In mid-November, the Federal Bureau of Investigations released its 2022 Congressional report on business email compromise (BEC) and real estate wire fraud. According to the report, in 2021, the Internet Crime Complaint Center (IC3) received BEC-related complaints with claimed losses exceeding $2.4 billion, far higher than the $360 million in claimed losses recorded in 2016. In comparison, the second highest dollar loss category reported to the IC3 in 2021 was investment fraud, with losses of approximately $1.45 billion.

In addition, the American Land Title Association expects the annual number of BECs to more than double in the next two years.

For the past several years, the FBI says BEC has consistently been the largest dollar loss by victims’ crime typology reported to the IC3, as “criminals have been refining their exploitation of technology, especially the internet, to carry out financial crimes.” According to a 2022 survey by ALTA, of all the reported wire fraud incidents that occur each year, only 17% of victims successfully recovered all of their funds, but 94% of respondents reported some amount of recovery.

“You have minutes to hours to act once you have knowledge that either your company sent money where it wasn’t supposed to go or you’ve got a buyer out there hanging because they sent $50,000 to a fraudster,” Matt McBride, the vice president of risk management and compliance at Shaddock National Holdings, told attendees at last month’s ALTA One conference. “If it goes to 24 hours, your likelihood of recovery is 15%. If it goes to 48 hours, you are in the 2% range. If it goes to 72 hours, then it is gone. There is nothing anybody can do at that point.”

ALTA said, the FBI report was also spurred on by the trade organization’s efforts of the past two years to get “language included in various House and Senate appropriations reports directing respective agencies to report on efforts to combat and raise awareness of BEC and wire fraud, and collaborate with industry partners to address threats. ALTA is reviewing the report recommendations as part of ongoing advocacy efforts.”

As the FBI looks to counter BEC and wire fraud threats, it says that it is working on providing “comprehensive training to FBI agents, analysts, and support staff focused on BEC schemes and money mules.” In addition, the agency said that it is working to foster “strong relationships with its private sector partners,” and “frequently provides training to financial institutions, the real estate industry, and technology company representatives on current financial crime trends.” To assist in this education goal, the FBI has published a  Money Mule Awareness Booklet

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You’ve got home equity, but maybe not cash flow. If you want to realize financial freedom, you’ll need consistent, passive monthly income. But with cash flow harder to find than ever before, how can you get it when real estate prices and interest rates remain high? Should you give up on cash flow entirely and only bank on appreciation? Maybe not. Using the strategy David outlines today, you can convert your equity into cash flow, but you’ll need to follow the right steps.

Welcome back to another Seeing Greene episode, where David, and some expert guests, answer your questions surrounding anything and everything related to real estate investing. Joining us on today’s show are Dave Meyer, J Scott, and Pat Hiban, all BiggerPockets authors and real estate masters in their own rights. They tag-team questions ranging from how to get around the twenty percent down payment requirement, how to calculate the time value of money on an investment, how HELOCs (home equity lines of credit) work, whether investing in hurricane-heavy Florida makes sense, and more!

Don’t forget to head over to the BiggerPockets Bookstore to get massive discounts on some of the best real estate investing books in the world! Still itching to ask David a question? Submit your question here so David can answer it on the next episode of Seeing Greene. Hop on the BiggerPockets forums and ask other investors their take, or follow David on Instagram to see when he’s going live so you can hop on a live Q&A and get your question answered on the spot!

This is the BiggerPockets Podcast, show 693 buying equity. This is when you buy below market value and when you combine all this together, you start getting home runs, go after properties that you can buy equity in. So you bought up the low market value, you then added equity too through some form of rehab. You then change the way that you used it, which increased the value as well, changing it into a short-term rental, something like that. And you do that in an area that’s growing. Then you watch your return on equity and once you’ve accumulated a decent amount of equity like that, sell it and 1031 into something that cash flows naturally like an apartment complex. What’s going on everyone? This is David Greene, your host of the BiggerPockets Podcast. And I just realized I’m getting much better at these numbers that we flash up every time we do this that used to be a pretty hard part of the show.
But with everything else, the more you practice it, the better you become. And I want to help you guys practice getting better at building wealth through real estate because it’s freaking and fun. Today’s episode is Seeing Greene episode where you get to look at real estate through my eyes, but not just mine because I brought in some help, several other different BiggerPockets personalities and authors are here to help answer questions from the people like you that are listening, give their advice on how to build wealth. And I chime in with that. So what can you expect from today’s show? Well, an amazing topic was the time value of money that Dave Meyers gets into. And I throw my two cents onto how a dollar invested today is worth significantly more than that same dollar invested 10, 15, 20 years from now.
You definitely are going to enjoy that. We clarify what a HELOC is, how to use it when it’s good, and what’s actually happening as far as the type of loan that you’re getting. We talk about buying for equity and then converting that money into cash flow as opposed to buying for cash and then trying to store up all the wealth that comes from that is actually much easier to create equity and then turn it into cash flow than to just start off trying to get cash flow, which is a thing that many experienced investors figure out later in their career. And I’d like to introduce you to that earlier in the career. All that and more. We also have a live guess with the unique situation and you’re really going to enjoy hearing the problems that they’re having and the advice that they are giving.
Today’s quick tip, the sale is almost over BiggerPockets Cyber Monday Sale is November 28th and everything is up to 60% off. This includes the not yet released book, the Real Estate Rookie: 90 Days to Your First Investment, which is available for pre-order until tomorrow. Please note the author name codes that you are hearing on this and other episodes will work for every other time of the year, but they don’t work during this sale because the discounts are way bigger than 10%. And if you’d like to get your hands on a copy of the Real Estate Rookie: 90 Days to Your First Investment, which is a book that has not yet been released written by Ashley Kehr, you can also pre-order that by going to
All right. We’re going to get to our first caller, but before we do, I’d like to ask, if you’re listening to this on YouTube, please open the comment section and have your thumbs and fingers ready to type something out for me. Let me know what you’re thinking. If you were to want another book from me or another, couple books, tell me what you would want them to be written about. What would you want the title to be? What would you want the topic to be? What do you want to hear more of from me? And I’ll work on writing a book on those topics. All right. Let’s get to our first caller. Okay, I have no idea what we’re going to be talking about. So do you have your question lined up or do you…

Yeah, so I had sent, so basically a year ago I bought a triplex in Savannah in Georgia, and I had been listening to the podcast for a couple of years. And originally, I was planning on buying in Florida and then the pandemic happened, and all the prices went crazy with everyone moving to Florida, buying everything up. A girlfriend of mine was buying in Savannah, and she said, here meet my realtor. And she was awesome. So I started looking at places. I checked out three or four and we settled on this triplex. So I closed on that last year.
So it’ll be a year in December, which is amazing. It’s got long-term tenants, its cash flowing for me nicely. But being a foreigner, I had to put down 25%, which was $110,000 plus closing costs. So it’s a fairly decent chunk of money and I think as a foreigner, from what I’m understanding from the lenders that I’ve been speaking to since then, speaking to a couple at the moment, trying to see what the different requirements are going to be, everyone’s more or less still going to want 20 to 25 to 30% from me.
And I’m wondering if there’s ever going to be any circumstances where that’s not going to be the case. At some point in time in my journey, if I buy a few more properties and I prove myself with my longevity and paying everything in the correct manner, that they’ll say, okay, well you are proven and we’re going to expect less of a deposit for you. Or if there’s any other foreign friendly lenders out there that I’d be able to get in touch with that wouldn’t require so much. I have plenty of reserves in Australia. I do meet all the requirements. The mortgage that I got is here in the US through my own industry, through the marine accountants. They hooked me up with someone here, so that was all great. I’m just wondering what to do next as well. Do I keep saving until I can put down another $110,000 and then go with your sort of stacking method and do another triplex or a quad or a couple of duplexes or something like that?
Because I want to keep building, my primary goal is to create as much cash flow for myself because I eventually want to be able to supplement my income. I want to be able to step back from working as much as I do. I work 16-hour days for months at a time, sometimes long periods away from my family. I want more family time, I want more time for myself to have a personal life and I’m just trying to figure out what my next best move is. And I’m trying to figure it out by myself, and I so appreciate your time. I didn’t expect to hear back from BiggerPockets. This was special.

Well, I’m glad to hear that and this is a very cool story. It sounds like your biggest challenge is how do I continue buying real estate without having to put a $100,000 down every time? Is that the gist of what your problem is right now?

Yeah, because I like small multifamily that makes sense for me. So do I do keep doing that saving so much or… I listen to an episode today and he’s talking about creative financing, so I need to maybe learn more about that.

Well, everybody talks about creative financing. It’s always like, “Oh, you don’t have money, go do this.” In practice, it’s much more difficult than how it sounds when you hear someone talking about it. Let me ask you before we get too deep into this, what are you doing for work?

I work as a stewardess. I’m the chief stewardess on a private motor yacht that’s based here in the US, and I’ve been traveling a lot this past year. We’ve just gotten back from Alaska. I’ve been at sea since August. It’s October now. So I’ve been working in and out on this vessel for the past six years and I’m just trying to figure out how to supplement my income or how to increase my income with rental properties so then I can keep putting down more money and eventually be able to step away from this and have a life again.

Okay, so here is my personal take on the situation you’re in. This is probably the biggest hurdle for the average stereotypical American investor. It’s the down payment. You got to figure out a way to make more money or put less money down. At a certain point you will start to see this, your properties will be producing more equity, which becomes the down payment for future properties. It’s very slow going at first and then you hit a rhythm where you don’t have to worry about capital because it’s coming from stuff you bought eight, nine years ago. It takes a long time to get to that point. So at that stage in your investing journey is kind of where we’re starting right now. The short answer is there’s not going to be a lender who lets you put down less than 20% just because you have a good track record.
In fact, 20% is like the least you could probably ever expect to pay. My company had a period of time where we were getting 15% down for investment property. It’s kind of nice. It doesn’t last forever. It comes and it goes 20% usually your minimum and 25 to 30 becomes what they actually want. So the question is how do we get to the point where that isn’t a problem? Because you’re not going to do better than that and in other countries it’s actually worse.
One solution is if you become a good enough investor, you can borrow money from other individuals. That’s a form of creative finance. We would call that private money lending where you go to someone else, another person you work with who’s got 75,000 sitting in the bank and is doing nothing for them and you say, I’ll pay 8% on that money. And you take it and that becomes the lion’s share of your down payment. Once you have a track record and you feel very comfortable with the specific market, that’s one option you can use. Another one is going to be called house hacking. You familiar with that phrase?

I think I’ve been listening to all of the strategies, and I think that would work I suppose except for I live on board this yacht and I don’t pay any rent. It covers all my expenses. I suppose I could set it up, so it was going to be my house and I was living in it, but I’m still living on the boat. But then renting out the other spaces.

That’s exactly how we would do it. So I’d have you reach out to us, we would figure out which area. Where are you currently making home? Do you have a city?

I spend quite a lot of time in Florida because we are loosely based here. I’m in Fort Lauderdale at the moment, but Savannah-

That’s where I’ve been buying real estate. That’s funny.

Nice. Well, I’m just getting ready for the boat show. So it’s going to be a busy week. But I bought in Savannah, Georgia and I love Savannah for lots of reasons for, like short-term rentals for medium term rentals, traveling professionals, film and TV crew, yacht crew. I think it’s a great market for that. So I’m wondering if I should be trying to get into short-term rentals and single family or something and then perhaps just generating cash flow like that to make myself my money for my next deposits.

Well, the reason I ask is because the city that you make, your hometown will dictate where you’re allowed to buy with a primary residence loan. The reason we want to get you a primary residence loan is you can put three and a half percent down, 5% down. You have options that are not this 20%, a $100,000 you’re struggling with. If you could get by putting $20,000 down, you could buy a lot more real estate. You could start to build that equity that you could then tap into later to put towards these bigger deals you’re used to. So let’s say for instance that you bought something in Fort Lauderdale. There’s a lot of travel that’s going there. That’s why I’ve been investing there. We get you a loan as a primary residence loan, you buy a property, you rent it on Airbnb when you’re on the boat, you manage it remotely or you find another person that will manage it and then when you’re going to be staying in town, you just don’t book it.
You live in the house, then you’re leaving again. You put it right out there. I think this is a fantastic way of balancing… It has to be my primary residence, but I also want to make income off of it because nobody’s like someone like you, you’re not home very often. So why have it sitting there vacant? You rent it out. Now obviously there’s things you’d have to do, you’d keep a separate owner’s closet with separate linens and stuff so that you’ve got your own things there. There’s also properties you could buy where what I do in Fort Lauderdale is I buy a really nice property that has a garage because as you know, not every property out there has a garage. I will convert the garage into a separate, like a one bedroom or a studio apartment. You could stay in that, and you could rent out the main house.
They would never know that’s your primary residence. You wouldn’t have to share space with any of those people. It’s not that expensive compared to putting a 100,000 down on something. That’s a strategy I would recommend you look into. And the last one would just be the BRRRR strategy. That’s one of the ways that you don’t have to keep dumping a $100,000 into deal after deal. If you can go find a fixer upper in Fort Lauderdale, convert the garage, make it worth more, maybe you got it at a really good price because right now you’re seeing that the prices are coming down in a lot of areas. Like I was at an Imperial Point, that neighborhood a couple, couple weeks ago, looking at properties out there. You do that, you make it worth more, you refinance it into a primary residence loan, you get a big chunk of your capital back.
You’ve got a place you can rent as a short-term rental, and you can live in the studio by combining all of these methods together. You can make this work. You’ve got the primary residence loan, you’ve got the BRRRR method, you’ve got converting the garage to make it worth more. And now you don’t have to share space with somebody else. If there are people that you trust, other stewardesses that you work with, maybe that they’re on a separate, maybe they miss this trip, they’re stay at home. You can rent it out to them while you’re, you’re out there. And then this is nice to repeat because you can do it every year.
I think this is just my opinion here. Erin, this is the future of investing for that amount of demand we have in the real estate market in the United States and the lack of supply. People have to get used to the fact that they’re going to need to buy a house as a primary residence and make it work as an investment property. Gone are the days that just go buy a triplex and never have to think about it. They’re so expensive, there’s so much competition for them. You have to be able to think creatively. So what are you thinking after hearing that?

I mean I think that’s fantastic. I didn’t realize, I suppose that I would qualify for anything like that. Being a foreign, I thought that those sorts of loans just wouldn’t be available to me because so far all I’ve discussed I suppose is real estate investing properties for rentals. And these were the terms that I needed to meet, and I just assumed that that was going to be across the board always. But if I could qualify for something like that, that’s definitely a strategy that I would be so into doing. And I know that I could run an Airbnb. I mean I run a super yacht. So for me, I write checklists all day long. I have daily weekly task list. I manage a team of cleaners and guest interaction and high-end service. So that’s something for me, that’s my skillset, that’s where I live.

And that’s why I asked about your job because literally the way that you invest should be a reflection of the skill you have. And most people’s skill set was developed at their job. So you just telling me what you did, answered so many questions that I would’ve had. It tells me that you’re organized. It tells me you’re not afraid of a challenge. It tells me you’re used to having to think ahead and anticipate what could go wrong. It tells me you’re not unfamiliar with a schedule. All of those things are like you said, exactly what it takes to manage a short-term rental.
To you this will be easy. To the person listening to this who’s never done a job like that, it would seem daunting to have to try to manage a short-term rental. And so the advice I’m giving you is going to be geared towards what I think you’d be good at. And in fact, I think that you might be someone who could manage properties for somebody else in the future. You may be managing my short-term rentals because I think you’re just going to be like, “Yeah, this is so easy.”

I would love to mean eventually-

Prepare to be in on a super yacht, right?

I love it. It’s been such an incredible adventure. But event, I do want to step back from it at some point in time and beyond that life, what is there for me? And I feel like that is the natural transition for me into managing rental properties, having my own and I want to set myself up for the future so I can actually afford to travel I want to and not on someone else’s time. And I can go home and see my family more often than every two years or so.

Yeah. So here’s what you got to keep in mind. That is a worthy goal. Don’t buy in any hype that it’s easy to get there. That if you just buy someone’s course in six months, your goal will be completed because that’s a worthy goal. It’s going to take a lot of effort, a lot of sweat equity, a lot of challenge, a lot of emotional sacrifice to get to that goal. But once you get past that first maybe six, seven, eight-year period of time where you’re grinding stuff just starts to fall in the place and becomes so easy. It’s not a linear progression, it’s an exponential. It will feel like you’re not getting anywhere. And then you hit this inflection point and it starts to take off. So I would recommend first off, reach out to us. We will figure out how you could get a primary residence loan as a foreign national, which lenders are offering that, what programs are available?
Then we’ll come up with a strategy like what we just said by a short-term rental that you can live in when you’re there. You’re not there very often, so you’re going to be renting it out, you’re going to be making some money from that and then scale that every year. Every year you get to buy another one of these primary residences. And then in addition to that, once you get pretty good at it, you can probably start borrowing money from other people who don’t know what to do with their money. They’re getting 2% interest on it, maybe they start lending it to you. You pay them 8%, 10%. Now you’ve got your down payments figured out and you can start to scale pretty good.

That all sounds so good. I love it.

All right, well thank you Erin. We appreciate you being here and bring in this question. We’ll make sure we stay in touch.

Yeah, thank you so much for your time. It was an honor. Enjoy the rest of your day. Thank you, David.

All right. On this segment of this show, we review comments left by people who have commented on the BiggerPockets YouTube channel from previous shows. Our first comment comes from Randy Robinson Knight. I absolutely love this market. I have agents sending invites for brunch, champagne, and gift card offers. That is hilarious. It’s absolutely true. When the market gets tough, you start seeing agents and loan officers spoiling you a little bit. Take advantage of that. Our next comment comes from DDREI mentor. When I’m finding in Chicago is a lot of agents are removing listings and re-listing somehow removing the old price. You can’t easily see how long it’s been on the market, and you can’t see how much they lowered the price. I just keep seeing new listings of stuff I saw in May, and it will say that’s been on the market for two days with a listing history that has all blank prices.
All right, so DDREI mentor. Here’s what’s going on with that. When a listing agent puts a house in the MLS, there is a timer that starts that we call days on market. Houses have the most leverage possible when they first go on the market and then every day that they sit there that don’t get a buyer, they slowly lose leverage. It’s very rare you will ever find a house that’s been on the market a 100 days that’s going to get an over asking price offer. But it’s very likely if someone writes an offer two days in that they’re going to get an over asking price offer. So agents have figured out some kind of sneaky ways they can make it look like this house hasn’t been on the market for a long time and it’s not stale product. Like every good homicide detective knows your chances of solving a murder significantly decrease after the first 48 hours.
So real estate agents have just learned, let’s keep restarting a new 48 hours by taking it completely off the market, waiting a predetermined period of time and putting it back on the market. They’re making it look like it’s a new listing and that will help their clients in several ways. For one, it gets rid of that timer that was counting, making it look like it’s a house that nobody wants for. Two, it hits all the buyer’s email lists again as a new listing. So once you’ve seen all the new listings, the MLS stops sending you the stuff you’ve already seen by taking it off and putting it back on. It gets in everybody’s inbox again as a new property. And it also allows a listing agent to say, oh no, no, no, that offer’s not nearly good enough. We’ve only been on the market five days.
You’re going to have to do better. Here’s my advice to you. Who cares what the cumulative days on market or the days on market says or what the listing agent says? Write the offer. You’re willing to pay for the house, follow up with the agents to see if they’re willing to take it and continue that follow up eventually when no one’s buying this house, the sellers are going to take the offer that they don’t like because it’s not about the offer that they want. It’s about the best offer they can get. And every one of them eventually gets to the point where they realize this is the best offer I’m going to get, so I might as well take it. You want to be the first person in line when that happens.
All right, next comment comes from New Way Home. Excellent chat guys. I can almost imagine home buyers dancing and excitement with watching this keep up the good work. Well, I hope so, because home buyers for a very long time have not been able to dance about anything. They basically just had to take a deal that they didn’t like and pay way more than they wanted to and sort of put their tail between their legs when they got the keys to their new home, and they couldn’t be excited and just eat it. Well, that’s how it started. At least until three or four years later when they have over a $100,000 in equity in that property that they didn’t do anything to earn other than just wait. It’s one of the ways that the market cycle works. When you’re very rough to get the deal you like, you usually end up really liking that deal three, four, five years later when you love the deal you got right away, you probably aren’t going to have the same upsides so that yes, buyers right now are dancing in excitement.
It doesn’t mean that they’re going to be just as happy in five years if the market continues to stay where it’s at. There’s no right or wrong way to do real estate. There’s just the way that it’s working based on supply and demand and we hear a BiggerPockets want to give you the information to play the game based of what the defense has given you. Our last comment comes from Charles Granger. This video seems dishonest and geared towards bulls. I don’t think they’re appropriately displaying risk to investors. Additionally, you comment about your deals to display authenticity slash authority, but you have a different means of acquisition than the traditional investor. All right. Charles let’s start with different means of acquisition. I’m still using money just like everybody else is, so that’s not any different. I’m not buying properties, I’m not like finding properties off market.
I think that there’s some people that are doing that and they’re like, I just got this million-dollar house for $500,000 because they spent two years and a bunch of money sending out letters to find the deal of century. I’m not doing that. Almost everything that I buy comes right off the MLS just like anyone else. If what you meant that I have different means of acquisition is that I have more money than other investors, that could be true. I mean I definitely have don’t have more money than all of them. I have more money than what you’re calling a traditional investor. If you’re assuming it’s a person who’s just getting started. But I don’t think that’s a traditional investor that’s a newbie trying to crack into the game.
Most of the money that I have comes from properties I bought previously that I refinanced or pulled equity out of to buy the next round, which meant I bought and waited, which nobody wants to do or from businesses I started where I helped other people build wealth through real estate representing them as a real estate agent or a loan officer, which other people don’t want to do.
So rather than being mad about it, why don’t you just take my advice and do the same thing for yourself. Start a business in real estate or buy some real estate and wait and then pull that money out to buy more properties. Regarding the part where you’re saying you don’t think that I’m appropriately displaying risk to investors. I don’t know how to, because there’s two kinds of risk. There’s the risk of buying a property and then losing it because you couldn’t make the payment or there’s the risk of not doing anything and missing out on all the money you could have made. I want to just bring up a point that nobody really likes to talk about, but it’s very important. Let’s go back in time to 2014. Everyone’s telling you that the market is too hot. Now let’s even go forward. Let’s go 2016. The market’s even hotter and everyone’s saying don’t buy.
There’s no way that this can continue. The prices have to come back down. We just had a crash. Another one is coming, and you don’t buy a house. The money you lost from not buying in 2016 to 2022 is so much more than the money that you could have lost if you bought and then the market went down some. One of the cool things about real estate is that even if the market does go down, we still continue to collect rent, so we don’t lose the property. So there’s risk on both sides. We just only tend to focus on the part of risk that would lose something we already have. I’ll give you a little example of this. Let’s say I said to you, there’s an opportunity for you to make $200. It’s just about guaranteed. You got to drive four hours in that direction, pick up your $200 and then drive back home.
And it might be a little bit difficult. They’re going to ask you to do some pushups when you get there, but other than that, the money’s yours. And then I said, on a scale of one to 10, how urgent are you looking for that opportunity to go get that $200? Would you be like, whatever it takes, man, I’m going to fight through a hungry cage of tigers to get to my car so I can go get that money. Probably not. Most people would consider it, but they wouldn’t jump at the chance. Now in this same example say hey, there’s somebody in your office right now stealing $20 out of your wallet. You’d probably do anything in the world to get there and fight like hell to keep that $20 from being stolen from you. Why do we put so much effort into saving $20 but not into gaining $200?
I don’t know myself, it’s a thing of human nature. I don’t work any different than that, but I do want to call attention to it because oftentimes when we talk about risk, we’re only talking about what could go wrong. We’re not talking about missing out on what could go right. Think about this advice and anything else in life. Don’t go talk to that girl, man. She might not like you. It might hurt really bad. There’s risk involved in putting yourself out there. Don’t go tell her how you feel. Well yeah, there’s some risk you could get rejected, but consider the risk of spending your whole life never being with someone that you really, really love and always wondering what that person did. Which of those things is riskier? The last part is when you’re saying it’s dishonest and geared towards bulls. No one knows if this is a bull or a bear market.
I’m very, very clear with explaining to you guys why I think what I do, not just what I think. Do I think the market’s going to continue to go down? Yes. Do I think it’s going to be long-term? No. Do I think it’s natural? No, I think it’s artificial. I think we’ve raised rates artificially to slow down the market. It has worked, it’s pushed prices down, but it hasn’t necessarily pushed affordability down because the Fed isn’t doing this for real estate investors or for real estate. They’re doing it for the economy as a whole. And lastly, I do believe very deeply that when rates come back down, the prices are going to shoot back up and I don’t want people to miss out on that. So I hope you guys don’t think that there’s anything dishonest about the information that we’re giving you here. I do tend to have a bullish outlook on real estate long-term because when I look back for 500 years, that’s all it’s been.
Is this been going up constantly when I see all the money that’s being printed, I think it’s going to continue even more. Only time will tell, but I will say this, in order to protect against your downside, I’ve said it a million times, I’ll say it again. Keep more money in reserves than you need. Do not quit your job right now. Continue to work and continue to save and by smart cash flowing deals. All right, we love it, and we appreciate the engagement, even the negativity. I love that stuff guys. If you have something negative to say, if you’re sitting there grumbling saying, David always says to buyer, David says not to buy these markets, but I like these markets. Whatever it is, it’s okay. I’m not mad. I want to hear what you have to say. It actually leads to a better discussion and more depth being shared as to the inner workings of what makes wealth being built. And I want more people to hear it.
So please get on YouTube right now and tell me what you like and what you don’t like. Tell me what you don’t agree with. Tell me what questions you have that are not getting answered and we will do our best to address those on a future Seeing Greene episode. All right, our next question comes from Dave Meyer answering Travis in South Carolina.

Hey, what’s going on everyone? My name’s Dave Meyer. I’m the host of the BiggerPockets Podcast on the market and I am the author of the new book Real Estate by the Numbers that teaches you to analyze deals like a pro. Today I’m going to be answering a question from Travis who invests in South Carolina and his question is about the time value of money. Travis writes, I am in the process of rehabbing a two bed, one bath home that I plan on renting out after this rehab. I’ll be totally out of funds making me unable to purchase another property that could come across my radar, thus losing money, which is why I bring up the time value of money. So my question is, should I free up funds now in case some great opportunity presents itself in the future? I generally don’t know that I want to do a cash out refinance because of rates going up.
And what if the deal never comes? It took me nine months of searching, waiting to get hold of this property and it’s hard to justify doing a refinance when there’s no guarantee I will find a property to invest in anytime soon. But at the same time, the house I’m rehabbing now has a 6.5% interest rate. So I suppose it’s definitely a possibility of burring this one and getting my cash out and keeping a relatively similar interest rate. What do you recommend? So Travis is basically in a BRRRR right now and is facing two options. He can either take the equity that he has generated by improving the property and leave it in the current deal, earning him some cash flow, or he can take the option of doing a refinance where he takes the money out and then hopefully invest in another deal. But as Travis says, he doesn’t know if he’s going to be able to invest in a good deal right away.
And he asks about the time value of money and how you analyze this question through the lens of the time value of money. And if you’ve never heard of this concept, it’s a little bit complicated, but the easiest way to think of the time value of money is that money that you generate now or that you have now is worth more than money that you have in the future because you can reinvest it. So as investors, we shouldn’t just be thinking about how much money can we generate by a deal. You want to think about how much money can you generate as quickly as possible. You want to get those returns and pull them up as close to now as you can so that you can reinvest them at a high rate of return. And so with this question, you basically have to determine which option between keeping your money in the deal or refinancing is going to generate you more cash faster.
And there are metrics that take the time value of money into account. You can do a discounted cash flow analysis, you can do a net present value or IRR, which is a very popular metric for real estate investors. And you can measure which one of these options is going to earn you the better return with the time value of money factored in. But just as with the math aside, just logically, what I would recommend doing here, Travis, is you should go out and see what kind of deals you can get right now. I’m sure you have a real estate agent, contact them and go run the numbers on five or 10 deals and figure out if you were to even before, don’t do the refinance, but just pretend that you’re doing the refinance and go run the numbers on five to 10 deals and see if that option would earn you a better return than keeping your money in the deal.
Because I generally don’t recommend pulling money out, especially at a higher interest rate to just sit on it because you don’t know if you’re going to get a deal. So the only reason I would refinance if I were in your position is if you knew that you were going to be able to reinvest that money at a higher rate of return than you’re earning with your current deal. Hopefully that helps Travis appreciate the question. Now I’ll throw it back to David.

Man, that was some good stuff. I want to make sure we don’t gloss over. This idea of time value of money is very important. There was a lot of big words that were used there. Dave Meyer is obviously a data guy, so I want to make sure that people who are not data people don’t just have their eyes gloss over and say, I’m going to wait for something to be said that makes more sense to me. Here’s another way of looking at time value of money. We’ve all heard the story of would you rather be given a million dollars or a penny every day that doubles. So you get one penny the next day it’s two pennies and it’s four cents, then eight, then 16, then 32 and it goes on and on and on. And basically, right around the time you hit like day 30, it’s a whole bunch more money than a million dollars.
That is a story to illustrate the power of compound interest. When you invest money, and it compounds, and you reinvest the money that was added and that gets invested even more comes back and it grows at an exponential rate. Albert Einstein was once quoted as calling compound interest the eighth wonder of the world. To be fair, I think Albert Einstein is credited for saying a bunch of things that who knows if he ever said, but it’s still true that it’s a pretty impressive thing. If you want to understand the time value of money, here’s a good way to look at it. If I was to give you a penny on day one, would that be worth significantly more than a penny on day 27 of this 30-day compounding slide, right? Obviously, the penny is worth a lot more the further back you go and that’s what the time value of money is really trying to demonstrate.
If you invest your money at 15 years old, 20 years old, and it keeps doubling, that’s massively more powerful than doing the same thing at 80 years old because you’re going to die before the money has time to keep growing. And that’s all that the time value of money is really getting at. So from a overall perspective, that’s what I want you to take out of this video. Now, from a tactical perspective with the person saying, “Hey, I don’t buy deals very often. I really, really, really look for the perfect deal. It took me nine years to find the house I have.” If I do a cash out refi, the downside is I lose my good rate, so the property becomes more expensive. The upside is I have more money to invest, but the upside isn’t worth anything to me or it’s not worth much because it takes me nine years to buy a property.
So I see that the dilemma that this person’s in, here’s the advice that I would give. Put a HELOC on the property that has the equity but don’t pull the money out. Okay? Start looking for properties. Hopefully it doesn’t take you nine years to find the next one. Maybe you’re more comfortable. So it only takes four and a half this time find the property and then buy it with the money from the HELOC. Put that as your down payment to buy this new property. Now, you’ve got two properties, okay? Once you’ve got the second property bought, now refinance the first property that has the HELOC on it to pay off the HELOC. So do your cash out refi, pay off the HELOC and your original note, get the money back that compensates you for the money that you took out on the HELOC that you put into the next house.
This way the money doesn’t sit in the bank doing nothing for you while you’re spending nine years looking for your next house. You have access to it but you’re not paying for it because you don’t pay money on a HELOC until you pull the money out, which you won’t have to do till you find the next property. I hope that makes sense. That’s a way that you can avoid the situation that you’re in, where you don’t have to pick your poison. You’ve got an option that is not poisonous.
All right. I just was contacted by the producer of the podcast, Eric, here with a question that I want to include in the show. So Eric sort of jumped in. He is like, I don’t quite understand exactly how the HELOC works When you’re borrowing money off a property as a HELOC, I know you can get access to the equity, but how is that recorded?
So here’s the simplicity. A HELOC is really just a fancy word for a second position note. So you buy a property worth a million dollars and you put say $600,000 down. So you have a first position lien or a note in first position for $600,000, which means if there was a foreclosure, the first position person gets paid back first a HELOC, let’s say you took out another $200,000 on a HELOC. So you’ve got a first position for 600,000. A HELOC is just a second position note for $200,000. So you’ve got a total of $800,000 of debt against your million-dollar property. You’re still at an 80% loan to value when you go refinance and you say, “Hey, I want to do a cash out refinance.” And they say, “Great, we’ll let you take out 80% of the value of the home.” The money they give you on the refinance goes to pay off your first position note, which was in this case 600,000 at the lower rate and it pays off the HELOC, which was your second position note.
And now you just have one new first position note for $800,000 on your million-dollar property. And the $200,000 that you had taken out originally on that HELOC was the down payment for the second property that you went to go buy, which has now been paid off on your cash out refi. Thank you, Eric for asking for some question there and for helping me bring some clarity. Anytime we say HELOC, that’s just a fancy phrase. For a second position lien with an adjustable-rate mortgage by doing a cash out refinance, you’re turning first position, fixed rate, and a second position adjustable and replacing it with is one loan at a fixed rate that is no longer having the adjustable component. That’s the downside of a HELOC. Our next question comes from, Will and is answered by Pat and I will give my two cents on that.

All right. Got a question here from a Will in California. How do I determine the correct amount of equity keyword equity here in this question? How do I determine the correct amount of equity needed to replace my W-2 income so that I can invest in real estate full-time? And how would I restructure my real estate portfolio to provide the cash flow I need in the most tax efficient man manner while preserving as much capital as possible to continue scaling up? And he goes on to say he’s got a duplex, one single family and one duplex both in Texas and he bought both of them with negative cash flow. Rents have increased since he’s bought them, but he’s barely getting any monthly income at this point. He says, I am getting a slight monthly positive on the single and the duplex is still a negative. So this is a great question and I’m seeing this more and more. It’s quite fascinating.
In the years past, people bought real estate based on cash flow and I don’t think that it’s smart to say that that has gone out of style. I think it’s interesting to see that some people stopped buying based on cash flow. I have never bought anything with negative cash flow or break even. I don’t understand the logic behind that, but I’m the one not answer asking the question, I’m answering it. So my answer is you need to get into things that cash flow. You’re in things that don’t cash flow, so get out of them. And here’s a rule for when you know should get out of an investment. If you could sell the property today and make more than seven times what your yearly cash flow is, you need to get out. So what that means is if your yearly cash flow is, let’s say it’s 500 a month and your yearly cash flow is $6,000, if you can sell the property and make more than $42,000, you need to get out because that’s around 10 or 11% return that you’re getting on equity.
And you need to be able to do better than that. When you’re buying these things new, you really should be shooting for 15% cash on cash. Worst case, 10% cash on cash. And what that means is if you’re spending, let’s say a $100,000 as a down payment on a property and you’re making $10,000 a year cash flow, that means you’re getting 10% cash on your cash that you put in. So you’re getting 10,000 out of a 100, you’re getting 10% cash on cash. That’s kind of like your bare minimum. Will, you’re way below bare minimum. You don’t even start above line. I think that you’re never going to be able to quit your job buying houses like this, never the next couple of years. Most likely they’re not going to give you any sort of appreciation like you’ve seen in the last five years.
Matter of fact, you might lose as the next year, two years, go on. If something’s worth 300 for you now, it could be worth 270 this time next year. I mean it’s possible. So you really got to look at this number, the seven X number and that’s going to be the case in both of these because you don’t make enough money on them. I would suggest you selling them and then getting into something that does cash flow. It might not be as close to your house as you want it to be. Might not be in as comfortable as a neighborhood as you want it to be. It might be uncomfortable for you. But first and foremost, most important thing, in my opinion in investing and trust, we have done this for over 30 years now. I have lots of investment is cash flow. That’s what you buy for first and foremost.

Well, that was a journey down at Intellectual Highway, wasn’t it? Lots of good stuff to chew on with that one. That might be one you want to go back and rewind and listen to again. So let’s see. Pat gave some really insightful information about metrics you can use when trying to hit cash flow. Hitting a 15% ROI is very difficult to do in a market like this. My guess is Pat’s got access to some business opportunities and some bigger apartment complexes that are getting him a 15% return based on the internal rate of return. That’s probably not cash flow right off the bat. Now I don’t want to take too much time to answer this question, but I kind of see what’s going on here. Pat’s looking at, hey, if I invest my money in an apartment or something like that, that we’re going to buy hold for five years and sell.
And he’s incorporating all the ways that money are made through that investment, which is what the IRR does, the cash flows, the loan pay down, the selling at the end, the revenue that’s generated from the capital raising, whatever that would be, 15% possible. But most of our listeners are sitting here as you’re hearing this, you’re like, you’re only looking at the cash-on-cash return in year one to determine your ROI. There’s almost nothing out there that’s hitting 15% cash on cash return year one. So don’t get confused by what’s being said here. If you said, “Hey, I’m going to buy a property that rents are going to go up every year, there’s a big value add component to it, I’m going to add equity to it’s going to go up in value and rents are going to go up and at the end of five years I’m going to sell it.”
And you looked at the entire money you made from every single component I mentioned, 15% totally doable. You could do better than that with single family residential property. Like I’m getting over a 100% returns on a lot of the stuff that I’m buying when you look at the internal rate of return. Okay, that being said, that wasn’t exactly the question that was being asked by the caller. The caller was saying, look, I’ve got a W-2 job that makes good money. I want to replace it with investment income. You’re on the right place so far. How much cash flow or what’s the best way to build up cash flow to replace my job? And I think the subtlety that might have been missed was the person asking the question here, Will. Will, understood that it’s very difficult to build cash flow.
It’s much easier to build equity. So I think what will was getting at is what can I buy that will build equity that can be converted into cash flow that can be used to replace my W-2 income. He’s sort of breaking this into a couple steps and I do like that approach. Now, Will mentioned that his properties are not cash flowing really solid. And Pat heard that, and he said that’s not good. You shouldn’t be buying stuff that doesn’t cash. What Will didn’t say is how much equity is in those properties. Pat’s advice might have been different if Will had said they’re only making a little bit of money every month, but I’ve got $200,000 in equity because I waited three years. Rents just haven’t kept up with the value increasing. You see how this changes the scenario that we’re looking at here. So, Will here’s my advice to you.
This is the same strategy that I use for investing myself. Of course, I want cash flow, but I get cash flow, not by focusing on cash flow. You go after equity. There’s several ways you can do it. One is you invest in the right area, which you’re probably onto investing in Texas. So keep doing that by an area that’s going to grow. Number two, buy something that you can add equity to. You can rehab it, you can add square footage, you can improve it cosmetically, you can turn it from a long term into a short-term rental. Anything that will make the property worth more. That’s step number two, three. It’s what I call buying equity. This is when you buy below market value and when you combine all this together, you start getting home runs, go after properties that you can buy equity in. So you bought it below market value, you then added equity to through some form of rehab.
You then change the way that you used it, which increased the value as well, changing it into a short-term rental, something like that. And you do that in an area that’s growing. Then you watch your return on equity and once you’ve accumulated a decent amount of equity like that, sell it and 1031 into something that cash flows naturally like an apartment complex, okay? That’s my advice for you for how to get from, I have a job and I want to replace my income. You’re not going to get it by buying $110,000 duplexes in the Midwest. You’ll be doing that for a 100 years before you get the income that you’re getting from your job. You do it by adding value and equity in properties that still at least break even like you’re doing. And then exchanging the equity for cash flow in the future. So you want to be having both things going on.
You’re doing a 1031 exchange from existing equity into a cash flowing asset like an apartment complex, a triple net complex, a big short-term rental that’s going to make you more cash. And at the same time, you’re buying new properties and you’re adding value to them. And if you do it the way that I’m describing, you will never run out of capital, which was one of the concerns that you expressed. So first off, thank you Will for asking a good question. And second off, thank you Pat for bringing up some really good information that will help everybody else. All right, we have time for one more question and this one comes from J Scott reading a question from Cheryl.

Hey everybody, I am J Scott. I currently own about 50 single family houses all around the country, including in the sunshine state of Florida, which is good because today’s question comes from Cheryl who is asking about buying rental properties in Florida. Specifically, she wants to know about how rising insurance costs in the state along with things like hurricanes and the potential for global warming are likely to impact investors who are looking to buy and hold in various parts of the state. Now, she specifically mentions Tampa, which is on the East Coast, or I’m sorry, the West Coast of Florida and Orlando, which is in the center of the state. Now, why I don’t have a crystal ball to know exactly what might happen in the future, I do agree with her that rising insurance rates over the past few years is making it really difficult to find good cash flowing properties in many parts of the state.
And there’s certainly risk, both short term risk from other storms and long-term risk from things like global warming that Florida might become a really expensive and a really difficult place to invest at some point in the future. Now, that said, Florida also has a lot of things going for it. There’s large population growth coming into the state, which is likely to push rents higher over the next few years, and there’s a lot of building going on in many parts of the state, which means that a lot more housing supply could keep prices reasonable for the next few years. Not to mention that while hurricane damage is horrendous and really has impacted tens of thousands of families, honestly, it does provide some opportunities for investors, especially those investors who are willing and able to do renovations. Now, all in all as a Florida investor myself, my recommendations are the following.
First, ensure that your flood risk before buying any property in the state and make sure that the insurance costs still makes sense given that flood risk. Second, if you’re going to buy in Florida, I would suggest diversifying across different parts of the state so that you face less risk from any single storm or any single weather event. And third, I would highly consider looking at property in the middle of the state off the coasts, which will help reduce the likelihood of storms and reduce your insurance risk. All in all, I believe that there’s a lot of opportunity left in Florida, but I don’t recommend putting all your eggs in one Florida basket. Anyway, thanks so much, everybody. I’m going to hand it back to David now.

All right, thank you, Jay for that very insightful commentary. I’m going to second a lot of what you said and maybe just expand on some of your points a little bit. There’s pros and cons of investing everywhere, everywhere, and it… I get a little bit of a bee in my bonnet if you will, that people tend to ask questions that insinuate that they’re looking for an area to invest in that has all pros and no cons. It doesn’t exist. In fact, if you had the perfect area that had all pros and no, everyone else would be investing there, it’d be very hard to get a deal and that would become a con, right? So a lot of people look for areas with the lowest price point homes that they think are going to get them the highest cash on cash return and there’s no other investor competition.
They end up in areas that have no long-term growth and don’t build any kind of wealth. That’s what I’m trying to get at is you’re always balancing pros and cons. You don’t make wealth by trying to avoid cons. Now, let’s talk about some of the Florida pros and cons. J mentioned several of these things, the pros, massive population growth. Everyone’s moving there. I’ve said it before, if you just took like a table of the United States and you shifted it down into the right, that’s where all the population tends to be going towards right now and I think they will continue to for the future. Long-term population growth means you can expect increasing rents. You can expect a increasing tenant pool. You should have more people to choose from. When picking your tenants, you’ll have an overall better experience. Another pro is that businesses are moving into Florida.
I’m a Florida investor and this is one of the reasons that I’m putting money into that market is I’m watching a lot of businesses leaving New York and going into South Florida and that’s going to lead to increased rents in the future because people make more money and they have better jobs so they can pay more rent, they can pay more for a house, which both drives the price of my home and the rent that I can get for that home up. What else is good about Florida overall? It’s pretty good weather. You get a lot of rain and you do get hurricanes, but you don’t have the snow and the freezing cold issues like pipes bursting that can cause you some problems investing in real estate now, that’s why everyone wants to invest there. This is why so many people are talking about they like the pros, but you got to look at the cons too that Cheryl brought up and J highlighted.
Number one, insurance is ridiculous. It is insane. I’m getting hammered on insurance that is over three to four times as much as what my highest guess what it could be was the hurricanes have absolutely changed the way that homes are insured there. In fact, I have one house that I bought there during a 1031 exchange that blew me away. I didn’t even think this was possible. The lowest quote I could get on homeowner’s insurance for this property. Now it’s a big nice house, it’s near the beach, it’s over a million dollars. It’s 5,000, 6,000 square feet home. But still the premium to insure it as a short-term rental was $26,000 a year. That’s a down payment on a house in some places. So this insurance thing is legit. That’s a pretty big con. Another con, the actual hurricanes that cause these high insurance premiums are real and they do happen.
And that’s why J is saying consider investing in the middle of the state because you get less of that type of activity going on. Now, there’s a con to investing in the middle and you tend to make more money on the coastlines. That’s why we’re looking to want to buy there. We want to be near the beach. So you have to factor that into your choices. Another con for investing in Florida is that it’s very competitive in the best areas. There’s a lot of other people that are trying to buy now, let’s say for Orlando for instance, that is in the middle of the state. It’s going to be safer. Hurricanes don’t tend to hit that part as hard. You do have a good economy, but it’s very dependent on Disneyland. That’s why most people are buying short-term rentals or houses in Orlando. They don’t have a ton of industry outside of Disneyland.
And that makes me nervous. I’m not saying don’t do it, I’m probably overthinking it, okay. But part of my long-distance investing strategy is to not have too much of your assets in any area that’s dependent on one thing for its economic base. Most of the people that are living in Orlando are going to be like Disneyland employees. The people that are visiting it have something to do with Disneyland. Of course, there’s other businesses there, but Disneyland’s the biggest one. What happens if, God forbid there’s some scandal that comes out from Disney executives, knock on wood, right? And it gets canceled, it’s canceled Disney and nobody goes there because now it’s politically unpopular to go visit Disney World. I think I’ve been saying Disneyland, I meant Disney World. You see what I’m getting at? If that park shuts down or people stop visiting there, you now have an investment that no one is trying to use.
No one’s going to our Orlando to visit the swamp. They were going there to visit Disney World. So I get very nervous. I don’t think anyone saw Detroit collapsing the way that it did until it happened. So I’m not saying don’t invest in those areas. I’m saying be aware of the pros and the cons. I think a lot of good ones were highlighted in J’s response. I just want to bring a couple more, but the bigger point I want to make here is don’t get stuck only looking at cons. There always is going to be a con in any area. You’re going to just make sure that the pros outweigh them. All right. That is our show for today and I really hope you enjoyed it. We had another show where I brought in some backup to help answer questions because what’s important is that you guys get the knowledge and the experience that in our heads into yours.
If you’d like to buy one of the BiggerPockets books, simply head over to and use the discount code DAVID, and you can get 10% off any book that you’re buying there. I’ve got a couple in there to check out and new ones that should be coming. But more important than that, tell me what you think about the show. Go to YouTube and leave us a comment, subscribe to the page while you’re there, make sure you like the video, so the YouTube algorithm knows to keep showing you something along those lines. And if you want to follow me, you can do that @davidgreene24. I’m most active on Instagram, but you can follow me on Facebook, on LinkedIn, on TikTok, I think I’m officialdavidgreene and at YouTube I’m @davidgreene24. And I forgot to mention that tomorrow is Cyber Monday. So that 10% discount code that I worked will work at any time except for Cyber Monday because you’re going to get a bigger discount tomorrow up to 60% off on many BiggerPockets books.
Go check that out. If you’re listening to this after Cyber Monday, that 10% code will work. As I mentioned, follow me on social media, let me know what you thought of the shows and what I can do to help you build well through real estate. If you live near me in California, I definitely want to know about you because we put on meetups where we teach people about real estate investing and I’d like to invite you to them. Do me a favor, go leave a review, a five-star review on Apple Podcast, on Spotify and Stitcher, wherever you’re listening to this. And when you come to the meetup, show me the phone with your review because you deserve a high five. All right, everybody that wraps up our show for today. Please check out another BiggerPockets video, keep learning and keep making money through real estate.



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Financial freedom isn’t something that most Americans strive towards. For the most part, working at a job, getting a steady paycheck, and bringing home the bacon is enough. That is until something forcibly stops you from working. It could be a workplace injury, a family emergency, or even a cancer diagnosis. What do you do when you can’t work or provide for your family, all while fighting a life-threatening disease?

Josh Goldstein was in this exact situation in 2015 when doctors gave him a rough diagnosis—pancreatic cancer. Josh and his wife knew that he could make it through the treatments, but the financial problem still loomed largely. How would they be able to pay the bills, take care of their kids, or continue living the life they loved without any money coming in from Josh’s work? The answer—real estate investing.

After years of analysis paralysis and a deep obsession with BiggerPockets content (woohoo!), Josh bought his first property as the world was starting to shut down. But he didn’t let the lockdowns stop his plan to hit financial freedom fast. Over the past two years, Josh has gone from zero to twenty units, some of which he’s never laid eyes on before. This portfolio, which was built out of a life-threatening situation, is now bringing in hundreds of thousands a year for Josh’s family, providing them well-earned financial independence.

This is the BiggerPockets Podcast, Show 692.

I think the biggest fear was trusting people that I didn’t really know. I was meeting these people through Facebook groups, or through different online platforms, and it’s hard to trust, especially when you’ve never done a deal before, what they’re saying. And so, I think being able to verify, and again, in your book you kind of give resources on how to double check things, and how to circle back. I think that helped so much, in terms of my trust in them.

What’s going on everyone? This is David Greene, your host of the BiggerPockets Real Estate Podcast, here today with my co-host, Henry Washington, as we interview Josh Goldstein, an out-of-state investor who has a pretty amazing story, and a very simple solution to problems we all have. We want to make money in a way that we like more than our job, and we want to be to travel, and have freedom, and not be stuck in one location doing things that we don’t like. Today’s episode is awesome, and you’re going to learn a ton about long distance investing, overcoming problems, analyzing properties, decorating them to maximize your return, and more. Henry, I know I probably just took the big stuff, but was there anything I didn’t mention that you liked about today’s show?

Yeah, no, you did take the big stuff. My favorite part of the show is just, honestly, I love hearing stories of people that are doing things that a lot of folks would say is difficult, or impossible to do. So, being able to stay positive when you get bad news, and then giving… Not just saying, “Hey, I remain positive,” but giving some practical steps on how he does that, which is super cool. And then, just changing your life, deciding to invest, and then doing it when everybody thinks you can’t. You live inexpensive market? Okay, I’ll go buy a property somewhere else. And then putting the action behind those steps to actually do that in a way that is financially beneficial. So I love it.

Absolutely. This is a very easy to listen to episode. Josh has a really cool story. I don’t want to give it all the way, but make sure that you check this one out, because you’re going to love it. Before we get into the interview with Josh, today’s quick tip is, consider things to be grateful for. It’s so easy to focus on things that are going wrong, and no one knows this more than me. In business, I am frequently, as the leader, the person that has to deal with all the problems that nobody else wanted to, or chose to deal with, and it’s easy to get upset. But there’s always a solution to these problems, and if you take the stance of, “I will look for the answer, or the solution,” instead of, “I will look for the reason to not have to solve it,” you will often find that most of the problems, or the obstacles that are stopping you from making progress, are not nearly as significant as you think. Henry, any last words before we bring in Josh?

Yeah, I just kind of want to add into that. When I get in the same situation as you were just talking about, I sometimes have to remember to be grateful for the problems that I do have. Because yes, even though they may be infuriating, there are loads of people who would trade places with me in a heartbeat, who would love to have the problems that I have. And so, I just try to keep that in mind, and it helps me stay focused.

I bet you that you 10 years ago would’ve loved to have the problems that you today has, versus the problems you had 10 years ago, right?

You’re right, buddy.

Isn’t that funny? If you went back 10 years and said, “Hey, I can give you the life you have right now,” then, they’d be like, “I hit the lottery. This is everything I wanted.” But we get used to it, and every day we wake up, and we’re like, “Oh, another problem I got to solve. My life sucks.”


That’s exactly right.

That’s right.

Love that perspective. All right, let’s bring in Josh. Josh Goldstein, welcome to the BiggerPockets Podcast. How are you today?

I’m doing great. How about yourself?

I am doing very good. I appreciate you waiting. I had to take a last minute phone call there before we started recording, so you’re very gracious, and I appreciate that. And Henry stayed awake the entire time, so I also appreciate that from you, Henry. I know listening to me talk can be very boring. But today we want to hear about Josh. So Josh, I understand you have a very interesting story of how you got started in real estate, so we’re going to ask you about your first deal, but before I do, take me back to where you were emotionally, and what was happening in your life, before you got that deal.

I started in the entertainment industry, and I went along working. As I rose up and made more money, I was spending more money, I was kind of doing it, now that I know, wrong. And I got to a point where I was making decent money. I love what I did. I didn’t see anything changing until in 2015 I was diagnosed with pancreatic cancer, and obviously everything changed from there.
I, at the time was renovating our dream house that I’m living in right now, and the doctor said, “You’re not going to be able to work for a while.” They didn’t say a timeline. And basically, I was in debt going in, renovating this house, and I kind of freaked out, and I didn’t know what I was going to do. I did have a great support system. My family, and friends kind of rose up and helped me financially while I battled this thing, and I changed my mindset. I knew at a certain point I had to make a change, and make money elsewhere, and not just rely on my actual job.

Okay. So, I mean, life hit, and the comfort level, the routine, the way you’d always known, isn’t going to work anymore. You may not be able to work those hours you were working, those opportunities might not be there. I mean, if you think about it, most jobs in American Works is within the framework of a W2 environment, which means in general, you are servicing a lead, or a revenue source that somebody else has created.
So, if you’re an actor in a movie, somebody else has secured the revenue for that movie. They’ve written a script, they’ve done all this stuff. They just need a person to play a role in the bigger picture. And that’s every job. If you’re working at Walmart, if you’re working at a landscaping company, in general, not many people work in sales. They’re servicing sales somebody else has done, which means you’ve got to serve at the pleasure of whoever your boss is. That’s how this thing works.
And when something happens to you like it did, you physically can’t meet the demands that this person would have, and you’ve got to be creative with finding a way to make money. So, I love hearing these stories of someone who didn’t just give up and say, “Well, I guess that’s it. I’m just going to be a burden on everyone else.” You found another way to do it. So what were some of the concerns or fears you had as you started to realize, “Okay, I think I can make money investing in real estate, but obviously there’s no safety net here in a W2 job?”

The one thing I should say is I was actually freelance. So that was the big difference, is I had a background in maybe not having the most secure amount of money, but as I worked in production for a long time, I’d felt like I was secure, because jobs kept coming, and I knew enough people, that I was pretty sure in getting jobs over and over again.
The one problem, even outside of me getting sick, was it was hard to take time off. I mean, if I was taking time off to go on vacation with my family, I’d have to turn down a big job, lose that money, and then spend the money on going on vacation. And mentally that was really tough for me. And I always felt like if I turn down jobs, what if it’s a big commercial campaign, and I lose multiple jobs from that? Which I know does happen. So, there was definitely fear based in that.
So, during that year, I read Rich Dad, Poor Dad as many investors have, and it was kind of like a brick to the head. I mean, it’s something where, I was always interested in real estate, I was always interested in properties, and values, and looking at it, but I just never realized that I could make money off of it. I don’t know, I thought maybe you needed to have a top hat, and a monocle to be a real estate investor.
I don’t know. I still might buy that, just so I have it. But, during that year, after I read it, I was very focused on healing, and getting through the treatments, so mentally I couldn’t really do much more than that, but I knew once I recovered, that I needed to make a plan and actually change things. During that time, I mean, I think it was the smart move. It takes so much time, and effort, and energy on healing, and focusing on my family, and getting through this, and that’s basically all I was able to do that year, that I went through it.

Man, I am smiling as I’m hearing you tell this story, because it is very similar to my story, outside of the illness. It’s not an illness, that wasn’t my wake up moment. Well, nothing near what you had. My wake up moment was I had a panic attack, similar thought processes as you prior to that, is that I was starting to realize some life events were happening that were making me realize that the traditional way I was making money wasn’t going to be enough to even live a reasonable life, nonetheless an extraordinary life.
And I had a wake up call after a panic attack, and I like that you mentioned you had this mindset shift once you got sick, that you needed to find a way to make money. But, I would imagine that that mindset shift was around… Because you have to have a mindset shift about healing, and getting better, as well as a mindset shift around what I need to do to change my financial landscape. Can you talk a little bit about, were those two different mindset shifts? Or did your positive outlook on healing help you change your mind about investing, and how actually achievable it is? Because I think a lot of people are in a place where they know they want to invest, but just saying, “Change your mindset,” it’s hard for them to grasp that. What about these mindset shifts made that easier for you?

Yeah, I mean I guess I should start… I am naturally a positive person, but I have to say my wife is even way above me in that scale. So, when I got diagnosed, I was actually in the hospital, she was home with the kids, and I woke up from some painkillers, and there are two doctors sitting there, and they told me that I had pancreatic cancer. And I think this actually relates a little bit towards my job as a producer, where problems come to me all the time. Obviously this is a different problem that I never thought in a million years I’d have to deal with. But, I took a breath, and I paused, and I said, “Okay.” And the doctors looked at me again and said, “Do you understand what we’re saying?” And I said, “Yes.”
And so, I said I wanted to call my wife and I did. And her response from the get go was, “Okay, let’s figure this out.” So that was the baseline of our mindset going into this. I feel like it is something that I did in my production career, whereas when problems come instead of freaking out screaming, whatever, take a breath, figure out how to solve it, because screaming isn’t going to actually solve it. So, throughout that year we kept that going, and I feel like that mindset helped tremendously, because it relates to so many things in life, but real estate is one of them. Problems come up all the time. It’s how you deal with it, how you solve it.

100%. And I love that you’re saying like, she said, “Okay, let’s figure this thing out.” And you’re right, the mindset is very similar, because I feel like success in investing, especially if you’ve never done a deal, or if you’ve only done a couple of deals, you may not know the exact steps, or have them all laid out in front of you, to know exactly the play that you’re going to run. “I’m going to do step A, that’s going to lead me to step B, and step C.” And you don’t know them all ahead of time.
One of the things that helped me be successful when I started off investing, was that I just decided I was going to figure it out. I didn’t decide I was going to go learn every single step, and then figure, and then take some action. I just decided I was going to figure this out. It’s a similar mindset to what you had about be getting healthy again. You said, “Okay, we will figure this out. I have no idea what the next step is, but I know I’m going to stay positive about it, and I know that I’m going to figure out all the things that I need to do.” And you solved the problem that’s in front of you. Man, that’s super inspiring.

Well, and it’s funny, I’ve heard not just from you, that similar things have happened in people’s lives that change their mindset. And obviously, pancreatic cancer is an extreme version, but that thing, whatever it is, can relate to so many people, because it could be something little, it could be something big, it doesn’t matter. It’s just that little switch, making you think, “I need to do this differently.” And I think that helps a ton, and it relates to a lot of people.

Did you have any nagging little thoughts, or ideas before the diagnosis came, where you were kind of like, “Yeah, probably this isn’t going to work forever?” Or like you mentioned, that’s such a good point. “If I want to take a vacation, I actually have to pay for it twice, because I have to pay for the vacation, but then I lose the money that I would’ve made at work.” We call that opportunity cost in economics, and it’s something that people don’t factor into their financial picture, is when you have a job that you have to be in a location to earn money, when you take a vacation, you also lose the money you would’ve made working. So there was some inner just ideas that were in your head saying, “Hey, this isn’t great.” Do you feel like the diagnosis was the spark that jump started this? Do you think you’d have got there eventually? Or was it just you had no idea at all until this news hit?

I think there was something in me that knew something. I mean, in terms of research for real estate, I watched HGTV, and the flip shows, and stuff like that. But again, it’s more entertainment. But like I said, I’d always been drawn to real estate and design, and locations, and values and stuff like that. I just never, stupidly, realized that I could make money off of it.

No, I appreciate you saying that.

Yeah, no, so I just feel like I knew I needed something. I just didn’t know what that was until I had my diagnosis, and read Rich Dad, Poor Dad, and everything came way more clear.

Yeah, I mean that book is the portal from one world to another for so many people. And it’s funny, it’s good to hear this, because there was a time I didn’t know you could make money investing in real estate. And when I got into it, it was 2009, late 2009, it was not considered a thing you did to make money. It was considered a thing you did to lose money. That’s all everybody talked about, is, “You’re a real estate investor? That’s the dumbest thing ever. Why would you?” It was almost mocked at the time. So, it’s good to hear this. We have a big listener base that’s new. They’re like, “What? You could buy a duplex and get $500 a month?” It’s not known to everyone out there. So, I appreciate you sharing that part of the story. Now, how did your first deal work out? Did you know what you were going to do? Did you fall into it bass ackwards? How did you end up buying your first property?

So, I was definitely in analysis paralysis for a couple years, and after I healed, and was working like crazy to get out of debt, I really dove into BiggerPockets with the podcast, webinars, books, everything. I just lived and breathed that as much as I could. But, the one thing that I did, is this is all theoretical. So I know didn’t know any of this actually worked. It was all in theory.
So, I looked at different markets, I tried different… I actually made some offers on properties, and backed out of them over as little as $500, which I’m embarrassed to say right now. But, I thought in my head, “I’m sticking to my guns, these are my numbers, and I am not going to waiver one bit.” And so, when I first started, I thought that was the right thing.
I think that what really changed that, is I actually listened to one of your guys’ episodes with Whitney Hutton, and she was talking about turnkey rentals, and it was something that I had never really wanted to do because I wanted to capture everything. I wanted the equity, I wanted the whole shebang. I wanted it all. But I realized as she broke it down, at least starting off, this is such a good… It’s like training wheels. I had purchased a house, or two houses before just to live in, so I kind of knew the process of that, but the investing side of it, it was still so foreign to me, and this was just a very low barrier to entry. And so, that’s what really got me into it. I actually reached out to her, and she gave me a property management recommendation, and they started sending me turnkey deals.

I think that’s super cool, because this whole story is starting to piece together, and it’s… Because what happens a lot of the time is people say, “Well, I want to be an investor.” And they start looking and researching, and they get overwhelmed in analysis paralysis, and then they never actually take any action. A couple of things that you did, which were super cool, is you made some offers. Even though you backed out of the offers, actually analyzing the property, and making the offer is a form of action. And so, you’re training your mind to say, “All right, we’re doing this.” You were double Dutching your way in, and back out.
But the super cool part is, you made a decision when you got sick, that you were going to figure a way out. And when we make decisions like that, we tell our brain, “Hey, I’m going to figure this thing out.” And that doesn’t mean you’re going to know exactly what to do next once you make the decision, but you’ve told your brain to listen for it. And then what happened was, as you started to research, or listen to other podcasts, you heard someone say something, and you went, “Hey, that’s the thing. I think this is what I can do.”
And then you dive into the research on that part and then you take the action. And I think that’s what a lot of new investors need to hear. It’s not that you’re just going to start investing and the plan’s going to perfectly unfold, It’s okay. But if you can truly make that decision and mean it, you’ll start to hear and see the things that are going to guide you down the path, that will get you started. I think that’s a good, realistic way for people to think about investing. Make the decision, even if you don’t know how, even if you don’t know how… I don’t have the down payment, or whatever the obstacle may be, just tell yourself, you will figure it out, and be sincere about it, and then immerse yourself in the information, in the culture around other investors, and how starts to reveal itself. Man, that’s just really cool.

I think also within those two years of me being in analysis paralysis, things did shift, because when you’re first starting to learn, I was like, “Okay, let’s say I buy a single family rental, and I start cash flowing 150 bucks, 200 bucks after all expenses.” It’s not a ton of money. And then it’s really overwhelming to think about, “Gosh, how many of these houses do I actually need to make a dent in my life?”
And my question was, “Well, how am I going to get money over, and over, and over again to buy these houses?” And then I found Burr method, and really do dove into that, and that really sparked some interest, and made so much sense to me. And so, from that, I moved into researching that. That’s when I started making some more offers, and backing out over minuscule amounts. But I feel like where I was going just was shifting as I was learning more. I was adding more tools to the belt, so that even though without the practice of it, I just knew more, and was able to talk the talk, and kind of progress from there.

All right. So, you had several deals you backed out of, you mentioned. Now was this to buy your first deal, or was this later in your career that was happening?

First? Yeah.


The very first one.

And that was basically just a defense mechanism, right? “I don’t want to get taken advantage of, so if anything’s wrong…” And when you’re new, that’s normal. We all have things that we look back on our first day of school, or your first time doing something, where you were ultra hyper aware, and you look back, you’re like, “Okay, I was overacting. But that’s just how life is. You don’t know what to expect. So, eventually you did buy one. Tell us about the deal you bought, why you liked it, and how you decided to move forward.

So, it was a turnkey deal, but it actually… I call it my accidental Burr. It was a three bedroom house in Kansas City, Missouri. It was $70,000. They sent it out in December, 2019, and it said, “Holiday special.” And they said that the comps were around $90,000. And so, I looked on my own, and I agreed, I’m like, “Yeah, it does look like it’s around 90,000.”
So I went forward, already had a renter in there for $800 a month, and they fixed some things through the inspection, and by the time we closed, I just started getting checks. And one thing that did happen, is my lender actually backed out two weeks into the process. And so, I had a choice of backing out, or using a line of credit to actually pay for it in cash. And so, I decided to move forward, and I basically paid cash with someone else’s money. And a month afterwards, I went to go refinance, and without doing anything to it, it appraised for I think $116,000, and I pulled out $74,000, which was my initial amount, plus closing costs.

What was the reason that the lender backed out?

Because it was through a property management company. They said that the underwriter didn’t feel like it was a traditional deal, and so they felt not comfortable about it. And so, I didn’t question it that much. I mean, the property management company did have a real estate license. So, in retrospect, I probably could have pushed back and said, “Well, here’s their license here. This is the reasons why it’s legit.” But, I felt like it was all happening so fast that I just needed to react, and luckily I did have that cushion to be able to still make it, and move forward.

So there’s a lot to unpack there. First of all, having the wherewithal, after you’ve made a couple offers and backed out over $500, and then boom, you do your first deal and your lender backs out two weeks into it, and you’re stuck with that deal, man. So I’d assume you felt more committed then, right? You felt more trusting of those numbers. But, I think there’s a lot of people that may be interested in turnkey as an option. You’d mentioned that you did your own research, right? So, tell us a little bit about how you felt comfortable buying it, by doing your own research. What did your own research look like? Because a lot of these turnkey companies will tell you what the value is, but if you’re brand new, how do you then take that information, and go try to discern that for yourself, so that you feel like you’re actually buying a good deal?

Yeah, I mean I basically looked at the neighborhood. I even walked on Google Streets, to kind of see what it was like. I looked at Zillow, I looked at recent sales, I looked at listings that were active, and tried to compare to my house, and the square footage, and the bed count, and the bathroom count, just to see what it looked like. And it seemed like it was really solid. And yeah, it is a funny one, that I felt like I was committed, and didn’t back out, and pulled out a much larger chunk, versus I thought I was going to be putting $14,000 into this as a down payment.
And it was kind of a blessing in disguise, because I was able to refinance much quicker because of it. But yeah, I think it goes to me looking at the numbers, and seeing how good of a deal this actually was. And especially for a first deal, I just felt like… I had looked at other deals that they had sent, and nothing was close to this.

Also, and I think that’s great, 100% totally agree. That’s a phenomenal way to do it. It used the resources you have access to. We all have access to Zillow, we have access to Realtor, we have access to be able to look at some of these things. There’s valid information in there to be able to do some level of your own analysis. The other thing to think about is, you don’t live in St. Louis, right? You said you did the walking on Google Maps. And so, what made you… I’m sorry, Yes, I’m sorry. You don’t live in Kansas City, right?

Kansas City. Yeah.

So, what made you comfortable with Kansas City as a market overall, to then go ahead and buy a property there?

Well, someone that we might know wrote a book about long distance real estate investing, and that book really broke down any fears that you have. And to this day, I’ve actually never been to Kansas City, Missouri, and I feel like the only reason for me to go at this point, is maybe to meet the people that I’m working with, and just to get more of a personal feel for that. But other than that, I felt like at a certain point when I was starting to make these relationships with local people, the boots on the ground, I needed to trust them. Because if I wasn’t able to trust them, then this wasn’t going to work at all. And so, of course, I would do what I can to verify the things that they were saying, like the comps, going on Zillow, walking through the neighborhood virtually, stuff like that. But, it just kind of solidified what they said, and kind of proved that they were being truthful.

So, were you nervous about doing this before the book? Did the book help get over some of the hurdles? Or were you already committed to doing it, and the book maybe just provided a framework for the right way to go about it?

I mean, that was during my analysis paralysis time period. But it was another one of those notches that solidified… Because I live in the Los Angeles area, everything’s very expensive, and maybe that was part of the reason why I never knew that I could be a real estate investor, is because I felt like, “Oh, well I have to buy it down the street, and I can’t afford that, so I just won’t do it.” But it’s like the book was great at just breaking down every concern, and how to walk through, and actually make a deal happen, without ever going to a place. So, I think that it was invaluable in that sense.

All right. So, when it comes to long distance investing, what was something that you maybe were afraid was going to be the case, or you thought was going to make it difficult, and then once you did it, you look back and you’re like, “Oh, that wasn’t that big of a deal, or it’s different than what I thought it would be?”

I think the biggest fear was trusting people that I didn’t really know. I was meeting these people through Facebook groups, or through different online platforms, and it’s hard to trust, especially when you’ve never done a deal before, what they’re saying. And so, I think being able to verify, and again, in your book, you kind of give resources on how to double check things, and how to circle back. I think that helped so much, in terms of my trust in them.

There needs to be a word in the English language for this concept. I don’t know why it’s such a hard thing. But frequently, when you’re a business owner, which you are if you’re buying a property, it’s just a… You mentioned the word mindset. Mindset comes up so much. When you’re the person in charge of the endeavor, and you have to solve the problems, you think differently than when you’re the W2 person in the business and you’re like, “It’s my job to just do a thing.”
Frequently people will come up to me, and they’ll say, “We have a problem. This just happened, we can’t do it.” I mean literally, we’re going through, in my own portfolio… I created a spreadsheet to track all the properties I have, what I owe on those properties, what the payment is. I’m systemizing everything so I can ultimately share this spreadsheet with other investors, and it tracks like, “Hey, these are all the properties you have, these are the offers that you’ve written, these are the ones you have in contract.”
And somebody on my team was saying, “For months we’ve been trying to find your login information for this bank on these properties you bought eight years ago. Can’t be done. And it’s literally been four months I’ve been waiting.” And so, I get on the website, and there’s a chat option, and I click the chat option, and I talk to a person, and within 30 seconds I’m in there. And I was like, “I am not the smartest person on this team.” I’m looking at it, “How can I do it?” And they’re looking at it like, “Oh, I can’t do it, so it’s not my job, I don’t have to do it anymore.”
There’s some magic that happens when you get shifted into this position of, “I have to figure this out,” and you become a superhero. I’m not saying I’m a superhero. In this case, the superpower was thinking to use the chat option, instead of just trying to reset a password when it’s not working. Can you talk a little bit, Josh, about, when you’re afraid to invest long distance, you can think of all the reasons that it’s a bad idea, and you don’t take action, you get analysis process. But when it has to happen, you start finding solutions, you start living this empowered life, you start to feel good about yourself. You start to gain confidence, because stuff that to other people seems impossible, to you, isn’t really that difficult. Do you feel like almost a different person now that you’re investing in real estate, and you’re having to come up with solutions where others are just seeing impossibilities?

Absolutely. I mean, people that I know that are not in real estate, they don’t understand how I own a handful of units in a state that I’ve never been to, or a city that I’ve never been to. And I feel like my production background, my producer background is about solving problems. And every job that I do in that world, people come up with an idea, a script, a commercial, whatever it is. Problems are different every single time.
So I feel like because of that, me being able to solve those problems, and I’ve been doing it for a long enough time that I usually know someone that can pull something off. But sometimes they surprise me and they’re like, “Look, we want to do this,” and I nod my head, take a breath, and then think about it, and figure out how to solve it. And so I think that skill really relates to any issues that do come up with real estate as well. And I think taking a breath, and looking at it logically, and like you said, you did the chat button.
I mean, it triggered me a little bit because I’m going through and organizing all my logins as well. But, I’ve done that. Sometimes I’m like, “Well, I’m not going to be able to recover this password, but how can I get a new one?” Because they obviously want me to have access to this. They’re not cutting me off in that sense, because they want me to keep paying, and I have auto pay. So, if my banking information changes or something, they want me to have this. So, it’s just a matter of figuring out how to get there.

Yeah, and the way I’ve tended to look at this is, your heart will be the rudder that steers the decisions that you make. If there’s fear in your heart, you will find the reasons to say, “This is impossible, this can’t be done. I’m not going to take action.” If there’s a drive, and ambition in your heart, you’ll probably find the answers. For you, being diagnosed with pancreatic cancer, with your family’s future on the line, you’re getting over the fear that at one point kept you stuck in analysis paralysis. And all of a sudden thinking, like clicking the chat button, I don’t need to be Elon Musk to think of a solution like that. I just had a strong drive to get logged in, whereas the people on my team had a strong drive to get that off their plate, say, “Ah, it can’t be done. I’ll go do the next thing that I would rather be doing.”
And so, I’m frequently talking to people who are having a hard time getting started, or scaling, or whatever they’re doing, and asking, “What’s in your heart? Is this not for you? Are you terrified, you don’t want to do it? Are you looking for an answer to solving life’s problems that real estate was never meant to solve?” If you’re not good at your job, or you’re not good with money, man, you’re going to get worse with money when you get into real estate, because things go wrong, like you’ve mentioned. There may be some other things you got to fix before you jump into this. The older I get, not that I’m an old man or anything, but I’m starting to recognize, the position of your heart, what is in there plays such a big role in where things end up. Henry, you’re smiling right now like you’ve got something you want to add onto this. Do you want to elaborate there?

Nah, I 100% agree. I’m smiling because you’re right. It’s what’s in your heart, and that drives your decisions. And not only does it drive your decisions, but when you think about putting yourself in a position to… Because that’s essentially what you’re doing. When you’re leading with your heart, you may not know what the next exactly step it is that you need to take. But you know in the grand scheme, “This is the direction that I’m looking to go.” And so, you will start to think of creative ways to push yourself in that direction. And I’m just a big proponent of, you steer the ship with the heart, and you’re 100% right man. So, that’s always going to make me happy.

Now, can you tell us, Josh, we see how you got that first deal. What does your portfolio look like now? Where have you scaled to?

I’m up to 20 doors. 11 of them are short-term rentals, and the other are long-term rentals. Of those 11, six of them I am renovating. So, only five are live right now. And then the other six are major renovations.

And how are you managing this many properties, especially nine short term rental doors?

So, on the long term, I do have a property management company for that. So, once I get it stabilized and set, it’s quite easy to just answer some emails to them every once in a while. All the short term rentals, I am managing myself. I have systems in place where, automated messaging, price strategies, et cetera, et cetera. I did just recently hire a virtual assistant to help me with messaging, so that when these renovations are done, and I more than double my short term rental portfolio, I don’t drive it into the ground without having enough help.

That’s awesome man. Tell us too, where in the country the short term rentals are, and versus your long term rentals, and what made you go, “This is the market where I want to do short term, versus long term?”

Well, the majority of them are in Smokey Mountains, Tennessee. And so I think what spawned me to that was listening to Avery Carl on BiggerPockets, and I reached out to her, and we had a great conversation. Everything she said just made so much sense. And so, I jumped in, and found a deal that was two cabins on two acres of land. It was way more expensive than my Kansas City place, but it was $635,000, and I wound up using my HELOC for the down payment. We closed March of 2020, the day that everything shut down.
And so, it forced me to do several things. I was planning… I went out there for the inspection. That was the first time I’d ever been to Smokey Mountains. But I was planning on going back as soon as I closed, to help set it up, change the linens, swap out a couple things here and there, whatever. And the day that I was signing, I didn’t even know if I was going to be able to get to a notary. I didn’t know what was going to be open.
So, I did close, and took my time interviewing cleaners, prop maintenance people, stuff like that. And what it did, was it forced me to use them to set up my property remotely. And I thought I had to be there, but it worked, and bookings started coming in. And so I went pretty heavy in the Smokey Mountains. I have nine units there, six of them are the ones that are being renovated. But I did invest one cabin in Idyllwild, California. And the reason why we did that is because we wanted something that maybe we could use every once in a while. It’s a couple hour drive from where I live, and then another one at Big Bear, California. And that for the same kind of reason, it’s good market, but we wanted to potentially use it every once in a while as well.

So, it sounds like you’re picking short term rental locations that have a long standing history of being short-term rental locations, even prior to Airbnb being a thing, which I think is a smart move when you’re looking to get into the short term rental game. And your long terms, where… Are most of those in the Kansas City market?

Yeah, they’re in Kansas City. I mean, I do have two mobile homes that are on a property that I own in Smokey Mountains, Tennessee. So, I count those as a couple doors, because I have two tenants in there. But yeah, the majority of my units are in Kansas, Missouri, for long term.

What are your concerns with the short term rental market becoming oversaturated? This is something we hear a lot of people talk about. It speaks to that fear thing like, “Ah, everybody’s getting into short term rentals, I’m not going to be able to get the bookings I’ve been getting.” It’s obviously a volatile market. You get changes with municipalities, you get regulation that comes in, Airbnb changes their algorithm, the whole thing gets turned on its head.
It’s clearly a market that has not set it and forget it, which is… I bring it up because for so long we’ve hyped real estate investing as passive income. The idea is it’s just money that comes to you. And at some point in life, that might have been partially true, but with the level of competition that we have now, there’s nothing passive about this. I was working this job, and now I’m working this job. And it’s better, I think all of us would agree, it’s a better way to work and it’s more freedom to it, and it involves more creativity, but it’s still a form of work, and there is still some risk. So, what are some of the things that concern you about the short term rentals that you have, and how are you mitigating that risk?

Yeah, this is actually coming from someone who just purchased what, 15 short-term rentals in how short of a time, David?

Well yeah, that’s exactly why we’re talking about this.

I think it still comes down to the core basics of real estate, and if you buy it right. And my strategy with short-term rentals is improving them. I like the value add strategy. I love design. It actually gave my wife an excuse to buy some really cool design furniture, and decor that we don’t even have at our house, and put it in a place that we could make money off of it. Yeah, I mean there are going to be ups and downs with short-term rentals, in terms of occupancy, and rates, and whatnot.
I think people still need to go on vacation. So, whether it’s a lot of people are going on vacation, or less people are going on vacation, if you buy it and you analyze it right, conservatively, you’re going to be okay. Now, how much you’re actually making from that is going to vary. But to me, if I could cover my costs, and then make some profit off of it, that’s really the main goal. And then hopefully over time, all of this stuff is going to appreciate anyways.

Henry, what about you? You’re involved in several different kinds of real estate endeavors out there in Arkansas, a bit of a connoisseur of real estate, kind of dabbling in many different things here. What concerns do you have with the short term rental market specifically?

Yeah, I mean the normal concerns everybody has. My main concern is… Well, speaking specifically, so I have short term rentals, but they’re all here in my local market. Well, I say I have them, I have three of them. And my concern, or the thing that I’m keeping an eye on is, the reason I bought in the market, or turned the properties into short-term rentals that are in the market that I’m doing it in, is because it is a travel destination for both corporate, and for leisure, but there’s not a lot of hotel options. There’s just a shortage of places for people to stay, in conjunction with the amount of people that come here, and need a place to stay for a short period of time.
And so it’s currently what I would call a safe option, but I am paying attention to what’s happening in the future. And so, if you stay connected to your local cities, and municipalities, and you are connected to the people in the city council meetings, and following them on social media, people think you got to do a lot of… There’s so much technology now, you don’t have to be in city council meetings to understand what’s going on in your local market. You can follow the cities and municipalities on social media, on Facebook, on Instagram. They post a lot of what’s coming through those channels.
And so, you can stay connected that way, and I am starting to see that a lot of the families, and institutions that have money around here are building hotels to solve for that issue. And so, my concern, or the thing I’m keeping an eye on is, when are these hotels supposed to be completed? How many are they building? How many rooms are going to be in them? So that I can try to understand if it makes sense for me to continue to grow a short-term rental portfolio in this market, because my 2 cents, or my thought process goes to, if I am a wealthy person, or persons, and I want to build hotels, and I have that kind of money, I probably have influence as well over the city, and maybe some of the rules, and laws. And so, I would assume there may be some sort of regulation that comes down the pike once those hotels are up. So, those are some of the market specific things I’m concerned about, and keeping an eye on.

Josh, what about the future? Where do you see yourself investing from this point going forward, and what types of asset classes?

I do like the hospitality area, which is short-term rentals, and I’ve actually joined with several other investors, and we are creating a fund to buy short-term rentals, and small boutique hotels. And so, this is new to me, but some of the people in the group have done several boutique hotel deals. I guess five of the six cabins that I’m renovating, that was my first commercial deal, because it was five cabins at one time, and the renovation costs were built into that. So, that’s my limited knowledge about commercial loans, and that kind of world. But, I’m learning a ton, and the people that I partner with are great at what they do, and what I could bring to it is finding where that market is, and what the experiences that people are looking for, and what we could put into those short-term rentals, or hotels, to make the guest experience great.

The last question I want to ask you about is with your story, with the Nest lock that ran out of batteries. Tell us what happened in that situation with your tenant.

Yeah, so I am in California, which is three hours behind Smokey Mountains, Tennessee, but this guest for some reason didn’t arrive till 2:00 AM, or 3:00 AM, which even for me that’s past my bed time. I go to sleep early. But for some reason I was up, and I was about to go to bed, and I get this message saying, “We can’t get in.” Which is never something that you want to hear, especially that late, in a market. “How am I going to solve this?”
And I had to call a maintenance person that I was using quite regularly, so I felt like we became pretty friendly about five times to wake him up, and have him go over there. What I realized, and something that I have in my process now is, first of all, I have someone checking my batteries once a month, because I never want to be in that situation again. Second of all, it was a Nest lock. So, what I realized is you could take a nine volt battery, put it at the bottom, and it gives it enough power to unlock it, and then you could solve the problem later. So, I actually have lock boxes on all of my cabins that I keep a nine volt battery in. And in an emergency I could give the guest that code to get the nine volt, to get in temporarily, and then actually fix it when it’s working hours, and not have to wake up a poor maintenance man that was dead asleep at three in the morning.

That is the physical manifestation of, “Never again. Never again is that going to happen.”

I learned my lesson.

Awesome. Before we transition to the next part of our show, I heard you mention a few times you kept saying, “Hey, you just need to breathe,” or, “I just had to breathe, and give this some space, and think about the problem.” And I interpret that as taking a step back, removing your personal feelings out of it, and looking at the situation logically. Can you talk to us a little bit about some of these steps that you’ve implemented into your life to deal with both real estate, and health, and how that’s helped you?

Yeah. Especially being in the short term rental business, I’d say the majority of my guests are great, but there are those guests that really can get to you. And so, when they write those messages, or send you something that your immediate response is infuriating, and you want to just strike back right away, I’ve learned through production really, because so many problems do come up, that before I send that message back, before I send that text back, whatever it is, I take a beat.
I might have to walk away from my phone for a couple minutes, until I get control of myself. I mean, this is something I even implement into my children, where I say, “Go get control of yourself, and come back, and then we’ll talk.” And sometimes I do it myself, in my family. It’s like I feel myself getting worked up, I say, “I have to give myself a minute,” and I walk away, and then come back, and then you can actually deal with the actual problem, and be a little more logical about it. And that goes for anything, any part of life. It’s like just take a beat. Don’t be so reactionary, don’t be so emotional, because that’s not always the best response that you could do to solve the problem.

You know how many times… I allow myself to write the message. I’ve just got to bang on the keyboard for a minute, and give the keyboard a piece in my mind, and then I delete all the stuff, and then come back a little later. But, that is a wise approach.

Instead of banging on the computer, I think I’m in my head going through all those responses, and that’s like part of my minute or two that I’m like, “Okay, I got those out, now let’s actually deal with this, and what’s going to solve this? And how should I actually respond?”

All right. Well this has been fantastic Josh. I love hearing your story. I’ve loved hearing about how you’re taking on the challenges that are coming your way. When you were talking about that nine volt thing, it brought up the whole W2 versus 1099, “I’ve got to figure this out,” mindset. I can absolutely see somebody who doesn’t care about finding the solution saying, “Oh, the battery’s dead, there’s nothing that we can do, the guests can’t get in. I guess they’ve got to sleep in their car. There’s nothing that can be done.”
Versus you probably went and Googled how to open a Nest lock when the batteries are dead, and there’s something on there about this nine volt battery trick, and then you could have looked up the closest place to go buy a nine volt battery, and texted the guests, and been super apologetic like, “Look, go do this. We’ll get you in there.” There’s always a solution. It’s just, are you looking for the solution, or are you looking for the reason to not have to look for the solution? It just depends where your heart’s at. So, thank you for sharing that. That’s been great.
The next segment of our show is the Deal Deep Dive. At this segment of the show, Henry and I are going to take turns firing questions at you as we dive deep into one particular deal that you’ve done. Question number one, what kind of property is this?

This is an A-Frame cabin.

How did you find it?

It was actually on… I found it originally, someone posted it on Instagram, and then I looked up the listing, so it was on the MLS, but there is a community of A-frame lovers all over the world, and I do follow some of those accounts, and this popped up in a market couple hours away from me, and that’s what spawned me to go check it out, and have something a little bit closer that I could use.

Those A-frames are very cool. I bought one of them myself in the Smokey Mountains, and the pictures just really stand out for some reason when you’re looking at that A frame cabin.


All right, question number three. How much was it?

So it was listed for $300,000. This was June of 2020, where everyone was still very unsure about the real estate market. It had been sitting there. I offered 250, they came back at 275, and that’s where we closed.

Whoa, fantastic. You are a savant, because the next question was, how did you negotiate it?

Yeah, I think it’s just because it was sitting there, and being still the beginnings of COVID, no one knew where the real estate market was going to go. I at least had those Smokey Mountains cabins that were up and running, and I saw how valuable it was. So, I just wanted to jump on, and get as many as I possibly could. So yeah, I think it worked my advantage for sure, when we made that offer, low ball offer.

Okay. And how did you fund it?

So I use my HELOC, actually purchase the whole thing, and do renovations. Because again, I had another lender back out on me. It was something where I got the lender from my real estate agent, and I thought that there was just something off, and it was something where they would ask me for a certain document, and I would send it within an hour or so, and then two days later, they would ask me for the same document. So, I would send it again.
I just felt like there’s something that’s going to be missed. And we got down to the wire, and so in my head I needed a backup plan, got down to the wire and they’re like, “Well this isn’t going to work.” And they basically pulled the rug from under me, or we had to go back, extend the contract even more, and potentially lose it, and provide way more paperwork. So, I used my HELOC to buy the whole thing cash.

Now do you refinance after that?

I did. So, that one we actually put $80,000 on top of it, into renovations, and that was building a bigger deck for the view, adding a deck for the hot tub, adding a hot tub, air conditioning, and then décor, and stuff like that. So, yeah, so afterwards we did raise the value quite a bit, and then we refinanced to pull the money out.

Awesome. Well, we know what you did with it, but we assume you did a short term rental, but the next question is what did you do with it?

Yeah, so we did make it a short-term rental. I think the first year it grossed $100,000, which is tremendous for… I mean, I was all in at $355, and after the refinance, we pulled out about $330,000. So, I was maybe in it for $20,000 total, and grossed about a $100,000 the first year, which was pretty phenomenal.

That’s a good cash for cash return.

Yeah. Remind us where we are?

I closed June, 2020.

2020. Holy cow, man. You made a hundred grand in the first year on a $20,000 investment.

I’d take that ROI.

It wasn’t too bad.

Yeah, what’s funny is there was a lot of people in 2020 saying, “Oh the market’s going to crash, it’s too hot, these prices.” Can you believe that someone’s paying $250,000 for a cabin? And that cabin’s probably… What do you think it’s worth right now? I mean, I’m skipping ahead, but…

I would maybe say 500-ish, I would imagine.

How big is it?

It’s a little smaller than a thousand square feet.


So it’s pretty small. It’s a two one, but it’s an A-frame that, the top level is is a really nice bedroom loft, A frame area.

That’s what’s tricky about short-term rentals, is like you might look at the traditional metrics like size, and sleep count, and not expect it to perform well, but it’s got something unique about it that makes it stand out on Airbnb, and it’s at the top of the list, and everyone books that little sucker.

Well, part of the reason why I loved that cabin in particular, besides it being an A-frame, and we kind of fell in love with the style of it, is it seems like it’s remote. We are at the end of a dirt road. When you’re there, you feel like you’re completely alone. So, it’s really for couples, and small families, and us as a small family, we went up there, and we would just have a blast, and you just feel at such a peace. And we decorated it with pretty high end furnishings, so because of that, I think we attract people from Los Angeles that want better style, and are willing to pay for it a little bit more.

I look for that as well, especially when I’m in buying cabins. I don’t like it when you look out your window, and there’s another cabin right next to you. You’re sitting in the hot tub, and you’re looking at the other person sitting in their hot tub. I always skew towards the ones at the end of the road, or the elevation’s different, so you’re sitting above the other cabin, there’s trees in the way. You’ve got to look a little bit harder, but I absolutely feel like if you’re going to the woods, you want to feel like you’re isolated. You don’t want to feel like you’re in a HOA.

It’s part of that experience.

Some of them literally are like track houses, but they’re just cabins. They just have wood everywhere, and a little bear figurine.


But they’re sitting on a concrete pad that a bunch of other ones are built on, all next to each other. It’s the most bizarre thing. I always think this is like what a ghost town’s going to look like. At some point they’re all going to be vacant. People are going to like, “Here’s a community of homes that no one’s lived in for 30 years.”

Is it a requirement?

Well, and I know this only from production cause I’ve scouted it a couple times, and I don’t know if it still exists or is like this, but right by LAX, there was a community of track homes that was abandoned. And so, literally, it’s all these houses. You go to this neighborhood and it’s completely empty, and you can walk around, and it’s this weird kind of vibe, and a lot of people do wind up shooting there, filming there. But yeah, it kind of exists. Maybe, this was a while ago.

All right, my last question that Henry’s got one more. What lessons did you learn from this deal?

I learned that this was a new market for me, in short term rentals, and what I learned was how to look at the market as an individual market, and what to bring to that market, versus the other markets. Because people that visit those markets are different than that visit the Smokey Mountains. And so what I really focused on was making a cabin an experience that really calls towards those guests.

And the last question is, who was the hero on your team for this deal?

It’s got to be my wife on this one. I mean, she helped design the cabin, and we get so many compliments, and people just love it. I mean, it’s so comfortable, and it looks great.

Awesome. That’s very cool to hear. Remember, you too can find the hero for your next deal, and maybe through BiggerPockets. Head on over to the BiggerPockets nav bar on, and find all the ways that the BiggerPockets marketplace can help you. All right, Josh. Moving on to the last segment of our show. This is the Famous Four. I’m sure you’ve heard this before, pardon the pun.

Speaker 4:
Famous Four.

In this segment of the show, we ask every guest the same four questions every episode. Question number one, what is your favorite real estate book?

Not to blow you up too much, but I’m going to have to say Long Distance Real Estate Investing by David Greene.

First time anyone’s ever said that. I love it.

I know that’s not true, but yes, sure.

Awesome. And what is your favorite business book? I haven’t written one, so you can’t flatter me.

I was trying. I looked, looked, I’d have to say a Shoe Dog by Phil Knight. I just feel like it’s really inspiring, and to see a company, how big it is now, and where they started and how they struggled and how they built up to where they are was really fun to read.

Awesome, thanks. And tell us a little bit about what are your hobbies?

I love playing tennis, and I’ve gotten my whole family into it. The kids started learning, my wife felt like she was going to be left out, so she started learning. So, all four of us play a lot of tennis. And other than that, we like to travel together.

Do you play a little mixed doubles as a family?

Sometimes. She’s a little more… I grew up playing in high school, and before, so she’s a little more self-conscious. We’ve done it. I keep telling her that she’s 100% in her games, because we’ve beaten all the couples that we’ve played against, but we’ve only played maybe three nights. So, she wants to keep that 100% statistic going.

She picks opponents very carefully.

She does. They’re not very good.

Tennis hustlers. All right.


Next question. In your opinion, what sets apart successful investors from those who give up, fail, or never get started?

I think it’s taking action. I’ve heard so many times while I was learning, that your first deal’s the most important, and it’s hard to understand theoretically when you’re just learning, but when you put your learnings into action, everything becomes clear, and you start to see, “Oh, this actually works. This isn’t just a theory.” So I think you have to take action.

So, tell us where people can find out more about you.

Well, I’m on BiggerPockets, obviously. You could follow me on Instagram at Bunk House Worldwide, and we show some of the deals that we’re going through, and some of our cabins, and struggles that we go through when we’re renovating, maybe. And you could DM me there. Also you could reach out to me at [email protected], is my email address, and yeah.

All right, Henry, where can people find out more about you?

Best place to find me is on Instagram. I’m @theHenryWashington on Instagram.

All right, Josh, this has been fantastic. I appreciate you sharing some time with us. Do you have any last words that you want to share before we get you out of here?

I would just say go out there and do it. What you’ve learned works, and just trust your instincts, trust the numbers, and go, go, go.

That is great advice. Thank you very much, Josh. And also thank you for sharing your story with us. Everybody likes to talk about the success points in their struggle. They don’t always like to share the parts that were not as good, but those are very important to hear. So, props to you for sharing that. I appreciate it. We’re going to get you out of here. If you guys would like to follow me, I am DavidGreene24 on social media, and that is the same on YouTube. You can now put @DavidGreene24. You should find me there. All right. This is David Greene for Henry the Hulk Washington, signing off.


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Today new home sales beat estimates, and new home median sales prices hit an all-time high. What is going on here? My job is always to be the detective, not the troll so let’s take a look at today’s data, as there is a constant theme here that I have talked about for some time. Hopefully, I can make sense of this report, which showed the home sales beat estimates with prices still at all-time highs.

From Census: New Home Sales Sales of new single-family houses in October 2022 were at a seasonally adjusted annual rate of 632,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 7.5 percent (±20.8 percent)* above the revised September rate of 588,000, but is 5.8 percent (±19.6 percent)* below the October 2021 estimate of 671,000

New home sales haven’t gone anywhere for a few months now, and this report also had negative revisions to the prior reports. The cancellation rates are rising, this is true, but the Census reports don’t properly account for those sales being lost. In theory, the sales levels are lower than the data will show.

Also, these reports are very wild month to month, so we can get a swing back lower in next month’s report. However, with all that said, new home sales are historically low today and have been for some time. We are well below the 2000 recession level and back to 1996 levels.

When you account for a population of over 330 million people, that sales number looks a lot lower than in 2000 and 1996 so be mindful that we are trending at low levels today.

While the actual sales trends can be more downward than the report shows, it’s not off by a significant amount. We are, for now, bouncing off the bottom that we had back in 2018, which was historically low as well.

In 2005, when the housing bubble peaked in sales at around 1.4 million, we had a clear, aggressive downtrend in sales with cancellation rates rising aggressively. Today we are finding a low base for now, because new home sales are historically low. 

I would be careful reading too much into this report or even the current trend. The housing market has been in a recession since June of this year, and we have other data lines that can be more useful in gauging the new home sales sector.

From Census: For Sale Inventory and Months’ Supply The seasonally adjusted estimate of new houses for sale at the end of October was 470,000. This represents a supply of 8.9 months at the current sales rate.

My rule of thumb for anticipating builder behavior is based on the three-month supply average. This also has nothing to do with the existing home sales market; this monthly supply data is only for the new home sales market.

  • When supply is 4.3 months, and below, this is an excellent market for builders.
  • When supply is 4.4 to 6.4 months, this is an OK market for the builders. They will build as long as new home sales are growing.
  • The builders will pull back on construction when the supply is 6.5 months and above.

The existing home sales market has 3.3 months of supply, so we have had a historical gap between new and existing monthly supply for some time now. However, since I started my housing economic work, this has been my rule of thumb: 

The three-month average of monthly supply in the chart above is running at 8.6 months, and the monthly supply headline number did fall for the previous report. This data line has always been key to my work, which has run well with the builder’s confidence data that has gone into waterfall collapse mode, as you can see below. This data line is considered positive when it’s above 50 and currently at 33.

We are still in housing recession land as the builders still have a lot of new construction homes and haven’t started yet to build.

For the builders, 61,000 new homes are completed for sale, amounting to 1.2 months of the supply, and 298,000 new homes are still under construction, while 111,000 haven’t started. The last two data lines account for 7.7 months left in the data.So as you can see, we have a lot of homes that aren’t on the market from the 8.9 months of the supply.  We can see why the builders are done building new single-family houses as they have a lot of work left to do ( Article Link).

From Census: Sales Price The median sales price of new houses sold in October 2022 was $493,000.  The average sales price was $544,000. 

This part of the new home sales data has confused many people per the last few reports because it is true we have hit an all-time high in median sales prices for new homes. Over the past month of social media, I have tried to convey this message about using median sales price data for the new home sales market. This data line can move highly one way or another based on the mix sale shift of prices. This means that getting a report that has an outsized of bigger homes sold can tilt the data aggressively higher.

Earlier in the year, when we saw a more significant percentage dip in median sales prices, this was due to having more smaller-sized homes in the sales mix. Just know that median sales price data always need to be taken with a grain of salt.

Another housing data line reported today was purchase application data, which scored its third straight week of growth, coming in at 3% week over week. That data is still down 41% year over year, but as I’ve said for many months now, the year-over-year comps were going to be very difficult starting from October to January. This means we should expect 35%-45% year-over-year declines to be the norm. Right on schedule, since October we have seen year over year declines range between 39%-46%.

The last time we had three straight weeks of growth in purchase apps was the middle part of June. I caution that we are working from historically low levels, so the bar is low, but after three weeks of growth — and seeing the year-over-year decline become less — this is something worth noting. We will continue to keep an eye on this, especially if mortgage rates head lower.

I understand that the new home sales reports have been confusing at times this year but remember that the trend is your friend. We are working from historically low sales levels, and the builders are pulling out all the stops to sell what homes they can while rates are high.

The new home sales sector improved significantly when mortgage rates dropped to 5%. However, for now, the monthly supply levels are still too high for the builders to start new construction, and we can see they have a lot of work to do with homes still under construction.

With purchase application data showing some life now after mortgage rates have dropped, 2023 is shaping up to be very interesting. For now, I hope you can enjoy the Thanksgiving holiday with your family and eat well!

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Amid surging rates, declining volumes and a reduced appetite from investors in the secondary market, there are a growing number of casualties in the mortgage space, especially in the riskier non-QM segment.

First Guaranty Mortgage Corp. (FGMC), controlled by global investment management firm PIMCO, filed for Chapter 11 bankruptcy protection in June. Michael Strauss’s Sprout Mortgage shut down in July, laying off its staff without paying salaries and severance. Meanwhile, Athas Capital Group is winding down its operations and Impac Mortgage Holdings is backing off the product.   

But right when several companies are turning away from non-QM products, a Colorado-based lender has decided to launch a new division to cater to this market. The question is: why? 

Stronghill Capital – a small-balance commercial lender owned by the $20 billion-plus asset management firm ArrowMark Partners – announced last week it had launched a new residential lending division to provide borrowers with non-QM products, non-agency jumbos and investor programs.

“Probably it seems very counterintuitive when companies are running away from the flames in the fire, to see a company like ours making an announcement that we are going to go full bore running into the fire,” Dustin Wells, recently appointed as the co-president at Stronghill Capital, told Housingwire. 

Stronghill, however, is no stranger to the non-agency and investor loan space. 

The company sells loans via brokers for clients – usually LLCs, C-corps or S-corps – to acquire residential real estate for commercial and investment purposes. Now, business owners can also apply for a mortgage loan as an individual.

“So, for example, if I’m a business owner working with a brokerage to buy five investment properties that I’m going to invest in my LLC, but I also want to buy a new primary residence or a second home, now we can be that one-stop-shop for this client,” he explained. 

According to Wells, Stronghill originates about $500 million a year to real estate investors, employing about 30 staff members, and has “trusted partnerships with warehouse providers in the space to provide credit facilities to fund loans on an ongoing basis.”

With surging rates, lenders are struggling to sell legacy lower-rate loans originated months ago in the secondary market as investors seek higher yields. This liquidity problem caused the implosion of non-QM lenders, but Wells said that by entering the market now, Stronghill “fortunately don’t have any legacy issues like these companies.” 

The company, which operates in wholesale and delegated and non-delegated correspondent channels, will outsource most of the back office work for the new division.

Wells said Stronghill is not competing with wholesale lenders with aggressive pricing, like United Wholesale Mortgage or Homepoint. He said Stronghill’s brokers deal with more “esoteric” cases, while these companies are “built on scalability through simplicity.” Consequently, Deephaven and Angel Oak would be the natural competitors.

Stronghill has licenses in five states for the new division – Arizona, Colorado, Florida, South Carolina and Texas – but is working on getting 44 licenses in total.

Looking forward, Wells said the new division will grow according to, among other things, the Federal Reserve funds rate.

“We’re saying somewhere between $400 million and $500 million is our projection for the residential consumer space heading into next year. And then, depending on where things track in 2023, we could see exponential growth into 2024,” Wells said.

Despite higher rates, Wells said borrowers are looking at purchase loans because there is currently less competition for houses compared to the past two years. 

“Now, you might be paying a higher rate, but you’re able to negotiate on those properties and can work through getting a lower rate in the future,” he said. “But right now, the focus is: Can I get the house at the right price, whereas before, was I going to pay too much?”

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If you are like me, I suspect you’ve heard a good number of gurus, or even seasoned, well-meaning investors, give the following advice in some form or fashion:

“Systems and policies are essential. If you want a business that works, you need to have systems and policies. You need to have those systems and policies, and you need to follow those systems and policies because systems and policies are absolutely essential to have and follow. Systems and policies!”

While it is certainly true that systems and policies are extremely important as I will elaborate on further shortly. Of course, just saying that isn’t particularly helpful. The “how” part is often missing, unfortunately. So, in this article, I will at least sketch out an outline of how to approach building systems and policies for real estate investors.  

Why Systems and Policies Are So Important

First and foremost, the reason systems and policies are so important is because it’s a massive waste of time and energy to simply reinvent the wheel over and over again. Indeed, even the simple act of making decisions can be exhausting, and so if there is a solution ready to go for a given problem (i.e. a system or a policy), you can execute that solution with little thought and devote your mental energy to something else. 

Systems also make it easier to delegate tasks, as employees and contractors won’t have to continually ask for directions. They also allow you to maintain quality control and standardize outcomes throughout the various parts of your business. Furthermore, they make it easier to stay on the right side of the law as treating someone (particularly a prospective or actual tenant) differently than another one could amount to a violation of Fair Housing.

But the most important reason for systems and policies, at least in this author’s humble opinion, is that they lay the groundwork to scale your business. It’s important to remember scaling is not growth. Instead, scaling is what facilitates growth. Investopedia defines it as follows,

“Scalability refers to the ability of an organization (or a system, such as a computer network) to perform well under an increased or expanding workload. A system that scales well will be able to maintain or increase its level of performance even as it is tested by larger and larger operational demands.”

Growth for the sake of growth is the philosophy of cancer, which, left unabated, will eventually kill its host (the business). Only through scaling (which relies on systems and policies) can the foundation be laid to “maintain or increase” the “level of performance even as it is tested by larger and larger operational demands.” 

Only through scaling can you truly and sustainably grow a business. And even if you don’t want to grow that much, systems and policies will make your life a whole lot easier, shrink your liability and increase your profits.

The Key Point To Remember

I can’t think of anyone who has actually said this, but I do think there is an underlying assumption that many entrepreneurs believe you build your systems, and then you build your business. Or perhaps, you start off by building your business by going from one whim to the next, and then you realize you need systems, so you add those, and then you go back to building your business.

If I could ensure that this article accomplishes one thing, it would be to permanently remove this idea from your mind. 

Business does not work in such a sequential manner. Instead, you should be building your systems and policies in lockstep with your business. It’s an iterative and never-ending process. As you expand your business, you should be expanding and updating your systems and policies. It never ends. Don’t expect it to.

Learning and Borrowing From Others

Of course, that doesn’t mean you need to start from scratch and feel your way through the dark to only learn from hard-fought (and expensive) experience.

There are plenty of good sources to learn from, including here at BiggerPockets. You should be regularly reading articles (on real estate and business in general), reading books, listening to podcasts like the BiggerPockets Real Estate podcast, and attending meetups and conferences. You should definitely be involved at your local Real Estate Investors Association or BiggerPockets meetup groups and ask seasoned investors about their various systems. Trust me, people love to talk about themselves. They’ll open up.

There are also four books, in particular, I would recommend reading when it comes to systems and policies. Any business owner should read through these:

The E-Myth Revisited by Michael Gerber

This book outlines the importance of thinking of your business like a franchise owner would, creating the policies that could be handed to someone else in another market to replicate. 

The Checklist Manifesto by Atul Gawande

Gawande highlights the incredible improvement all sorts of organizations have made by simply having and following checklists for recurrent tasks. You should definitely start making these. We have developed checklists for creating scopes of work, screening residents, moveouts and deposit disposition, analyzing properties, due diligence, and financing properties, etc. Having these and following them dramatically reduces mistakes and oversights.

Traction by Gino Wickman

Wickman goes over creating an EOS (Entrepreneurial Operating System) that covers every part of your business and then hones and streamlines them as best as possible. 

Scaling Up by Verne Harnish

Harnish might as well take the torch from where Wickman leaves off when it comes to scaling. He particularly highlights the importance of creating key performance indicators (KPIs) to monitor and improve performance throughout your company. 

As a bonus, I would also add Getting Things Done by Gary Allen to systematize your own life. 

Of course, if you are a new investor, you don’t need to read all of these before you get started. But I would definitely get on reading them as soon as possible.

Laying the Groundwork

As soon as you can, you want to start building systems, even if that’s before you get started. (Although you should not use a lack of systems as an excuse to procrastinate, again, building systems is a never-ending process.)

You should start by identifying your core processes. As Gino Wickman notes in Traction,

“It’s surprising how productive this step is. This exercise creates clarity of thought that is then put down in black and white…just by calling your processes by a consistent name, you reduce complexity and increase efficiency in the organization.”

So, for example, in our business, we have the following core processes. Yours will likely be a bit different, but this should make it clear what you are aiming for.

  • Acquisition
  • Financing (private loans upfront)
  • Refinancing (bank loans on the back end)
  • Accounting
  • Rehab
  • Turnover
  • Property Management
  • Maintenance 
  • Human Resources (hiring, firing, etc.)

We have then blocked these into several departments. So, I oversee acquisition and refinancing. My brother oversees human resources and assists in acquisition, and my dad is in charge of finding private lenders (financing). Thus, in our main office, we have four other departments that report to us:

  • Property management
  • Maintenance
  • Rehab and Turnover
  • Accounting

I don’t have the space here to go over each component of each department, so we’ll hyperfocus on one aspect to give a general idea. In this case, we’ll look at how a typical turnover is handled through the property management and rehab departments.

Our process is as follows, with the department in charge noted in parenthesis.

  1. Visit the property and evaluate condition and damages (Rehab)
  2. Create a scope of work for repairs during the same visit (Rehab)
  3. Do a deposit disposition based on damages noted (Management)
  4. Send that scope of work to one or more contractors (Rehab)
  5. Evaluate the bids and make a decision (Rehab)
  6. Verify work is completed and take marketing pictures (Rehab)
  7. List property (Management)

This process requires several checklists and policies embedded within it. For example, we have a scope of work template in Excel for writing up scopes. We have a bid template in Smartsheet we send out to contractors. We have a deposit disposition template as well as a master availability list that shows everyone in the organization where things are at as the property proceeds from the management department to the rehab department and back.

Some of these templates are available free of charge. BiggerPockets itself has a long list of landlord forms, including applications and leases you can get for free. If you are a real estate agent, your brokerage and the MLS should also have such forms.

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As you standardize your processes, you should also standardize your materials. Use the same paint colors (or just a few), vinyl, countertops, appliances, etc., for your rehabs and turnovers. This will make it simpler to acquire and replace these items and also make it more likely you can simply make repairs or do a touch-up rather than a full replacement.

Now, this probably sounds like a lot. It is. You may be just starting, and the idea of having departments could sound ludicrous to you. That’s completely understandable. It was how I would have felt not too long ago. Remember, building systems is an iterative process. Build your systems for you in the meantime, and soon enough, you will be hiring others who you will want to make sure to follow those very same systems. Trust me, you will need to be continuously building and changing your systems and policies as you grow.

Indeed, we have a whole smorgasbord of old Google sheets and Word documents in what we refer to as the “Google Docs Graveyard” meandering about the cyberspace. There will be plenty of false starts and curveballs no matter how well laid your plans are.

The Iterative Process of Building Systems and Making Policies

Again, there’s only so much you can do upfront. As you go, you will run into all sorts of problems that you hadn’t thought of nor planned for. These unique problems, however, are great opportunities to systematize your business. 

Indeed, with each new decision you make, you should attempt to create a system or policy out of that. Don’t just fly by the seat of your pants as problems get thrown at you. Yes, it takes more time in the beginning to systematize and/or create policies. But this is a Quadrant II activity (important but not urgent), as Stephen Covey discussed in his classic book The Seven Habits of Highly Effective People. These are the tasks that reduce the amount of time you need to spend on such issues going forward. 

These Quadrant II tasks “maintain or increase” the “level of performance even as [your company] is tested by larger and larger operational demands.”

These Quadrant II tasks are the ones you need to prioritize.

To give you an idea of how this works, here are a few examples we have had to deal with and the solution we have come up with:

Problem 1: Cockroach infestation at a house three weeks after a tenant moves in.

Policy Solution: If infestation is within the first month of tenancy, it’s on us (they were likely there when the tenants moved in), afterwards, the cost is on the tenant.

Problem 2: Tenant constantly pays late, clogging up management resources.

Policy: Allow for one payment plan per year. Afterward, an eviction notice will be filed, and the tenant will either need to pay the whole balance or set up a time to leave.

Problem 3: A maintenance order takes way too long, and it was our fault.

Policy: In such cases (when it’s not so egregious, we would consider a rent discount), we offer a gift card to their favorite restaurant (which we ask for when they sign the lease) to smooth things over.

Of course, not everything can be systematized or made into a policy. On a recent portfolio purchase, a tenant gave notice to leave to the seller while we were under contract. Their lease, however, went for another six months. The seller had been soft about enforcing lease terms, so the tenant thought it would be fine. And they just got a house under contract to buy and couldn’t afford both the mortgage and the lease. In this case, we asked the seller to prepay two months of their rent, and we would call it good and let the tenant out of their lease. He agreed.

You can’t really create a policy for such a specific situation, but you can for many. And you can create broad outlines of how to respond to really unique circumstances (i.e. if, while under contract, the seller wants to let a tenant out of their lease, we expect to be compensated for it). So, while it’s impossible to cover every scenario, and you certainly need to leave room for flexibility when it comes to many decisions, you can still systematize and make policies for a lot of ground. 

And that will go a long way to scale your business and facilitate future growth (and continued sanity). 

Key Performance Indicators

As you go, you will want to start developing KPIs for each major area of your business. Broad indicators for your company are pretty simple and should include things like:

  • Gross Income
  • Net Income (after operating expenses)
  • Cash Flow (after debt service)
  • Change in Income Year over Year
  • Occupancy Rate
  • Delinquency Rate
  • Units Bought this year

But these indicators are very broad and don’t tell you a lot about why things are the way they are. Thereby, you also want to nail down KPIs for managers, or in the high likelihood that you don’t have managers, departments, or areas of your business.

While it’s true that you may not know whether the number you get with any given KPI is good or bad, you know what’s better and what’s worse. So you know which direction things are going and also have something to aim for, which clarifies your (or your manager’s) goals.

Here are some examples that we track for different departments:


  • Properties Acquired
  • Units Acquired
  • Average All-in Price per Property
  • Average ARV
  • Rehab Estimate
  • Rehab Actual/Rehab Estimate


  • Total Rolling Days of All Properties in Turnover (at end of the month)
  • Average Days from Possession to a Finished Scope (for month)
  • Average Days from a Finished Scope to Market Ready (for month)
  • Projects Completed that Month
  • Average Cost of Turnover

Property Management

  • Deposits in Month
  • Deposits Minus Moveouts
  • Percent of Potential Rent Collected (i.e., delinquency)
  • Lease Renewal Percentage
  • Occupancy Percentage
  • Average Rent Increase
  • Total Rolling Days of Properties Available for Lease on Market (at end of the month)


  • Closed Work Orders (in month)
  • Work Orders Outstanding/Closed Work Orders
  • Average Time to Complete Work Order (in that month)
  • Number of Work Orders that took Longer than 48 Business Hours to Visit
  • Call Back Percentage

Those are, of course, just what we do. Yours don’t have to be the same. But they do give you a good idea of how things are going. And while monthly anomalies shouldn’t be surprising (particularly with things like “Average Cost of Turnover”), these aberrations should work themselves out over the long run and give you a good idea of how things are going.

And if you do have managers, they are a great way to evaluate their job performance without micromanaging or blindly trusting them.

One last note here, in order to track your KPIs effectively, you need to have quality accounting. In addition, in order to sell at top prices and get banks to lend to you or just know whether you’re solvent, it’s critical to have your accounting in order. This is not something to skimp on. Make accounting a priority and either learn accounting or, better yet, outsource or hire someone capable of doing it.

I can’t tell you how many times I’ve seen small investors selling a property with horrible accounting. Such a state of affairs not only reduces the value of their asset but it makes it all but impossible to scale.


Systems and policies are essential for scaling, and scaling is essential for growth. But again, the biggest takeaway here is not just that systems and policies are good and necessary, it’s that building them is an iterative process that never ends. 

Don’t be scared or overwhelmed by the thought of them. Every entrepreneur starts with zero systems in the same way every real estate investor starts with zero properties. But in the same way, you don’t intend to stay at zero properties, you should intend to grow your systems alongside your company. Back forth, around and around, forever and ever.

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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.

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The National Association of Realtors (NAR) reported today on two trends in existing home sales that we have seen for many months now: sales are declining while total inventory data has fallen directly for the three straight months. On a positive note, however, the days on the market are no longer a teenager anymore: that metric grew from 18 days to 21 days.

I cheer because the savagely unhealthy housing market theme I talked about back in February of this year was the same premise of the housing reset talking point the Federal Reserve uses. Total inventory data started at all-time lows at the beginning of 2022, creating more bidding war action in January and February, peaking in March.  

We needed to end this madness before we had prices escalate over 20% for another year. The Federal Reserve wanted to see the bidding wars end and the days on the market grow. This is happening, and in the long run, this is a plus for the housing market. 

When I outlined my 23% five-year growth model for 2020-2024, it was to have a marker for when price growth got too hot. I didn’t have to worry about this in the previous expansion — as my long-term work stated for a decade, the years 2008-2019, would have the weakest housing recovery ever.

We don’t have any housing bubble or overheated demand data, nor can we. This article, which I wrote in 2019, does show you the historical work in the past decade on the housing bubble talk.

However, I knew the years 2020-2024 would see better demand from the bump in demographics. This could potentially put us in a horrible place with inventory, which it did, and prices accelerated beyond my five-year price-growth model in just two years. I am staying consistent with my work and model when I described the housing market in February as savagely unhealthy.

Soon after, the Fed came in with their housing reset premise. Now we are getting the call back to balance, which is good. The positive aspect of today’s data line is that the days on the market grew again, and we are getting off the teenager level.

NAR Research: First-time buyers were responsible for 28% of sales in October; All-cash sales accounted for 26%; Individual investors purchased 16%; Distressed sales represented 1% of sales; Properties typically remained on the market for 21 days in October.

One thing about housing data we all need to be mindful of is that the year-over-year comps will be very challenging until we get to the end of January. Last year starting in October, purchase application data had an abnormal volume rise toward the end of the year. Even though the data was still showing negative year-over-year prints due to COVID-19 comps, the percentage was getting less and volumes were growing.

It was a funky time with housing data last year; people needed to make COVID-19 comp adjustments. As mortgage rates rose more and more, the October to January data was going to show big negative prints.

NAR Research: Total existing-home sales decreased 5.9% from September to a seasonally adjusted annual rate of 4.43 million in October. Year-over-year, sales dropped by 28.4% (down from 6.19 million in October 2021).

I anticipated purchase application data to have 35% to 45% year-over-year declines starting in October. That has occurred right on schedule; the last print came down 46%. If housing data takes another leg lower, we would see negative prints of 53%-57%. The last two weeks have had positive weekly data of +1% and +4%.

Total housing inventory fell in this report, the third report in a row that shows total inventory has decreased. Seasonal impacts are the norm with housing, and new listing data is negative 6% year to date.

We saw new listing data decline when rates got to 6.25% the first time. This is not a positive for the housing market. A traditional seller is primarily a homebuyer, so not only do we lose the inventory for sale when this happens, but we also lose a buyer. This is another factor in driving purchase application data below 2008 levels. However, as we can see, the inventory data looks much different than what we saw in 2000, 2005, 2008, 2012, 2015 and 2018.

NAR lists the current inventory at 1.22 million, while historical normals are between 2 million to 2.5 million, with a peak in 2007 a tad over 4 million. The monthly supply grew from 3.2 months to 3.3 months.

Price growth has been cooling off more noticeably, similar to other periods when mortgage rates rose. However, the extreme level of price growth we had earlier this year was savagely unhealthy, so this news isn’t just welcome — it’s needed to bring balance back.

NAR Research: The median existing-home price for all housing types in October was $379,100, a gain of 6.6% from October 2021 ($355,700), as prices rose in all regions.

With today’s report, we see the continued trend of demand destruction from higher rates and a lack of new listing growth. The severely unhealthy housing market is returning to a B&B marketplace, boring and balanced, but still needs more time.

The parts of the country at 2019 inventory levels are already off my savagely unhealthy list; the rest are still struggling to get more new active listings. The Federal Reserve can help the housing market by saying one sentence about the pivot; however, it’s not there yet, and housing market inflation is their big concern.

Going out for next year, though, the rent inflation data is lagging on the CPI data and is already showing a cooldown. We see the inflation growth rate falling in other data lines as well.

If mortgage rates can get down toward 5%, we can see some stabilizing in the housing data that is working from a much lower bar now. This is the way to get out of the housing recession that started in June. 

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The best way to fight inflation is to add more supply, and when I look at the housing completion data for the past two years, it just makes me want to puke. In previous expansions, builders’ housing completion data would move in line with housing starts and permits. However, for the first time in recent modern-day history — due to supply chain issues and other factors — housing completion data has lagged behind housing permits and starts.

It simply has taken too long to build homes to full completion over the last several years. At different times we’ve seen homes that were mostly finished but had no garage doors, or were waiting on windows or appliances. For this reason, the number of housing units “under construction” is the largest ever recorded in history because they were taking so long to finish.

For the builders, they have a new problem: they had homes under contract and then mortgage rates jumped in the biggest fashion ever recorded in history. So, cancelation rates are rising when the homes are finished and ready to move in. Given that, you can see why they are in no rush to finish or even start to build on homes in the pipeline.

At first, the backlog was simply a supply issue. Now, with mortgage rates so high, I believe there is less financial incentive for builders to start on the homes they haven’t begun to build yet. I personally wouldn’t do it. If the builders could, they would take some of the past contracts back, but they’re just stuck with these homes. Not everyone cancels their contracts, of course, but people are mindful of other people getting better deals.

Housing construction productivity has always been terrible compared to other sectors of our economy; I get that, as we still build homes with hammers and nails, not robots.

To give some numbers on the topic, the gap between housing completions data today versus the housing bubble peak is roughly 700,000 — almost half of the total completion data today. As you can see in the chart below, we had a nice, slow up-trend from 2002 to 2005 and here in the 2020 to 2022 timeframe, we haven’t gone anywhere much with total completion data. We need to push these homes onto the market to get inflation lower.

From Census:  Housing Completions Privately owned housing completions in October were at a seasonally adjusted annual rate of 1,339,000. This is 6.4 percent (±10.6 percent)* below the revised September estimate of 1,431,000 but is 6.6 percent (±12.6 percent)* above the October 2021 rate of 1,256,000. Single-family housing completions in October were at a rate of 961,000; this is 8.3 percent (±8.2 percent) below the revised September rate of 1,048,000. The October rate for units in buildings with five units or more was 362,000.

As you can see from the data above, we have some work to do, and we have 928,000 2-unit  housing under construction, the most since 1973. So, the best way to break shelter inflation down is to get more supply onto the market as soon as possible. This is why it’s frustrating to see the housing completion data look like it does. However, it’s also something that should be expected.

Housing starts

Housing Starts Privately owned housing starts in October were at a seasonally adjusted annual rate of 1,425,000. This is 4.2 percent (±12.7 percent)* below the revised September estimate of 1,488,000 and 8.8 percent (±12.7 percent)* below the October 2021 rate of 1,563,000. Single-family housing starts in October were at a rate of 855,000; this is 6.1 percent (±13.4 percent)* below the revised September figure of 911,000. The October rate for units in buildings with five units or more was 556,000. 

Housing starts data has room to head lower as the new home sales sector still has way too much supply (from the builders’ perspective) to even consider building more single-family housing. The builders’ business model is to not ever oversupply a marketplace, so they’re right to halt all new construction until the supply of single-family homes goes lower through more new home sales.

My rule of thumb for anticipating builder behavior is based on the three-month average of supply. This also has nothing to do with the existing home sales market, this monthly supply data is only for the new homes sales market.

  • When supply is 4.3 months and below, this is an excellent market for builders.
  • When supply is 4.4 to 6.4 months, this is an OK market for the builders. They will build as long as new home sales are growing.
  • The builders will pull back on construction when the supply is 6.5 months and above.

We currently have 9.2 months of supply, and we will get an update on this data line next week, as the new home sales report will show that the builders are still struggling to sell more homes with higher rates. Mortgage rates getting back to 5% would solve some of their issues, but above 7% is problematic.

Rates have come down from their recent highs and we did see a pick-up in the weekly purchase application data with back-to-back positive weeks. However, we still have a lot of work here to bring supply lower.

We can easily see this in the builders’ confidence data, which has collapsed almost back to the lows of COVID-19. In March of this year, I wrote how the business model for the builders was at risk as the 10-year yield broke over my critical level of 1.94%. In June, I declared the housing market in a recession and since then, the builders’ confidence data has had a waterfall collapse back toward the 33 levels.

From the NAHB:

Housing permits
Building Permits Privately-owned housing units authorized by building permits in October were at a seasonally adjusted annual rate of 1,526,000. This is 2.4 percent below the revised September rate of 1,564,000 and is 10.1 percent below the October 2021 rate of 1,698,000. Single-family authorizations in October were at a rate of 839,000; this is 3.6 percent below the revised September figure of 870,000. Authorizations of units in buildings with five units or more were at a rate of 633,000 in October.

Housing permits for multifamily construction haven’t collapsed as badly as single-family housing, but I believe over time, this will occur as rent inflation fades. The real-time data on rents shows the cooling process is already significantly elevated. This is something to keep track of for next year because losing both single-family and multifamily construction at the same time will drive housing permits much lower than where we are now.

With all that said, we can see the struggles that the builders are having, however, we can also clearly see that the builders are in a much better spot to deal with this housing recession than at the peak of 2005.

Back in 2005, new home sales were so elevated from exotic loan debt structures that the collapse in sales was truly epic. It was a massive 82% decline in sales from the peak of 2005 to the housing crash lows. Now, the builders aren’t dealing with such an elevated level of sales, so they can work on getting rid of their excess supply with much less market stress.

Also, a huge difference for the builders now is that they’re dealing with less competition. Back in 2007, we had over 4 million housing units for sale with crushing demand. The builders were in a terrible position as their product wasn’t where the dollars were going. New homes are always more expensive than older cheaper existing inventory so the builders are mindful of the competition.

Now over time, as active listings grow, they will take notice as they did in the previous expansion. However, if we are talking about the housing bubble crash versus now, they’re in a much better situation to deal with this housing recession.

Existing home sales are coming up tomorrow and in the last report, the total inventory level was 1.25 million.

With that said, we all need to hope that the builders can get the wave of multifamily construction onto the market for next year to drive rent inflation lower and lower. That will be a plus for mortgage rates, which can get us out of the housing recession. As you can see from today’s report, we aren’t there yet, but we have the supply coming!

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Between the shift towards self-employment and the number of Millennials entering the housing market, the market for non-QM is poised for substantial growth in the year to come. HousingWire recently spoke with John Keratsis, president and CEO of Deephaven Mortgage, about what lenders should be doing to capitalize on the boom in non-QM lending and why our preconceived notions about non-QM could be all wrong. 

HousingWire: Why is now such an important time to prioritize non-QM?


John Keratsis: The timing to get into non-QM couldn’t be better for a couple of reasons. First, the non-QM market is poised for long-term, sustainable growth. This is a direct result of a monumental shift in the US to the self-employed workstyle. Contract or ‘gig’ workers, entrepreneurs and business owners need non-QM mortgages because they may be unable to produce the W-2 tax form used to verify qualifying income for a traditional loan. 

Driving this workstyle change is the largest population cohort in US history: Millennials. As millions of self-employed Millennials settle down and start to raise families, they are looking for their first home. Millennials were born between 1982 and 2000. So, the Millennial homebuying demand is set to continue for a span of eighteen years! 

Right behind the Millennials are the Gen Zers – the third largest population in US history. Gen Zers are also big on the self-employed workstyle. All of which means there will be a sustained demand for non-QM loans for many years to come.  

Another reason to get into non-QM lending at this very moment is diversification. Just about every lender is looking for alternative revenue sources to offset the decline in refinances and the very tight purchase market. Offering non-QM loans provides access to those millions of borrowers who want mortgages but are unable to qualify for a traditional loan. 

The timing is right from the capital markets perspective, too. Residential mortgage credit provides diversification benefits to institutional investors. Historically, RMBS have performed comparatively well during downturns in the stock market. 

HW: How has the growing trend of self-employment led to the need for more robust non-QM products?

JK: Per above, it’s a perfect storm. Millennials, at 72.19 million are the largest population cohort in US history, are now settling down, starting families and looking for their first homes. 

Millennials also make up a vast segment of the largest non-QM borrower cohort: the self-employed. Ironically, the pandemic put homeownership in closer reach for self-employed workers. By making it acceptable to work from anywhere, they are free to move around the country and purchase homes in more affordable geographies where it takes less time to save for the all-important down payment.

HW: Non-QM loans are surrounded by misconceptions. How can lenders debunk myths about non-QM lending?

JK: The biggest misconception is that non-QM is only for borrowers who can’t qualify for a traditional loan due to poor credit. We’ve found that the best way to debunk this is to simply use the facts. In today’s non-QM loan pools, FICO scores can range between 730-740, DTIs generally meet Agency standards and LTVs are in the low 70s. 

Beyond that, it’s important to point out that non-QM, like the traditional market, shifts and evolves with the industry. The rise of self-employed borrowers is one trend. Another is the demand for single-family rental properties. Even industry professionals are surprised to learn that business purpose DSCR (Debt Service Coverage Ratio) loans make up about 30% of our business. America’s aging housing stock is fueling this trend as property investors purchase single-family homes from downsizing baby boomers, fix them up and then use them to generate rental income. This is also another indication of how the non-QM sector continues to evolve to serve shifting industry trends. We have the flexibility to quickly align products and services with market demands, whereas the traditional mortgage market does not. Today, Deephaven can close a DSCR loan in as few as 15 days.

HW: What is Deephaven Mortgage doing to expand non-QM lending?

JK: We know the demand for non-QM loans will only keep growing. We know that investors, attracted by higher yields, want them on the capital markets side. 

To a certain degree, we have to just keep doing what we’re already doing: 1) keep educating lenders, brokers, real estate agents and borrowers about non-QM mortgages; 2) continue to build out both wholesale and correspondent distribution channels; and 3) implement ongoing enhancements to our non-QM customer experience.

At Deephaven, we are continuously running webinars to bring new loan officers into the non-QM fold. We’re investing heavily in technology to create truly seamless service delivery. As demands grows, competition for non-QM loans will, too. The tiebreaker will become the borrower and client experience.

To learn about the opportunities in non-QM lending, visit

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