Seeing Greene: Why Are My Rental Property Returns Looking So Bleak?


Most investors buy rental property for cash flow, and much to their surprise, no cash flow is to be found once the deal is done. Maybe they’ll get some limited returns in their first year of landlording, but with cash flow-induced frustration, they decide to try another strategy. This happens again and again as real estate investors struggle to realize anything other than a meager return on what was supposed to be a financially-freeing investment. But worry not—this is all part of the plan.

David is back on another episode of Seeing Greene, where he answers the most-pressing real estate questions from across the web. But David isn’t alone in the episode! He brings along real estate investing experts Brandon Turner, Pat Hiban, and Zeona McIntyre to help answer hard-hitting questions surrounding anything and everything related to real estate. This week’s topics touch on shiny object syndrome, when to pay for real estate leads, assisted living investing, 1031 exchanges, short-term rentals vs multifamily investing, and how to find the right mentor.

If you’ve been looking to up your real estate game, head over to the BiggerPockets Bookstore and take advantage of MASSIVE discounts on some of the best real estate books around! And remember to use ANY of today’s hosts’ names as a discount code to get even more off when buying any BiggerPockets books!

David:
This is the BiggerPockets Podcast show 690. I know no one likes to hear this. There’s people hearing it right now and they’re making a face like they just swallowed a bug. It’s just that’s not what I was told. This is my dream. I’m trying to quit my job. I need cash flow. Just take your dream and extend it a little bit longer. All right, so it’s the first thing is you did nothing wrong if they don’t cash the like you thought.
The next piece I want to say is if we can start with that baseline, it would be very similar to me saying if you go to the gym your first week, you’re not going to see results. Would you believe that? Or would you say no, there’s a way of working out where my first week I can see noticeable muscles.
What’s going on everyone? This is David Greene, your host of the BiggerPockets podcast here today with a Seeing Greene episode. If you haven’t seen one of these before, these are shows where I answered your questions directly sent to BiggerPockets to see what I can do to help you grow wealth, solve a problem, overcome an obstacle, or maximize your results. Whatever it is about building wealth through real estate, I want to help you based on my experience and all the information I’ve gathered hosting podcasts like this.
Now in today’s show, we have a cool little bin. I’m actually bringing in some support, so we have other BiggerPockets authors that have come in to help answer questions, and then I throw my 2 cents on top of it like the cherry of a Real Estate Wealth Sunday. This is kind of a special show because we at BiggerPockets are having a discount. This is a Cyber Monday book sale extravaganza. If you’ve ever wanted to buy some BiggerPockets books, but I’ve been waiting on the sidelines. Now is your time to get involved.
In today’s show, you will hear some really good information about things like a 1031 into a syndication. Is that possible? Can you 1031 money into a syndication? And what else can you 1031 money into? While we are on that topic, we talk about what to do with equity in your home. More specifically, how to make sure that your equity is working for you and options that you have to make more money with existing equity. This is a really, really, really important concept, especially right now in the market cycle, as many properties have appreciated in value, but it’s becoming harder and harder to find the next deal. We talk about how relationships can make you money. Pat Hiban gives some very good advice about what you can do to focus on making money through relationships and finding the mentor that will help you get to the next step. All that and more with great conversations from live guests with big goals.
Today’s quick tip is I want to call attention to all the non Robert Abasolos out there. Robert is someone who does not read books. So if you’re not like Robert, you’re a non Rob, this is for you. BiggerPockets is having a Black Friday, Cyber Monday sale, November 25th through the 28th, and everything is up to 60% off. The Real Estate Rookie 90 Days to your first investment book, which is not even out yet written by Ashley Kehr is available for pre-order only for a limited time. You can only get it until Monday. There’s also different bundles you can buy in addition to the books that you could get 60% off on.
For instance, there’s the Rookie Collection, the Classics Collection, the Creative Strategies Collection, the Gifts Collection, or the New Year New Me Collection. Each of these collections have books put together that all have similar threads and patterns to help you with specific challenges that you’re going to face in your journey, and we’re giving them to you for up to 60% off. And you can use any author’s name like mine, David, to get 10% off any books that you’re buying in the BiggerPockets bookstore. Simply go to BiggerPockets.com/store.
All right, let’s get to today’s first caller. All right, welcome everyone to another Seeing Greene episode. We are going to kick this one off with one of my favorite things to do a live coaching call today. We have [inaudible 00:03:34] who is here to talk some real estate with me. Mr. Chi, how’s it going?

Chi:
I’m good, David. Thanks for having me. How are you today?

David:
I’m doing pretty good. Thank you for asking. What is on your mind?

Chi:
What isn’t on my mind? No, no. The chi is strong in this one. So should I start with my goals? Is that okay?

David:
Well, let’s start with your problem and then I’ll probably dig into your goals.

Chi:
Okay, so my first problem is I’ve been investing for about five years since 2017. My first property was an Airbnb, so I’ve managed that for five years. I’ve done some BRRRRs, I’ve done some rentals, I’ve done duplexes. So you can already tell I’m all over the place. My first question is how do you avoid shiny object syndrome when it seems like everything you do isn’t quite profitable? Because the reason I’m jumping is because I tried this and I’m just seeing meager returns, so I keep looking for the next thing.

David:
Okay. Before you even go any further, I can tell you one big piece. You’re not going to want to hear it, but you’re going to need to hear it. Okay, So getting ready for some vegetables. This is Seeing Greene, so this can be broccoli. Green vegetables here. Real estate is not intended to make you a lot of money in year one. This is going to sound like heresy. Everyone’s going to hear this. They’re going to get up in arms because from 2010 through maybe 2016 or so, the market was so low that you could just buy a house that would cash flow very strong right off the bat. That was an anomaly. That is not normal. Good assets usually sell at a price because you make so much money with real estate over time. It’s such a desirable asset. There’s so much competition for it. You very rarely make a lot of money in year one.
This is a buy and hold long term. It’s like planting a tree. Trees do not produce fruit when you first plant them, but that isn’t what gets talked about. Okay? People bring their deals and they hold up the best fish they ever caught and they brag about the ROI on that deal and then we all see it and go, “Oh, that’s what I’m supposed to do. I must be doing something wrong.” And it creates this shame and guilt in our industry that we bought a house, we did everything we said we were told to do and it lost $400 in the first year. So we shouldn’t be real estate investors at all. Or we do what you’re saying, we jump to the next strategy. It’s in my opinion, because everything’s just opinion, that’s BS.
It’s not supposed to work that way. If you buy a B class property, A class property, if all things were equal, it should have probably cash flow for the first three, four, maybe five years. But the next 25 years of owning it, the next 40, 50 years of owning, it’s a cash cow. It is okay to accept delayed gratification in real estate investment because you make money in so many ways. Now I start from that baseline and then I look for everything I could do to put the odds in my favor over the long term. Can I buy it under market value? That gives me a head start. Can I do some value add? That puts a cherry on top. Can I get more than one unit so that the rents will increase, it’s going to cash flow more later, even if it doesn’t cash flow a lot right now? Can I get it in an area where it’s going to be no headache? It’s just like tons of tenants.
Can I improve it in some way? Because I know that if I just buy a turnkey property fresh out the box, it’s not going to perform super great for me. So just hearing that part before we get any deeper, do you have any pushback? What are your thoughts here on that?

Chi:
No, that’s great. You know what? I wish someone mentioned this before I stepped in because I would have then focused more on growing slowly, get some reserves in place, knowing that it’s not meant to cash flow rather than starting hoping for huge cash flow and then just killing myself to make things.

David:
Sometimes we make it cash flow, but it’s not designed to cash flow. They do not build residential real estate for the purpose of cash flow. That’s why it’s called residential real estate. It is built for the purpose of someone residing there. Now us investors have been creative and we have figured out ways to buy single family homes that will cash flow, but it’s not easy and it’s not natural. Commercial property is designed to cash flow, it’s designed for commerce. It’s evaluated as a business based on its NOI. Residential property is evaluated based on a non-business purpose. What did the neighbors pay for their house? That’s not a business way of looking at something. That’s ridiculous. Okay? That’s what a consumer cares about. Well, what did the Smiths pay? I don’t want to pay more than them.
A business looks at metrics like the cap rate and the actual cash on cash return. So if you’re looking to get into cash flow real estate, commercial is really where it’s built for that purpose, but it takes more money to get into that game. You can’t use an FHA loan to buy a commercial property. It’s a little more sophisticated. You got to be able to have a property manager oftentimes that manage it. It’s just like buying a business. It’s harder. Residential real estate is much simpler, which is why everyone’s drawn to it. Then they get frustrated when they get there and they’re like, “But it’s not cash flowing.” That’s okay. It’s not always supposed to. This is why I frequently tell people they should house hack because you get this built in buffer that even if it doesn’t cash flow, but you used to pay $2,500 a month in rent, now you don’t have to. You still came out on top. And over the next 20, 30, 40 years, you make so much money you don’t care about what it did in the first year.
I know no one likes to hear this. There’s people hearing it right now and they’re making a face like they just swallowed a bug. It’s just that’s not what I was told. This is my dream. I’m trying to quit my job. I need cash flow. Just take your dream and extend it a little bit longer. All right, so it’s the first thing that you did nothing wrong if they don’t cash flow like you thought. The next piece I want to say is if we can start with that baseline, it would be very similar to me saying if you go to the gym your first week, you’re not going to see results. Would you believe that or would you say no, there’s a way of working out where in my first week I can see noticeable muscles?

Chi:
No, that makes complete sense.

David:
Okay. So if we can accept it in other areas of life, in your first week of a relationship, you don’t really know the other person that well, it’s not going to be super fun. Your first week at the gym, you’re not going to get big results your first week of being a parent, you’re going to screw up a lot. It’s okay when you start something to not be good at it. Now the thing with if you went to the gym and worked out your biceps for a week and you looked at them and said, “They’re not any bigger, I better move on to a different muscle group.” And you bounce around forever, you never would actually get the result. You see where I’m going with this?

Chi:
Yep.

David:
Now it may be true that you work out your biceps and you’re like, “Well now they’re tired. I can’t work them out.” Well, don’t just stay home and do nothing. Go work out your triceps, go work out your chest, go do something else while it’s recovering. So sometimes you buy a house with a primary residence loan and you got to wait a year before you do it again. Your biceps are tired. Well, there’s other ways you can go invest in real estate or make money in real estate or do something productive while you’re waiting for that year long period. But what happens is in a year when your biceps are ready, got to work them out another time, that’s what’s going to make them get bigger. So part of what you have to figure out is a strategy that you could stick with over time, but shiny object syndrome’s going to show its face. Scratch that itch when there’s nothing that can be done in the space that you’re currently at. So hearing that, what thoughts are coming to mind?

Chi:
I guess I just need to pick a strategy based on my unique strengths, resources, and then go. But I guess my second question then comes into play around your point, which is I spent a lot of years even while investing, just listening, getting in the podcast, just learning, growing. I have a good idea of all the different strategies and how to make them work. But how would I go about let’s say hiring people or finding partners? Because for the very first deal, which was an Airbnb, my big headache was just maybe, well I need to do mails, I need to go door knocking, I need to do all of these things. But this isn’t bringing in any money to then reinvest into the business.
So these are two questions in one. When I spoke to my wife and I said, “Hey, I know all these things we can do that will bring in quality leads.” And she is like, “Then do them.” And I said, “But I’m managing this house. I have my own full-time job. I also am doing two jobs. How can I do these things?” So how do you convince your spouse that, trust me, I have the knowledge and it’s a good investment even though we’re not quite making money to do certain activities, like money producing activities I guess.

David:
So is your spouse not wanting you to do those activities?

Chi:
She doesn’t want me to pay someone else when I’m making money from the real estate.

David:
So she sees the safety and security of just work your job, make your money. We don’t want to lose what we made by hiring somebody else.

Chi:
Yes.

David:
What are the things you want to hire out?

Chi:
I would say something just someone to go and drive for dollars or even drop out flyers for we buy houses just in a neighborhood.

David:
Can you find a person who loves real estate as much as you do and drops off the flyers and can get some equity in the deal so you don’t have to pay them for their time to go do it?

Chi:
I’m sure it’s possible.

David:
Much harder.

Chi:
Okay, go on.

David:
No, no. Is that what you’re saying? It’s just hard to find a person that will do that.

Chi:
Yes. And for some reason, I’ve been so quiet about my investing because I’ve not needed to work with someone, so I’ve been using all of my capital so I’ve not had to say “This is what I’m working on. This is what I’m working on.” And also being from where I’m from in the world, if you start to show your achievements, people start to ask you for money. So it’s just hard. It’s a very tricky line to play where I’m trying not to show what I’ve been doing but without showing that, you don’t get people coming to say, “Hey, how can I work with you? Hey, how can invest with you?”

David:
So you’re afraid that they’ll want to take advantage of you if they saw that you were making money in real estate?

Chi:
Just the people back where I’m from. But the people in Canada will definitely be saying, “Oh hey, how can we work together?”

David:
So the people back where you’re from, how do they play a role in your situation that you have right now with your wife in real estate?

Chi:
I would say the biggest influence is that they’ve stopped me from marketing on Facebook, which is the primary place I market on to both-

David:
But you don’t want other people to start asking you for money when they see that you’re a big shot realtor.

Chi:
Yeah.

David:
Sorry, big shot agent. Sorry. Big shot investor.

Chi:
Yes.

David:
That’s what I’m getting at. Okay.

Chi:
Meanwhile we know that it’s not producing income, right? It’s a nice house. We took everything we had.

David:
Can you advertise on Facebook and not have your face be in the person talking? Can you hire a person and pay him 30 bucks to record? “Hey, if you have a house and you want to sell it, go to this email address, go to this landing page.” Can you do something like that?

Chi:
So that goes then to my wife who doesn’t want to pay for anything.

David:
Okay. The Facebook ads are the thing you want to put money towards. Your wife doesn’t want you to do it.

Chi:
She doesn’t want me to pay for anything. If you want to do something, do it yourself.

David:
This is so tricky for me because I’m not married so I don’t know what this struggle is. My perspective in life is you shouldn’t judge a sin if you’ve never struggled with it. Okay, so I’ve never drank alcohol, I’ve never been an alcoholic. So I don’t have an opinion on what it’s like to be an alcoholic. I can have an opinion on something I have struggled with and the marriage is definitely not a sin, but the same principle applies there. If I’m not married, I don’t like to give advice. What I would probably do if I was you is I would say,
“Listen, I decided to work two jobs. I can either quit one of those jobs or I can work both jobs and we’ll set aside 30% of the money from my second job, which we wouldn’t be making anyways, to reinvest into real estate.” Because now your wife isn’t looking at it like we’re losing money we’ve made. She’s looking at it like if I want to keep the 70% of the money that comes from his second job, I have to let him put 30% of money towards this endeavor. Would that work?

Chi:
Yes.

David:
That’s probably the approach I would take. Just say, “Honey, you know what? I’m so tired, it’s really hard to work two jobs. I think I may need a break and I’m just going to go back to one job.” And she’s going to start thinking like, “Well that’s not good. That’s less money.” And you’re like, “You know what I could do though, if you want me to really keep working this. I need a goal. I want to be able to take you on vacations around the world and real estate’s going to pay for that. Let’s take 30% of the money I’m making from my second job and put that towards investing and we’ll keep 70% for security.”
If you could get her to buy into that and then she can start to see results that come in from the 30% and she actually sees you got a house and you wholesaled it and you made 40 grand or something like that, that’s the time to go and say, “All right, can we put 40%, can we put 50% right?” Can we get to where we’re putting 100% of the money from my second job into real estate and when the results are rolling in, [inaudible 00:17:15], the conversation changes from, I don’t want you doing that to how do we do more of that? Like this. I don’t know why it’s like that. I’ve had so many people in my life that just push back, don’t want to believe, don’t want to listen to the direction I’m asking them to take, fight me on everything. And then as soon as they see the results, it just immediately goes away. “Oh, I’m on board.”
It’s frustrating because they didn’t have faith in you in the beginning when you wanted. But that’s human nature and if you can fast forward how quickly you can get to that point, I think your career can really take off.

Chi:
Awesome. That’s a great idea.

David:
If there was stock in you, I would buy it right now. You’ve got the attitude, you’ve got the work ethic. Everything you’re saying is how can I do it? Not, “But David, this is why it’s hard.” I can promise you if I have a conversation with someone and every single time I tell them this is what could be done and their reply is why that would be difficult or why it wouldn’t work, I can almost guarantee that person will not be successful. When they say, “Oh I could do this or I could do that. What would it take to get there?” If they stick with it, they will be successful. You’ve got the right attitude. I wish more people thought like you, and I can promise you you’re going to be good at this. You just keep asking those right questions and keep pushing forward.

Chi:
Awesome. Thank you. Thank you. I have a second question.

David:
Okay.

Chi:
I recently listened to the Residential Assisted Living one and again, I would say it’s a shiny object, but I would say it’s a shiny object because I’ve run an Airbnb, I’ve bought, fixed and flipped homes, so I understand everything they’re saying and it just makes sense. It’s real estate plus business and they also mentioned that it has the potential to even just one deal can bring you 10,000 and up in revenue. If you go to a really nice area and you buy right and you have the right demographic, you can make even more money even though you have to buy a more expensive house, do more expensive upgrades. Well, the first question I ask was is it even possible to maybe find a really expensive home? Because you say you’ve been knocking it out of the park with your negotiations and getting 100,000, 200,000 in concessions or off the asking price, right?

David:
Yes.

Chi:
Would that be a good idea to find a really nice house?

David:
It works for the purpose of you have less competition so you can get a better deal on the asset. Yes. It would be a bad idea from the perspective of when I buy a short-term rental or a rental property, I can hire a property manager and say, “Go rent it out.” It’s very difficult to do that with an assisted living facility. You have to find an administrator. You have to find an operator that actually has done this before. They have to be willing to do it within your area. It would be easy to find the property. It’d be very hard to run the business. And if you’re working two other jobs and you’re trying to go find off market opportunities, I think you would get swamped. I don’t know for the situation you’re describing that residential assisted living facilities would be a good idea.
Now let’s say you came back to me and said, “David, I found a person. They have three other homes, they manage all of them. They said if I find a house that looks like this in this area, they will pay me $12,000 for rent or $20,000 for rent and I think I can get a property for only $6,000.” Then I would say yes, put your effort towards it because you’ve got the pieces in place. Don’t go try to find the house, which is the easier part and then go try to find the operator, which is the harder part. Switch that around.

Chi:
That makes sense. Okay. I’ve had trouble in the past in attracting investors because I’ve never needed investors. I had a good paying job because I’m a software developer and I got access to a lot of credits from the bank plus my own money I was able to do whatever. Times have changed and my lines of credits have been closed. In fact my full-time job is gone right now. I’m only doing a part-time job, which is my business. Now I have the time actually to take on that role as the operator, find the day to day manager and the only thing I would need would be funds from an investor to partner with me by this property. I’ve also been in contact with the residential assistant living, Lady Isabelle’s team and they do have a course to work us through the whole process. So I can’t get the knowledge, the skills required. I guess how would you go about raising capital?

David:
I wouldn’t be even thinking about raising capital until you already had the knowledge, the skills and the track record. It’s different than what a lot of people say. I don’t mean to crush your dreams. My philosophy is you should not spend somebody else’s money on something until you have a track record of showing that you can do it yourself. Again, I’m going to say don’t let that discourage you. Make that the carrot that you chase. I’m assuming you’re not originally for America. Do you know that phrase when we say the carrot? You know what I mean by that?

Chi:
Yes. Yeah.

David:
Let that be the motivational factor that you say, “All right, I want to get into that space. I’m going to have to learn the business.” Find another person that Isabelle connects you with that is currently operating one. Go sit down and talk to them about the challenging parts of the business, the fun parts, see what they need help with. First off, you’ll tell if you even want to be in that space if you talk to a person that’s doing it. I was a police officer and every time someone would say, “I think I want to be a cop.” I’d say, “Okay, do some ride-alongs.” That’s where you sit in the car with them and you go around to see the job. That’ll let you know if you actually want to be a cop or not when you actually see what the person’s doing every day and what emotions they’re going through.
Do something similar and if you like it, start asking the question of how you could help them see if you could help with their business. When you add value to that person, they start to get comfortable with you. Now at minimum you could probably raise money and say, “Look, I’m going to raise money to buy the house. I’m not going to run the business.” They’re going to run the business and I’ve been working together with them for 6 months or 12 months and they’re the operator and you bring them in to talk to the investor who wants to know who’s going to protect their money. It’s a form of building a team.

Chi:
That sounds like a great idea.

David:
And I have no doubt you’re going to go do it because you’re one of those people that just says, “That’s not hard.” And that’s what I love about you, man. Like the minute I say that to someone else and they go, “Oh, that would be uncomfortable.” They don’t want to do it. You hear that? You’re like, “That’s all I got to do?”

Chi:
Yeah. Let’s do it.

David:
All right. I want you to make sure that you stay in touch with us because I want our entire audience to see the success story that you are going to be. I have no doubt at all and I want them to emulate your attitude and your approach because I think it’s beautiful, man.

Chi:
Thank you. Thank you very much.

David:
Thank you for being here. We’ll stay in touch. All right. In this segment of the show we like to review our comments on YouTube from you, our lovely listeners, see what you like, see what you don’t like, see what your comments are and just see what you’re thinking. So please continue to leave these YouTube comments for me and we will pull them out and maybe read one of yours on a future Seeing Greene episode.
First comment comes from Selvin George, “I’ve discovered BiggerPockets only two months ago and I absolutely love your content. I’m learning new concepts, strategies and ideas at such a fast pace thanks to you. Would you be able to recommend a real estate investor focused agent in the Berkeley area?” Ooh, this is a good one. Okay, so first off, if you’re looking for an agent anywhere, BiggerPockets does have tools to help you. Simply go to BiggerPockets.com. Look for the nav bar on the top and there’s a little option that says find an agent and we call it that because that’s what it does. You can find a BiggerPockets approved agent on that nav bar for you to use when you’re looking in different areas.
Now Berkeley specifically, you are in luck, Selvin, because my team works in that area. The David Greene team works in the Bay Area, Sacramento, southern California. We’ve got California covered. So reach out to me specifically and I will get you in touch with one of my top agents that will help you find a property in Berkeley. We do a lot of business in that area and we know it well.
Moving on. From Another Channel. “The buyer’s market is not back at all. You don’t get a market like that with a 40-60% appreciation in two years. Only have an 8% drop in prices with 7-8% rates. Maybe the thumbnail that said the buyer’s market is back will work in quarter two of next year.” I like this. Another channel. Here is a little spicy. So let’s talk about this. When we say buyer’s market or seller’s market, what we’re really describing is whether buyers have more leverage or whether sellers have more leverage. And this can be simplified. If every property or the majority of properties are getting more than one offer, the entire dynamic of the deal changes. So when there is a buyer competing with a seller, sort of an even playing field, but usually the buyer has the power if there’s only one buyer because the seller needs to sell more than the buyer needs to buy. The buyer has other options to look at. If there’s only one buyer, that means the seller does not have other options to look at.
Makes sense, right? The minute you introduce more than one buyer into an opportunity, all of the leverage goes to the seller. Now the buyers are competing with each other instead of competing with the seller. So as a real estate broker who runs a real estate team, this is a dynamic I’m always looking for. If we send an offer on a house and we get back a seller multiple counter offer or the listing agent tells me there’s other buyers, I’m usually leading my client more towards finding another house unless they love it because we don’t want to be competing with other buyers. If I submit an offer and only one counter comes back, meaning we’re the only person that the listing agent is negotiating with, I like it. It means we have the power. That’s all that a buyer’s market means.
I think that Another Channel’s comment here, and I’m saying Another Channel because that’s the name of the person who put this comment in, is saying that the prices have not adjusted enough to where we should call this a buyer’s market. I think that what they’re trying to say is that the value of the properties is still too high. We went up by 40 to 60%. We’ve only gone down 8%. So that’s not a buyer’s market. Well, what I’m saying when I talk about a buyer’s market is an opportunity where buyers can get a better price. They’re not competing with other buyers. Now if the market hasn’t corrected to where another channel thinks that it should, that’s a completely different conversation. I’m not sure how we even determine that.
Here’s my problem with the comment. When you say that prices have gone up 40 to 60%, but they’ve only gone down 8%. Well first off every market is different. That’s not applicable for the entire country. But second off, the reason that I think prices went up 40 to 60% is because we added 80% of the money in existence to the supply. We’ve increased our money supply by almost doubling it. It’s ridiculous how much dollars we’ve added to what’s going on. So of course that’s going to make asset based prices go up. That would make sense. That’s inflation. So the prices haven’t gone up inherently. They’ve gone up because the value of the dollar has diminished. So if they went up 40 to 60% but inflation was a 80%, then they could have gone up even more. And if they’ve gone down 8%, you can’t compare the 8% to the 40 to 60 they went up. You have to compare the 40 to 60 to how many dollars were in supply before.
I understand this is getting complicated. I’m not trying to make it confusing. My point is when the government messes with the money supply like they have been, it makes it very difficult to know what anything is worth because what a dollar is worth isn’t the same as what it was worth yesterday. Just think back to what you were kids, depending on how old you are, how much did things cost back then? Do you guys remember a time when gas was like a 1.30 a gallon? Not trying to make myself old. It’s not like I was running around in a horse drawn carriage or anything, but when I first got my license, gas was less than $2 a gallon. We actually used change for stuff. When I was a kid you could save coins and it was a meaningful thing. You could go buy a GI Joe with quarters that you had saved up. Quarters mattered. I don’t think coins matter at all. We almost forget that they exist. We don’t even use hard money like that anymore.
So Another Channel, I appreciate what you’re saying. I would probably disagree with you that the buyer’s market is not back. I do agree with you that it’s because we have a 7-8% rate increase that has caused the prices to go down. The buyer’s markets are not based on price in neither a seller’s market. A buyer’s market or a seller’s market is indication of who has the leverage in that negotiation, not the price point that the negotiation is starting at. If you think prices are going to keep going down, I hope they do. I’d love that. I’ll buy a whole bunch more real estate if that happens. But if they don’t go back down, I’m not going to miss the boat because I was waiting for something that probably isn’t going to happen. I’m still buying the best deals I can in the best areas I can, getting the best deal that I can and paying the best price that I can and then waiting. And inflation tends to do when inflation does.
All right. Our next and last comment comes from Gator Gator. “Buyer’s market? You mean banker’s market? I can’t afford the higher rate just like I couldn’t the seller’s, higher price. Landlords, cash buyers and banks control this market.” All right, Gator Gator, I can understand the frustration that is clearly seeping through your comments here. What you’re saying is, “Well, when rates were low, I couldn’t afford the house because the price was too high and now that rates are high, the prices come down, but I can’t afford the house because rates are high. I just can’t ever afford a house.” And here’s what I would steer you to. There’s a reason this is happening, okay? It’s not a conspiracy that the world has against investors to keep prices high so we can’t buy houses because you know who else has this same problem? The people that are trying to buy a house for themselves to live in. The people that are crimping and saving, trying to get every dollar they can so they don’t have to rent.
You know who else has the problem? Renters whose rents keep going up as home prices keep going up and they have to keep paying more than before. This problem is universal. We all have the same thing. Housing is too expensive. Now rather than getting mad about it, I would advise you to ask the question why? Investigate. Go a little deeper. Get your Batman on, the world’s greatest detective. All right, let’s actually ask Batman. Batman, what do you think is going on with high home prices? I’m glad you finally asked. It’s really an issue of supply and demand. There are not enough properties and too many people to want them. A simple understanding of economics would bring a lot of light to the situation. And I like your green light, Dave.
There you go folks. You heard it from Batman himself. Prices are too high because there are not enough homes and too many people that are trying to buy them. Interest rates going up obviously does dilute the pool of buyers that want these properties because the demand goes down as they’re less attractive with higher rates. But there’s still so many people that want them. The demand has not gone down enough to where prices go as low as Gator Gator would like them. So Gator Gator, you got a couple options. You can invest in a different asset class that has different supply and demand fundamentals that might be skewed in favor of the buyers. Problem with that is when things turn around, those assets are not going to increase in value as fast as real estate does, which is probably what you like about it in the first place. You could look for a market where there are less people looking for the same homes as you. That puts the buyer in even more favorable position as prices will have come down further than areas where they haven’t.
Problem with that, same thing. There’s not as many tenants that want those properties. They don’t go up in value as much in the future and rents don’t increase. What we always find when we come back circling around looking at every single option is the reason that homes are hot and everybody wants to invest in real estate is the same reason you’re here listening to this podcast. You want them too. Everybody does. They are far and away the best investment vehicle that we have so far in this country. And now that podcasts like this and books and blogs are putting the secrets out. This used to be the thing that one or two people in town had figured out and they made a lot of money investing in real estate and everybody else was afraid of it because of leaky toilets. Now we have so much software, so much support, so much information, stuff like the forums on BiggerPockets where people can go in and get questions answered. You don’t need to know the old person in town. The secret is out and with that demand has increased.
So it sucks, but we all got to swallow this bitter pill. We want these homes, so does everybody else. We’re competing with other people. That’s the reality. Keep listening to podcasts like this so that you can get the information and we’ll keep you one step ahead of the competition because that’s what I’m doing.
All right, let’s take a look at a video question. Our next one here comes from Brittany being answered by Brandon.

Brandon:
Hey, what’s up? It’s Brandon Turner. You know the guy from the BiggerPockets Podcast for nine years before I stepped away to grow my business Open Door Capital. Yeah, that’s right. That’s me. By the way, Open Door Capital, the name is changing soon, so keep an eye out and ear out for that. But I am here to steal some of David and Rob’s limelight and answer a real estate question. So here we go. Today’s question comes from Brit in Placerville, California. Here’s what Brit said. “I thought I heard on an older episode of BiggerPockets that you can do a 1031 exchange from the sale of a real estate investment into a syndication like Brandon’s company, Open Door Capital. Is that true that I hear that correctly?”
So here’s the long and short answer. Yes, it is possible. Most syndicators do not allow it. It’s complicated to do it. So for example, in my company, we will take 1031 money, but the way to do it is through what’s called a TIC. And there’s a lot of rules and regulations and red tape and paperwork involved in it. We typically don’t do it unless it’s a million dollars or more. Let’s say you wanted to sell a property, you were in a 1031 exchange. And by the way, for those that don’t know what a 1031 exchange is, it’s basically where you sell a property and then you take all the profits from it, all the money you made, and then you buy a new property with it and then you don’t pay taxes. And that’s a very, very short definition of it, but that’s the gist.
So typically you have to own the property that you’re selling and then you have to own the property you’re buying in the same entity, which is why it’s hard for syndications to do it. There are ways to do it. It’s just a little bit complicated. So yeah, if you have a lot of cash, most syndicators will look into it. If you have a little bit of cash, if you’re putting in 30 grand, you’re going to have a hard time getting a syndicator to help you with that. That said, there is another concept that my CPA Amanda Hahn talks a lot about and she wrote the book Tax Strategies for Savvy Real Estate Investors for BiggerPockets. You can get it at the bookstore. She talks about something called the Lazy 1031 Exchange, and that basically means you don’t do it 1031.
The problem with a 1031 is you only have like 45 days to identify the new property and it’s all this paperwork and all this rules. Instead you just sell the property. Just sell it and then you buy a new one. But when you buy a new one, you buy one that has really good depreciation benefits. In other words, it’s getting a little in the weeds here on the tax side, but in other words, you buy a new property or you can write off a whole lot of it as a loss in year one. Well if you do it right and you’d buy the right to have a property, for example, mobile home parks, one of the things that I buy a lot of have tremendous depreciation benefits and so you can invest in it and then you get this massive loss like year one. And then that can actually offset your gain or a good chunk of it that you would’ve paid on the profit of that investment.
So in other words, it’s like doing a 1031 exchange. You can avoid most or all of your taxes without having to go through the hassle of a 1031 exchange. In which case, if you can invest in them with a syndication company and go completely passive, you can literally move from an active investor into a passive investor, make as much money if not more as you were before, and then do way less work. It’s really kind of a cool process. So yes, it is possible and do it. Going active to passive, that’s fun.
All right, hope that was helpful. I don’t know, am I supposed to say anything else at the end of this thing? I don’t know. I guess I’ll throw it back to David.

David:
Well, thank you very much for that, Brandon, and so nice to see you again. Also shocked me a little bit as you were wearing a pink shirt in this video. Can’t help but notice that you have some little book things hanging from your wall in the background, which you clearly got that idea from me, but I will forgive you for that because you are the reason after all why I am on the podcast now. So nice to see you again, buddy.
Couple things with Brandon’s commentary that I’ll add. One, it’s not called Placerville. It’s called Placerville. That is either Brandon’s ignorance of California real estate, which is frankly unforgivable, or more likely his Northwestern accent where they say big and drag and instead of bag and drag and like a normal human being would. As far as his real estate advice though, that was phenomenal. Something people don’t realize is that you don’t need to do a 1031 to shelter your gains. You can also do exactly what Brandon said by having enough depreciation, which we typically call bonus depreciation when you take it in year one to cover your losses. There’s more than one way to avoid paying taxes on capital gains. That’s what Brandon is getting in.
Now we sort of have a situation for the next five years where bonus appreciation is going to be on a step down system where you’ll only be able to use 80% of that appreciation in 2023, 60%, 2024, 40% in 2025 and so on. So if we do lose bonus depreciation for the near future or permanently, then the 1031 will become more important. So here’s a little bit of advice I’ll give to everyone listening. Look up what is called a Reverse 1031. Assuming you have enough capital in the bank, there is a way, and it’s a little bit complicated. You have to use a qualified intermediary to pull this off, which is not that hard to do. If you email me, I can connect you with the one that I use. Where you buy a property first, but you do it very clearly taking title in this Reverse 1031 fashion where it’s not actually you that ever owns it. You have like a neutral third party that owns it. Then you sell the property that you had to sell and use that money to buy the property you bought as a Reverse 1031.
It’s basically a way of not forcing you to sell a property and identify a property in 45 days. You identify the property first, you put it on contract, you hold it in this neutral third party. Then when you sell your property, you take the gains and put them directly into that and you don’t have to pay taxes. You can roll them over in that fashion. So there are some creative elements of ways you can pull off at 1031 because Brandon and I have both learned the hard way. It sucks when you’re up against that 45 day timeline and you end up making a decision on day 44. It always ends up working out that way. So thank you Brandon. Very nice to see you again. Fantastic advice as always, and you’re looking good getting that sun, man. Hope you’re enjoying Hawaii.

Zeona:
Hi, I’m Zeona McIntyre, BiggerPockets author and investor friendly agent in Colorado. Today’s question comes from Tiffany in Martinez, California. “Newbie Investor here. I purchased my first home with 10% down in 2011. Five years later I sold with a profit of almost 200k. There are two ways I see investing the 200k. Option one, purchasing two short-term rentals or option two, a small multi-family to do medium term rental for travel nurses. I like short-term rental because we can do 10% down and potentially have higher cash flow. I like the river town of Guerneville, but I don’t like that the county requires property management. I’m also considering buying out of state. With multifamily properties and medium term rental, I have my eye on one that needs some work, but the location is great since it is across from the local hospital.
Option two intimidates me a bit because the 20% down payment will eat up all of our cash and we would have to take out a loan for construction, but it has high potential for the BRRRR strategy. It’s currently a duplex, but the upper unit is four bedrooms, so I would love to split it into a triplex. Cash flow is important because I would like to work fewer hours as a nurse, but I also see the value in long term equity. What are your thoughts on how to best invest our 200k?”
Hey Tiffany. I would go with option two purchasing a small multifamily unit for the medium term rental strategy and here’s why. With the looming recession, I am seeing short term rental booking slow way down. I believe this is temporary, but I don’t know for how long. If cash is important to you, I would like for you to have multiple units so the whole building is not vacant at once. With two short term rentals in the same town, you’re subject to the same slow seasons, which could look like two vacant homes and paying the mortgages out of pocket. Winter is likely your slow seasons. So if you’re looking to buy soon, it may be a really slow start.
Lastly, as a nurse, you may have an in at the hospital and have an easier time filling the units. Warning, with interest rates climbing, a BRRRR is not a strategy I would recommend for the newbie. This would be great to learn through a partnership with somebody experienced down the road. You can always wait for a more renovated or up to date layout or look out of state in a more affordable market. With 200k, you can get a nice quad and have money left over for furnishing in many markets. If you want to learn more about the medium term rental strategy, we just released a book with BiggerPockets called 30 Day Stay: The Real Estate Investors Guide to Mastering the Medium Term Rental. You can pick it [email protected]/pod30. Now I’ll pass you back to David.

David:
All right. Thank you, Zeona, for your advice there. I’ve got a couple books as well. Long Distance Real Estate Investing, The BRRRR Book, the Real Estate Agent Series Sold, Skill and Scale will be coming out early next year. And then I’ve got another book in the works right now that’s going to be an overall banger. It’s going to be on wealth building from a holistic perspective, including real estate, but not only real estate. And I think it’s going to be amazing. I also noticed that Zeona pronounced Guerneville as Guerneville, so she’s now in Brandon Turner status as mispronouncing California cities, which is very funny because you rarely ever hear about these cities getting mentioned. I’m sure that that was the first time either of them had ever even read those names.
Fun fact here, the city of Martinez where Tiffany is residing in is like 30 minutes away from where I’m sitting right now. I sell houses there all the time. So Tiffany, if you don’t have an agent, reach out. I’d love to help you. Here’s my advice for you. Martinez and a city right next to it, Concord, which I’m sure you’re familiar with, have really, really good options for house hackers. So these were homes that were built a long time ago. They’re older cities. Fun fact, the city of Martinez is actually responsible for the name of Martini. The martini was developed in Martinez at a bar there and that’s why it’s called that. Pretty cool, right? Well, they have these homes that were built a long time ago and have had extensions added onto them. So they originally 1100 square feet, then they built up, so they have another floor. Then they built out, so they have a third thing and they work really good for splitting one property up into several different units.
I can sense a little bit of analysis paralysis going on as you’re trying to go through your options. I’ve got option A, here’s all the great things, here’s the bad. Same for option B, same for option C, and just wheels are spinning. Trying to make the perfect choice to invest your 200 K. Take some pressure off. Buy one with a primary residence loan. Put three and a half percent down, put 5% down, put less of your money down. Move into it, rent out the other two units in that property. Then move out and do the same thing again next year with another primary residence loan. The house that you just moved out of becomes the rental that you’re in analysis paralysis trying to decide if you want to buy. The cool thing is you don’t have to make the perfect choice when you’re only putting 5% down. When you’re putting down 20 or 25%, you got to get it right. You got to get that ROI as high as possible.
You take a lot of pressure off yourself by buying a house as a primary, moving out in a year and making it into a rental. You could do this and you could actually watch, as crazy as this sounds, you could watch your savings grow from 200 to 220 to 250, to 280 to 300 at the same time that you are buying properties because the down payment on a primary residence is less than the money that you can save working as a nurse. So you get the best of both worlds. You get properties that become rental properties with low down payments and you continue to save your money so you get all the security that comes from having money in the bank with the long term benefits of real estate.
Look, it’s staring you in the face. I’d love to help you with this, but if it’s not going to be me, this is a strategy that I would highly recommend that you pursue. You can buy a house a year for the next 10 years, end up with 10 rental properties, plus whatever the heck you want, all while growing that savings at the same time. All right. We have time for one more question, and in this one of my original mentors, Pat Hyman, answers the questions from Kyle in New Jersey.

Pat:
What is up everybody? Pat Hiban here. I have a question from Kyle out of New Jersey. Kyle has done one flip. He says, “I’m 21 years old looking to get into real estate. I work in a heating and air conditioning business and a part-time agent. Did my first flip and I did really well on it. What advice you have for your young guy who wants to do more?” Well, it seems like you got the secret sauce about the flip. I would emulate exactly what you did on the first flip and do it on the second one. I would just keep building. In my book, 6 Steps to Seven Figures, Chapter 5, I talk about building upon a success, and if you’ve had a success, build on that success. Do the exact same thing. Don’t try to start something new.
His second question is, “Do you have any tips on finding a mentor?” I love this question. Mentors and mentees are a fascinating subject, and I think the best thing you could do for finding a mentor is just kind look out there. Look who’s doing it. Who’s doing the flips? Who’s the biggest real estate boss out there? Who’s the biggest landlord, who’s the biggest real estate agent? Call them up. I say call them. Don’t woos out and email them or try to IG them. Call them and say, “What can I do to earn a cup of coffee with you?” And then bite your lip. Hold it. Don’t answer. Let them answer, “What can I do to earn a cup of coffee with you? Or earn a half an hour lunch with you?” And they might say something like, “Hey, donate to my charity.” Or they might say… I don’t know. They could say anything, but you’re giving them an option and get together with them and follow up.
Now, the key with any mentor is whatever the advice they give, act like you are massively paying attention. Write it down. And then when you leave, go home and immediately take action on what they told you. Because if you don’t take action, they’re going to ignore you next time you call. But if you take action and you go, “Hey, I want to let you know that those three books that you recommended I’ve bought, I’ve read them through, I’ve highlighted through. They’re amazing. These are my favorite parts. Thank you so much for that. Can you give me three more books?” They’re going to give you three more books to read. Or whatever it is. Whatever they tell you to do, show them that you actually move forward on it. Huge importance.
“What would your thoughts be on someone thinking of starting a brokerage property management company in the state of Florida next few years?” I don’t know about how the state of Florida works compared to New Jersey, but I would question, why would you do that? Why wouldn’t you just do it in Jersey if you’re from Jersey and Jersey upside down and out and your business is in Jersey and the people are in Jersey? If you don’t know anybody, I think it’s going to be quite difficult to go down there to Florida out of the blue and just open up a brokerage, truth be told. Especially if you don’t have any income out there. Now, back to David Greene.

David:
Doesn’t Pat just have a voice for radio? “And now back to David Greene.” It’s like he was made to do that. A lot of people don’t know this, but Pat was at one point the top agent in all of RE/MAX and then later the top agent in all of Keller Williams, meaning he sold more houses than every other agent in each of those companies when he was there. He’s also one of the founders of GoBundance and an overall great dude.
All right. I don’t think I have anything to add to that advice. The only thing I might say different is I’m guessing, now this is me speculating, that the reason the caller wanted to move to Florida open a brokerage is they see the population is moving there and they’re thinking, “Oh, here’s some opportunity.” I think what Pat was getting at is that opportunity is more than just demographics and what the numbers are saying. It’s more about relationships. And if you don’t have relationships with people in Florida, you’re not going to find people to do business with you. I thought that that was a good point.
The way I tend to think, if you’re a single person, you don’t have a family, you got to worry about, you can go do whatever you want. Build one in New Jersey at the same time you build one in Florida or build one in New Jersey, then start one in Florida, because the skill sets are going to be very similar. You just got to have people in place to run each one. I’ll also say this. If you’re a person who runs a halfway decent property management company, you’ll get all the business. Very, very, very, very, very difficult asset class to succeed in. It’s very hard to keep your attendance happy and your landlords happy. Pretty much everyone hates you all the time. But if you can solve that challenge, if you can overcome that obstacle, you’ll get all the business.
And the last thing I’ll say when it comes to property management is most property management companies don’t make good revenue from their model. Their margins are incredibly slim. Their turnover is very high. You’re constantly training new employees and hiring new people who get burned out because everyone’s angry at them from both sides and there’s not a lot of money to be made. You make your money by the relationships within the business. What I mean by that is you have the landlords who will let you sell their house if you’re a real estate agent and you make money on the listing commission or they will sell their house directly to you if you’re an investor before they put it on the market. So most people that do well as property managers are not doing it for the money. They’re doing it for the relationships. So there’s something there. Like Pat was saying, focus on relationships if you want to make money. I know it sounds counterintuitive, we tend to think money or relationships, but the best money comes from the best relationships.
All right, that was our show for today. What did you guys think? We had appearances from lots of people. We had Brandon Turner, Zeona McIntyre, Pat Hiban, Bruce Wayne. There was a lot of different cameos that we had in today’s show. And I want to know, did you like this or do you prefer the shows where it’s just me? Or do you like a little bit of a mix up? Sometimes we bring in some backup for me, sometimes it’s just me, right? Even Batman has a Justice league that comes in at times. Marvel fans, please don’t be mad at me for referencing DC. It’s all just an analogy.
Lastly, please subscribe to our YouTube channel. Just hit that little subscribe button and then leave me a comment telling me what you thought about the show. What would make it better? Do you want to hear more jokes? Do you want to hear more accents? Do you want to hear different topics? Are you like, “Nope, just the facts, man. I just want to know what’s the information and leave out all the fluff.” Tell us what you like and we will do our best to cater the show for you. If you’re listening to this on an app where you listen to podcasts like the Apple Podcast app or Spotify or Stitcher, please leave us a five star review there as well. Those help us a ton.
I want to thank everybody for joining me today. I love making these and I love helping you all make money. And as a way of showing appreciation for all of you, we are having a Black Friday Cyber discount for all of the BiggerPockets books. You can go to BiggerPockets.com/store and get 60% off certain titles in the BiggerPockets book store. I’ve got a lot of books in there. Long Distance Real Estate Investing, BRRRR, Skill, Scale, Sold, all of it. As well as every single other person that you heard on today’s show, they are all authors and they’ve got books. Grow your knowledge and grow your bank account. If you want to follow me online, I’m @DavidGreene24 on Instagram, LinkedIn, Facebook, even YouTube now. I have a handle @DavidGreene24. So follow me there. Let me know what you thought of the show and leave us a comment. Thanks everybody. I’ll see you on the next one. If you’ve got another minute, listen to another BiggerPockets video.

 

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Mike McNamara

Mike McNamara

A Las Vegas Realtor since 2008. Mike has a wide range of knowledge around all things Las Vegas.

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