Scott:
Hi everybody and welcome to a very special bonus episode of the Real Estate Podcast. A couple of weeks ago I recorded a webinar called The Long-Term Approach to Real Estate in 2024. We at BiggerPockets thought that it was packed with good value and that we wanted to share on our podcast feed. As we all know, the market’s been really unpredictable with fluctuating interest rates, low inventory, and investors wondering what to do next. And in this webinar I’m going to discuss market conditions, strategies for 2024, and how do identify good deals that can bring long-term wealth for those willing to be patient. We cut down this webinar to make it a bit more listenable for you, our podcast audience, but if you’d like to view the slide deck I created and watch the whole webinar, we did post it on the BiggerPockets YouTube channel.
All right. Before we jump in, in the middle of the show, I do mention two BiggerPockets online resources, our calculators and our agent finder tool and how they function. I did not fully mention their URLs, so I wanted to make sure that I did that in the intro here for you. Our agent finder tool can be found at biggerpockets.com/agentsforinvestors and our calculators at biggerpockets.com/calculators. Without further ado, I hope that you enjoy this webinar, The Long-term Approach to Real Estate in 2024.
Today we’re going to talk about the long-term traditional approach to investing in real estate and how to make that work here in 2024. This is what I call building wealth, the boring, unsexy and practical way. Hopefully that doesn’t describe me too literally here. Welcome everybody. You’re here I believe because you want financial freedom. You’re here because you know real estate is a viable way to get there, but you might have some questions and fear. You don’t know if real estate’s the right path. You don’t know whether it works today in the sense that you can buy a cash flowing rental property in late 2023, early 2024. You probably have a healthy fear of 2024s market. I think you should, and we’ll talk about 2024s market and I’ll talk about the puts and takes that are going to go on there. And you don’t know where or how to go about finding a deal that works, again in the context of a 25% down payment with conventional mortgage financing for example, much less a good deal that might produce a really good return.
So we’re going to cover determining if real estate fits into your long-term plans. We’re going to talk about the traditional approach to normal long-term rentals. We’re going to talk about a market forecast for 2024. We’re going to talk about building a realistic buy box within a given market, how to state a hypothesis, test into it, validate or invalidate it, iterate on it until you are comfortable understanding what a good deal looks like and you know what you might act on and we’ll talk about how to actually act on that. First I want to give a little quick preview about BiggerPockets. What is BiggerPockets? We have a platform with blogs, forums, podcasts, webinars, webinar replays, books, networking, videos and more. All designed to help you use real estate investing to achieve your goals. We’ve got a free membership for the dabbling real estate investors, some education, networking and Q&A forums that will help you build confidence over time.
And we have a pro membership, which is an advanced toolkit to help you ace property analysis, project cashflow. It’s a real estate command center to manage your business and it’s tools for those who are ready to take the serious steps towards offering on purchasing real estate. And here at BiggerPockets, we believe that real estate’s a really powerful long-term wealth building tool, that it’s not quick and easy and that there’s a price that you as investors must pay to invest in real estate and that’s in the form of time, self-education, analysis and management of the portfolio. A little bit about me here. I’m Scott, I’m president and CEO of BiggerPockets. I started my career in 2014 with my first house hack. Fun fact, I was working at a company that was rated the worst company to work for in the United States of America back in 2014, making $48,000 per year and that might’ve had a little something to do with my desire to become financially independent through real estate as fast as possible.
I built up to a portfolio of five properties over nine years. There’s 13 units there. This is not a remarkable outcome and that’s the point. I think that I have a very average experience in real estate investing here. Very consistent, slow, steady, whatever my position was, ready to take down that next property. I’m also a big index fund investor, right? Boring long-term, practical investment strategies. I put a little bit of money aside in the stock market every month and I buy a property every 18 months or so with a partner. I also wrote Set for Life and First-time Home Buyer here. And by the way, most investors are like probably you and definitely me, right? They own 10 or fewer properties, maybe a couple dozen units. We’ve got 17 million investors in this country who own at least one investment property and 90% of those folks are mom and pop investors [inaudible 00:04:28] owning 10 or fewer properties, right?
There’s 28 million rental properties in this country that includes big multifamily, apartment buildings and single family rentals. They’re about 18 to 20 million single family rentals, another two to 4 million duplexes, triplexes and quads, and almost all of them are owned by the little guy, me, you and other landlords using boring 30 year fixed rate conventional mortgages. So first question I want to answer today is does real estate investing make sense as part of your journey? And I’m not going to give you an emphatic yes, I’m going to give you a more practical maybe. Maybe it makes sense to you. It makes sense if you plan to invest the necessary elements which include first and foremost time.
There’s a price you’re going to pay in the real estate investing business in the form of self-education, and you’re either going to put that price, you’re going to pay that price upfront by listening to podcasts, reading books, watching videos, reading blog articles, networking and studying your market. Or you’re going to pay it in two or three years when you have a disaster in your rental property that you were unprepared for and you have to spend a lot of cash and time and money getting out of that. So that’s a really big upfront cost. You need to have the cash, the energy, the sweat, maybe the preparedness and willingness to do a little bit of DIY work, which can enhance returns and more.
Also, you need to believe in real estate investing. Right. You need to believe that over the next five to 10 years you have a fair shot at appreciation. Right. I’ll talk about this later, but real estate is a bet on long-term inflation in US housing prices and the specific bet on the long-term inflation in prices in your market. So you need to believe in appreciation, rent growth, the ability of that property to produce cashflow, the amortization, the ability to pay off the debt that is associated with the property and then that that is going to provide tax advantage wealth that is better than or diversified from the alternatives that all of us have from investing like stocks, bonds, private businesses and other opportunities.
And last, real estate may be a good investment for you if you have your financial house in order. That means you have sufficient reserves, you’ve got a financial runway built up, tens of thousands of dollars in cash, you’re managing your spending, you’re patient, you have a long-term vision. You got to meet all of these criteria in my opinion, in order to be successful in real estate and before you ask every single year is terrifying. And the most terrifying part of the real estate investing journey is buying that first property. When I bought my first duplex in 2014, the sky was about to fall. Property values have been going up for multiple years in a row. You couldn’t find cashflow anywhere in Denver. It didn’t make sense. Interest rates were rising. I posted a blog article a while back where I literally found very reputable media outlets calling a bubble in housing prices every single year from 2014 all the way through to the present.
One of these years they’re going to be right. We’re going to talk about how to address that fear and the legitimate struggle that it takes to get into that first property. Every single year is terrifying and if you’re not scared, I think you’re probably at risk, some of these things. That fear is healthy in my opinion here. And by the way, I do have a quick little downloadable here. This is free. You go to biggerpockets.com/readychecklist. I wrote 10,000 words going in much more detail on what I just mentioned here and produced a checklist that has qualitative and quantitative things to check off, right? Some of these are hard things like I’ve got the down payment for my property, I’ve got a strong credit score, I’ve got the closing costs, I’ve got the six months reserves after all the costs that I think I’m going to put into the property, and some of them are more qualitative.
I believe in real estate as an opportunity to produce better financial results and more wealth for me than the other alternatives that I have access to. I understand my end game and long-term goals and real estate is a pathway to get me there. You don’t need to check every single box. I certainly didn’t check every box when I first got started, but if you’re not checking 75% of them, you should probably do a lot more self-study and reflection because this is a big investment. It’s going to probably be one of the biggest financial decisions of your life. If you feel ready to invest in real estate and hopefully that’s most of the folks on this call, what is then the best strategy? My philosophy is to buy a property in a great location at a fair price, right? I buy a good property in a great location at a fair price.
I love Warren Buffett’s mentality here. I’m certainly no Warren Buffett, but I like to try to apply that high level philosophy to real estate investing in my own portfolio. So I buy one to four unit properties purchased with long-term fixed rate debt. I buy properties in good locations that I’d be willing to live in personally. I want the opportunity to move the property to its best and highest use. Usually for me that means a light rehab, flooring, paint, maybe addressing certain concerns in the exterior, landscaping, those types of things. I don’t like moving walls, I don’t like redoing kitchens in a big way. Those are great ways to add value, but I’ve got a day job and I want the lighter projects that are a little bit easier for me to manage. It needs to produce positive cashflow immediately after acquisition with reasonable capitalization, right? That’s 25% down payment, long-term debt, conventional financing.
It needs to have a fair shot at long-term appreciation. I need to believe in the long-term prospects of the neighborhood in the market and the property needs to be able to be held indefinitely, putting money into my pocket the entire time. Right. And that is both a function of these other things here, the positive cashflow and the fair shot at long-term appreciation, and it’s also, and perhaps more importantly, a function of my personal financial position. I don’t try to time the market. I buy when my cash position builds up over the months as I save a few thousand dollars a month and build up the down payment for that next property that I’m ready to then put into the unit. So my philosophy is essentially a bet on a continuation of long-term inflation in US housing prices. I want to sit on this for a second here because I think this is an important point.
This is real estate in a nutshell, right? You’re betting on long-term inflation in US housing prices, right? A great thing here and my long-term bet by the way, is on the US generally, and Denver specifically just for me personally. You need to think about that for your market. A great tool to think about this is the Case-Shiller U.S. National Home Price Index. The Case-Shiller Index, and I’m going to get a little technical here, but talks about existing home sale appreciation, right? New home sales are often bigger and newer, have different features, and as an investor, we’re buying a property and by definition, when we go to sell it at some point in the future, we will then be selling an existing property, right, because even if we’re buying a brand new property, it will be an existing property at the time it sells. And this average is close to about a three and a half percent average for the nation as a whole, and it’s higher for Denver on average than a nation as a whole.
Note that the scale is a little bit different here and we’ve got more appreciation in a market like Denver. This might be a little less in a market like Detroit, and you need to factor that over the historical average, and you need to make a guess going forward at what you think that long-term appreciation rate is going to look like in the market that you’re suggesting because there’s a major impact on the long-term returns that you’re going to find in your portfolio. Okay. So this is fundamental to your decision to invest in real estate. I believe it’s a long-term investment. If you’re subscribing to the strategy that I’m talking about on this webinar, this is a core underlying assumption that you need to wrap your head around here because it’s really meaningful to the overall returns you’re going to generate in your portfolio here.
With this approach, I don’t have to time the market. If the market appreciates great, I make money. If the market declines, great, also great. I buy the next deal at a lower price. Trying to time the real estate market is a lot like trying to time the stock market. I apply the exact same mentality to my index fund investments as I do to real estate. Obviously in a stock market graph, we’d see something fairly similar here. And an index fund approach to stock market investing is to buy a little bit, 100 bucks a month or whatever throughout the entire journey and participate in the growth of that investment. I subscribed to the same approach in real estate with the obvious exception that I cannot buy a property every month. I don’t have $90,000, whatever it is to put down on a rental property here in Denver accumulating every single month.
So I’m timing bets just at more infrequent intervals, right, across this journey and enjoying that long-term appreciation return that I believe I’m going to see in a market like Denver, Colorado. Okay. So that’s the philosophy at the highest level. I did promise we’ll talk about the 2024 market and my expectations coming up for next year. Again, that is not necessarily relevant to my long-term investing strategy here, but I will talk about my thing there because I’m a complete nerd on it, even though timing the market’s a fools game.
So to talk about 2024, we have to talk about how we arrived here at the end of 2023. Right. And over the last 18 months, we’re all aware that interest rates have gone skyrocketing. The consequences of those rising interest rates have been really interesting. Right. First, one of the consequences very obvious to everyone is higher interest rates drive down affordability, right, and that reduces demand, but what it also did is it reduced supply. This is called the lock-in effect. Homeowners and real estate investors who have a 3% interest rate mortgage don’t want to sell their property and give up this very awesome debt financing tool that’s locked in for the next several decades in many cases.
So supply dropped even more than demand because of this interest rate phenomena and prices are up year over year 2023, right now versus the same time in 2022. Right. And I think that that has taken some folks by surprise. But what’s also happened here is that we’ve seen fewer home sale transactions. 2021 and the first part of 2022 saw transaction volume close to the historical high. And 2023 here is seeing transaction volume fairly close to the historical low. If 2022 was an average year because the first half had lots of volume and the second half had low volume, 2023 is about 20% below the historical average, and 2021 was about 20, 25% above the historical average.
So you’ve seen a huge decline in transaction volume. There are these factors that impact pricing in the housing market. Right. And they have different weights on a scale and affordability is a big factor here. Rising interest rates obviously has a downward pressure on affordability. It’s a big bubble here, but it’s been offset by inventory, which is almost as large and then smaller upward facing pressure components here, like migration. The United States has inbound migration on an annual basis. Demographics, millennials are in peak home buying years, housing tenure, homeowners typically have a lot of equity in the United States right now. They’ve got low interest, fixed long-term rate debt on their properties. So my best guess at 2024 is that we’re going to see more of the same as we saw in 2023.
Now, I’m going to get more specific than this, so bear with me here, but I think first we’re going to see interest rates are going to remain high. Jerome Powell reducing interest rates, that doesn’t make sense to me unless there’s a severe economic crash, right, where unemployment rises drastically and think through if that happens. If that happens, that will absolutely also potentially have an impact on prices and rents in certain cases. So I do not think the Fed is going to lower rates. I think they’re going to stop raising them and we’re going to see the federal funds rate stay where it’s at. We’re going to see the yield curve un-invert, and we’re going to see mortgage rates remain right about where they are currently. That’s my prediction. You know what they say about predictions, but that’s what I’m sensing here, and I think that will be the case heading into the back half of Q2 2024, the first half of 2024. I think we’re going to see that from here. That will keep transaction volume low and that will create huge regional volatility.
We’ll talk about why there’s going to be huge regional volatility in a second here. I have some data for the next slide here. And there’s a lot of reasons that people buy single family housing in this country. Right. I want to make memories. I want to become a homeowner. It’s the right time in my personal life and I’m going to invest for the long term in my family. It’s a vacation property that I want to make memories on. There’s only one reason that people buy commercial and multifamily real estate, and that is for the income stream. So interest rates already have crushed valuations in the multifamily real estate space and in much of the commercial real estate market. We’ve seen a 30% decline in apartment values from the peak because of the rising interest rates and we’ve seen a similar decline in office. Other parts of the commercial real estate market are seeing a more muted impact. Right.
Now one of the big things, remember our waiting scale here is inventory, right? One of the wild cards for 2024 is going to be new home construction. As you can see here, there are about 1.6 million units currently under construction in this country. We’re hearing all these headlines about housing’s permits and starts declining. That’s true. Housing permits and starts would be very low right now, but new construction takes time. There’s a backlog for several years in many cases for building properties, new developments that have many single family homes, for example, development projects and new builds in certain cities. And of course large multifamily can take several years to get through the pipeline, get permitted and get built. So while there’s fewer starts, you’re seeing historically high, historically high new construction come on the market. Right. And that is absolutely going to be a pressure on rents and home prices in certain parts of the country, and I think that it gives us a couple of, so what’s heading into 2024? Right.
So the first is that if you want a prediction around national averages, that’s super hard to predict and largely useless, right? I’m going to give you a huge range, plus or minus 4%, could be even beyond that next year. We do hope to refine that a little bit, but I think a more practical value is going to be looking at your region and thinking through the combination of net inbound migration, new housing that is going to hit your market, demographic trends and relative affordability, right? If you’re in a place where properties are relatively affordable and you have very low inventory, you’re going to have a market with some tailwinds here, and the rising interest rates are a big upward pressure on rents in that market. If you’re in a market that maybe overestimated migration trends, has a very high expectation but maybe is unlikely to see that, has a ton of inventory coming on and is unaffordable, you should be thinking about that as you’re heading into 2024 and thinking about how it might impact prices here.
For example, I’m very bearish on places like Florida and Texas. Right. These places have a lot of new construction going on. They’re in the South where we’re seeing a lot of that stuff. They do have high net inbound migration in the past, but I wonder if that’s going to continue given the lock-in effect that we’ve seen here. They’re seeing high upward pressure on costs like taxes and insurance, and I think that that’s a recipe for really high risk for property values and prices. I think you’re going to see similar things in places like Denver and Phoenix. I’m not even bullish on my home market in 2024. I’m very bullish on it by 2034 or 2054. Right. So these are all things you got to think about heading into the next year. I think certain strategies are likely to see huge losses. I think it’s going to be really tough for CRE investors in the commercial space.
I don’t think that even though they’ve lost 30% of their value, the pain is over yet. [inaudible 00:19:49] is potentially a real fear heading into 2024. In short-term rental markets, you’re not just competing with other investors, you’re competing with vacationers and people who want a family home to visit in the mountains or whatever it is. Right. And there’s a double-edged sword here. Right. With higher interest rates, people can’t refinance their home and buy that vacation property. With higher rising rates and the pressure that’s putting on the economy, everybody’s going to be looking for cashflow. That’s a recipe for potentially a lot less demand for vacation rentals, which is downward pressure on pricing. And at the same time, there’s pressure on supply where a lot of people who maybe previously weren’t renting out their homes will rent out their rooms on Airbnb, even though average daily rates may come down, that increased competition might come because you’re still making something if you weren’t previously renting your property on short-term rental, so and you have regulations.
So I’m really worried about the short-term rental market in 2024. Hopefully I’m wrong there. Given this, how do I think about my local market or select an out-of-state market here? Right. And the first thing we have to recognize here is that there’s no such thing as a perfect market. No perfect market offers both great cashflow today and a high probability of great appreciation. Right. Detroit, Michigan has the best quote, unquote rent to price ratio in the country, but Detroit, Michigan is a very different investing experience on those types of properties than what you’re going to find here in Denver, Colorado. Investors can make money in both locations. That’s not a dig on Detroit with this, but there’s a reason why those properties are priced that way. Detroit has not seen a appreciation in a meaningful way since 2000 and Denver, Colorado has had a very different outcome there.
So if people expected Detroit to have a lot of appreciation, prices would rise rapidly and it would become an appreciation market, right? So there’s inherently a trade-off between these two things in a market. I believe that the best market is often the one that is local to you. I think that whether it’s a cashflow or appreciation market, there are huge advantages that come with investing locally. You know the market, you can fix problems yourself, you can cut costs. We’re going to analyze some deals in a minute, and I’m going to assume a property management fee for each of those deals. You should assume a property management fee for each of your deals, but if it’s a local market and push comes to shove and times get tough, you can fire your property manager and self-manage that property and save costs there. That’s a great defense mechanism. Right.
You can go and fix certain problems yourself instead of hiring a handyman. So super, super important there. I’m going to use an illustrative example market here. This is Albany, New York, and I’m using this as an example because it’s three hours from New York City, it’s three hours from Boston and three hours from Montreal. A two family in New York City or Long Island is going to go for a million bucks and in Albany or Troy, you can buy 5 properties or 10 units for that same price. Right. I’m also going to call two additional markets. We’re going to talk about an Ohio market and Florida here. I’m going to give you a couple of extra deals today here with this, but this is an example market where you would think through a potential deal. So we have a strategy, long-term rentals. We’re betting on long-term inflation in a given market.
You have a market. How do you find a deal that works is the next question. What is something that actually might cashflow here? And I’m going to give you a five step process to get to this point. Okay? So the first step here is to hypothesize a deal that works. You got to start somewhere and you start with a guess, right? That’s what strategy is. Strategy is a guess, and then we’re going to do a lot of digging and refinement, a lot of research to refine that guess and make it a much, much more high quality guess, right? We’re going to make the best possible bet here. So we’re going to draft a hypothesis for a deal that works. We’re going to test that hypothesis against recently sold comps, and we’re going to iterate on that hypothesis until you believe it is realistic in your market.
So here’s a guess for Albany, right? And I started with this guest because I’ve talked to a number of people. An example, Albany buy box would be a one to four unit property, 75,000 per unit, a fixed 30-year mortgage, a 25% down payment, the option to add value, traditional long-term rental period, and a long-term hold. Now, step two is to test that hypothesis with the real estate investing community, right? You can just start with a guess like that in a given market and just post it to the forums.
So this is literally my first post to the BiggerPockets forums posted sometime in May 2014, nine years ago, and here I am stating a hypothesis. I’m telling everybody who I am. I did not know this at the time. I would not be able to articulate exactly what I was doing like this, but I said, “I want to buy and hold real estate portfolio within 100 miles of Denver over the next several years. I’ve been educating. I have currently made my way through the podcasts. At this point, I saved enough money to qualify for conventional financing and properties priced at or below $200,000. My short-term goals are to make bids in the area that I conducted rent surveys on downtown Denver with the objective of appearing three properties by the end of the year.” Boy was I aggressive. It took me another four or five years to get actually to those three properties. I did not get to that. “And I love to continue meeting investors’, agents, wholesalers, and anyone else that’d be gracious enough to pass on their knowledge.”
An agent reached out to me, her name was Mickey, and sent me a message in response to this post maybe two or three weeks, maybe two or three months after I initially posted this and sent me a duplex that went on to be my first house hack deal, was a $240,000 duplex. So my hypothesis was wrong, but by stating it, I got feedback from the community, got encouragement and began getting examples with which to analyze and begin progressing here. So look, if you do nothing else from today’s webinar, you should post a hypothesis to the BiggerPockets forums and get feedback. Step three is to actually begin doing the analysis work.
So when you’re doing this analysis work, do not start with active listings. Okay. Often active listings are stale listings. They’ve been on the market for a very long time. They’re often overpriced. They often have something wrong with them. Right. When you look at the properties that are for sale today, that can be really discouraging for a lot of people. If you look at the properties that have sold recently, you’re going to get actual comps and see what the market is actually doing. You’re not going to be staring at something that’s $50,000 potentially overpriced here.
Step two is to contact an agent. If you want to contact an agent, we have this awesome tool here called the agent finder. You can go to, I like Troy, New York. So you can go to Troy. In a minute or two you can say, look, what type of property looking for in Troy? I’m looking for a multifamily. I’m looking for eh, probably in the next three to six months is when my position will be ready. My purchase price range $250,000. I have not yet started my loan process here for this particular purchase, and I’ve got three to five investment properties, got my five properties and great, we’ve got a match here, and I’m going to look at these agents here in this market. Right. So these are all in the Troy or Albany area. Troy is a market that is next to Albany, by the way. I should have probably said that.
And then we’ve got Giovanni here, right? Giovanni is the person that I reached out to. I can click request contact here and connect with him. And Giovanni sent me an example deal that we’re going to analyze here. So Giovanni sent me this deal. I said, “Giovanni, what I’m looking for is I don’t want to be a genius. I want an average deal, like a bread and butter deal, all day deal in the Troy or Albany area that is not something that was on the MLS, that was sold on the MLS, listed and purchased by a client, an out-of-state client. Give me that example because I want to think about it and I want it to be intentionally an average deal, something that is not extraordinary. You didn’t have to go through a crazy process to find here.”
So this is XX Cherry Avenue for Troy. This is a real deal with a real client, so we didn’t want to use this specific address here. There it is. The acquisition price here is, this was purchased on September 2nd, so it’s two months ago. It was purchased for $160,000. The estimated after repair value is $204,000 if $10,000 per unit in renovation was added, right? The rents at the time of sale with the tenants in place were 1250 and 1350, giving us $2,600 a month, and Giovanni estimated that those rents could be increased to $1,500 or 3000 per month total with a nice remodel. He also provided examples that were from the actuals here for this particular property here. I’m going to go to the calculators and I’m going to look at some reports. So to save some time, I did pre-analyze this particular deal using the calculator, and we’re going to go through it.
So this is Cherry Avenue, Troy. We’ve got the additional property features. There’s five beds, two baths. It’s a duplex, so we have to kind of be able to work through that. $106,000 purchase price. We’ve got a purchase closing costs. This is a really important thing here for property value growth. What do you think that long-term appreciation rate is going to be in that market? In Denver, I’d probably put probably four for this. I wouldn’t necessarily count on the appreciation, but I do expect to see more appreciation in Denver than I do in Troy, and I’m sure even Josh or some of the investors in Troy would agree with that particular assumption there. Although they both should appreciate long-term. I’d put down 25% in this particular example, and I’d use a 7.7% interest rate. You can easily Google 30 year mortgage rates here and you’d say for someone with a good credit score. 7.6 is a 30-year fixed rate for now.
So let’s actually reduce this by a little bit. So just say what we would be buying it for if we got it today. 30 year loan term. We’ve got our actuals here, $2,600 a month. Lets sanity check real quick here as well with the rent estimators. Okay, there we go. Okay, this is a duplex. I’m going to look for rent for one of the sides here. Two bed, one bath, and we’re going to take a look here. So just a sanity check, right? We’ve got our monthly rent is 1200 bucks. We have high confidence. There are a lot of comps for this particular property in the area, right? We’ve got a number of units. Many of those units were listed very recently and many of them have very similar square footage, so we can be super confident in the rents or we have a reasonable chance.
We’ve got the rents, the actuals, we’ve got our estimates from Giovanni, and those are checking out with what we’re seeing from a comp perspective. And the opportunity to move this two one unit to 1500 is not out of the question. It would have to be one of the nicer units, but it’s not out of the question based on the analysis that we’re seeing here. The other side is three bed, one bath. So we can take a look at that one and we can say that, okay, that is right on the money for this particular one. And again, there are plenty of units here that are renting in that $1,500 range that are fairly recent, so we can be fairly confident that the analysis there is reasonable. Property taxes are high here. We’ve got the monthly estimate here. This is New York. We’ve got an insurance estimate. These are actuals again, from there.
I’m assuming a much more conservative statement for repairs and maintenance than Giovanni put in at 5%, a capital CapEx at 5%. I’m assuming vacancy at 5%. Some people even like to be more conservative than that. I’m assuming 10% for management fees. I’m not going to be in Troy to go manage this thing. I live in Denver and then I’m assuming that the tenants will pay most utilities except for water and sewer, which was given to me as an output here. And then this is snow removal and lawn care for the duplex. At least in Denver, I’m able to pass that to the tenants. That may not be the case in Troy. We got 404 here a month with this set of assumptions for a cash on cash ROI of 11% here, a five-year NRO return of 18%. That’s assuming again the $2,600 a month in rent, the 125 for lawn care.
We’ve got the vacancy management, we’ve got our loan, loan term and interest rate, and we can always adjust all of these details here. So for example, if you thought the vacancy was too aggressive, we could move that up to 10% and we’d see our monthly cashflow drops to 274 here. Okay. So once we’ve done this, we need to iterate and revise until we’re highly confident in our buy box. Right. We’re not going to buy one of those properties or a property very similar to it just because we did a single analysis in that particular market. Right. We’re going to refine and refine and refine. We’re going to dig and we’re going to dig into it, we’re going to dig, we’re going to talk to people who have bought those properties in recent areas. We’re going to analyze dozen or dozens of deals in those areas and we’ll continue to refine and refine and refine until we get to what we have identified as a good deal.
So this is a refined buy box for the Albany or Troy market where we say, okay, we found something for $75,000 a unit. Can we find something for $65,000 per unit, right? Can we find that great deal in the market, right? Can we find options for student housing? There’s a college near there, State University of New York, SUNY. That could potentially provide really good rentals there. Are there specific blocks or neighborhoods that I want to really target or that I should know about and get to learn a little bit more to make a more informed decision? Those are the types of investigation that you need to do on the ground meeting local investors, talking to agents, physically visiting the location that you’re going to invest in to get comfortable with those things. This is an example real quick, I’m not going to spend too much time on it, of my personal Denver buy box.
I like one to four unit properties. I like the higher price point, 300 to $350,000 per unit and I like the big one. I don’t have as much competition because a lot of investors are looking for the 200 or $150,000 mythical units that are hard to find and are often not in as good neighborhoods, but I really like those big ones. I think they attract really good tenants. They have optionality to do rent by the room should problems come and look, I have a very specific buy box that I’ve built out. Right. And this is half of it. Right. I talk about the properties I want, the neighborhoods that I have, I take a map and I draw little things on the map for the areas that I want to target. Right. You can literally do that in most MLS systems. I have the properties that I’m looking for. I have a thesis. I have things I don’t want. I don’t want lots next to high schools or middle schools with lots of foot traffic.
I like elementary schools. That brings certain advantages. I want yards that are attractive to pet owners and that will attract those types of tenants because I think they’re likely to stay. If you can have a big place that is really attractive nearby an elementary school with pet owners, think that attracts good tenants. And then I continue going on here, and you should refine your buy box until you have something that is as clear in your mind as this. You don’t have to start here. You just post a hypothesis that’s like that one that I did earlier and get feedback, but you’re working to getting to this point. And then once you’re done there, you can go fishing. Right.
And so look, I have my buy box. I’m confident what I want to do. Now, I’m going to sit back, relax, say I’ve made my decision. I’m going to buy the next property that meets this criteria. Right. I know that five or 10 of them have sold in the recent past, so I’m not in fantasy land. There’s a very realistic possibility I’m going to get there, but because only five or 10 have sold in the last 90 to 180 days, they’re not common. That’s every two and a half weeks by the way that a deal’s coming online that’s meeting this criteria, right, if you refine it appropriately. And I’m going to be ready when the next one comes on the market. I know I might miss a few of them and lose. Right. I’m going to contact an agent and ask them to start sending me listings in that buy box. I’m going to get pre-qualified or pre-approved.
So I’m ready to pounce. I’m going to tell everyone in my network about my buy box, which that’ll include wholesalers, that’ll include my agent or that’ll include other investors that are potentially looking to sell. That’ll include the BiggerPockets community. I’m going to analyze deals on a regular basis with the BiggerPockets tools, and I’m going to continuously iterate and make sure I’m continuing to be confident in my hypothesis. And then once that property hits the market, well, once it’s sent to me, I may not be leaving work at noon, but I’m canceling my evening plans and I’m going to look at that property I’m offering that night because a good deal does not sit on the market for two weeks waiting for you to decide. You decide now, cool, calm and collected over the next couple of weeks, and then you act once that property that you’ve already predetermined is the right one hits the market.
Okay. All right. To recap here, we talked about determining if real estate fits into your long-term plans. We talked about a traditional approach to long-term rentals and my philosophy. I talked about a forecast for 2024, and we talked about how to build a buy box, identify a deal that works, and refine, refine, refine it until we find a good deal within a given market, BiggerPockets is here to help with that. Right. So we think we’ve built most complete real estate investing toolkit in the world to help you with this. We have tools to help you ace property analysis. We’ve got nine real estate investment calculators. We have that rental estimator tool that I showed you. We’ve got a rehab estimation tool, right? These are powerful tools. We’re going to tell you where we’re confident. We’re going to help you view comps. We’re going to make sure that you don’t forget a key assumption in your analysis.
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So Pro membership is 299, is the code stable wealth 24 at checkout. You get all the features that we ask today, plus a few bonuses. You’re going to get a free copy set for life. By the way, if you go Pro anytime, we give you a free trial for 30 days. So if you don’t like it, you can email [email protected] and get a 100% refund on the Pro membership. So this is a guarantee. We hope that it’s a no-brainer for you to try this. We think it’s a powerful, powerful command center. If you’re serious about building that buy box and actually getting moving on your journey as a real estate investor here. Again, that’s the code stable wealth 24.
Thank you all so much for joining me on this very special bonus episode of the Real Estate Podcast. I hope you got good value out of this webinar and that you check out biggerpockets.com and all it has to offer. Our Pro membership is a fantastic tool to help you gain insight in these changing market conditions. And to help you make the most informed decisions on your real estate investing journey, go to biggerpockets.com/pro and use the code stable wealth 24 to upgrade and start analyzing smarter today.