Month: April 2022

One thing that all real estate investors are painfully aware of when they plan on owning a property is the capital gains tax. With the rules currently in place, you must pay capital gains taxes on the profits you make from the sale of a home or other real estate. This is applicable mostly to investors because, notably, the tax makes an exemption for a home that is the owner’s primary residence. At least, it does for now.

However, some have been worried that the Liberal government may move to instate a capital gains tax on all home sales, regardless of whether or not it’s a primary residence. Is this new tax on its way, and if so, what would the impact be on Canadian homeowners?

Housing crisis a hot topic in politics

In recent years, there has been much discussion across all sides of the political spectrum on how to help ease pressure in the real estate market and address the housing affordability crisis. Most recently, the Liberal government released their 2022 budget that laid out new programs and taxes that would be used to help cool excessive price growth.

Newly proposed anti-flipping tax to close primary residence loophole

One change aimed to close a loophole that allowed home flippers to utilize the principal residence exemption in order to avoid capital gains on a flipped property. Now, any gains may be made from selling a home within 12 months of purchase will be taxable capital gains beginning early next year. This change is designed to serve as an anti-flipping tax to reduce speculative demand and discourage those who aim to make money only from price growth without adding any value to the housing market, and in doing so, reduce competition for homes.

However, some have noted that the Canada Revenue Agency (CRA) has already been diligent in identifying individuals who mislabel their flip homes as primary residences, meaning the actual impact of this new change may be less than it seems.

Exemptions from the anti flipping tax for extraordinary circumstances

This anti-flipping tax has been noted by some as a form of capital gains tax for a primary residence. What would happen if a buyer purchases a home and then, due to extenuating circumstances such as divorce or death, is forced to sell the home before 12 months? Would they then be charged a hefty tax on top of their already hard times?

Not quite. The government has also expressed plans to make allowances for such circumstances. Though the law has not yet been fully codified, it should help to clear any ambiguities about taxation for house flipping and hopefully protect legitimate primary residence sales when it comes into force.

As of yet, the principal residence exemption for capital gains remains in place. This means homeowners who plan to sell their primary residence in the near future will not be required to pay tax on the profits, provided the home was the principal residence for the entirety of the ownership period.

Why the government should want to avoid a tax on primary residence sales

The logic behind taxing primary residences seems pretty clear: by taxing the sales of homes you make it less appealing to those looking to sell for an inflated amount, thus reducing some of the upward pressure on homes sales. At the same time, the additional tax income could be put towards more housing initiatives. The actual results of such a change would not be so clear-cut.

First of all, the Liberal government, like most political parties, is mostly concerned with taking action in ways that will make them more popular with voters. Something like a ban on foreign purchases is a simple way to appease Canadians and gain political favour. After all, foreigners make up a very small percentage of voters due to the fact that they don’t vote in Canadian elections. So the idea is to make a tax that targets homeowners – one of the largest and most active voting blocs in Canada? Not a very good idea for your political prospects.

And, it wouldn’t just be bad for the Liberal electoral prospects – it would be bad for the millions of Canadians who are relying on the value of their homes to fund part of, or all of, their retirement plans. With inflation skyrocketing and an increasing number of Canadians reaching retirement age, they need as much value as they can get from their savings.

But it doesn’t end there. For those planning to sell under a hypothetical tax, they could just as easily raise their asking price even higher to accommodate, thus pushing prices up even more. Or, they could choose to not sell at all, which wouldn’t help the already low housing stock across the country.

Finally, there are simply other ways the government can help to ease the housing market without targeting regular homeowners. Some other new changes are already underway such as banning blind bidding, creating a new tax-free homes savings account, and assisting in affordable housing development.

Can I say for certain that a capital gains tax on primary residences will not be put in effect? Honestly, no. But hopefully, I have done well enough to explain why the change is unlikely based on the widespread unpopularity, potential damage to Canadians, and range of alternative options to ease the housing crisis.

David:
Welcome to On The Market. We have an awesome show for you today. If you were like me and are eagerly watching what the Federal Reserve is doing and are concerned about rising interest rates and they’re implications for the housing market and being a real estate or any type of investor in general, you’re definitely going to want to check out this show. We have Nick Timiraos, the chief economics correspondent for The Wall Street Journal joining us.
And he is an unbelievable wealth of knowledge about the Federal Reserve, how they’re thinking about the current economy and what you can expect over the next couple of months. To join me for this interview. I have my good friend, James Dainard here with me today. James, what’s going on, man?

James:
I am so excited to talk to Nick. I downloaded his book last night and started listening to his sweet nothings last night.

David:
I knew you were the perfect co-host for this episode because you like me love this nerdery and love talking about financial policy and what’s going on with the Fed, because it actually really matters. It plays a huge role in what goes on in the world and lives of real estate investors.

James:
Yeah. I mean, they are the puppet masters. Whatever they do is what we’re going to fall. But yeah, I mean, and this guy’s been like in the war room of 2008. I mean, he’s been through all the different for economic downturns and upsides. I’m really excited to hear what he has said.

David:
What do you think people should be listening out for as they listen to this interview with Nick?

James:
I think just what is the government trends with the treasury, what he’s going to talk about on the treasury and buying bonds, and then just the interest rate. And also what’s the tone of the Fed. Is the tone of the Fed actually is it urgent or is it something that they feel like they can get a control? Because he knows all these people so, well, I want to know what his inside look is on that as well.

David:
All right. Well, we’re going to just jump right into this interview, because there’s so much to unpack here with Nick from The Wall Street Journal. So let’s welcome Nick onto On The Market. It is my pleasure to introduce, Nick Timiraos who is the chief economics correspondent for The Wall Street Journal and the author of Trillion Dollar Triage. Nick, thank you so much for joining On The Market today.

Nick:
Thanks for having me, Dave.

David:
So you are obviously an authority on the Fed and the Federal Reserve policy. For our listeners, could you just start by giving us a background on what exactly the Federal Reserve does and how it uses its authority to manage the U.S. economy?

Nick:
Yeah. That’s a great question. The Federal Reserve is a bank for banks. That’s the easiest way to think about it. So they set the price of overnight money. That is their short-term interest rate. So whenever you hear about a Fed meeting and they decided to move up their interest rate, they’re deciding to set the overnight price of money either they’re raising interest rates because they want to try to slow down the economy or they’re cutting interest rates because they want to provide more stimulus. And that’s the ballgame for the Fed.
They have two goals assigned to them by Congress, which is to maintain stable prices and to have maximum employment. And you could think of that as the most employment possible without having inflation. And those are their two goals. And then in addition to all of that, they’re charged with regulating the banking sector. Again, think of a bank for banks. They are there to make sure the banks don’t turn themselves casinos.

David:
And when you say one of their responsibilities is stable pricing, what you mean by that is controlling inflation.

Nick:
Yeah. Having mild inflation for a long time, the Fed didn’t say exactly how they defined that price stability objective. And then about 10 years ago, they formally set a 2% target for inflation. The idea behind 2% was you wouldn’t want it to be zero because you maybe get too close to deflation.
Central bankers are very nervous about having negative prices because that’s a very hard problem to solve. So they set 2% as target. And until last year they had managed to keep inflation right around 2%. And so that is their price stability objective.

David:
Great. Thank you for that background. And think it’s a super important point that people know that the Federal Government or the Federal Reserve, I should say does target some inflation because does stimulate the economy and get people to spend their money, which is something that we should all aspire to. I do want to jump into the state of affairs today, but I think it’s helpful for our listeners to understand the context of the Federal Reserve’s policy over the last, as far back as you think is relevant, but specific since the great recession.
It seems like the Fed has really shifted their policy and their approach to managing the economy over the last 15 or so years. And we’d love for you, just some overview for our listeners on what exactly the Fed’s been up to since the great recession.

Nick:
Yeah. The great recession was a seismic shift in both what we learned about the economy, but also global interest rates. So global interest rates had been drifting lower even before the 2008 financial crisis. And afterwards you saw not just in the U.S. but around the world interest rates at a much lower level. And when central banks tried to raise interest rates in large developed economies, Europe would be the best example. It actually created problems. And Europe had another recession in 2011, 2012 after the European central bank raised interest rates in 2011.
So what we’ve seen over the past 15 years is we moved into a world of lower growth and lower inflation and lower interest rates. And that was a big concern for the Fed because after the financial crisis, they cut rates to zero and they are not really interested in having negative interest rates. They don’t think it would work very well. They think the costs of having negative interest rates would outweigh the benefits. So for all intents and purposes, zero is as low as the Fed will go. They call it the effective lower bound for interest rates.
And so the reason that zero interest rates were such a concern for the Fed is if you get hit with another shock, if you have another downturn and you’ve already cut your main tool for providing stimulus to its lower bound, there isn’t as much for you to do to stimulate growth. And that animated a lot of the Fed’s policy decision over the ensuing years, you hear sometimes about QE or quantitative easing, which is really just a fancy way for saying bond purchases. When you’ve cut interest rates to zero, what Ben Bernanke decided to do in 2010, ’11, ’12 was, well, you can still bring interest rates down for longer dated securities.
So as I said before, the Fed sets the price of overnight money, short-term interest rates, but the market determines five year treasury yields, 10 year treasury yields, and the Fed decided to try to influence longer term yields to provide even more stimulus by purchasing treasury securities and mortgage back securities. So that became a second tool for providing stimulus in the Fed’s toolkit. They had interest rates that they could move up and down and once they got to zero, they couldn’t move them down. So they began to increase their asset holdings, their purchases of treasury and mortgage-backed securities to provide more stimulus.
Then in 2017, when they began to raise interest rates and tide policy, they were both raising interest rates and reducing the size of their asset holdings to remove accommodation from the economy.

David:
So just to summarize that after the great recession, the Federal Reserve lowered their target interest rate, which is a short-term rate down to near zero and stayed there for a long time. But in addition to that, I believe correct me if I’m wrong, Nick, this was the first time the Federal Reserve did quantitative easing, which was buying bonds and mortgage-backed securities to help lower those longer term rates in the market.
And both of those combined to create a, what I believe looks like in retrospect, a very powerful stimulus for the economy that has in my mind, this is just opinion, driven a lot of the asset appreciation and boom in the economy over the last 10 to 15 years.

Nick:
Yeah. That’s right. That was what they did. And there’s a big debate about how effective quantitative easing was. Some people say it didn’t really do what the Fed said it was going to do, it didn’t boost growth all that much. We still had around 2% growth last decade. But you’re right, when you lower long-term yields, when you make it cheaper to borrow, you make asset prices rise homes that you buy with debt when the mortgage rate goes from 5% to 3%, which is what happened over the last decade, home prices rose. And so you did see significant increases in asset prices over the last decade.
I should note that there were predictions 10 years ago that all these debt purchases were going to lead to consumer price inflation too, which is what the Fed actually cares about. This was going to debase the currency. And you didn’t see that during the period before the pandemic, you never really saw inflation get up to the Fed’s 2% target. And so the Fed’s concern heading into 2019 and 2020 was actually gee, we raised interest rates to two and a half percent by 2018. And we were shrinking our balance sheet, shrinking our asset holdings because we thought as the unemployment rate fell, you would see more resource scarcity across the economy that would drive inflation up.
And that didn’t happen. So the Fed’s concern became something that sounds crazy today, which was, wow, we may not have enough inflation if we provided all this stimulus. And when we took it away, we still didn’t really get prices up to our 2% goal. The Fed became concerned that the same trap that appeared to have hit Japan 25 years ago and Europe over the past decade, those were economies with rates effectively stuck at zero or negative interest rates and large debt purchases by the bank of Japan, for example.
And so the concern was, while they’re stuck with of this liquidity trap, we really don’t want that to happen. The next time a downturn hits that could be us. And so let’s think about ways where we could actually change our policy framework to see if we could get even more inflation, not because inflation is a good thing, or we want inflation for inflation’s sake, but because we want to actually provide error on the side of providing more stimulus and then next downturn, so that we don’t end up in that low growth, low inflation trap that you see in Europe and Japan.

David:
James, I’m curious to hear how you lived through this, because you were an investor back in 2008, unfortunately. How did the impact of Fed policy and lowering of interest rates following the housing collapse impact your business since then?

James:
I guess I was unfortunate to be involved in real estate during that time, but I was actually really fortunate too, because I learned so many valuable lessons as a real estate investor in about banking in general. Like back before 2008, I was more of a deal guy. And then after the financial meltdown, I became more of a banker guy because I really realized that I had to pay attention to outside influences. But in 2008, I remember when subprime mortgage that product got taken away, when it stopped coming out, I think it was July of 2008 if I remember right.
And once that was notified what it was, it was more based on term than rate at that time. It was that people had to provide more income and not just stated and really put proof behind their qualification. And then that’s what caused the big bump in the crash. And then the recovery process, it felt a lot slower. And I had a question for Nick was rates were at zero or near zero at that time, but we didn’t see that asset inflation like we’re seeing now. And as a real estate investor, I’m always watching rates going, okay, where are they going to be at? How is that going to affect affordability?
What is that going to do to people’s payments and whether they can actually purchase this product. But what has thrown me off is back in the recovery stage, we were at next to zero and we saw steady growth and it was this very slow recovery from 2009 to ’11 to where a lot of things were stagnant in real estate. There was things starting to recover and move up, but it wasn’t jumping. And right now we’re seeing the complete opposite where we’re at zero and we’re seeing appreciation at 10, 20% in quarters in certain real estate sectors. And that’s what has thrown me off so much. We’ve done similar process besides I guess the amount of money that they got put into the market.
I think in the recession, what they put what? 100, or no, 500 billion, or it was around 500 billion. Whereas this time we’re actually five trillion. Is that the big difference in why we’re seeing that asset inflation too compared to… Because the recovery seems a lot different than it did in 2008.

Nick:
It’s a totally different recovery. I mean, it was a totally different crisis too. So before I covered the Fed, I covered the housing markets and the GSCs, Fannie Mae, Freddie Mac. And so I remember well that time and the big differences is, well, I’ll give you two of them. One is demographics. If you look at where we are today, the millennials, the children of the baby boomers are coming of age. These are 30 year olds who are buying their first homes or even trading up and you didn’t have that 12 years ago. Instead, you were at a different place demographically, so you didn’t have the same demand tailwinds.
And then you just 2009, ’10, ’11, the Fed cuts interest rates and interest rates are very low. You have mortgage rates falling below 5% for really the first time since the 1950s mortgage rates falling below 4% at one point and people are going, “Oh, my goodness, we’ve never seen…” I mean, we were having to look up. When was the last time you could get 30 year mortgage money for below 4%. And you’re going back to like the 1950s and some of those FHA programs, but you had a boatload of foreclosed properties, real estate owned properties being released by the mortgage service.
And you had people that had… They were underwater on their properties. They owed more than their homes were worth. And so it had frozen people in place. You had high unemployment, 10% unemployment when people are losing their jobs, they’re not paying their mortgages. And so the demand side was completely different and supply side was different too. You had an overhang of properties, especially in Phoenix, Tampa, Las Vegas, Inland Empire of Southern California. Let’s fast forward to the downturn that we had in 2020. And we go into the lockdowns and all of a sudden people decide, “Hey, I want a bigger house.
I want a house that has an extra office, because my kids are downstairs making so much noise and I’m working from home.” So we’ve gone through potentially a change in lifestyle preferences before the downturn in 2020 people who were living in cities, you heard all about this, sharing economy, people weren’t going to buy cars. They were going to Uber everywhere and they didn’t want to own a house. They were going to rent an Airbnb. And now you go through the downturn and you have millennials coming of age and deciding, “Hey, you know what? Actually home ownership doesn’t seem like a terrible thing after all.”
And so yeah, now we’re talking about 20% annual home price growth. And you look at the case chiller home price charts and it makes the 2006, ’07 boom, look like a little blip now because what we’ve gone through over the last two years is just so much home price appreciation.

James:
Yeah. And then one question I do have is, so in our recovery back in 2009, like I remember we were getting rates around, like for investment property, we’re like four and a half percent to 4.75. That was where we were getting our refis done at. So the Fed’s at zero now too, but then we were starting to lock rates in the low fours or high threes. So why is there such a huge swing in the interest now versus the recovery rate of 2011? Because the Fed was still at zero, but the rates were about a point higher back in 2011 when we were at least locking at rates.

Nick:
Are those for investment properties?

James:
It’s for investment, but even on owner occupied, I think back then it was still high threes for… If you got really lucky, you were getting high threes and then in this last recovery, we were, I mean, people are locking rates at 2.75 or even lower. And that’s what I don’t really understand, where’s the movement of a point in that, because that makes a huge difference and the Fed still remains at zero.

Nick:
Well, so that’s true. I mean, I think you had interest rates fall into the high twos in 2020 and may have hung out there in 2021. What you’re seeing now though, I mean, if you’ve been in the mortgage market in the last few weeks, you see how things are changing. And so the Fed, one argument is well with inflation at 8%, why is the Fed only raising rates by 25 basis points, by a quarter percentage point? That doesn’t add up. But if you look at their communications since January, where they’ve said, we’re going to raise rates and we’re going to raise rates rapidly, Lael Brainard, the incoming vice chair of the Fed says, “We’re going to raise rates expeditiously and we’re going to shrink the balance sheet rapidly.”
All of that communication is intentional and it’s because the Feds policy, they don’t just raise interest rates when they meet, they raise interest rates when they talk. And this is a very clear example of that. They are telling the market, they are telling bond investors, we plan to take interest rates up this year, maybe to 2%, maybe above 2%. And the bond market is already pricing that in. And so that’s why you’ve seen mortgage rates, the 30 or fixed rate mortgage. You look at the MBA weekly survey, we’re closing in on a 5% mortgage rate and we were at three and a half percent just three months ago.
So that is a huge change. You have not seen that kind of a movement in a 30 year mortgage rate since maybe 2004, maybe 1994. And that dramatic repricing of the interest rate curve is directly because what Fed officials are saying they’re planning to do right now, even though, if you look up the Fed funds rate, it’s sitting in that range between a quarter and a half percentage point.

David:
That’s a great point, Nick. And I just want to jump in and provide a point of clarity for our listeners, because as you said earlier, the Fed Reserves, one of their main tools is controlling the short-term overnight interest rates, basically their target fund rate. They don’t actually control mortgage rates. What has a stronger correlation to mortgage rates than even the Feds interest rates is the yield on the 10 Year U.S. Treasury.
And although the Federal Reserves activity does impact the bond markets, I think the difference, James, when we talk about what was happening in the last recovery in this recovery is that bond yields were actually in a very different place. And bond yields were a lot lower in this recovery than they were and is probably why we’re seeing that big difference in mortgage rates.

Nick:
That’s absolutely right. And when the Fed launched their third round of bond buying in 2012, it was called QE3. It was the third round of quantitative easing. You saw the 10 Year Treasury sitting at 3%, 4%. And Fed officials are saying, looking there saying that’s too high. We want to get that down. The whole idea behind the bond purchases was to really bring that down. And I think what happened by 2019, 2020, when the pandemic hit, bond investors had priced in that new Fed, it’s called a reaction function. It’s really how you expect the Fed to react to changes in the market. And people now knew what the Fed’s emergency reaction function was.
It was to try to get the 10 year yield down. And so even before the Fed began to buy by treasury securities with their asset purchases in March of 2020, you saw the 10 year yield drop to 0.5% record low. And that also helped bring down mortgage rates. And then the Fed in this crisis, they were also buying much larger quantities of mortgage-backed securities. So even though mortgages tend to price off of the 10 Year Treasury the Fed was actively buying MBS. They now own 31% of all of Fannie, Freddie, Jenny May paper. Those are government backed MBSs. They own 31% of that’s much higher than was the case after the 2008 crisis.

David:
So can we fast forward Nick to where we are today? We just hinted at it a little bit. The Fed has started raising their target rate and has signaled that they’re going to continue to do that, but can you just give us a backdrop about what the Fed is thinking right now and where you think they’re going over the next couple of months?

Nick:
It’s pretty simple. The Fed thinks inflation is too high. And some people might say, “Well, duh, where were you last year Federal Reserve? Where were JJ Powell last year?” But what happened last year was we were coming out of the pandemic and there was a view that the prices that were rising the most were in these supply constrained categories, airfares, used cars, the rental car fleets have liquidated during the pandemic. And then they had to go replenish last year. And so they bought used cars at auction that sent used car prices up. You have chip shortages. So new car production can’t keep up, prices go even higher.
And so for a while, of course, the Fed infamously said, and a lot of private sector economists agreed that this was transitory. The idea behind that was that inflation was really driven by the pandemic. And assuming the pandemic was over with quickly, inflation would be too. Where we are today, that hasn’t been what happened you saw, especially in the last part of 2021, the labor market tied in rapidly. And the Fed pays a lot of attention to that because what they really are focused on is underlying inflation. They call it the persistence of inflation. And the most persistent inflation items are labor intensive services.
Think about getting your haircut or going to the bar where the main price of what you’re paying for is labor. So if wages are rising because the labor market’s tight, that is not transitory inflation. And that is inflation that is very hard to reverse once it starts. And then course rents are another big example of persistent inflation. When the economy’s booming, when people have jobs, they’re forming households, they’re willing to pay more for housing. And housing’s obviously, badly supply constraint in a lot of the places where people want to live. So what happened last year was the Fed decides, “We think this is transitory, we’re going to ride this out. We’re going to be patient.”
By the end of the year, Powell, abandons that he says, “We still think prices are going to come down. You don’t think prices of used cars can continue to go up 40% year after year, but the labor market’s probably getting really tight.” And now he says, he thinks the labor market is overheating. He at the last Fed press conference in March said the labor market is tight to an unhealthy level, which my jaw was on the floor when he said that, because this is somebody who all through 2021 was talking about having a really strong labor market recovery and saying that you think the market is now unhealthy to sign that maybe we’ve gone past the point of full employment.
And the Fed doesn’t want to be in a place where they’re having to raise interest rates to create unemployment. The way you create slack in the market is you actually throw people out of work. And that almost always actually strike almost that always has led to a recession. Whenever the unemployment rate rises by a little bit, it goes up by a lot. So where we are now is the Fed is worried. They’re worried that one year of high inflation is okay, but if we have a second year of that, people are going to begin to build expectations of higher prices into their wage setting and price setting behaviors. And that psychology is something the Fed really strongly wants to avoid.
And that was where we were up until February war in Ukraine, energy prices going up, commodity prices going up, supply chain, which you thought was going to get better by maybe the spring not going to get better this spring. And so that’s why you now see a Fed that is very determined as signal, let’s get to a neutral interest rate. A neutral interest rate is the level the Fed thinks isn’t providing any stimulus to the economy. If you think of the economy as a car and the Fed is the driver, they’re taking their foot off the gas. They’re not pushing on the brake, but they’re trying to find that place where they’re no longer pushing on the gas, not necessarily stepping on the brake.
And the big question for interest rates over the next 12 to 18 months is, does the Fed decide we need interest rates above neutral because we need to step on the brake. We need to slow this thing down because it’s just going too fast.

James:
Do you think that as the Fed starts to change the rates and slow this down, which I do think needs to happen. I mean, assets are going up. Costs are out of control right now. At least I know like for us we do a lot of renovation. We do a lot of home improvements. Those costs are at least at 20% above where it was before. And a lot of that isn’t just materials, it is labor. Like guys want more money. They have to pay more for fuel. There’s more demand. And so they can charge more. Do you think that these reactionary things, there’s two things that are going to come out of this as rates go up, affordability’s going to come down. And like you said, slow down the economy in the wages, but how high do you think they need to go to slow this down?
Because if I’m looking at this as an investor, like even the other day I was buying a property less than 30 days ago, I locked in a rate that was like 4.45. I had to switch the structure and go to a reverse. And now I have to refi it. And now my new rate in 30 days is at 5.6, which is a difference of $800 in that rental property I was buying, which is a huge compression on your margins in a very short amount of time. I mean, just doing that on that one specific example, that can be painful. And if it keeps going up quickly and if they’re going to keep rising this, I mean, do you think they have to keep compressing these things to slow down the labor market? And how hard do you think they have to go?

Nick:
I mean, that’s the million $64,000, whatever you want to call it question right now. How high does the Fed have to go? So, let’s step back. What is inflation? Inflation is supply and demand out of balance. That’s what we have here or supply and demand are just out of balance. Last year, the Fed thought it was mostly supply, supply chain bottlenecks, people not wanting to work because they are concerned about COVID or they have a lot of money socked away. So they’ll retire early. Now, it’s clear that, that isn’t the case. It is strong demand. You have a lot of demand. You have more people working, making more money, spending money on things. You have had a shift of spending towards goods away from services and the supply chain couldn’t handle that. So you had extreme price, increases.
To get to your question, now how high will interest rates have to go? The Fed can’t do a lot in the near term about the supply side of the economy. They can’t create more oil, they can’t create more houses, their tools just don’t do that. So when they talk about bringing supply and demand into balance, they either need to get lucky, they need to get supply chains moving again. People who are not in the labor force coming back to work, those are not things they can control. So they are hoping to get help from the supply side of the economy. But if they do not, then they have to throttle back demand. They will have to reduce demand to bring supply into balance.
So how high will interest rates have to go? It really depends on how much help do they get in the next two quarters from the supply side. If they do get that help, if used car prices come down and you begin to see inflation come down, because that was such a big contributor to inflation last year, then maybe they won’t have to raise interest rates very much above again, an estimate of neutral. There’s another question there about what is a neutral interest rate? The Fed, when they submit their projections every quarter, this is called the dot plot. It’s a grid that shows where all of the participants at the Fed meetings think interest rates are going to be at the end of this year or the end of next year, the year after that.
They also project where they think interest rates should be over the long run. And that interest rate has been between two and 3%. So we could take that as the estimate of neutral, but that estimate assumes that inflation is at 2%. So a nominal neutral rate of two to 3%, assuming inflation’s at 2%, if inflation ends up at a higher level, let’s say 3%, then to get that neutral rate, you’re actually talking about a higher interest rate. You have to get interest rates up to three or 4%. And so, this depends on a lot of things that are out of the Fed’s control. How far does inflation come down?
How quickly does inflation come down and do you see expectations of future inflation becoming, the Fed calls us [inaudible 00:31:01] where people expect per prices to be higher. If they get the good story, the positive story, people come back to the labor force, wages come off the boil, the supply chain heals, you don’t see inflation spreading out into the service sector, then they may not have to raise interest rates very much. Maybe they get up to their most recent projection so they’d get interest rates up to just below 3% by the end of next year. And then hang out there for a while. That’s the optimistic scenario.
The other scenario is interest rates go much higher than markets are expecting much higher than we’ve seen since before the 2008 financial crisis. The Fed fund rate in 2006, peaked at five and a quarter percent. So, that’s much higher than anybody has on their radar screen right now. And there’s a risk. The Fed will go there because I’m not saying 5%, but above the 3%, high end estimate of neutral because either they have to chase inflation down or they can’t actually tide in policy because they would want to raise interest rates above the inflation rate to actually slow down demand.

David:
That’s super helpful. And just to clarify for everyone, the way that the Fed slows down demand is by raising interest rates, but people are less likely to borrow, their less incentivized to borrow. It’s not as easy for them to go out and buy a new car or a new house, for example. And so fewer people are getting into those markets for those goods and services, just to make sure everyone understands that.

Nick:
And also businesses hire fewer workers. And so people have less overall income. And so they don’t spend as much money.

David:
Nick, one thing I wanted to ask you about is asset prices because when we talk about inflation in the way that the Federal Reserve defines it is the most common is consumer pricing index, which measures things like energy prices and food and rent. What it does not factor in are prices of homes for example, and stock prices or cryptocurrencies. And I personally believe that a lot of the reasons all three of those markets are taking off is because interest rates are so low and people can borrow to buy a house or people are even borrowing to buy stock or crypto right now.
How much does the Fed care about asset inflation? Is that factored into this tight rope walk that they’re doing right now between a recession and lowering inflation, or is this something that is out of their purview?

Nick:
It’s definitely something they pay attention to and you’re right, it isn’t something that goes into the consumer price basket. So they’re not measuring, if the price to buy a house goes up by 20% where you live in, say Las Vegas, that isn’t getting factored into their inflation radar screen. The statistical agencies that measure prices and the Fed relies on these agencies, they look at the caring cost of a house, the monthly payment you would pay either to rent the house that you own, or if you’re renting a house from a landlord, how much do you pay in rent? Because that’s how much you’re actually spend out of pocket for the consumption of that housing service.
Now, the main way in which asset prices are on their radar screen, I said that there are two mandates the Fed has, which is price stability, or inflation and employment. But they also have a silent third mandate, which is the stability of the financial system. And it’s through their supervision of that stable financial system where asset prices come to bear. Now, there’s been a big debate over the last 10 years, which is, should the Fed raise interest rates even if inflations contained and even if they’re meeting their mandate unemployment, but to prick a bubble? Because an asset bubble could jeopardize their ability to achieve both of their other goals. And the argument has generally been, no, we shouldn’t use interest rates. We shouldn’t raise interest rates to prick asset bubbles.
We should use other tools, primarily regulatory tools to do that. The Fed can do that by issuing guidance to banks, for example, saying, “If you’re going to make leveraged loans to corporate borrowers, you have to hold more capital.” But there aren’t that many of these regulatory tools available to them. It’s not like they can go say to the regulator that oversees Fannie Mae and Freddie Mac, “Hey, charge more for mortgages right now. Raise the loan level prices that Fannie Mae and Freddie Mac charge in the secondary market because we think there’s a housing bubble.” They can’t do that. So, if we were in an environment where inflation was low, but asset prices were booming, I think we would be hearing a lot more about, “Well, gee, shouldn’t the Fed be raising interest rates to deal with this asset price boom?”
It’s a moot issue here in 2022, because inflation is a problem. And the Fed has said that. I mean, if you look at the title of J Powell’s last speech, it was, restoring price stability. That’s a pretty bold title. He’s basically saying we do not have price stability. And so when the Fed is saying, they’re going to raise interest rates to get inflation down, there’s a happy coincidence that’s also going to go after an asset price boom, if we’re having one, but to your point, Dave, if we were in the environment we were in say 2018 or 2019 before the pandemic hit, where the Feds saying, “Gee, we don’t really think we need to raise interest rates anymore because inflations contained, but you saw crypto and housing and all these other things off for the races then you’d probably have a bigger debate right now over how to deal with that.”

David:
Thank you. That’s a super helpful explanation because I think so many people I talk to say like real inflation is higher than even 7% or 8%. And it really just depends on how you measure it. The Fed, as we’ve learned today, their mandate is to control price stability or, how did you say it? It was price stability?

Nick:
Yeah. To have stable prices.

David:
Yeah. So they want to do that for goods and services. It is not officially in their purview to control asset prices, but thank you for explaining that. It sounds like they do have this debate at least internally about how they should do that. Sounds like interest rates aren’t the right way to do that. But perhaps their regulatory means they can try and control that. Before we wrap this up, Nick, for any real estate investors. Investors, anyone listening to this who like, I think James and I love paying attention to this stuff.
What should they be paying attention to over the next couple months in terms of Fed policy and how can they read into the news that’s coming out to help plan their own investing and financial decisions?

Nick:
Before this crisis, the big data point that everybody watched to see is the Fed going to raise interest rates at the next meeting was the jobs report. So the first Friday of every month at 8:30, the labor department issues the job support and people would say, “Oh, if hiring’s really strong, the Fed will feel like they can raise interest rates.” If you want to understand over the next few months what’s going to happen, then pay attention to the monthly inflation report. The CPI report, which comes out usually around the 10th day of every month. And the reason that’s important is because the Fed is looking to see whether the month over month pays of inflation slows. They measure this, looking at the 12 month figure the year over year, but pretty soon here, beginning next month, a year ago, inflation began to rise.
So the comparisons are going to get flattered because you’d have to have much higher inflation to have the year over year number go up. So the year over year number probably after this next report, which will be a high one because of the energy increase from the war in Ukraine. The year over year number may not be as important. But look at the month over month number, for the Fed to be hitting a 2% inflation target, or even getting inflation down to 3%, they would want to see something closer to a two tenths to three tenths of a point increase in inflation, or less than that. Less than that would be great if it was 0% for a month that would be very reassuring to the Fed. They would want to see that. If on the other hand, you continue to see where it’s been a five tenths, six tenths of a percentage point month over month increase in inflation, that is not at all consistent with what they want.
That’s consistent with a 6% annual inflation rate or even higher. And so if you really want to understand what’s happening for the Fed for the next few months, I would say, obviously pay attention to what they say. They mean what they say. When the Fed chair and the vice chair in waiting say that they plan to expeditiously raise interest rates, when they say that they want to get interest rates as fast as they can back to a neutral level, that means they’re going to 2%, at least unless something in the economy breaks and something in the financial markets break and then they’d have to decide how they manage that. So listen to that, but also look at the monthly inflation numbers, because I think that’s going to be where the most near term information is going to come on how comfortable or panicked they feel about where the economy is right now.

James:
Curious to know, what do you mean by something in the economy breaks? Is that like a housing bubble pop or is that a stock market or-

Nick:
Yeah. It would be, if you saw signs of dysfunction in the financial markets, then that would be… I don’t know how they would address that, but that’s what they’re trying to avoid. What they’re trying to do right now is they refer to as tightening financial conditions, which means they want to see the cost of borrowing increase. That means stock prices coming down. It takes some of the froth out of the economy, but they don’t want that to happen in a disorderly manner. So sometimes you think about going up the stairs, going down by the elevator. Well, they like to go down by the stairs here. If you have big discontinuous drops then that would be concerning. And I’m not at all suggesting that would be enough to throw them off their track right now of raising interest rates.
But so long as that doesn’t happen, they will feel like they have a green light to raise interest rates. And remember, many interest rate increases this year. So the market is already pricing in a half point increase at the May meeting. The market is already pricing in a half point increase at the June meeting. As we get closer to those meetings, if the market is saying, we’re expecting this, then that’s an open door and the Fed will take it. They will walk through that door. All of this is happening in a way that isn’t really disrupting economic growth. Yes, you’re seeing the housing market slow and you’ll probably continue to see the housing more slow, but that’s what the Fed wants when they raise interest rates.
They want activity to cool, they want to remove some of that excess demand that you have right now. And so if you’re in situations where homes that used to be getting 10 or 30 offers are now getting three or four, for the Fed, that’s probably a healthy development.

David:
Nick, this has been an incredible interview and you are such a wealth of information. And I’m so grateful to have you on, I’m already dreaming about inviting you back on sometime in the near future, but we do have to go, this is-

Nick:
Thank you.

David:
We can’t do it all day as much as I would probably love to. But before we do, I’d love to hear about your book. I know you just released book recently called Trillion Dollar Triage. Can you tell us about it?

Nick:
Yeah. Trillion Dollar Triage is about how the Fed managed through the pandemic. And so if you want to understand J Powell and how he operates, if you want to understand better what the Fed did and why they did it, you should check out this book. Basically, in the second and the third weeks of March of 2020, we had a financial crisis, a full blown crisis. There was a run on the treasury market. This is the most important market in all of global finance. And it was melting down. It was melting down because there was a dash for dollars, businesses didn’t know how to manage through a pandemic, everybody in the world wanted to get their hands on dollars.
And so the Feds stepped in a very big way, and they avoided another 2008 episode. Of course, 2021 ended up being a very different story. And they were reluctant to pull back on their support. There was much more fiscal stimulus than they anticipated. And so that’s where we are now with high inflation. But if you will want to understand the Fed and how they think and why they made the decisions they made, then you should check out Trillion Dollar Triage.

David:
I know James bought it already. And I started reading it too, because we’re both nerds and love this stuff, but it’s not just being a nerd. Honestly, if you want to be a informed investor, understanding the Fed, which controls one of the, if not the single most important financial lever in the global economy is a wise thing to understand how they operate, what their mandate is, and how they’re thinking about fiscal policy in the current day and age.
Nick, before we get out of here, is there anywhere if our listeners want to reach out to you or connect with you anywhere they can do that?

Nick:
Well, you can follow me on Twitter @NickTimiraos. I tweet fairly often. You can also email me at nick.timiraos, T-I-M-I-R-A-O-S @wsj.com. I’m always happy to respond to readers and then you can check out the book on my website, nicktimiraos.com.

David:
All right. Thank you. I think I’m going to be emailing you a lot.

Nick:
Thanks so much for having me, Dave and James. I really appreciate your time.

James:
Yeah. You might be getting some late night questions.

Nick:
I’ll take them at all hours.

James:
All right. 1:00 AM it is.

David:
All right. Thanks, Nick. I mean, whoa, that was awesome, right?

James:
Yeah. I think that guy is on a whole nother level of understanding money.

David:
I mean, I have a lot of thoughts about how what this means for the housing market and for real estate investors, but I’m curious to hear your take. What are you thinking right now?

James:
Well, when I was listening to him talk and what he was saying is… How I got the summary was that we have some stuff coming our way and we need to get really lucky. When he said, we need to get a little bit lucky to make this pull off right, I started to get and very concerned because right now what I’m seeing in the world it’s not really the best climate for luck. We got a war going on, we got supply chain issues. And so, I think how I took that was we need to anticipate as investors to make some changes and anticipate more expensive money.
And as a real estate investor, it doesn’t really matter how much money costs. You just have to make the adjustments for it. Whether it’s 3% or 5%, I still need to make sure my cashflow numbers work the same way. And if it’s at 5%, I just need to buy a little bit different and look at different products. But I mean, that definitely, he gave a lot of signs of what you should be preparing and for as a real estate investor.

David:
Yeah, man. That part worried me a lot too. He just put it in a really simple way that made me realize that we don’t have a good line of sight on the end of this thing. I was originally thinking, you look at the dot plot and Fed reserve notes. You’re like, okay, mortgage rates will top out at 5%. And now I’m saying, okay, five and a half percent. Now it might be 6% at the end of the year. And unless things start turning around in terms of inflation soon, I don’t think we’re going above like seven or 8% anytime soon, but I think we have to recognize that we might be in for a long ride with rising interest rates here, which is concerning in some regard.
But again, like you said, I don’t think it necessarily would make me stop investing in real estate. It just changes Europe approach. So, I mean, I know that we just had this interview, but how would you think about adjusting your approach given this information?

James:
Yeah, I mean, there’s lots of things that you need to prepare for when you have a volatile market and money. I mean, because what I did learn from the 2008 crash was access to money is the, I mean that is the difference maker in everything, housing, stocks, economy growth, and as they slow the access to money or make it more expensive, you have to just make sure that you’re running your numbers off today’s numbers and anticipate that your performer numbers are going to change. So as I’m looking at buying even value ad there’s two major value ads that we do, it’s a fix and flip and then it’s also a burst style or holdings where we’re going out or buying it and then refining into a conforming loan after we add the value.
So what we’ve done is for preparing and we started doing this about a month ago, because I was getting really concerned with rates rising is we’re just adjusting our exit rates. So if we’re going and looking at a property, we’re not looking at the now rate of going, okay, this is at 4.65. We’re naturally adding a point to our exit on everything. We’re adding 10% to our construction budgets because as costs keep soaring up and everything that the Fed and even that Nick were saying was, they’re not anticipating this to slow down and it’s going to need more of a harder reaction, which is going to cause a jolt in the market, but you just have to adjust as long as your backend numbers are where it needs to be, then that’s where it’s okay.
And so like on a fix and flip, we’re not going to the high end of the comps anymore, or we’re targeting areas that have more liquidity of money in the market to where it’s less impactful to have interest rates or the interest rates will impact those buyers less. But I think the last 24 months have been unreal for investors. People have gotten really used to winning 100% of the time. And what you have to do is slow down, go back to our 2010 to 2012 model and just go off the numbers. Does this return make sense for what I’m trying to achieve? Does it make sense with the high money? And don’t forget to build these costs in. Build in inflation in your construction, build in higher rates as you look at acquiring and stabilizing that asset.

David:
That’s super good advice. I think we’ve seen for years the mantra at bigger pockets and a lot of people I hear was about cashflow and not focusing on appreciation. And personally, I always thought that at least over the last five years, that was a little misguided because appreciation has just been so strong that you could basically count on appreciation for the last couple of years. That to me now has changed. And I think it sounds like you assume the same thing is that I’ve been one of the biggest proponents of investing for inflation of the last couple years, but with all of this rising interest rates, it seems like demand is really going to start falling off.
I mean, I think that we’ll start to see first time home buyers who are, especially, you said this in our first episode, especially the lower end around the median home price are probably very interest rates sensitive and price sensitive, and we’re probably going to see some demand start falling off. And to me that means we might see housing prices start to flatten out in the next couple of months. Do you think that’s possible?

James:
Yeah, no. I think it’s definitely coming and it’s actually happening right now. We’re seeing that. We do a lot of transactions up in Washington, so we’re in all different markets. We’re in the median home pricing, we’re in the luxury market and we can see where the movement is. We do about three to 400 listings a year. So I can always gauge it. And the number one thing that I’m always looking at is what’s the showing activity. How many bodies are coming through these price points because that’s telling me the demand. Not the pending on, it’s not the so comps. I want to know who’s coming through. And I mean, there’s an area in Washington, it’s a city Bethel. It’s just north of Bellevue.
It’s gotten a lot of appreciation because of how expensive Bellevue went. Bellevue appreciated at 72% last year. And so it’s naturally sent Bethel to the roof as well. But in the last two weeks we had four listings. Four weeks ago, we were averaging about 30 to 40 showings a weekend on that property. This last week, we’re down to four. That is a huge, huge follow up-

David:
Wow. Oh, my God. Jesus.

James:
But we’re still selling the homes. And so what I don’t think in certain markets, we’re going to see much depreciation. I think we’re going to see flattening out, which for an investor, that’s actually a good thing. Investing in highly erratic markets can be very risky. You get a lot of reward, but there’s also a lot of risk. And so now, as you’re looking at any kind of potential investment, at least when I’m looking at, I’m going, where’s the money at? Where’s this stability? Where’s the good paying jobs? Because those jobs are not going to be paying them less inflation could make it feel like it’s less, but the affordability should still be in that kind of factor range.
And we’re still selling those product. But in that first time home buyer range or the median home price range, those buyers are drastically affected by interest rates. Like even what we were talking about earlier, I had a loan that went up a point that cost me $800 a month. That’s a huge expense on that loan that I just completed. And so I do think you got cost of inflation energy’s up, and it’s really going to beat up that first time home buyer where they’re really constraint on their pricing already because they’re getting eaten by fuel, energy cost in general. Now housing costs is up and now the money is getting more expensive.
It’s going to bring that market down a little bit. And the general is one point equals 10% affordability. As you’re looking at any kind of investment, if you think it’s going to go up a point and you’re looking at the analysis, you can bring your value down five, 10% to offset that a little bit.

David:
Yeah. It’s a super interesting point that about the flattening out and that being actually potentially a good thing for investors, because I think a lot of people generally believe investors love this runaway housing market. Personally, I don’t. I would much rather see a market where we see three or 4% annual appreciation. It’s just a healthier market in my mind. It’s more predictable. I have a hard time, I think everyone does figuring out what’s going to happen in this market where we’re seeing unprecedented levels of growth. And for me, one of the things that could be a positive benefit of this and listen, there aren’t many right now. The there’s a lot of crazy things going on in the economy.
But the prospects of cashflow could improve nationwide in this type of scenario. Like if housing prices flatten out, but rent prices keep growing because wages are going up. And because generally because of inflation that could create a better cashflow market for investors, because they’re going to be getting more, the rent to price ratios, I should say, could potentially increase nationwide.

James:
Yeah. And I think it will, I mean, home pricing has gotten so high and I mean, we’ve seen pretty major rent growth. I mean, I think our rent portfolio is like up 25% from last year on rent hikes. It was just this set because rent were also so low for so long in our local area compared to what people the income bracket that they’re in. And so we saw this massive jump and I still think it’s going to climb pretty high towards the end of the year. But again, I think that’s going to flatten now too towards the end of the year, because we’ve had these sudden hockey sticks in appreciation, rent growth. And in my opinion, anytime there’s a hockey stick, there’s something coming down the backside.
Like there’s going to be some sort of correction and that’s okay to work in inside that model, especially… I mean, I agree with what you’re saying, like a more consistent market is a much better place for you to invest in. This last two years I think have been great for income. Everybody’s been making more income especially on their fix and flip, they’re getting more fees and generation, but where I’ve always done well with wealth is in a normal market. We obtain more real estate wealth during 2010 to ’14, not just because pricing was low it’s because we could act logically like, is this the right thing to buy? I don’t have 40 other offers coming in. I can think about it.
I can put the right plan on it and then really choose whether you can put it in your portfolio rather than just taking whatever’s there. And a lot of us are just taking whatever’s there right now because there’s nothing around. And so it really allows you to buy what you want, know your numbers and walk in and put together a good plan on it. So I’m looking forward to the market cooling down, if it does.

David:
All right. Well, this has been an awesome conversation. I have been very eagerly awaited talking to Nick and really appreciate your opinion and context here James, on the housing market. So if anyone has any other thoughts, you can hit up Nick, you can find me on Instagram @thedatadeli. James, where should people reach out to you if they want to talk to you about this?

James:
The best place probably Instagram, check me out @jdainflips. And we’re always putting now more and more information just to stay ahead of the curve.

David:
Dude your content has been great recently.

James:
I know. We got a great team and we got a lot of things going on. Yeah. Now, especially with all the inflation battling that’s been easy content to create.

David:
Good. Well, check it out on Instagram. Thank you guys so much for watching this episode of On The Market. We will be back next week where we’re going to be talking all about in inflation. So definitely check that out, because real estate investing one of the best ways out there to hedge against inflation. And we’re going to be talking about strategies to help you do just that. We’ll see you next week.
On The Market is created by Dave Meyer and Kalin Bennett produced by Kalin Bennett edited by Joel [inaudible 00:58:01] copywriting by Nate wine trout special thanks to Lisa Sawyer, Eric Knutson, Danielle Daley and Nathan Winston. The content on the show On The Market are opinions only. All listeners should independently verify data points, opinions, and investment strategies.

 

Mindy:
Welcome to the BiggerPockets Money podcast, show number 295, where we interview Antoinette Monroe and hear her journey to financial independence through real estate in just five short years.

Antoinette:
I realized that I didn’t want to be a contractor. I was cool with the real estate investing part and so that’s April 29th on my birthday at 36, I said, “That’s it. Not working for anybody else anymore. I’m just going to chart my own path. There’s enough cash flow that if I don’t want to work, I don’t have to, but I like this real estate thing, so I’ll just keep playing with that. Maybe do like two/three flips a year for fun money and that’ll be it.” I may have bought another property.

Mindy:
Hello. Hello. Hello. My name is Mindy Jensen and with me as always is my inspiring co-host, Scott Trench.

Scott:
Thanks, Mindy. You just set me up for life with these types of intros and new adjectives each week. Thank you.

Mindy:
Scott and I are here to make financial independence less scary [inaudible 00:00:55] just for somebody else to introduce you to every money story, because we truly believe financial freedom is attainable for everyone, no matter when or where you are starting.

Scott:
That’s right. Whether you want to retire early and make your neighbors wonder what the heck you’re doing in the middle of the day walking around the block, go on to make big-time investments in assets like real estate, or start your own business, we’ll help you reach your financial goals and get money out of the way so you can launch yourself towards those dreams.

Mindy:
Scott, I am so excited for today’s guest. Antoinette popped up at a meetup at the HQ a couple of weeks ago, and she is just an absolute fireball. Holy cow. She’s so excited about everything. Her story is so interesting because she has taken a desire to not be in debt and a desire to not work anymore and figured out how to make both of those happen.
She lives on very little money. She makes a big income and just saves it up to buy real estate. Then cash flows that real estate almost from day one.

Scott:
Yeah. I mean, her story is awesome. It’s just a story of working hard, spending as little as possible, building out financial runway and then using that to acquire cash flowing assets that she can actually spend the money that they’re generating and she’s retired. Her day to day is not working and hanging around the block and doing whatever she wants right now at age 36.
It’s phenomenal. It’s just great to see she solved all the challenges that have come up and lives her best life now lives now.

Mindy:
Lives her best life and does not allow somebody to tell her no. She looks for ways to make what she wants to happen, happen. I love, love, love talking to her. Antoinette Monroe, welcome to the BiggerPockets Money podcast. I’m so delighted to talk to you today. I can’t wait to jump into your story because I know it’s going to be fabulous. Welcome to the show.

Antoinette:
Thank you guys. Thank you, Mindy. Thank you, Scott. Very happy to be here.

Mindy:
We had an event at our BiggerPockets headquarters a few weeks ago, and Antoinette came up and said how much she has enjoyed listening to the show and told us her journey. In a nutshell, she’s a rock star. She is absolutely crushing it. She has made some enormous strides in a very short time. Antoinette, let’s jump into it. Where does your journey with money begin?

Antoinette:
Well, I’ll say that my journey with money probably we began in the womb, right? My mom was really smart. Good at math. My dad was entrepreneurial. I think from day one I was probably predisposed to be into money. I think my earliest memory was maybe selling my Halloween candy out on the sidewalk in the second grade.
Anything that I could sell from that point through high school, I would sell cookies, candy, fireworks in the summer. It got to a point where I had a little distribution network in high school with two cousins at their middle school and my God-sister at her high school, all selling candy, just so I could hoard money.
I didn’t really buy much with it. I would save it, pay for field trips, buy Christmas gifts for the cousins, but I’ve always been into making money whenever I could, I guess.

Mindy:
A distribution network in middle school. That’s hilarious.

Antoinette:
Bright ideas. Bright ideas start early.

Mindy:
Okay. Let’s move on to high school. What does high school look like for you?

Antoinette:
High school, still selling candy. I probably graduated to cookies at that point during Christmas. I added seasonal offerings. Basically whatever Sam’s had available, that’s what I bought and sold.

Mindy:
Oh, wait, you weren’t baking these cookies, you were just selling? That’s even better because you’re not spending all of this time baking. You’re just buying goods that are already made and selling those instead? That’s awesome.

Antoinette:
Yes, absolutely. Work smarter, not harder.

Scott:
Were you forecasting your business seasonally as well?

Antoinette:
It would go by … I would go to the store with my mom on Sunday and just look around and what looked good, this price seems like a pretty good deal for these cookie tins at Christmas. I can probably sell these for $3 each. Let’s try it. There one wasn’t much true thought behind it other than if I bought it and sold it for more than what I bought it for, I was winning.

Scott:
I was just kidding on that point, but-

Mindy:
No, you weren’t.

Scott:
What was your position in graduating high school?

Antoinette:
Graduating high school. When you say what was my position?

Scott:
Did you have a lot saved up? Were you feeling like you’re a competent entrepreneur and ready to rock and roll or what was that-

Antoinette:
No, no, not at all. All of my sellings, every Christmas, by the end of the year, I would wipe out because I would use the money to buy Christmas gifts for my cousins. There was nothing like carrying into high school with me. I’ll say the only thing that I did that set me up well for college was I was basically sold to the highest bidder.
I applied to schools and whatever school offered me the most money, that’s where I went because I didn’t want to pay or have student loans. That’s how I prepared going into college. None of that money through high school carried over.

Scott:
I love that. Well, walk us through the college years and where the next steps in the money journey begin.

Antoinette:
Okay. In college, I did go to Florida A&M University. I’m a very proud Rattler. I was able to go on scholarship from the university as well as Florida Bright Futures. It was really important to me to not accrue a lot of debt just to go to school. I really wanted to try to graduate for as close to no dollar spent as possible.
Throughout college, I would get net checks every semester and hoard those and save them. I always had a stash or had money available to me, even though I wasn’t working, because I would save everything I would get. I think I’ve been a saver always. That’s probably the number one saving grace, knowing not to just blow my money. I think I was also very mindful about not signing up for credit cards.
They’d offer you the free pizza and all those things. I had a fake name and social that I would use for those because I still wanted the free pizza, but I didn’t want the hit on my credit report.
College years were more so just staying out of trouble, trying not to take out any student loans until my very last semester of grad school when I had to and avoiding any credit issues or those normal pitfalls you would expect college students to fall into. That was more of just playing it safe, staying careful and still saving everything I had access to.

Scott:
You went to grad school. Did you do that all in a row? What year did you graduate and begin working?

Antoinette:
Yes. I did a five-year MBA program. I graduated in 2008 and started my first job summer 2009.

Scott:
Awesome. Well, let’s keep going. What happens next in the money story?

Antoinette:
That was the biggest shift. I knew it was going to be make it or break it. Thought I was going to be an entrepreneur. That was something I always wanted. I never really wanted to take a job, but that last semester I did rack up a couple of student loans so I took a job and the intent was, I’ll take this job. I’ll do this two-year program, pay off my student loans and I’m out.
I’m not going to be working. I’m going to go chase a dream or something. With that very first paycheck, I sat down and created, I guess what I call it now is my budget ABCs. I made an Excel spreadsheet, plugged in the info from the first paycheck and just laid out a plan for how I was going to get rid of those student loans in those first two years. I think those initial steps were the foundation for everything else after that.
Like being really tight on how I manage my money, knowing every dime that came in, those ABCs, I automated everything. I balanced each paycheck so I never had like a week where I felt like I didn’t have any money and would be thinking about just putting it on a card temporarily. Then I tried to stay as consistent as possible with it. I still follow this system to this day.

Scott:
That’s awesome. I never heard that framework. Automate, balance consistency.

Antoinette:
Yes.

Scott:
Right? Automation, balance, consistency. That’s awesome. ABCs. You said you put those together day one right out of the gate?

Antoinette:
With my very first paycheck. Yes. I’ve been tracking this spreadsheet from June 2009. In preparing for this call I went back and looked at it, till 2021, I had a tab there. Every change in pay or job change, I created a new tab. I’ve been tracking my money story the entire time.

Mindy:
I love it. Listen to that. She has tracked her spending, her money, her jobs, all of this since … I’m sorry, what did you say? 2009?

Antoinette:
2009, first paycheck out of college. Yes.

Mindy:
That’s awesome. That’s why I said she’s a rock star.

Scott:
Do you have any money today?

Antoinette:
I got a little bit.

Scott:
No. I-

Mindy:
Don’t spoil it, Scott.

Scott:
That’s the foundation of everything else. I think you can stop listening now and you know that that is a successful money story, but you should not because we’re going to have a great story that we’re about to go through. Okay. You graduate college, how much debt do you have this first paycheck? What does your calculation tell you how long it’s going to take you?

Antoinette:
Right out of college and you can see on that first tab, I write, “27,000 in total debt.” That was one credit card I had because I did an internship at a record label in New York. It was unpaid. Then the student loans that I had for that last semester and then I borrowed money to buy a car from my sister. 27,000 total was everything that I started with and that’s what’s on that first spreadsheet.
I think it took about 18 months or two full years to pay that off. I remember March 2011, everything was paid and I was completely debt-free at that point.

Scott:
Awesome. How much were you making and how much were you spending during that period?

Antoinette:
Oh, yeah, my starting salary was 50,000. I think my budget … My goal was to keep all of my bills under $2,000 a month, so 50,000 didn’t go that far. I kept all of my bills under 2,000 a month and I would get mileage checks for when I had to drive, it was a sale job. I would get sales bonuses each year.
I could see on the tabs where I’ve either made a lump sum using my bonus to pay something down or using my tax return to pay something down. Every mileage check, I would always volunteer to take the furthest route or to take furthest sales call so that I can get a bigger mileage check because all of that was going towards paying off the debt.

Scott:
Awesome. What kind of car was it?

Antoinette:
This was probably the first money mistake I made. It was a 10-year-old Mercedes, like one of those two-door coupes. I bought it from my brother-in-law. It was his old car and they thought it was better than the little Nissan that I had. They were like, “You should get this instead. It’ll be a more reliable car.”
From the moment I hit Memphis, that thing started tearing apart every year, the 10-year-old car, everything that could go wrong, went wrong, had to change the transmission on it. It was a money pit actually. I don’t recommend it.

Scott:
Well, just as an observation here, when you have those jobs that reimburse you for miles with your personal car, right? There’s an arbitrage opportunity there where, hey, if I’m driving a Corolla or something really reliable, it’s great gas mileage and doesn’t break down, my cost of driving is probably 25 cents.

Antoinette:
Absolutely.

Scott:
I’m going to be reimbursed at 55 cents. Sounds like that may not have been the case in your scenario with the Mercedes.

Antoinette:
Not all the way.

Scott:
[crosstalk 00:12:44] maybe-

Antoinette:
I didn’t get that full 55, but enough to be impactful.

Scott:
Yep. Well, great. Awesome. You’re keeping tight control of your spending and for the first two years, it sounds like it’s just a grind where you’re being consistent about tracking your spending, taking advantage of opportunities and then just putting every additional surplus dollar towards the debt?

Antoinette:
Yes. I mean, the way you say it, it sounds like it wasn’t too much fun. I still had a little fun in there. I had what I called therapy where I’d go shopping and fill up my cart with all the things that I wanted and feed the impulse. Then after that passed, I would go and put each one back where I got it from, unless there was something I felt like my life couldn’t-

Scott:
Yeah. That sounds really fun.

Antoinette:
… I couldn’t live without it and then I would buy that one, but I would also leave my wallet in the car. It had to be important enough that I was willing to walk back out the mall to go get my wallet, to come back in and pay for it. I still got to shop and have my retail therapy.

Scott:
I like that.

Antoinette:
I went on a lot of dates because I like eating out, but that was not in my budget. I would say yes to the date. If you asked me, I was going because I wanted the free food. Sorry. I still lived a little bit.

Mindy:
I don’t recommend that path, but-

Antoinette:
I don’t either.

Scott:
That tip would’ve been hard for me to implement.

Mindy:
Yeah. Scott, that’s tough for you.

Scott:
All right. Well, so we have a good two years here. We have a fun two years, but in the financial sense it’s a grind. It’s slow going of just paying off this $27,000 in debt, fast going and paying off this $27,000 in debt in the first two years. Do you have an emergency reserve that you build up at that point? How do you think about your cash position?

Antoinette:
I did. I think the first year I just saved it and was holding it. Then that last year started paying. I had like a six-month buffer before I was due to start paying off the loans. I had at least like a month to two worth of emergency reserves, but it wasn’t the primary focus at the time.
But I know I had enough that when the transmission went out, I was able to pull that $3,000 to replace it. There was some reserves there, but the majority of everything just went to clearing the debt.

Scott:
Sounds good.

Mindy:
Nice.

Scott:
Are you doing any investing or 401(k) contributions at that time as well?

Antoinette:
Yes. At least meeting my company match for those first two years.

Scott:
Awesome. What happens next now that you paid off the debt?

Antoinette:
I paid off the debt. It’s time for me to quit, right? Because that was the point, but I couldn’t quit living in Tennessee. I needed to get closer to family. I got a job to get relocated back to Miami where my family is. Negotiated with my parents, asked them if I could live for a year for free and then after that start contributing.
I got relocated. I had to stay a year to not have to pay back the relo. My two-year plan turned into three and I spent that third year saving every single dime because I needed to have a stash to live off of once I quit. I think at that point I whittled the budget all the way down. I gave myself about 400 bucks a month for spending and everything else went into savings.

Scott:
When you say went into savings, just like into your bank account?

Antoinette:
Into the savings bank account. I was still just meeting the company match with 401(k) savings and all other dollars went into the bank account. My goal was to have $50,000 saved by the end of the year. That way I knew I had like a year’s worth of living. If I wanted to run off to California and chase a dream or something after I quit my job.

Scott:
Let me comment on this because I completely agree with that mentality, right? A lot of people wouldn’t. They’re like, “Why would you do that? You could have been investing that 50K.” No, no, no. You have $50,000 liquid at the end of that year. You have every option. You can start a business. You can go into real estate investing. You can take a job that pays no salary and only has commissions.
You can become a real estate agent. The world is your oyster at that point. How old were you at that point?

Antoinette:
I was 24 at that point. That’s what I wanted. I wanted the option to not need the job so that I could choose my path, whether it was start a business or pursue a dream or just something else. If I had sinked it all into the 401(k), I couldn’t access the money and so now I’m trapped. I have to stay at the job for money versus having the source of money in my savings account that I have immediate access to.

Scott:
Great. A lot of people are going to shake their heads and disagree with that.

Antoinette:
I know.

Scott:
I’m nodding my head and aggressively agreeing with that. That’s exactly how I viewed the situation when I was getting started as well. $50,000 in the hands of an ambitious 24-year-old is way better than $50,000 in the 401(k) of an ambitious 24-year-old. $50,000 in a 401(k) of a 24-year-old who would blow the money is way better than $50,000 in the bank account of that same 24-year-old. That’s a big nuance I think is really important.

Antoinette:
Yeah. You definitely have to know who you are.

Mindy:
What’s important is this was a choice that you made consciously. This isn’t something that somebody else forced you to do. Antoinette said, “I want to have $50,000 saved up. I make $50,000 a year. Therefore, I’m going to have to save almost everything. I’m choosing to do this because my goal is this.”
Now, if you decided that there was this really awesome vacation you wanted to take for a thousand dollars, you could have done that. Nobody was saying, “This is not your money to spend.” You were choosing to spend your money the way you wanted to, which was to spend it in a savings account. Here you go.
I’m just putting it there. That’s a choice. Not everybody’s going to make that choice and not everybody’s going to be retired at age 31? 39? I can’t remember how old you were when you-

Antoinette:
36.

Mindy:
36. Okay. You know who doesn’t retire at 36? People who say, “Oh, I would never only spend $400 a month.”

Antoinette:
Oh yeah. I got told I was crazy a lot of times by my friends and my family. I watched my friends enjoy their life very much in their condos on the beach or taking cruises and trips. I was just like, “I mean, do you guys not have student loans? Did you do that first?” Just trying to figure out how they were able to do it while I was like not, but it just wasn’t a priority for them.
They still had those debts and student loans, but they prioritized the immediate enjoyment of the income. It was more long game for me. I think once I understood that it was long game and that these first five years were going to be critical and I could literally set the foundation for the rest of my life if I got that right, it was easy to block out the noise.

Scott:
Yes. Love it. All right. What do you do with the $50,000 now you’ve got it?

Antoinette:
Well, now it’s just sitting there, right? Because I’ve been working for the three years now. All the dreams that I had prior, they had started to fade. I didn’t know what business I would start or what I wanted to do anymore. The career, I was getting promoted every two years. I was like, “I’ll just ride this out and see what happens.” I left the 50 where it was, started maxing out a Roth each year.
For the next two years, the 50, it was just there. I did splurge. In celebration of meeting, paying off the debt and making that savings, I did purchase a car. I didn’t skimp on it. I purchased the car that I wanted, but I made sure to purchase the car where if I chose to, I could have bought it out.
I was able to get less than 2% interest, leverage my good credit and I went that at route instead. The 50 stayed there, rewarded myself for my hard work and just went along with the career, just trying to see where that took me.

Scott:
Awesome. Can you walk us through the next couple of years and then into the next inflection point in the journey?

Antoinette:
Yeah. I think that next year I ended up moving away from Miami to Orlando. I didn’t intend to stay there. It was supposed to be just like a two-year stint and move on to the next state with the next job. But I liked it there so I ended up starting to put roots. By about 2015, I started looking for property to buy.
It took like nine months to finally find one, mostly because I was very strict on the budget. I didn’t want to spend over 200,000. I still wanted to keep all of my total bills under $2,000 a month and now I had this car note so I had to pull down my home shopping budget for that. By end of 2015, I’d found and purchased a house. I was able to just do conventional. I had my down payment money on hand.
It was a house that needed a full gut. I had that money on hand to be able to do the renovation. That’s what was next. Then maybe after nine months of living in that house, after we’ve done the rehab and everything, I added on an addition, like a one-bedroom apartment of sorts because through the first iteration of the house, I realized if I made it a little bit bigger, I could get roommates.
That’s what I thought I was going to do. Like I’m going to get roommates. I’m not going to have any bills. They’re going to pay my bills. Then in five years I’m going to have this house paid off and then I won’t have to work. That’s always the underlying theme. Get rid of the expenses. Then I don’t need money and I won’t have to work. We built the addition. That turned out to work really well.
In exploring my roommate options, I stumbled upon Airbnb. Rather than a roommate, I rented it out on Airbnb. That was the game-changer. Game over. We’re done here. Accelerating, lighter fuel, everything. It changed the whole trajectory.

Scott:
You save up 50K. You sit on it for a little bit. You buy a house and turn it into an Airbnb using the $50,000. Do you think that investment worked out better for you than if you’d put it into the 401(k)?

Antoinette:
Oh, absolutely. If it was in a 401(k), I would still be working, but I think taking that money and creating a cash flowing asset that I could control and that was more tangible, but the biggest thing is it was an asset that eliminated my expenses. Now my entire paycheck, I’m not paying rent or my mortgage. My asset is performing. It’s paying for itself.
Now every dollar I earn is either going back into my pockets for savings or I’m saving it up to invest it into another property. That’s really what led to becoming a real estate investor. Initially, I just wanted to pay it off so that I didn’t have bills and I wouldn’t have to work.
After going through that process and seeing what the power of real estate could do in terms of building net worth or generating income, the focus started to shift.

Mindy:
Let’s look at numbers on this Airbnb property really quickly. You bought it for how much? How much did you put into it?

Antoinette:
Back in the beautiful days of 2015, I purchased this house for $169,000.

Mindy:
Oh, okay. Even better.

Antoinette:
Yeah. 2015 was nice. The first round of renovations were about $50,000 and that stuff I had on hand and was able to complete that. The addition, which started a year later, the total cost of that was like $95,000. At this point, I had no more cash savings. I took a 401(k) loan for $24,000 just to get started and went as far as I could go.
Of course, I’m still working so basically every paycheck is still funding this rehab and it took a full year. Then when I ran out of the 401(k) loan, I don’t advise this or recommend it for anybody, but I leveraged my credit yet again. I had very high limits on my credit cards and I’m pretty sure I maxed all of them out, but again, everything is always on automation so I’ve never missed a payment.
They were getting paid automated and at the end of the project, I rolled the lump sum over to a zero-interest credit card to buy myself 18 months to pay that down without it growing.

Scott:
Love it. At some point, if you want to get into the real estate game in a meaningful way, you have to lever up, which is really unfortunate. It’s just part of the reality of it. It’s scary. It’s terrifying to lever up to that degree on a real estate investment. It can go down that next year with it and leave you in a tough spot. But it was a calculated decision.
You obviously ran your numbers ahead of time, or I hope you did, had an idea of the numbers and it seems to have worked out really well. What did you end up getting from a cash flow perspective after all this?

Antoinette:
Yeah. By the time the renovation was done, the house was probably worth at that time, like about 400,000 now from the 169 that I got it for. I moved into the smaller one-bedroom side and lived there and then the original two-bedroom, one-bath house, that’s what I put on Airbnb. I think my very first month it was like $3,500 made.
Then the next month it was $4,500. Then every time it would go up, I was like, “Oh my God.” My mortgage was only 1,500 bucks a month so the cash flow just from doing that alone was twice the amount.

Scott:
What’d you do with the financing? You had all these credit cards, you had the 401(k) loan. How’d you pay that all back? Did you refinance or did you pay it back bit by bit with cash flow?

Antoinette:
I paid it back with cash flow. Every dime that I made from Airbnb for that first 12 to 18 months went back to the debt. That 65,000, that was racked up in the end, by March of that next year … We started Airbnb full-time in February, by April of that next year, I had paid off all of it.

Mindy:
Nice.

Scott:
Awesome.

Antoinette:
All using the income from my job and the Airbnb money.

Scott:
You’re saving $5,000 a month at that point, a little over that.

Antoinette:
I don’t need much to live off of at all either. I’m living for free and my biggest bill is gone. Every single dime went to the debt again.

Mindy:
With one property.

Antoinette:
It was easy. I’ve done that before. Yeah. With one property that I’m living in. Really is was two bedrooms and one bath out of my single-family home.

Scott:
We’re in 2016 now and your debt is all paid off except for the mortgage. You’ve got a little bit in your 401(k). You’ve got this property and some cash, I imagine. What’s next?

Antoinette:
Well, and let’s speed up. We’re actually at 2019 at this point. From ’15, we got at ’16, first rehab, ’17 that full year was the addition. By 2019, okay, we’re caught up. Debt’s paid. What’s next? Immediately I hit payoff on the last debt and I went and put a down payment on another property. I don’t recommend this either, but the space was small. Airbnb was-

Scott:
How did you get the down payment?

Antoinette:
I borrowed it from my brother-in-law. I never had the cash on hand. After that first 50, with every investment after that, I just got more and more creative. This down payment, it was for a new construction property. It was still going to be a house hack, right? It’ll be a house with a garage apartment. Airbnb was kicking me out of my house. I knew this whole thing would become an Airbnb. I would still have a good bit of cash flow coming from that home.
Then with the garage apartment on the new home, that would pay half the mortgage. I could essentially move into a new construction property in one of the best neighborhoods in Orlando and live there for free from day one. Borrowed the 25,000 for the down payment from my brother-in-law and I knew I had a year to come up with the rest of it before we had to close on it. Borrowed. Spent that next year saving, saving, saving, saving until we closed in 2020.

Scott:
Awesome. In 2020, we now have two properties. You have mortgages on both and you owe 25,000 to the brother-in-law.

Antoinette:
Yes. Well, no.

Scott:
Go ahead, Mindy.

Antoinette:
I paid the brother-in-law back immediately. I borrowed that from him in April, by July he had his money back. Then in November, I bought another property.

Mindy:
November of ’19?

Scott:
In 2020.

Antoinette:
Of 2019. Yes. In the middle of that, I grabbed one more.

Mindy:
Okay. You own a property. You put a down payment on a new construction, and before the new construction is purchased, you buy another property?

Antoinette:
Yes.

Mindy:
Okay.

Antoinette:
This one was my neighbor that I grew up with. She lived across the street from my mom, decided that she was moving. I’m hearing it through the grapevine. I’ve been doing my research and studying this. I know in BiggerPockets that off-market deals are hot. Immediately I call her like, “Hey, I want to buy it. I’ll buy this house. Just let me know whatever you want for it. It’s fine.”
I ended up purchasing that from her for 192,000. I put 40,000 in rehab on it. That same money that I had sent back to my brother-in-law, I called him back for it. Then when it was done, that one appraised for 300,000 and so I immediately refinanced it so every dime I had in there came back out before December was out.

Scott:
Awesome. That’s an easy BRRRR.

Antoinette:
Yes, very easy BRRRR.

Mindy:
You still own the property.

Scott:
Love it.

Mindy:
Not everybody who listens to this show-

Antoinette:
I still own the property.

Mindy:
… knows what BRRRR means. Antoinette, do you want to enlighten them on BRRRR?

Antoinette:
All right. Yes. A BRRRR is when you buy a house, then you renovate the house, you rent the house out, you refinance the house to get your dollars back, and then you repeat.

Mindy:
Okay. When you say you refied everything out, you bought the house for 192.

Antoinette:
Everything out.

Mindy:
You put $40,000 into it. That’s what? $232,000 that you have into the house. It appraised for 300,000, which means typically, were you going to live in that house or were you going to buy it as an investment?

Antoinette:
No.

Mindy:
Okay. You can-

Antoinette:
I bought it as a second home and I was able to refinance it for like 75% of the value. The total mortgage on the end was 225. What I left out was after the complete renovation of the first house with the addition, the value was so much higher. I put a home equity line on that house so I would have a source of cash to tap into, to get into other real estate projects.

Mindy:
Nice.

Scott:
Awesome.

Mindy:
You pulled all the money that you had into this property, this November property, you pulled that money out so you can use that money on something else while still owning this property as a rental?

Antoinette:
Yes. It took 45 days to buy the house, rehab it and have every single dime I spent back in my pocket.

Mindy:
45 days. Okay. That is-

Antoinette:
45 days.

Mindy:
That’s fabulous.

Antoinette:
Best BRRRR I ever did.

Mindy:
What’d you do with that money?

Antoinette:
I made the home equity line whole. Of course always pay my debts back off. Now the home equity line is whole and I’m two or three months off from closing on my new primary home. I move forward with that into the new primary home. Immediately rent out the garage apartment so that from the first mortgage payment that’s due, I’m not responsible.
The property in Miami made enough rent to cover its mortgage and half of the mortgage of my new house. Then the garage apartment paid the other half. Just in the second home and the primary home alone, I still wasn’t touching any of the cash flow from the Airbnb house.

Scott:
Awesome. We have three properties and what’s the net cash flow total for all this?

Antoinette:
At that time, let’s say the Airbnb property was probably cash flowing about 3,000 and I’m just going to rough number it. The property in Miami was cash flowing 1,200. Then the garage apartment made 1,250 and the mortgage of the primary home was 2,600. Within the cash flow from all those, my bills were completely covered and I still had some cash flow left over.

Scott:
Okay. What happens next? You have three properties at the end of 2019. Keep the story going?

Antoinette:
Well, now I’m a real estate investor now. Now I’m saying it, right? Like everything else I have been stumbling into. It wasn’t really intentional. It was just things that had happened. Now I’m a real estate investor. This is what I’m going to do. I’m telling everybody about it and looking for things to buy. I close on the primary home, April of 2020. COVID is in full form.
Then August of 2020, I get fired from my job. By this point it didn’t matter because everything that I was doing was so that I didn’t need the job. They fired me and I was like, “Thanks. All right.” I didn’t look for a job immediately. My bills were covered. I didn’t really need to work, but I did go and work for a contractor for about nine months because I’m getting into real estate.
I want to understand this stuff. I figured just having a job that better aligned with what I was trying to learn and do would be extremely beneficial. He happened to be an investor as well. By January 2021, he offered me an opportunity to participate in a flip with him. That was my first flip. We went in on that deal 50/50. Purchased that property in January and were able to sell it or have it under contract by the end of March.
I got a flip in that year. Then April, I realized that I didn’t want to be a contractor. I was cool with the real estate investing part. That’s April 29th on my birthday at 36 I said, “That’s it. Not working for anybody else anymore. I’m just going to chart my own path.
There’s enough cash flow that if I don’t want to work, I don’t have to, but I like this real estate thing so I’ll just keep playing with that. Maybe do like two/three flips a year for fun money and that’ll be it.” In May, I bought another property.

Mindy:
Okay. May of 2021 we’re up to, and you bought another property.

Antoinette:
Yes.

Mindy:
You own the original that was the Airbnb. You own the second house that you bought in November of 2019 that you BRRRRed all your money out. You own the third property that was the new construction that was your primary residence.

Antoinette:
Yes.

Mindy:
Now you’ve bought a fourth property for your third investment and fourth total property.

Antoinette:
Yes.

Mindy:
I guess your primary is an investment too, because it’s a rental. Okay. What does this property look like?

Antoinette:
This property was a six-bedroom, three and a half bath, maybe two blocks away from the first Airbnb property. Whenever I look at a single-family property at this point after the experience with the first one, knowing that if you put a door in strategic places, you can have something like separate units, so I did the same with this one. This six-bedroom house got chopped into three units.
Now that first house, the Airbnb house operates as two units. The second house purchased in November, same thing, split it with a strategic door that operates as two units. My personal home operates as two units. Now this new house I was able to get three units out of it. I’m not changing the use of the property with zoning or anything like that.
I’m just putting doors and exterior entrances in strategic places so it can still flow as a single-family home that it is and maintain its current zoning. But the use it’s like a roommate situation with a lot more privacy, right? Like everything is separate. It’s still one house, but when you close your door, that’s your entire private space with your own kitchenette and everything that you need access to.
This last property is three units. I rent two of the units kind of long-term-ish. I try to stay away from 12 months because short-term is just so much better. I offer everything furnished with flexible lease terms and then the largest unit in the front, that’s on Airbnb as well.

Mindy:
Okay. What does flexible lease terms mean? Let’s talk about that.

Antoinette:
It means I won’t give you a 12-month lease. The most you can get out of me is maybe three months, but there are people in transition all the time. They just got divorced or they’re a travel nurse here temporarily, and they need to be able to come and go within a month’s time. I’ll rent it out, furnished, all-inclusive and you can get one to three months.
If you need to extend, you need to add a couple of days, you have that flexibility. They are not the rigid standards of it’s a 12-month lease or nothing. It’s, what do you need? Is it available? Yes, we can make this work.

Scott:
What’s the cash flow in this one?

Antoinette:
This one, that was purchased with cash, so recycling those same dollars that the other properties got bought with. It was cash flow unlimited at the beginning, right? The back two units combined, they make about 2,400. In the first two weeks that I put the front on Airbnb, we got a reservation for, what was it? 3,500 bucks.

Scott:
Wow.

Antoinette:
Now that that has been refinanced and has a mortgage of 2,500, I know that the front at minimum makes 3,000. The cash flow on that property baseline is 3,000.

Scott:
All right. Keep going. What happens next after this property?

Antoinette:
Well, so that’s where we are now. That property, I just finished the rehab and got everything rented up and we just closed on the refi a couple of weeks ago. Now I’m looking for the next thing. There are a couple of things on the table. The original use for that house would be for a group home.
That’s a model we’re trying into, and I’m in the licensing phase of being able to offer that property as a group home for persons with disabilities. I’m also in the market for an apartment complex. I think I’m done I’m with single family.
I don’t really want a large portfolio, a large number of things to be responsible for because my goal with all of this is really just to maintain my freedom and to not need money. I don’t necessarily want to create a business or basically a new full-time job. I’m going after big ticket things.
Apartment complex so I can have my base level. I know right now as is, I can live off of what I have and not work. I’m just going to top it off with another large asset to at least double the cash flow that I have now for a little more comfort.

Mindy:
I love that. I love that you’re not looking for another full-time job. I think that some other podcast, the Real Estate podcast, the Rookie podcast, don’t do a good enough job of embracing the fact that you don’t have to own 500,000 units.
If you want to own four units and they cash flow and they serve the purpose that you need them to serve, it is perfectly acceptable to own four units and be done, or have a few more. As you start getting into 50 and a hundred and all of these units, it’s a job. Even if you’re outsourcing property management, you still have to manage your property manager. If you don’t want to work, don’t go buying yourself a job.

Antoinette:
Yeah. That was a lesson I had to learn. There was a time where I was consuming so many podcasts and just feeling overwhelmed like, “Oh my God, these people are scaling so much faster. I have three properties and I think I’m doing something, but I’m not because they have 50. They did that in one year.” I would feel so overwhelmed.
Finally, I was just like, “But I really just want freedom. I want to not need money, but have money if I need it. I don’t want the added responsibility. I don’t want to be an entrepreneur.” That was another thing to reckon with. I’d always viewed myself as an entrepreneur, but it was just like, “No, I don’t want to be an entrepreneur. I just want to be a freedompreneur and do what I want when I want and not have things that are tying me down.”
It took a moment to recognize that and make peace with that and be okay with just keeping it small, keeping it simple and not trying to scale and grow and all these things that I was hearing that I should be doing if I’m a real real estate investor. It takes a lot to just quiet the noise and know what you want and follow that plan despite-

Mindy:
What does your day to day look like?

Antoinette:
Well, now I get up. I’m usually at the gym by 8:00 AM. I have a personal trainer that I see three times a week. Usually after an hour with the personal trainer, I probably take a walk for an hour with my dog, my boyfriend and his dog. We walk around our neighborhood. By about 10:00 AM, we’re probably just getting back into the house after being out, walking around waving at all our other retired neighbors, looking at us like, why are we out here? Not at work.
Then after that we’ll probably have lunch. Josh usually likes to take a nap by this time. Yeah. Just wing it. If something happens, sometimes I go over and check on the properties. But mostly that runs by itself with the cleaning crew. Yeah. Just whatever I decide to do when I wake up that day it’s-

Mindy:
Well, that’s unacceptable.

Scott:
I think you’ve won.

Mindy:
No, that’s unacceptable. You need to go own 57 more units and then you can call yourself a real estate investor. I have issue with that comment because you’re not the only person that I’ve heard say that, “Oh, I don’t feel like I’m a real real estate investor because I only have X number of properties.” If you invest in real estate and investing in real estate is one property, one deal, one syndication, one whatever, you are a real estate investor.
I am a stock investor. I have index funds. I have individual stocks. It doesn’t matter what you hold, as long as you hold one of something, you are that type of investor. Yes, you are a real investor. I can give you a list of people that you’re doing better than. If you’re not watching the video, I’m doing little air quotes. I can give you a list of people that you’re doing better than who look up to you and say, “Oh, if only I could be like Antoinette.”
I can give you a list of people that you’re doing worse than, and I’m air quoting again. I can … “Oh, wow. They have more than me.” You have what you want. When you want another one, I, in my crystal ball, can see that you’re going to go find a way to get the next one that you want. Don’t compare yourself to anybody else because you are kicking butt and taking names.
I have to be family friendly because I want people to listen to the show with their kids anytime. But you’re a rock star. You have four properties that generate more income than you need. You can live off the properties you have, you never have to buy another property again. You can … Rents are going to go up. Airbnb people are still going to rent from you.
They’re still going to generate more and more. Your rates are going to go up every single year, I would guess. You’re going to continue to make more money while your fixed rate mortgages are not going to continue to cost you anymore. Yeah, taxes are going to go up and whatever, but you’re going to have basically the same amount of expenses while your income continues to increase.
If you want an apartment building and I hope it’s like a 10-unit, not a 200-unit that you’re thinking of, because that’s buying yourself a job, you’re going to go out and get it. You’re going to be like, “Okay. This is good for a while.” Or maybe not because you have that ambition.

Scott:
What do you do for healthcare right now?

Antoinette:
I have a healthcare policy. I found a … I don’t know what he’s called, but there’s a guy that sells health insurance-

Mindy:
Oh, broker.

Antoinette:
… and they have policies that are better for self-employed people. It’s better than what was available on Obamacare. I pay 400 bucks roughly a month for two adults on the health insurance policy. Yeah. That was something that was able to be taken care of and included in there. I also have a life insurance policy in case anything happens that the properties can be paid off or secured. Just outsource those things separately.

Scott:
Great. That’s always a question mark with like, “Hey, I’m going to leave my job and I have to deal with that.” It sounds like you pay for a plan.

Antoinette:
Yeah.

Scott:
It’s expensive, but it’s not something that’s outside of the ballpark of your ability to pay for with the property.

Antoinette:
Right. Right. For sure.

Scott:
Easy-peasy.

Mindy:
Okay. What kind of apartment building do you want?

Antoinette:
Initially I was thinking around 30 units, but I also want to be able to have it under institutional management. The advice I’m getting is that it needs to be at least 60 units to be able to have a property management company run it full time. Now that’s the target. Of course with this, I want to mix the model. I want to peel off some units for Airbnb because that … or flexible lease offerings because that exes up the cash flow and then have the rest for stability.

Mindy:
30 to 60 units is a lot. Is that a common thing in your area? Would you stay in your area? Would you go outside of your area?

Antoinette:
I’d have to come outside. I’ve been looking, I’m not really finding that here or in a price point that I want to pay, because it’s not going to be a syndication. It’s going to be with the money that I’ve cobbled up together between me and my family and a few close friends. We’re probably going to have to step outside of Florida for that. I’m open to other areas.

Mindy:
Okay. Interesting.

Scott:
We’ve got we’ve won. We’re retired. We’re thinking about building the portfolio with another apartment complex, day to day is-

Mindy:
Whatever I want.

Scott:
… do whatever I want. Walk the dog, wave at the other retired neighbors and all that kind of stuff. I love it. I mean, you’ve got the goal posts to stop moving from an expense profile very early and were able to parlay that into the first property and then accelerate from there using BRRRR. I think it’s phenomenal and it’s just a huge success story. Thank you so much for sharing it with us today.

Antoinette:
No, thank you guys for having me. I think when I first started all of this, I would listen to BiggerPockets Money like, “Man, I want to be on the show one day. I’m busting my ass to save and do all this stuff.” This really is like a full circle moment for me to be able to share a lot of the things that I may have been influenced by from listening to your podcast. Definitely thank you.

Mindy:
Okay. Antoinette, we have our famous four questions, which as you have listened to the show, you know are the same four questions that we ask of all of our guests. Are you ready?

Antoinette:
I am.

Mindy:
What is your favorite finance book?

Antoinette:
All right. Don’t crucify me for this, but I haven’t read any.

Mindy:
Oh, okay.

Scott:
Oh, that’s awesome.

Antoinette:
No finance books. No real estate books.

Scott:
I don’t know that was a possible answer.

Antoinette:
Yeah. No. Lots of Google. I listen to a lot of podcasts, so I’m still consuming educational information. It’s just not coming from a book.

Mindy:
That’s fine. That’s fine. What is your favorite podcast?

Antoinette:
Of course, BiggerPockets. The Real Estate Show, BiggerPockets Money. I think also when it came to financial freedom, I was listening to Afford Anything. Just that trifecta. Then when I want to be motivated, I’m listening to Tom Bilyeu or Lewis Howes.

Scott:
Awesome. Reading is converted into listening.

Antoinette:
Yes. I read fiction, right? I’m going to read for fun. If I’m going to educate, I want to hear it. Let me do a podcast. Let me get it in that way.

Mindy:
Okay. That’s fair.

Scott:
What was your biggest money mistake?

Antoinette:
Buying the two Mercedes that I bought. Those were the biggest mistakes. Loved both cars, but the first car I shouldn’t have bought it. What I had would’ve done just fine. Then by the time I bought the second car, I knew that my next role with my company was going to come with a company car. I got that next role three months after I bought this brand new car.
Definitely my car purchases were my money mistakes. I probably would be further along if I had not done them. However, they were done so strategically that it didn’t prevent me from achieving the other goals I had.

Mindy:
What is your best piece of advice for people who are just starting out?

Antoinette:
Hands down, house hack, right? Everybody will tell you purchasing a home is going to be your biggest investment. It’s not. It’s your biggest debt. It’s the biggest bill you’re going to have to pay. It’s the reason you go to work every day. If you can eliminate that expense, game-changer. House hack. Hands down. Don’t buy your dream house, buy a house that pays for itself.

Scott:
I think it’s the biggest tactic you can do to skip the middle class in this country.

Antoinette:
Yeah.

Mindy:
I was going to say that sounds like a tactic that has been floated in a finance book called Set for Life. Maybe we can get Antoinette a copy of that.

Antoinette:
I probably should read that. Yes, absolutely.

Scott:
Big fan of that book. Yeah. Great book. [crosstalk 00:49:43].

Antoinette:
I heard great things about it.

Scott:
Well, we’ll send you a copy following the show here if you’d like to read it, or listen to it.

Antoinette:
Awesome.

Scott:
What is your favorite joke to tell at parties?

Antoinette:
Oh, I have a good one. Okay. I prepared for this. My boyfriend came last night and he was telling me a story of this guy he sat on the plane next to and that told him a corny joke. I’ll just tell it and then I’ll explain later. How do you find Will Smith in the snow?

Mindy:
How-

Antoinette:
You look for fresh prints. I know it’s awesome, right?

Scott:
Yes. Love it.

Antoinette:
I love it. Will Smith is like my favorite everything of all time so when he told me the joke, I was like, “Oh my God, I have to use that one tomorrow.

Scott:
That’s awesome. Love that. I’m going to steal that.

Mindy:
Okay. Antoinette, where can people find out more about you?

Antoinette:
I am trying to do a better job at sharing more about this journey. I can be found on social media under fearlessandfreefi.

Mindy:
Fearlessandfreefi.

Antoinette:
That’s Instagram, Facebook, and TikTok, but there are no videos yet.

Mindy:
Awesome. We will include links to all of those in our show notes, which can be found at biggerpockets.com/moneyshow295. Antoinette, I am so glad you came up to me at that meetup that we had at our office. I am so glad you told your story because it is fantastic. You have four properties, you have no job.
You’re 36 years old living your best life, and it is very inspiring what you are doing. I’m so glad you had the time in your day to share with us your fantastic story. Thank you.

Antoinette:
Thank you guys so much for having me again, full circle moment. Biggest fan of everything BiggerPockets, literally. You know I’m not reading books. I learned everything from your podcast and websites. Thank you guys for having me.

Scott:
Thank you for coming on and sharing your story and congrats on the incredible success so far.

Antoinette:
Okay. Thank you.

Mindy:
Okay, Antoinette, we’ll talk to you soon. That was Antoinette. That fireball of a woman was Antoinette. She is going to continue to do massive, amazing things because she is so amazing. Scott, what’d you think of her story?

Scott:
I mean, it was a great story. I mean, it’s perfect. She’s done the fundamentals correctly from day one, literally paycheck one. Because of that discipline and because of the fact that she followed that path and managed her money intentionally, house hacked and built this real estate portfolio, she’s done. Game over. She can do whatever she wants with her day. She can travel. She can hang out at her house.
She gets to decide what that is. Check on her business occasionally. She directs the course of her life and her day. It’s just so wonderful to see. It’s what this is all about. I expect big things to come from her in future years because she will decide to pursue whatever passion she has or she will just live an awesome, happy wonder full life with that. I’m a little jealous and I’m excited and happy for her.

Mindy:
Yeah. At the end she said, she’s not sure what’s next. Maybe a 30 or 60-unit apartment building, which is not something that I want to take on, but if she wants it, she’s going to go get it. She’s going to find a way to do it. She’s going to crush it, just like she’s crushed everything else.
I am excited to bring her back in a few years and hear the story of the acquisition of her 30-unit apartment building and how she’s managing it and all the giant cash flow she’s making from it just by thinking outside the box. Okay, Scott, should we get out of here?

Scott:
Let’s do it.

Mindy:
From episode 295 of the BiggerPockets Money podcast, he is Scott Trench and I am Mindy Jensen, on behalf of Antoinette Monroe saying, go fill out those spreadsheets.

 

David:
This is the BiggerPockets Podcast show, 600. When you get into real estate, what you find is that you can actually make money spending money. I went and bought a car a couple years ago, and the guy who sold me the car, I ended up helping him buy a house. And the commission that I got from that was more than I spent on the car. Because I’m meeting different people and I can find different ways to add value, I can stay busy doing fun stuff too, and still making money. And that’s one of the reasons that I encourage people to get into real estate, because it’s about solving problems. It’s about networking. It’s about being creative. It’s not about being locked into a cubicle doing the same thing every single day. What’s going on everyone? This is David Greene, your host of the BiggerPockets Real Estate Podcast, the best real estate podcast in the entire world. I am joined today by my co-host and good friend, Rob Abasolo.

Rob Abasolo:
Hello. Good sir. And congratulations. I feel like I came in very strong. Hello, good sir. 600 episodes, man. That is a lot. That is a lot of episodes. That is just over 599 episodes. And as we look at the tallies here, I believe you’ve been a co-host on the BiggerPockets and now a host for just over 300. Is that right?

David:
Can you believe that? At this point, are we sure people are still listening or are we just talking into these microphones and no one’s even hearing what we’re saying?

Rob Abasolo:
You know what? I think they are because I heard the news that last month we broke the listenership records. I think I’m allowed to say that. We got the most downloads ever in the last month. I think that means that we can keep our jobs, which is really nice.

David:
That’s the other thing I’m wondering is I can’t believe I’ve been employed for this long.

Rob Abasolo:
Man, this is really weird because I wouldn’t say I’ve listened to 600, but I would definitely say I’ve listened to about 300 or so. Baby Rob here has been developing his real estate muscles here from listening to you for over 300 hours. Isn’t that crazy? I’ve heard you speak for more than 300 hours. That’s a lot of hours.

David:
Well, if we’re being honest here, Brandon was the host for most of those shows which I average probably about 14 seconds of mic time when that was going on. I don’t know if it’s been the full 300 hours, but now I think people are getting more David and more Greene than they ever would’ve thought possible.

Rob Abasolo:
That’s right. But I like to describe you from the earlier days that you were like this hawk where you sit back and you wait for the opportunity and then you come in as a hawk and you scoop up the prey with some amazing sound bite or some awesome metaphor. Can you give us a metaphor that would describe your experience moving from co-host to host of the BiggerPockets Real Estate Show and taken over for Brandon Turner himself?

David:
Well, basically I was a small basic Pokemon who just sort of had to hover around and just not say anything stupid for the most part. And then when Brandon left and I wasn’t able to live in his shadow, I sort of became this evolution of a Pokemon. I’m actually older than Pokemon. I know a lot of our audience listens and that’s why I’m going with this example here. What’s a good example, because your age range works for Pokemon, right?

Rob Abasolo:
I was a Pokemon guy for sure.

David:
There you go. When you look at me, what Pokemon was I and what did I evolve to?

Rob Abasolo:
Oh, man. I’d probably say you’re like a cute little Charmander that has evolved into the Charizard of real estate. That’s a pretty good accolade right there.

David:
All right. I appreciate that. The experience for me has been more like that analogy that you hear of you want to be like the duck where you look really calm on the surface, but underneath it your legs are going absolute craziness, pure chaos. That’s what this is like. We show up to do this show and I’m sharing all the things that I’ve learned in that week from running different businesses and buying real estate and talking to people that are buying real estate and trying to follow what the federal government is doing, what macroeconomic policies we have, how our relationships with other countries are affecting what’s going on here. That’s all the chaos that goes on. And then I show up and I fix my tie and I sit up nice and straight and I speak very calmly. And then when we’re done, I jump right back into the chaos of ah, what’s going on and how are things changing and how much higher can rates go and how quickly can they do that?

Rob Abasolo:
Well, hey man, congratulations on twofold here. All right. On 600 episodes, the BiggerPockets Podcast and being there for a majority of them and we are closing on our property officially, right after I get off the microphone. Right now, I’m going to go sign closing docs for our $3 million house that we’re closing on here today. It’s exciting.

David:
Yeah, that is a super exciting thing. And stay tuned folks because we’re going to be making some opportunities available where people can come and learn from Rob and I as we’re going to teach different elements of real estate at that property itself. And it is big and fun and cool. And I can’t wait to sort of share what we’re doing with more people, which is really the fun part of doing this on this podcast. And the fact that there’s been 300 episodes of me talking and people are still listening. That feels pretty good.

Rob Abasolo:
Yeah, man. Well, I’m going to let you get to it. Here you got a pretty stacked group of people that are coming in to ask questions and who knows? I don’t know. Maybe you may hear from me. I’m just going to put it out there. It’s a possibility, but I’m not promising it.

David:
Yeah. I have no idea what you guys are going to throw at me here. And that’s the way that I like to live life. I don’t know what’s going to happen in the government. I Don know what’s going to happen in the market. I don’t know what’s going to happen ever. It’s all about adjusting, reacting and re-accommodating yourself. The goal for this show is to make people think, laugh and learn to love again. Let’s see how we do. All right. And before we get into today’s show one final piece of advice and maybe ask from me.

David:
Wherever you listen to your podcast, please subscribe to this show there. They actually pay attention to that. And it affects the rankings that we have within iTunes and other ways that podcasts are broadcast. It would mean a lot to me if you could make sure that you’re subscribing to our show, to be notified when we have new content that comes out. As well as on YouTube, if you can like, share and subscribe what we’re doing and then comment below so that we see what you’re thinking, it would mean a lot to us. We can make better shows that way, that are more entertaining as well as more fruitful. Thank you very much for your support. Let’s get onto the show.

Tim Grover:
David, congratulations on your 600 episode. Now let me tell you something. Usually I don’t make this acknowledgement until someone gets to their 700 episode, but for you I’ll make an exception. Congratulations, my man. But I got a question for you. How do you keep performing at the highest level after all these episodes. One of the three things that you do every single day that keeps you at peak performance? I’m interested to know.

David:
All right, well thank you Tim. And first off, is there anyone with a voice like Tim Grover? I love that. Tim that was is fantastic. Thank you for your contribution. I am now going to answer your question. All right. When it comes to peak performance, this is a really good time to be asked this question, because I’m finishing up the last book in the series I’m writing for real estate agents is called SKILL. The first book was SOLD, then SKILL. And it’s all about taking a job and turning it into a business. Very similar to how real estate investors start off doing all the work themselves. And they hire that out. They end up running a portfolio. And in that book, the last chapter or maybe the second last chapter, has to do with leadership and I was writing that out and I realized that we make money or were compensated in proportion to the difficulty of problems we solve. There’s a Elon Musk quote, where he says that. And I really like it.

David:
Now there’s two ways that you can ensure that you solve difficult problems. I use this analogy of stacking weight on your shoulders. You can go look for something hard. You can go try to find problems, which would be weight in this case, put them on your shoulders and get stronger from solving them. That’s really the best way to do it. The problem is many times we hit a level of comfort where we’ve escaped the nine to five, we’ve escaped the W-2, we’ve escaped poverty, we’re comfortable and it gets harder and harder to proactively go out there and look for more difficult challenges. At that point, you have to sort of look for ways to motivate yourself.

David:
And Tim Grover was the personal trainer for Michael Jordan. And he knows a lot about how driven the guys like Michael and Kobe were to get out there and look for ways to stay motivated because naturally they weren’t. They’ve already won a bunch of championships. They’re already making a ton of money. It’s really hard to stay at top performance. And what I have determined is that if you put yourself in a leadership position where others are depending on you, they will naturally pass their problems onto you that they don’t want to solve. And you’ll end up stacking things on your shoulder, just inherently from being in the position of a leader. Leaders have to solve everything. Michael Jordan was the leader of the Bulls. He set the standard. We’re going to try to win a championship every single year. If he doesn’t meet that standard in his mind, he failed. That means he’s forced to deal with every single problem that a Chicago Bull would have becomes his problem.

David:
If Steve Kirk can’t play defense good enough, if Scottie Pippen’s not happy with his contract, if B.J. Armstrong isn’t passing the ball where he needs it to go, Michael Jordan’s going to go address that. And that’s one of the things that I do to stay in peak performance is I make sure I’m always in a leadership position. With the David Greene team, with the One Brokerage, with the different businesses I’m starting, a lot of people ask why are you doing that? You’ve already hit financial freedom. Well, the answer is it forces me to grow. This forces me to deal with problems, to become a better person, to become a better leader to solve the issues that we need for that company to thrive. And because I’m competitive, I want them all to be number one. Please hit me up if you are looking at buying or selling your house or need a mortgage, I definitely want that because I want to stay number one. But also understand that the first way that I stay at peak performance is I make sure I’m in a leadership capacity.

David:
The other thing that I do is I look for ways to put myself in a position where I am not comfortable or not confident because we get the best out of ourselves when we’re in the most uncomfortable or in the most pain. And jiu-jitsu and weightlifting is one of the ways that I do that. Now I’m getting a older, weight lifting isn’t as easy as it used to be. And I’m also very busy, so it’s hard to stay consistent. By forcing myself to exercise in ways that are not easy, I feel bad. I feel fat. I feel out of shape. I feel old. I feel weak. I don’t like those feelings. Not liking those emotions creates a natural motivation to go work harder at them. That turns into confidence, oddly enough in other areas of life. By forcing myself into situations that are not comfortable or in a lot of pain, it puts me in a position where I can be in peak performance in the same way that being a leader welcomes that. To me, these are the areas where I actually go seek it out.

David:
The third thing is I put myself in a position where people depend on me, which is like hosting this podcast. A lot of people listen to this show to get their knowledge, their information and advice on how they should construct portfolios and move their life along. There is a lot of pressure in that. I don’t want to mess it up. I don’t want to have someone else that could be better than me that listeners go listen to instead. By putting myself in this high pressure situation every single day, it forces me to stay sharp, to keep learning, to keep growing myself and always be looking at where my competition is and trying to make sure I’m a step ahead of them.

David:
Tim, you ever need a little bit of extra cash, I’d be happy to hire you to be my personal coach because you my friend are awesome. Thank you very much for making this video and your beard to is looking great. If you guys would like to learn more about Tim Grover, his amazing story and amazing individual he is, check out episode 471 where we interviewed him and check out his book Winning. He’s got several books including Relentless, but this one was really, really good. I would love it if you guys would order that book and go on his social media and let him know that you heard him on the BiggerPockets Podcasts, and you appreciate his contribution to our world.

Mindy Jensen:
Hey there? This is Mindy Jensen, the host of the “BiggerPockets Money” podcast and licensed agent in the state of Colorado where we are having a hot market. David Greene, real estate agent extraordinaire in this incredibly competitive market, how are you getting offers accepted? What is it that you’re putting into your offers over and above highest price and covering the appraisal gap and waving inspection, which I don’t like to do because sometimes there’s houses that have problems with them? What David Greene are you doing to make sure that your offers are getting accepted? Thanks.

David:
All right. Thank you very much, Mindy. This is a very good question. And I will pull back the curtain and tell you everything that we’re doing on the David Greene team to help get our buyers in contract in this very hot market. First thing, we advise our clients to stop looking at the deal from their own perspective and to start looking at it from the seller’s perspective. Everybody wants to find the house that they like and then find a way to get everything that they want in the deal. Oftentimes this comes from a place of fear. They don’t know what they’re getting. They feel safer by working the negotiations out to always favor them. Well, if you’re afraid, that usually means you’re without knowledge and if you are without knowledge, that’s where we have to address things.

David:
You mentioned waving an appraisal a contingency. Yeah, we really do try to avoid that. One way that we address it is if we’re not sure where the house is going to appraise, we advise you not to write the offer on that house if that’s what you have to do. The other thing that we will do, and this is a little more practical is I will talk to you or one of the agents on my team will talk to the listing agent and we will say hey, what do you want to do if the house doesn’t appraise? Well, we were really hoping you’d waive the appraisal contingency. Everybody else is going to do that. And we say, okay, what if we agreed to pay $10,000 over whatever the appraise price is or $20,000 over whatever the appraise price is? That way their client doesn’t have to worry about us backing out and not getting to sell the home. And our client doesn’t have to worry about paying a hundred grand out of pocket. We make sure it’s an amount that they can actually stomach over the appraise price.

David:
And when the market’s this hot, oftentimes by the time they close in another couple of months, it’s worth whatever it is that we paid for or more. That’s one practical tip. What you really want to do is avoid this problem altogether. When we have clients that are wanting to buy a house, we advise them don’t look at houses on the market for less than two weeks. You really want to be looking at something that’s been sitting a little bit longer, because you’ll have much more leverage when writing your offer. You’ll be able to get an inspection contingency alone, an appraisal contingency if it’s not a house that everyone is shooting for. In many ways we have clients that want their dream house at their dream price with their dream terms. And we split that up into smaller chunks.

David:
I say hey, you should buy the ugly house first, that’s in the area that you want. Find a way to add value to it. Then either refinance that house or sell it and use your proceeds to buy the house that you like. Then do the same thing two years later and get the house you really, really like and let your real estate buy. Your real estate a lot of times it’s negotiating with our own clients and helping them realize they’re not going to get everything they want in one shot in a market that’s hot. But they can get everything they want if they split it into smaller steps and create an actual process that’s systemic and strategic to get where they want to go. The last thing I would say is that when you’re choosing your agent, you want to find someone with a personality that is much more assertive.

David:
In a hot market like this, you don’t want a church mouse. You want a pit bull. You want someone who’s going after it. We stay in touch with listing agents. We call them constantly. I even pressure them. When a listing agent says, “Hey, write your highest and best. And we’ll see what’s happening.” I say, that’s BS. Tell me what number you want. And I’ll see if my client is willing to pay it. I stay on them and make them give me a number first that would work for them. And I’ve now set a baseline. And I see if my client would want to work with it or if they don’t, how much less than that number my client would be willing to go to that would make them happy and still make the seller happy. One piece of advice that I can give you, if you’re trying to buy a house you don’t know what you want to pay for is to ask your self, if someone else got the house for this price, would you be happy for them? Or would you be jealous that you wish you’d paid it?

David:
A lot of buyers make the mistake of doing is they say, “Hey, they’re asking 700. Do you think we have to go to 710? Or can we get it for 705?” And someone else comes in and says, “I’ll pay 775.” And blows you out of the water. The problem is after the close, often our clients will say, “I would’ve paid 775 for that house. I was just being greedy.” One way you can know what price that your client should be paying is to ask them at what point would you be happy for someone else? If someone else paid 850 for that house, would you be like, “Good for them? I don’t want it.” Or would you say, “Oh, I would’ve paid 850.” Find where that number is and get as close to it as you can when you’re writing your offer so you don’t have regrets. Thank you very much, Mindy. I appreciate that. If you guys want to hear more Mindy Jensen, you can check her out on the “BiggerPockets Money” podcast, where she gives great advice for financial freedom and personal finance.

Dave Meyer:
Hey, what’s going on everyone? This is Dave Meyer, occasional guest host of the BiggerPockets Real Estate Show and newly appointed full-time host of our newest podcast on the market. And David, I just got to say congratulations. It has been so fun working with you as a host of the BiggerPocket Show. You’ve done an incredible job. You’re changing so many lives and I’m just so proud to be a part of it. I do have a question for you. It’s actually a two part question. First question is David, if you had to pick one data point or one indicator that you pay attention to judge your investments, what would that metric or piece of data be? And the second part of that question is if you wanted to learn more about the data and metrics and news behind real estate investing, what podcast would you listen to?

David:
All right Dave, I see what you’re doing here. Shameless plug for on the market. Very clever. But you actually did ask a good question. When it comes down to what is the metric I look cat when judging my own portfolio? I try to make things apples to apples as much as I can. Everybody makes money in real estate, if they hold onto it for long enough. I think a lot of people think that they’re making more money than they really are, because they don’t understand the impact that inflation is having on the value of our currency. If your house went up 8% last year, you may think that you made money, but you maybe didn’t because inflation could have been on 11% and you didn’t know it. Instead of looking at did it go up in price or did my cashflow increase? What I like to look at is if I had put this same money into a different property, would that property have cashed out more or appreciated more? And I’m looking for the delta between what other people could get and what I can get as an experienced investor.

David:
In order to hit those numbers that are higher than average, I have to look for value added properties. I have to buy in the best areas that are going to go up the most. And then the last thing I want to look for is I don’t want to buy anything that becomes a headache for me, that takes a ton of time because that to stops me from making money in other areas or affects my quality of life. The three things that I like to look for are no headache. I want it to be in a great area because it’s going to go up more. And then lastly, how can I add value to this property? And then after that’s done, I look at how much equity I created, how much cash flow that I created and how much of at is basically easy on me that somebody else can manage it relatively simply. And I compare that to what someone who maybe buys a turnkey property or buys real estate isn’t as experienced as I would make. And I want to know that I’m making significantly more than that person.

David Osborn:
Hey David Greene. Good morning brother. Congratulations on 600 podcasts of BiggerPockets. That’s quite an accomplishment. My question for you from Cabo San Lucas is how does a crazy busy super ambitious guy like you maintain balance in his life? Hey, thanks for all you do. Thanks for your contribution. David Osborn peace out.

David:
All right. Thank you for that, Dave. You’re making me a little jealous that I’m not in Cabo myself. I’ve been there one time and I loved it. I actually tried to set up my team to take a vacation there and we couldn’t get everybody into any of the resorts because they were all booked up. Think you made a good call and you picked a very good time of day to make that recording. That sunset is beautiful. Well first off, you’re a huge reason why I am where I am here today. I was first introduced to Brandon and Josh by Hal Elrod, who I met at a GoBundance event that you put together. If you guys are interested in joining GoBundance, you should definitely check that out. Did a lot for me. And it was you Dave who said, “Hey, you don’t have to be a cop anymore. If you wanted to be an agent, you should check out Keller Williams.” And you got me started there.

David:
And now I’m one of the top agents inside of Keller Williams. And I’m able to rub elbows with some of the executives in that company and get really good mentorship from those people. And it was you that gave me a piece of advice in Las Vegas, Nevada when we were having sushi. Where you said, “David people want to be led. Don’t worry so much about what you’re going to do. Get out there and do it and people follow you.” And sure enough, that’s been incredible advice. And the more steps I’ve taken in becoming a leader, the easier that my life has become. When it comes to your practical question of what do I do to maintain balance when I’m busy? What I look for is how to get the most bang out of my buck. Whenever an opportunity comes my way, I don’t say yes to everything. I say yes to the things that fit into my other businesses or the lifestyle that I like.

David:
For instance, I was invited to go to UFC in New York and watch a couple of my buddies fighting. And I didn’t take that trip because looking at the plane ride from one part of the country to the other was going to stop me from being able to get anything else productive done for a four to five hour period. Plus when I’m in those environments, it’s very hard to stay in touch with everything that I have. But I would definitely go to an event if it was somewhere closer. Another thing that I look for is how to always be focusing on generating leads. I want people coming to me, if they’re going to sell their house, coming to me if they have an off market deal, coming to me if they want a job to work as a loan officer or real estate agent, coming to me if they need a loan. That’s the most valuable part of the businesses I have. And that’s what I’m always focused on.

David:
Well, I can do that from anywhere. I can do that from Cabo. I can do that from Hawaii. I can do that from the gym. I go to jiu-jitsu and I’ve had three people that have refinanced their houses that I met at jiu-jitsu. When you get into real estate, what you find is that you can actually make money spending money. I went and bought a car a couple years ago and the guy who sold me the car, I ended up helping him buy a house. And the commission that I got from that was more than I spent on the car. Because I’m meeting different people and I can find different ways to add value, I can stay busy doing fun stuff too and still making money. And that’s one of the reasons that I encourage people to get into real estate because it’s about solving problems. It’s about networking. It’s about being creative. It’s not about being locked into a cubicle doing the same thing every single day.

David:
Dave, that’s something I learned from you. The next step in my evolution is going to become more like you and learning how to partner with the right people so that they’re doing a lot of the work and I’m providing a lot of the sort of open door for them to be able to make more money than they did before. Thanks a lot, Dave. Appreciate you, can’t wait to see you soon. If you guys want to hear more about Dave’s story, you can check out his book Wealth Can’t Wait. He also wrote a book for BiggerPockets called Bidding to Buy with Aaron Amuchastegui where they detail their process for buying homes that are in the foreclosure process. And he was interviewed on the BiggerPockets Podcast episode 226 from deSTUDENT to 400,000 in rental property cash flow. All right. We’ve some great questions so far. Thank you for everyone who is submitted. We’re going to skip the comments this week, but here are a few tips that are shared by some fan favorite past guests.

Ed:
600 freaking episodes. That is flipping amazing. Speaking of amazing, [inaudible 00:24:13]. Anyway, I digress. Hey, my brother David Greene, the entire BiggerPockets family, congratulations. This is epic. And I’m so honored that I’ve been one of those people that have been on the show. I think I’ve been on there multiple times. It’s a truly remarkable and incredible achievement. And you guys are the best at what you do. One of the things I would share with everybody one tip of the day is that’s why these podcasts matter so much is you’re much closer to the life you dream of to the things you want in your life than you think you are. You’re one relationship, one meeting, one podcast, one thought, one emotion, one decision away from a completely different life. It’s that close and so fight for the one mores in your life. God bless you. And congratulations again guys. Mark’s out.

David:
Thank you very much for that Ed. And thanks for your digression, where we got to see the view from your property. That’s very motivating. And so is hearing the waves crashing in the back background as you made that video, you handsome devil. For those of you who don’t know Ed, we interviewed him on the podcast episode 433. And I’ll tell you what doesn’t Ed just make you feel good about yourself more than anybody else would. That’s a super power that guy’s got. Thank you very much, Ed. For all of you listening here, check out episode 433, where you get to hear a funny gif that I made about Ed and his wife. And the classy way that he handled it as well as the impact he will have on you, where you will just run through a wall to be more successful.

Henry:
Wow 600 episodes. What an incredible achievement. Thank you so much BiggerPockets for all you’ve done for the real estate investment community. You have been such a resource of information and inspiration for people. It was my main go-to resource when I first got started and now I get to be a part of the BiggerPockets family and share my inspiration with members of your platform. And I can’t thank you enough for all that you do. If I could give people one piece of advice for their real estate investing journey, it’s get comfortable in uncomfortable situations. Growth comes and wealth is built just outside of your comfort zone and the more comfortable you can get in uncomfortable situations, the more successful I feel like people will be. Congratulations, BiggerPockets. I hope to see you for 600 more.

David:
Thank you very much for that Henry. If you guys want to see more of Henry’s incredible story, you can check him out on the podcast episode 366, which is also our most downloaded podcast of all time. As well as you can see Henry on recent episodes where he fills in as a co-host for the real estate podcast.

Scott Trench:
Hey everybody? Scott Trench here, CEO of BiggerPockets. I am so proud and grateful and amazed and all these other emotions that we made it to 600 episodes here on the Real Estate Investing Podcast. That is awesome and really, really exciting. Thank you so much David, for taking the reins as our host of the Real Estate Podcast here. Just awesome. My question for you is this. If I’m a new or aspiring real estate investor or entrepreneur, someone who’s building a real estate business and I need to hire not just my first employee, but management. People who are going to lead my organization, sales, marketing operations or other components. How do I determine a set of criteria for that job? How do I set clear expectations when I don’t even know necessarily what I really need done in my business at a fundamental level? And then how do I interview for that? How do I get started in hiring leaders for my team?

David:
All right. Thank you very much, Scott. That is the brain source of all BiggerPockets right there. Thanks for your contribution my friend. When it comes to how you hire a manager or someone else to help take you to the next level, there’s a few things that I’ve learned and I’m still learning quite a bit. One of them is that you want to find someone who has done something harder than the thing you’re asking them to do now. I just want you to think about something. If you go find someone and the toughest job that they ever had was scooping ice cream at Baskin-Robbins, and they come to you and they say, “Hey, I’m going to lead your company to the next level.” I would say, tell me about the hardest thing you’ve ever done. And I’m really hoping I hear something that’s tougher than that.

David:
Because if you take someone who the hardest thing they ever did was scooping ice cream, and they haven’t been super ambitious with their life. And you say hey, I need you to make 50 calls a day to find someone to hire for exposition that we have. That will feel incredibly difficult to them, and they’re not going to have a great attitude about doing it. Making 50 calls a day is harder than scooping ice cream when a guest comes in. But let’s say you find a Navy SEAL and you say hey, I need you to make 50 calls a day. And they’re going to say, “All I have to do is push some numbers on a phone and read a script that you’ve told me. I don’t have to do pushups while I’m doing this. I don’t have to be trying to out swim an alligator at the same time.” It will be confusing to a Navy SEAL, how their job is nothing more than making 50 phone calls and asking something.

David:
And that’s just a dynamic that I’ve learned with human beings is we tend to look at something in our attitude towards it is a direct reflection of if we think that this is harder or easier than something else that we’ve done before. Always find out from the person you’re going to be hiring, what’s something very difficult that they’ve done. And how does that compare in relation to this? Another thing to think about is none of us really learn anything completely new. What we do is we stack what we’re learning now onto something that we’ve already learned. I find that when I’m hiring people and I say hey, here’s something I want you to do. They always approach it in the same fashion as something else that they did, right?

David:
If you hire a bookkeeper and you ask them to make phone calls, they’re going to spend six out of their eight hour day, six hours of it making the spreadsheet to track the phone calls without actually even making it, which is not a very big productive use of time. But that’s how they did everything before this. And so that’s how they’re going to approach this. Remember when you’re hiring someone, you’re bringing somebody in, they’re going to approach every single problem from the perspective of how they’ve approached it before. You’re really looking for someone that you can just stack knowledge on top of a stack they have that’s useful to you. That they have a stack of knowledge from their previous life that’s completely different than what you’re asking them to do. Even if they have a great attitude and a great work ethic, they’re probably going to approach things in a way that isn’t effective or productive because that’s all they know.

David:
The last thing I would say, when I’m hiring someone to be a leader, they’re going to be forced to get results, not to perform tasks. Most people in life are set towards waiting for someone to tell them what to do. And then they either do it with a good attitude or a bad attitude. But in either case, they’re wanting someone else to tell them, go do this, go do that. What happens is you hire someone to help manage your portfolio. And you say, go put my listing on Airbnb and they do it. And then they sit around and wait for you to tell them something else. And you say hey, did you look up the price of what we should be asking for that? And they go, “Oh no, do you want me to?” Yeah. And then they go do that. And then they do nothing else. And you say hey, what do you think we can actually rent it out for? “Oh, I don’t know. I just got a list of prices. I put them in a spreadsheet for you to look at.”

David:
And this pattern continues forever, where they wait for you to give them direction. What I look for is the type of personality that walks into a messy office or a messy kitchen and just starts cleaning it up because they cannot stand to see a mess. And sometimes I set up the environment where the person is coming into a messy or cluttered situation and I don’t go right away to meet them. And I wait and see what they do to impact their environment. And what I’ve found are that the people who have this compulsion to make things better just for the sake of making them better, are the ones that are going to be really good within your company. I will often ask people questions that will try to get at the heart of where they are when it comes to this. Another one I like to say is hey, if I ask you to furnish a short term rental for me, what would you do?

David:
And if the first question they say is, what’s my budget? They’re telling me right off the bat, I would spend as much of your money as you allowed me to. Okay. What I want to hear instead would be something along the lines of well, how much money is available to us and how much freedom do I have at making decisions? And I’ll say well, tell me what you would do? And they would say, “Well, I would want to go see how I could find items on sale. I’d probably approach Facebook Marketplace in the individual area where it is, where I would call furniture stores and ask if they’re having a sale, if they know about someone that’s on clearance.” I’m wanting to see, are you trying to save the company money or make the company money right off the bat? Or are you asking how much money you’re allowed to spend because it makes your job easier?

David:
You’re trying to get to the heart of where somebody’s coming from. I hope that helps because when you hire somebody, you don’t want to have to micromanage them all the time. And if you don’t want to manage them, find someone who likes to manage themselves and has a track record of doing that. And they’ll make adjustments when they actually get in your company. That’s a great question. Thank you very much for asking that Scott. All right. Our next question comes from my original mentor Tim Rhode. You can check out Tim on episode 353, which is our second most downloaded episode of all time. Tim says, “My question is David Greene. Why are you doing all of this? What is your long term outcome?” My outcome was to retire young, which was at 40 and enjoy the rest of my life with enough to DOE to fund the party.

David:
What is your overall intended outcome DG? By the way congrats. I’m so proud of you, David. You’ve come a long way from Isadore’s. Isadore’s was the restaurant I was working at in Manteca, California when I met Tim, who had heard that I had a really good work ethic and I was a person of integrity and he offered me a job as a prospector in his real estate. It was a real estate sales team. I did not know what a prospector was. I did not know what I was signing up for. I just knew that if Tim Rhode has offered me a job, the answer was yes. Tim was the top salesperson in our city. He had commercials on TV at that time. He was really ahead of his time when it came to marketing. And I was a cold caller for Tim for probably about a year where I just read a script.

David:
And that was my first experience getting any exposure to real estate, which really had a big impact on me. And then as I started buying rental properties, Tim was the guy that I would go to ask questions. I remember one time he just had me explain my portfolio. And he said, “Oh well, you got an interest rate of whatever you could refinance that right now and save some money.” And I felt so dumb that I had never thought of that on my own. This is where David was back then and having a person like that I could run a deal buy before I bought it, gave me the confidence to move forward. And then Tim’s also the one that really put the screws to me and said, “You need to stop being a cop and you need to become a real estate agent.” Which led to where I am now.

David:
Tim’s had a huge impact on me. And I really appreciate that about you, Tim. As far as my big why? I’m not entirely sure, but what I know is I want to create an ecosystem where people who want to find a trustworthy representative that is going to handle their transaction with integrity and from a financial perspective can come to get advice. I’m creating the David Greene team, which focuses on real estate sales. The One Brokerage, which focuses on getting the loan. I’ll be starting an insurance company. I want to start an instruction company. I’m trying to find all the pieces that people need, that they can trust. If I go to this company, I will be taken care of and they will help build my wealth. All of you listening to this, please come to me before you find another agent or another person. Don’t come to me after because now it’s awkward when I’m trying to give you advice that might conflict with somebody else’s.

David:
The other thing that I want is to create leaders and help other people to build better lives. If I can create opportunity for the right people to come and work hard and make money and grow, that’s definitely a win for me. The last piece is that staying in this position of stress and leadership forces me to grow, makes my life better every day than it was the day before. I’m not sure exactly what’s going to happen with our economy. And I’m not worried about just having enough money for me.

David:
I am on enough wealth that I can take care of everyone that I care about in case worst case scenarios happen, we hit something like the great depression. I’m not hoping that’s going to happen obviously. But that’s one of the things that motivates me to keep my foot on the gas pedal is I know that I may have enough money for me right now, but the ability to create wealth may not exist the way that it is right now forever. And there may come a time where we have much more scarcity. And I’d like to be able to continue to accumulate wealth and save money and build cashflow so that if that ever happens, I’m in a position where I can take care of the people that I love. Thank you very much for asking that question Tim.

Britt:
Hi David? It’s your friend investor girl Britt here. And so much has happened since I was on the BiggerPockets podcast last, when we were all hanging out in Maui. I’ve grown my social media and we have been doing larger deals in commercial real estate. And with all of that, my team has grown alongside it. It has happened very quickly and you have just been such a huge inspiration to me as I’ve watched your real estate journey. And as we all know, you run a large team. My question to you is what are your top three leadership tips?

David:
All right. Thank you very much for that Britt. If you guys want to find out more about miss Britt here, you can catch her on episodes 320 and four 470 of the BiggerPockets podcast. Britt, you’re looking pretty tan. It looks like you’re still spinning some time out there in Hawaii. Give Brandon a hug for me. All right. My three tips when it comes to being a leader. The first thing is you should practice extreme ownership. If you have never heard of that phrase, Jocko Willink and Leif Babin wrote a book about it that I highly recommend Leading. And basically if you were to boil that book down, it’s that everything is the leader fault. When you’re the leader, you don’t get to put blame on anyone else, because if somebody on your team made a mistake, you’re the one that hired them. You’re the one that trained them. And you’re the one that delegated that job to them.

David:
It’s a very tough row to hoe. It’s hard when every single thing that goes wrong, ends up being on you. But it will definitely force you to grow as a person. Taking extreme ownership is the first leadership tip that I would give. The next is that you have to build around yourself. And a lot of people are just not comfortable doing that. They want to follow a blueprint of somebody else’s business. But you’re going to be the cornerstone of that team. You have to hire out your weaknesses and then surround yourself with people that amplify your strengths. It’s much more similar to trying to build a professional sports team than it would be following a blueprint. If you’re trying to build a really good NBA roster, you’re going to try to find a superstar, a LeBron James, a Stephen Curry, a Giannis. You’re going to try to find someone like that. That’s incredibly skilled. Then put role players around them that minimize their weakness and amplify their strengths.

David:
A lot of us are afraid to step into that position of being a rock star, where we think we’re worthy of having people around us that cover up for our weaknesses and amplify our strengths. But you got to be comfortable with it. As the leader, everything’s going to fall on your shoulders and all the success is going to come from your leadership. It’s imperative that if you’re unorganized, you hire people to be organized. If you’re already organized, but you’re not very charismatic, you got to hire somebody else to handle bringing in opportunity because they have the personality that people are drawn to. Recognizing your weaknesses and replacing them in your company is going to be vital. The third thing that I would say is leaders need to always be casting vision.

David:
They’re constantly saying here’s where we are and here’s where we’re going. Here’s where we are. And here’s where we’re going. And people like that. They want to know what’s the plan? What’s the direction? Most people that are good employees will go really hard if they know where they’re going. But think about if you’ve ever been on a trail, walking through the woods and the trail spiked, and there was no sign that said which direction you’re supposed to go in. Almost everybody will stop and freeze and wait until they can try to figure out where they’re supposed to go. And if you consider moving forward as being productive within a company, you want your employees moving all the time. Your job is to constantly be putting up the sign posts. Your job is to constantly be staying in communication with them to say, here is where we’re going. A lot of leaders forget that people don’t know what’s in their head. Continually reminding people this is the vision, this is the goal will help a lot. Thank you very much for that Britt. Hope you continue to crush it.

Brandon:
Hey there, my name’s Brandon. I’m a long time listener, first time caller. You can find me at Beardie Brandon over on Instagram, or you can follow my company Open Door Capital. David Greene man, you remember me? Yeah, it’s been a while. I heard this was a pretty monumental show. And you were taking questions. You had no idea what you’re getting yourself into. Here’s my question for you. If you had to pick a tall, handsome, well, bearded bestie, who would that be? That’s first question. Second question is a bit less serious, but you and I talk a lot about not building too many bridges, right? And not getting too distracted. At the same time both of us do that a lot, right? We’re always doing way too many things. You got the mortgage brokerage, you got the agency. I think you’re getting into a bunch of other cool stuff. How do you balance that in your life? I struggle with that. Adding too many things. How do you balance ambition with being good at stuff?

David:
All right. Thank you for that Brandon. As far as picking a tall, handsome, big bearded bestie, I feel that’s a bit of an oxymoron. There is nobody who is handsome and also has a huge beard. Thank you for the trick question, but that’s not going to work today my best friend. Now, as far as building too many bridges man, you just go right for the gut every single time, don’t you? You find that one little chink in the armor, the soft underbelly and you go right at it. Let’s talk about why we build multiple bridges? The first reason is oftentimes because it’s fun. To deny our self building bridges could be denying fun, which isn’t always healthy. Now let’s talk about why we tell other people not to do it? Well, often that’s because you give this great example of building a bridge from California to Hawaii.

David:
Now, theoretically, California is where you don’t want to be and Hawaii is where you do want to be. And so what we’re saying is don’t build multiple bridges until you get to your destination. In many ways, I’ve got there. I’ve gotten out of having to have the W-2 job. I don’t have to work in law enforcement anymore. I don’t have to worry about paying my bills. I have financial freedom. I have enough cashflow to support me. I can sort of take some luxuries with building several bridges at the same time. But I look at it more like building several lay lanes on the same bridge. I have a one lane highway going from California to Hawaii, which is cashflow. Now I’m looking to add different businesses and different opportunities that will allow me to put more trucks on that same lane so I can deliver more cargo than having even better life. It’s not just about having financial freedom, but now it’s about having more comfort, being able to do are fun things and maybe take care of more people, get more Californians into Hawaii.

David:
The way that I justified doing this, whether I’m right or wrong is I look for synergy in the opportunities that I’m having. Starting a real estate team taught me a lot of the same tools like building systems, hiring people, managing people. That worked when I started the loan company. I’ll be starting an insurance company at some point, probably a construction company. And a lot of those same skills will transfer onto those lanes get built faster than the original bridge was. When I write books, they often give me credibility. That makes it easier for people to say, “Hey, that’s David Greene. I want him to sell my house. I’m calling him and he’s going to be the one to get me all the money when we put it on the market.” Because I’ve written those books.

David:
Same thing goes for running our social media channels. What we’re really trying to do is create a synergistic environment where people get to know us. They trust us. They feel comfortable with us. And then they use our businesses for the services they need, where we can make them money and they can make us money. And we have the best relationship possible, which is a win-win. Now I don’t know how well I’m actually doing at that, right? That might be another question that I should be asking you is where do you see me succeeding? And where do you see me failing? Where do you think I could do better?

David:
But when it comes to building multiple bridges, I guess I’ll sum it up by saying, don’t even consider it until you get out of the situation you’re currently in. And then once you’ve accomplished that and you’re ready to expand, look for ways that this bridge will benefit another bridge. And that’s why I call them lanes on the same highway. I’m not building another bridge from California to Alaska or to Australia. They’re all going in the same direction. They should all be complimenting each other. Miss you, my friend. Hope you’re having a great time in Europe. And thank you for this question.

Mr. Rob:
Hey David, how’s it going? I was wondering if you could take us through your ideal Chipotle order. Are you a bull guy, a salad guy, a burrito guy and please feel free to go into excruciating detail. I’ve got question for you and please don’t read too far into this. Because I’m actually asking you for a friend that’s going through this right now. But what do you do when you’re partnered up with somebody in the real estate world and they’re way better looking than you? Significantly, they got the hair going on. They’ve got a really nice beard, a sparkling charm and wit about them whenever they’re on camera, all those kinds of things. And again, don’t read too far into this. Asking for a friend.

David:
Well, I’m going to answer your second question first there Mr. Rob. I don’t know that I can because I have no experience with anybody who’s actually better looking than me, more charismatic or in any way a better male. In many ways I’m like Dwight Schrute from the office and I am the example that others aspire to. You’re probably asking the wrong person how I would deal with those insecurities because I’ve never had to. If I had to project myself into your situation, I would say the best thing that you can do is make yourself compliment the person who you want to be more like. And luckily for you your skillset is very in line with doing just that. You are a great compliment to me. We have great chemistry. You’re a super smart guy.

David:
I’m actually jealous of where you are at your stage in life. Because when I was where you are in life, I didn’t have any of the things that you’ve got. You are way ahead of me and many others and many other ways. And I really appreciate that we have you around here to share your insight and help other people build their wealth. As far as Chipotle, total millennial question should not be surprised that you asked this. This is why we use Pokemon examples because brother, this is where you’re at. Here’s my Chipotle dilemma. I could do the bowl thing, but I don’t love it because I feel like if I was going to do that, I would just go to a Takorea and I would get something better. I like to go the burrito route at Chipotle because they’re good, but I don’t like rice. And when you leave rice out of a Chipotle burrito, it gets very soggy.

David:
And you can try to ask them to not have as much juice in the beans, but most of them don’t care because they’re also not loving their job. They just throw it on there. And the first half of the burrito’s fine, but then all the juices are running down to the bottom. And by the time you get to the second half, it’s a mess. It’s falling apart in your hands. And for that reason, I don’t go to Chipotle. What I have started doing is going to the grocery store to start my day and buying pre-made vegetables and protein. That’s one of the ways that I’ve been trying to get in better shape. I show up to work with chicken wings or chicken pieces, and then a broccoli salad or an asparagus salad or they’ve made a brussel sprout salad with cranberries and that’s been making a lot easier to eat more vegetables. You didn’t ask that. But I answered the question that you should have asked instead. Thank you very much, Rob miss you, looking forward to seeing you on our next show.

Jay:
Hi there BiggerPockets. It’s Jay and Wendy Papasan coming at you from Austin, Texas.

Wendy Papasan:
In honor of your 600 show. And in honor of the amazing David Greene, we wrote you a poem.

Jay:
A short one. There once was a man name of Greene.

Wendy Papasan:
Who in short was a podcast machine.

Jay:
He worked without rest.

Wendy Papasan:
Teaching us to invest.

Jay:
Congrats David.

Wendy Papasan:
600 shows is so keen way to go.

David:
Oh man. That was so good. I don’t even know what to say. I’ve got to say that video highlighted both Jay and Wendy’s personalities perfectly. Wendy hits you with that whole you’re so great. She’s your biggest cheerleader, makes you love her against your will even. You just have no choice but to like Wendy Papasan. She’s that likable very much like Ed Mylett. And then Jay is probably the best author that I’ve ever come across in my life. Every single time I write a book, I think it’s good until I read one of Jay’s books and I realize how far I have to go. It’s like thinking that you’re fit. And then you show up at a CrossFit gym and you’re like, oh God, I don’t know anything about fitness. Jay is such a good writer. You’re so succinct and powerful with what he says. Really look up to you and respect you in that way and many others, both Jay and Wendy. Thank you very much for the poem and your contributions.

David:
If you would like to hear more of Jay and Wendy check out episodes 113 and 362 of the BiggerPockets Podcast, where they share a lot of their wisdom, particularly around goal setting and having harmony with your spouse or your partner in your business endeavors. All right. That was what we had for episode 600. Thank you very much for joining me here. I hope you got as many laughs and smiles out of that. As I did at BiggerPockets, we are going to continue cranking out the content, making several shows a week and remaining the best real estate podcast in the world. Thank you very much for your support.

David:
If you would be so kind, please comment on YouTube and let me know what you like the most, what you think people should have asked or what questions you have put them in there and I’ll do my best to answer them on YouTube. You can find out more about me by follow me on social media at David Greene 24, or messaging me on the BiggerPockets platform. To everybody who submitted a video or a question thank you very much. I really appreciate, especially the kind words. And to everybody listening, thank you for your support and for your attention. I hope you continue to give it to us and I want to make you proud, giving you the best real estate advice that I can. This is David Greene for the 600th BP episode signing off.

 

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Ashley Kehr:
This is Real Estate Rookie, episode 176. My name is Ashley Kehr, and I’m here with my co-host, Tony Robinson, for Rookie Reply.

Tony Robinson:
And welcome to the Real Estate Rookie podcast, where we focus on the investors who are at that beginning part of their journey, giving you the inspiration, the information you need to keep going or to get started. So, Ashley Kehr, what’s new? What’s going on? Give the world an update.

Ashley Kehr:
Well, I’m back on my couch. I finally, which seems forever, three months ago I guess, got my ACL surgery. So, I had torn my ACL and my MCL. My MCL healed on its own. So, I had to get my ACL done two days ago. And so, I’m here on the couch recovering.

Tony Robinson:
Yeah. Well, wishing you a speedy recovery, Ashley. And just take it easy next time you’re on the slopes, okay? I don’t want you back here in a couple months with the other MCL and ACL all damaged and whatnot.

Ashley Kehr:
Yeah, I’ll probably be if I’m wakesurfing now.

Tony Robinson:
Yeah.

Ashley Kehr:
Switch to a summer sport.

Tony Robinson:
Yeah. Well, we got a decent story for today, right? So those of you who’ve been following the podcasts for a while, you probably have heard me try to sell you my house in Louisiana. But luckily for all of you, I was able to sell it to someone who I think is going to use it as a primary residence, which is probably what it made sense for. But Ash and I were talking, we figured it might be a really cool, I don’t know, case study I guess, to kind of share the backstory and the numbers with you all on kind of how this Louisiana property went down, how much money I lost on this deal, and hopefully you guys can get some lessons from it. So I don’t know, Ash, anything you want to add before I get into the backstory here?

Ashley Kehr:
Well, I think that just we’ve talked about this deal for over a year now, and this is going to be the episode that finally puts the whole journey together as to how you purchased it and how you kind of ended up with it and what the deal looks like now. So first of all, congratulations on finally selling it. I-

Tony Robinson:
Thank you.

Ashley Kehr:
I think both of us were looking forward to not having to talk about it.

Tony Robinson:
And just fun facts, right? So the city that this property is in, it’s in the city of Shreveport, Louisiana, and Ashley until two weeks ago, thought that it was in Freeport, Louisiana. So, there is no Freeport Louisiana that I’m aware of. If anyone else was confused, it’s Shreveport.

Ashley Kehr:
Yeah. Honestly, I didn’t know if it was Freeport or Treeport. So, definitely [crosstalk 00:02:41]. For how long we talked about this deal, I was never very clear on the city, but I did not think it was Shreveport.

Tony Robinson:
Neither of which is correct. So, yeah. Well, let’s get into it then, right? So this property was a single family in the city of Shreveport, and this is actually the second investment property I had ever purchased, right? Exciting, right? Property number two. I think everyone’s pumped for that. And what made this deal I think unique on the initial purchase was that the financing I was able to get for this deal was really good. I essentially had $0 out of pocket. I literally did not have to bring anything to the closing table to buy this property. I found a credit union out in Shreveport that was willing to lend on both the purchase price and all of the construction costs, as long as that total project cost was less than I think 72% of the after repair value. So I’m just going to run through the numbers really quickly, and then I’ll pause for a sec.
So, we bought the property for about $72,000. On the rehab, we spent about $45,000. So, we were all in for about 117. And the way that they kind of assess the loan is during escrow, I had to submit my scope of work. And then based on that scope of work, the bank sent out an appraiser and the appraiser walked the property in its current condition. And they said, “Hey, based on the scope of work that you gave me and me walking the property, here’s what I think the property will be worth once you complete your rehab.” And that appraiser pegged it at a $177,000 ARV. So a pretty decent spread there, right? So I’m at one 117 all in, ARV is 177, which is, I don’t know, 65% or something like that at the ARV. So for the bank, I checked those boxes, and they said, “Hey Tony, you found a good deal. We’re going to fund everything for you.” That’s why I bought it to begin with, right? Because it was really good financing. So-

Ashley Kehr:
Tony, can-

Tony Robinson:
[crosstalk 00:04:50]. Yeah, go ahead.

Ashley Kehr:
Can you still get financing like that right now? Do you think?

Tony Robinson:
So I know when I talked to that credit union during COVID, they had stopped that specific loan program. But I haven’t purchase in Shreveport since, so I’m not sure if they’re still offering that. But I mean, things have definitely starting to loosen back up since COVID has kind of subsided a little bit. So, I would assume that there’s probably a bank out there somewhere that’s doing something like this. Cool? All right. So we bought the property, right? We end up closing on it. Rehab takes, I think, three and a half, four months, something like that. We bought it right near the end of the year, so December timeframe, and there was some bad weather that kind of slowed things down. But I want to say we were completely done with this thing by the middle of March, okay?
The construction loan, or the loan that we used to purchase it, was also really good debt, right? So, it was a one year interest only at 6%. So we had a really low payment during that first year, because it was interest only, right? At 6%. So anyway, we ended up getting a tenant in there. We hired a property management company. We’re able to rent it out for 1350. I was trying to find the initial closing disclosure, but I couldn’t find it. But I want to say the mortgage was somewhere around, I don’t know, 1100 bucks, something like that. So we were probably cash flowing, not a whole lot, 150 bucks maybe, right? On this one property, right? And no money out of pocket, 150 bucks. “Hey,” I figured, “Why not?” Right?
So we have a tenant in there from, I want to say, March 2020. They stay there for a year. And so from March 2020, and then they end up moving out in March 2021, or I think the end of February 2021. And during that year timeframe, we ended up abandoning long-term rentals all together. We went kind of crazy with the short-term rental stuff. And we decided, “Hey, we don’t want to keep this property anymore. It doesn’t really fit with the rest of our portfolio. It doesn’t fit with our long-term goals. So, let’s sell it.” So, once the tenant moved out… Actually, let me take one step back, right? So, the tenant moved out in February. One month before the tenant moved out, we get a note from our insurance company saying, “Hey, I don’t know what the heck could change, but our insurance premium doubled.”
So initially, we were already paying pretty expensive money for the flood premium. It was $2700 a year. And it ended up jumping up to over four grand a year on the insurance premium for the flood. When you added in that new cost, our mortgage for that property went up to 1450 or something like that, right? So, even more than what we were renting it out for. So, we lost money the last month the tenant was there because they were only paying 1350. We had to pay the mortgage of 1450. And then, we still had to pay our property management company I think a hundred bucks or something like that. So, we lost money. We said, “Hey, let’s just sell it.” Right? “Let’s just get it off our hands and move on.” So that property ends up sitting empty for an entire 14 months or 13 months, right? Because we just sold it last month.

Ashley Kehr:
So during that time, you were making the mortgage payments out of pocket?

Tony Robinson:
We were making a $1,400 a month mortgage payment for, I want to say it was almost a year exactly, right? So whatever 1400 times 12 is, it’s almost $17,000 that we spent over the year carrying that mortgage, right? And it wasn’t because we weren’t trying, right? We had the property listed. We initially listed it for less than what it appraised for, right? So, we weren’t ready to appraise for 170. I think we initially listed it for 165 or something like that. And we just kind of kept pulling down the price every couple of months hoping that it would sell. And it just wasn’t moving. And then, we hadn’t been to the property since we closed on it originally.
And we kept seeing some of the buyer’s remarks when they would turn the property away, and they kept mentioning a buckling of some tile in the hallway or something like that. So we had the realtor go out and check it out, and he was like, “Hey, yeah. Seems like something’s happening here.” So, we had to send a crew out there and they ended up finding some kind of problem with the subfloor. That costed another $8,000 to fix, right? So now, we’re in $17,000 for the mortgage payment, we have to spend another $8,000 to repair the floor, and then we end up dropping the price below what we owed on it, right? So, we just want to get the thing sold. So I think we ended up selling it for… I can’t even remember what the number was. I think we sold it for 129 and our mortgage balance was 135, something like that.
I think it was 130, and then we sold it for 129. But closing costs and all that stuff, so when we ended up actually selling the property, we didn’t get money back. We had to write a check to escrow for, I think, $4,000, right? So, you add everything up. We add $17,000 in the mortgage that we had to carry for a year. We add another $8,000 that we had to spend to repair the flooring. And then, we had to write another check at closing for $4,000. So, that’s $29,000 that we dumped into this Shreveport property. And that’s why I was trying to sell it to everybody for an entire year.

Ashley Kehr:
Tony, but you’re still investing. So, why did this property not scare you from continuing to be an investor?

Tony Robinson:
Yeah. Man, there are so many answers to that question, right? The first thing is that I learned a lot going through this process. And I think what I learned has made me a better investor, right? Anytime you got to write a check for $30,000, you’re going to learn something hopefully. I will probably never buy another property in a flood zone. I’m scarred for life because of that. I think I’ll be more selective of the locations that I invest in just in general. This house actually was at the end of a really nice block. But it was literally at the end of the block, and then right next door to this house was an apartment complex. And the apartment complex had some riff raff. Even during the renovation, we had people break in and steal some of the contractor’s tools.
And a lot of the feedback we were getting from buyers was, “Hey, we like this location, we like this neighborhood, but we don’t like the fact that this is the one that’s next to that apartment complex.” So I think being able to kind of do a better job of knowing the area to say, “Okay. Hey, here’s a potential red…” It works for a renter. But for someone that wants to buy, that’s a potential red flag. So, I think kind of knowing what the differences are between a renter wants and what a long-term buyer wants. So yeah, not buying in a flood zone, making sure I do a little bit more research on my market if it’s something that I think I’ll end up selling. And then, the third thing is that you can’t always predict everything either, right? On paper, we knew that there was some flood insurance costs and we budgeted for that. The numbers still made sense.
Even my flood insurance guy was shocked that the premium went up. We shopped for multiple different people to cover this, and everyone’s quote was coming in around the same. I don’t know what caused that shift. I don’t know if there was some kind of risk that they saw. Obviously there was, but I don’t think there was a way that I could have planned for that. And I think that’s something to understand as well is that even if you do your best due diligence on the front end, there’s still going to be surprises, right? And you got to do your best to roll with them. But I’m grateful, Ashley, for the Shreveport property, because it was the first property that my partner, [Omid 00:14:59], and I did together. And had we not done that deal together, who knows if we’d be building this short-term rental empire that we’re working on right now? So even with the $30,000 that we lost, we’ve more than made that up with the money that we’ve made from our short-term rentals.

Ashley Kehr:
And I think the fact that you guys had that test in your relationship too, of going through that big struggle, that big obstacle of this property and figuring out what to do with it, if you guys could survive that as a partnership, I think you guys will be able to get through a lot of things that will come up during your partnership together. So, I think you had that test early on is already going to make you guys better and stronger building that empire.

Tony Robinson:
I don’t know if [Omid 00:14:59] is just crazy, but he still trusts me to find all the deals for us. Outside of that one, I think all the other ones have worked out okay for us. And here’s the thing too, Ash, where people will go to college and spend way more than $30,000 and get a degree that may or may not help them achieve financial independence, right? And build the wealth that they want. But people are terrified of taking that same $30,000 and potentially losing it on a real estate deal, right? And I get that, right? Because $30,000 isn’t a small sum of money. But I guess the point I’m trying to make is you should be just as willing to invest… If your true goal is to become financially free through real estate investing, you should be just as willing to kind of pay the price on that side as you would for a four-year degree, because in my mind, the real estate education, the real world bumps and bruises and losses of real estate, will probably teach you more than sitting in a classroom for four years at a university.

Ashley Kehr:
Well, Tony, thank you so much for sharing the full deal with us today and for going through what you learned and what others can watch for. I think it will definitely be beneficial to some of our listeners and hopefully not make them scared to get into real estate, because there can be a bad deal, but you learn from it, it turns into an opportunity cost, but there’s so many more great deals out there. I’m Ashley, @wealthfromrentals, and he’s Tony, @tonyjrobinson, and we will be back on Wednesday with another Real Estate Rookie podcast.

 

 

 

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Mindy:
Welcome to the Bigger Pockets Money Podcast Show Number 294, Finance Friday edition, where we interview Cecilia and talk about designing a portfolio with the end in mind.

Cecilia:
I think that’s exactly where I got stuck was I started thinking I wanted something, but a turnkey rental, a la the renter retirement model, which is, I’m just going to give you some money. Someone else is going to property manage it. Someone’s going to send me a little check, and it’s going to be not really that much money to give you. Maybe give you 25, 40 grand at the most. And then, I was like, “Well, wait a second. Maybe I want this thing that you just described, maybe I want it to be in Palm Springs where I can Airbnb it, and I can go and stay in it.” But then that is 100 grand in or 120 grand in.

Mindy:
Well, you could have both.

Cecilia:
So then I was like, “Okay, am I doing the right thing?” And then I froze.

Mindy:
Hello, hello, hello. My name is Mindy Jensen. And with me as always is my, everything is a spectrum co-host Scott Trench.

Scott:
Oh, Mindy, you really continue to come up with these great new intros, and adjectives for me.

Mindy:
Scott and I are here to make financial independence less scary. Plus, just for somebody else to introduce you to every money story, because we truly believe financial freedom is attainable for everyone, no matter when or where you are starting.

Scott:
That’s right. Whether you want to retire early and travel the world, go on to make big time investments in assets like real estate, start your own business, or find financial flexibility, we’ll help you reach your financial goals and get money out of the way, so you can launch yourself towards those dreams.

Mindy:
Ooh, I like that financial flexibility. I love Cecilia’s story today, because she truly does have financial flexibility. She has positioned herself so that she is generating enough income that adequately covers her expenses and a whole lot more. And she’s conscious about where her money goes without depriving herself. Does she seem like she’s missing out on anything? No, she seems super happy.

Scott:
She’s doing great. I mean, she’s winning. And let’s be real, one of the reasons why she’s winning is because she has a very strong income and in control over her expenses, especially the low housing payment from having bought a place in California 12 years ago, and has that. So, she’s really got a wonderful situation, living in a beautiful place with … It’s very affordable, and having plenty of income to cover that, and continue to invest and save. So, it was fun to play with a very flexible position and think about how we can make it more flexible and give her even more options to get where she wants to go over the next five, 10 years.

Mindy:
Yup, I think she’s got a lot of things to think about. We gave her some things will look into, like, does she really want to diversify her portfolio into real estate? And if she does, what type of real estate does she want to diversify into? So, let’s make our attorneys happy. Scott, the contents of this podcast are informational in nature are not legal or tax advice. And neither Scott or I nor Bigger Pockets is engaged in the provision of legal, tax, or any other advice. You should seek your own advice from professional advisors, including lawyers and accountants regarding the legal, tax, and financial implications of any financial decision you contemplate.
Cecilia is a 53-year-old divorced mom of two with a great start on her financial independence journey. She could be financially independent right now if she lived in a different country, but a couple of kids, a couple of jobs keep her here. She’s looking for some advice about where the right place is for her to put her money. Should she keep paying down her mortgage, save for a rental property, buy a second home, et cetera? Cecilia, welcome to the Bigger Pockets Money Podcast.

Cecilia:
Thank you, Mindy, Scott, so great to be here.

Mindy:
I’m super excited to talk to you today, because I think you have some fun challenges. You live in a high cost of living area, known as Southern California, where everything costs more.

Cecilia:
And then some.

Mindy:
And then some. But in exchange for that higher dollar, you get sun all the time. It looks so beautiful behind you.

Cecilia:
Yeah, it’s actually sunny today. So, good thing it wasn’t the other day. Yes, spoiled, and that becomes an anchor of some kind, but I’m definitely privileged and blessed.

Mindy:
Yeah, so of course, right off the bat, I could say, “You should move, and I could cut all of your expenses right down to nothing, if you would just move to the Midwest.” Let’s do that. There you go, from Episode 294. There you go.

Cecilia:
And we’re done.

Mindy:
And we’re done. So, let’s look at your income and your expenses. So, what is coming in and where are you putting it?

Cecilia:
Okay, so I have two businesses and what I do is I draw from one of them. So, my income, I pull $7,900 a month. So, that’s not taxed up, if that makes sense. It’s just $7,900 from that business. And then, from my second business over the course of the year, I tend to just skim profits off of it, at different timings to throughout the year. And that lands me an additional anywhere from $50K to maybe even $75K that I pull from that second business, depending on how that business did that year.

Scott:
Great. And another word we could use for that is distribute.

Cecilia:
Distribute, skim, yeah.

Scott:
Of course, being legal, assuming that your profits-

Cecilia:
I’ll try to think a smarter verb for that, yes. I self distribute at my own discretion.

Scott:
Yeah, perfectly ordinary way to manage your business cash flow. That’s great.

Mindy:
Okay. So, where does that $7,900 go?

Cecilia:
Okay, all right, so we’ll walk it through. My mortgage is about $1,600. HOA is $500. Gasoline, currently, is $240 a month. Utilities, $268. Household, which is kind of a big bucket for me, but that’s groceries. That’s if we eat out. That’s toilet paper, anything you get at Target, Amazon, movies, that sort of thing is $1,400 a month. Insurance, health insurance, dental insurance is $828. House cleaner, sometimes I turn it on, sometimes I turn it off, but we’ll put $120. My yoga studio gym is $122. I put $550 into my after-tax brokerage. Currently with a tutor, which will end in about six weeks, $200 bucks a month. New car, new used car payment, so this one’s hurting, plus my car insurance is $600 a month. And then, savings, I put $500 just in my short term savings, and that’s if I charge too much on my Visa that month, or something came up for the kids, or if I don’t touch it, it pays for my life insurance every quarter. And then, my kid’s car and insurance comes in once a year. And then, right now I’m paying an extra thousand dollars on my mortgage.

Scott:
Awesome. So, you’re doing a great amount of saving just from your W2 income. And then, on top of that, we have $50,000 to $75,000 after tax that we’re able to distribute from your business.

Cecilia:
Yeah, yeah. When you say it and I hear that, it definitely sounds like a lot. But I can tell you, when I first went out on my own, when I left my official W2 job … So, I started this business in 2016 … I was not spending like this. There was no house cleaner, or no yoga, no gym, no extra mortgage, no money saved, you name it. We went really bare bones. And as the two businesses have picked … So, I haven’t been with these kinds of numbers for more than maybe two to three years.

Mindy:
Okay. Well, let’s look at these numbers, because your mortgage payment is $1,500 a month in Southern California. That’s amazing.

Cecilia:
Yeah, I know.

Mindy:
But then, you look at your HOA is $500. And my first thought was, “Well move.” But your mortgage payment is $1,500 a month. So, all in, you’re at $2,000 a month. That’s still … In Southern California, that’s like winning the lottery.

Cecilia:
Yeah, it’s insane. For a three bedroom place, it’s insane. So, I just bought at the right time.

Mindy:
For a three bedroom house? Oh.

Cecilia:
It’s a condo, but yeah, I bought in 2011. So they were just starting to rise. So, yeah, I’m very proud of it. Anybody asks me, I’ll tell them in a heartbeat what my mortgage is. I love saying that’s how much it is.

Mindy:
So, and because you’re in Southern California, the $240 in gas is understandable. Health insurance at $828, I’m assuming that’s for the whole family?

Cecilia:
Me and my ex-husband each take a kid. So, that’s for me and one kid. And yeah, it’s just through the exchange, and has gone up every year since I’ve been out on my own. So, I can expect that to continue. It’s like $50 to a $100 a year it goes up.

Mindy:
Yup, and it will. Expect that. Your car insurance is … Did you say it’s your car payment too, $600?

Cecilia:
Yeah.

Mindy:
Okay, gotcha.

Cecilia:
Yeah. So, $150 of that is the new car insurance, and then $450 is the new car payment. And I’ve had that car now for five months.

Mindy:
Okay. And then, so with the total listed expenses, I see $7906, and the total actual expenses, when we take out the after tax brokerage savings, and the savings for your kids, and the thousand dollars of extra mortgage payment, I get $5,800, which is killing it in Southern California. And then, if you take out … Before we had this conversation, I’m like, “Oh, HOA, get rid of that.” $600 for car insurance, because I didn’t know that was a car payment too, get rid of that. Health insurance, get rid of that. If you were living in another place that’s much less expensive, and you didn’t have the expensive car, because I thought that was just car insurance. That’s another $1,900 you can get rid of. So, there’s definitely room to improve, but also, you’re making a ton of money, and your actual expenses are $7,900 in Southern California. I still think you’re doing great.

Scott:
Her actual expenses are lower than that. Your actual expense-

Mindy:
Or $5,800.

Scott:
Yeah, because the extra mortgage savings, and your-

Mindy:
Yeah, the savings, doesn’t …

Scott:
Off contributions, yeah.

Mindy:
It’s an expense, but it’s not an expense. It’s an investment. And it’s-

Cecilia:
Yeah, and I draw from the business. When you say my income is $7,900 a month, I draw according to this budget plan. So, if I suddenly said, “I don’t want to draw that much. I only want to draw $6,500,” I would just cut all of those extra cushions that I have in there.

Mindy:
What do you do the income from the business that isn’t going into your bank account?

Cecilia:
It’s sitting there. So, right now, my six-month emergency reserves are in the business checking account. It goes to my, obviously, expenses for the business. And then, when I think it’s high enough … Once I get to June or July, and I feel like I know how the year is going, then I’m like, “Oh, I’ll take five grand. Oh I’ll … ” Then I might start pulling it, and I’ll either pull it to fund my … I’m weird in how I save money. I have very specific buckets of savings accounts and I have them mapped out for the next 10 years of where I want them to be. So, I know for instance … I have like a bridge. One of my after tax brokerages is bridge retirement. If I need to fund two years worth of living, I want that fund to be $175,000 for the next 10 years, I have to put $17,500 in it. And so, when I start to pull money, I fund each of those accounts, according to the map that I have for it. I’m a little weird like that, but I like seeing it in certain buckets.

Mindy:
I like that approach. Okay, I have this goal and I have 10 years to get there. So, I would like to have this much money in there. If something happens, I can divert money away and then re-divert it when the something is over. I like that idea a lot.

Cecilia:
And I would like to believe that my two businesses are on a trajectory to continue at least as well as they’re doing, if not better. But also I, in the back of my head go, “I’m the chipmunk saving the acorns.” Like, “Okay, I just need to have all this,” because if they don’t do as well in four or five years, I just want to make sure I’m okay with what I’m doing.

Scott:
Well, this is going to be fun. Because you clearly have optionality to cut back on spending. You can take action across really all of the major levers of personal financing. You can spend less. You can earn more. You can really go all in on building your business or investing in your business. And you can change your investment allocation approach here. So, that gives you a lot of options, which can be overwhelming, but also a lot of freedom So, always better to have more options than fewer.

Mindy:
Where’s that money be being invested?

Cecilia:
That’s a good question. So, in the traditional IRA, most of it is in VTSAX. I do have that with some percentage, maybe 15% or 20% in bonds, just because I feel like I should be, but I know how some people feel about bonds. Most everything, actually that’s … I keep all this money in Vanguard. So, the SEP, the IRAs, the Roth, the after tax, they’re all in Vanguard. If you aggregated those, a lot of it is in VTSAX. And just because everybody’s read that book, and I decided I wasn’t smart enough, and I just … That’s where I put it. But there are a few other things. There’s some bond funds in there, and there’s some … There’s a little bit of VTI, and maybe some other things I’ve heard about, and I put it in. But mostly, it’s in these index funds.

Scott:
How much is in retirement accounts, and how much is outside of that from your investment portfolio?

Cecilia:
The traditional IRAs is a retirement account. The SEP is … So, if I add that up, $188,000 plus … So, $196,000 might be outside of retirement accounts.

Scott:
Great. And then, that gives us like $680,000, 700,000 inside of the retirement accounts?

Cecilia:
Yeah. I have other savings accounts that I’m not adding into that. So, in the retirement accounts is $587,000 plus $70,000. So, that’s $650,000, $655,000, something like that. And then, the rest is in a non-retirement account, savings, random savings accounts, after tax brokerages.

Mindy:
$650,000 and $320,000?

Cecilia:
Yeah.

Mindy:
Your business emergency fund, I’m interested in that. Because I think that … Is it just sitting in a cash account, or a high yield savings account? Or is it …

Cecilia:
It’s just in my business checking. And it’s, yeah. So, again, I don’t know what the safe number is. I love to have at least three months in there. And then lately, it’s been getting to six months or seven months. And then, by the end of the year, it tends to be a lot. But that’s why I’m trying to get smarter about, if I pull money off of it, I keep three to six months of my income poll in that account, first of all, is that the smartest place to keep it? But where am I putting the rest of the money? Because otherwise, if I don’t have a purpose for it, then Cecilia has a new patio. She has … Then I’m buying things, and I don’t want to be doing that every year.

Scott:
Awesome. Well, okay, so we’ve got our investments. We’ve got like $970,000 or so in these investments, and we’ve got three months emergency reserve, six months emergency reserve in the business account, some other cash sprinkled across a couple of other accounts. And then, the rest is in basically index funds, or similar types of investments, bond investments across both after tax and retirement account portfolios.

Cecilia:
Correct.

Scott:
What about property? You have you have a home?

Cecilia:
Correct.

Scott:
What other … Can you tell us about that in any other assets you have?

Cecilia:
Yep. So, I have a condo that I refinanced during COVID that is a 20-year mortgage. So, I’m maybe a year into that. Crazy property value in California right now. So, what is that? Maybe $530,000 in value. So, I owe $268,000 and the value is at $760,000 right now, which is insane. That’s really my only asset. I mean, I have this car, but the decision was I was supposed to pay this car off. I bought it. And then, I said, “In March, you’re going to pay it off.” And then, I got to March, and I was like, “Well, maybe that money to pay the car off should be going somewhere else,” and then that, hence, led me to this call with you all, which is, what’s the smartest thing to do with maybe $20,000 or $30,000.

Scott:
Okay, great. So, we have a net worth somewhere in the ballpark of $1.5 million when we add in a house to this, give or take the car on that.

Cecilia:
Yeah.

Scott:
Great, and most, the majority of that net worth, $560,000 is in your home equity. And then, another $500,000, $600,000 is in retirement accounts with that. So, at least two thirds, probably a little bit more, maybe 70%, 75% is in retirement accounts or home equity.

Cecilia:
Correct.

Scott:
Okay, great. And what are … can you refresh us on your goals? How would … what’s the best way we can help you today?

Cecilia:
Well, the quandary that I’m stuck in is there’s these buckets of money that I have to do a few things with, pay down the mortgage, pay off the car, or should I be getting an investment property, and be figuring out a different way to diversify how I’m investing? And when I started to go down that route, where I got stuck was, “Am I going to buy a place that’s in the Midwest, in or in the south, in Alabama, or Ohio, or Indiana,” all these places people are buying rental properties? Or should I be buying it at a place that I might actually want to live someday or visit someday, maybe Palm Springs, or somewhere in Colorado?
Then I got stuck, because when I start thinking of those secondary places that I might actually want to live or stay, those prices are entirely different than some of the just straight out rental income properties in other places. So, a little bit of direction on where could some smart places for this money to go be, if that was a sentence. And then tax strategies, I’m just really curious. My oldest child just came off my taxes as a dependent this year, which was painful. And my mortgage interest really isn’t that much. So, I’m trying to figure out, what are some ways I can have some tax strategy, tax savings? And a rental property might be the answer.

Scott:
Can you give us a little bit more clarity on your long term goal? What’s the outcome that you’re trying to back into a few years down the road?

Cecilia:
A few years down the road. So, I envision myself in anywhere from, I don’t know, four to six-ish years, being able to be remote with both of my businesses. I do training and a huge majority of it is online. And so, if I have great WIFI, I can go live and work anywhere. And so, I want to be able to take min sabbaticals and go to either another country, or another state, and maybe Airbnb for a month, or spend the summer in Spain. Or so, that flexibility … I have the funds. I could go do that now, but at some point, I want to make sure that my investments aren’t all in the same exact thing, and that perhaps rental property might get me some supplemental income that if my expenses, let’s say they actually truly are $5,800, well, is there a way I could make that $3,800 and be bringing in a little bit of money to just carve off of what that monthly expenses are?

Scott:
Awesome. So, I might try to simplify that for me, in the terms of, you want to have a more flexible financial position in the … Or the most flexible position you can reasonably get to in a four to six-year period, call it five years?

Cecilia:
Absolutely, yeah.

Scott:
Okay, great. Let me just observe a couple of things that I’ve heard so far about your position, and see what you think about those observations. Right now, you are doing great from an income perspective. It sounds like this is relatively new in the last two years where the income has been this strong, and you also are very optimistic about the prospects of your businesses. You’ve got control over your expenses. There’s nothing crazy going on, but you have layered in a couple of luxuries, because you’re doing well, and you can clearly afford it to with that, and still maintain a very strong savings rate on just your income, and not to mention the skimming or distributions from your main business there.

Cecilia:
Yes.

Scott:
And then, you haven’t really, I think, made up your mind about what you want to do from an investment perspective, which is why you put some each month towards your Roth IRA and why you pay an extra a thousand dollars to the mortgage each month, and then sprinkle in other investments down the pipeline. Are those fair observations?

Cecilia:
Right. So, I definitely want to be smarter about where that money is going, because I feel like I’m making it up.

Scott:
And then, you’re doing great with all of this, but I also think you’re complicating some of the things around how you think about your cash position. I love that concept, but you have all these different buckets going in there. How much total cash do you have right now?

Cecilia:
How are you defining cash? Is my after tax brokerage considered cash?

Scott:
No, no.

Cecilia:
No, no, okay.

Scott:
This is money that will be in your bank accounts, checking or savings accounts, including your business account, and any household or savings accounts that you have there.

Cecilia:
Over $100,000. I mean …

Scott:
Okay, you have over $100,000.

Cecilia:
Yeah.

Scott:
So, I think just saying that, and acknowledging that at is very freeing to a certain degree, right? I think it’s just like, “Okay, great. I’ve got $100,000 in cash. I don’t have to worry about this bucket not being full, or that bucket not being full.” Cash is cash. We’re can allocate it across different things here. And that should be plenty to cover your business, personal life, emergencies, a big trip, or two, or five, or 10, and a couple … any other incidentals that might come up, and give you a lot of optionality around moving other things around.
So, I would encourage you, just at a highest level, to consider reframing the cash question, just thinking about your total cash position like that, keeping some in the business, some in the personal, and just say, “My pile is plenty large right now, what do I want that pile to be at?” And everything on top of that, I’m going to sweep out. And that’ll help you with clarity for your business account, too. You can just say, “Great, I’m going to target $30,000 or or $40,000, or whatever it is you want. And whenever it’s above that, I’m just going to sweep it, and put it into these investments down the line.” I think I would encourage you to get to a structure like that, because it’ll make all this decision making really easy for you.

Mindy:
That is one of the things that I was going to suggest is a research opportunity. Sit down and think, “How much money do I need in the business to feel like it’s got a fully funded emergency fund? And how much do I need in my personal to feel that I am fully funded there?” Because I think that you’ve got all of that available. I don’t think you’re going to have to save for your emergency funds. You may have to not skim off the top for a couple of months to make sure that they’re totally capped off. But once you have a decision on what you feel comfortable with, then you can look at what’s on top of that. And that’s a really personal decision. If it’s three months or six months of business expenses, great, that’s your choice. And you can do that, because you’re the boss.
And another thing to look at is how stable is your job, and how predictable is the year? Does your emergency reserve dip in January because nobody’s hiring you until the end of March, when it pops back up again, and that’s the same pattern over and over again? Great, it’s okay that your reserves go down in January, because in March you’re swimming in cash. You can replenish it. Or is it more of a, I really do need to keep this in here, because I never know what’s going to happen? And either answer is fine. It’s just, this is something that you’re going to have to answer.
You said that you’re not sure if your investments are all the same and they kind of are, because they’re all in the stock market, and they’re all basically index funds, but that’s not a bad thing. I mean, if you read that book, I’m assuming you’re talking about The Simple Path to Wealth by J.L. Collins, which is the one that preaches VTSAX. J.L. Collins is a smart guy. He’s done a lot of research. It’s kind of a proven method of the simple path to wealth is investing in VTSAX. So, that’s not a bad choice.
but if you want to diversify your holdings, rental real estate is a really great way to diversify. Now, do you want to be a landlord? Do you want to have a Midwest property empire that you are responsible for? Do you want to … you had mentioned traveling around and getting something that you can use. You can’t use a property that you’re renting out long term, but you can use an Airbnb property when you feel like it. And when you don’t feel like using it, you just stick it back up on Airbnb, and it rents really quickly. I mean, try to find one right now. It’s really hard.

Cecilia:
I think that’s exactly where I got stuck was I started thinking I wanted something, a turnkey rental, a la the rent to retirement model, which is, I’m just going to give you some money. Someone else is going to property manage it. Someone’s going to send me a little check, and it’s going to be not really that much money to give you, maybe give you $25,000, $40,000 at the most. And then, I was like, “Well, wait a second. Maybe I want this thing that you just described. Maybe I want it to be in Palm Springs where I can Airbnb it, and I can go and stay in it.” But then, that is $100,000 in, or $120,000 in. So then I was like, “Okay, am I doing the right thing?”

Mindy:
Well, you could have both.

Cecilia:
And then I froze.

Scott:
Well, let me ask you this. If you had $1.5 million today, how would you invest it?

Mindy:
You could have both. You could have your turnkey property and your rental real estate.

Cecilia:
Oh, yeah. Yeah, I could [crosstalk 00:26:22] up those Airbnbs.

Mindy:
And just because you have currently stock market investments doesn’t mean that you can’t transfer those into rental real estate or diversify your portfolio by taking some of this, and selling it, and buying a rental property. Read the reviews on these turnkey properties, and see if that’s something that you really want. Hop on BiggerPockets.com and read about my worst land lording story. Because sometimes it’s enough to read that story and be like, “Nope, I’m good. I don’t want to do that.” And sometimes, you can’t be swayed.

Scott:
Heck no, yeah.

Mindy:
If you can be swayed by one story, then land lording is not for you. But if you are able to just keep going, if you’re still excited about it, grab a property, and do the research, and all of that. Of course, we’re not diving into all of those numbers right now. But when you get a property that works as a rental property, it generates cash, and it’s really great investment. And when you get an Airbnb property, you can go and use it, and check it out, and, “Oh, you know what? This isn’t for me. I don’t like this anymore.”

Scott:
So, I’ll disagree slightly with this on the Airbnb side, and not in a big way. But my belief is that … I like to vacation in Colorado, ski towns, and that kind of stuff. I feel that the odds of getting a great investment return in those areas are lower than the odds of getting a great investment return in the area that I know best, which is Denver, or a market that I’m selecting for the maximum possible returns. And my philosophy is I’m going to go and put my money in a place where it’s going to perform the best, and then I’m going to spend it in the areas that I want to go and be in with that. Because even if I have an Airbnb in Beaver Creek or Avon out there, and I go and stay in it, I’m forfeiting the $2,000 or whatever it would be for the week that I would be generating in revenue from that.
So, that’s how I like to look at it is I’m going to go wherever I think the best long term returns are going to be, and I’m just going to spend it on my lifestyle whenever I want to go and travel. And I worry that some of these places that happen to be your favorite or my favorite place to go are very good at extracting money from people who did not live in those areas, and own property or visit those areas, which is probably part of the reason why they’re so fun to visit.

Mindy:
Okay, that’s a good point.

Cecilia:
True, true.

Mindy:
And I will say that I have been speaking with an agent up in the mountains, because of course I would love to have a rental property up in the mountains. And he has been saying, “Look, they don’t cashflow right now.” You buy it, assuming that it’s going to appreciate, but you’re paying taxes. You’re paying your mortgage. This is an investment that’s costing you money every month. So, there are secondary locations. If you want to be … I don’t even know where Palm Springs is. I know it’s in California, and that’s it. But is it on the beach? I don’t know.

Cecilia:
It’s in the desert.

Mindy:
If you want to be San Diego on the beach, that’s going to cost you a lot more than you’re going to generate, but it’s also going to appreciate faster. But inland might be still a nice place, or up in the mountains of California, where it’s not really a ski place, but it kind of is. Or I’m up in Colorado, near Rocky Mountain National Park. You can get a decent property near-ish Rocky Mountain National Park that could be a great Airbnb property, that could cash flow. But it isn’t … You’re not going to get the ski people coming in, and it’s not going to … maybe it’s not rented every single weekend. So, there’s secondary markets that could be cool, if that’s where you want to be. But like Scott said, if it’s not a place that you want to visit, then maybe it’s not really worth buying the Airbnb. Because it’s a higher income, but it’s a lot more expenses, and it’s a lot more, I don’t want to say hassle, but hassle, with the cleaners and people that don’t leave on time, and lots of things.

Scott:
Let me try a thought exercise here, going back a second. So, I asked $1.5 million, what would you want it to be in? And I’ll just check a stab at this personally, and see if you react. I’m in your shoes. I just have $1.5 million in cash. How do I allocate it, right now? I have none of these accounts or whatever. And I want to be as flexible as possible in 1.5 years from now, right? Well, I’m probably thinking I want to have … Okay, I’m going to put a third of it to a half of it in real estate, to some capacity, and I’m going to have a number of properties probably levered at 50/50 or something like that, 50% debt, 50% equity, which is nice and conservative from a debt financing perspective, but still allowing me to get some leverage on that. And that should generate a good amount of cash. Let’s call it $600,000 in equity. So, that’s $1.2 million in property. Maybe I’m getting a 10% cash on cash, or an 8% cash on cash return, which is $40,000 to $50,000 a year. Maybe that’s ambitious. Maybe it’s maybe it’s $35,000, $40,000 from that, right?
Then, I probably have after tax stocks, maybe $200,000 or $300,000 in, and stocks in retirement accounts, maybe $200,00O or $300,000, and a little bit of home equity, and $50,000 to $100,000 in cash. And from there, I’d be expanding each of those piles pretty … That gives me 50 … My investments are half in stocks, half in equity, some of which are retirement accounts, some of which aren’t. I’ve got a good conservative cash cushion and some home equity, since you have … A lot of people like to own their homes with that. And so, that would be … What’s your reaction to a portfolio like that?

Cecilia:
For me, I think deep down, I am anchored in stability. So, I like the idea of there’s multiple places that they are. And some of them I wouldn’t have to think about and I can just leave alone. So, the money for me that’s in my IRA, it’s like, I’m not putting more into that account. It’s fine. If I do the Rule of 72, I can see that that account in the next 10 to 20 years is fine, and I’m fine. The other two, then I think I get into, if it’s real estate, is it … Am I doing it for the money or am I doing it because I really want to be flexible, and I want to travel, and I want to be remote? So, those have two different avenues to them. And I think actually, if I hear myself say it out loud, it’s, I want to be flexible and I want to travel. So, maybe it’s the money that I would’ve put down on an Airbnb is my travel fund, or is my build it up to buy that second place that I could rent if I wanted to, but it’s not its primary purpose.

Scott:
Great. Well, let me ask you a question on that. When you say, “Flexibility,” I think that real estate’s a spectrum, right? So, if I’m buying and operating an Airbnb, that’s a lot of work. You can buy, operate, and then stabilize an Airbnb, so that you have a system to manage it, like Zeona McIntyre does. You can also buy a turnkey property with a property manager, give them some money, and in this case, in the hypothetical situation I just articulated, give the … buy $600,000 worth of real estate, either in one location that’s remote, or multiple locations and have property management overseeing them, making that largely passive, to some degree. Or you can do anything really in between there. Is that …

Cecilia:
Yeah, yeah. I like the second one, probably. I mean, at the end of the day, do I want to be a property manager? No. I would rather write the check to someone and know it’s taken care of, but maybe I just need to get clear on what’s the end goal.

Scott:
Yeah, so if you can think, “Hey, in five years, I want my portfolio to look like this,” that’s flexibility to me. Then, you can back into that. My instinct is that right now, your portfolio is not going to deliver that flexibility. And you have the ability to transform that easily over the next five years. But right now, if you keep doing what you’re doing with where your money’s going is every month, you’re putting a thousand dollars toward the mortgage. You’re continuing to expand your cash position. And you don’t really have a formal investment plan behind where that sweep is coming, which is the majority of your invested dollars each year, most likely.
And if you can put that together and say, “My ideal portfolio looks like this,” in five years, it’s $2.5 million or $2.25 million, or whatever it is that I’m going to target between appreciation of my current assets, and then the extra savings I’m going to generate, and then just begin making that happen, you can think, “Great, and that $2.2 million portfolio, it should look like $800,000 in real estate equity, $800,000 in stocks, $150,000 in cash, $400,000 in my home equity,” whatever that is, that’s how you can begin backing into that. And flexibility means whatever it means to you. So, that might be 100% in stocks that I don’t have to worry about at all, and no real estate, or it might be something like what I just articulated there.
But right now, if you keep doing what you’re doing, your portfolio is going to look like a million dollars in retirement accounts, $950,000 in your home equity, and $400,000 in other … in cash and other stocks. And I don’t think that is going to get you the flexibility that you’re looking for from that. So, that’s the change that I would encourage to some degree is to begin at allocating the dollars in a way that will back you into that portfolio that says flexibility to you.

Cecilia:
Yeah, yeah, yeah. Which I kind of thought I was doing, but it doesn’t sound the same. I thought through, “Where do I want to be in 10 years? And what is each of these buckets? What do I want each of these buckets to look like?” So if I left that IRA alone and just let it do its thing for 10 years, well, we can assume that’s going to double. And then, the SEP, if I imagined based on how much I’ve put into it each year, “What is 10 more years of contribution?” But then when we get to the after tax brokerage, it’s, “Was that earmarked for something? Should I be using that for real estate? Some of them don’t really have a particular end in mind versus the number is just got to grow.” And then … right? So, it’s just being more purposeful. I think with the more flexible buckets.

Scott:
Yup, one of the tools that I have is I have a written investment plan, because as much as I talk about this stuff, I get shiny object syndrome, like anybody else, and get excited about this, this, and the other thing. So, the fact that I have a written plan that I’m able to review with my wife at our money date, keeps it like, “Okay, great. We got extra cash that is going here. That is going here. I am on track to buy that next rental property this year with that.” And so, I think that will be really helpful as well. Because, and again, the biggest one I would … that stands out to me is the extra mortgage of a thousand dollars. You already have $560,000 in equity in your home, right? And in 10 years, you might have the mortgage down to $50,000. That’s great, but if your goal is to pay off the house, pay it off, and apply the cash. That can be incredibly freeing. If it’s not, don’t pay it off, and put it into the investment that you’re intentionally picking with that.
But right now, just this partway approach is saying to me that the flexibility is just not going to come from this financial position until 15, 17 years happen, or however long it will take you to pay it off with a 20-year mortgage, and the extra thousand there. So, I’d either … That’s where your investment philosophy can help you make that decision. You can be like, “I’m either go all in and pay that off,” which is an event. An event will happen at the end of that, where everything is super flexible.

Mindy:
Woo hoo.

Scott:
Or I’m going to put it into these other stocks, and it’s going to appreciate, and I’m going to get a better … I might mathematically get a better return if the market does reasonably well, but I’m not going to have that event. And there’s trade offs behind that.

Cecilia:
Yeah. But you are echoing what swirls around in my head, which is like, “Why am I paying this mortgage?” It sounds to me, I’m slated to pay off this mortgage in 10 years, when I’m 63. And it just sounded so beautiful to be 63 and not have a mortgage. And then, I was like, “Oh my God, my interest rate is so low. Why am I putting that money there?” Well then, I should just pay off this car. But wait, if I put this money towards the car, I’m not getting a monthly check. What if I took that same money and bought a rental property, and then I’m getting a monthly check that I could use to pay off the car? I just got caught in this mouse trap. So, finding a true line-

Scott:
Yeah, I think if you write it out, you’ll be able to go down a list. And I would feel personally better about going all in on like, “This year, I’m going to pay off the mortgage in two years, because I want to pay off.” Or, “I’m going to stop paying anything extra, and I’m going to put it all into the next rental property that I’m going to buy with this place.” And in 10 years, I’m going to still have a mortgage balance, but I’m going to have $600,000 in real estate equity, because it’s all going into down payments and into my rental property portfolio equity, because it’s all going into that, or I’m going to put it into index funds, or I’m going to invest in my business, because my business can grow.
But if you can pick those things and write them down, I just think that this like partway approach that you’re taking right now is going to end up in a position where you’re going to have $1.2 million in home equity, if things double, as you hope over the next 10 years. I’m sorry, $1.2 million in your stock portfolio, mostly in retirement accounts, if you continue doing what you’re doing, and then another $900,000 or $950,000 in your home equity, and then not much else anywhere else. And again, that to me is … That’s actually probably pretty flexible at that point, very simple, paid off property, lots of stock equity and your business. But I don’t know, is that what you want? Nothing wrong with that outcome.

Mindy:
So I’m going to play the, What Would I Do If I Was Cecilia game now? Because Scott said what he was going to do. If I had $1.5 million, here you go, Mindy, here’s $1.5 million. I would probably park it in VTSAX, or my husband would be like, “No, let’s put some in Tesla and QQQ,” because that’s his favorite thing right now, VTI. And you know, but basically the stock market. It has done very well for us. Also, my husband does a lot of research on tech stocks. That is his thing. He’s not buying automotive industry. He’s not buying airlines. He’s buying tech stocks, because that’s where he just loves to research. So, that’s probably what we would do.
But because I am the real estate person that I am, I would make a list of the cities that I would consider Airbnb traveling to, and make a list of the cities that I would consider owning real estate in outside of Southern California, places like Iowa, because I always ride Ragbrai every year, or Ohio because my mom lives there, or Minnesota, because my cousin lives there, or if you’ve got some local that you can trust, that’s really valuable. And there are several cities in the Midwest that all have about the same returns. Indianapolis, all the ones in Ohio, Kansas City, Des Moines, Iowa. So, if you know somebody there, that’s a really great place to put on your list. If you don’t know anybody there, maybe skip it because there’s other cities that offer similar returns.
And then, I would find an agent in each one of those cities that I had on my list and say, “I would like you to set me up with a search. This is what I’m looking for. I may or may not be making a purchase. I just want you to put me into a list on the MLS.” And I’m a real estate agent. This takes me maybe 10 minutes, if I have to reset my password, which they always make me do and I hate it. It doesn’t take a lot of time to set somebody up, to get a list, an automated list, and give them a maximum price that you want to pay. Give them a minimum bed amount, and minimum bathrooms, whatever, very minimal search criteria, and just see what’s coming up. Oh, absolutely nothing comes up. Well, I guess that I’m not going to invest in this city. Or holy cow, 5,000 properties came up, I guess this is a really great city to dive a little bit deeper in, or narrow my search.
And until you can start to get an idea of what the market is in … For you, I would say A properties … A class, sorry, I was going to say A+, A class properties are what you want, because you don’t want the hassles. You don’t want to deal with problems. You want to set it and forget it. It’s going to going to be easiest to find a property manager to take care of your properties when you have an A class property. So, make a list of cities that you want to go and get an Airbnb in. Make a list of cities that you want to … that you know people in, or would be interesting for you to own properties in, and just start from there, and see what is the market there. Maybe the market is so hot that you’re like, “I’m out,” but maybe the market is reasonable. And California money coming into other states, you see these properties. You’re like, “Really? That’s all that it costs?”

Cecilia:
You’re like, “I’ll write you a check.”

Mindy:
I’m in Colorado and I say the same thing.

Cecilia:
I forget if it was during the pandemic. It might have been 2019. I decided that at least every year, and I haven’t made good since this first one, I was going to go and stay at an Airbnb in a city that I was curious about. So, I started on that track. I went to Boise and I rented a place for a week. And I was like, “What’s the deal with Boise? Why is everyone from California moving to Boise? I got to check Boise out.” I think I’m probably priced out of it now. But I went, and I looked, and I’m like, “What is it about here? What is the downtown like? What is the outdoors like? Could I see myself staying here?” So, I like your advice of, “What else is on that list for me to go, and explore, and get a feel for, and see what it’s like.”

Mindy:
Another thing I want you to do is … Can you automate any part of your business? We were talking before we started, and you do coaching, is a good general category for your business, right, coaching?

Cecilia:
Probably more training, but training and coaching [crosstalk 00:45:15].

Mindy:
Training, I’m sorry, training. And is there anything that you can automate? Can you sit down and make just a world class video that helps take some time off your plate, maybe your introduction video, or week three of your training program is always going to be the exact same thing, and it’s not going to change. So, you can sit down and automate what you’re doing. Even if it doesn’t seem automated when you’re presenting it, you can automate yourself, so that maybe you’re at a place that doesn’t have super amazing internet, but that doesn’t matter because somebody that you have hired, like a virtual assistant, or an assistant that is now running the company, while you’re off traipsing around all these Airbnbs that you want to test out, can take care of the situation and pull you out of it. With your training, it sounds like you’re doing it live all the time. And if you’re doing it live, then you can’t delegate that to somebody else.

Cecilia:
Yeah, no, no. That’s a great idea. I do have one online course, and I think that is the goal. It’s done quite well during COVID. So, the plan is, what else can we create that is automatic, automated, and roll people in, and it’s not attached to my face and my time? So, yes, more of that.

Scott:
Awesome. I think Mindy’s suggestions were great there from the real estate perspective to test that out, and then you can just decide if you want that to be a part of your portfolio or not. You don’t have to be sure about that future state portfolio today. You just have to move towards working towards what you think that optimal looks like, and then begin taking the steps to do it.

Cecilia:
Yeah, absolutely. Honestly, I think it’s more about the places I might want to go and spend time in than it is Cecilia owns rental property, and has a property manager, and every once in a while, someone sends me a check for $200. I don’t really know what that gets me. So, being able to have a place where it’s like, hey, and I could go to Boise, or I could go to Colorado. I could go to may maybe a different part of California that I’d want to go to and spend a week a couple times a year, that sounds like it’s more of interest to me.

Mindy:
Test it out.

Scott:
Where exactly do you live in Southern California?

Cecilia:
I live in Orange County.

Scott:
Okay. Is it near one of the …

Cecilia:
It’s halfway between LA and San Diego.

Scott:
Like, San Clemente, or …

Cecilia:
So, like Laguna Beach. Yeah, yeah. I live about seven minutes from San Clemente.

Scott:
Awesome. So, you live in one of the most beautiful places in the world. And your home or condo is probably also a great Airbnb experience, actually.

Cecilia:
Well, yeah, you can’t Airbnb in my community. I think it’s 30 days or more, but that’s, I feel like, one of the challenges I have, which is, man, if I cash this place out, I could retire tomorrow, and go to whatever, Colombia, or Panama City, and Portugal, and I’m done. But I think this property is going to be an amazing long term rental.

Scott:
Yeah. I mean, I think there’s-

Cecilia:
The rental prices are insane.

Scott:
I, at some point, will spend a few months in San Clemente or one of those places, just to … I don’t want to live there long term, but it is one of the most beautiful places in the world. And so, you’ve got maybe the short to medium term rental, where you have somebody rented out for a month is a great way to fund some of those Airbnb experiences as well, while you’re traveling, and picking the locations that you do want to buy in.

Cecilia:
Yeah, yeah. So, swapping time, getting someone to stay here for a month or three months while I go somewhere else for a month or three months.

Scott:
Yeah, that would help you. Because again, you have this enormous asset. It’s a 30-year financial position that is not being harnessed right now in pursuit of that flexibility. It will probably cost you less than $10,000, you’d think, to reset, or reframe, or block off a section, or whatever it is of your house to make that an available opportunity, if you’re really planning on doing lots more travel and flexibility.

Cecilia:
Yeah. And sometimes I get tempted by that equity too, to have that equity work for me. And gosh, could I borrow fund, skim that equity, and do something with it as well?

Mindy:
Sure, you can. Although, a home equity line of credit, I like to say, is a short term solution, short term funding solution. Scott likes to say that, too.

Scott:
Yeah, well, that’s where I was talking about earlier. If I was redesigning a position from scratch, for me, I would be thinking $600,000, $700,000 in real estate. Another, that amount, again, in stocks and bonds. $100,000 or $200,000 in home equity, maybe $50,000 to $100,000 in cash, rounding out that stock position across both tax advantaged and after tax accounts there. And so, that would be, again, one starting framework. You don’t have to take that one to think about the position. And that would … Great, if I wanted to get there tomorrow with your position, I would cash out refi the house, use that to buy some rental properties there, generate that cash flow, and go. That might be a really scary move, because of the way that you’ve set up your position are not appropriate for various reasons. But that would be the position I’d be thinking about building towards, if I was starting from scratch. It’s the position I tried to build for myself when I got started.

Cecilia:
Yeah. Oh, I like considering that, definitely. Because when I think about paying the mortgage off or not, it contradicts me saying, “I’m in the hottest rental market. I could rent this condo out so easily for so much money.” And then, I’m like, “Why wouldn’t I just get someone else to pay that mortgage down?” Like, “Why am I paying it down?” So, if I refinanced and took money out, my mortgage, God forbid went from $1,500 to what, $2,000? And then, someone else down the line is paying that off for me. Then I’m like, “Okay, Cecilia, what are you doing? There’s probably something smarter there.”

Mindy:
If I was going to be Cecilia, I wouldn’t pay a dime towards that 2.625% mortgage rate that you have. I wouldn’t pay a dime extra. I would keep it as is.

Scott:
I agree completely, unless my goal was, I’m going to pay this thing off, and now my mortgage is zero. I’m just paying property taxes and insurance on that thing. And I’m going to use the asset as an Airbnb. It’s not the most optimal way to drive return on equity, necessarily, but it’s very freeing to have no mortgage, so no wrong answer. And you’re kind of partway in, partway out with the way you’re handling your mortgage.

Cecilia:
Yeah, I got to put in both pots.

Scott:
But that says there’s a decision there, and there’s no wrong answer with that. There’s the math, and there’s the safety, and that’s it.

Cecilia:
I think what I’m pretty good at is once I decide what I want to do, I do have discipline to hit towards it. So, me deciding, “Okay, this is the 10-year plan. This is what you’re doing. We funded it last year. We funded it the year before. Okay.” So, now I think once I work on crafting a written plan, and putting it down, incorporating exactly what is my goal, then I think it’s easy for me to make a decision like that and stick with it. So, it’s the vacillating when I’m I’m stewing over things that gets me. But once I decide, I think it works.

Scott:
Awesome. Well, let’s recap what we’ve talked about today. You have optionality across spending, across earning more income. I’m sure you’re doing what you can be to continue to advance the income from your business and your job. I think that you’re crushing it. You’ve got a $1.5 million net worth, lots of good options with all that. And the biggest thing is getting more decisive and crystal clear about that future state portfolio that you want, which may take time, may take a few months, and some iterations before you get to where you’re feeling comfortable. But once you do that, then taking all of your surplus cash and moving very methodically down that list of priorities to get to your desired future state.

Mindy:
Yup, I think we have a couple of research opportunities to look into places to live and what your end goal is. I think that you also have decided that maybe being a landlord isn’t the top choice for you. So, trapes around, and check out different a Airbnb properties, and see the cities that you like, and see are there secondary cities that might make a good income and also be a place that you want to spend time? But I think you have a lot of good options ahead you. And now it’s just like, which one of these amazing 50 options do I choose?

Cecilia:
Well, if they involve trapesing, scene, I think I’m in.

Scott:
There you go.

Mindy:
I’ll make that the headline.

Cecilia:
Thank you so much. Yeah, yeah, yeah. Nothing wrong with that. I think, and the travel bug. I think maybe as a parent, when you see the kids ready to just take their wings and fly, and then you’re like, “That’s so freeing for them,” and you’re like, “Wait, it’s so freeing for me. Where can mama go?”

Mindy:
Exactly. Okay, well, Cecilia, thank you so much for your time today. This was super fun and we will talk to you soon.

Cecilia:
All right, thank you so much, Scott, Mindy, appreciate it.

Mindy:
Okay, Scott, that was super fun. That was Cecilia and her super awesome position. And I think that we gave her a lot of wonderful things to think about, the research opportunities into does she want to do real estate as a landlord, or real estate as an Airbnb proprietor. Is that the right word? Does she want to truly diversify her portfolio, or does she just want to trapes around the world staying in Airbnbs as she Airbnbs her own place?

Scott:
Yeah, I think Cecilia has a strong, flexible position. She spends less than she earns. She has optionality to flex up on the income front, flex down on the spending front, and transform her portfolio, and think about how she wants to invest across various asset classes. And the world’s her oyster. So, she’s got all the options in the world. I think she’s going to do a really good … I think she has a bright future ahead of her, and I think she just needs to get really clear about what she wants, when she wants it, and what portfolio she’s going to design to get there. Because right now, I think the portfolio, in spite of her a great strategy, I think it’s happening to her, rather than she’s actively shaping it the way that she wants with an end state focus in mind.

Mindy:
Yeah, but it’s got a pretty good end result so far. She’s doing pretty good with that.

Scott:
Absolutely.

Mindy:
You know, Scott, sometimes when you have so many options, it can be a little bit daunting. So, I think we gave her a lot of great things to choose from today, a lot of things to think about, a lot of things to contemplate. I’m also excited. Maybe we can have her back and talk about her business. I’m excited about the opportunities for her to remove herself from her business, generate even more income, and then maybe not even worry about the Airbnb and the real estate.

Scott:
You know, I just thought of something. I think this would be a fun thing for the Facebook group. Let’s start a thread. And you guys heard mine. I would like to hear what your ideal $1.5 million portfolio would look like, if you could just start with a blank sheet of paper and allocate $1.5 million across various asset classes. What would you do with that? And I’d love to hear … I think that would be a good discussion, and see what people think.

Mindy:
Well, JT, I am going to actually remember to put this in the Facebook group. I’m going to make a calendar invite, so I don’t forget. So in the Facebook group, you will find a question at the very top at facebook.com/groups/BPMoney. What would your ideal $1.5 million portfolio look like? How would you allocate it, into what asset classes? And if you’re going to talk about, “Oh, I’d put it into real estate,” tell us what location you’re investing in real estate in, and what type of real estate you are investing. Okay, Scott, I think that’s a great question.

Scott:
Awesome. Well, I look forward to seeing what the responses there are.

Mindy:
Yeah, that’s going to be fun. Okay, are you ready to get out of here?

Scott:
Let’s do it.

Mindy:
From Episode 294 of the Bigger Pockets Money Podcast. He is Scott Trench, and I am Mindy Jensen saying, catch you on the rebound, hound.

 

Like most major cities, Calgary is constantly growing both in population and size. With the growth of the city, many communities in the surrounding area have become absorbed into part of a greater whole that comprises the Calgary Metropolitan Region (CMR). Like in the Greater Toronto Area or Metro Vancouver, real estate in the CMR has seen great benefits from the growth experienced in Calgary itself.

These areas can offer a lot of opportunities for investors, but they are often overshadowed by their larger neighbour. In this article, we will look at the different areas in the CMR and why investors may want to consider buying outside of Calgary proper. To help explore the topic, we spoke to Jesse Davies, a top local realtor in the Calgary area who has over a decade of experience working in the region.

According to his own experience helping buyers to invest in the region, Davies says: “Depending on the budget, lifestyle and job location, a lot of buyers are seriously considering some of the outlying communities of Calgary.”

The way that large cities work with their smaller neighbours is something of a symbiotic relationship. The larger city provides jobs and infrastructure for the many residents of the region (and other benefits like an international airport or a professional hockey team), while the smaller towns provide more comfortable, and often less expensive, places for families to settle.

“The neighbouring communities on the outskirts of Calgary can offer a small-town feel, with all amenities that come with a regular city,” explained Davies. “Being within a 30-minute commute to downtown Calgary in communities like Airdrie, Chestermere, Okotoks and Cochrane offer buyers a great alternative to big city living. With average home prices being more affordable it offers a great option for bargain hunters or families not needing to commute to the downtown core for work.”

Because of what many see as a bright future for Calgary, many are beginning to look to the cities in the CMR for investment opportunities. The more that Calgary grows, the more people will be attracted to these outlying cities. By expanding into these surrounding areas, investors can find many new options for property types, amenities, and tenant bases to rent to.

There are a few reasons why investors and buyers may choose to buy in these surrounding communities. One major reason is affordability. While Calgary is already pretty affordable compared to other major cities in Canada, prices have risen a lot in recent years. Many homes in the surrounding municipalities can be had for even less while still enjoying the benefits of being close to the city. Even in an area like Cochrane that displays a higher benchmark price than Calgary itself ($520,000 and $518,600 respectively), it is worth noting that Calgary sees much more apartment and condo sales, which tend to be cheaper and can skew the average.

Another benefit is less competition among buyers. The City of Calgary understandably gets the most attention in the region with 77% of all sales. This has led to the city having low housing inventory at just over one month of supply. In the CMR, there are many cities and towns where housing stock is better than in Calgary, meaning it may be easier to find a property you like.

Finally, these areas outside of the city provide investors with new ways to invest. Take, for example, a city like Canmore (though a bit farther from Calgary) which tends to have high prices due to its appealing location near the mountains. Owning a short-term rental in Canmore may be a very different type of investment than owning a rental home in Okotoks. Each area has its own demographics, housing types, and investment strategies that can offer many opportunities for an investor wise enough to take advantage of them.

Meanwhile, buying in Calgary itself is still just as appealing, but it’s all about deciding what you want out of your investment. For example, the condo market in Calgary will only continue to grow as larger residential homes push farther to the boundaries, as has been seen in a city like Toronto. Speaking about the benefits of buying in Calgary proper, Davies says: “As the city starts to readjust to normal life and people begin to return to work in the downtown core, even more buyers are going to be looking at buying in the city. These homes offer the convenience of a commute to the downtown core for work along with easy access to amenities like shopping, entertainment, and nightlife. Calgary offers some amazing inner-city locations with the best of both worlds.”

Whether in Calgary itself or in the surrounding CMR, there are many opportunities for investors looking to take advantage of this increasingly popular real estate market. To learn more about how you can invest in Calgary or to begin on your home buying journey, contact Jesse Davies today. His team has over 15 years of experience helping clients make the right decisions to reach their real estate goals in Calgary.

We all know that this is the hottest real estate market ever. Period. No other time in the history of the universe has it been this hot.

We also know that mortgage rates are going up, and both homeowners and investors want to buy a home before the rates go any higher. 

The economic law of supply and demand states that when demand is high, prices will rise. Well, demand isn’t going anywhere anytime soon, and supply isn’t changing either.

So, the question buzzing in our minds: what should homebuyers do?

Start thinking about purchasing the “leftover properties”

For context, I’m an agent in Colorado with multiple active clients. In our market, much like the rest of the United States, homes are listed on Wednesday or Thursday, showings occur throughout the weekend, and offers are due on Sunday evening for a response on Monday.

By Tuesday afternoon, the MLS is a ghost town, with tumbleweeds blowing across the screen, waiting for Thursday to start the circus again.

But not always. On some days, there are still properties leftover.

Granted, most of these properties are still on the market for a reason. Many are situated on undesirable busy streets or even an active train track!

If location isn’t the problem, there usually is an easily identifiable issue with the house.

For example, a beautiful house is listed in my market for a laughably low price. So low that you would assume the listing agent’s finger must have slipped when entering the price.

But, as it turns out, they didn’t. When you enter the home, there are cracks everywhere. Even worse, there are horizontal cracks, and that’s a terrible sign.

I’m not talking about these types of leftover listings.

Let’s look at another property.

About 15 minutes north of my town, there’s a listing that has been on the market for 44 days. It’s beautiful on the outside, and it used to be beautiful on the inside. It has 10-foot ceilings in nearly every room, including a 20-foot ceiling in the entryway, a sweeping circular staircase, a nice kitchen, and plenty of storage.

But, now that the carpet and paint is 20 years old and some of the floors are damaged from water leaks, the home clearly needs some help.

Yet, even with all of the potential, the property sits for 44 days.

The good news is that this leftover property was patiently waiting for the right buyer. That buyer happened to be a client of mine. After an initial listing price of $725,000, we were able to offer $670,000. The best part? The appraisal came out to $900,000!

We did all of this without a bidding war and giving up important leverage on the buyer’s side of the table.

How to find leftover properties

Listing agents are human, and humans make mistakes. I’ve seen some real doozies, including a house listed with zero bathrooms on the MLS. Legally, a house must have a bathroom, and this particular house had two.

While it doesn’t sound like a big deal, you wouldn’t see this listing if you were set up to receive listings with a minimum of one bathroom. Mistakes mean there’s a smaller number of buyers viewing a listing.

So, this is what you should be looking for — the unseen properties due to a listing entry error.

But listing mistakes aren’t limited to entry errors. Some listings feature photos from a completely different house. That means there are a lot of unsuspecting buyers walking into homes confused and walking out without making an offer. 

This happens all of the time with multifamily properties listed as single-family homes or houses listed as condos.

When your agent sets you up to receive listings from the MLS, they set up parameters, so you don’t get swamped with listings you’re not interested in. You don’t need to see those listings pop up if you’re not buying a farm or vacant land. Ditto single-family homes if you only want a condo.

But real estate agents can only send listings that are categorized correctly, and when an agent makes a mistake, it can have huge repercussions.

Side note: If you’re selling a property, make sure your agent sends you the listing and that you read it thoroughly to make sure all the information is correct. The agent can update the listing, but only if they know there is a mistake.

If your agent enters fewer parameters into the MLS when setting you up for a search, you’ll receive far more listings, which can be daunting in a robust market (lucky for you, there is a historic supply shortage right now).

But the more listings you get, the more possible mistakes you’ll find and more opportunities you’ll discover.

Is this groundbreaking advice? No. I know that. But in this market, getting into a bidding war and fighting over limited supply with other buyers is exhausting. Do whatever you can to take that out of the equation by looking at houses they aren’t looking at.

Waiving inspections and appraisals

Another fun aspect of the current market’s home buying process is waiving inspection and appraisal gap coverage. Right now, at least in my market, when you are writing an offer, to be competitive, you’ll need to waive your ability to request inspection repairs and, in most cases, cover any gap between appraisal and offer price.

You have to offer this because competing buyers include this in their offer. If your offer doesn’t also include this, you’ll go to the bottom of the pile.

You don’t have to offer these seller-friendly clauses when your offer is the only thing in the pile. It means you can have a home inspection — and if something pops up, you can choose to request a repair, a concession, or accept it as-is. Remember, any request is just that, a request. The seller can still say no, but if you waive the inspection to get your offer accepted, you can’t even make the request.

Appraisal gap coverage is another sticky clause being added to offers right now. Appraisal gap coverage means you will pay the amount you offered, regardless of the appraisal. 

If the appraisal comes in low, you’re bringing additional money to closing to cover the gap between what you offered and what it appraised for.

And while you don’t have to cover the gap entirely, you can offer to cover the gap only up to a specific dollar amount instead of the full amount; there are other buyers out there who are offering to cover the whole gap. Just think back to the property from before. Some buyers would have covered upwards of $200,000 in the appraisal gap.

Again, your offer goes to the bottom of the pile.

Final thoughts

Skip the bidding wars and the lines at open houses. take your time looking at a property and get an inspection by looking at the “leftovers”.