The U.S. Department of Housing and Urban Development (HUD) believes housing has a role to play in combating the opioid overdose epidemic.

On Friday, HUD issued a joint letter co-written with the U.S. Department of Health and Human Services (HHS) and the White House Office of National Drug Control Policy (ONDCP), urging public health departments and health care systems to “partner with housing providers, community development organizations, and other housing agencies to help expand access to naloxone and other life-saving overdose reversal medications in the communities they serve.”

Housing can help fight the epidemic that killed an estimated 70,601 people in 2021, according to the National Institutes of Health (NIH), HUD said.

“Housing providers play an important role in the whole-of-society effort to save lives by ensuring that all public spaces have lifesaving overdose reversal medications on hand and people are prepared to use [them],” HUD said in an announcement.

“Overdose reversal medications that can reverse an opioid-related overdose, including fentanyl-related overdose, can be found in many schools, libraries, and other community institutions; and should be readily available in and around public housing settings, multifamily housing programs, housing counseling offices, and programs for people experiencing homelessness.”

HUD leaders further emphasized the importance of housing organizations and communities in combating the epidemic.

“Many overdoses happen in the home, and providing access to an effective and easy-to-use medication that can reverse an overdose is just common sense,” said Federal Housing Administration (FHA) Commissioner Julia Gordon. “We urge our assisted housing property owners and managers to make this lifesaving medication readily available to their residents and guests.”

There have also been new developments in lifesaving medications designed to work against a drug overdose, particularly since fentanyl has emerged as a leading substance involved in an increasing number of overdose deaths, according to Marion McFadden, HUD Principal Deputy Assistant Secretary for Community Planning and Development.

“With recent advancements in lifesaving medications, I encourage our local partners offering housing and services to people at risk of drug overdose to use every resource available to prevent death and complications,” McFadden said. “Through a coordinated response from local communities, recipients of federal funding, and healthcare partners, we can beat the overdose epidemic.”

Related

In a postwar building turned co-op, this Kensington one-bedroom for rent has a spacious layout with a generous amount closet space. It’s on the fourth floor of the 1960s red brick apartment house at 495 East 7th Street.

The 1961 certificate of occupancy shows the building, one of three of that era on the block, had 84 apartments for rent when it was completed plus one unit for the live-in super. A 1963 ad for “choice” apartments promised new air-conditioned units, with three-room apartments renting for $117.50 a month.

This unit opens into a long hallway leading to a foyer with two closets. The space is open to the living room and there are arched openings to the kitchen and to the bedroom hallway. The rectangular living room is generously sized with an in-wall air conditioner below the windows.

In the windowed kitchen are wood cabinets, a tile floor, and stainless steel appliances, but no dishwasher.

Large enough to fit a king-sized bed, the bedroom also has two exposures, wood floors, two closets, and another air conditioning unit.

The white fixtures in the updated bathroom are paired with green floor tile and gray wall tile with a green accent tile. Closets in the apartment total six.

The elevator building has a laundry room and bike storage; the listing notes that the common areas of the building have undergone a “complete modernization.”

Lauren Chao and Andrea Geissler of Compass have the listing and the rental is priced at $2,500 a month. (A similar unit for sale is asking $430,000.) What do you think?

[Listing: 495 East 7th Street #4E | Broker: Compass] GMAP

The building this year. Photo by Scott H. Gallant for PropertyShark

Related Stories

Email tips@brownstoner.com with further comments, questions or tips. Follow Brownstoner on Twitter and Instagram, and like us on Facebook.

By Alison Margo

Aspen has always been known for its après-ski scene, where fur-accessorized and designer-skiwear-clad snow bunnies clink glasses of bubbly—a place to ski and be seen. But the town’s special brand of a good time—where luxury meets the mountains—is not always about skiing. With snow conditions becoming less predictable in recent years, a trend has emerged of offering lifestyle experiences that allow locals and visitors alike to enjoy the best the destination has to offer without ever having to put on a pair of skis.

Sunscreen is all you’ll need when you hit the ASPENX Beach Club at the top of Aspen Mountain. Lounge atop the summit in full-service striped cabanas equipped for a luxurious DJ- and Dom-fueled party. Created by fine art photographer Gray Malin, the setting is idyllic in more ways than one. Parties can be fully customized, from menus to musicians, and full buyouts for 150 people begin at $25,000. Mark your calendars: The beach is open February–April. Ride your own private snowcat to Buckhorn Cabin, on the Instagram-ready edge of Peanut Butter Ridge on Aspen Mountain. There you’ll enjoy an unforgettable chef-prepared meal and sommelier-curated wine pairing, before skiing or riding the snowcat down. The Gant Aspen hotel’s rooftop igloo has also become a sought-after spot for private dining in the winter, thanks to its elevated cuisine and enviable views of the mountains.

It’s easy to spend a full day at nearby Snowmass Base Village without ever having to set foot on snow, even with kids in tow. Ice-skate in the heart of the village, explore new heights on the climbing wall at the Limelight Hotel, or chill in the Game Lounge at the Collective. Gather around the firepits for cocktails during the Limelight’s happy hour (daily from 3 to 6 p.m.) and catch local bands Friday through Sunday from 4 to 7 p.m. Next, take the gondola to Elk Camp Restaurant and Elk Camp Meadows for Ullr Nights (named for Ullr, Norse god of snow) for an evening of dining, tubing, and snow biking.

For the fitness-minded, Friday Morning Uphill Breakfasts at the Cliffhouse on the summit of Buttermilk are where locals meet for a morning workout, then reward themselves with a hearty meal. The hike takes about an hour and can be done on touring skis, snowshoes, or metal stabilizers that affix to the bottom of regular hiking shoes. Breakfast is served from 8:45 to 10 a.m. and nonskiers can enjoy the thrilling experience of riding the lift back down.

Savannah Gateway Industrial Hub is a 2,600-acre logistics campus. Image courtesy of The Broe Group

Kyungshin America Corp. has selected the 20-million-square-foot Savannah Gateway Industrial Hub for the location of its new distribution center, in Rincon, Ga. The South Korea-based automotive part supplier will open a 136,000-square-foot facility in February as part of its production expansion.

The Broe Group, together with its transportation affiliate, OmniTRAX, and Effingham County Industrial Development Authority, is the owner of the 2,600-acre multimodal logistics park.

READ ALSO: Why Warehouse Location Is More Important Than Ever

Kyungshin’s new facility will import and distribute automotive components to Hyundai Motor Group’s $7.5 billion electric vehicle plant in Savannah. The company is a certified Hyundai supplier and produces wire harnesses for automotive companies. The move will also support the growing automotive manufacturing industry in the Southeastern United States, as well as create approximately 70 new jobs and generate more than $22 million investments in Effingham County, Effingham Herald reported.

Savannah Gateway Industrial Hub offers various site configurations for lease or purchase, build-to-suit options and is also part of the Georgia Ready for Accelerated Development Program. The industrial campus provides easy access to the Port of Savannah, to CSXT and Norfolk Southern Railroads systems as well as major transportation corridors, including interstates 95, 16, and U.S. Highway 21.

The master-planned industrial park currently has 33 buildings in planning stages or under construction, with Colliers Principals Cliff Dales and David Sink in charge of leasing. Tenants at Savannah Gateway Industrial Hub include DHL, Quantix, Bissell Homecare, Inc. and Lion Brand Yarns.

Growing industrial footprint since 2016

Savannah Gateway Industrial Hub has been in the works since 2016, when Effingham County Industrial Development selected OmniTrax as its development partner for the mega project, designed to fill the gap between supply and demand in Savannah’s industrial sector.

In 2019, a commitment from A&R Logistics, now rebranded as Quantix, sparked the groundbreaking on the industrial park’s first building, totaling 1 million square feet. At the time, Quantix’s build-to-suit, 12-year lease amounted to 610,000 square feet.

The Broe Group also sold multiple buildings at the multimodal logistics park: in 2021 the 998,472-square-foot 1004 Gateway Parkway was purchased by Walton Street Capital. In late 2022, TerraCap Management LLC acquired Buildings 1H and 1F in a $116 million deal.

How does loan amortization factor in?

When you take out your mortgage, your lender will provide you with an amortization schedule that shows each monthly payment and how it’s broken down into principal and interest. The longer you stay in the home, the greater portion of the monthly payment goes toward the principal. That means if you sell within those first couple of years, you’ll likely have earned very little home equity as most of your payment went to the interest rather than the principal.

How can I estimate the cost of selling my home early?

Regardless of when you sell, there will be costs associated with the sale. The difference is that with a quick sale, the property hasn’t had much time to appreciate, which means the expenses could cut into (or even obliterate) any equity.

The typical costs associated with selling add up to about 9% to 10% of the sales price and include:

• Staging and house prep fees: 1% to 4% — though some agents will pay for staging depending on the situation
• The standard Realtor® commission, which averages 5.8% of the sale price
• Closing fees, which include title fees, transfer taxes, escrow fees, recording fees, and prorated property taxes: 1% to 3%
• Seller concessions: 2% to 6%
• Overlap costs: 1% to 2%

You’ll also need to factor in inspection and appraisal fees, moving and relocation costs, and mortgage payoff amount. To estimate the cost of selling your home, enter your information into HomeLight’s Net Proceeds Calculator.

Bill Samuel, a property investor and owner of Blue Ladder Development, offers up a real-world example: A home purchased in June of last year for $246,000 cost the buyer $5,145 in transaction fees (title, attorney, transfer stamps, etc.) with a total cost basis of $251,145. If the buyer then sells the property the following year, they should expect to pay about $15,000 in fees alone.

Will an early home sale cost me more in capital gains tax?

Even if you do experience a quick appreciation in property value, the capital gains tax could take a big chunk out of any potential profits. If you sell:

Less than a year after buying, you’ll have to pay a short-term capital gains tax, which is assessed on assets held for a year or less and taxed as ordinary income according to your tax bracket, which can range between 10% to 37%.

2024 short-term capital gains tax brackets.

Source: IRS.gov (Tax inflation adjustments)

For instance, if you purchased a property for $300,000 and sold it 10 months later for $370,000, your gain would be $70,000. If your regular income is taxed at a rate of 22%, that means you would have to pay 22% of the $70,000 gain, which would be $15,400.

More than a year after buying, but less than two years, any profits will be taxed at the lower long-term rate — either 0%, 15%, or 20%, based on your capital gains tax bracket.

2024 long-term capital gains tax brackets

Source: IRS.gov (Capital gains table)

At least two years after buying, you can deduct capital gains up to $250,000 for single homeowners and $500,000 for married homeowners filing jointly and typically won’t have to pay capital gains taxes on that amount of your home sale profits.

To qualify for the capital gains tax exemption, you must meet certain conditions set by the IRS, such as you must have owned and occupied the property as your primary residence for at least two of the five years prior to its date of sale. In addition, the exemption is only available once every two years.

That means the longer you stay in the home, the less tax burden you’ll have to carry.

The U.S. office market’s post-pandemic epidemic of foreclosures amid the billions in looming maturities rages on. With high-interest rate loans and stringent lending terms, refinancing deals remain hard to close, and there are no guarantees that attempts to modify loan terms or secure payment extensions will prove successful. A growing number of property owners are finding themselves with no choice but to hand the keys to their occupancy-challenged properties back to their lenders. 

But what happens after buildings go into foreclosure is also uncertain in this market. In Chicago, the nearly 1 million-square-foot office tower at 30 North LaSalle was put up for foreclosure auction by the Cook County Sheriff’s Office. But, the property failed to attract any takers at the minimum bid price of $34.7 million. That left the lender, American General Life Insurance, a subsidiary of AIG (now called Corebridge Financial), to pay the amount and take control of the property.

Originally developed in 1974 on what had once been the site of the Chicago Stock Exchange, 30 North LaSalle had been a tenant and lender favorite over the years, boasting a premier location within close proximity to City Hall, a metro station at its door, and more than 10,000 square feet of retail at its base. AmTrust Realty acquired the 44-story skyscraper for $237.5 million in June 2014. Then the pandemic hit, and the office vacancy rate in Chicago’s central business district has since not been able to recover.

AmTrust remained positive about Chicago’s office prospects and, in late 2021, committed to a $100 million renovation program of its multi-building Loop portfolio, including 30 North LaSalle. AmTrust’s renovation plans for the property called for an upgraded lobby and the creation of a two-floor amenities space, hospitality bar included. However, a good location and an overhaul designed to cater to today’s workforce have not been enough to fill the tenant roster. 30 North LaSalle is 54 percent vacant and has had one of the largest available contiguous blocks of space—in excess of 200,000 square feet—in downtown Chicago.

AmTrust’s challenges at 30 North LaSalle came to a head in August 2022 when the company failed to make its mortgage payment, which prompted American General to file a foreclosure lawsuit. It all ended just a couple of months ago, with the lender becoming the landlord after forking over the minimum auction bid price of less than $40 million. It’s a striking financial fall from grace for a building that has changed hands in transactions in the nine-figure range for decades. In 1997, Equity Office Properties acquired 30 N. LaSalle for approximately $125 million. Ten years later, in 2007, soon after the building came under the ownership of Blackstone via the company’s $39 billion acquisition of Equity Office, Blackstone sold 30 North LaSalle as part of a six-property Chicago office portfolio to Tishman Speyer for $1.8 billion, or an average $300 million per building.

This year’s foreclosure on 30 North LaSalle wasn’t the first loan-related trouble the property has experienced. In 2010, Tishman Speyer, saddled with the ramifications of acquiring the Chicago portfolio three years earlier and other big-ticket purchases, barely escaped losing the building when it struggled to make the payments on a $1.4 billion loan backed by the portfolio. Tishman and partner BlackRock had already defaulted on $4.4 billion in loans stemming from their headlining acquisition of the Stuyvesant Town and Peter Cooper Village apartment community in Manhattan in 2006. Ultimately, Tishman’s lenders on the Chicago office portfolio debt, including the Federal Reserve Bank of New York, saw fit to restructure the loan.

American General chose not to restructure and instead foreclosed on the property. They probably thought that they would be able to dispose of the building at auction and write off the rest of their losses. But that was not the case. American General might have gotten lucky: the building was one of five selected by Chicago’s mayor to be part of the LaSalle Street Reimagined initiative that will provide zoning changes and tax incentives to help develop much-needed housing. It is scheduled to be converted to a mixed-use building with roughly 10,000 square feet of retail space at the street level, 432 residential units totaling 440,000 square feet on the first 22 floors, and 590,000 square feet of Class A office accommodations above. 

The conversion will certainly help American General recover some of its losses on the $186 million loan, but it won’t come without a price. The proposed redevelopment project will cost $173 million to complete. Even with incentives from the city, it will take a long time for the owners to recoup that cost. Plus, there is no guarantee that the building won’t continue to struggle as more than half of it is still leased as office space. Other lenders are certainly watching what happens with 30 North LaSalle for an indication of what might happen, good or bad, after an office building goes into foreclosure. 

David:
This is the BiggerPockets Podcast show 854. What’s going on everyone? This is David Greene, your host of the BiggerPockets Real Estate Podcast, the biggest, the best, the baddest real estate podcast in the planet. Every week, bringing you the knowledge, how-tos and market insights that you need to make the best possible decisions in order to improve your financial position and build the life you’ve always wanted.
I’m joined today with two real estate studs, Dave Meyer and James Dainard, to analyze the state of real estate going into 2024. We’re going to help you understand where we are, the market forces that shaped how we got here, and how you can identify opportunities as well as mitigate your risk going into 2024. Welcome gentlemen. What can we expect from today’s show?

Dave:
Well, my hope today is to help everyone listening to this understand some of the complex and yes, sometimes confusing market forces that are driving the economy and the housing market and real estate returns right now. I know that sometimes these things seem a little bit daunting, but I think if you work to understand them a little bit and the things that we’re going to talk about today, you’ll see that you can invest in any type of real estate market. You just need to adopt the appropriate tactics.

James:
Yeah. We’re going to jump into also covering strategies that have became more riskier as the market and the cost of money has gone up, everything’s got riskier, but what are the solutions around that? Because higher the risk, higher the reward.

David:
Making more money while mitigating your risk, all that and more on today’s show. But before we get into it, I’ve got a quick dip for all of you. Dave Meyer, one of our guests here wrote the State of Real Estate Investing report for BiggerPockets, and it is available to you as a loyal BiggerPockets podcast listener for free at biggerpockets.com/report24. This report is going to have all the information that you need to know to make good investing decisions and we’re going to be drawing largely from that report in today’s show. Well, let’s get this thing started and let’s start with 2023. So Dave Meyer, can you tell me what happened in 2023 and where we are now?

Dave:
Sure. This might be recap for some people, but I will go quickly through this so everyone is on the same page and set the stage for our conversation. When we started 2023, the residential real estate market and for anyone residential is basically just anything that’s four units or fewer. The residential market was in a bit of a correction. It was certainly not the crash that a lot of people were calling for, but we entered the year where things were pretty slow, prices were down two to 3% and that was mostly due to affordability or the lack thereof. Affordability you probably know what it means, but it’s basically how easily the average American can afford the average price home and it’s not doing very well. As of actually right now, it’s the lowest it’s been since 1985. That has really just pulled a lot of demand out of the market.
That’s how we entered the year, but buyers didn’t want to be in the market, but neither did sellers. Anyone who’s been a part of real estate this year knows that there has been not a lot of inventory on the market. Prices have recovered a little bit. They’re as of now about up one to 2% year over year depending on who you ask. But home sales volume, as I’m sure both of you as real estate agents have seen, has really cratered a lot. It’s down almost 50% from where it was in 2021, and the whole market just feels sluggish and slow. That’s what we got for sales.
In terms of rent, it’s actually done pretty well. We’re up about 5% year over year, but it is much slower than it was over the last couple of years and we’re starting to see vacancies tick up a little bit, and so I think there’s reason to believe that rent’s growth is going to stagnate a little bit, but that’s where we’re at, is a sluggish market with relatively stable prices.

David:
All right. James, like me, you have your hands in a lot of different elements of real estate and you definitely have boots on the ground in several markets. So based on what Dave just said, have you seen that playing out in practical terms?

James:
Yeah. I mean Dave just summed up everything. It’s just slow and steady right now, and that’s across the board for us, whether we’re flipping properties, developing, renting, we’re just seeing this slow, slow absorption and as rates have increased, it’s just strangled the market and slowed it down, which has honestly been a little bit refreshing for us because it was so fast 24 months ago you couldn’t even think about before what you bought, but it’s been this slow grind, this transition down the last 12 months. We’re seeing it get slower and slower every month, but things are still absorbing and moving. The rates are starting to stall out. We’re starting to see a little bit more activity because buyer confidence is back and we’re just trying to push through this mud. 2023 was the year of the mud where it’s just everything is getting scrapped, your boot’s getting stuck in there and you’re pulling it back out and it’s just pushing through getting to some dry DIRT, which we’re getting to now as rates have steadily down and we’re just getting through it.

David:
I like that. Trying to find the dry DIRT. It’s a great way to put it.

Dave:
You going to steal that analogy now, David?

David:
Yeah. I’m hoping that not enough people listen to this that they don’t know that it came from James and people can assume that I came up with that because that’s really good. The year of the mud.

James:
It’s because I was just offroading and glam all weekend, so I’m still trapped in offroad. Don’t get stuck. Got stuck way too many. I got stuck more times this weekend than I did in 2023, so that is the good sign.

David:
All right. Good stuff. So that’s what we’ve gone through in 2023, but what should we as investors be looking forward to in 2024? What strategies look the most promising and what do we need to avoid? More on that coming after this quick break.
With all these market forces and uncertainty in mind, let’s move into what we can do in 2024. Dave, in your report you cover nine suggestions or tactics that you think people need to be aware of for 2024. We’ve isolated four of those and we’re going to go over them in today’s show. Let’s start with the risks that people need to be aware of.

Dave:
Yeah. So we’re going to highlight just a couple of the suggestions that I’ve made and just so everyone knows, these are suggestions that I personally am pursuing and just that I’ve gathered from talking to dozens of other experienced investors about what they are doing in the next year. And we’re going to go over a few if you want to see all of them, make sure to check out the report. Again, you can see this for free. But one of the main ones I wanted to ask James about actually is I am feeling cautious about BRRRRs and Flips. That’s not my sweet spot, but just looking at some of the numbers as an outsider looking in on this industry, I’m curious what you think about this value add business model heading into 2024.

James:
I think value add is really where the strategy is right now because again, if you can’t find cashflow, the only way to rack a return is to implement the right planning and force that equity up. In times where everything’s more money… It’s like every time you go to lunch, it’s a hundred bucks now where it used to be like 20 or everything has got more-

Dave:
Where are you eating lunch?

James:
I feel like I’m not eating lunches at the fanciest places, Dave. I will send you pictures of my receipt, but I do have kids and it just adds up.

Dave:
Okay. For the whole family? Okay. I thought you were eating all by yourself.

James:
The whole family. No, not for me. No. I’m always on the chase of that $10 teriyaki to be fair, but it’s about trying to get those huge equity gains and people get nervous about these two strategies for fair reasons. They are very risky and the reason they’re risky is your cost of debt on your takedown financing is three to four points higher. Things take longer. When you are selling a property, you are keeping them for a longer period of time. As the market slows down, things are transacting and they’re transacting for what they’re listed for. We’re not seeing those huge drops off lists, but they take time and you’ve got to ride it out and you have to ride it out with expensive debt. So that’s where the risk is, is this cash suck of where you’re just constantly feeding these investment beasts until they are through their stabilizations and the sales.
So it’s about calving cash reserves right now as you go into the deal. The good thing is there’s big margin deals in today’s market in all markets and you don’t have to do as many. You can pick one, work through that, but you have to have the reserves, whether it’s a fix and flip or a BRRRR, it takes more time and you have to be able to keep up with that debt and service it. The biggest risk with BRRRRs right now is that floating rates. There’s been plenty of times I bought rentals in 2023 and I performed my rate at like 7% and all of a sudden it says 7 1/2 and you’re going shoot. I mean when you have a half point adjustment, it can really knock down your cashflow, it can take two to three points off your return.
So it’s about just kind preparing and padding everything out. If you’re buying a short-term investment, add an extra two to three months to your debt cost and your hold times. That will get you through. It lets you plan for your liquidity. If you’re buying a rental property and you have a longer stabilization period, throw an extra half point on your rate, see how that works. And then the underwriting is so essential now. People got a little bit, I hate to use this word, but lazy 2020 to 2022. You would buy something and if you did not underwrite it correctly, it was still going to have growth. Now if you don’t underwrite it correctly with the right values, the right income projections, all of your gunpowder, all of your cash is going to get locked up in the deal and that’s the risk of BRRRRs right now.
The point of BRRRRs is to grow your capital, grow your assets and keep your money. If you miscalculate, the banks are only going to leverage you so much with 75% loan to value and making sure that your DCR, or that your debt covers at that point. So you got to make sure you have your coverage. If you don’t underwrite correctly, your money’s getting trapped. So you just want to really slow down on those deals, work through the angles, make sure that you have the right team put together and then lock your debt now. It is not the days of let’s go buy something, figure out the debt later. If you’re buying a property to keep it, make sure you are fully pre-qualified with a mortgage broker, that you understand the rent income and that you can cover. And if you can’t, you might want to look at the next deal or make sure that you work that into your gunpowder and what your cashflow projections are going to be.

David:
Okay. So take things a little bit slower, spend a little bit more time upfront underwriting and spend a little bit more time on the back end actually executing on the plan. That’s a problem that I’ve noticed in 2023, things were moving so quickly that it was very difficult to pay attention to all the moving pieces once you got into the construction when you were trying to execute on the deal. But like you said, things worked out because of how much the values were increasing and even the rents were increasing and then rates were usually going down. So at the end of every deal it was sweeter than when you went into it. Now you’re saying hey, you actually want to assume the worst. Assume that rates are going to go up a half a point or so, and assume that you’re going to have to spend a lot more time executing and making sure that the things get done that need to get done on the deals that you’re buying. Dave, I want to throw it to you. What are two strategies that you see an upside for in 2024?

Dave:
All right. I have one conventional advice for you and one unconventional one. So I’ll start with one that you’ve all probably heard of which is house hacking. And house hacking works in pretty much any market conditions and in almost any market throughout the country. If you’re unfamiliar with the strategy, it’s basically just an owner occupied rental property where you live in one unit, rent out the others or live in one bedroom and find yourself some roommates. But in 2024 there was something very exciting happening with house hacking. There’s some new rules for FHA mortgages that allow you now to put as little as 5% down for small multi-families. So that’s any property that has two to four units. Previously you had to put at least 20% down if you wanted an FHA mortgage on those types of properties. Now you’ll be able to get into some of these small multi-families for a lot less cash down.
There’s also some rules that allow you to now count rental property from an ADU, which is an accessory dwelling unit. People call it a mother-in-law suite or basically you have a shed in your backyard that’s hopefully up to code and safe and everything. You can now count that towards your mortgage so you can now qualify for more when you’re looking for that type of property. So those are two different new mortgage rules that make house hacking more affordable and more accessible than ever before.
The second one is a little less conventional and that is to look at new construction. And I know during normal times for investors, it is not typically worth the premium to pay for new construction because you don’t get enough rent out of it. It’s similar to buying a new car. You buy something that’s brand new, there’s a premium on that and for investors, it’s not usually worth it. But right now we are seeing really good deals on new construction because builders, their business model is different than a homeowner who’s trying to sell or an investor who might just wait something out. They have to move inventory. They’re building and they got to sell those things quickly, get that stuff off their balance sheet. So what they’re doing to move inventory right now is doing rate buy downs. We’re regularly seeing home builders get buy down your rate 1%, 2%. So rather than buying something in existing home that is used for a 7.5% rate, you could buy something new for 5.5%.
And it’s worth noting that buy downs are not permanent. Those are for a year or two or three depending on the particular product, but it is a really good option for people depending on your particular market and what they’re offering. But I think new construction is more attractive now than it has been anytime in my investing career and it’s at least worth looking at right now. In the era of super low inventory, now new construction accounts for 30% of the deals on the market. Normally it’s like 10. So if you want to get in the market, this could be a good option for you.

David:
So if it’s hard to find a deal, maybe you build a deal. James, what are you seeing in this space?

James:
I love what Dave said because I mean it works in all different aspects. Like a home buyer, you get to work with these builders, they’ll buyer rate down and you can get your payment more affordable and it’s all built in the pricing. But on the investment side, we love development right now and there’s a couple main reasons why. DIRT was at its all time high price wise 18 months ago. It has fallen, at least in our local market and I’ve seen it pretty consistent through any of the major metro cities, is DIRT pricing’s down nearly 25 to 30% on cost. Not only that, the structure has changed because as debt has gotten more expensive on us builders across the market, all of the builders have switched their mindset to going, “Hey, I need capital, I need gunpowder right now and I do not want to sit on these projects for 24 month times.”
The good thing about the building community, it’s a lot more logical and they move in waves over the smaller investors. Smaller investors have so many different plans, but builders are all on the same plan, buy a piece of land, develop it, build it for a certain cost, sell it per profit, it’s all the same and they’re all going for very, very similar margins. So now what it’s done is we’ve had to buy these properties in cash or with hard money and lever as you’re waiting for permits.
Almost every deal we’re doing now is a close on permit, job. So we don’t have to be in that deal that long because it takes us 9 to 12 months to build the product. We’re closing on permit, cost of DIRT is down 30%. And also the cost to build. If you look at the renovating versus new construction, new construction costs are down below renovation and that’s because the trades that are working. The volume has slowed down, the amount of land has gone down the trades, there’s a lot more gaps in their schedule than there is for that mom and pops contractor that’s working for the smaller investor. They are constantly busy, they’re using their own hands and they’re busy and their pricing hasn’t given. So it’s gotten cheaper across the board.
And the last thing I really love about, and this is something that everyone wants to think about, we were talking about with the risk and Flips is that cash suck. Where you got to make that 12% hard money payment now on your deal for the next 9 to 12 months as you’re stabilizing it, with new construction, the debt’s better. It’s cheaper by one to two points and a lot of times they’re going to give you an interest reserves, which helps with your cashflow in times where things are just getting eroded right now.
And the interest reserve is when we buy these deals and we structure them with close on permits is we don’t need to make a payment on that for 12 months. They have built our payments into our loan balance, which helps us maximize our cash returns. It helps us with our liquidity and the overall investments more stable than it is in the fix and flip market. So we love dev right now and we didn’t really like it 24 months ago. So the opportunities are here.

David:
Yeah. It’d be wonderful if we could step up the construction of more products. If the pressure that was put on builders and the deals making more sense actually led to us building more homes. It’s always been in the investing community as long as I’ve been a part of it, look for something that’s already there because you’re going to get a better deal on a used car rather than a new car. But if the car inventory is down or in this case the home inventory is down, we need to make more of them. So that would be a huge blessing. If it could be more profitable for builders to build more homes, we could build more homes and we could actually get the affordability of homes lower as well as the price of homes lower so more people could get into the market.
A big fear I have going into 2024 is that deals won’t make sense for the average American who doesn’t have a ton of cash and is spending $100 on lunch, but it will make sense for BlackRock and other institutional funds that are strapped with cash and have access to cheaper capital than the people like us that are listening to this podcast do. So my fingers are crossed that builder step up and start building. All right. James, I want to ask you, what does success look like in 2024 and is it different than what it’s looked like in the previous five to eight years?

James:
So as the market changes, there’s always a different definition of success. I think the last 24 months or 24 months ago when the rates were low, definition of success was buy any asset, slap cheap debt on it and let it grow. And that was the strategy because the cheap money was growing everything and the definition of success when you go into a transitionary market, it’s no different than it was when it was 2009, ’10 and ’11 where there wasn’t a lot of that instant gratification of like, I just bought this property and I’m getting rewarded today. And the instant gratification needs to go away. It’s about that long-term growth and long-term plan.
And for me it’s the year of making big equity gains to use for big purposes in 12 to 24, 36 months down the road. I like loading my vault up in markets like this today, and that’s getting into the game, finding the property, strategizing behind it, and then letting that asset grow or walking into that instant forced equity with the right construction plan. And because the market has slowed down so much right now and the transactions are down, sellers are down, buyers are down, there is some massive opportunities going on. So it’s all about finding those huge equity pop big growth plans for the future, not for today. Again, going back to 2009 and ’10, we didn’t have a whole lot of success on paper during those years, but those years were huge for us for growth than the last 20. It was getting that inventory in that would help us move forward.

David:
So give me a practical example of what a good deal would’ve looked like in 2023 and maybe what a good deal will look like going into 2024?

James:
I mean, a good deal of 2023 was just finding any margin. It depends on what asset class it is too. In 2023, I think for a BRRRR property, my goal was a good deal was to break even. And if I could break even on my interest rate or cover with the rents after all expenses and get a huge maybe six figure equity spread or even a 50,000, a massive equity spread, that was a win for me in 2023, especially if it had any other extra investment kickers in there, like development density plays, path of progress, and if I could buy something break even, I know that there’s upside in 2025 to 2026 once rates come down.
Some other good, I think definitions of deals in 2023 was you didn’t have to work as hard, which sounds weird, but because the transactions were down from ’20 to ’22, we were having to BRRRR properties and buy properties that were heavy, heavy fixers to get that deep discount to be under that 75% loan to value to make it cashflow. Now we can buy a lot simpler projects because they’re breaking even and most investors are staying clear from them and we just have to ride out the interest rates and not do as much construction, but just ride those ways of rates.
So for me, if I can get into an asset break even with some additional upside, that is 100% a win. In 2024, I think that the definition is going to be, there’s a lot more instant gratification this year because as the investors have pulled out, we’ve been able to acquire some very good inventory on some very good discounts that are going into dispo. And just because the market is slowing down does not mean we’re not selling that property. Things are still selling, still moving, there’s not a lot of inventory. So I think 2024, the profitability of in the now is going to be a lot bigger than it was in 2023. And we’re already seeing that in our P&Ls in our cashflow forecasting.

David:
Dave, anything to add on James points there?

Dave:
I just really like what James was saying about trying to break even, and I know that’s not the sexiest or coolest thing to say, but I generally agree that right now, particularly in this type of market, my personal goal is to try and do better than break even when I look across different profit drivers. So I understand that prices next year are probably going to be flat in some markets they might go down a little bit. In some markets they might go up a little bit. But if I have cashflow and amortization and tax benefits, as long as those things can carry me through any short-term volatility in the market, I’m still going to buy anything that has long-term potential. Like James said, I’m looking to see what this deal is going to do in 2025, ’26, ’27, even further out. And as long as I have enough cashflow and short-term benefits to carry me through personally, I don’t need to hit a home run in the next year. I just want to do something 3, 5, 7 years down the line.

David:
That’s interesting because I believe that’s how real estate has typically operated in most markets that didn’t have massive amounts of quantitative easing. Usually when people were buying real estate, they were taking a long-term approach and they want to know about the location, that demographics of the area. If businesses were moving in where rents were headed. It wasn’t always just about what is it right now in this moment and how big of a chunk of equity or how much cashflow can I get when I first buy it? So while this sounds like a change, it’s almost like a return to what real estate has been for the majority of time it’s been around. Would you two agree?

Dave:
Yeah. In my experience, yeah. I mean real estate is a long-term industry. Getting back to the point where appreciation is two or 3% is normal. In normal times over the last 50 years, real estate has appreciated a little bit more than inflation, like 1% more than inflation. So this idea that we need 5, 10, 15% year-over-year price growth to make it a return is not true. It was nice for a little bit, it was super easy, but that’s why everyone got into it. And this is just getting back to understanding the full suite of different ways you can make money in real estate and applying them over a long period of time. And when you do that, it’s a very relatively low risk way to invest.

David:
So James, in order for somebody to jump on a good deal, they have to know what a good deal looks like. What are some factors or metrics that you think people should be keyed in on 2024 that scream, I’m a good deal, buy me?

James:
I think it comes down to always setting your buy box and in knowing what your expectations for return are and every year you got to change it. My 2023 buy box is different than it is going into 2024. It’s actually dramatically different. The definition of a good deal, it’s going to change for Dave, it’s going change for you and change for me. We all have it. We’re in different markets with different goals, but how you get through these and you work through those math is you use, it’s all in the underwriting. Establish your buy box and then go through that in-depth underwriting and working through the calculations, does this get me in my goal on a two year period? And I think it’s very important for today to set your buy box that has 2 and 3 year goals on it, not six and 12 month goals.
There always will be the 6 and 12 month flip deals, the wholesaling deals, those instant cash creation types of properties, but you really got to establish those and that’s about working through the underwriting, working through the calculators, utilizing tools like the BiggerPockets calculators to go through and go, “Hey, in 2024, if my cash on cash return for rentals is at 10% or to have at least a two X factor on equity gain for the cash I’m investing at that point, I know what I want to buy.”
Then it’s about underwriting. Pulling the right analysis with the right team, using the calculators and BiggerPockets is great for that. You can do the buy and hold calculator, go through your BRRRR strategy, how do you maximize your cash, and then is it hitting that true return? But I think the biggest thing is make sure that your goals are defined over a longer period. Then set your buy box, work through the calculations, does the deal work or not? Move on to the next one if it doesn’t work.

David:
So do you have a hypothetical set of criteria that you would recommend people look for in an average market? Like a cash on cash return or some equity that you’d like to see in a deal?

James:
Yeah. Typically, with the BRRRR strategy or even Flips, I’m a heavy value add guy. If I’m not walking into a 25% equity position, whether it’s a Flip, a BRRRR property, a development piece, all in with my purchase price, my rehab, or my bill cost and my soft cost, I’m not that into it. We own a lot of property in Seattle and we have great cashflow. We cashflow around 10%, but that is not what I’m looking for today. That’s the long-term approach. It’s about building those huge equity spreads. So if I’m not getting 25% out of it, I’m not interested because at the end of the day, it’s not going to cashflow that well with the rates. But the equity is what you’re building. If you can put $25,000 down on a cheaper property and create $25,000 in equity, that’s 100% return that you can make in a 12 month period. That is Huge.

David:
Great point. And James, you’ve always had a different way of looking at real estate. I remember the first time I heard you saying, “Hey, I can buy a property and I can hold it as a rental and I can get a 5% cash on cash return or I can flip it and I can get a 45% return on my money or something like that.” I just remember thinking, you don’t hear people mention it like that very often, but if you’re looking at capital growth as opposed to passive income, it does make sense. Dave, what are some things that you’re looking for in deals going into 2024 from a metric position?

Dave:
For me, I consider myself an IRR investor because I think it is the best way to, and for anyone who doesn’t know what that means, it’s internal rate of return and it’s a metric that you can use to evaluate deals that uses the time value of money to combine both equity and cashflow into one metric. So you can see how the big picture is impacted. To me, I just look at that because I am in a position in my career, I work full-time and I don’t need the same level as cashflow right now as someone who might be approaching retirement or wants to retire early.
So for me, I’m just looking at how I can maximize my IRR at all times. And to me that’s typically a combination. Trying to find deals and I mostly invest passively, but trying to find deals where there is some element of value add and then there’s a cashflow hold. But getting your money out in five to seven years instead of keeping it into a property for 20 or 30 years, because typically your IRR, your time weighted returns tend to decline over time if you do that. So for me, I look for five to seven year holds and places where I can maximize my total return. And that really hasn’t changed much over the last couple of years and I doubt it will for me anytime soon.

David:
Guys, this has been fantastic. Dave, any last words you want to leave the audience with moving out of here? Where can they find your report?

Dave:
No, thank you for having me. Hopefully everyone learn something. And if you want to learn more, just check out biggerpockets.com/report24.

David:
James, how about you? Any last words for the audience?

James:
Don’t get spooked by the media. Build your buy box. Go find some good opportunities out there and read Dave’s report. BiggerPockets, they do such a great job giving you that information. That’s how you build your buy box. Read through it, then build your buy box. Don’t build your buy box first.

David:
All right. So head over to biggerpockets.com/report24 for deeper analysis and more suggestions for what you could do to empower yourself in 2024. We’ve also mentioned several strategies on the show. If you want to learn more about any of those, head over to biggerpockets.com/store. And there are books that BiggerPockets has published that will teach you just about everything you need to know about those topics. Please, if you haven’t already done so, subscribe to the podcast, leave us a review, let us know what you thought about today’s show and keep listening to further BiggerPockets episodes so you can stay up to date with what’s going on in this ever-changing market. I am David Greene. For Dave Meyer and James Dainard, signing off.