Month: October 2022

David:
This is the BiggerPockets Podcast show, 671.

Isabelle:
Nothing is recession proof, but this is probably as recession resistant as you could get. Because when money gets tight, you know what you pull back on is those high end items, that Euro vacation, that Disney trip with the kids. You stop going to Airbnbs. You stop buying nice items, but you’re not going to stop paying for your loved one’s care. You just don’t do that. This is probably as recession resistant as you can get.

David:
What’s going on there, BiggerPockets listeners? This is David Greene, your host of the BiggerPockets Real Estate Podcast here today with my co-host, Rob, the STR specialist, Abasolo. We’ve got a great episode for you today. We are interviewing Isabelle Guarino, one of the industry experts in residential assisted living facilities. This is a new strategy of investing in real estate that is relatively unknown and not talked about very often, and we bring you a ton of information that would help you decide is this an investment strategy that you should get into? Isabelle’s family is one of the premier experts in this space and she does not disappoint. One of the things that we should highlight about today’s show is this is a strategy that becomes a hybrid of business with real estate. We see in the industry this is becoming more and more popular.
Short-term rentals are actually a good example of this. You’re not just buying a house, you are running a business and the real estate becomes a part of that business. This is similar to cattle ranchers. A lot of people don’t realize a lot of cattle ranchers don’t make a ton of money on the actual cattle, but they usually do on the land. I think in the future, we’re headed towards a world where real estate and business are more closely tied together. The real estate element supercharges the business. It’s becoming a little less passive, but you’re able to make a lot more money. My personal opinion, this is a great strategy if you are in the healthcare industry, you know someone in the healthcare industry, your family works in there, your spouse works in there, and you want to get out of that W2 world and into real estate, but you’re not sure how. Rob, what are some of your thoughts?

Rob:
Oh man, this is a good one. I remember listening to this show long time ago, and we brought in someone else in this niche and I was just so fascinated, I don’t know, by the asset class of residential assisted living. I just remember at the end of that episode, I was like, “Oh, there’s so many questions that I wish they would’ve asked,” because I was just so fascinated. Today, I ask all those questions. I ask all the questions and things to consider and caveats, and I’m still really fascinated by this. I’m very entrepreneurial. Wheels are always turning when I really start uncovering new business models. One thing to keep in mind, not necessarily the most passive way to get into real estate. It’s very hands-on. But if you’re entrepreneurial, if you like hiring staff and building out systems, and like David said, if you’re in the healthcare industry, I think it’s going to be a good one. I think you’d be real fascinated and very curious as to what Isabelle has to say.

David:
If you just heard us talk about this but weren’t really sure what this phrase meant, after today’s episode, you will know at a very good level exactly what goes into a residential system, living facility, and if this is the right option for you. Before we bring in Isabelle, today’s quick tip is real estate is different in the ways that it works, and it’s a great way to play to your strengths. Different asset classes work for different personalities or level of resourcefulness, so don’t try to follow somebody else’s blueprint. What works for Brandon, what works for David, what works for Rob, don’t just copy and paste what you see from us. Ask yourself, “What are my personal strengths? What are the competitive advantages I have, and which asset class works best for what I’ve got?” Build your portfolio that way and you will like it a lot more. Our guest today, Isabelle, mentions that if it’s not a hell yes, it should be a no. I think this applies really good into the type of real estate that you invest in. Rob, anything before we bring in Isabelle?

Rob:
This is a good one. Like I said, we ask a lot of questions and I think by the end of it, you’re going to have a very clear picture on what this asset class has to offer.

David:
All right. Isabelle, welcome to the BiggerPockets Podcast. Tell me a little bit about how your family and you got started in real estate.

Isabelle:
Yeah. For me, it really started with my dad. He was a real estate investor his whole life for 40 years since he was 18 years old. He was in this industry and his mom, so my grandmother fell, broke her hip and the doctor said, “Hey, she needs 24/7 care.” She was living in Upstate New York. We were in Phoenix and it was just like, “Okay. What do you do?” Whether you have or haven’t dealt with this, at some point, you will, a loved one needing care and assistance, and especially if you are the wealthy one in your family, this is a big reality that a lot of times they’re calling you to say, “What’s going to happen? Where do we put mom or dad?” At that time, we flew up to Upstate New York to look for something suitable for her. Everything was disgusting. Everything was super expensive.
The things that were decent had a long waiting list, it was just insane. We went back to Phoenix thinking, “There’s a lot of old people here. There has to be something more,” and stumbled into residential assisted living. My dad saw an existing property and he was touring for his own mom, but did quick math, “Wait, I’m going to be paying five grand a month for her to live here, or I could own this property, own this business, be cash flowing 10 grand a month.” He literally pulled the owner aside and was just like, “Hey, can I buy this? I want to buy the real estate. I want to buy the business.” He got up and running right into it. Over the next coming years, we purchased two other single family homes that we converted into this, and I really just saw what he was doing and saw the changes it had made in his life.
I was a flight attendant at the time when he did this and I was like, “What are you doing? What’s going on? Why are you working with old people?” I just kept asking more and more and pushing my way in and became his first employee. We grew to eight companies, three homes and 50 employees since then and had so much fun. My dad passed last year, so I’ve taken over everything from there, but it’s been the biggest blessing being left with three cash flowing businesses. Now, I want to give that to as many real estate investors and entrepreneurs as I can, that legacy.

David:
Okay. You own three of these facilities yourself?

Isabelle:
Yes.

Rob:
With being a flight attendant, that’s a really awesome job. You get to fly anywhere you want if you have the right airline. It’s fun. I’m sure you’re dealing with things, so obviously it’s very secure as well. What was that like for you? Because you’re doing that and then you’re like, “All right. Maybe I’ll do this residential assisted living thing.” When did you actually jump from the stable job to going into real estate, which in a lot of people’s eyes isn’t really quite so stable?

Isabelle:
It’s really interesting because growing up with a dad who was a real estate investor, I watched him go through ups and downs, but I just never had that fear. He never gave us that fear because many people listening who are real estate investors and entrepreneurs know that, the example you’re leaving for your kids, it’s like the Rich Dad Poor Dad book. I grew up with that mentality of a dad who was the rich dad basically saying, “I’m going to get through this. I’m going to make it work. It doesn’t matter what happens. We’re going to make it go forward and have it be a really good thing.” I was never fearful of entrepreneurship or owning and operating any businesses or being in real estate. I saw it as a great way to cash flow and make an impact on your community. I will say being a flight attendant is a pretty sick job.
It is so much fun except for the fact that you basically make nothing. At some point, I turned and looked at my dad and I’m like, “You’re making a lot of money. What are you doing? I want to follow suit with that.” I think not only did the cash flow drive me to it, but honestly, I was on a missions trip out in Jamaica and I saw a retirement community out there and it broke me to see the conditions in other countries, what’s happening with assisted living and I came back and I knew what my dad was doing, but his homes were upscale, luxury, gorgeous. When I saw how terrible the conditions were, I was like, “We have to do something.” I actually really wanted to get involved to not only make more money for myself as a younger person getting involved in their career and starting their life, but also to be able to give back to other assisted living communities across the whole world because this is just a massive need that we’re going to start seeing more and more.

David:
My understanding is there’s several different levels of care. An assisted living facility in general is a place where typically older people are going to go that need in-home care, maybe the family is functioning as the caretaker and it puts a big strain on them or it’s too expensive to stay at a hospital all the time, so you have to have some way to take the pressure off of the family, but there’s different levels of care. Some people need a little bit of oversight, then there’s like memory care. Can you break down how that framework works and then how much energy and attention has to go into the different levels?

Isabelle:
Yes. Okay. The lowest level would be independent living, which think Golden Girls. Right? For mature women living in a home, they need minor help with landscaping, changing a light bulb. It’s really light. They’re really just paying you rent, plus a little bit for you to basically be a property manager who swings by and make sure, “Is everything okay?”

David:
Would you be dropping off groceries, stuff like that or no?

Isabelle:
I’ve never seen those homes run in a way that cash flows, so I don’t pay attention to that market because it’s just something that… You know what I mean? Maybe you do it for your own parents because it’s like, “Oh, let’s throw them all in a home and we’ll help a little bit.” Right?

David:
Would this be more when you see… It almost seems like an apartment complex, 200 units of older folks that are staying there, an old folks home is what we might call it. That’s what you’re describing?

Isabelle:
Yes. Independent living. They still have the salsa classes. They still have the pickle ball court, the pool, all that, because they’re still… That’s probably age 65 upwards to 85, but it’s like you don’t have to be that old to be there. That’s independent living. You just need a little bit help.

David:
You can take care of yourself, but you need oversight. You need someone on site in case someone does fall and gets hurt.

Isabelle:
Yes.

David:
But mostly, you’re providing amenities that make it a fun place for a senior person to live.

Rob:
David’s really interested in this model because he actually owns all the box to The Golden Girls from the TV series. Hopefully, we can unlock this for you, David.

David:
Huge Golden Girls fan. Nobody knows that.

Isabelle:
It’s a great show. It’s a classic.

David:
Thank you for being a friend. Okay. What’s the next level?

Isabelle:
Okay. Next level would be assisted living. That’s what we’re focused on. By the time you need this, you typically need help with three to five activities of daily living. In the industry, we call it ADLs. Right? That’s everything you do from the moment you get up out of bed to the moment you go to bed at night, including getting out of bed, walking, bathing, showering, eating, taking medication, brushing your hair and teeth. You need help at this point. Most seniors move in when they need help with three to five. Some need seven, right? Some need three. That’s where you’re talking about the level of care ranging. Every person within your home might be paying a different rate to live there based on their level of care.
If they’re a high level of care, they’re paying more and if they’re low, they’re paying less. Assisted living, we can take care of a lot of different issues. Honestly, most people, they only live in assisted living. They don’t increase to the next level, which would be a nursing home. Right? Doctors, gurneys, IVs, medical attention is needed at that point. Very expensive. A skilled nursing facility, a sniff, they call it in the industry. Both of those are… That’s like the highest form of care, but in assisted living, that’s what we focus on, that middle one.

David:
If I understand you correctly, you’ve got the basic level, which is what you called independent living. This is more providing amenities. This is the shuffle board court, the salsa dancing, perhaps a van that might take them from the place to go shopping and bring them back because they don’t want to have to drive?

Isabelle:
Bingo.

David:
Then, you’ve got the middle ground, which you’re saying there’s various levels of care. They might need help getting out bed. They might need help bathing. Maybe they don’t, but they need someone to drop off food or make sure they take their medicine, something in between. Those residents will have vary levels of care and maybe the facility classifies them and then lets the nursing staff know, “This is how you take care of him.” Then, the last here, which you said like… Was it a nursing home that you said? It’s almost like a hospital brought into a house.

Isabelle:
Not even in a house. I don’t think you can have nursing care in a house. It’s basically a hospital like setting because there needs to be doctors and nurses on call at all times. Basically, this person, it is very end of life by that point.

David:
Is that something that people can own a property and operate out of the nursing level of care?

Isabelle:
Not that I’m aware of because the licensing would probably need to be so great that… Also, I don’t know how many doctors would be down to just go to a home that only has six to 10 residents. Typically, those are big facilities that are very, very medical feeling.

David:
Okay. If we’re talking about residential real estate, you’ve pretty much just got the first two options that you’re choosing between?

Isabelle:
First two options and I only focus on the middle option.

Rob:
I’m curious. On the scaling side on that middle option, is that a lot tougher to scale than that first tier given the amount of customizations with each different patient?

Isabelle:
Interesting question. When we talk about residential assisted living, right? It’s not a commercial facility, it’s a single family home being used for this, scaling is a bit difficult because 80% of this industry is currently run mom and pop style, meaning the person who owns it might also live in it, might also take care of the residents themselves. It’s very mom and pop. When we came into this industry, we said, “This isn’t going to work. Let’s run it as professional owners, so that we can scale.” We really took the real estate play of it to the next level because everyone else was just focused on having one or two homes and not doing much or I will say some of our people that I work with, they want to have 50 or 100 of these, package them up and sell them to the hedge funds. That’s not my personal goal, but that is a way that you could scale and exit this for sure.

David:
All right. One of the benefits of this is that it’s a little less on the passive side. This isn’t investing in real estate like most people get used to hearing. You are running a business. However, as cashflow becomes harder to find, as yields become smaller, more and more people are understanding that real estate is less passive income and is becoming a form of active income. Rob, you’re familiar with this because running an Airbnb is much more work than buying a duplex and letting a property manager handle it. What are some things that people need to be aware of if they say, “Hey, this sounds good.” Well, maybe let’s take a step back. What are some of the numbers that someone can expect to make per rent and then what are some of the expenses that they should expect to have to pay? Because you’re providing a lot more service than typical just real estate.

Isabelle:
100%. The national average to live in one of these homes is $4,500 per month per person. Now, there’s a website, genworth.com/costofcare. When you go there, you can type in the area where you live or your loved one lives and it will show you how much the national average in your area is. This cost has gone up 79% over the last 10 years and with the silver tsunami coming, it’s going to keep going up hardcore. We are currently 1.3 million beds short and the silent generation is who’s living in assisted living. There’s only 46 million of them. The baby boomers, 76 million of them. If we’re already that short, this is about to skyrocket in cost of care.
What people are paying to live in these homes, let’s just call it $4,500 is our national average. Every state varies greatly. DC is the most expensive at average rates of $6,978 per person per month. I should also say this. Average assisted livings, I don’t want to leave my goldfish, let alone my mom. They are typically disgusting. They smell bad. The food is not good. The quality of care is not good. I really only like to do upscale, high end luxury assisted livings focusing on private pay or long term care insurance residents, not government funding, not Medicare, Medicaid. I want to go after that higher end market, not the tippy, tippy top, but the people who are making more money and willing to pay for the best of the best.
Within these homes, if you had 10 residents paying five grand a month, right? A little bit above average, you’re bringing in 50K a month, your expenses, I know you asked about that. Expenses are high in this industry because you’re paying for 24/7 staff, caregivers and administrator. You’re doing food for them, activities for them, all the regular house bills, plus your licensing and all these different things. Your expenses on that home that has 10 people might be running around 30K a month and then if your debt service, your mortgage is maybe like 5K a month, that means that home’s bringing in anywhere between 10 and 15 grand a month to you, the owner. It definitely is a more active investment, more along the lines of Airbnb. This is not set it and forget it, but I like to show people how to be as hands off as possible.

Rob:
Is there a reason? Because this seems like a high… Cash flow wise, this is great. Is there a pros or cons of pursuing residential assisted living versus just going to traditional rental route or is it just like a preference type of thing?

Isabelle:
I think for me, it’s a lot of intrinsic pros. You could literally have your loved one live for free. If you have a parent, a grandparent who is going to need assisted living care and you don’t want to be paying for it, they could live in your home for free and you are still cash flowing. Right? We know that the supply and demand is off based on those numbers I just shared and it’s only going to get crazier and crazier. If you’re looking, nothing is recession proof, but this is probably as recession resistant as you could get because when money gets tight, you know what you pull back on is those high end items, that Euro vacation, that Disney trip with the kids. You stop going to Airbnbs. You stop buying nice items, but you’re not going to stop paying for your loved one’s care. You just don’t do that.
This is probably as recession resistant as you can get because we know the supply and demand, because we know what’s coming and if you’re going after that higher end clientele, you’re not dealing with as much riffraff. Also, providing a home for yourself. Right? Supply and demand, leaving a legacy for your own children, a cash flowing business. I always say like money in the bank is cool, a trust fund is cool, but the fact that you’re changing lives, communities lives, these seniors get so much better care in these smaller homes than in the big box facilities. It is night and day. The caregivers as well. When you’re a medical professional and you go into an industry, you go into it because you have a big heart. You want to care for people and then you get thrown into a big box facility where you’re taking care of 15 to one, that’s not okay. There’s no ability for them to even be that good caregiver. Providing jobs and just making such a big impact is really what draws me to this and makes me say, “This is worth it. The extra effort’s worth it.”

David:
You make a really good point that you’re going to be getting better care, but that is going to come at a price. The caretaker that is providing that care has to be managed by the owner if it’s an owner operator of this deal. We have a couple clients that we’ve helped in the Bay Area, literally buying these deals. I go through the MLS. I find one that will work and then we go through the process of getting it licensed. There’s a lot of different ways you have to adapt the house. You need handicap access, fire sprinklers. There’s a huge list of regulations. This is a highly regulated industry. The people that I’ve seen do the best at it are the people that already work in the caretaker space. They’re typically working for someone else or in the healthcare industry and then they combine it with house hacking.
That, to me, is brilliant. They’re getting in and they’re buying a house where they normally would be paying five or $6,000 a month to live in the Bay Area and they’re actually making money because they run the facility out of their own house. I think that’s a cool combination of these two strategies, but I want to ask you if someone is hearing this like, “This is good. I’m in the healthcare industry. I’d like to be an entrepreneur.” This is a clear path that you can get into it and own real estate because it’s kind of a hybrid of business, plus real estate investing, but the regulations make this very difficult. Can you share some of the regulations when it comes to the administrator that you have to hire? How many people can be overseen by an administrator and how that varies by the different markets as well as all of the modifications that have to be made to the home so that it will be approved for licensing?

Isabelle:
Yes. I completely second what you said in the beginning that it is a perfect marriage between potentially someone who’s in the healthcare field and someone in real estate. I know you have a lot of male listeners and if they have ever wanted to be in a business with their wife or partner or spouse, this is one of the best businesses for couples to do together, especially that perfect mix of one abuse medical professional, one abuse real estate because sometimes it is hard to match those and that’s where I do see a lot of our successful people come from where they have that perfect combination.
As far as the regulations go, you’re 100% correct. They’re state by state. There’s no national rules on this. Some states are really hard and some states are not hard at all, right? Texas, the requirements to be an administrator is literally FAM, fog a mirror. Be 18, have a GED. It is lame. It’s so bad. You have to, if you live in a state where has low regulations, look at a state with higher regulations and make your home suit that. California, like you mentioned, much higher restrictions and requirements. Arizona, one of the highest in the state. It’s like 140-hour work that they have to do, hours of work that they have to do. They have to take a four-hour test every two years. It’s just a lot more rules and regs on getting that license.

David:
Can you clarify what role the administrator plays in the business?

Isabelle:
In real estate world, the best way for me to correlate them is they’re kind of your property manager. What they would be responsible for is far greater than that. They might be in charge of marketing the home, touring the home with the residents, filling the home, choosing which residents are coming, hiring and firing your caregivers, dealing with all your independent contractors. It’s kind of endless and…

David:
It’s a form of getting the… What’s the word I’m looking for here? Not responsibility, but the liability off of the owner and onto the administrator. Because if a rule is violated, if you are your own administrator, you lose your license, you can’t run the facility. But if you’ve outsourced that, if a rule is violated and the state comes in and says, “You can’t operate anymore,” you could just get another administrator in there as opposed to you as the owner losing the ability to run the business. Right?

Isabelle:
100%. I do not suggest that anyone become the administrator. I always suggest you pay someone to do that. You hire someone to do that, put them in there because exactly that. If they’re not the right fit, you fire them and you get a new one. Right? I want to encourage people to be the owner of the real estate and the business. Not working in it, right? Working on it, sitting in that owner’s box.

David:
When you’re establishing this business, how often are you taking on a green administrator, someone who’s just getting started or if they come up to you and they say, “Isabelle, I’m down to do the training. That sounds like a great opportunity. Would you hire me?” Kind of thing. Would you do that or are you always looking for someone that’s cut their teeth in the industry already?

Isabelle:
Personally, I’m always looking for people who have experience and I’m just big on character and reputation. I will ask other people in the industry in the local area like, “Hey, what do you know of this person?” Because it’s a pretty tight knit industry. Everybody knows everybody and if they’re scammy and slimy and doing the wrong thing, word gets around real quick. I prefer someone with experience who has a stellar reputation.

David:
Okay. One of the things that’s interesting about this model is you’re operating a home and you’re operating a business which opens up doors to financing because those are valued differently. You can use a standard mortgage, buy a house, but you also have SBA loans and other options to get a business loan, which means you potentially have two sources of financing. Can you tell me from your experience how you’ve seen people that are running these taking advantage of both sides?

Isabelle:
For sure. I would say the number one most popular ways to fund these is using SBA. They’re very friendly to us. They understand this concept and that’s got to be one of the biggest ways that people are funding these. The second one I would say that people are using the most is syndication or private money. A lot of people do like to raise capital on this because there’s plenty of people who are intrigued by this industry, but they don’t want to own the real estate. They don’t want to own the business, but they’re very willing to invest. I love teaching and training on this and sharing all across the country and when people have the mindset that. “No one’s going to want to lend to me,” it’s like, “You’ve got to be joking.” Every day, someone comes up to me and says, “I don’t want to do this, but I want to give someone money to do this. Who do I give my money to?” Money is out there. Literally, you might be one handshake, one conversation away. Syndication, private money, SBAs are all great ways to do this. Obviously, you can do bank loans, hard money. Really, it’s endless. I would not suggest crowdfunding. Right? I would go with something a little bit more solid and stable. But truly, SBA is probably my preferred point of direction.

David:
I think the clients that we’ve helped… Shout out to Stephanie Cruz. She’s bought a couple houses with us and she’s doing the same thing in the Bay Area. I believe the method or the strategy we came up with was that they used an FHA loan to buy the house. They put people and I think California limits you at six people per home or something.

Isabelle:
Six. Correct.

David:
Yeah. It was more strict. They got it filled up. They turned it into a profitable business. They had to rehab the house with their own money. They were then able to get an SBA loan which paid them back for their down payment and the money that they had put into the property and then made further improvement, so they could charge more per room. Then, that money that they got from the SBA loan became the down payment for the next facility. That became a way that this model is self-fulfilling as when you want to scale.

Isabelle:
I love that. That is a perfect way to do this.

Rob:
Isabelle, question for you on the syndication side, because I’m getting into the fundraising world myself and when you’re raising money for this, what types of, I guess partnerships or splits are you doing or what kind of returns can one expect from a syndication? Is it pretty comparable to other types of syndications like a 10% return, 8% pref?

Isabelle:
I would say typically, we’re looking at 10 or upwards of 12% returns. We do have some people who like to go that route. Yeah. I would say between 10 and 12% and it’s pretty competitive and aligned with what you’re seeing probably for most other deals.

Rob:
Okay. David, this is getting me all jazzed up. We have our $3.25 million mansion in Scottsdale. It’s a 6,000 square foot, six bedroom, eight bath place that has real luxury residential assisted living vibes.

David:
The sport court could be turned into a shuffle board court. Right? We wouldn’t have to spend the full 25 grand.

Rob:
A jazzercise court.

David:
That’s exactly right. We could make the pool a little more shallow and turn it into an exercise place for everybody. It would. That’s a perfect property to do something like this with.

Rob:
You’re already a jazzercise fiend, so that’s kind of a fit.

David:
Huge. Huge. That’s actually another page I have that people don’t know it’s me. It’s like my pen name. You could follow jazzercise with Dave and see my morning workouts. It’s exactly right. I still like to wear those ankle weights, those little sandbags that we used to put when our moms were exercising back in the day.

Rob:
Well, two pounders.

David:
Yes. Isabelle, I want to ask you, when the market’s red hot and it’s super hard to find properties at cash flow, there may be a property like this that will cash flow. What are your thoughts on if somebody can pay more for a property than what it would appraise as a typical house just off the comparable sales, if they could get more cash flow on it as an assisted living facility?

Isabelle:
That’s exactly what I tell people is that it doesn’t really… I should rephrase this.

David:
I know where you’re going with that.

Isabelle:
You are not in competition with your typical single family home buyers. Everybody wants the three, two that’s on a nice street. I do not care if there are power lines in front of the house. I do not actually love if it’s on a super busy road with a ton of traffic going by. I do not care if it backs up to a parking lot with a target in it or there’s a bus station around the corner.

David:
An apartment complex right nearby.

Isabelle:
That’s a pro to me because that’s more busy people, that’s more traffic coming by seeing it. A mom, dad and two kids doesn’t want Johnny to kick the soccer ball in the road. Right? But for me, I’m going to put a nice big sign out there and get a whole bunch more eyes and that’s marketing dollars for me. I’m already looking for something different. Other things like funky layouts, homes that… There’s a lot of baby boomers who are already retrofitting their homes, adding ramps, guardrails, things like that. Those homes, then when that senior passes on, it’s like a single family’s like, “What do we do with this home? It’s kind of weird. It’s kind of funky.” I prefer already the weird homes, the big homes, the homes on weird streets. We do not compete in the same things we’re looking at from so many other investors.

Rob:
Let me ask you this because one of the things that I deal with as a real estate investor is when I put an Airbnb in a neighborhood, everyone loves me. Right? Everyone’s like, “Oh my god, that guy put an Airbnb in the neighborhood. That’s going to make it better.” Not really, no. Everyone’s always mad that I’m creating the parties that are going to ruin the neighborhood. I have heard similar sentiments with residential assisted living. What is that like? What kind of community outreach or backlash? Honestly, I don’t know too much about this. What do you hear from neighbors? If you do buy a single family residence and you convert it, is there any pushback or is it usually smooth sailing?

Isabelle:
There is always nimbyism. Right? Not in my backyard. Everyone’s always like, “No, not here.” We have seen so many people just flip their lid over this happening, freaking out. Because of the Federal Fair Housing Act, it’s discriminatory. It’s against disabled persons to say that you cannot do this home in a neighborhood. That’s a federal law which pretty much trumps any city state government, angry neighbor HOA. We did create the RAL National Association, which is the only association that represents the smaller care homes. The big boxes, they have their own associations and believe me, they’ve got money and power fighting for them, but no one was fighting for us. People were getting told, “Hey, you can’t do this,” and no one was there to back them. We created that association and it has a whole legal team who’s there to support people wanting to get into this.
It’s a free membership, but it’s really important for us that these are being allowed, that people understand the value that they’re bringing to the community. It is not a million fire trucks driving by every day or old people running down the street. We are not destroying the value of the neighborhood by any means. If anything, our homes usually sell for more because if someone was to sell it, they’re going to sell the real estate and the business. It’s going to actually be a larger transaction and bring the value up. We also keep these homes so well maintained because if you can’t take care of your front lawn, daughter Judy is not going to think you’re taking care of mom or dad. It’s vital that everything is perfect and clean. Also, there’s 24/7 staff there. Talk about neighborhood watch. You literally have someone awake there every day all the time. We’re the best neighbors to have. You want us to take out your trash can, you got it.

Rob:
Yeah. That’s awesome. Yeah, I’ve got so many selfish questions here because we’ve had episodes like this and I’m always like, “How do I do this?” Okay. Question, when you’re trying to locate a house, is it best to… Because for example, our Scottsdale property, that is on a pretty secluded… All the homes on the lots are on five acres, for example. We’re on five acres. It’s relatively private to get in there. Is it a good idea to find a home that’s maybe right outside the city in a suburb that is on a larger estate away from neighbors or is it the same success rate either way?

Isabelle:
I have seen these homes where, for example, one person I worked with, their home is on 19 acres. Right? Stunning property. It’s beautiful. It’s out in Tennessee. But then, my homes have neighbors literally right next door. It’s a genuine neighborhood. They both can be successful. I will say this is not… You can build it and they will come. It’s not the field of dreams. It’s also not over the river and through the woods to grandmother’s house, we go. No. You need to be located so strategically. By that, I mean demographics. Demographics are absolute key in this industry. You have to be in an area where there’s a mass amount of 50 to 70-year-olds who are upper middle class making twice the median income who are typically homeowners because that is who we call daughter Judy who pays for mom or dad to live in your home. She does not want to drive 30 minutes away. She wants to drive five minutes down the road. Demographics is the number one key when it comes to location.

David:
I really like what you said there because it highlights a business and real estate principle, which is supply and demand. It’s very easy when someone is learning real estate to hear what someone else does and just think, “Okay. I’m going to hit control C and then control V and I should get the same result.” In many times when you’re buying real estate, you are looking for a big plot of land, amazing views, the location to something people want to go to where wages are highest. Those are all factors that weigh in for a particular demographic of buyer or tenant that they care about that. What you’re describing is it’s different here. You could be next to the most amazing waterfall, but if you don’t have an aging population of people, that is useless. What you’re looking for here isn’t necessarily the exact property’s location. It is the demographic surrounding the property.
You go to where you’re finding aging population, what you described as the silver tsunami in Arizona, in Nevada, some of these areas that are having… Populations like that Florida would be another one. Typically, that was always the stereotype as old people moved to Florida when they retire. Well, they’re closer to needing care at retirement age than when they’re 20 years old. They’re very far away and you can find deals that normally would not work. It’s on a busy street. That’s a terrible, terrible house that I got to sell if I’m a real estate agent to a traditional buyer. They skip it. School scores are terrible. That’s a beautiful property. It’s really big. A lot of square footage, can’t sell it because the school scores are bad. All of these things that used to be hindrances to demand are taken off the board. They don’t matter anymore. Right?
You’re not going to have your population played football in the front yard where a busy street could be a problem when you’re a mom with six-year-old kids. It’s actually a way if you get into this that you can use some of the deficiencies of other properties against them. The house sits on the market longer. You can get it at a better price because those things that would hurt its value don’t apply.

Isabelle:
I couldn’t agree more. I will say it’s the opportunity that matters, not the investment. I’m not afraid to buy a house full price if it’s the right house and I know that the numbers are going to work when you’ve seen that it’s working with another home in that area. Like your home in Scottsdale, I would search then the other homes right nearby, how much are they charging? What are they getting? If you know that your amenities are better, your location’s better or whatever and you might be able to get a little bit more, it doesn’t matter how much that house costs. If you’re going to cash flow on it, it’s all about the numbers at the end of the day. They have to work.

Rob:
One thing that would scare me here, and it sounds like maybe the success rate is usually relatively high, but let’s say that you buy a property. Let’s say you buy a five-bedroom place and you renovate it to make it up to code. You put the ramps in. You put the shower and the bath situation to be accessible. Is there ever any fear that… Let’s say the business doesn’t work out that now you’re left with this retrofitted home that is tougher to sell or is that a rare scenario?

Isabelle:
A wonderful question. One way that I like to show people how to get into this is actually just on the real estate side. If you were to have taken a home just like you said, you retrofit it, you get it ready, you get it licensed and for some reason, it doesn’t work out for you. You can lease that home to another operator, be charging them twice the fair market rent because you just did all the work. You just got it retrofit. You just got it licensed. You pretty much did all that hard work upfront. They’re just going to pay you that lease or mortgage and then they’re going to operate the business. You don’t have anything to do with the operations. You’re now just a landlord on that. That’s one way that you could get out of that situation potentially. If you have done your research correctly and you’ve run the numbers and what’s happening in that area, you should not go wrong in this.
But I will say I have met plenty of people who listen to me on a YouTube thing or a podcast and they’re like, “Oh, I went out and bought this house and now I’m in debt because I don’t know what to do.” It’s like, “Oh, my gosh.” Education is key. You have to learn everything you can on this before you go into it because there’s no HGTV show on this. 18-year-olds aren’t jumping to get into this. It’s a tough industry. There’s a lot of things involved, a lot of rules involved, and you want to make sure that you do it right because it’s a high cost to get involved to this.

David:
Yeah. There are certain things I’m noticing that are becoming much difficult to run these businesses like caretakers, I think were a lot easier to find before. You’re having to work a lot harder to find them and you’re having to pay them more than before, which means now you have to pass that cost on to the end consumer and that becomes more difficult. I really like your model of, “Look, you can get the benefits of this, which are the higher revenues without the headaches of this, which is running the business by using the arbitrage model.” Like Rob, we know a lot of people that do this with short term rentals. They buy the house. They rent it out to someone else at double the rent and then that person has to do the work of actually running the short term rental. The acronym for these assisted living facilities is RALF, Residential Assisted Living Facility. What you’re talking about is RALbitrage, which I would recommend for someone that doesn’t have experience in the healthcare industry, RALbitrage would probably be a better way to get started.

Rob:
Are you able to actually renovate a place and do this arbitrage method? But once you’ve put in… Because obviously, I imagine there’s probably some capital intensive aspects of this. Do you know? Are you able to go out and just do a bur and does the appraised value of a property go up if you do upgraded in these capacities?

Isabelle:
It’s not upgraded because when someone buys the real estate and the business for this, let’s back it up to that, truly what they’re paying for is those seniors in the beds. If the home isn’t full, it’s not worth as much as you think it’s worth. It’s just the real estate. Right? Depending on who you sell it to, if you’re selling it to an operator who’s going to run an RAL, okay, now it might be worth something or they might be willing to lease it for you for something more. But if you’re trying to sell it as a regular home, no, and it’s not that the bank is going to say, “Wow. You put in so much value.” They don’t see it that same way.

Rob:
Okay. That makes sense. I’ve got one more question and then I want to jump into some actionable ways to actually get started in the residential assisted living capacity. But I imagine that there’s probably a couple of deal killers, if you will, if you’re looking at a home. One of those things that, to me, is popping up the most is if a house is seemingly perfect, however maybe it doesn’t have a great parking situation, is that something that would deter you from purchasing that property or is that just another obstacle to get through?

Isabelle:
The seniors aren’t driving, but your caregivers are and there’s a lot of in and out throughout the day. Yeah. A lot of times, even some states have requirements where they say, “Hey, for every four residents, there needs to be one parking spot.” There might be some requirements that you have to do. Yeah. Parking would be something that I would want to see. I would also want to see just density of the area that there’s a lot of people, and I’m not just looking for one year trends. I’m looking for three, five, 10-year trends because if you’re going to start a business, you’re planning roots. You really want this to take off and have longevity. I want to see the density of the area. I also just want to know the story of what else is happening around this? Meaning are we having a lot of people who are moving away when they hit a certain age?
What did the other homes and facilities nearby look like? That would be a deal breaker right then and there. If someone is building a brand new big box facility, a brand new Brookdale Sunrise nearby, bingo. I want to put my home there because they did the internal feasibility study to determine that that is a prime place that’s going to need a lot of beds, but if there’s a really old 30-year-old assisted living building that’s there and it’s empty, that’s telling me something too. You have to look at the story of the area, not just in regards to demographics real estate, but also assisted living. What’s happening around?

Rob:
Love that. That’s awesome. Yeah. I get a lot of people that will ask me, “Rob, don’t you think Airbnb’s oversaturated. Short term rentals are over, right? Everyone’s getting into the game. Should I invest in this city?” I’m like, “Well, are there hotels in the city? They’re like, “Well, yeah.” I’m like, “Are there being new hotels being built every day?” “Well, yeah.” Then, I’m like, “They’ve already done the research for you and they’ve spent a lot more money than you’re going to spend researching it, so you’re probably going to be fine.” That feasibility check seems to be a really good way to think through it.
Moving forward here, we’ve addressed a lot of the pros, cons, things to watch out for, caveats, green flag, red flags. Can we talk a little bit about actually getting started? If you’re someone at home and you’re really excited and you’re like, “Oh, my gosh. I want to do it.” I know you have three steps to getting started in this business and I’d love to talk about that from someone that’s like, “Hey, how do I do this from step one?”

Isabelle:
Yeah. I had mentioned one earlier when we were talking about just owning the real estate. Right? We call that being a preferred real estate provider. You are just going to own the real estate, possibly retrofit it, get it licensed, get it ready to go, and you’re going to lease it to an operator. That is a more passive way to be involved in this industry and it’s a great way to get started. Learning exactly what you need to know about where to put that home, what renovations need to be done? Like David was mentioning all the modifications to the home. In most states, it does not have to be ADA compliant, but you want it to be as close to that as possible. Putting in that work to make sure that the home is ready to go. The second way that you could get started is owning the real estate and operating the business.
Again, I would highly encourage you to get educated on this topic, especially if you don’t have familiarity with it if this isn’t your background or where you came from. It wasn’t where I came from. It’s not impossible, but it is important that you know everything involved with this, so that you can make sure that you’re being the best owner possible. That way, it’s probably one of the easiest or not easiest. That way, it’s probably where there’s the most cash flow, I should say. The third way to get started would be to just JV lend or partner with someone and just deploy your capital in this.
We do have a lot of people who I speak to who that’s all they want to do. They just say, “Take my money and I don’t even want to see it back for another three to five years,” and getting some good returns on that. Still playing a role in the silver tsunami because it’s either going to be a mega crisis or a major opportunity and I want everybody to have a piece of this. I don’t want anybody to get pummeled by this wave. We can all play a role and that might just be lending to someone who does this.

David:
I like that. There’s three basic ways. There’s the most hands-on, most active, and that would be owning the real estate and the business.

Isabelle:
Yep.

David:
Then, you’ve got the hybrid model, which is owning the real estate and arbitraging it out to someone else who runs the business. Then, you’ve got the pure passive way, which is a JV funding somebody else’s deal, putting in the money and letting them run the business and getting a return.

Isabelle:
Yes.

David:
All right. Now, I wanted to ask you a question. If you’re trying to figure out what would be a good market, like a long distance investor who says, “I want to do this. I think I can run it long distance.” They have experience with hiring and operating a different business. I’m thinking like a Codie Sanchez. She’ll probably start making videos on this. This is right up per alley. Would you look for an area with a very dense population, but a lot of it is urban environments like apartment complexes and condos where there isn’t a lot of housing, so you’ve got a family living in an apartment, mom or dad is getting a little bit too old. There’s not a lot of space. Now, you’re going to go find a suburb where there’s actually bigger single family houses and they maybe drive 45 minutes an hour to go visit mom and dad because there isn’t space within the big city?

Isabelle:
I would not necessarily put an assisted living home near a bunch of condos and apartments because of demographics wise, I’m looking, I mentioned 50 to 70 upper middle class homeowner. Typically, where there’s more homeowners than renters, there’s more money. Typically, not always. Not every market, but a lot of markets, being a homeowner indicates primarily more wealth. I don’t necessarily want to be where there’s a lack of suburbia. I want to be right plop in the middle of upper class suburbia. That’s probably my prime location, but I did love what you said in the beginning where you said, “What if I wanted to do this somewhere else?” I always say live where you want, invest where makes sense. 31% of ARL owners are remote owners. They do not live in the same state as where their home is. Right? That’s fine. You can do that.
In that case, I would choose it somewhere that you don’t mind visiting every so often because emergencies happens, stuff happens and you may have to jump on a plane and go visit and be there. If you hate Oklahoma, don’t do a home in Oklahoma just because it’s cheap. Do it somewhere you actually want to be, you want to go and that you’re willing to do that. I want my homes to be hands off. I’m about 45 minutes away from them and I visit every other month. I run it like I’m an out of town owner because I don’t want to be hands-on. That’s not the role I want to play. I’d rather have a Zoom call or a conversation with my administrator than be there visiting and getting more into the weeds. That’s not actually going to help me be a business owner. It’s going to help me be more hands off, having scheduled things. You come to me with your issues in this formal way.

Rob:
When you’re trying to acquire your first residential assisted living facility, I know you have four ways of actually acquiring one. Do you think you could just walk us through those really quick?

Isabelle:
Yes. First, you can buy land and build a custom home from the ground up. For a lot of my… People I talk to who are in the Midwest where land still exists and it’s still relatively cheap, that’s sometimes the way they want to go or my guys who are in construction or their contractors, they love that option. Plus, when you’re building a custom home, when you live in a state like Texas, Ohio, Illinois where you are allowed to have 16 residents in a home, you’re not going to find a single family home that has 16 bedrooms and bathrooms. You’re probably going to have to build it. If I was in a market like that, I would want to build a custom home that’s perfectly suitable for this, so I can house as many residents as I am allowed to house. The second way that you can do this is buying a single family home and converting it to become a residential assisted living.
As we talked about, having as many bedrooms and bathrooms to start. That way, you don’t have to do too much of a renovation or addition. Some neighborhoods will tell you, you can’t make the home look different from the outside. What does that mean? Right? In one of our homes, we built out the garage. I still have the door facing on the outside, but it’s not a real garage. Now, it’s two or three bedrooms back there. Different things like that. The third way would be buying an existing business and the real estate. That’s the fastest and easiest way to get up and running in cash flowing, but not every market has good ones for sale or ones that you’d be willing to take over. It’s a nice easy way to get your feet in right away. Someone’s done all the hard work for you, but you’re going to pay a pretty penny for it. The last way is leasing the home, so working with someone who’s going to be the landlord and you’re going to lease the home from them to operate the business.

Rob:
Okay. We’re running out of time. I have so many questions. Last thing here and then David, I’ll let you get to the deal deep dive here because I know that that’s probably going to be pretty juicy. But when it actually comes to market. Let’s say we overcame all the obstacles, we got it permitted, the neighbors love us and great, move in, and you got the house and you got it set up. Now, how do you market it? Because this seems to be… You’re marketing to an older demographic in theory, I guess maybe you’re marketing to the families of the older demographic. I’m assuming you’re probably not going to market this on TikTok. How are you actually getting the word out there for your facilities?

Isabelle:
Yeah, definitely marketing is so important. Number one, you are going to want all of those different key components like a website and brochures and business cards as well as having a Facebook page, right? Daughter Judy, you’re correct. She’s probably not on TikTok, but 50 to 70-year-old, she’s probably on Facebook still. Being a part of your local community, working with elder law attorneys, hospice agents, long term care insurance people, geriatric doctors and nurses, showing up at community events, whether it’s your RIA group or your local farmer’s market to let people know you are a home in the community that cares for your seniors and you exist. You could do anything from boots on the ground marketing to old school paper marketing. One of my best tips is I always tell people, “Walk into the local churches, synagogues, and temples,” because daughter Judy, when her loved one needs care and assistance, if she’s a religious person, you better believe she’s going to church to ask for prayer. Right?
She’s bringing that to her elder or her pastor and saying, “Help me out here.” Do you know any resources? The church probably won’t take a referral fee from you, but if you just recently came in with some brochures and cookies, they’re going to be like, “Wow. This nice guy came by. He had this cool home. It’s right down the road,” and they’re an excellent resource for marketing. Last but not least, placement agents. There’s an entire industry of people called placement agents. There’s a national ones like A Place for Mom, absolutely do not like them and I stand by that. Do not use them. I prefer using local placement agents.
People who are local in the community, basically their whole job is when the senior needs assisted living, that’s who you call on. They say, “Where do you want the home? How much do you want to pay? What amenities are you looking for? What area do you want it to be in?” They basically pass out business cards of homes that fit that criteria. They charge either first month’s rent or half of first month’s rent, depending on who they are and their local fees, but that’s a really nice, easy way to fill your home pretty quick working with them.

David:
Awesome. I like that. Get into this method and you too can be the answer to somebody else’s prayer.

Rob:
David, you’re the answer to my prayers.

David:
Thank you for that, Rob. I didn’t even have to get into residential assisted living facilities and run a business. All right. The next segment of our show is the world famous deal, Deep Dive. In this segment of the show, we go deep into one specific deal with our guest and remember that you too can do more deals with the help of BiggerPockets tools and resources, which is you will find at biggerpockets.com. All right. Isabelle, question number one. Rob and I will alternate firing them at you. What kind of property is this?

Isabelle:
Residential

David:
Shocking. Residential assisted living facility. Wouldn’t that have been funny if she came in and said, “Oh, I flipped a house in North Florida or something like that.”

Rob:
Airbnb. Okay. Question number two, how did you find it?

Isabelle:
Oh, on the MLS.

David:
Okay. Question number three, how much was it?

Isabelle:
It was 795,000.

David:
It’s shocking that you were able to find a deal on the MLS. I’ve been told that’s impossible, and the only way to find deals is to spend your entire life talking on the phone for 12 hours a day trying to find an off market opportunity.

Isabelle:
In this industry?

David:
No. I’m being sarcastic because everyone says, “There are no good deals. There’s nothing on the MLS.”

Rob:
We’re workshopping David’s sarcasm still.

David:
I do hear that a lot. People complain that I need to send the emoji face when I send a text because they’re like, “I don’t know how to take that.” It’s like, “All right. I hear you. I just will never send emojis.” All right. Rob, you’re up.

Rob:
Right. The next question that I have is, how did you negotiate it? I’m sorry. Is that the right…

David:
Yeah. Yeah. She paid 795. How’d you negotiate?

Rob:
Oh, yes. That’s right. Sorry.

Isabelle:
795. This particular home was actually listed for 835. We put in an offer for 825. They did not accept. They took it off the market, ripped out all the floors and put carpet in. Not what I needed for assisted living. Then, they put it back on the market for 800 and we offered 795 and they took it.

David:
Wonderful. All right. What did you do with it once you bought it?

Isabelle:
We put about 200K worth of renovations in, so 995, just about a million dollars all in. We made… It was a six-bed, five-bath and we turned it into a 10-bed, eight-bath without changing the square footage. 5,500 square feet.

Rob:
Then, sorry. Really quick, how did you fund that?

Isabelle:
We funded it through private money. We had two lenders on the deal.

Rob:
What was the outcome of the property?

Isabelle:
We got it licensed for residential assisted living, hired a licensed administrator. We have 10 residents in that home. They are paying average rates of about $6,000 each. It’s about 60K coming in every month in our gross. Our expenses on that house run about 35,000. Then, our mortgage, give or take 12,000. Now, it’s a cash flowing between 12 and 18, if I’m at 100% vacancy or less.

David:
Okay. Now, what lessons did you learn from this particular deal?

Isabelle:
Well, it was very frustrating because we did not tell the seller what we were planning to do and my renovation costs went up because I had to take out the carpet that they had put in. I think they had tile in there. We also put in a hardwood and hardwood soaks up liquids. That was a mistake. Would’ve put in LV or tile. I think the flooring was just such a pain. I wish I would had a conversation with the seller and then I wish I would’ve chose a different material.

David:
I really appreciate you sharing that actually, because too often, we hear about what everything that went great with the deal and nobody says what went wrong. But trust me, in every deal, more things go wrong than they go right, even when it’s a big win. I think that’s a testament to real estate that you can screw up royally and come out with a profitable deal that makes you hundreds of thousands of dollars over time. It’s one of the reasons I like playing in that space, because the target is so big. It’s almost difficult to miss is you get a couple of things right, but individual elements of every deal go wrong.
I know people that literally have negotiated closing costs of $50,000 that didn’t know that they could only collect $30,000 of those closing costs. In fact, one of them was a residential assisted living facility buyer who was buying with an agent in another state and didn’t run it by me and they lost $20,000 of money they negotiated because they didn’t know that was a rule. Yeah. It hurts, right? It’s like the same feeling you get when you like Mike Tyson had all this money and he lost it all to Don King. It wasn’t me, but it still hurts to know that it happened. There are so many things that happened like that in every single deal. It doesn’t mean you did things wrong, it just mean that you learned.

Isabelle:
Yeah. Have you seen the Mike Tyson thing on Hulu? It’s amazing.

David:
Is it like a documentary?

Isabelle:
It’s like a foe. It’s like actors are doing it, but I’m pretty sure he was involved, but oh my gosh, it’s so good. You have to watch it.

David:
I wonder what the auditioning was like to get someone that could do Mike Tyson’s voice.

Isabelle:
Oh, I have to put on the close caption.

Rob:
He said, “Hi, I’m reading for Mike Tyson.”

David:
How hard was it to find someone that looks like him and can talk like him? That could not have been easy to do.

Rob:
Okay. Also, I didn’t want to say… I’m glad you said that because I would’ve assumed that carpet was actually a good idea because I have always hated carpet. But once I had kids, we moved into a house that had carpet and I was like, “Oh, thank God for carpet,” because kids fall a lot.

Isabelle:
I know. But the thing is carpet’s a trip hazard for seniors because it’s poofy and fluffy and their feet are shuffling. You know what I mean? It’s a lot easier for them to trip on it. It’s actually better just to have the tile or the luxury vinyl. Hardwood carpet stinks, soaks up liquids and some of the wood, I’ve already had to replace. It’s just like, “We paid a pretty penny and I wish we didn’t.”

Rob:
Okay. Awesome. Well, last question here, who was the hero on your team for this deal?

Isabelle:
Oh, hero on our team? Well, my dad because he had secured the private money through his connections.

David:
All right. That sounds good. Remember that you two could do more deals with the help of BiggerPockets marketplace. Simply go to biggerpockets.com, look for the nav bar, and you can find agents. You can find lenders. You can find tradesmen. You can find a lot of the people that you need through the website. All right. Isabelle, I’m going to head us over to the last segment of our show.

Speaker 4:
Famous Four.

David:
It is the world famous, Famous Four. In this segment of this show, we ask every guest the same four questions every episode. Question number one, what is your favorite real estate book?

Isabelle:
My favorite real estate book, which it may be a business book, but it applies to real estate for me, The Pumpkin Plan. Have you ever read it?

David:
No, I’ve never heard of this.

Isabelle:
Oh, my God. It’s really good.

David:
Was this Starbucks plan to build pumpkin spice that would just take over the world and dominate the white girl industry?

Isabelle:
No. It is so good. You have to read it. It’s basically about when you grow those massive pumpkins, like the huge winning ones, that you have to kill every small pumpkin to make that one pumpkin grow that big. To me, it’s like a real estate business book because it’s like, “Stop letting all these small little things drain you and drain your business. Focus on what is going to make you the most amount of money the fastest.” It’s about killing off clients, people’s deal that drain you.

David:
That’s really good. Rob would grow a huge pumpkin like that, turn it into an Airbnb and rent it out as a novelty. He’s salivating over there at the thought of what that could look like.

Rob:
I see. People see a orange piece of real estate that’s going to rot in three days, I see dollar signs.

David:
That could be your book, Rob. The Green Pumpkin.

Rob:
Question number two, which now you got to come up with another business book. This is on you, Isabelle. What’s your favorite business book?

Isabelle:
My favorite business book, I would say the 5AM Club. Have you read that?

Rob:
Uh-uh.

Isabelle:
Oh, man. You guys got to read. I’m just joking. 5AM Club is great. It’s just motivational. Mostly, like get the most out of your day, wake up, get stuff done, live every moment like it’s your last. My dad being such a big inspiration with me in this business is really important for me to just have that vigor in everything I do and try to translate that to as many people as I meet. So 5AM Club.

Rob:
Awesome. What are your hobbies when you’re not out there building your real estate residential assisted living business?

Isabelle:
I love hiking. Praise God, I live in Arizona. I try to do the 52-hike challenge, which is a hike a week all year long. I love spin class, traveling and I’m a foodie. Great food.

David:
Question number four, I’m interested to hear your answer on this because you’re in such a specific niche. What sets apart successful investors from those who give up, fail or never get started?

Isabelle:
I’m going to say three things, having grit, getting punched in the face and getting back up and back up and back up, never letting it stop you, having a strong why. If you don’t know why you’re doing what you do and it doesn’t light you on fire, then stop doing it. Everything should be a hell yes or a no. Everything. Three, having passion. I think that a lot of people live life drifting and never committing and never being passionate about what they do. I think that if you don’t have passion in what you’re doing, you’re not going to be very successful. Even if you are, you’re not going to be happy about it.

David:
I like that. If it doesn’t energize you and it’s not a hell yes, kill that pumpkin.

Rob:
Unless you can turn it into an Airbnb. Lastly, Isabelle, thank you so much. We really, really appreciate it. This was amazing. Very enlightening. I’m going to try to talk David into turning our Scottsdale Airbnb into a high scale, high luxury RAL. Can you tell us where people can find out more about you?

Isabelle:
To find out more about us, you can go to ral101.com. There’s a whole bunch of free stuff there. Just like free books, free webinars, free phone calls. You can connect with me and I’d love to chat with you, so ral101.com.

David:
All righty. Thank you so much, Isabelle. Rob, where can people find out more about you?

Rob:
Oh, you can always find me on YouTube being goofy at Robuilt or on Instagram being even goofier these days doing a lot of reels, putting myself out there as they say again. Again, Robuilt. What about you?

David:
I’m a little bit less goofy, I will admit that, but I’m on Instagram, Facebook, everywhere else, @davidgreene24 and I’m on YouTube at David Greene Real Estate. Rob, you tend to make content that just tastes better. You’re like a Pop-Tart. I noticed my stuff’s very dry. It’s like a bran muffin. There’s a lot of nutrition in it, but you might choke on it. I got to learn to put a little bit of icing on what I’m doing here. If you guys agree that you need to see a little bit more personality out of me, go to the comments for this show on YouTube and say, “Yes, we want to see more of David being dumb.” Or if you’re like, “Nope, I like David being serious and Rob being the Pop Tart,” just put Rob’s a Pop Tart and we’ll know what you mean.

Rob:
That was actually my nickname back in high school.

David:
Thank you for that. Isabelle, great having you here. Thank you for shedding some light on this. Not often talked about the option for real estate investing, but it’s very profitable if you can get good at it. This is David Greene for Rob “The Pop-Tart” Abasolo, signing off.

 

 

Understanding the Benchmark

A Benchmark Interest Rate, sometimes called a reference rate or overnight rate, is upon which other central banks’ interest rates are determined. It is the minimum rate investors will require for investing.

Here’s how it works in practice from ecb.europa.eu: A bank may agree to lend money to an organization at an agreed interest rate, say the benchmark rate plus 2% – meaning that the organization would pay interest of 2% more than the current benchmark rate. So, the cost of borrowing money goes up if the benchmark rate goes up, and the cost of the loan goes down if the benchmark rate drops. In this case, the benchmark can be a reliable, independent, and relatively simple reference for all involved.

Benchmark rates are used in more complicated financial transactions as well, such as the issuance of securities with variable rates, options, forward contracts, and swaps.

Bank of Canada’s 2022 Scorecard So Far…

In April of this year, the Bank of Canada increased the overnight rate by half a percentage point each. In June, we saw a half a percentage point increase again. On July 13th, the Bank of Canada increased its overnight rate to 2.5%.

On Sept 6th, the Bank of Canada increased the overnight rate again to 3.25%and a bank rate of 3.50% again to combat rising inflation.

Bank of Canada: What the Future Holds

On the Bank of Canada’s website, it lists its policy interest rate decision announcement dates. In the short-term, we can anticipate potential interest rate hikes on some of the following dates:

• Wednesday, January 25
• Wednesday, March 8
• Wednesday, April 12
• Wednesday, June 7
• Wednesday, July 12
• Wednesday, September 6
• Wednesday, October 25
• Wednesday, December 6

The Bank of Canada also reconfirmed the scheduled rate announcement dates for the remainder of 2022:

• Wednesday, October 26
• Wednesday, December 7

It All Started With Supply Chain

It’s common knowledge that the cost of virtually everything has increased due to COVID-19. It’s a trickle effect that started with supply chain constraints which in turn drove up the costs of goods.

Business owners had challenges finding the standard-issued products needed to provide their services to consumers, or when they did find those items, they had to pay a premium for them. This increased the business owner’s overhead and as a result, the cost to the consumer is greater, as well.

Canadian Consumer Price Index

According to Statistics Canada, “The Consumer Price Index (CPI) represents changes in prices as experienced by Canadian consumers. It measures price change by comparing, through time, the cost of a fixed basket of goods and services.”

Over the last few months, inflation has been increasingly putting pressure on Canadian households as the Canadian Consumer Price Index reports decades-high figures.

Bank of Canada Feels like a Variable Rate

A lot is on the line when the Bank of Canada is raising rates, including rising mortgage rates (fixed rates and variable rates may be affected long-term) and the possibility of a recession, so it makes sense that so many are watching to see where things go.

With the most recent increase, many homeowners are wondering just how high interest rates will continue to go. For anyone who has a mortgage, be it a fixed rate mortgage or variable rate, the fluctuation of interest rates might affect you for the next decade or more.

It only stands to reason then, that some may want the peace of mind of knowing whether we’ll be facing upward pressure on housing affordability and inflation expectations.

We can’t tell you with absolute certainty where the federal government will take interest rates will go in the next few months, let alone the next number of years.

Can versus Can’t

What we can do is help to give you a peek behind the curtain on monetary policy tools to assess economic conditions to determine whether or not to raise rates. We can also share some expert opinions expressed on where the Canadian rate may go in the future.

Why Do Interest Rates Change?

To begin with, you might need a bit of a refresher on the purpose of the Bank of Canada’s interest rates and why they change over time.

The Role of the Central Bank

Essentially, the role of the central bank ( in our case, the Bank of Canada) is the primary source of Canadian dollars entering the economy as well as the primary director of monetary policy in the country. Their mandate is simple: to control inflation at an acceptable rate of around one to three percent.

Bank of Canada and the Big Banks

The Bank of Canada raised the cost of borrowing money for big banks through a rate hike that the bank charges to borrowers. The banks then pass these costs on to Canadians. The higher interest rates are intended to control how much Canadians are willing to spend their money.

When borrowing and debt is at a record low, people tend to spend more, and inflation increases in response to increased demand. When we see interest rates go up, people tend to prefer saving their money and limiting debt, whether it be in the form of fixed mortgage rates or variable mortgage rates, which reduces demand and encourages companies to keep prices low.

If this rise goes further than expected, it may push companies to take aggressive action to combat the rate hike such reduce their spending with job cuts, which could push us into recession territory.

Risk of Recession

Notably, though, the Bank as a governing council is only concerned with maintaining a healthy rate of inflation and has no mandate to avoid a recession. If risking a recession now is in the best interest of the Canadian economy long term, the bank will, unfortunately, pursue this option.

The Bank of Canada’s Bottom Line

So the bottom line is this: the Bank of Canada’s interest rate is the single tool that is capable of influencing inflation at the highest level in Canada. In order to keep inflation within the target range, the bank will raise or lower interest rates accordingly.

Other things that influence interest rates beyond inflation may include supply and demand factors, government debts and a budget deficit, global commodity market conditions, and our commodity prices, the national labour market with wage growth, a rise or fall in home prices and more.

How Can We Predict Interest Rates?

In the short term, we can generally predict the course of the economy in broad strokes. In fact, the Bank of Canada uses these predictions themselves to decide how interest rates need to change. For example, if the Canadian economy starts off in the first half of the fiscal year in a way that is expected, this may signal to the central bank whether a course correction is needed for the second half of the year. When we look at a longer time period, however, it becomes increasingly hard to predict.

Even if there’s a five-year government plan that promises excellent efficacy to thwart a rise in inflation, we live in an increasingly connected modern world. Inflation is often a symptom of global causes and upon which we have little control.

This is most clearly demonstrated in our recent worldwide COVID-19 pandemic. The pandemic had a huge impact on global markets, including globally high home prices, which saw a rise in inflation.

While economists in the past have theorized the impacts of a global pandemic, there has been no real way to predict when it might happen and thus adequately prepare.

Factors that May Influence Rates in the Future

There are a number of national and international factors that can influence the trajectory of a nation’s average rate of interest, including the Bank of Canada rate.

Some short-term interest rate impactors that we’re already privy to internationally are in the form of the pandemic, decreased fuel costs by the Organization of Petroleum Exporting Countries (OPEC) and the Russian invasion of Ukraine. We can see the impact of each of these international factors in the near term, or in short order; they have caused large-scale interruptions of global markets that affect the way money moves and the way people spend.

The possibility of international conflicts is always present, and will no doubt have effects on our economy. Another factor that is sure to be an issue in the coming decades will be the cost of the effects of climate change, which will result in increased costs of necessities like food and energy.

Nationally, the number of people who received preapproval for a variable rate or fixed mortgage rate grew. With that increase in real estate closing costs, will we now see that we, as a country, are over-leverage?

It is the answer to this question that is causing some folks to speculate on the threat of a real estate market crash in the front and/or a global recession in the second half.

Interest Rate Predictions from the Experts

What does the future hold for Canada’s economy in terms of mortgage rates forecast, and housing prices?

What CIBC Says

Benjamin Tal and Karyne Charbonneau each of whom are chief economists for CIBC, note that given the September rate increase, they expect the Bank of Canada will call it a day, leaving the overnight target rate at 3.25% “for the duration of 2023.”

While CIBC doesn’t see any further rate hikes in 2023, in examining the economic factors, it also doesn’t expect the Bank of Canada to begin easing rates any sooner than 2024.

According to Altrua Financial

Altruafinancial.ca believes that the main tool we have when reading the current mortgage rate market is the Government of Canada bond market yield.

Currently, the Canadian bond markets are priced in anticipation of a further 0.75% increase in Central Bank of Canada rates in 2022- early 2023 or perhaps even slightly higher.

TD Economists Predict

In its short to medium-term Canadian interest rate predictions, TD Economics projected the Bank of Canada to increase rates in the fourth quarter and maintain the level until the end of 2023.    TD Economics predicted the Canadian central bank to lower the policy rate to 2.90% in 2024, 2.05% in 2025, 2% in 2026 and 2% in 2027.

Scotiabank indicates

Scotiabank expects the Bank of Canada to raise its overnight rate to 3.5% in the fourth quarter of 2022 and maintain the rate throughout 2023.

ING forecasts

ING’s forecast expects the Bank of Canada to have a further 75 base points of hikes, bringing the overnight rate to 4% in the fourth quarter of 2022, dropping to 3.75% in the third quarter and 3.25% in the fourth quarter of 2023 respectively.

What Will the Next 10 Years Look Like?

According to the CBC’s article, Typical mortgage payment could be 30% higher in 5 years, Bank of Canada warns “Bank says those who took out a home loan in 2020 or 2021 should brace for higher rates at renewal.”

In its Financial System Review, the Bank of Canada said that while the nation’s financial system is strong and weathered the pandemic well, the economy remains vulnerable because of higher household debt levels tied to the country’s increasingly expensive house prices.

Looking south of the border—which typically influences rates on this side of the border—Federal Reserve Chair Jerome Powell spoke to a quantitative tightening, “Restoring price stability will likely require maintaining a restrictive policy stance for some time…The historical record cautions strongly against prematurely loosening policy… must keep at it until the job is done in order to avoid a scenario like the multiple failed attempts to lower inflation [in the 1970s].”

It’s Safe to Say

It’s safe to say that both north and south of the border, we can expect those that hold the national balance sheets to be fiscally conservative. Whether that translates to increasingly rising rates, the experts seem divided on that. However, two things that are clear as day are that (1) no one is ready to rule out the possibility of a recession, and (2) everyone advocates a fiscally responsible approach to taking whatever steps are necessary to avoid a full-blown depression.

In this article

Office closures during the COVID-19 pandemic made it clear that productivity continues to flourish in many white-collar industries, even when employees aren’t directly observed under the same roof. For many companies, that meant a permanent shift to remote or hybrid work models. As of April, people worked remotely about 39% of the time, according to Pew Research. Data from a McKinsey survey shows that 58% of workers are allowed to work remotely at least once a week, while 35% have the option to work from home all the time. 

For many employees, this change is welcome. It means the opportunity to stay in pajama pants, spend more time with pets, skip the hassle of a commute, and claim the home office tax deduction. 87% of workers take advantage of the opportunity to work remotely. But for many commercial real estate investors, the change means higher vacancy rates in office buildings, less rental income, and debt concerns. What’s more, a decline in commercial real estate prices hurts cities and the broader economy. 

The Varied Impact of COVID-19 on Commercial Real Estate

Commercial real estate prices decreased globally with the onset of the pandemic and is now exhibiting a strong recovery in general. But outcomes have looked different across segments and markets. The International Monetary Fund found that the trajectory of recovery was most impacted by factors specific to the pandemic, including:

• The aggressiveness of virus containment strategies 
• The effectiveness of fiscal support 
• The aggressiveness with which financial conditions were loosened
• The vaccination rates in the area
• Local and segment-specific changes in consumer behavior 

Some segments of commercial real estate boomed during the pandemic. Stalled multifamily new construction starts combined with rising home prices increased the demand for multifamily units, and, consequently, rent prices and occupancy rates. And as e-commerce heated up due to retail closures, the industrial sector experienced increased rents due to high demand for distribution warehouses. 

But retail and office space segments were harder hit by the impact of the pandemic. 71% of workers worked remotely in 2020, and that left office spaces empty. This had a negative effect on urban retail, as foot traffic for downtown restaurants and shops declined. Suburban retail saw improved performance accordingly. 

As offices reopen, office vacancy rates are declining overall. In fact, of 139 metro areas, only about one-quarter have office vacancy rates that are lower than pre-pandemic levels. Some cities have even seen increased occupancy rates since before the pandemic. But for other cities, the situation is far more dire. The metro areas in the chart below have the highest vacancy rates currently. 

Metro	Pre-Pandemic Vacancy Rates	Q3 2022 Vacancy Rate
Houston, Texas	16.36%	18.89%
Dallas-Fort Worth, Texas	15.14%	17.57%
San Francisco, California	6.28%	15.45%
Washington, D.C.	12.77%	15.2%
Chicago, Illinois	12%	15.08%
Phoenix, Arizona	12.07%	14.69%
Los Angeles, California	10.22%	13.81%
Austin, Texas	9.08%	13.58%
Atlanta, Georgia	11.55%	13.52%
New York City	7.69%	13.43%

San Francisco saw a particularly vast increase in vacant office space compared to before the pandemic. The city has a high concentration of office buildings, many of which host major tech employers that have embraced the future of remote work. Experts believe the San Francisco commercial real estate market is headed for a devastating crash. 

And vacancy rates could worsen in areas most impacted by remote work since office leases are generally for three years or longer. As leases signed prior to the pandemic expire and tenants choose not to renew, vacancies may edge higher, further deflating the value of commercial real estate.

Landlords of Older Office Space Buildings Are Hurting the Most

Leasing activity has increased since 2021, driven mostly by businesses seeking top-tier office space. In anticipation of employees’ return to the office, many companies are relocating to new buildings with amenities designed to draw workers away from their couches—think expansive rooftop lounges with gorgeous views, fitness facilities, other wellness-oriented features, media centers, and restaurants. 

Therefore, the buildings most vulnerable to high vacancy rates are older office buildings that haven’t been updated. On part of Manhattan’s Third Avenue, for example, a cluster of buildings erected between the 1950s and the 1980s has more available space than the rest of the city’s office buildings, with a vacancy rate of 29%. And in San Francisco, owners of lower-tier buildings face foreclosure. Some of these buildings have lost as much as half of their value, which is prompting landlords to request lower tax bills. 

Tenants Now Have the Power to Make Demands 

Real estate agents say that empty space in central business districts across the country has turned commercial real estate into a tenant’s market. While Class A office space may still be attracting rents on par with pre-pandemic times, owners of older buildings are offering office space at a discount, sometimes up to 25% for creditworthy applicants in certain areas. 

It’s also common for tenants to ask for flexibility in lease arrangements. For example, leases can include clauses that allow for subleasing or an extended lease in case of business interruption. Concessions such as tenant improvement allowances are also becoming more common. Before the pandemic, landlords held all the power, but the market has shifted into the hands of the tenant.

Rising Interest Rates Add Pressure on Investors

In addition to struggling with reduced rental income, commercial real estate investors face financing issues associated with tighter financial conditions. The Fed will continue to raise the federal funds rate in an effort to control inflation. The resulting high-interest rates make it difficult for investors to finance new real estate transactions or refinance existing loans. 

In markets with relatively low-interest rates, commercial real estate prices have been more resilient. This shows the direct impact of higher rates on property values. Additionally, slowing economic activity and fears of an upcoming recession may limit the demand for commercial real estate as more people cut back on shopping and dining out. 

It’s bad enough that commercial real estate investors are losing money as their properties depreciate. But declining commercial property prices also pose a threat to the stability of the financial system and the broader economy. 

How Commercial Real Estate Impacts the Broader Economy

Local governments in most states get the vast majority of their revenue from property taxes. As property values decrease and tax obligations are reassessed, budget cuts will be necessary in affected cities. This will have a detrimental impact on the availability of social services and spending on education. State and local governments spend about one-third of their money on elementary and secondary education. If commercial property values decline enough, schools could be starved of resources. San Francisco could be poised to collect 15% less in property tax revenue, equating to about a 4% dip in total revenue, according to economists. 

The second problem is the impact on the financial sector, particularly small banks. Soon after the pandemic began, banks saw elevated delinquencies on commercial real estate loans. And declining property values impact how much banks can recoup when they foreclose. Banks hold about 38% of outstanding commercial real estate debt on their balance sheets, and community and regional banks tend to be more exposed to commercial real estate loans than larger banks, according to The Chicago Fed. That puts these banks at a higher risk of failure. 

When banks fail, it limits the availability of financing to businesses and individuals. This has a ripple effect, causing unemployment as businesses can’t afford to hire staff. With more people unemployed, economic activity slows, creating less demand. Businesses slow their production, creating further unemployment. U.S. bank failures rose sharply during the Great Recession. Though we haven’t seen any bank failures in the last two years, there’s reason to be concerned about commercial real estate loan loss. 

Predictions for the Future of Commercial Real Estate

Some analysts are calling the outlook for commercial office real estate “apocalyptic,” while others are more optimistic. Research from professors at NYU and Columbia puts the potential loss in value of offices nationwide at $456 billion. Data from CommercialEdge only shows a small dip in office listing rates, which are down 0.1% year-over-year. But as leases expire and vacancy rates increase, investment in the sector could further decline, pushing property values down. 

However, Lawrence Yun, chief economist at the National Association of Realtors, expects the market to grow overall. He notes that some midsize markets are improving as businesses opt for more affordable office space away from central hubs. And other sectors are faring even better. Both industrial and residential rents are expected to continue rising in the future. And hotels and retail properties are recovering as well. 

How Investors Can Adapt 

Investors can pivot to find deals in areas with booming economies or sectors that are exhibiting strong growth, such as multifamily housing and industrial space. Those who still want to buy office space in the largest metro areas will need to be prepared to make updates that accommodate companies’ evolving needs. 

Land is also a viable opportunity. Yun asked local governments to loosen regulations and zoning requirements to encourage investment in residential developments, which would address the shortage of homes. But there’s another option as well—e-commerce businesses seek land for delivery truck storage. Commercial banks may be more willing to offer financing for these deals because they can quickly become profitable. 

What’s clear from the outcome of the pandemic is that cities and sectors are typically not unilaterally affected by economic disruption. Therefore, diversification is the best defense against negative returns. Commercial real estate investors need to start somewhere, and right now, the multifamily and industrial sectors have the advantage, but ultimately it’s wise to have your hands in multiple sectors and markets. 

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

The housing supply situation in Canada, Ontario, and the GTA has hit a new low. Inventory levels in many major markets are dwindling and home ownership appears to be on the decline.

Figures in a couple of reports released recently paint a relatively gloomy picture for those seeking a home. The findings also suggest that many have given up on owning a home and are moving to rentals.

A report by Re/Max which was based on Canadian Real Estate Association data looked at listings in eight Canadian centres between 2013 and 2022 and found that seven of them fell short of the 10-year average. In the GTA, the housing inventory was down almost seven per cent from the 10-year average.

The situation is only expected to get worse due to projected demographics and population growth.  

Meanwhile, in Ontario, the home ownership rate dropped to 68 per cent in 2021 from 71 per cent in 2011, according to census data from Statistics Canada. In the Toronto Census Metropolitan Area, the rate was about 65 per cent in 2021, down from 68.2 per cent in 2011. However, the number of renter households increased about 25 per cent in the metropolitan census area from 2011 to 2021.

Data collected by the agency shows that millennials appear to be most affected. Home ownership rates among 25 to 29-year-olds fell to 36.5 per cent in 2021 from 44 per cent in 2011. For those 30 to 34, home ownership rates declined to about 52 per cent in 2021 from 59 per cent in 2011.

If anybody thought the housing crisis wasn’t real, think again. These figures confirm that it is. 

Simply put, we need more housing. Yet, there are still too many hurdles in the approvals process that either block or delay the construction of much-needed housing. It can take years to get shovels in the ground.

RESCON recently consulted a wide array of stakeholders who are concerned about the future of housing supply and affordability and found that most indicated they are worried about the dysfunctional planning approval processes, escalating costs, including massive increases in taxes, fees, and levies, and unresponsive systems that are far removed from modern business best practices.

Presently, Canada has the lowest amount of housing per capita and the highest cost of housing in the G7. In the GTA, government charges are the highest in North America. Recently, the City of Toronto made new homes even more unaffordable by hiking development charges by 46 per cent over the next two years.

RESCON, along with a number of other industry stakeholders, believe the city’s recent move will only add fuel to the fire and exacerbate the situation for those who are trying to purchase a new home.

As Ontario’s leading association of residential builders, we believe it is our obligation to help bring about change. So, on Oct. 6, we are hosting a free online summit that aims to tackle the issue head-on.

At the summit, we will examine what has been done to boost the housing supply in the province and also discuss what governments, the industry, and stakeholders need to do going forward.

Municipal Affairs and Housing Minister Steve Clark are scheduled to provide us with an update on legislative and policy initiatives announced by the province that aims to increase the supply of housing stock.

The event, called Housing Supply Summit 2.0: Progress Report, will also feature separate panel discussions on what outstanding housing reforms are needed to increase the supply of housing and how to achieve widespread choice in housing. The virtual summit runs from 1 to 5 p.m. 

While our industry is suffering as a result of a perfect storm of factors like supply chain issues, material shortages, inflation, and rising interest rates, our population continues to grow and with more than 400,000 immigrants coming to Canada each year, it is critical that we build more housing.

According to the CMHC, the country needs to build 3.5 million new homes by 2030 to improve affordability. But the country is averaging 200,000 to 300,000 new units a year. The Housing Affordability Task Force has indicated that Ontario needs more than 1.5 million new homes within the next decade.

At our upcoming summit, we hope to get a consensus on how to achieve that ambitious goal.

Richard Lyall is president of the Residential Construction Council of Ontario (RESCON). He has represented the building industry in Ontario since 1991. Contact him at [email protected]

Ashley:
This is Real Estate Rookie, episode 223.

Nick:
I relate everything back to my world of kayaking and being an athlete. Through my decades of competing, I’ve just realized that you either, you win or you learn. Through loss, I try to use that as a learning experience. So I knew that I’m either going to figure this out and it’s going to be a great and a home run hit, because I was running the numbers and I was like this is either going to be too good to be true, or I’m going to learn from this experience and I’m going to keep taking those baby steps forward. So using that win or learn mentality instead of the win or lose. It got me into that first deal, which then got me into the second and the third and the fourth, and has kept me moving forward.

Ashley:
My name is Ashley Kehr, and I’m here with my co-host, Tony Robinson.

Tony:
Welcome to the Real Estate Rookie podcast, where every week, twice a week, we bring you the inspiration, information, motivation and education you need to kickstart your investing journey. Oftentimes, we like to start the podcast with some reviews from some wonderful people in the Real Estate Rookie community. This week’s review comes from, it’s actually a crazy username. I can’t even say it. It’s SP with 30 different numbers behind it.
But this person says, “I’ve been a listener of the BP podcast for years, but I find myself prioritizing this one throughout the week. I love getting insight into small-scale investors and I find it super relatable. I think the balance between Ashley’s and Tony’s strategy is an awesome learning experience. I’m so inspired by the stories. Even though I have a decent amount of knowledge, I still consider myself a newbie and I enjoy hearing from other people’s journeys.”
So we appreciate that. If you guys haven’t left an honest rating review on whatever platform you’re listening to, take the five minutes, do it. We really appreciate it. The more folks that we can reach from the podcast, the more folks we can help, and that is ultimately our goal here. So, Ashley Kehr, we just got back from hanging out in person, which we don’t get to do all that often.

Ashley:
I know. So if you guys listened to episode 217 with Evan and Katie Miller, we actually went out to Denver and got to interview them live, which was so much fun. My business partner Daryl came with me and on the way home, I fell asleep on the plane, took up two seats and everything. I was crawled up in the fetal position. He took a picture of me and he’s like, “Ashley after her BiggerPockets bender.”
But it was so much fun. Just three days, all real estate people. We had a meetup. Over 300 people came to the meetup. So make sure you guys are checking out our Instagram accounts and the BiggerPockets Instagram account to find out where we’re going next for our next meetup.

Tony:
It’s always so cool to get to meet people from the Rookie community. There were literally people that flew in just for the meetup, which was so unreal to me. It’s always so cool to get to meet folks. We had a wonderful, wonderful time. Like Ashley said, looking forward to being able to do it again soon. What else is new, Ash? What else you got going on?

Ashley:
I’m actually sitting in a new Airbnb that’s about to go live. It’s my second Airbnb arbitrage. I rented another unit within the same apartment complex. The bed just got delivered a couple days ago and I just need to get a couple chairs and a few odds and ends and the thing is ready to go. I actually had my mom set it all up for me. So today was my first time seeing it with everything put away in its place, and it looks great. I’m super excited. It’s just a one bedroom unit.
Then the other unit we have in the building already is a two bedroom. So it’ll be nice to have a good dynamic here. Plus, if you have people coming for a wedding or things like that, it’s nice that two families can rent out the units and be close together too.

Tony:
I love that. I’m excited for my invite out to Buffalo so I can critique your units in person and give you some feedback.

Ashley:
I would love that so much. Can you create a handbook and stuff like that too while you’re here?

Tony:
It’s actually been a pretty crazy week for us at our properties. One of our cabins is in the mountains of Tennessee, and we’ve been dealing with this mice issue. We’ve had multiple exterminators come out, but they can’t seem to find and catch these mice. The only time these mice show up is when there’s a guest at the property. So we’ve been refunding guests at this property.
We had another property, two of our tiny houses in Joshua Tree, the mini splits, the drains got clogged because there was flooding out there or something. I don’t even really know what the reason was. But the mini splits started dripping onto the wall and overnight, ruined two of our mattresses at two different properties because there was just this drip.
Anyway, I’m saying all this stuff to give you a heads up. Now that you’ve got two, the chances of you having weeks like mine are starting to increase. You’ve got issues going on at all these properties at the same time.

Ashley:
Daryl actually moved to one of our cabins. And so, he moved into it and I’m pretty sure it was the first night he was there, there was a mouse running across a beam. His son saw and it’s scooting across. And so, he’s like, “I don’t know what to do with this thing.” He’s like, “I don’t want to sleep here if there’s a mouse running around.” So he actually got his son’s BB gun and he shot it off of one of the rafters it was running on. I was like, amazing.

Tony:
No way.

Ashley:
I’m like, “I didn’t know you’re such a great shot. My God.” I’m sorry for anyone-

Tony:
Tell Daryl I got a free night and a flight ticket to send him out to Tennessee. If he can get this mice problem handled for us, I’m all for it.

Ashley:
I apologize to anyone who is sensitive about the mice being hurt. I apologize for that. I understand that it is not nice to do, but he is a man that does not care. This is the same property where we’ve had a beaver problem with the beavers damming off the ponds. There’s just nature everywhere on this. You pull in the driveway and there you are at a very high risk of hitting a deer running across the driveway as you pull in.

Tony:
No ways.

Ashley:
It’s such a cool. So you have to come out to that property too when you visit. We call it the compound, so it’s got a couple cabins on it.

Tony:
There you go. Cool. Should we talk about today’s guest? We got a good one for today. We’ve got Nick Troutman today. Nick is a professional athlete, but not in the traditional sense that most people think when they hear athlete. He’s not an NFL player, or an NBA player, or baseball, or hockey. Nick is actually a professional kayaker, which is so cool.
You don’t really hear about that all that often. He talks about his story about realizing that being a professional kayaker, which is very different from being a different type of professional athlete, doesn’t come with the same type of security that you would think. He talks about how that realization motivated him to get started in real estate investing.

Ashley:
My dad would always have us do rolls in our ponds in kayaks when we were younger to do those and flip them. My brothers actually got pretty good, but I’m pretty sure the level of kayaking that Nick does is way different than me and my pond as a child.

Tony:
Way different in your pond. He’s got 80 foot waterfalls he’s coming off of.

Ashley:
My biggest takeaways on this is just the power of being by like-minded people, of being constantly told you’re crazy, you shouldn’t do this. That applied to him in both his profession and real estate investing too, is surrounding yourself with people who are like-minded, who are like, what you’re doing isn’t normal, you’re weird just like us. But that’s way better because you can do so many different things and you have greater opportunity. That was my biggest takeaway.
And then just him talking about risk and fear versus danger actually and what the difference is between those were the big takeaways. So make sure you guys listen all the way through. He also mentions towards the end, and I won’t give it away, but what his favorite podcast is, so you’ll want to check that out too.
Nick, welcome to the show. Thank you so much for joining us. Why don’t you start off with telling us a little bit about yourself and how you got started in real estate?

Nick:
Well, thanks Ashley. A little bit about myself. Well, I am a professional athlete, white water kayaker, father of two, husband and I travel around the world doing what I love, which is kayaking and exploring and adventuring. I’ve got a family adventure TV show, which is pretty fun. But a couple years ago, after my second child, when my daughter was born, I had this, I don’t know if this was a fatherly instinct or this provider syndrome or what, but I just had this deep need and desire to figure out how to provide for my family.
And so I started researching finance and money and all this stuff and realized that there is this global game being played of financial freedom and finance and money. I didn’t even know the rules of the game and yet alone, how I was doing or that I was even really playing this game.
And so started reading a ton of books, started learning a ton, and eventually stumbled upon real estate. A friend actually introduced me to the BiggerPockets podcast. He was like, “You should just go check out BiggerPockets.” I was about to invest in one of those $30,000 programs where some guru was going to teach me how to do real estate, and my wife wasn’t too into that idea. So I started researching BiggerPockets, realized that there was just a ton of value and free information and being just like, I don’t know if it’s my personality trait or being a professional athlete or what, but I just dive head in and I’m super obsessed.
And so I think I listened to every podcast available, read a ton of the books, and just got super obsessed with real estate, which is pretty awesome.

Tony:
You went down the rabbit hole, right?

Nick:
I fully went down the rabbit hole. Exactly. And then during COVID, I pulled the trigger on my first rental property, which was pretty cool and haven’t looked back since.

Tony:
Nick, we’re only what, 60 seconds, two minutes into this conversation, you already said some pretty insightful things. One of the things you said was you realized that there was this game being played and you didn’t even know that the game existed, let alone what those rules were. I just like the way that you phrased that, because I just shared on my Instagram story yesterday, Sarah and I, my wife, we posted a video on YouTube about our journey in real estate investing.
There was someone who commented and said that we were terrible people because we’re taking homes away from people that could otherwise buy them. Just saying a bunch of mean stuff to us on the internet. It was so funny because there was that one comment that was super negative, but then there were 10, 20, 30, 40, 50, there’s 100 plus comments and the majority of them are positive.
Everyone is saying, I wish I could aspire to be like you guys. I shared this on my story. I was like, for me growing up, we rented my entire life. We always rented homes, we never owned. It wasn’t until I became an adult and I had my own money that I was able to afford to buy something. But as a kid growing up, I was never upset at the landlord for being the landlord. I was always thinking, how can I become a landlord myself and play that game at the same level?
I just thought that was such an interesting way to phrase it because the game is being played regardless. You can either be mad that the game exists, or you can start taking the steps to learn how to play the game yourself.

Nick:
Again, through being an athlete, it’s just that game mentality that I regularly think of Tony, where the game is being played regardless. And so if I’m a professional kayaker and I’m going to go do a freestyle competition, the judges are scoring me that the time is going and I either can know the rules of the game and learn how to play by those rules, and then do the best that I can do to the rules of the game. Or I can just go out there and hope that whatever I do gets scored high or whatever it is.
It’s like that in everything in life. I just like to gamify everything. You can think of it that everything is a game and once you start to learn that there are rules to each game, just like there are rules to school. School is set up.
Unfortunately, not that I’m trying to go down that tangent, but it’s set up for people to be tested on one, the subject that they’re learning, and two, the information that they’ve been given. And then three, it’s really about how to remember that information. You could go study for an exam and you just brainwash yourself, think of study it all, you do the test and then the next day you forget it all and great, you got 100% or whatever, a high grade on your test. It doesn’t mean that you actually remembered it.
And so that’s just gamifying school and whatever. But everything has a gamification. Once you learn how to play by those rules, that’s where the success comes in.

Tony:
That’s a great point, Nick. You mentioned something else I want to circle back on, but just really quick on the gamify piece. I’m not a boxer by any means, so you guys, forgive me if I get this metaphor totally off, but you think about watching Floyd Mayweather box. A lot of his fights were boring because all Floyd Mayweather was doing was dodging, good defense, and then he’d get a couple body blows, but a lot of his fights didn’t end in knockouts.
But he continued to win because he understood the game that if he protected himself well, he landed a few good punches, when it came time to make a decision, he was going to win. So Nick, it’s a great metaphor for life that once you understand the game that’s being played and you understand the rules, you could then figure out the way to be successful in that game.
Something else you mentioned Nick, which resonated with me pretty deeply. You said you had a deep need and desire to provide for your family after your second kid came. I think it’s an interesting statement for you to make because you are a professional athlete, you travel around the world, you were making a living for yourself. Why did you feel that that living you were making wasn’t enough to be able to provide for your family? Why did you feel the need to do more?

Nick:
That’s a good question and deep question there, Tony. First off, I would clarify that I am a professional white water kayaker that is a very different income level than a professional NBA, NFL, soccer, any of the traditional sports. Those guys are making pretty good income. I’m stoked with the income level that I make and so forth, but it’s a very different living and I’m only really able to make a living at it by doing a lot of different things.
So within kayaking, I make a little bit of money from sponsorship deals or from social media stuff nowadays. I make a little bit of income maybe from possibly winning events and some prize money. I make a little bit of income from teaching or coaching. I make a little bit of income from maybe selling content like videos or photos to magazines or to TV or whatever. With our new TV show, I make a little bit of income there. And so piecing all of that together, it’s enough to make a living and doing it that way.
Another aspect of your question is why wasn’t that enough? Well, I also wake up every day and I’m super grateful that I live my dream life. Every day I’m like, man, I’m fully living my dream life. I’m doing exactly what I want to do. I get to travel the world with my family. I have freedom. I get to be with my family every day, and I don’t want anybody to ever take that away from me. So right now, if we were to lose a sponsorship deal, or if we were to lose our TV deal or whatever it is, there’s several legs that keep the chair standing, but if you start losing a couple of them, the chair might fall.
And so I’m trying to think how can I figure out a way to create this financial freedom without any of that? My goal in life is to have enough real estate that it could substitute all of everything that I do so that I could continue this dream life and continue traveling and spending time with my family, and paddling and exploring and all that stuff, even if the brand partnerships fell through or God forbid I got injured or something like that and I couldn’t even paddle anymore. That’s the game plan and the goal.
I don’t know. Again, I’m not sure if you had it or not, Tony, but the idea of just becoming a parent, there was this deep provider syndrome and I just like, I’ve never had it or didn’t have it nearly as much with my first born, but for some reason the second came in and I was like, I’ve got to provide for my family. I don’t know what it is.

Ashley:
Was it the first born, strong willed can survive on their own, but the second one, got to take care of this one?

Nick:
I’m not sure if it was just that I was younger for the first, or if it was the fact that my second born. Our first was I had a son, and then our second was our daughter. And so I don’t know if it had something to do with the father daughter. I have no idea other than I have just this deep provider syndrome. I don’t know.

Ashley:
Well, Nick, before we go too far, what does your portfolio look like today?

Nick:
What does my portfolio look like today? We have four rental properties as of right now. We have 17 units. We’ve got a couple duplexes, triplex, single family. And then our last one was a nine unit apartment building.

Ashley:
That’s awesome. When did you first start? How long did it take you to acquire those 17 units?

Nick:
We started mid 2020, so it’s coming up on two years now. I think at one point, when we first hit the 17 units, I think I got 17 units in 16 months or somewhere right around the 17 month mark. And then we’ve slowed down a little bit after this last nine unit being that each one we’ve done the BRRRR method, and this last one has been a pretty extensive rehab. We’re still in the midst of the rehab of the nine unit.
I have learned lessons along the way. And in part of that I realize that I should slow down on the accumulation of units and properties, and still make sure that I’ve got that cash ready for the unknowns. Because what I’ve learned along the way is that there’s always unknowns in any rehab project. We’ve got some more properties and we’re still in acquisition mode and still trying to buy some more and whatever, but I’ve slowed on the gas a little bit until this nine unit is finished anyway.

Ashley:
Nick, what made you decide to go with the BRRRR strategy? There’s so many different ways you could have invested in real estate, and why did you end up choosing that?

Tony:
If you can define BRRRR, Nick, for those that aren’t familiar with that phrase?

Nick:
To define the BRRRR strategy, it’s buy, rehab, rent, refinance, repeat. I had to double check that I had all my Rs in the right order there. Why we went with it was in my learning phase, and I’m still in the learning phase, but definitely in the early learning phase of listening to a lot of BiggerPockets and reading a lot of the books, to me that one just seemed like one of the most powerful methods for getting into real estate in the sense that you can actually recycle that same seed capital. The money that goes into the property you can refinance, pull that back out and then use that same money for the next property.
That’s exactly what we’ve been able to do and it’s worked really well. That alone is the reason why we’ve been able to accumulate the properties as quick as we have. I would definitely say the so-called success that I’ve had this far has to do with the BRRRR methods with our properties.
The other thing too was within learning all of this, I read David Greene’s book, Long-Distance Real Estate Investing. For me, that was such a huge light bulb and shift, because a lot of the interviews on BiggerPockets, you’d hear about people trying to get out of their 9:00 to 5:00, trying to find that financial freedom so that they could leave their job. For me, I’m like, I love my job, I don’t want to leave at all. Because my job involves me traveling a lot, I had to figure out how could I do this on the road? How could I do this away from the properties and not being able to be hands on managing and all that stuff.
David Greene’s book really spelled it out so clearly for me that I finished the book and I was like, I’m going to give this a shot. So we bought that first property. I had never seen the property, I had never met our property manager, I had never met any of the contractors. I literally did it all over the phone and then I was like, oh my gosh, it totally works. It was like a test to see if the whole theory behind it. It’s easy to have a theory, but to implement it sometimes is a little bit different.
In everything in life, again, I relate everything back to my world of kayaking and being an athlete. Through my decades of competing, I’ve just realized that you either, you win or you learn. Through loss, I try not to use the word loss or losing, and I try to use that as a learning experience.
I knew that I’m either going to figure this out and it’s going to be a great and a home run hit because I was running the numbers and I was like, this is either going to be too good to be true, or I’m going to learn from this experience and I’m going to keep taking those baby steps forward. So using that win or learn mentality instead of the win or lose. It got me into that first deal, which then got me into the second and the third and the fourth, and has kept me moving forward.

Tony:
Nick, I’ve talked a lot on this podcast about me losing $30,000 from the Shreveport home, but I need to change that and say I had a $30,000 lesson on that Shreveport home moving forward. It’s a good way to frame things. Nick, so you’re all over the country literally, and you’re even outside of the country right now as we’re recording this podcast episode. Where is home base for you? If you say, this is where I live, is there a part of the country that you call home?

Nick:
We do have a house and a home base, Rock Island, Tennessee. Small town just outside of a state park in Middle Tennessee, which is just a gorgeous place. But again, through my work and being an athlete, we’re on the road anywhere from six to 10 months out of the year, traveling around with a truck and a trailer. So we’re definitely on the road quite a bit, but Tennessee is still where we call home. Where we go home for the holidays anyway.

Tony:
Your home is Tennessee, give or take, of these 17 units, where are these spread out at? What markets are you investing in?

Nick:
The first eight were in Columbus, Georgia. Being that I’ve been super fortunate to be able to travel around the country, I get to see a lot of different markets. What brought me to Columbus, Georgia was a white water park, and it’s actually going to be the home of the World Championships next year, so that’ll be super cool.
I had been going down to this city to go kayaking a fair amount, and I had noticed that they were really putting a lot of money into just redoing a lot of the riverfront community and a lot of money was going into upkeep in that city, and just trying to reintroduce a lot of the older buildings and stuff like that. When I was running numbers, it just had a great rent-to-price ratio.
The rents for the purchase price really were some of the most favorable in every market in the United States that I had looked at. And so I was like, well let’s start here. The next market and the one that we bought our nine unit in is in Cookeville, Tennessee, which is about 40 to 60 minutes outside of Nashville. It’s about 35 to 40 minutes from where I actually live. And so pretty familiar with that city. Tennessee Tech is there, so it’s college town outside of Nashville.
Definitely, it’s been growing quite a bit in the last coming years and being the closest city, that’s where we go for date night and stuff like that. I knew that area quite well over the last couple of years and I could see it growing and I just felt comfortable. Again, it was just another one of those deals that came across that I was like, this seems too good to be true. We ran the numbers, it looked really good, put in an offer and bought a property.
Like every property that we’ve bought, there’s always the unforeseens and there’s always the troubles afterwards, but it keeps me moving forward with those baby steps one at a time.

Ashley:
I think one thing we want to highlight right here is that you started investing in a city that you knew, that you had visited, that you had liked. I think it can get so overwhelming as a rookie investor as to, I know I don’t want to invest in where I live right now, but where do I even start to analyze a market? I think right there, you just gave a great example. Start with places you’ve been that you’ve noticed things, or that you’ve even just liked the city, or you’re going to end up going there occasionally. I think that’s a great starting point as to where you can analyze a deal.
And then after that, if none of those markets work where places you’ve been or you’ve known or even your hometown, that’s always a great starting point too, because growing up somewhere you know that market and have a better idea than somebody who’s never been there. And then just looking where other people are investing too.
So doesn’t mean you should invest there because other people are investing there, but that’s a great starting point. Looking on social media, the BiggerPockets forums and where other people are investing, then going and verifying data and doing your own research. That’s a huge struggle as a rookie as to how do I find a market? I think you gave a great example is you just picked a market that you were familiar with and you noticed things.
Besides that you noticed that they were doing a lot of, I don’t know if gentrification would be the right term there, bringing these old buildings back to life, things like that. Were there any other things that you look for in a market that may be important for a rookie to keep an eye out?

Nick:
I would look for, like what you said, look for areas that you’ve been to, anything that gives you maybe some advantage, even if it’s somewhere where you grew up, or if you’ve got friends that live there that you can have them help with boots on the ground, checking out the properties or driving for dollars, any of that stuff.
The other thing is that, for me anyway that I really just look for, is where is that price-to-rent ratio as well? Looking up where have prices gone in the last couple years? You can look back to the 2008 crash or whatever, see how they do through different market cycles.

Ashley:
Can you just explain real quick what the price-to-rent ratio is?

Nick:
The price-to-rent ratio is essentially how much… A commonly used term would be the 1% ratio or the 1% rule or the 2% rule or something like that. But a 1% rule is that the monthly rent is 1% of what the purchase price is. That’s that price-to-rent ratio right there where you want to figure out where does your monthly rent compare to your purchase price overall?
They use the 1% rule as a rule of thumb that if the monthly rent is 1% versus the purchase price, that’s a pretty good deal. I think Brandon Turner even did a while back on his social media saying something like the 2% rule is almost a given that if it falls in the 2% rule, it’s going to cash flow.
More than anything, I’d advise people to make sure that when you’re starting to try to see if, depending on what method that you’re going with, whether it be cash flow or appreciation. For anybody starting, I think if you go with the cash flow method, where as long as the property cash flows after all of your expenses, after your taxes, after your mortgage, after everything, it’s a pretty safe bet that you’re not going to lose the property.
Even through mistakes, even if you do something wrong, whatever, if it’s still cash flows, or even if the cash flow is negative, you’re at least in the black or you’re not in the red anymore. You’re not going to have this be a money suck project. More than anything, I really just encourage people to just pick a market. It could be any market.
We picked Columbus, Georgia, kind of because I knew the market, kind of because I’ve been there, but also because it was just the first really good deal that I found on the MLS and I was like, that looks pretty good. I kind of know that market, I think I’m just going to take a chance. That’s how it works, is that no matter what your first deal is, it’s always going to feel a little bit risky. You’re always going to feel like you don’t quite know enough. They call it a leap of faith for a reason because eventually, you just have to jump and go for it.
We could get into the whole risk and reward and fear analogies and all that stuff. Again, because I deal with a lot of fear from kayaking and from my history and background in white water, and I try to remind myself that fear is false evidence appearing real. Fear happens all the time. We all deal with fear.
I get regularly called crazy if I go over an 80 foot waterfall. People are like, You’re crazy. But what they’re not realizing is the analysis between fear and danger and scouting those rapids and scouting that waterfall and trying to analyze what is actually dangerous? Where are the actual dangers in this scenario? Can I avoid those dangers? And then if all that is left is the fear after I take away all the dangers and I remove all of those out of the equation, then I know the rest is just fear. That’s the demons of the mind as I deal with. It’s the same with real estate.
I was extremely afraid and fearful with real estate, but I knew that I just try to analyze, what are the actual dangers in this scenario? What if my house burns down? Can I get insurance for that? Maybe I’ll remove that. How am I going to manage this property from the road? Can I hire a property manager to do that? I remove that fear or that scenario. What if there’s a break in? Can insurance cover that?
There’s all these fears and you just try to list them all out, and then figure out what are actual dangers? What are actual scenarios that could go wrong? How can I avoid those? How can I address those? How can I prepare for those? Whatever is left after that, that’s just the fear, that’s just the demons of the mind and you know that, that’s that false evidence appearing real. After the dangers are gone, just go forward and take action.

Tony:
Nick, that is a great analogy about fear. I’ve actually never really heard it phrased that way about danger versus fear. So many new real estate investors confuse those few things. Just because it’s outside of their comfort zone, they think it’s dangerous, but it’s not necessarily dangerous, they’re just afraid. What a great breakdown, what a great analogy.
I just want to make one comment on the market selection piece, because I know so many investors that get stuck on that part alone. Where they’ll spend months and months and months and months trying to find the perfect Goldilocks market to start investing in. The approach that I’ve always taken is that just because you start investing in a certain market, doesn’t mean you have to be committed to that market forever. I started investing in Shreveport, Louisiana. We no longer buy any properties there. Now we invest in multiple different markets across the country.
I learned so many good lessons by just getting started. I think for most people that are listening, if you don’t have that first deal yet, instead of over analyzing and wasting a bunch of time trying to find that perfect market, just pick a market and learn the basics of real estate investing. And then you can feel out whether or not you want to continue to invest there or if you want to go somewhere else.
Nick, you went from Columbus, Georgia to Cookeville, Tennessee, and I’m sure when you started investing in that second market, you had a lot more confidence going into that deal than you did on that first one. That’s just a point. Just get started. If you choose the wrong market, sell the property, move on to the next one.

Nick:
It goes back to that win or learn mentality. You have to take that first step. You have to take those baby steps to get into the game in the first place, and then you either win with that first property, or you learn from that first property and continue moving forward. It’s just like the game of life, or the game of finance, or the game of whatever, there’s always a next step. So just keep moving forward and eventually you’ll get to whatever that end goal is, you’ll reach that result.
I have another phrase that I remind myself always too. It’s that if you never give up, you cannot lose. Meaning that you will always win as long as you keep moving forward. You keep taking action. You keep learning from those mistakes. Going back to which market to pick, I was in that analysis paralysis.
I was the one that was listening to all the different BiggerPockets podcasts. I was the one asking those questions on the forums; where should I invest? Eventually I picked a market and I just went for it and I just tried knowing that maybe this first deal isn’t going to be the right one. Maybe I’ll have to learn from these mistakes. Maybe I’ll have to sell it, who knows? But by taking that first step, it enables me to take the second step and the third step and the fourth step.

Ashley:
I think everybody just wants to maximize their return. So their first deal they’re thinking, I just have this amount of money, or I have this skill set, or I have this time, or whatever it is. What is the best way for me to use it and take advantage of this opportunity? You can get so caught up on that is the best way to maximize your return. Just getting started is going to be a way better return than you waiting five years for that home run deal to come about. Or wasting so much time trying to decide do I use my cash to buy one property? Do I spread it out over five properties? Do I invest it in something else, then go and buy in property? It’s just pick one because a lot of the times they’re all wins. You’re making a return somehow.
Maybe you’re giving up more time or less time based on what the return is for that, but it’s just that getting started. It’s going to propel you because that one deal could be one of thousands of deals that you’ll do later on. That deal won’t even matter anymore because it propelled you to bring on all these other deals and just getting started.
Nick, one thing you talked about was that people say you’re crazy. I’m assuming you’re talking about the risk of kayaking and white rapids. Did anybody think that about you too when you started to invest in real estate? What about your spouse? How did you get your spouse on board? What does your support system look like as an investor?

Nick:
You got a couple questions there and I’ll try to answer them in order there, Ashley. First off, I definitely get called crazy sometimes and that would be due to the kayaking aspect and running waterfalls and whatever it might be.

Tony:
Nick, when you said 80 foot waterfalls, I thought you were a little crazy too, man. 80 feet, I can’t even picture that in my mind. There’s a little bit of crazy in there, for sure.

Nick:
It’s like an eight story building, Tony, think of it like that, you’ll be fine. It’s the same in real estate. It’s the same in so many things where if you go against the grain or against maybe what society might deem as normal, then people are going to probably start calling you crazy. For the most people, you buy a house and you live in it and you have a 9:00 to 5:00 job and that’s just what life looks like.
If you start doing things that are outside that, people will start calling you a little bit crazy. The more that you veer outside of that, the more that you get called crazy. And so definitely I have been told throughout my entire life that people question regularly, what am I doing? What am I doing when I wanted to get into kayaking when I was starting? What am I doing after high school, left to go continue kayaking, travel the world and not go to university? People started questioning and thinking I’m crazy if I’m having a family without having this university or college degree, how am I going to support my kids and my family moving forward?
People think that I’m crazy if I’m going to start a podcast or start real estate. Doing anything that isn’t deemed normal, they’re going to start questioning you and being like, I don’t think you should do that. My uncle bought real estate one day and he didn’t do so well. So I don’t think it’s a good idea.
Instead of just following the narrative of what maybe society might deem as normal or okay… Something what I learned through a lot of my travels and what I’m super fortunate to have been able to travel the world, but that we grow up with this narrative of being taught what is right, what is wrong, what is normal.
Here in America, it’s super normal for us to eat cows. Seems normal. We have burgers all the time. It’s an American dish. You go to India and it’s not forbidden, but you would never eat a cow because it’s a religious animal. Here in America, we would never eat horses, a pet animal. It’s just deemed you would just never do that. You go to Iceland, that’s just normal.
You just have to start realizing that whatever is deemed normal might just be the environment that you grew up in. The more that you look outside that box, the more that you realize, for us three right now for this conversation, investing in real estate is totally normal, but maybe not for everybody. It might be opening and widening that horizon and that idea of what normal might be, and trying to realize there might be other ways to do this. That answers your question a little bit of people calling me crazy.
Back to is my wife supportive? Luckily for me, in this whole journey of trying to figure out the game of money and the game of finance, I tried some stock trading and some options trading and definitely lost money in some of that. My wife was way more on board with real estate. We’ve been talking about real estate since we got married. And so I’m super fortunate that she’s on board with that as well, and she really likes the idea of investing in real estate.

Tony:
That’s a great strategy Nick. If you try something and you fail miserably, then when you try and do something like real estate where the odds of success are a little bit higher, now the spouse is like, cool, you failed before, but I think this one has a better shot. So it’s almost like a reverse psychology type trick. I like that.

Ashley:
Tony, are you telling everyone to go gamble on the stock market and do day trading for a couple weeks, lose a ton of money, then invest in real estate to get their spouse on board. Is that your recommendation now?

Tony:
I think that might be the new best plan to get spouses on board. No, please don’t do that. Please, don’t do that. If you guys get messages from me and Ashley after this episode asking you guys to invest in crypto, just know it is not me. It is not Ashley. There’s a bunch of scammers out there that are pushing people to do that.
Anyway. I want to go back to your other point, Nick, about being normal and why you’re okay with not being normal. As you were talking, I was just looking up some stats. The median household income in the United States is just over $31,000, and the median net worth is just over $120,000. The average person in America is actually considered obese. Not even to think about, the average person gets up, goes to the same job, 9:00 to 5:00, they probably hate it, do that for 30, 40 years, then they retire with very little money left over.
I have this conversation with my son all the time about not caring about being normal. Because normal means that you’re underpaid, you’re close to being broke, you’re unhappy with the job that you have, maybe you’re unhappy in your relationships. I don’t want to be normal by any sense of the definition. I want to do things that make people think that I am weird because if I’m doing that, it probably means I’m on a path towards success.
The whole idea of being normal, I think we need to push that aside as real estate investors. Honestly, I think that’s why this podcast, this Rookie community is so important, because now you can interact with people who are just as weird as you are and are willing to do a lot of the crazy things that you are as well. I appreciate you sharing that insight with us.

Nick:
It’s also a lot more fun to not be normal because that’s where the adventure is, that’s where the excitement is in life. I think each one of us is unique. Every person has their own things, their own passions, the things that they love, the things that they enjoy doing. Figure out what that is and just go chase that. I encourage people to chase their dreams no matter how weird society might deem them.

Ashley:
I feel like almost once you get into the real estate investing community, it’s almost like this secret society that’s not a secret, but it’s all these aha moments or epiphanies of the American dream. You work a W-2 job, 9:00 to 5:00, you retire on your pension, you have a house that’s on a mortgage for your whole life with that white picket fence. That’s really not the American dream.
Nick, you’re talking about traveling around the country for your job. A lot of people are like, I wish I could leave and just go all over all the time. Or maybe it’s somebody that wants to move or have short-term rentals in different properties and for three months live in Florida, three months live in Colorado and all these things. Even in the beginning, you touched on schools and how schools are built to have you memorize data and they’re built to make you an employee basically, not an entrepreneur, not to run anything. They’re built to make you an employee.
I just think all of these things, as you get involved with these like-minded individuals who realize that real wealth is out there, and you don’t have to climb the corporate rat ladder to be a CEO to have this high net worth, that there’s way easier ways to do it. Real estate investing is definitely one of those and just opens up so many possibilities and opportunities that a lot of us couldn’t even fathom, maybe even growing up thinking that this is what our life would be now. It’s just because we actually did something normal.
We bought a couple houses. Buying houses is normal. It’s not like we went and invented some app or piece of technology that created wealth for us. We did something that’s actually quite easy. Just like you talked about, Nick, overcoming that fear and understanding what the risk actually is and getting into it. Go ahead.

Nick:
No, I was just going to add to that, that success and maybe wealth or anything like that is going to be deemed a little bit different for each one of us. Everybody has their own idea of what that dream life might be, what that success looks like. It could be one rental, it could be financial freedom, it could be the ability to travel, the time freedom to spend with family.
So realize that don’t get caught up on what society might deem success looks like. Don’t get too caught up on just what society deems as normal, because we make heroes out of so many people that went against the grain and chased their own passions, like Walt Disney, or Elon Musk. Just so many people that I’m sure during their time, were deemed a little bit crazy and a little bit against the norm, and then later on in life were like, look at those guys that just chased their dreams and went for it.
For all the rookies out there, I highly encourage you guys to figure out what your why is and just go for it no matter what it might be. Just take some action, take baby steps because that helps minimize that fear, but take action either way.

Ashley:
That’s great Nick. Thank you. Let’s talk about one of your deals. Let’s get into the numbers of it. Do you have a property in mind that you want to go over?

Nick:
I do have a property in mind.

Ashley:
It’s going to be rapid fire. I’m just going to ask you some quick questions, and then you can go into the story of it. Where is this property located?

Nick:
This was our first ever property and it is located in Columbus, Georgia.

Ashley:
What is the strategy?

Nick:
The strategy was the BRRR method and I was literally taking it straight out of the pages of Long-Distance Real Estate investing by David Greene.

Ashley:
How many units is it?

Nick:
It is four units and it’s actually two side by side duplexes. Ironically, it was listed on the MLS, I think it was written up as a duplex, but the square footage and the bedroom count and everything, it had per unit. So literally, it was listed as, I think two bedroom, one bath. And then I’m looking and I was like, that doesn’t make any sense. The photo had this odd photo from the street looking at it, and it looked like this two parallel side by side duplexes and I was like, I think this might be either they didn’t write it up right in the listing, or this just might be one of those opportunities that’s too good to be true. So I gave them a call and got some information on it, and I think we put in an offer that day.

Ashley:
That’s a good tip is that MLS listings are not always accurate. Sometimes you can go through a property too and look at the pictures and be like, wait, those two kitchens are different. Are there two kitchens in this property, and they have it listed as a single family instead of a two unit? What was the purchase price that you ended up getting this property for?

Nick:
The purchase price, this is going to be more normal for you Ashley. Probably a little crazy for Tony. The purchase price, it was listed for 45,000 for four units. This was in the peak of fear May, June of 2020. So the peak of COVID fear and it was our first deal and I was pretty intimidated.
I was running the numbers and the agent, it was actually a wholesaler, but the agent said that they were renting at 500 a unit. I’m running the numbers in my head and I’m like, this seems way too good to be true. We just kept going one step forward, making an offer. One step forward, doing our inspection. One step forward, continue that way and then we eventually closed on the property for 42,000.

Ashley:
Awesome. How much rehab did you have to put into the property?

Nick:
This is where it gets interesting. Technically, we’ve probably put in about 12,000 or so into it now give or take. When we first did the BRRRR strategy, we were able to BRRRR it without putting any rehab into it. The wild part was just the way that the bank’s work that you guys know you have to have owned the property for six months before you can refinance the property. I don’t know if it was just within those six months or if it was right from the peak fear of COVID into the crazy boom that went right after it. We purchased it for 42 and six months later, it appraised for 126.

Ashley:
Those are the best deals.

Nick:
We were able to pull all of our money. It was literally I left the closing office laughing and almost feeling like I had done something illegal, because I was just like, wait a second, I can close on this property. I now have no money into the property. My tenants are paying my mortgage and still a little bit of cash flow, and now I’ve got 30,000 in my pocket to go buy another deal. I was just mind blown. I literally was like, why does everybody not do this? And so since then, I’ve been trying to speak from the balcony to everybody that’s open to listen, you should probably look at this whole real estate thing. There’s money to be made here.

Ashley:
That is awesome Nick. What a great first property to get to. I’m sure that even just made you more motivated to go out and get your next deal. With the taking out, did you take out 80% then of the appraised value for the mortgage?

Nick:
I think we took out, I’d have to go back and look. It was either, I think it was 75 loan-to-value. I think we took out of the refinance, I think we took 72 back out. We paid off what our down payment was, we paid off our purchase price because we paid in cash, and then we still had 30,000 left. Now 12 of that went into rehabbing because one of those units ended up being a hoarder unit afterwards, which I wasn’t fully aware of, because I had never seen the property in person.
But either way, it was just again, one of those things that it was just another learning step along the way, and I feel like life is filled with all these steps that we’re to learn from and keep moving forward. But it was that first baby step that got my foot in the door in real estate and it is definitely the one that keeps me moving forward, because I can just see the power of what real estate has to offer.

Tony:
I love hearing stories about successful first deals Nick, and it’s like that gateway drug into doing more and more and more of that same thing. We appreciate you sharing that story with us, Nick. I want to take us next to our rookie request line. For those of you that are listening, if you would like your question featured on the show, just give us a call at 8885 rookie, leave a voicemail and we might just use it on the next show. Nick, are you ready for today’s rookie request line question?

Nick:
I think I’m as ready as I’ll ever be, Tony.

Tony:
All right. Here is today’s question comes from Trudy in Sacramento. Trudy says, “My husband and I have just started our real estate investing journey. We’re researching right now. We’re both W-2 workers. I’m a part-time worker, which would give me more time to be able to do the researching and eventually manage the properties. We have money about $180,000 set aside for an investment. But we’re looking around realizing that California is a really expensive market and we’re wondering what area, if any, that we should venture to outside of California and if it would be a good start to do that?”
They’re also trying to determine whether or not they should buy a single family property versus a multifamily property. Any ideas would be greatly appreciated. Nick is someone who has struggled with some of those same questions. What advice would you have for Trudy?

Nick:
Trudy, those are some great questions right there. I would encourage you to take that money and probably look outside of California. I would first maybe pick up David Greene’s book on Long-Distance Real Estate Investing, because you’re going to learn all of the ways to do it outside of your state and not being there and not being present, and being able to build that team up out of state. That money is probably going to be able to go a lot further outside of California.
Honestly, I would probably look at the Southeast. I think there’s a lot of opportunity in the Southeast, which is a lot of different states. That could be Alabama, Tennessee, Georgia, could be the Carolinas. Ashley might tell you to go up to New York and that there’s a lot of opportunity up there, but maybe she won’t because she wants to keep them all for herself. I’m not sure.

Ashley:
The tenant landlord laws are awful here.

Tony:
And it takes years to close.

Nick:
The Southeast is definitely pretty landlord friendly in that regard as well. So I would maybe look in the Southeast. I would definitely look out of state and start trying to build that Core Four. As far as whether to buy a single family versus multifamily, I would encourage if possible, to start in that small multifamily, whether it be a duplex, triplex, quadplex, because for the most part, the lending is going to be just as favorable with the 30 year loans as a single family might be. But you get the bonuses of getting two rents, three rents, or four rents, depending on what small multifamily it is.
It helps recognize that power of real estate when you start getting multiple rents coming in a month. Trudy, I wish you the absolute best with your journey and very excited for you guys. Definitely maybe pick up a book, go listen to some old podcasts and look out of state.

Tony:
That’s wonderful advice, Nick. I just want to take us to our next segment here, which is our rookie exam. These are three questions that we want to ask every single guest when they come on. Nick, these are the three most important questions that anyone will ever ask you in your life. Nick, are you ready for the exam today?

Nick:
Man, three most important questions ever. I’m ready. Let’s do it.

Tony:
All right. First question, what is one actionable thing rookies should do after listening to your episode?

Nick:
One most actionable thing that they should do is figure out where you’re at in the whole process. If you’re stuck in that analysis paralysis, figure out how to overcome that fear by looking at the dangers, listing them out and realizing what are actual dangers? How could I avoid these, and how could we move forward? Essentially just taking action with those baby steps.
If you’ve never done a deal before, maybe go onto the BiggerPockets calculators and start analyzing a deal for your first ever deal. If you’ve already done that, maybe call up your lender and see if you can get pre-approved. If you’ve already done that, maybe write an offer. Maybe if you’re too afraid, just write such a low ball offer that you know that you’re not going to get the property, but at least then you’ve written your first offer and you know the process of writing an offer.
All of these are just little baby steps, baby steps, baby steps, and eventually it’ll get you to your first ever rental property or your first ever home or whatever it is that that goal might be. Recognize that you can overcome the fear by realizing the difference between fear and danger, and then just take those baby steps to take action and continue moving forward.

Ashley:
Nick, what is one tool, software app or system in your business that you use?

Nick:
One tool, app or system? Honestly, this is going to sound pretty funny, but I would say as far as apps go, I’ve set up our whole system with out of state in mind being that I want to be able to travel, I want to be able to be on the road, I want to be away from these properties. We’ve got managers that are set in place to do it all.
The two apps that I use the most would be one, the Podcast app on my phone because I just constantly listen to BiggerPockets podcasts, to your podcast. I’m constantly just trying to learn new creative strategies, learn new ways that I could be writing offers. New ways that I could be taking action and moving forward with my goals.
And then the other one would be the Zillow app. All of our deals that I’ve found are all off of the MLS. It’s going to sound super cliche or weird, but it’s worked. If I’ve got free time, at least every day I look at the different markets that we’re interested in and I’ll just do a quick five minute search to see if there’s new properties, or even if there’s a new market that I want to look at. Probably those would be the two apps that I use the most, would be maybe the Zillow app and the Podcast app on my phone.

Tony:
All right. Obviously Nick’s favorite podcast is the Real Estate Rookie show. I know he didn’t mention that part, but I just wanted to plug that in for him anyway. We’ll move on to the last question there. Nick, where do you plan on being in five years?

Nick:
This is probably going to be again, against the grain of what most of your guests might say. I want to be right where I’m at. I wake up again, every day feeling like I live this dream life, so I want to continue living this dream life. I want to continue traveling the world, continue doing this family adventure TV show that we’ve got, continue spending time with my kids getting outdoors. For a lot of it, I just want to keep doing what I’m doing.
As far as finances go, I definitely want to get or want to be financially free and within five years, that’s definitely a goal of mine is to be financially free. To essentially substitute all of our current finances through our real estate to have that backup if something were to ever occur. Keep on living life and living it to the fullest. Tony,

Tony:
Awesome Nick. I love that brother. Sometimes it’s not about necessarily changing your life, but just fortifying the life that you already live, and sounds like that’s the path that you’re on. We appreciate you answering those questions for us, Nick. Just a heads up, you passed the exam so you pass with flying colors, so we appreciate that.
Before we wrap up, I just want to highlight this week’s Rooky Rockstar. This week’s Rooky Rockstar is Andreas Rebe. Andreas says, this is my second long-distance purchase. Closed two months after my first purchase, and the second one is a six unit, multifamily property in Pennsylvania. Bought it for 330,000 using hard money. Rehab was supposed to be 90K, but had to fire a contractor and then took a while for him to evict the tenants. Had to catch up and had to hire four different construction crews and went over $67,000 on the budget.
Either way, he has an opportunity to increase the rents, get a pretty high NOI, and he’s hoping that it’ll appraise for about $700,000 once it’s all said and done. Actually, he added one little note at the bottom. This is a 12 month update, Andreas said, “12 months later, nowhere near the profit I was expecting. But man, have I learned a ton. Growth has been the key here. It has been scary, but an amazing learning experience. Every time I get a curve ball that could have ruined the deal and me, I smile and I find it exciting. I don’t freak out. There is no choice but to keep moving. I brought this, quote unquote, stressful situation on myself, no one else did. I tried to create wealth and eventually I will.”
What a great Rookie Rockstar to tie into everything you talked about today, Nick, of rolling with the punches, taking these, quote unquote, failures and turn them into lessons and realizing that failure doesn’t happen until you give up. Andreas, we can’t wait to hear what that next successful deal looks like. When it does happen Andreas, be sure to put in your app for the show so we can get you on here and share the story with everybody.

Ashley:
It’s like a college tuition. So many people go to college and they are afraid of like, Oh my gosh, but I went to school for this degree. If I don’t work in this, it’s a waste that I wasted the degree. But look at how many real estate investors have quit their jobs. They went to school for four to seven years or whatever that may have been, and then they find real estate, and then they end up quitting and leaving. If you do lose money on the first deal, that could be your college tuition and you could be making money on the next one. So I really like this Rookie Rockstar story today.

Nick:
Congrats to Andreas and it sounds like an amazing deal. Like everything that we’ve been talking about, it’s the win or learn mentality and I think he’s winning in the long run. So super excited where he goes with it, for sure.

Ashley:
Well Nick, thank you so much for joining us today. Could you let everyone know where they could reach out to you and find out some more information about you?

Nick:
Where can people reach out to me? I’m probably most active on Instagram, so you can check me out at Nick Troutman Kayak. Troutman is like the fish, and then man. So Nick Troutman Kayak is my Instagram handle. If you’re interested in more of the family adventure content, check out Great Family Adventure, which is separated by a period of each word. So great.family.adventure is another one. That’s our family adventure TV show. Feel free to reach out. I’m pretty active and I try to answer every single comment and every message that gets sent to me. So would love to connect with you guys.
The other thing I didn’t even mention that I’ve got a podcast called The Art of Awesome. It’s a lot about what we’ve been talking about today, which is just encouraging people to reach their goals, to be as awesome as they can be. Feel free to check that out too if you guys are interested in a little bit more motivation. Stoked to talk with any of you guys, so feel free to reach out.

Ashley:
That’s awesome. I can’t wait to check out your podcast and maybe one day, Tony and I can be guests on it and we could go out kayaking together and podcast live from the river or something.

Nick:
Let’s make it happen, for sure.

Ashley:
Definitely. That would be so fun. Nick, thank you so much for joining us. We really appreciated all the advice that you gave and for sharing your story with us. I’m Ashley at Wealth from Rentals and he’s Tony at Tony J Robinson on Instagram, and we will be back on Saturday with a Rookie reply.

 

You may have seen a floor plan or even a life-sized layout of a pre-construction condo, which is a condo that has not yet been built or is in the process of being built. A pre-construction condo can be an excellent choice for real estate investors, especially as a second property or one to be rented out.

Pre-construction condos allow you some extra time to save up for the deposit, which isn’t typically due all at one time, and they tend to be cheaper than resale condos. Plus, even though you are choosing to buy based on a floor plan, you will be the first owner and will get to customize certain features and finishing options of the condo, such as cabinetry or flooring.

Here are a few pointers for buying a pre-construction condo:

Invest in the Best Builder, Not the Best Building

Buying a pre-construction condo can be risky. There is always a danger that the project could be delayed or called off altogether, though that tends to happen less often nowadays. The best thing you can do to minimize risk when buying a pre-construction condo is to invest in a reputable builder.

Some delays are inevitable in building a condo, but when they go on for too long, say for a year or more, that is an indication that the builder is not very reputable and is having issues like poor financing. Also, take a look at their past projects. If they are still in good standing with stable maintenance fees, this indicates that their builder is reputable and will likely do a good job with the pre-construction condo.

The 10-Day Cooling-Off Period

Most pre-construction sales contracts give a 10-day cooling-off period after the date you receive your signed copy of the offer, and in some places like Ontario, the cooling-off period is mandated by law. This gives you an advantage in buying a pre-construction condo because it gives you some time to decide if you really want the condo or not. It also prevents the builder from selling your pre-construction condo to anyone else or increasing the price.

During the ten days, it is advised to get the sales contract reviewed by a lawyer, to review the closing costs and any fine print that may be on the document. You should also ensure that your financing is good to go because, after 30 to 60 days, your mortgage pre-approval letter will be requested. One last thing to do during this period is to explore other options. Look at similar pre-construction condos and compare prices and incentives, to make sure that your transaction is right for you.

The Deposit Structure

Like most real estate transactions, a 20-per-cent deposit is required to purchase a pre-construction condo. However, the deposit schedule is set up differently. Deposits are usually staggered over a year, but remember that every project will be a little bit different.

A deposit schedule generally looks as follows:

• 5% due at signing, which is cashed as soon as the 10-day cooling-off period ends
• 5% within 30 days
• 5% within 60 or 90 days
• 5% within 120/240/365 days, or upon occupancy

While this schedule is most popular, some projects have incentives where they offer five per cent a year or $1,000 monthly for five years.

Investors often like pre-construction condos because they put down 20 per cent of the purchase price but earn appreciation on 100 per cent of the condo’s value for the next three to five years, while it’s being built. They also don’t have to worry about taxes, maintenance, mortgage payments, insurance or tenants. So, it ends up putting more money in their pocket.

Is Buying a Pre-Construction Condo Right for You?

Buying a pre-construction condo is not for everyone. It is essential to educate yourself not only on the advantages but also the risks. Do your research to make sure that the builder is reputable and that you will be getting a good return on your investment, and take the time to learn how the pre-construction buying process works.

There are often great incentives to buying a pre-construction condo. They can include capped closing costs, free rental management, guaranteed rates, free parking, free unit upgrades, and more. However, if you do not know that you will be in a position to afford your condo in the coming years, then it is probably not a good idea because you could lose your deposits.

Depending on your budget and the amount of risk you are comfortable with, a pre-construction condo could be a worthwhile investment. Consult a real estate agent and a financial planner to discuss your options before you jump into anything.

Whether you are looking for a small city to visit for a day or want to settle down in a location with a smaller population than your current large city, some of Canada’s best small cities have a lot to offer, known for their temperate climates, attractions and activities, and their contribution to the economy. Global marketing firm Resonance Consultancy ranked Canada’s small cities (those with 200,000 residents or less) based on several factors, including weather, outdoor space, safety, employment rate, and income equality. According to Resonance, here are Canada’s best small cities, and why they ranked.

Canada’s Best Small Cities

Victoria, BC

Canada’s best small city is known for its temperate climate, attracting tourists year-round to its parks and trails. Since it is the mildest part of Canada in terms of annual average temperature, snowbirds from other parts of the country that can’t make it to the southern United States have tried out Victoria for some winter respite and found it a desirable getaway. But for all its tourism attraction, what makes Victoria really stand out is its leading industry. The city is known as a home for influential technology leaders that have built some of Canada’s leading companies and has annual tech revenues approaching $3.5 billion.

Kelowna, BC

Kelowna is the third largest urban centre in British Columbia (following Vancouver and Greater Victoria). Its population has skyrocketed in the past few years, earning it the title of the fastest-growing metropolis in Canada. Kelowna boasts more distinct summer and winter seasons than Victoria and features dozens of local lakes, parks, golf courses for summer tourists, and three major ski resorts within an hour’s drive for winter fun. Kelowna also ranks highly for various cultural factors, including shopping, restaurants, and nightlife.

Kingston, ON

Situated along the shores of Lake Ontario, Kingston was our nation’s first capital between 1841 and 1844, giving it a “big city in a small town” feel. It is chock-full of historical landmarks and cultural features such as Fort Henry, one of Ontario’s only UNESCO World Heritage sites, rides aboard the Island Queen, and easy access to Thousand Islands National Park. The city also boasts a wide variety of independent boutiques and retailers alongside more generic stores, earning it a top ranking for shopping.

Niagara Falls, ON

Canada’s honeymoon capital isn’t only a major tourist attraction – it’s also a great place to raise a family. Niagara Falls ranks #1 among small cities in Canada for family-friendly activities and in the top five for other features, such as theatres and landmarks. The new Niagara Falls Cultural Hub & Market (also known as Niagara Falls Exchange or NFX) is projected to open next year in the historic Main and Ferry district. It plans to provide a vibrant shared space where artists, musicians, food vendors, patrons, and local businesses can come together and create. Niagara Falls also ranks top in the overall promotions category, with the most hashtags and reviews of any small Canadian city.

Waterloo, ON

Known as the Silicon Valley of Canada, Waterloo has produced dozens of globally dominant companies, including Blackberry and OpenText. In fact, over 1000 companies have been founded by graduates from the University of Waterloo, and its residents rank among the smartest in Canada. This means that Waterloo is filled with students attending local or nearby post-secondary institutions and young professionals beginning their working lives.

North Vancouver, BC

With approximately 60,000 residents, North Vancouver has the smallest population on the list. It provides a gateway into the city of Vancouver, just 15 minutes away by Seabus. The city’s south offers one of the best big-city views in Canada, displaying Vancouver’s skyline flanked by Stanley Park and the Port of Vancouver. Locals are known for being self-employed or working from home, but when they go into the city for work, they often commute by bicycle, even in winter.

Burlington, ON

Named the “Best Community in Canada” by MacLeans in 2019, Burlington is a quaint, serene city. Although technically in the Greater Toronto Area, Burlington is one of the safest cities in Canada, meaning that residents can take advantage of safer opportunities to be out and about in its 1400+ acres of parkland. Burlington has many clear, sunny days compared to other Ontario cities and boasts Canada’s largest botanical gardens (designated as a national historical site) with 27 kilometres of walking trails.

Despite recent softening in the housing market, home ownership in Canada is expensive and can be intimidating if you’re a first-timer. Luckily, there’s financial help and incentives for first-time homebuyers, which can help offset the cost of purchasing a new home. You don’t need to feel as if you have to do it all alone – read below to see what incentives are available.

Incentives for First-Time Homebuyers

Home Buyers’ Plan (HBP)

The Home Buyers’ Plan (HBP) offers an alternative way of securing funds for a down payment for first-time homebuyers. If you have a Registered Retirement Savings Plan (RRSP), you may withdraw up to $35,000 from the account to buy or build a qualifying home for yourself or a related person with a disability. You then have a 15-year period to replace the funds in your RRSP.

You can withdraw funds from more than one RRSP as long as you are the owner of each account. However, some RRSPs, such as locked-in accounts or group RRSPs, do not allow you to withdraw funds, so you need to check to make sure that your RRSP is eligible.

For the purpose of the HBP, you are considered a first-time homebuyer if you did not occupy a home that you have owned within the last four years. This means that if you have previously owned a home, you may still be considered a first-time homebuyer and can take advantage of the HBP a second time as long as the balance has been paid as of January 1 of that year and you meet all other requirements.

First-Time Home Buyer Incentive

The First-Time Home Buyer Incentive offers extra help to people looking to buy their first home. The program offers five or 10 per cent of the home’s purchase price to put toward a down payment, which helps to make the mortgage payments more affordable.

To qualify for the First-Time Home Buyer Incentive, your total qualifying income must not exceed $120,000, and the total borrowing amount cannot be more than four times your annual income. These amounts increase to $150,000 and 4.5 times your yearly income if you live in the Toronto, Vancouver or Victoria metropolitan areas. You must meet the minimum down-payment requirements with traditional funds, after which the incentive will be added.

New and existing homes and mobile homes are eligible for five per cent, while new construction homes are eligible for five or 10 per cent. The homebuyer must repay the incentive after 25 years or when the house is sold, whichever comes first, but it can be repaid in full at any time, without penalty.

Tax Credits for Homebuyers

While a couple of incentives are available before you purchase your first home, the help doesn’t stop there. The government of Canada also has several tax credits and rebates available for first-time homebuyers. A tax professional can work with you to see how much you are eligible to get back in the following tax season when you submit your tax return.

Homebuyers’ Amount – This tax credit becomes accessible to first-time homebuyers the following year when they file their tax return and is meant to help offset some of the upfront costs associated with buying a house for the first time. You can claim up to $5,000 for purchasing a qualifying home, as long as it is your first time buying one.

GST/HST Housing Rebates – The sales of new homes are generally subject to GST/HST, and these tax rebates help to offset some of the tax you paid on your home. 

Moving Expenses – If you bought your first home in a new location to work, run a business, or study as a full-time student in a post-secondary institution, some of these costs can be refunded. You can deduct eligible moving expenses from the income you earn in the new location in that tax year. Your new home must be at least 40 kilometres closer to your work or school location to qualify.

If you want to enter the housing market but are hesitant due to the price, consider the financial help and incentives available for first-time homebuyers. One of them could be the boost you need to get you into your first home.

In this article

We are in a housing correction. It remains to be seen what this means for prices in the national housing market, but some trends are becoming clear. We can gather important insights from these trends to inform our investing strategy and help us all navigate and earn great returns during the correction.

The National Housing Market Has Peaked

First and foremost, the national market has likely peaked in absolute terms. In plain English, most markets hit their all-time highs in June and have started to come down month-over-month since then. The housing market is seasonal, and prices typically peak in the summer and then start declining in absolute terms. But peaking in June is a little early and reflects the beginning of a correction, in my opinion. 

Due to this seasonality, the housing market is often measured in year-over-year terms (i.e., what happened in August 2022 vs. August 2021.) When we look at the national housing market this way, it is still up about 6% year-over-year. That would be considered rapid appreciation in a normal year, but this represents a massive deceleration from the growth rates we’ve seen over the last few years. Just a few months ago, in May 2022, year-over-year appreciation was over 15%! 

Of course, everyone wants to know if the national housing market will turn negative year-over-year, but we just don’t know. In terms of where we’ll end 2022, I think it’s a toss-up. We’ll either see very modest growth rates or slightly negative growth rates for the national housing market at year’s end. It is worth noting that in August, San Francisco and San Jose, California, were the first two markets to show year-over-year declines. In terms of 2023—it’s too hard to tell right now.

The Real Story is Within Individual Markets

The above answer about the national housing market might not be satisfying, but in some ways, what happens with the national housing market doesn’t matter. Well, it matters, but by only paying attention to the national housing market, you miss the most important story about the housing market: the discrepancy between markets. 

In some markets, dynamics have barely changed and still look like a strong seller’s market. In others, the shift towards a buyer’s market has been dramatic. 

To measure this, I like to look at two lead indicators for housing prices: inventory and days on market (DOM). When either of these metrics is low, it indicates a seller’s market. When they are high, they indicate a buyer’s market. 

First, let’s take a peek at Philadelphia, Pennsylvania. In the chart below, you’ll see that inventory remains extremely low in a historical context and hasn’t really increased at all—indicating this metro area is still in a seller’s market. 

Philly isn’t alone. Many cities (predominantly in the midwest and northeast) look this way. Check out Boston, Massachusetts; Chicago, Illinois; Hartford, Connecticut; Cincinnati, Ohio; Madison, Wisconsin; and the many others still seeing pandemic-level inventories.

On the other hand, let’s look at some of the “winners” of the pandemic era. Below is the monthly inventory graph for Boise, Idaho, one of the poster children of rapid appreciation. Notice a difference here? Not only has inventory started rising, but it’s also risen above pre-pandemic levels. This strongly indicates that Boise has shifted to a buyer’s market. Other cities seeing rapidly rising inventory are low-affordability cities like Austin, Texas; Las Vegas, Nevada; San Francisco, California; and San Jose, California. 

We don’t know what will happen with prices in these markets, but it can be helpful to look at lead indicators like inventory and DOM to get a sense of the varying dynamics. I recommend everyone reading this goes and does some research on their own market. Redfin has a great tool for this. 

However, I want to caveat this data by explaining that these metrics only describe the current situation and provide an outlook for the next few months. Inventory and days on market say nothing about the long-term prospects of any of these markets. For that, you need to understand population growth, supply and demand, and job/wage growth. 

I call this out because many markets that are now seeing the biggest potential for correction are cities that may still be good long-term opportunities. Austin is a perfect example of this. Austin grew really quickly over the last few years, and for good reason! The city has enormous economic and population growth and shows no signs of slowing down. But, perhaps home prices grew too quickly and could see a “reset” in prices (declines) before starting to grow again (probably when interest rates go down again, at some point.)

On the other hand, some markets that are more “stable” at the moment, like Chicago, have seen modestly declining populations over the last few years, which could hamper future price growth. 

Overall, Housing Prices Are Set to Decline

Overall, I think we’re likely to see housing prices decline in absolute terms over the coming months. Rising interest rates have depleted affordability in the market. With recent events and persistent inflation, it seems that rates will stay high for the foreseeable future. I am not convinced the national market can withstand sustained downward pressure exerted by low affordability. Something has to change, and if rates stay high for a while, as it now seems they will, the thing that has to change is housing prices. 

That said, I still don’t think we’ll see a “crash” (declines greater than 20%.) There are a lot of reasons for this, such as better lending practices, long-term supply shortages, etc. But one emerging trend that could provide a backstop for price declines is a sharp drop-off in new listings. 

This graph is very telling (take note of the scale on the vertical axis, but still!) People just don’t want to sell their houses right now. The housing market is not the stock market, and when homeowners are faced with the prospect of selling into an adverse market, they just opt out. 

Unlike in 2008, the vast majority of Americans are in a good position to service their debt. Many Americans will opt to stay in their homes and wait out the rough market. This is particularly appealing because over half of American homeowners have mortgage rates under 4%. Who wants to sell into a declining market, only to have to rebuy with a much higher interest rate? It seems like many homeowners are rejecting that idea. 

That’s how I see the market right now. Market dynamics are changing rapidly, but I hope sharing my current read on the housing market is helpful to you. The market is cooling off rapidly, and there is a huge variance between regional markets, but a “crash” remains unlikely. Just for reference, most forecasters see the national housing market landing somewhere between +3% and -8% in 2023 on a year-over-year basis. Not a crash, but there is potential for a significant correction.

11 Ways to Invest During the Housing Correction 

The question then becomes, how do you invest in this type of market? Here are a few of my thoughts: 

1. Invest in hybrid cities

Ideally, cities that offer decent cash flow, are seeing stable prices right now, and have decent long-term prospects. These are often smaller cities like Madison, Wisconsin; Birmingham, Alabama; and Virginia Beach, Virginia.

2. Negotiate with sellers

Negotiate! If you want to invest in markets with great long-term prospects, look for under-market deals. Once prices start to drop, sellers sometimes panic, and you can often find value. The data might not show this, but every experienced investor I know says that sellers are willing to negotiate right now. If you can buy below market rates, that offsets the risk of modest declines in the coming months. In this type of market, it’s more important than ever to use an investor-friendly agent who can help you navigate local market dynamics. BiggerPockets can help you find one for free—just use the link above.

3. House hack

House hacking is pretty much always a good option, in my opinion. 

4. Stay away from flipping

Don’t start flipping houses. I don’t flip houses, so I’m biased, but I wouldn’t advise anyone to start right now. There is market risk, labor risk, and material cost risk. Experienced players are probably still doing well, but I don’t think it’s a good time for newbies to start flipping. 

5. New construction might be lucrative

Prices on newly constructed homes are likely to decrease more than existing homes and could provide a relatively good value for long-term investors. Traditionally, new construction isn’t a great option for rental property investors, but with many developers offering incentives and discounts, I’m keeping an eye on newly constructed homes that are unique and in good areas. I don’t like cookie-cutter developments in the suburbs. It’s too hard to differentiate your property to prospective tenants and can create a race to the bottom in adverse market conditions. 

6. Beware of short-term rentals

I think high-priced vacation rental markets are going to get hit the hardest. During the pandemic, demand for second homes skyrocketed alongside interest from short-term rental investors. That demand (not prices) has come crashing back down to earth (I don’t use that word lightly.) I worry that some STR investors bought at a bad time, and if demand falls off during a recession, there could be some forced selling. I never root for anyone to lose their shirt on a home they bought or an investment, but if that does come to pass, it could present buying opportunities. 

7. Explore creative financing options

Consider creative financing options, like Subject To (SubTo) and seller financing. These financing strategies offer the opportunity to buy real estate at lower rates than conventional mortgages and can help boost your spending power. 

8. Hold on to what you got

If you bought property within the last 10 years with low-interest debt, stay calm and carry on. You may give back some recent appreciation, but if your property cash flows, rent growth is improving your cash flow and might continue to do so into the future—making it a solid long-term investment. It may sound boring, but deciding to hold a property that cashflows, has a low rate, and could see increased income is a good move in this market! The alternatives, such as a cash-out refinance, 1031 exchange, or selling and paying taxes, will likely yield worse returns than just holding on. 

9. Use cash, if you can

If you have the means, consider buying with all cash. We all know debt is expensive. If you believe the consensus that price growth is likely to come in between 3% and -8% next year, then investing in real estate using high-interest rate debt may actually be dilutive to your returns compared with buying in all cash in the near term. If you buy a property generating income at a 4% cap rate, and assume 2% appreciation next year, then 6-7% interest rate debt will likely make your returns worse than if you buy all cash. Don’t believe me?

Try it out on the BiggerPockets Rental Property Calculator for yourself. Depending on your appreciation assumption, financing with debt may actually make your returns worse than buying all cash. Not many people have this option, but if you do, it’s worth exploring. 

10. Become a private lender

As rates continue to rise, it could be a great time to shift at least part of your real estate strategy to the lending side. Returns on private lending can be as high as 10-14% in the current market, and demand for private loans is likely to rise significantly in the coming months. Your worst-case scenario as a lender is that you become an equity holder in the real estate property you are lending to. If researched and executed carefully, lending may produce much higher returns than equity investments over the next 12 months, with a dramatically lower risk profile.

11. Time the market if you have a crystal ball

Lastly, you could try to time the market, but that is notoriously difficult and something I would not try to do. Instead, I stick to the basics and look for good long-term opportunities. Remember, property values are not the only way you make money with rental property investing. You could try to time the market, but in the meantime, you’ll miss out on cash flow, loan pay down, and tax benefits.

I’m not saying you should buy just anything, but you need to factor in variables other than property prices when deciding where to allocate your capital. If you want to learn how to analyze deals with all of these metrics, you can check out my new book, Real Estate By The Numbers, which I co-authored with BiggerPockets legend, J Scott. 

Conclusion

This advice is all based upon my current read of the market, so you may want to consider alternative strategies if you think my read is incorrect. With all the economic uncertainty right now, it’s really difficult to know what will happen next, but I hope this analysis helps you interpret what is going on and how to invest in the current market. I’d love to hear your take in the comment section below.

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

David:
This is the BiggerPockets podcast show, 670.

Kathy:
This is a wonderful time to get in. And you might even find that the metrics you’re searching for are the same, because if interest rates are up, the prices are down, the cash flow might be the same as if prices were high and interest rates low. The difference is you’re getting the asset for less, so over time, if you’re able to re-fi at some point, whenever that day comes, when it makes sense to re-fi, your cash flow increases even more.

David:
What’s going on everyone? I am David Green, your host of the BiggerPockets real estate podcast. Here today with a special episode for you. We’re doing BiggerNews with my co-host Dave Meyer. Dave, what’s going on?

Dave:
Not much, man. It’s great to be back. You still have me laughing from before the recording. I’m still trying to get my act together.

David:
We have a lot of fun here and that will translate into the show. But in addition to fun, you’re going to get a lot of amazing information. So in the BiggerNews episodes, we have created these to bring you what’s going on in the current state of the market, what’s happening with interest rates, what’s going on with the Fed, what’s happening with the country as a whole, which markets are exploding, which ones are shrinking, the information you need to make the best decisions possible for yourself all backed by data. Which is why we’ve got Dave Meyer here, because he’s the data guy. In today’s show, we have a special guest. We have Kathy Fettke of Real Wealth Network returning. She was our first ever guest on the BiggerNews podcast. And she comes in to talk about a term that I think is fantastic that my co-host, Dave Meyer here came up with, defensive investing.
So in our show we’re going to talk about how to invest in a defensive way, which I recommend doing when the market starts to turn like it is now. Before we get to Kathy, today’s quick tip is you got three options. And Dave Meyer brought this up, I thought it was brilliant, you can either play offense, you could play defense, or you can just not play the game. When it comes to investing, I don’t think this is the best time to be offensive. You don’t want to be just buying stuff in droves without looking at it very closely. You don’t want to buy any kind of real estate or buy it anywhere. You also don’t want to just sit out and not play at all, because you don’t know if you’re going to have a window to buy, like we have right now, this is one of the best buying opportunities that we’ve had period, in the last 10 years.
So what we recommend is defensive investing and we get into that in today’s show. But basically, you want to make calculated, careful and somewhat… I don’t want… Nothing in real estate is ever guaranteed, but you put the odds in your favor that this will be a very solid long-term investment based on strong fundamentals as opposed to speculation. Another important topic in today’s show that you want to make sure you listen all the way to the end to hear about, is time manage management or budgeting your time. Both Kathy, Dave and I give some really good information about how we get the most out of our day, how we stay productive and how we get as much done as possible.

Dave:
Yeah, it’s a great episode. Kathy’s one of the best, smartest investors out there, so you definitely want to stick around. But before we get into that great discussion with Kathy, let’s talk about some of the headlines recently, David, because if anyone is out there, you all know there’s just so much crazy economic news going on right now. But the number one thing has to be the Fed’s decision last week. And probably everyone has heard that the Fed raised their interest rate by 75 basis points, which is basically 0.75% and that’s pretty well known, that was expected. But there’s something more to this press conference and the announcement. And it really to me at least, was a showcase that the Fed is not messing around. They released some forward guidance that showed that they think rates are going to go up even more before the end of the year and even more into 2023. So that shows that we’re going to be in a higher interest rate environment for a while.
And if you look at Jerome Powell’s press conference, he was not pulling any punches. He was basically saying, “We are going full send, we are not stopping. We are going to basically go after inflation, even if it causes a recession, even if it causes job losses or a decline in the housing market.” And people have always speculated about this, but he basically said it more clearly than I think we’ve heard it articulated in the past. So I’m curious, David, what do you think of this really emphatic release by the Fed and what this means for real estate investors?

David:
Well, this was clearly a warning shot. When you see a warning shot you know things are getting serious. It’s not, “Oh we might be coming into the enemy or a battle.” It’s likely going to happen. So it doesn’t mean to run, tuck your tail and hide and panic and let fear overwhelm you, because we still live, in my opinion, the best country in the entire world. And we’ve got more tools to get ourselves out of a deep depression than anyone else. But it means that the current standard of living that we’ve been enjoying and some of the perks that we’ve had, probably are going to be going away. So if you’ve got a job, I would count that as a blessing and I would work very hard at keeping that job, more layoffs could be coming.
If you’re working in an industry that’s not really forward leading or maybe you’re in the blockbuster of whatever space you’re in, look for a different industry. This is a time where I think big economic changes are going to be happening. What I like about what Jerome Powell did, was he was clear and upfront about the fact they’re going to continue raising interest rates. When there’s uncertainty, when they don’t tell you exactly what’s going to happen, it leads to a lot of speculation in the stock market, in the mortgage backed securities market, in the economy as a whole. So by just coming out and saying, here’s what is going to happen, it does give us a little bit of an advantage as to how we can prepare for what’s to come.

Dave:
Yeah, I totally agree. It’s not what I think most people want to hear, but at least we know, because people have been speculating for a while that the Fed was going to “pivot.” Basically, they were going to start raising the rates up until the point where they got to a neutral interest rate and then they would maybe slow down, see what’s going happen. But now the Fed is just telling us that we should expect things to keep going up. That tells me a couple things, like mortgage rates are probably going to go up a little bit more over the next couple months. So if you could get a rate lock now that might not be the worst idea.
But that this is going to put a lot of downward pressure on housing prices for a while. If we were in this place where the Fed was going to take their foot off the gas, maybe coast for a while, more markets would probably be able to be resilient against that. Now, if we see two years of high rates, I think that’s going to put a lot of pressure on housing prices. But like David was saying, that just means you just need to change your strategy, it doesn’t mean that you need to get out of the game at all.

David:
And there’s a few areas that this might benefit us. It’d be nice to see food prices stop going up so fast. Asset classes that are highly financable, like cars and homes, it should keep the prices from going up faster, maybe even push them down. And the last piece I’ll say is savers could finally be rewarded. When is the last time that putting money in the bank and saving it was actually a viable option? It’d be nice to see some of that come back, especially for the aging part of the demographics, where people have retired and they’re living on fixed incomes. They were planning on getting return on that money and it’s been a big goose egg for a long time.

Dave:
That’s a really very good point, I totally agree. And for people who haven’t been able to afford houses, some markets might decline and you might be able to get into that. So that’s in my mind, going to put sustained downward pressure on prices. On the other side though, there’s this other dynamic in the housing market that might put upward pressure on the housing market. And again, the housing market, there’s all these forces. Some put downward pressure, some put upward pressure, no one knows exactly what the mix is going to be. But I just want to present that not everything is pointing down. So this is other dynamic that’s going on where new listings, which is basically just the number of properties that are put up for sale, are down 18% year over year, which is a lot.
People do not want to sell their houses right now, and we’ve been speculating about this for a couple months, this idea of the rate lock where people are going to be locked into these low mortgages. They don’t want to sell into a declining market to only get a mortgage at a higher rate and that doesn’t sound very good to me, so I understand why they would do that. And if inventory flattens out, which it is already in some markets or starts to decline, that could at least put a backstop on some of the declines that we might see or level it out, I don’t really know. But it’s just this really interesting phenomenon that’s going on, because right now everything is so weird and interesting. But curious, are you seeing this in your market and what do you make of this?

David:
I’m seeing this in a lot of markets, because as you know, I invest long distance. So I study a lot of the different markets and I’ll say if real estate has a relationship status on Facebook, it’s complicated.

Dave:
It’s super complicated.

David:
There’s a lot of things that factor into this and that’s why I get frustrated if someone says, “Oh, rates are going up, prices are going down.” No, rates going up affects demand, but a lot of other things affect demand. And then you’ve got supply, you actually got to balance both of these. So this is a clear indication that supply is not increasing. So even if demand is decreasing, it doesn’t necessarily turn into a difference in size.

Dave:
Exactly.

David:
Because supplies are… And why wouldn’t supply stay the same? Do you want to go sell your house at your 2.99 rate and go get into one that’s seven and a half and probably not that much cheaper of a price? It’s no reason for people to go put their house on the market and sell it. So what I would tend to see when this phenomena happens, what I observe, is that less houses come on the market, but they also don’t sell as fast. So at this point you’ve still got the majority of buyers that are hanging out in the background saying, “I want to see your prices come down.” Sellers are over there, like, “Well, the Cop show my house is worth this.” The days on market starts to go up. So you’re in a bit of a standoff, it doesn’t necessarily mean prices drop. And my strategy in that standoff, like I talked about in today’s show is that I go after the houses that I want the most with a very aggressive offer. And I look for the seller that isn’t getting interest from anyone else or who just flinches before I do.

Dave:
That’s very good perspective. Man, I love your analysis saying that Facebook, it’s complicated. It’s like, why did I pick this year to start a podcast about the economy? It’s so complicated. I guess in some ways now, it’s needed to more than ever. And I hope to people listening to this, this is helpful. But it’s like, why couldn’t I start a podcast about predicting the housing market five years ago? It’s like what’s going to happen? It’s going to go up. What’s going to happen? It’s going to go up.

David:
Real estate used to be like the Golden Girls, you knew what you were going to get every episode.

Dave:
Exactly.

David:
It was fairly predictable, right? It’s turned into Game of Thrones. Every episode you’re like, what radical, amazing change is going to happen between one podcast and the next one?

Dave:
Nothing is safe.

David:
Yeah.

Dave:
Nothing is safe. We have no idea what’s going to happen next, it’s just a free for all. But like you said, that’s why this episode is so good. It doesn’t necessarily mean… Oftentimes when there’s more risk, there’s more opportunity. When people are afraid, that’s when you often have less competition. So there’s pros and cons to the situation.

David:
Right.

Dave:
So that’s why it’s all about just staying informed and knowing what’s happening and adjusting your strategy, because there are good things about what was happening a year ago and there were bad things about that. Right now there are good things about what’s happening right now and there are bad things about that. It’s just about being cognizant of which way the wind is blowing and adjusting accordingly.

David:
Yeah, if you missed an episode of Golden Girls, you could still watch the next one and you’d be fine. You missed an episode of Game of Thrones, you’re lost. So don’t miss an episode of the BiggerNews podcast or any of the other podcasts, because things are changing rapidly.

Dave:
Yeah, if you missed an episode of Game of Thrones, I would call in sick to work, because you couldn’t go, because everyone would be talking about it and you’d missed the whole thing. Yeah, you can’t go.

David:
If you don’t know what Jerome Powell said, you are way behind what everything else is happening in the market.

Dave:
Exactly.

David:
All right. Our third headline to bring up has to do with you Mr. Dave Meyer and your new book Real Estate by the Numbers, analyze like a pro and get a holistic view of your portfolio. Tell me a little about this book and why you wrote it.

Dave:
Well, thanks man. So I wrote this book with Jay Scott. You know Jay, right?

David:
Mm-hmm.

Dave:
Yeah, so Jay and I wrote this book, because we are both numbers nerds. No, but really, basically we looked at the market and I get a lot of questions about analyzing deals, about learning some of the math, some of the formulas that help you analyze deals. And I didn’t find any one resource that was helping people holistically understand it’s not about math and formulas, it’s really about the concepts and the ideas behind investing, compounding the time value of money and using all the tools that your disposal as an investor to be able to look at a deal holistically. I don’t know if you see this, but sometimes I talk to people and they’re like, “Cash on cash return, cash on cash return.” That’s all they care about. Or they talk about force appreciation, force appreciation, that’s all they care about. Both are good things, but you have to be able to look at deals and real estate in this holistic sense.
And so that’s what the book’s about. Super excited about it and thanks for letting me talk about it quickly. We’re also going to have a couple of shows about this. Jay’s coming on, I think next week or something, so we’re all going to talk about the economy. Jay is super knowledgeable about recession investing, so definitely stick around for that. But yeah, I should just mention that it’s in presale right now and if you’re interested in the book, you should buy now, because you’ll get 10% off if you use the code Dave. And Jay and I are both giving away coaching. We’re doing a webinar for anyone who does a presale. So definitely check that out if you’re interested.

David:
Well, I want to thank you for writing that book, because I can’t say how excited I am enough that you’re bringing attention to the fact that real estate is about more than just cash on cash return.

Dave:
This is your thing.

David:
We typically call cash on cash return, ROI. Yeah, because if you’re just looking at it, real estate’s not much more appealing than stocks or some bonds or NFTs or crypto or a lot of other things that are out there, that all provided cash on cash return. Real estate makes you money in so many different ways that if you’re only focusing on one out of those, I basically have 10 ways that I think real estate makes you money, you’re missing out on 90% of the benefits of it, theoretically. So I’m glad that somebody is bringing attention. It’s not that cash on catch return doesn’t matter, it’s that it’s not all that matters. You don’t want to miss the forest for the trees.

Dave:
Exactly.

David:
And as I understand it, Dave, you’ve been doing a little bit of a tour talking about the book and the information that’s in it. So if you guys would like to hear Dave on the Rookie podcast, keep an eye out for the October 8th release. And then he will also be on the regular Bigger podcast show on October 11th, where he gets into how to think an investor. And Jay Scott’s on that interview with Rob, it’s really good. And if you guys like, I throw my 2 cents in there after the fact, a little bit of a reaction style to the interview that you all recorded. So everybody keep an eye out for October 8th and October 11th releases that have to do with Dave’s book. And Dave, if people want to get the book, where can they go?

Dave:
Just to the BiggerPockets bookstore, go to biggerpockets.com/numbers. And again, if you do it now, you can get 10% off, which is great. And yeah, thank you guys for having me and Jay on the 10th and 11th. We’re both super excited and proud of the book, think that there’s a lot of value there. So thanks for letting us come talk about it.

David:
Right on. I’m sure it’s a great book. Can you give the code if people want to get a discount?

Dave:
Oh yeah, it’s Dave like my name, D-A-V-E.

David:
D-A-V-E, there it is. All right, let’s bring in Kathy and let’s talk some real estate.

Dave:
All right, well Kathy Fette, welcome back to the Real Estate podcast for BiggerPockets. Thanks for coming here.

Kathy:
Oh, it’s always an honor to be with you guys.

Dave:
Well, I have the pleasure of seeing you all the time Kathy, because we’re on the other BiggerPockets podcast, On the Market together. But this is a reunion, because I think it was maybe about a year ago you were our first guest ever for BiggerNews. And since then, David and I have been doing these shows once a month and we’ve been having a great time bringing market data and trends to the masses. So thank you for helping us start this part of BiggerPockets.

Kathy:
Oh it’s so fun. On the Market show is just a blast, but I also learn a lot every time from the other co-hosts.

Dave:
Well, today we are going to talk about defensive investing. And David, this is something I hear you talk about a lot on the show, about the differences between defensive and offensive investing. For anyone who hasn’t heard this framework that you use, could you recap it for us briefly?

David:
Yeah, a lot of it comes from my personality. I think I’m perceived by people as being aggressive, go buy, I often get told, “Well, he’s a real estate agent, of course he says you should buy houses.” But I’m buying them myself at the same time. My personality just tends to be more conservative. I always look at the what could go wrong. I’m always thinking about the downside, I’m trying to protect against it. And when I’m investing, I’m typically not chasing after the highest return I can get. I’m usually looking for the safest option. But because I look at the property itself, the area, the asset class, whatever it is as being safer, it allows me to take action more freely. I don’t have that little, what we call the drunk monkey in your head screaming at you saying, “Don’t do it, this could happen. What if this? Everyone’s going to think that.”
By literally choosing asset classes that are more recession resistant or areas of the country that have stronger, long term outlooks, even if they don’t look as desirable right now, I find areas where other people are not flocking to, so I don’t have as much competition. I don’t get into that situation where 12 people want the same house. And I can also invest with confidence that I’m going to feel really good about this investment in five to 10 years versus really good right away. I find that when I analyze deals, this is not always true, but in general, you usually have a tortoise or the hare approach. There’s deals that on the spreadsheet look amazing in year one, you’ve got a 20% ROI, 15% ROI, sometimes short term rentals that can get into 40, 50% ROI.
But over a long period of time they’re in areas that are not growth oriented. People are not moving there, businesses are not moving there, wages are not increasing there, supply is not constricted, so they can just keep building more homes. And you find that in 15 or 20 years your house is worth very close to what you paid for it before. Versus areas that don’t look amazing up front. This would be the tortoise approach, that a lot of people see the cash on cash return and just gloss right over. Those over the long term can look really, really good. A hyper example I could give you would be investing in Malibu. Kathy knows that area, she’s in Southern California. It’s very difficult to find anything that would cash flow probably at all, let alone solid in an area like Malibu. But if you hold it for 10 years, it’s very difficult to find anything that isn’t going to make you obscene amounts of money.
Now I’m not advocating everyone goes and invests in Malibu, obviously that’s for a very specific avatar of investor, but it does highlight the point. And on the other end of that spectrum could be a turnkey property. “Oh this looks great, we’re just going to go into someplace in the Midwest, there’s houses everywhere. They just build them nonstop. I’ll go buy one of those and my cash on cash return can look really good.” And then as the house is falling apart, it’s not appreciating, you can’t pull money out of it to fix up the roof, fix up some of the capital expenditures you have. Rents are not going up, because there’s so much supply that demand never outpaces it and you hit the opposite results. So I try to avoid either extreme, right. It’s a spectrum and you want to figure out where to fit, but defensive investing is this idea that you are looking at long term fundamentals and delaying gratification and making investment choices with that perspective.

Dave:
And is this something you do always or is this a reaction to current market conditions?

David:
That’s a really good question too. In general, I lean more that way, but in different markets I play the game very differently. So in a market like this one, which we never know if a market’s going to crash or if it’s going to climb, you can’t tell and I’ve just made peace with the fact that I don’t know. But there are markets where odds are, like the one we’re in now, it’s likely to go down more before it goes up at least significantly. The Fed is announced they’re going to continue rising rates, they’re trying to slow things down. You’re getting an issue where home sellers don’t want to put their house back on the market, we can go into that later, because they’re going to lose that 2.99 rate that they have. They’re going to have to get into a higher rate. And then there’s not a lot of inventory to choose from. So when I think we are more likely to be headed down, I tend to invest more conservatively.
This is where I would pick the areas that I think are going to be safer long term where I see people moving to, even if the cash on cash return doesn’t blow me away. If I see that’s an area that in general Americans are trending towards moving into, it’s got a favorable tax environment, it’s got a favorable business environment, the demographics show that people and businesses are moving in that direction, I will favor that over an area, maybe a C class neighborhood. Now if we’ve just had a crash like what we had in 2009, 2010, 2011, I feel much better if I’m going to get into some of those C or C minus neighborhoods because you’re almost at the point where you’ve got nowhere to go but up. So in general, the philosophy that I preach is if it’s post crash, you can be much more liberal with what you buy.
You can go after areas where price points are lower and it’s easier to get into that area and the cash on cash return looks really good, because even if for some reason you don’t love it, you’re going to ride the elevator up and you can exit if you have to. But if you’re at a point where you’re thinking it might crash, you actually have to get extra conservative, because those A class properties, those A class locations, they don’t get hammered like the D class areas do. If you just think about whoever’s listening from wherever they live, the best neighborhoods in your city or the best cities in your state, the last time we had a crash, they had a dip. The worst areas were decimated. So we’re at that point where we’re looking like we could be heading over a cliff, nobody’s really sure, I want to be extra conservative about the areas and the asset class that I invest in at a time like this.

Dave:
Kathy, what do you think about this framework of defensive versus offensive investing?

Kathy:
A hundred percent, everything he just said. But I’m opposite by nature, I tend to jump into things. I’m a quick start, if you follow the Kolbe personality test. I need enough research and then I’m ready to jump in. Fortunately, I’m married to someone who needs all the information, so we help each other out, he slows me down and I speed him up. Otherwise, we probably wouldn’t own hardly any real estate if I weren’t in the picture, so that’s good. Listen to your spouse and listen to each other and each other’s fears and that can actually help you both move forward, that’s just my little marital advice. But back in 2005 when I didn’t know anything about out-of-state investing, I did have Robert Kiyosaki on the show and he gave me some fundamentals that I’ve stuck with since then, which is almost 20 years. And of course, if you don’t know who that is, that’s the author of Rich Dad, Poor Dad who’s changed many lives.
So I was lucky enough to have him on my show and at the time it was a San Francisco radio show before podcasts. And he was really explaining the dynamics of what was coming and it was so shocking that nobody could see what he could see when it was so obvious. And David, I was a mortgage broker back then and I knew something was wrong, it didn’t pass the sniff test at all. Being able to give teaser rates, not even the full payment to qualify people, knowing that when that payment adjusted, they would never ever be able to make that payment. But those were the loans, that’s what people were getting. So it’s intuitively like, this is going to fall apart. But the headlines were saying the opposite and even real estate experts were saying it, that it was going to be fine. But Kiyosaki was saying, “Oh no, no, no, these are going to reset in 2007.” So he had already sold all of his high price real estate. He made a killing in the growth markets.
But then when he knew when these loans were going to reset, it was in the books. People knew when that was going to happen. He just sold everything in the high price markets and bought in Texas. So I was like, “Why Texas?” And he explained it’s the biggest job growth in the country, the biggest population growth as a result. And yet home prices are still 26% undervalued compared to incomes there. The prices had not gone up as fast as the incomes, I mean, what a scenario. So it made sense to me and being a quick start, I’m like, “Rich, I want to go to Texas-”

David:
“I’m moving to Texas.”

Kathy:
And [inaudible 00:24:56]. Not even moving, I just was like, “Let’s go.” We ended up coming home with five properties, because if you remember, you could get loaned on investment properties an unlimited number with no money down. So yeah, I bought five of them in that trip. We went back and bought more and this was at the top of the market, it was 2005, 2006. And yet when everything crashed a few years later, those properties stayed rented, because like you were saying, we bought in really good neighborhoods. We had A class schools, it was near jobs, it was near new infrastructure growth. This is really important to me, if you know that a city is investing billions of dollars, billions of dollars in their infrastructure, they have been studying that for decades of where growth is going, they know. That when you see that new infrastructure coming in, it’s like, “Oh okay, this is a really a growth area.”
So it just made sense to us, we helped thousands of people do the same. And it was like being on a, I don’t know, if you’re in a movie and you’re watching this earthquake happen and some people are in the middle of it that it caves in and the there’s other people on the side just watching them fall. That’s what it felt like on those Texas properties. The ground was shaking but we were fine except for the properties that we didn’t follow that advice on. The California properties we kept or we bought three properties in Boise where there was two employers at the time, it didn’t make it through that.

Dave:
Wrong bubble for that one.

Kathy:
Wrong bubble, yeah. It would’ve been better to wait, yeah.

Dave:
This bubble would’ve been good.

Kathy:
Exactly. So those fundamentals we’ve carried, that’s really how we built our company and the foundation of look for those things, look for where the job growth is. And I don’t mean a little, I made the mistake and Dave knows, of following job growth to North Dakota during the oil boom. But I tell everybody, never invest in an area that’s dependent on one industry. Well, I did and then the rug got pulled out, oil prices crashed and I’m stuck with land in North Dakota. So when you go to other places, you look at, we really still like Florida, Orlando, Jacksonville, these areas have diversified employment centers now. They didn’t 10 years ago, it’s a different market today. So really sticking with those dynamics of job growth, population growth and affordability and infrastructure, I feel really comfortable even investing today and we are, we’re going big actually. We think there’s some amazing opportunities today.

Dave:
Can you tell us a little bit about, obviously not the specific opportunities if you don’t want to, but just the characteristics, what are the trends and the data points that get you excited about opportunities in this type of market?

Kathy:
Well, I like to see, like I said, I think the government controls a lot more than we realize, this is not your parents economy and is not your grandparents’ economy. This is a very manipulated economy and a lot of it is, we’re just the puppets of the puppeteers who control the levers. And right now those levers are saying we’re going to crash this economy. I mean, Jerome Powell just came right out last week. I was way more positive a month ago as you know, Dave.

Dave:
Same.

Kathy:
And then he comes out and he is like, “No, we’re going to kill it. We’re going to kill jobs.”

Dave:
He’s not messing around anymore, yeah. That was like, “Anyone thinks I’m messing around, I’m going to crush your dreams right now.”

Kathy:
Oh, he’s really totally fine with that.

Dave:
But honestly, as an investor it’s better, right? Now you know where we stand. It’s obviously not great for prices in the housing market, but personally, at least for me, especially if you’re trying to be defensive like we’re talking about today, it’s better to know what they’re intending to do rather than being in limbo.

Kathy:
Yeah, I really had this rosy belief that the central banking system wasn’t on a mission to make lives worse. And again, I know that bigger picture, maybe they don’t, maybe that’s not their intention. But for the Federal Reserve, which is the banking system, it is not a government entity, for them to just flood the market with so much money and buy mortgage backed securities to keep rates low for so long, to stimulate a housing market that was already stimulated, it didn’t need that help, to then just drive… Everybody knows if you keep rates low, it’s going to make prices higher, because payments are low, people can afford more. And you also know that when you pull that back, it’s going to do the opposite. So they’re the ones who flooded the market with money and kept rates low and now they’re like, “Oh, maybe we shouldn’t do that. We’re going to take all that away from you. Sorry, I gave you some candy, I’m going to have to take that back. You can’t keep that.” And you’re just like, I already maybe swallowed it.
Anyway, these are interesting times and I follow what the Fed says and I believe them. And this time we’ve got to be really defensive, way more defensive. I’m already defensive now, because I’m older and I think that my natural tendency is to dive in and just go for it. But as you get older and you’ve taken losses and you’ve had to start over and I’ve had to start over several times, once you get to my age, you don’t want to start over. So already I was being careful for the past decade, because it was really hard going through 2008, I never want to do that again. Anyone who did doesn’t want to do it again. So I was already staying low leverage. This is defensive to me, low leverage. I got sometimes no debt and sometimes super cheap debt, long term rates, 30 year fixed.
Rich and I would have these fights, I’d be like, “Honey, why don’t we just get a lower rate at a 10 year arm?” And he’s like, “No, the 30 years not that much more, just lock it in then you don’t have to worry, we’re old.” It’s basically what he is saying. So low leverage, long-term debt that’s fixed so you don’t have to worry about that variable. And lots of reserves on hand, lots of reserves and I personally either want to buy properties that are fixed up like new or brand new, because then you don’t have so much of those issues of repairs to worry about. And believe me, I bought plenty of old houses that cash flowed great until they didn’t, I guess plumbing broke and I spent 20 grand fixing it. So those are the keys to me in defensive investing. I’m not worried about this, because we’re super low leverage and have reserves and we’re in strong markets and in good properties in those markets that people want to live in.

Dave:
So David, I know you just went on a buying spree I think, I don’t know if that’s what you would call it, but it seems like it. What defensive tactics did you use to make sure that you were cushioning yourself against potential price declines?

David:
I’m still on that spree actually. It slowed down from where it was, but I put a property contract yesterday-

Dave:
Nice.

David:
That I’ve been working on for about a month and a half. And another one I’m really close on. So part of my strategy has been, rather than seeing a property and going after it with everything you have, that was the way you had to do it the last seven years. There was no light stepping around this thing, you couldn’t throw jabs, you had to throw in your offer a knockout punch and if you didn’t get the deal, you weren’t getting another chance. I look at it now I got a lot of lines in the water and I’ve got some sellers that are interested and I’m waiting as the news tips in my favor I guess there’s so much to say, I want to make sure I don’t just go in rabbit trails all over the place, because we’re talking about defensive tactics here.
But I guess one of them would be not falling in love with any one particular deal. I’ve got a lot of them that I’m interested in. They’re all A class properties, I probably never would’ve even had a chance to get in the last seven to eight years, because they got so much interest, everybody wanted it, that I can go after them now. And I’m not writing an offer with the intention of getting it accepted on the first try. I used to do the opposite, I would tell people, if you want that asset, if this is a good asset, give it everything you got, you one chance. You’re like Eminem in Eight Mile. This is your shot, do not miss your chance to blow. Now I really look at if an offer is a jab, I’m looking to see how my opponent reacts to that offer. I want to know what the seller does. If they accept my offer on the first one in the markets I’m investing, at least I went too aggressive, right? That was a mistake.
So I’m writing them low and I’m waiting to see who’s going to come back. And so this particular deal was listed at $1,175,000, it’s a 5,000 square foot cabin in a really, really good location in Blue Ridge, Georgia, which is where people in Atlanta would go to visit if they want to go to the mountains. A beautiful property, several acres of stream running through it. And it has a massive four car garage with a livable, two bedroom, one bathroom space above it, that garage can be converted in the living space and I basically could double the square footage of the house. It’s a really good borough opportunity, in a really good location, in incredible condition. Like what Kathy said, I don’t think that there’s one thing that I would need to fix about this property other than a couple mosquitoes that hang around that stream that seem to love me.
But I’m not just going in and writing a strong offer. They were listed at $1,175,000 and I wrote an offer at $1,000,050 and I asked for about $35,000 in closing cost credits and they said no. And so I waited and I waited and I waited and what do you know? Jerome Powell comes out and says, “Interest rates are going up, unemployment’s going to go up. The economy’s going to take a hit.” Fear courses through the entire seller’s market. This property and three others that I had offers in all came back that same day and said, “We’ll accept your offer that you wrote a month and a half ago.” So you have the combination of sellers sitting on the market realizing that their house isn’t selling, with this news coming out, that it’s going to be even worse. And then I’m in a position I can say, “Well, that was my offer a month and a half ago. Rates have gone up, their house has been sitting longer.”
I have my agents go back and try to negotiate it down. So instead of the $1,000,50, I ended up getting it at £1,000,025 with even more closing costs. So now I’m getting it a little bit under a million when it was originally listed a little under $1,200,000. And this is a property that is going to bring in a ton of short term rental. I’m going to double the size of it. The cash on cash return will not look incredible right off the bat, because short term rentals typically need a little bit of time to build up your client base. You have to get some tweaks, this one was currently not being used as a short term rental, so it doesn’t have reviews. But it’s in an area seven minutes from downtown that everybody wants to visit. Basically, I’ll almost double the revenue by taking that other structure and converting it into living space.
There’s a ton of things about it that I really like, but I just was patient. It’s like this aggressive defensiveness. I wrote a lot of offers, I wrote them aggressively, they said no. I said, “That’s fine, we’ll check in every week or two.” Sellers are sitting there marinating in their own juices right now. They’re worried, I would be too. No one’s buying houses like they used to be. Now I don’t want to go after the worst inventory. I don’t want to go after the same properties that all the rest of my competition going after, they’re still selling. I don’t want go buy a short-term rental that has 500 other cabins or properties that look just like it. Or buy into an area where I don’t think people are going to be continually vacationing into, or even worse an area where regulation laws could be impacted that would not let you use a short-term rental. So I’m going to safer spots, no one’s going to shut down short-term rentals in these vacation destinations, where everybody’s renting cabins and the whole economy is dependent upon tourism.
So right off the bat’s, that’s a little bit of a safer shot. And then I’m going after a bird deal that I can add a lot of value. I would imagine just based on the square footage in the area, I’m probably going to add close to $300,000 of equity to this property, putting $60,000 into the rehab. And then the last piece is just how many different offers I have out there. You can take your time, you can wait and see which seller is most motivated, frankly. And I really like this, if I’m going after grade A real estate. I don’t like this method as much if I’m trying to buy into C class areas or states or locations that people are not moving to.
Because even if you get the deal, it’s not a guarantee. It doesn’t have a big upside. You don’t know what’s going to happen. We might be in this situation for two to three more years before we lower rates. No one really knows what’s going to happen. So when there’s uncertainty like that, I want to follow the ancient principles of real estate, location, location, location. Where are people moving? Where are wages rising? Where is the highest demand going to be? And when I look backwards, what’s the property I’m going to say I’m so glad I own this, I love having this in my portfolio?

Dave:
That’s great, great tactical advice. I’d love to keep asking more questions about this, but we don’t have that much more time. And I have a couple other questions I definitely want to get to here. So Kathy, I’ll ask you this, in defensive investing, we’re talking about long term buying, but when we are potentially going to see increased unemployment, I mean, the Fed basically predict an increase in unemployment, we could be in a recession right now or we’re probably heading towards one. How do you square defensive investing with the fact that this might impact tenants and renters? Are you afraid that rents could soften or vacancies will go up? And is there any way that you can mitigate against that?

Kathy:
Yeah, I absolutely think there will be an uptick in foreclosures and in evictions, because again, it was Jerome Powell’s really, really harsh words of just last week that I think has everybody going, “Oh, he’s going to go for it.” So again, it just comes back to those fundamentals I said. If you’re in an area that has a big diversification of employment and different kinds of employers, so for example, we know that baby boomers are aging, so the medical industry is strong. I think it will continue to be strong. We are in a situation where we have a shortage of energy. So I really do believe that areas like Texas are going to stay strong. They’re not dependent on energy by any means, they’ve got every kind of employer is there, makes me feel comfortable. Florida, I’m comfortable there, because you have still a lot, like I said, these baby boomers and now younger people retiring, now they are retiring, they weren’t 10 years ago, now they are. And it’s a lot cheaper and it’s really pleasant in Florida and the Carolinas and Georgia and the southeast in general.
So a lot of demographic shifts happening in those areas. And diversification that wasn’t there 10 years ago in terms of employment. So first of all, stop underwriting as if you know that rents are going to go up, because you don’t know that. And when I see these multi-family deals come across my desk and they’re like, “Oh yeah, rents are going to go up.” Well, you know what? You could find yourself in a big problem if you’re wrong. And especially if you take an investor money and you’re wrong. So just underwrite things with the possibility that maybe rents will go down and that there could be evictions. And if you’re in an area where it’s hard to evict people, you need to keep that in mind too. I live in California where, and David you know, people can be very savvy and stay in your property for a year if they know what they’re doing.
So I want to be in an area like Texas or Florida where that’s not the case, where there are landlord laws and you do need to pay your rent and if you don’t, you have to leave. Don’t make the assumption that landlords can handle paying everybody’s rent, it’s not the case. So it’s all about the underwriting and making sure you’re in a landlord friendly area and that there’s huge job diversification and a big renter pool, because again, I try to keep my properties in the median price range of what the average person can afford. And so if you’re in a big market with a million renters and you’re in that median price range that the most people in that area can afford what you’re offering, again, I think you’re really setting yourself up defensively.

David:
I think you made a really good point as particularly about rents rising in the multi-family space. And I just want to highlight it, because the assumption if we say rents are rising, that would mean rents rise everywhere in the entire country over every asset class and that’s not how it works. Rents rise when demand grows higher than supply and wages increase to the point it can support a higher rent payment. Well, we’ve been having builders creating multifamily properties, particularly in inner city for years. I mean, if you were in any big city in the country, you saw these cranes all over the place creating multifamily housing in downtown areas. There’s a lot more supply in those spaces than demand. And so multifamily particularly is one asset that I think is exposed in more areas than single family, because we’ve been building more of those units. We haven’t been building as much single family housing in those same spaces.

Dave:
Yeah, I was actually looking at some data recently that showed that although construction permits and units are declining, David, that’s actually more in single family, they’re really starting to fall off. And the amounts of permits for multi-family units are pretty steady, probably because multifamily operators know it’s going to take them two or three years to build something and maybe we’ll be through the worst of this. But just something to note that more supply is continuing to come online there faster than single family homes.

David:
And when you hear us talk about rents are going up, that does not mean in every asset class everywhere, it’s highly localized.

Dave:
And it’s Kathy’s favorite saying, right? There is no national housing market. She’s completely right.

Kathy:
And there were boom markets that everyone just went frenzied over. So one example is Phoenix where there’s 19,000 new single family units coming online that may be able to be absorbed. But some areas didn’t get that action, where isn’t a lot of national builders going in. They don’t have that new inventory coming in. So always looking at permits and new starts versus job growth, I think is really important.

Dave:
That’s great advice. Well, we do have to wrap up here, but Kathy, do you have any last word about how to be defensive in this market?

Kathy:
Well, I know that people are probably really scared, but I really want to leave this saying, this is an exciting time to get in. As much as it might feel like, oh this is scary, when you look at headlines, you’ve got to look at, how do I interpret this? So if you are seeing prices go down, well who’s that good for? That’s good for the buyer. So if you’re just getting in and you’re a buyer, this is such a better time than last year when you had to overpay and get in line and not be able to negotiate, now you can, you don’t have competition. This is a wonderful time to get in. And you might even find that the metrics you’re searching for are the same, because if interest rates are up but prices are down, the cash flow might be the same as if prices were high and interest rates low. The difference is you’re getting the asset for less. So over time, if you’re able to re-fi at some point, whenever that day comes, when it makes sense to re-fi your cash flow increases even more.

Dave:
That’s great. That’s a great point. I mean, I didn’t experience the 2008 crash. I started buying in about 2010, but that was before the bottom of the market and it feels the same vibe. No one really knows what’s going to happen, but things when you look at them on paper, this makes sense. And you’re just looking around, everyone’s really nervous, but this is actually pencils out and it’s starting to feel like the same vibe, at least to me. David, any last words for you on this?

David:
I like Kathy’s point, if you had to choose between a high price and a low rate and a low rate and a high price, you’re better off getting it at a lower price. Your property taxes will be lower plus you have the ability to refinance in the future. And even though we’re all doom and gloom, because rates are high and the market has slowed down a little bit, still we all know that at a certain point rates are going to go back down. The Fed is purposely trying to raise them to slow the economy down and what’s going to happen to the price of assets when rates go back down? It’s not a shocker, we all know what’s going to happen.
And we will be talking about this moment in time, like, oh, I wish I had bought when I had the chance, that was a nice little window and now prices are high and all of these buyers are back in the game and there’s multiple offers and iBuyers and hedge funds are going to come right back in. It’s going to push out the mom and pop. So you can look at higher rates as a curse or you could look at it like a blessing, it’s a bit of both. But the key is when you’re following podcasts like this one, getting information like this, that you play your hand according to the cards that you’re dealt at the time. Right now we have higher rates, we have an opportunity to get houses at much less than I think what their inherent value would be. It won’t be that way forever. When rates do go back down these properties that we’re talking about buying right now, they’re going to be worth a lot more.

Dave:
All right. Great advice from both of you, thank you. I think this is super helpful. I mean, what you’re saying makes total sense, I notice more opportunity. Every single investor I speak to says there’s more opportunity right now. I think this is just a universal observation by people who are super active in the market. But at the same time, because there’s so much uncertainty, it makes very logical sense to be a defensively minded investor at this period of time. All right, so we’re going to move on to another segment. It’s a little bit different.
It’s not about real estate per se, but it’s about sort getting your mindset right to be a real estate investor. And we’re going to talk about time management. Both of you obviously very busy people, David, you host this podcast, Kathy, you’re on two podcasts, you’re both actively investing, running businesses, You speak at every conference in the country. Kathy, we’ll throw this to you first, could you give us a quick tip on how do you manage all this stuff? You’re doing so much stuff. How do you manage your time in a way that allows you to accomplish all your goals?

Kathy:
Well, have to look at leaders of large corporations and ask how do they get it all done? And they get it done, because they have good people. So that started 15 years ago when we started growing Real Wealth and my first person was a bookkeeper, because I was just like, I handed her box of stuff, I’m like, “I don’t do this part.” And that was like, “Oh my gosh, she does this better and she’s good at it.” So I was like, “What else can I offload?” And so that’s been the key to success, is getting people that are better than you at certain things you’re not good at. Instead of like, “Oh, I’m going to go hire my mom or my sister for this thing that they don’t know anything about.” I’ve done that a few times, not my mom, but friends. And it’s like, “No, get someone who’s really good at it, has done it before.” I wouldn’t want to hire a new bookkeeper who has never done that, I was going to get a really good one.
So I have a personal assistant, she handles my email, she handles my scheduling. We ended up hiring investment counselors to talk to investors, because there’s no way I could talk to thousands and they’re… So it’s good people. On a personal level, one of the big changes that Rich and I have made lately is your day starts the night before. It’s an interesting philosophy and I forget who said it or what book we read about that. But we were getting a little lazy, having a lot of wine at night and watching a movie and it was probably a COVID thing and up till midnight. But we both wake up naturally around five, so we weren’t getting enough sleep. We were a little hungover, I mean, not really, but even just a glass of wine affects me. So now we go to bed early, we don’t watch TV only on the weekends, don’t drink wine midweek. And get up early, fresh, able to focus, do some yoga, some meditation, exercise, and just start the day looking at the calendar, what do I have planned? Structure it properly and that works way better.

Dave:
That’s great. Still like those wine nights every once in a while.

Kathy:
Oh yeah, for sure.

Dave:
You got it, you still got to do it, but for the most part-

Kathy:
Weekends.

Dave:
You got to be disciplined.

Kathy:
Yeah.

Dave:
What about you, David? How do you manage this?

David:
All right, I’ve got four tips that I can share for time management.

Dave:
Ooh.

David:
So the first thing I’ll say is to be completely transparent, it is pretty much every day that I have 20 things to do and enough time to do 12. So part of my life is just accepting that eight of those things are not going to be done. So you have to figure out how you can get a little bit of progress done to buy yourself some time. Or prioritize what needs to be done or see what action can be done that might cover two of these things, because sometimes that’s the case too. Tip number one, don’t be reactive. This is how most people live their lives. They wait for something to come to them and they go, “Oh, there’s a fire I got to put out.” And they just jump right into it, okay? It’s very common for everyone else in the world to feel that whatever their issue is, should be as much of a priority to you as it is to them, even if it’s their own fault that they got into that mess.
So when someone comes and says, “Hey David, can you look at this? Can you do that? Can you fix this problem? This just happened, ah.” I immediately say, “This needs to be scheduled on the calendar. This is not a thing that I have to stop what I’m doing and jump into this, just because emotionally it would make you feel really good if I prioritize this over what I’m doing.” Which leads me to tip number two. Schedule everything. I have times in the day scheduled to bring me all of these problems that popped up that someone needs help with. I tend to tell the leaders in my company that they do this with me and then they also do it with the people that are subordinate to them. You don’t want someone texting you to say, “What do you do when a buyer does this? What do you do when the contractor says this?” You write that in a Google document.
You have a scheduled 15 minute meeting and you go over every bullet point that’s in that document that was written down, at one time as efficiently as possible. And then oftentimes we will share that document before the meeting. And so you can answer some of the stuff without even getting on a call. It’s much faster to type in an answer than it is to have a conversation where you get a bunch of background details, that don’t really matter. And a bunch of non-essentials when you’re just trying to solve a problem. So schedule everything that you do, if it’s not on your schedule, it doesn’t exist. Number three, you got to know what moves the needle. Not everything we do is the same. If you’re just a pure investor and you’re saying, “How do I find time to analyze deals?” If I sat and watched you analyze deals, you’re probably analyzing a deal that I would look at before you even started and say it will never work.
This is why we have rules of thumb, stuff like the 1% rule, stuff like buying in areas where you shouldn’t be buying, stuff like buying a property that’s already occupied by tenants and you’d be basically buying an eviction. There’s certain things that automatically disqualify a deal and just putting a little bit of effort before you jump into it will help you. I personally think people that like analyzing deals do it just because it’s fun. These are the high C’s on the DiSC profile, the analytical people, they will sit there. And I’ve had these buyers before that want to go over on a spreadsheet, all nine deals and look at every one of them in depth when they’ve already decided they don’t want to buy any of them. Stop doing that, if you’re not going to buy it, stop looking at it. And then the fourth one is use different muscles. So what I mean by that is, if you go to the gym and you are working out, there’s several different ways you’re burning energy.
So if I’m just doing bicep curls, I can only do it for so long before my bicep wears out. Well, I also have overall glucose in my bloodstream that I need to burn as energy to make that muscle contract. I could burn my bicep muscle out but still have glucose left over to work out another muscle system. And then I go do legs or I go do shoulders or something and all of a sudden I’m not fatigued and tired anymore, I can work out that muscle. When I run out of glucose, I’m completely done. So you have an amount of energy you can burn in a day that your attention can actually hold and focus on certain things and that’s going to determine when you’re done.
So you have to make sure you don’t go into a dead sprint and burn all of that by just getting into really tough meetings to start your day, with really difficult, problematic people. Got to be careful who you let into your life in the first place that burns all of your glucose to where you’re just done by lunchtime. “I just don’t even want to make money anymore. This is not worth it.” And the other thing is I break up my day by using different muscles. I don’t sit there and hammer the same muscle, because it wears out. I can’t write a book for 12 hours a day. I can’t be in meetings for 12 hours a day. I can’t solve difficult problems and I can’t review emails, I can’t do any of those one thing, because I’ll just get tired.
But I can break it up, so I will often record a podcast like this get done, use a different muscle by answering emails, use a different muscle by working on an outline for a book. Go step outside and take a walk while I call a couple people and talk. Get some sunshine, get some fresh air, come back in, grab a quick bite to eat, record the next piece of content I’m making. And basically, I don’t work out every muscle through the gym. I bounce around between the machines so that I can get more out of myself throughout the day.

Dave:
Wow, that’s great advice. I like that idea. Sometimes if you do two or three podcasts in a row, which I think we’re all doing today, it’s hard. I know people probably think, “Oh, they just talk on a podcast.” It’s like you have to pay a lot of attention, it’s exhausting. It’s nice to break it up a little bit.

David:
How about you, Dave? Do you have any tips?

Dave:
Yeah, I actually do. So one thing I think I do, I don’t know if I made this up, I’ve never heard anyone else do it, but I have something I consider my time budget. Everyone has a budget where they allocate dollars to certain things and they’re rigid about that. I have to confess, I’ve never had a financial budget in my whole life. But I do try to keep a time budget and I identify things that I want to do that are non-negotiable for me. So every item on my time budget has an amount of time I’m going to put towards it per week and then a priority level. So sleep, non-negotiable, got to do it. Time with my partner, got to do it. For me, I really like to exercise, so that’s something that’s nonnegotiable for me. But then everything else is a little bit below that.
And so for example, something that I had, some budgeting changes I had to make recently, is this year in 2022, I launched a podcast. Kathy’s on it, you guys have both been on it. And I also wrote a book and that’s on top of my full-time job at BiggerPockets. And so I had to look at my budget and say, “There are only so many hours in a week, how am I going to add to this?” And I basically decided no more active real estate deals. I’m only going to invest passively this year. And when I hear you guys talk about all your deals, I get a lot of FOMO.
But it’s a decision and a commitment I made to be able to do the other things I want to do in my life right now. And it helps you stay focused, at least for me, it helps me stay focused and not chase every opportunity, because ultimately, there is a lot of opportunity. And when you see markets like this, you guys are talking about, there’s a lot of different things. And I think you just need to be very intentional and deliberate about how you’re going to spend your time. And that gives you a better chance of achieving the fewer things that you decide to do. So I don’t know if anyone else does it, but it works for me.

David:
That’s pretty good.

Dave:
Well, thank you both for being here. This was a fun reunion. Kathy, we’re going to have to do this every Fall. We’re going to do a one year anniversary of BiggerNews. And so we appreciate you being here and looking forward to having you obviously on On the Market and seeing you both in San Diego. We’re filming this right before the conference, and we’ll see if one glass of wine really does it for Kathy.

Kathy:
Oh no, it’s going to be a weekend, I’m going to be drinking then.

Dave:
All right, great. Well, Kathy, where can people find you if they want to connect?

Kathy:
realwealth.com is our brokerage where we help people acquire investment properties nationwide. And then Grow Developments, growdevelopments.com is my syndication company.

Dave:
Awesome. And as if anyone listening to this doesn’t know where to find you, David, but what’s your Instagram and YouTube?

David:
It’s still not nearly as much as Brandon Turners. And even though he’s off the podcast, he’s still [inaudible 00:58:21].

Dave:
We got to get you up there, man.

David:
That’s what I’m saying, man.

Dave:
Yeah.

David:
I’ll take a pity follow. I’m not too proud to beg, not at all. I don’t want to have to grow a beard down to my belly button just to get attention like Brandon did. So please, if you like my content, go follow me at davidgreene24 and I’m on YouTube at David Greene Real Estate. And Dave, what about you?

Dave:
I am mostly on Instagram where you can find me at thedatadeli.

David:
All right. And last, for all of our listeners, please do us a favor, if you like this content, let us know in YouTube on the comments. We actually read those and we do take them seriously. So if you wish the show was longer, let us know. If you like the speed and the pace that we’re doing it at, the length, let us know that too. If you wish we had covered a certain point in depth more, let us know. We just may do a future show to satisfy your desires at a later date. Thank you guys, both Dave and Kathy for having me on and for sharing your knowledge. I think you both gave some really good, insightful things and I will get us out of here. This is David Greene for Kathy Real Wealth Fettke. And Dave, the Derek Jeter of Real Estate Meyers signing off.