attached to the home. Now, it is not all magic. This doesn’t just work. Like you could go, say you bought a $300,000 home and you have a 3% interest rate and then you go buy a $500,000 home. You don’t just get to take that rate. In that scenario, you obviously have to modify your loan a little bit. They do something they call the blend and extend, which is basically, let’s just use round numbers. Let’s say you had $250,000 of debt on that first purchase. You can keep your 3% interest rate on that two 50, but if you have to go out and borrow another 150 grand to buy this new more expensive home, you’re going to get that at current rates. But still there is a benefit to that because you’re blending your old rate, which is lower with this higher rate, and you’re still getting a better rate than if you went out and got a new mortgage.
The other thing that you should know is that the amortization does usually restart, so you are going to start paying more interest again as well. So that’s kind of the high level picture of what’s going on with the portable mortgage. Let’s talk a little bit about what it actually looks like in Canada, for example, because it is very different from what we do here in the United States, and I think that’s one of the key things to remember throughout this episode is it’s not like in Canada they have 30 year fixed rate mortgages that people are porting around. That is not what is happening in Canada. When you have a portable mortgage, they’re usually five year fixed rate mortgages. So already just right off the bat, we are already seeing that the potential benefit in Canada, in the Canadian system is not as great as you would want it to be here because in the United States, what’s so valuable about our mortgages is that 30 year fixed rate debt in Canada, they don’t really have an example of that ever working, and I’m going to explain why they do it like that in just a minute.
In addition to the term being much shorter, five years instead of 30 years, in most cases, there are big prepayment penalties, meaning that if you choose to refinance your loan or you sell the property and pay off your mortgage before you intended, you get fined and these fines, the penalty that you could pay for prepayment. Anyone who’s gotten a commercial loan or a DS CR loan probably recognizes prepayment penalties. In the United States, we are lucky we do not have prepayment penalties for conventional mortgages, but in Canada, if you pay off your mortgage early, you could have to pay four, sometimes five figure fees to be able to do that. And this is really critically important. This is the way that the lenders protect themselves in this case to them, a portable mortgage, that is something they can offer borrowers, but they don’t want to originate a loan only for them to keep hoarding it around a bunch of times, then paying it off before they really earn enough interest to justify making that loan in the first place.
And so they put in these prepayment penalties to make sure that doesn’t happen. So keep that in mind as well. So again, five year terms instead of 30 year terms, and there are prepayment penalties. Next, what you should know is you do need to requalify for those mortgages. So it’s not like you just check a box, you actually need to go and do underwriting again. And then the key feature, really important thing that I feel like everyone who’s talking about portable mortgages right now has completely missed, and this is a very, very important piece. Portability is a lender feature. This is not a right that you have. This is something that lenders can offer borrowers but do not have to. So when you look at this, whether it’s Canada or the uk, you see that it’s very different and it’s because these countries designed portability around their loans, which are short-term fixed products with prepayment penalties, which is again totally different from the American mortgage system. So why is the American system so different? We’re going to talk about that in just a minute, but we do have to take a quick break. We’ll be right back.
Welcome back to On the Market. I’m Dave Meyer here talking about portable mortgages. This is something that has gotten super popular in recent days. I see a lot of people very excited about this, but as I just showed before the break, the examples that we have seen of portable mortgages in other countries look very different than they do in the United States. As I said before, the break, it’s shorter terms. There are prepayment penalties and critically, this is not something lenders have to do. It is something they are able to offer. Now I want to talk a little bit about the American mortgage system and why it is constructed in the way it is and some of the pros and cons of our system. And by doing that, it will help us understand if portable mortgages could actually work here in the United States. And this might get a little bit technical, I’m sorry, but we have to talk about how the mortgage industry actual works.
Most mortgages in the United States conventional mortgages have to meet certain requirements. Then they are sold to Fannie Mae or Freddie Mac or Ginnie Mae, and then they’re pooled together into mortgage backed securities, also called MBS, and they’re sold off to investors who actually hold onto those mortgages. So most of the time when you’re getting a mortgage from a broker, that broker or even the bank that you are getting that mortgage from, they’re not holding onto your mortgage and servicing your mortgage. If you’ve bought a house before, you’ve probably noticed that you might get your first mortgage payment from one servicer and then like two months later they’re like, actually, we sold your mortgage. Now so-and-so is your servicer. This happens all the time. This is kind of a feature of the American mortgage system and the people who go out and buy these mortgages are banks.
Yeah, they’re holders of mortgage backed securities, but it’s also pension funds, insurance companies. You have family offices, you have hedge funds, you have sovereign wealth funds. They are buying these securitized assets, and I won’t get into all the details of this, but this process of securitization bundling these loans into mortgage-backed securities generally is believed to lower mortgage rates. It lowers the risk by pooling them all together, by increasing liquidity in the markets. It is generally believed to lower mortgage rates. And so we don’t know because we haven’t had this in a long time, but if we broke the securitization of mortgage-backed securities, it is likely that lenders would see that as riskier and they would demand higher mortgage rates. So that is one reason we do this in the United States. There are other reasons, obviously financial reasons for the investors, but it is generally believed that it has a benefit to homeowners and to investors who use these mortgages because it lowers their mortgage rates.
Now, this whole system of securitization depends on predictability. That is kind of the whole idea. That is why when you get underwritten for one of these loans that is going to be sold, they ask the same question and they have very rigid underwriting because they need it to fit in this neat little box. So it can be sold off to investors. These investors, they don’t want exotic mortgages. They don’t want a million different types of loans where you have to go and figure out how risky is this type of loan versus how risky is this type of loan? Or is this person perfectly qualified for this kind of loan? No, they just want one loan product and they want to be able to underwrite that one loan product. That is largely how the mortgage market works in the United States. So that predictability of the loan product and knowing that those mortgage payments are going to stay the same and not really change is really important.
The other piece of this really underpins the American mortgage system is that prepayment of these mortgages are a known variable and they are priced in. I know that in the United States, you know this too, that most common mortgage is a 30 year fixed rate mortgage, but the lenders who underwrite these or the investors who go out and buy mortgage-backed securities are not counting on holding that loan for 30 years. Americans generally speaking, stay in their homes or stay in their mortgages, I should say between seven and 10 years. So they either sell and move or refinance usually seven to 10 years. There’s some variance in that, but that’s generally what it’s, and that is critical to the interest rates that we get on 30 year fixed rate mortgages. If people stayed in their home for 30 years and actually paid off their mortgage to 30 years, our mortgage rates would be higher.
I won’t get into the super details of this, but just think about this logically. If you were a blender and you wanted to lend to someone for seven to 10 years, that comes with some risk, right? It’s very hard to predict what’s going to happen seven to 10 years from now. But if you were lending for someone for 30 years, that is even more unpredictable, right? So you would want higher interest rates, but because we bundle these loans, because they’re so standardized, it is easy for lenders to price in what they’re willing to lend at, knowing that for all these conventional mortgages that are out there, that they will get paid off between seven to 10 years. That’s just how the underwriting and pricing for mortgages works in the United States. If you follow this show, and I always say that mortgage rates are tied to the yield on the 10 year US Treasury.
Why? Because 10 years is the benchmark for how long they are lending to. And so these people who buy mortgage backed securities are basically saying, do I want to lend to the US government in the form of a 10 year US treasury, or do I want to lend to homeowners by buying mortgage backed securities? That’s why these things are so closely correlated. Anyway, this system exists for several reasons. It provides a lot of liquidity. It does keep us mortgage rates lower. It enables things like a 30 year fixed rate mortgage, which no other countries really have. I’ve talked about this a lot on this show, but that is a very rare mortgage feature. The US has really built on this 30 year fixed rate mortgage. And without this securitization, without collateralizing our loans, that would be very difficult. So there are definitely benefits to the securitization model, but it also comes with trade-offs.
There are constraints here too. When a mortgage is packaged and bundled to be sold in mortgage backed securities, it is required that the loan is collateralized with a specific property. If you haven’t heard this word collateralized or it’s basically when you take out a mortgage, that loan is backed by the property that it is helping you buy, meaning that if you default on your mortgage payments, the bank can go after your collateral and they can foreclose on your house basically. And that is a key component of the securitization of our loans in the United States, is that the collateral is explicitly identified. That’s really important. The other thing is that the repayment schedule, what you’re paying and when is already established and it doesn’t really change. The probability of that prepayment is already modeled in and the investor yield is priced. They know what they’re going to make on that.
So this is the trade-off, right? We get lower mortgage rates because lenders get predictability. And the reason why portability could potentially sort of break the American mortgage model is that lenders would lose that predictability, right? They would not have that same level of assuredness. They would not be able to forecast or predict prepayments or how long people will hold onto these mortgages if they’re allowed to just port them and bring them from one house to another. Because if you detach the mortgage from the home, the collateral that we were just talking about changes, whenever you port that mortgage, the duration of how long you are going to hold onto it becomes really unpredictable. The investors may not understand when the prepayment is going to come, what they’re willing to pay for these mortgage backed securities is all of a sudden going to become inaccurate. Basically, portability would be very difficult to work into the American mortgage system as it stands today. Now, could that change? Could the government or could lenders agree to change this? That’s an interesting question, and we’ll get to that right after this quick break. Stay with us.
Welcome back to On the Market. I’m Dave Meyer talking about portable mortgages. Before the break, we were talking about why portability doesn’t really work with the system that we have for mortgages in the United States, which is securitizing mortgages, selling them as mortgage backed securities. Before the break though, I did mention could that change? And the answer is yes, but I want to ask you, if you were a lender, would you want this to change? Because I get portability sounds great for borrowers or as homeowners, I would want to use it as a homeowner or as a borrower. I think everyone would agree that’s great for borrowers, but borrowers are only half of the mortgage market. Unfortunately. We also have to put ourself in the shoes of lenders, and when I see all these takes, people talking about this on social media or even the mainstream media talking about portable mortgages, oh, these are amazing.
It can help the housing market. Yeah, they’re putting themselves in the shoes of a homeowner and a buyer, but you have to put yourself in the shoes of a lender to understand if this is really feasible and if it actually would work in the first place. So let’s just imagine that you lent money to a homeowner in 2021 and they’re paying you a 3% mortgage rate, and when you originated that loan, you thought, yeah, they’ll probably pay me off in seven to 10 years. Let’s use seven years as an example. So that was 2021. I’m lending to you at 3%. It’s supposed to pay off in 2028. Now, if someone came to me and said, Hey, can I port this mortgage over to a new home and keep that 3% interest rate as a lender, you are obviously saying no to that, right? Rates right now are at six, six and a half percent.
If you could get them to prepay that mortgage instead and then take out a new loan, you’re going to be doing much better As a lender. I can’t speak for everyone who owns mortgage backed securities, but I imagine they’re all very eager to get those three and 4% interest rates off their books so that they could lend that money back out at a higher interest rates. So in addition to portability, sort of breaking the securitization model and really kind of throwing the entire American mortgage system into disarray, there is very little incentive for lenders to want to do this at all. And so when I think about this, I think that portable mortgages for existing mortgages remains very unlikely. I just don’t see this happening unless lenders are incentivized to do this. That is the only way this happens, right? They’re not going to be willingly extending or porting over loans when they could lend out that same exact money for more money.
There’s just no way they’re going to do that. And the only way they’re going to incentivize that if you pull this thread a little bit is if the government incentivizes them to do that. I don’t know what that looks like. I’ve never seen something like that, but we can imagine maybe the government provides tax incentives or just straight up pays the lenders to make these mortgages portable, and that could work, I guess. But at that point, if you’re just giving away money to make the housing market more affordable, I personally think there are better uses of money to help solve the housing affordability challenges that we have. Then giving banks money, and it’s probably involves either giving homeowners or borrowers money or using that money to figure out ways to build more affordable housing to drive down the cost of construction and permitting to increase the supply of homes.
Those are real long-term solutions to affordability rather than just giving money to the bank. So that’s my opinion on existing mortgages. I think the idea that people are going to be able to take their low rates from COVID move them to a new home without massive government intervention is very unlikely. I wouldn’t be counting on this, even though I agree that as a homeowner and for borrowers, this would be very appealing. I just don’t think it works. It doesn’t gel with the American mortgage system. Now, could we blow up the whole mortgage system? Sure, but I don’t think anyone wants that. Any changes to our mortgage system is likely going to increase risk, increase uncertainty for those lenders. And what do they do when there’s more risk and there’s more uncertainty? Mortgage rates go up. And so even the idea of this is that maybe it would help affordability for people who already have homes.
Mortgage rates would probably go up for everyone else. Not to mention if you did this, even if they somehow magically made this work, it would only help existing homeowners. It would not help anyone who’s struggling to get into the housing market right now because they’d be paying current rates anyway. So I do not see this as a solution to housing affordability. Yes, in theory, if they magically did it, it could break the lockin effect. It could help increase transaction volume, but I don’t see it as a fix for housing market affordability overall. I just think for existing mortgages, it remains very unlikely. Now, is it possible going forward that banks will offer portable mortgages? Sure. I think that might come of this. Maybe a couple of lenders, a couple of banks will say, Hey, that’s a good idea. We want to offer this to our borrowers.
But I promise you this, there is no such thing as a free launch, especially when you’re working with giant banks and lenders. So they will find ways to implement new fees and new costs to compensate for the convenience that they are giving you by allowing portability that will probably come in the form of one shorter terms, two prepayment penalties and three higher mortgage rates. Or in other words, it would look like the Canadian mortgage that I was describing to you before, which may have benefits. It may appeal to certain homeowners. But when you look at the Canadian model, I’m not looking at that and saying That’s way better than a 30 year fix that we have in the United States where I can choose to refinance at any time. Frankly, as an investor, I’d rather take the 30 year fix the thing that we have in the United States right now.
And so yeah, maybe going forward we will have new portable mortgages, but those mortgages will be underwritten differently. The fee structure will be different. The cost structure will be different. It’s not going to be magic. I can tell you that I don’t know exactly what it’ll look like, but it’s not like all of a sudden banks are going to be like, you know what? We’re going to make less money lending to people. That has never happened and is not going to happen. And so if happens at all, it will just be like the current mortgage markets is now, where there are pros and cons, there are trade-offs to different loan products, and maybe having one more loan product could be good for the housing market, but is not magically going to fix everything. So I know people are talking about this. I know people are excited about this, and trust me, I am not excited to rain on this parade.
I don’t want to shoot this down. When I first saw it, I was like, Hey, that’s kind of a good idea. I would like that as a homeowner. But when you think about it, if you really understand the mortgage market, you see that this just isn’t going to happen. It is very, very unlikely to work with our system, and if it did, if they rebuilt the whole system, there are going to be all sorts of negative consequences. Like I said, there just aren’t free lunches with this. If there was an easy fix to the housing market, if there was an easy fix to home affordability, someone would’ve done it already. This is not just something you could snap your fingers and all of a sudden things are going to get fixed. Instead, we need to think about adding more supply to the housing market. We need to bring down the cost of building so more supply can come.
We need to focus on reducing inflation and our national debt so that mortgage rates come down naturally. These are the things that can provide sustainable improvements to housing affordability, which don’t get me wrong, I think is a huge problem. We need to restore affordability to the American housing market, but if you’re asking me, portable mortgages are not the solution, I would love to know your take. So let me know what you think about portable mortgages in the comments. Thank you all so much for listening to this episode of On The Market. I’m Dave Meyer. I’ll see you next time.