Category: Investing

Dave Meyer:
If you are about to buy your first rental property or about to pick up another, I need you to stop and watch this. In today’s market, investors are rightfully more nervous before dropping a down payment. Down payments can be tens or even hundreds of thousands of dollars that you’ve worked hard for. And if you put it into the wrong property, it could set you back years. But of course, if you put it into the right property, you could fast track your financial independence. So how do you know which one is which? In this episode, Henry and I are sharing these stress tests we run before buying any rental. If a property doesn’t pass, we walk away no matter how good the deal looks on paper. So if you are nervous to put up that next down payment, this episode is going to help. Whether we give you the green light to relax and go out and buy that property or give you the red light to stop you from buying a very bad deal.
Imagine just how much that peace of mind is worth. What’s up everyone? I’m Dave Meyer here with my co-host, Henry Washington. Today we’re dipping into the BiggerPockets forums to answer a few of your questions about real estate investing. Let’s jump right in to the first question. All right, Henry, this is a good question. Very curious your opinion on this one. It comes from Kate Thomas who says we are looking at spending a hundred grand out of pocket to buy a three-two single family home as a long-term rental in Woodstock. She also says nerves are setting in because that’s a lot of money. It is.

Henry Washington:
Yeah, it is.

Dave Meyer:
But she wants to know, is this how everyone feels or is this my intuition saying play it safe, leave the money in the stock market. We’ve wanted this for years. What do you think?

Henry Washington:
I mean, to give a true opinion on this, I would definitely need some more information. But on its surface to answer her question, is this the way you always feel? Yeah. Yes. Yeah, it is. I’ve done hundreds of deals. And I still get nervous when I buy them, when I either use money, even when I don’t use money of my own to buy them. I still get nervous. I still think, oh, should I do this? I don’t know. Like to this day. So yeah, that’s pretty normal.

Dave Meyer:
Do you think there are people who don’t? I get that way every single time.

Henry Washington:
There’s probably people who don’t. I don’t know. I’m just not that guy. I still get nervous.

Dave Meyer:
You’re writing a check for six figures. That’s a lot of money. You’re right about this, Kate. It is a lot of money. The one part of this though I would challenge is saying that playing it safe in the stock market is necessarily safer than real estate investing. I don’t know if that’s true.
Let’s presume for the moment, Kate, that you’re buying the deal right, that it’s cash flowing, that you have cash reserves, that you’re buying at a good price in a good location. If that’s the case, then I think you can make an argument that real estate is safer than the stock market, depending on who you are. I mean, I think the stock market is very highly valued and I think that real estate risk of going to zero pretty darn low. If you really think about how much money you can lose in a situation like this, buying a single family home, let’s presume you’re using fixed rate debt. I wouldn’t say that’s more risky than the stock market, but I do understand feeling a little anxious about it.

Henry Washington:
The only way to really lose buying a property like this is if you sell it before it becomes profitable. So as long as you can hold onto this for 10 years at a minimum, you’ll look like a genius at some point, I’m sure, even with modest appreciation each year. Plus you’re putting $100,000 down, which should I assume help with increasing the cash flow and hopefully putting money into your pocket and you’re buying yourself equity and hopefully you’re buying with some sort of a discount and walking into a little bit of equity as well. So I mean, it’s a safe-ish place to put your money given a lot of the assumptions you and I are deciding to make about this deal.

Dave Meyer:
Yeah. We’re assuming that you listen to this podcast, Kate, and are going to buy this right. I do think though, one of the reasons why this happens so much where you get really nervous is because the normal thing is just to stick it in the stock market. If you go talk to your friends or whomever, you’re probably your financial advisor. They’re like, “Just stick it in the stock market. That’s safer.” It’s less common to interact with other investors who write these kinds of checks and can tell you that this is actually normal. It’s normal to feel anxious and that it’s relatively safe. So my advice, Kate, is if you are nervous about this, go talk to other investors.You’re clearly doing that on the forums. That’s a great place to do it in BiggerPockets. But also come to BPCon, right? Go to the BiggerPockets Conference and interact with people who are in the same shoes as you.
Go to a local Ria event and talk to other people about this. I think that’s where you gain confidence in this industry where your average friend, your average cousin is not doing this and so it can feel riskier than it actually is because it’s less common.

Henry Washington:
All you’re doing is you’re taking that $100,000 out of one account and you’re putting it into another account. And that account in this case is equity in this property. And if you look back over history, home values typically go up in price. There’s been some times where they go down in value, but for the most part they go up in value. And so the expectation that this $100,000 is going to disappear and turn into nothing is pretty unlikely. It’s going to be a little illiquid now. You won’t just be able to get access to it when you want to. And with you putting so much down, it helps you to be able to get access to some of that or all of that money back when you need to via a home equity line of credit or a sale or a refund, cash out refi.
It gives you some options. So I don’t think it’s as scary as it may feel taking the $100,000 and putting it into this property, but it’s still going to be there. It’ll just be a little less liquid.

Dave Meyer:
Yep. That’s a really good point. I doubt you’re putting 3% down if you’re putting a hundred grand

Henry Washington:
Down, right?

Dave Meyer:
You’re probably putting 25% down. That really insulates you. It protects you a lot in that kind of deal, makes it a lot less risky. Before we move on to our other questions though, just wanted to shout out. I did mention BPCon because it is on my mind and we were sending out speaker invites. Henry,

Henry Washington:
Have you accepted- And I got mine and I signed my contract. So come send me speaking@bpecon.

Dave Meyer:
Yeah. Oh, it’s going to be a lot of fun. If you guys have never been, BP Con is the best time. I look forward to

Henry Washington:
It every year

Dave Meyer:
This year. October 2nd through fourth, you can get your tickets at biggerpockets.com/conference. It’s in Orlando, Florida, so it’s going to be a lot of fun. Bring the whole family. Are you bringing your family?

Henry Washington:
Yeah, we’re planning on bringing the family this time. Look, Orlando, last time we did it there, I mean, that’s arguably probably the most fun BPCon I’ve been to.

Dave Meyer:
It was literally the best party I’ve ever been to my whole life.

Henry Washington:
That was super fun. So excited to do that again. Last time in Orlando, you got to play golf though and I didn’t. All

Dave Meyer:
Right. I’m going to tell you a secret that I contacted the golf course closest to the hotel to see if we could buy it out and do a scramble with BiggerPockets members. I’m so down. And it’s not that expensive. It is a reasonable thing that we could do. So I guess it’s up to our audience. If you want to do this, if you want to go golf with me and Henry and I’ll find other speakers to come to this too. If you want to do that, message me or Henry on Instagram. I’m at the data deli. You’re at the Henry Washington.

Henry Washington:
That’s right.

Dave Meyer:
Message us and tell us that you want us to do this. If we can get like 50 people, we can definitely do this. It would be a great time.

Henry Washington:
Yes.

Dave Meyer:
Anyway, I digress. BPCon is a lot of fun. Let’s move on to our next question. But if you want to golf, also tell us because we would love to golf. I’m

Henry Washington:
So down.

Dave Meyer:
Moving on. Next question.

Henry Washington:
Our next question comes from Todd in Santa Barbara. Man, I love Santa Barbara. What an underage city. We don’t talk about Santa Barbara enough. I love that place. Todd says he started running every rental analysis through a what if I’m wrong by 15% filter. Oh, I like this. I

Dave Meyer:
Like that.

Henry Washington:
If the deal still works with rents 15% below my estimate, it’s worth pursuing. If it doesn’t, I move on. It’s a simple rule, but it’s killed about 60% of the deals I was previously excited about. Painful but probably saved me from a few disasters. What’s your go- to stress test before making an offer?

Dave Meyer:
I love it, Todd. Good for you.

Henry Washington:
Absolutely. Dave and I have talked about this many times where basically in underwriting, we’re trying to talk ourselves out of buying a property by underwriting so uber conservatively. It’s funny because I have an acquisitions manager who helps me field my leads and talk to sellers and she’ll call me sometimes and be like, “Hey, look at this deal and do this. If you do this and you do that and you get this just right, you can make 30 grand.” And I’m like, “Nah.”

Dave Meyer:
Yeah, exactly.

Henry Washington:
I’m leaving money on the table in deals because I just want them to pay me so much better than what maybe somebody else is willing to work for a deal. I think it surprises her sometimes because she’s like, “You sure you don’t want this one?” Yeah, I’m pretty sure. We’re going to leave that one on the table. I want doubles and triples right now. I’m kind of leaving singles alone unless there’s some criteria that just make a lot of sense, unless the location is super amazing and I’m okay pivoting my exit strategy to keep it if I need to. Other than that, I just underwrite so conservatively that if the deal still makes sense, I’m like, “I guess I got to buy it.

Dave Meyer:
” Yep, exactly. That’s the approach to have. I like what you said about wanting triples and doubles, because then if you miss on a triple, you’re still getting a double. If you miss on a double, you’re still getting a single. If you miss on a single, you’re out. So that’s not good, right? You don’t want to do that. So that’s 100% why you just have to have high standards, especially right now, because the market is not going to save you. I think the rents stress test makes a lot of sense. I mostly stress that it’s vacancy. What if you made 20% less income? That’s really what it comes down to, whether it comes from lower rent or higher vacancy. I don’t really care. But what if your income goes down 20%? Very unlikely. Super unlikely. But what if? How bad of a situation would that be?
I also pretty much always assume no appreciation. I’d put 2% appreciation long-term, which is lower than the long-term average, so I’m very conservative about that. And then if I’m doing a BER, just big contingencies in the renovation process both in timeline and budget. So I think those are the main things.

Henry Washington:
I think the other thing to consider on a BER to be conservative is don’t assume the lender will give you 75%.

Dave Meyer:
Ooh, that’s a good

Henry Washington:
One. Yes. Loan to value. Assume a lower loan to value.

Dave Meyer:
Or won’t appraise. Or it

Henry Washington:
Won’t appreciate. For what you think

Dave Meyer:
It’s going to … Yes, that’s a very good one.

Henry Washington:
And then I’ll talk about in terms of flips, how do I protect myself? So on the flip side, the things that I’m adjusting in my underwriting or being conservative about are the not fixed costs, right? Holding costs. Most people like to budget three months to renovate a month or two to sell. I am adding an additional two to three months on top of my normal holding costs every deal I’m underwriting. So if I would typically underwrite it for six months, I’m doing it for eight to nine, just because some deals we list and they get three offers in two days, some deals we list and they get three offers in six months. And sometimes there’s no rhyme or reason. I can’t figure out why one versus the other. I’m stopped trying to figure it out and I’m just underwriting it into the deal

Dave Meyer:
Conservative.

Henry Washington:
Yeah, exactly.
The other thing that we are doing to protect ourselves in the underwriting is we are not underwriting to sell at max ARV. We are underwriting to sell at mid ARV and then we’re still reevaluating when it’s time to list the property and we’re doing it very, very comp specific so that if I have comps and those comps are priced a certain way, I always want to be under what they’re priced at so that I force everyone who’s looking in that market to come see my property because more eyeballs equals more offers. And so those are the things that are protecting us in the underwriting.

Dave Meyer:
This is just a good philosophy with just like management in general, I think. If you’re working with on a flip or a BER or whatever, the numbers you should be telling your team, your contractor, your agent, your property manager are the best case scenarios. That’s what you want people to be shooting for. Internally, you have to know that there’s a different number that still works. I think that’s … You’re not even being dishonest. You should say, “This is what I expect. I want to get 3,800 bucks a month. I want to sell this for $400,000.” But you need to know, okay, if it sells for 370, we’re going to be fine.That cushion is super important.

Henry Washington:
Yep. I believe we said this on a previous episode. It’s not that underwriting conservatively is the hard part. The hard part is seeing when you underwrite conservatively that the deal just barely doesn’t meet your criteria and still walking away. That’s the hard part. That’s what you got to be able to do. And that means sometimes you’re leaving money on the table. I was talking with the seller and those of you who know me know I make very honest offers. I hope sellers know what I plan on making. That’s part of how I make my offer. And so when I told the seller, she had a higher end house in a more expensive neighborhood, very desirable neighborhood, but those properties take longer to sell. Buyers expect more to be done at a higher quality and I just want to be paid for the risks that I take on.
And so I told her, I was like, “I just can’t do this deal. There’s not enough meat on the bone.” And she was like, “Yeah, but you’re still going to make 50 grand.” And I was like, “Yeah, I can’t do it. ” It just doesn’t fit.

Dave Meyer:
Well, good question, Todd. And please let us know if you need more advice on your portfolio, Henry and I are willing to fly to Santa Barbara at your expense and play golf with you.

Henry Washington:
And play golf with you and talk it over.

Dave Meyer:
No, actually good question, Todd. I do respect this idea.This makes a lot of sense. All

Henry Washington:
Right. I’m curious your thoughts on the next question, but I’m going to have to wait to hear those until after the break. All right. We’re back on the BiggerPockets Podcast and Dave and I are going through forum questions. These are questions that you guys have asked in the BiggerPockets forums and we are here to answer them. Dave, what you got for us?

Dave Meyer:
All right. Next we have a question from a BiggerPockets community member named Eli who asks, “I just turned 20 years old.” Wow, forgotten what that feels like.

Henry Washington:
Great. And

Dave Meyer:
I’m finished a half gut remodel of my first home, which I recently moved into. I really fell in love with the whole process and I’m very confident that this is what I want to do for my career. Anyway, I’m going to buy a distressed property around the 60 to 80K range and most likely going with the Burr and I’m just wondering how much cash reserves I should have. Any advice is greatly appreciated for someone just starting out. And by the way, Henry, we did some research. He is in Montpelier. I can’t pronounce that. I took French for six years. I can’t even say it. Anyway, Montpelier, Ohio is where Eli is. That explains the 60 to 80K range for the Burr property. What’s your advice for Eli?

Henry Washington:
If the property’s already stabilized, I typically want to have between 10 to 15, maybe $20,000 on hand because if a roof needs replaced for some reason, that’s typically the price point that that’s going to fall in. That may be probably the most expensive repair, right? But that’s for a property that’s stabilized. Seeing as if this property is not stabilized, I think you need to have that on hand, right? What’s it going to cost you for the most expensive repair? And then you need to have some cushion above and beyond your repair budget. So again, I’m making assumptions. I’m going to assume that your repair budget for this property is going to come in financed in with part of your loan, because that’s what most people do. So I’m assuming you’re not paying for the renovation out of your pocket. So what I would do is I would make sure that you’ve got enough to cover maybe 15 to 20%, 25% over your repair budget.
Because if you’ve never done a repair on a property before, you’ve probably under budgeted it. It’s probably going to take you a little longer than you expect. You want to be able to cover those overages. Typically, you’re going to have to cover those overages out of your pocket. That’s my pretty generic answer is 20 to 25% over your rehab budget and then another 10 grand-ish to cover a very expensive repair if it comes up after you’ve got it as a rental property.

Dave Meyer:
I like the way that you frame that because when we talk about cash reserves on the show most of the time, we’re talking about the hold period when you’re just owning and operating the rental property long term. Honestly, I just estimate it to 10 grand, something like that, five to 10 grand that usually covers most expenses. As you get larger, you can just … I sort of keep a 30 grand buffer for

Henry Washington:
All

Dave Meyer:
Of my rental property.

Henry Washington:
Exactly the same.

Dave Meyer:
You don’t need 10 for every single property. The 80 grand repair I just ate, I had to figure that one out, but most of the time 30 covers it. So I think that’s totally fine. But I think what Henry’s right about is in your situation, Eli, for this, you’re new, you’re young. I’m going to make again the presumption you don’t have a lot of cash on hand and you’re looking at a distressed property. I think 20% makes a lot of sense and maybe even higher.

Henry Washington:
The bigger the renovation, the more you should definitely have a side.

Dave Meyer:
Do you think percentage-wise oral? I

Henry Washington:
Mean, percentage-wise is fine. Yeah. That’s why I say 20%. I’m assuming this rehab is going to cost about as much as the home, maybe more.

Dave Meyer:
I agree. Right. Yeah. So I think if you’re going to renovate it and think it’s 60 grand renovation costs, I think you need, you said 20%, 12

Henry Washington:
Grand.

Dave Meyer:
Yeah, that might not even be

Henry Washington:
Enough. That

Dave Meyer:
Might be enough. You’re right. 15, 20 grand. Yeah, you’re probably right. Because then you also need a little bit of a contingency if it takes longer. Not just your renovation costs, but holding costs, especially when you’re new to this, an extra couple of months eating the debt can be expensive. I’m looking at Montpelier, Ohio, not a lot for sale there. So I’m wondering what rent demand will be. You might have vacancies there. So I would say 15, 20 grand on this one would be my estimate, but it really is our always, always err on the side of caution on these things. Always assume things are going to take longer, they’re going to cost more. And then if they don’t, that cash reserve, you get to use it for your next deal instead.That’s the better situation.

Henry Washington:
Yep.

Dave Meyer:
All right, Henry. I got a question that I think every real estate investor is wondering about right now. It comes from Junice, a property manager in Fort Lauderdale, Florida. And the question the title is new here, what’s the hardest part of managing your rentals recently? We might need a whole episode for this one. But Junice says, “I currently manage 250 plus multifamily units.” Wow. Handling leasing, maintenance, coordination, and resident relations. From the management side, it’s been interesting to see how differently things can play out depending on the systems in place or lack of them. Most of the time it’s small inconsistencies that build up over time and turn into bigger issues. I’m really interested in learning how investors who self-manage are navigating things right now. What’s been the most challenging part of managing your properties lately, tenant related, systems and processes or something else, maybe all of the above.
That’s my own commentary, but what’s your take on this, Henry?

Henry Washington:
Well, I haven’t self-managed in close to four years.

Dave Meyer:
Congratulations.

Henry Washington:
Thank you very much. Yes. Here is what I was struggling with. Again, it was several years ago, but this is the thing that I was struggling with. It was tenant turns in a timely fashion. And mind you, I had gotten to a point where at this time I think I had about 65-ish and a lot of the reason the turns were challenging is because I don’t have in- house maintenance and so I was using contractors to handle maintenance and turns, plus I was also flipping houses. And so flipping houses took priority a lot of the time because so much more expensive for me to hustle and get those things done versus a lot of the times what the rent was going to be if I took an extra week to get a turn done. But what started to happen was this compounding effect. If you’ve got one tenant turn you’re managing that’s easy.
If you’ve got six or seven tenant turns that are all coming up within a week or so of each other, it just became too time consuming and tedious to manage all of the intricacies that go on with that. And so I had a choice to make. It was either I find a company who can take on all of this for me and handle it more efficiently, or I have to hire somebody in house who can focus solely on that thing.

Dave Meyer:
Yeah. Tenant turns suck. No one likes doing that. It’s not fun. If the tenants did something wrong that you’re getting compensated to that- Who’s responsible for parts of the tenant turn, right? Exactly. Yeah. It’s just not a lot. I agree. Yeah, it is. So I agree with that. I’ll say I also stopped self-managing six years ago, did it for 10 years though. So remember it actually fondly, I don’t mind. I didn’t mind doing it at the time, but I will say that right now, I think the hardest part of managing rentals is controlling expenses. And it’s not that it can’t be done. It’s just so much shopping around.
You can’t trust anything anymore. I just feel like that’s kind of where I’m at. Every quote just feels like you’re getting kicked in the ribs.You’re just like, what? I’ve never seen this in my life where I am literally seeing quotes now two or three X times what the lowest quote will be. And I’m not talking like small things. I am sure you deal with this with flipping all the time, but even in rental properties, this is getting crazy. Redoing a bathroom now it spans from $7,000 to $35,000. It’s unbelievable and it’s like I’m willing to do it. I obviously do it, but like- It’s so true. It just takes so much time and it’s so annoying. And it’s not even my time. It’s like I want to do it for the tenant. Maybe there’s something wrong and then I have to spend three weeks getting quotes before I can even start the work because I’m not paying $25,000 for you to go to Home Depot and get a Kohler toilet and replace it.
I’m sorry. I’m just not. Not Kohler, American Standard Toilet and

Henry Washington:
Replacing it. There we go, baby. That’s what I’m talking about.

Dave Meyer:
Yeah, exactly. You got to go American standard.

Henry Washington:
And that’s the difficult part about property management even after you outsource it is because if you don’t train your property managers and force them to get multiple bids, they’re just going to get one and it may be the most expensive one and they’re going to go with it because they’re trying to be efficient. But right now I’m really pushing back. If it’s over my not to exceed amount, then I need you to get three bids because some of these bids discrepancies are

Dave Meyer:
Crazy. 100%. I’ve been dealing with, this is the managing of the managers that I feel like I need to just kind of be a pain in the ass about. I’m like, these are big projects. Some of these are like full renovations of a unit. I got quote for $35,000 for one of them, called around, I found another one. It was like 26. I mean, nine grand for the same thing. These are cheap homes. Those aren’t expensive units I’m talking about. Nine grand is a big difference. So I think that’s the big thing. And it’s not just trades. Insurance costs right now are the same way. You need to shop around on that. Lending obviously is a little bit, if you’re going conventional, it’s a little tighter banned, but even in the private money or the DSCR space things are really different. So I think that’s one of the most difficult, but it’s also the best use of time because you can save so much money.
When you actually think about it, it’s a couple of hours to save tens of thousands of dollars. So that is well worth it. I’m just being grumpy and I’m annoyed that I have to do it because you didn’t have to do it like five years ago. You didn’t have to do this.

Henry Washington:
Totally agree.

Dave Meyer:
All right. We got to take a break, but we’ll be back with more questions from the BiggerPockets community right after this. Welcome back. Henry and I are answering the BiggerPockets community questions. Henry, what’s our next question?

Henry Washington:
This question comes from David P. He says, I have an excellent tenant that has lived in my property for the last four years. She called me earlier this week and said she and her husband are separated and she needs to start looking elsewhere. They were paying $4,500 a month for a large house here in Los Angeles and she told me that her budget is now $3,800. I told her we can do $4,000 a month for a new one-year lease and then reevaluate later. And I was essentially breaking even on the property at $4,500 a month. So now I’ll be slightly negative each month. Would you guys do the same to keep an excellent tenant? A one-month vacancy will be almost the same as a one-year price reduction. So I figure it’s better to keep someone who’s been great this whole time.

Dave Meyer:
That’s a tough question. This is a tough

Henry Washington:
Question. This is a hard one.

Dave Meyer:
I would say philosophically, I would lower rent for a good tenant. On principle, this makes sense to me the way that you’re thinking this through. The thing that’s holding me up about this particular situation is you’re only breaking even and now you’re taking a loss.That’s a tough situation because David’s also saying a one-month vacancy would be almost the exact same as a one-year price reduction. I don’t know. It’s more like a two-month vacancy, right? You’re taking 700 bucks a month off rent. That times 12 is $8,400 a year. That’s basically two months of rent. So could you find a good tenant
In less than two months? I would hope so. And I do really respect the idea that you’re like, “This is a good tenant as a good person. I want to do that. ” It’s the thing we always talk about on this show. You put yourself at a lot of risk if you’re not cash flowing. And if you make this your default, how does it get better? Because you’re basically investing into this tenant and saying, “I’m going to keep this tenant indefinitely.” And so you’re just going to lose money indefinitely. I don’t really like that idea. If this was temporary, I would personally be able to live with that. Or if it was in a multifamily unit where it was like, okay, I might make a little less overall, but I could still cash flow the overall financial position of the portfolio, still good,

Henry Washington:
Then

Dave Meyer:
I would be okay with it. But it’s like, now I’m just going to have a drain on my own assets. I don’t like that.

Henry Washington:
I think it’s fine to lower your rent a little bit to accommodate an excellent tenant for the right property. In this particular situation, I wouldn’t do this. The things that concern me are putting yourself in the negative every month as a default. So what you’re saying is if everything goes great and she pays her rent on time, you’re still going to lose money. That’s scary. The other part that scares me about this is this financial situation is new to her. And so we’re hoping that she can afford the $3,800 a month rent, but it sounds like she just got into this situation herself and so you don’t really know. So if I was going to do the situation, I would definitely put her on a month-to-month lease for a little while to see if she can continue to pay even that $3,800 a month and do that consistently.
And then I might look to put her on something more long-term, but I don’t know that I would lock her in long-term off the bat just in case you need to end that lease so that you can really find somebody who can pay more closer to market if you need to. But in my opinion, it’s just a little too risky if you’re going to be losing money and you’re not quite certain if her new financial situation is truly what she says it is.

Dave Meyer:
One of the things missing in the information here is like, what is market rent? Yeah. Because David said 4,500 bucks for the last four years, market rent might be 4,800 at this point. Rents might be higher than that. And I am not one to say you should be maximizing rent all the time, but if market rents are 48 and you’re allowing it to go out for 38, that’s $12,000 a year, you’re just giving up and coming out of pocket to pay your mortgage on. I am sensitive to the that, but I personally would not do it. I’d figured out a way to be flexible with this person and
Help them, don’t say you have to get out by this day, but figure out a way to help them transition to a place that they can afford. And in exchange for that, work with this person so that you can show the property while she’s still living there and you don’t have that one month of vacancy. I feel like this is one of those things you clearly, David, have your heart in it in the right place where you want to do the right thing, but I think you can do that in a way where you can put this person in a situation where she can comfortably pay because it’s not right to put her in a situation she can’t and where you can avoid vacancy and get market rents at the same time.

Henry Washington:
Yep.

Dave Meyer:
All right. Well, this was a lot of fun. Great questions today. I think we got some unique and

Henry Washington:
Interesting ones. So

Dave Meyer:
Thanks for weighing in here. Before we go though, reminder, we found these questions on the BiggerPockets Forum. So if you have real estate questions of your own, which you definitely do, go to biggerpockets.com/forums and get advice from more than three million members. It’s totally free and we might even pick your question for a future community question episode of the BiggerPockets Podcast. Thank you all so much for listening to this episode. I’m Dave Meyer. He’s Henry Washington. We’ll see you all next time.

 

Ashley Kehr:
What if I told you that right now today you can buy a property and inherit a 3% mortgage rate, even though rates are hovering around 6.5%? Trust me, this is not a loophole. This is not sketchy. It is a feature that is actually built into millions of existing homes, loans, and almost nobody talks about it. Today, Tony and I are going to break down everything you need to know about assumable mortgages, what they are, how to find them, and exactly how the process works.

Tony Robinson:
Now, here’s a quick stat to set the stage. There are roughly six million homes in the US right now with assumable mortgages at rates below 5%. That is not a small number. And here’s the craziest part. Most sellers don’t even know that their mortgage can be transferred. So this is genuinely an edge for any Ricky who learns this.

Ashley Kehr:
This is the Real Estate Rookie Podcast, and I’m Ashley Kerr.

Tony Robinson:
And I’m Tony J. Robinson. And with that, let’s get into assumable mortgages.

Ashley Kehr:
So I was actually at a real estate meetup, believe it or not, where I talked to somebody who just did this strategy and it has just been so interesting to me to learn more and more about it. So we wanted to share it with you guys on today’s episode and that is assumable mortgages. So let’s start from zero, what an assumable mortgage is. So imagine that somebody bought a house in 2021 and their interest rate is at 2.75%. They’ve been paying it on it for five years, but now they want to sell. So normally when a house sells, the seller pays off their old mortgage and the buyer takes out a brand new one at today’s rates. Today’s rate’s around 6.5% as of the recording of this. But with an assumable mortgage, the buyer can actually instead step in and take over the existing loan on this property.
Same lender, same interest rate, same remaining balance, same term. You’re literally just taking over their mortgage instead of going and getting a different mortgage. Your rate doesn’t reset to today’s rate. The clock doesn’t start over on the amortization. You inherit exactly where they left off. So less closing costs to actually get, you’ll still have to pay for title and things like that, but to actually closing on a brand new loan, less payments that you’ll need to bring to the closing table too.

Tony Robinson:
So let’s look at some real numbers on this. On a $400,000 purchase price, or let’s say that’s a loan balance, the difference between a 3% interest rate and about a six and a half interest rate that we’re seeing today is almost $900 per month. That’s almost $12,000 per year. And over the life of the loan, you’re talking about a few hundred thousand dollars in interest savings, and that’s not a small number. So if you are a real estate investor thinking about cashflow, saving $900 per month on a mortgage payment on a rental property is massive. That could be the difference between a deal that bleeds money and one that actually produces positive cashflow.

Ashley Kehr:
I do want to clarify one thing here because this is similar to an other strategy that has been talked about and that is sub two. So sub two deals kind of do a similar thing where you’re taking over the existing mortgage. The difference here with the assumable loans, you’re actually getting the bank’s permission, the lender’s permission to actually transfer it into your name. With sub two, you’re taking over the mortgage and making the payments on the mortgage, but the mortgage is not going into your name. And in a sense, you’re not notifying the lender of this change in sale of the property in that you are now the mortgage holder. So this is how assumable is different than doing sub two. Sub two deals obviously can be done with assumable mortgages and the same kind of strategy applied, but assumable, you’re going to the lender, you’re getting permission and you’re going to actually have your name on the loan.
So your debts to income will be affected and they also will vet you, which will get into more as to what criteria you’ll need to have to actually assume one of these loans also. Okay, which loans are actually assumable? And typically there are three different ones and here’s the simple version. They’re government-backed loans. So conventional loans are almost never assumable. So this is your FHA loan, your VA loan and your USDA loan. These are government-backed loans mortgages that often have it written into the mortgages that they are assumable. With these three types of loans for the USDA loan, it is important to remember for it to be assumable, it has to be your primary residence. FHA and VA loan, they do not. So if this is an investment property, you want to focus on finding properties with those two types of loans. All

Tony Robinson:
Right, so let’s break down each of these loan types. So first you have FHA. These are very common with first-time home buyers because of the low down payment requirement. You can get as low as 3.5% on an FHA loan and all FHA loans are assumable as long as you qualify. Now, in order to qualify, you need at least a 580 credit score and your debt to income ratio needs to stay under about 50%. Now there is one cash. FHA loans after, I believe it was 2013, require mortgage insurance for the life of the loan. So you have to factor that cost in. But again, if we’re talking about trading a 7% interest rate for a 3% interest rate, I’ll pay the PMI.

Ashley Kehr:
The next is a VA loan. So I want to make this very clear because this can be a huge common misconception that in order to assume a VA loan, you don’t need to be a veteran. So you don’t have to have any military experience to be able to assume a VA loan. You do to have to start a VA loan from start to scratch to purchase a property to get a VA loan, but to assume it, you do not need to be a veteran to actually assume the loan. So any qualified buyer that meets their criteria, their lender credit and income requirements can actually assume one of these loans. The one thing that the seller does need to be aware of though, and as a person and have some moral compass, if they’re not aware of these different things, it should tell them that if a non-veteran assumes their VA loan, their VA benefit stays tied up until that loan is paid off or refinance.
So in this scenario, let’s say I go and buy a property, I get a VA loan and Tony’s going to buy it from me. When Tony assumes that loan, the mortgage goes into his name, but I now still have that VA benefit tied up. And in some areas you have a certain set limit of how much you can get for a VA loan. So you could possibly have two VA loans at a time as long as you’re under a threshold of let’s say 500,000 or maybe you’ve met your threshold in your area so you can only have one VA loan at a time and that means they won’t be able to go out and buy a new property with a VA loan. So I think that’s something important to disclose if you are being buying a VA loan from somebody and this would cap their threshold and they wouldn’t be able to use that again for another property.
All

Tony Robinson:
Right. So the next type of loan is a USDA loan and USDA stands for United States Department of Agriculture. So think like farm, rural agriculture. These are assumable, but the requirement here is that you have to use the property as your primary residence. Now I’m assuming it’s because a lot of folks, when they’re using USDA, it’s because they’re buying farmland and that’s a big part of the push behind USDA. So if you are using this loan, it is assumable, but it’s got to be your primary residence. So this will work well in a house hacking type of situation or maybe even if you’re doing like if you want to buy a farm or something to that effect, these loans will work really well.

Ashley Kehr:
Okay. So let’s quickly go through the criteria so you can get a picture of if you’d even qualify to assume one of these loans. So FHA, 580 plus credit score on an FHA loan. VA loan, you need to have a 620 plus credit score. Some lenders will accept 550 depending on what your other criteria is. Just remember, non-veterans can actually get asumed the loan. You don’t have to be a veteran. And then for USDA, we talked about it has to be an owner occupied, can’t be used for investment properties only. And for that, you need a 640 credit score. And then conventional almost never actually goes through. They have a due on sale clause that actually blocks assumptions and that is why a lot of people do sub two on conventional deals.

Tony Robinson:
So let’s talk about maybe the thing that we haven’t discussed yet, but it’s incredibly important, but it’s the equity gap. So we’ll talk about what that means and how you as the buyer can actually get around this or how you should be accounting for this. And we’ll cover the equity gap as soon as we get back from a quick word from today’s show sponsors. All right guys, welcome back. So we talked about the different types of loans that are assumable, what it actually means to assume a loan, but let’s talk about the equity gap because this is a concept that a lot of folks get confused on, but it’s where a deal might fall apart if you don’t run the math correctly. So the equity gap is when you assume a mortgage, you’re taking over the remaining loan balance, not the purchase price of the home.
And those two numbers are very different. Again, the purchase price and the remaining loan balance.

Ashley Kehr:
So let’s say that a seller bought their house in 2021 for 350,000. They put 5% down and they got a VA loan at 2.5 or 2.75%. We’re going to use in this example. A lot of times with VA, you can do 0% down, but five years of payments and home appreciation later, let’s say the house is worth 450,000 and the remaining loan balance is around 320,000. You are buying the house for 450,000 and you assume the loan at 320,000. So that leaves a gap of $130,000. So this is what they call the equity gap and this is where you need to bring capital or find a way to cover that $130,000 somehow. So let’s get into how to actually cover that gap.

Tony Robinson:
Yeah. So option one is the simplest option is just bringing the cash. So you just bring $130,000 to closing. That is the simplest path, but clearly it means you’ve got to have the cash which isn’t accessible to everyone.

Ashley Kehr:
Option two is actually getting a second mortgage. You assume the low rate first mortgage and take out a separate second mortgage to cover the gap. This is the most complex, but it is how a lot of assumptions actually get done. The key is to calculate your blended rate. So the average across both loans, even if your second loan is at eight or 9%, your blended rate of them combined comes out to maybe four and a half to 5%, but you need to make sure your property is being going to be able to cover both of those payments too. And a lot of times lenders restrict getting a second mortgage on a property, but there are options out there.

Tony Robinson:
And then option three is seller financing. Some motivated sellers will carry a portion of that equity as a private loan, meaning you pay them back directly over time. This is especially worth asking about on homes that have been sitting on the market for a while.

Ashley Kehr:
Okay. Now the sweet spot. The best assumptions are properties where the equity gap is actually manageable. That usually means sellers who bought in 2020, 2021 or 2022 where they have that great interest rate. But maybe they didn’t put a lot of money down and are in markets where the appreciation is moderate, where there’s not a lot of growth right now. Maybe they don’t have a lot of that gap, a lot of equity built into the property. So the longer someone has owned and the hotter the market, the bigger the gap you’re actually going to have.

Tony Robinson:
If you’re running the math and the blended rate comes out to 6% or higher, the savings start to shrink and the added complexity may not be worth it. So use the blended rate as your gut check and it might even be beneficial to start reaching out to those lenders who will take that second lien position before you get too far down the rabbit hole of doing all this work because if you can lock someone in and you already know what their rate is on that second mortgage, now you can do that math more effectively upfront to understand what that blended rate might be as you’re shopping for some of these assumable loans. So now that we talked about all these other elements, let’s talk about how to actually find these listings. And Ashley and I were talking before we recorded and she like blew my mind with some of the stuff that she found on her side.
So I’m excited to share this with you guys. But 98% of people, even the sellers, don’t know that their mortgages are actually assumable. So that’s where the problem is. So you will almost never find the listing on Zillow that has been properly tagged as assumable. The seller doesn’t know it. The agent often doesn’t know it. And so nobody’s putting it into the listing, but this actually creates an opportunity. If you know how to find these properties, then you have an edge over almost every other buyer.

Ashley Kehr:
So let’s go through the step-by-step process of how to actually get this deal done of assuming a property. So first you need to find a property with an assumable loan. So there’s different platforms that you can actually use that tell you this information. And one is rome.com. Another is assumelist.com. And these are websites that specifically look for these properties with assumable loans on them. You can also use different resources like PropStream and you can filter. Sometimes they’ll have that information and that data if a property is a VA loan or an FHA loan.

Tony Robinson:
So then step two is to confirm assumability with your actual servicer. Now, the seller cannot give you details directly due to privacy laws. The seller has to initiate the request with their servicer first to confirm the loan is assumable, get the current balance and authorize a process to start.

Ashley Kehr:
And step three is you make your offer with the assumable loan built in. So you’re going to include an assumption contingency in the offer. So this is saying that you will purchase the property if it’s contingent on you actually assuming the loan. So this means that their lender will approve you to actually take over the loan. So that way, if you don’t get approved, you have that option to be able to back out of the deal.

Tony Robinson:
And then step number four is to apply with the servicer directly. Unlike a normal mortgage where you shop lenders, here you’re going to apply directly with the seller’s existing servicers since they hold the debt. So you don’t get to choose who you work with. You’re just bringing your full financial package, pay stubs, tax returns, bank statements, credit pull, the whole thing, and you’re taking it to that servicer. So it looks very similar to a new mortgage application.

Ashley Kehr:
Then step five, underwriting and approval. So this is where they’re going to look at you. They should have all the information they need on the property. They could request a new appraisal in some circumstances to make sure that the property hasn’t become super dilapidated and actually isn’t worth that. But most of the time that doesn’t happen. It is just they look at you and they qualify you. It can take 45 days to actually do this process to approve you, but sometimes it could take up to 60 to 90 days. So just make sure you’re putting that into your contract too. That closing may take a little bit longer if you’re in a state where maybe it moves faster. New York, this is typical anyways, so not really a big deal.

Tony Robinson:
And then step six is actually closed. So at closing, you sign the assumption documents, the seller is officially released from the mortgage and you take over as the borrower. So the transfer is a pretty normal process. The mortgage now shows on your credit report just like any other home loan. Now one big thing to call out, and this is actually a good point for a lot of you guys that are listening, is that the closing costs on the assumable mortgages are oftentimes cheaper than a new mortgage. For FHA, the assumption fee is up to $1,800. For a VA loan, it’s 0.5% of the remaining loan balance plus some small processing fees, usually a couple hundred bucks there. You compare that to the two to sometimes 3% that you might get on closing costs for usual transaction and you’re saving quite a bit here.

Ashley Kehr:
We’re going to take a short break, but when we come back, we’re going to talk about some of the pitfalls and cons of actually doing an assumable loan. We’ll be right back. Okay, welcome back. So yes, this sounds great. This sounds exciting, but we wouldn’t be doing our due diligence if we didn’t warn you of some things to be cautious of when actually doing an assumable loan. So the first is just this proces can be slow and painful and frustrating. So just make sure you’re baking that into your contingency, into your contract that you have the time to actually go through this process because it can be a slow and painful process, but worth it in the long run if you are able to get that lower interest rate to assume their loan.

Tony Robinson:
One borrower profile by MPR was sold that there were 1,500 people ahead of him and his servicers assume assumption processing queue and he didn’t hear anything back for months. So just to give you guys some context, this is not for the faint of heart, but the good deals are usually sometimes the hardest ones to get. So if you can stick it through, have the right mindset going into it, that’s how you find the good deals.

Ashley Kehr:
And just continuously follow up, follow up, follow up, follow up ask if they need anything, not saying, “Hey, what’s going on with my loan? Give me an update.” It could be just be more like, this is what I usually do is, “Hey, just want to check in if you needed anything from me. ” Flipping a little mindset that I’m holding them up, let me know what I need to give us to this, not holding it up anymore, even though it’s usually the other way around that they’re waiting to do something.

Tony Robinson:
For sure. And sometimes you just got to stay in control over your own loan. I just did a HELOC on my primary residence and luckily I’ve gone through this transaction enough times where I was talking with the transaction coordinator at the credit union where I got the line of credit from and she was just super slow getting the information back from escrow. And I saw the escrow company in one of the email threads she sent me. I just called them myself and I said, “Hey, here’s what I’m waiting on. What do you need?” And within a day I was able to solve what they were waiting on. Whereas before we have this person in the middle that was extending everything. So be in the driver’s seat, but it’s important to know. Now the other piece here is we’ve mentioned this before, but just to reiterate, the USDA loan is off limits for investors.
So we just want to say this clearly, if you are assuming a USDA loan, it has to be your primary residence. This is not a rental property play, right? Six to the FHA or VA loan if you’re looking for an investment property.

Ashley Kehr:
Okay. So the next thing is to actually check your math before you fall in love or get excited about an assumable loan. So even though the headline is exciting that you could get this low rate, make sure you actually run the numbers on the deal and don’t get too focused. And how are you going to fill the gap? What does that blended rate look like? Where is that capital coming from? Is it a line of credit? Is it cash? And make sure the numbers still pencil out that even if you’re putting in a large capital infusion of money, what is your cash on cash return going to be on the property? So don’t get too focused on just what the low interest rate is and what the monthly payment is going to be just for that assumable loan.

Tony Robinson:
All right guys, we covered a lot in today’s episode and hopefully you got some insight into not only what an assumable mortgage is, but the power behind it, why it’s so beneficial and how to hopefully go find your first one. So let’s just quickly recap what we’ve discussed so far. So first, an assumable mortgage lets you take over a seller’s existing loan at their original rates, balance and terms. Only FHA, VA and USCA loans are assumable, conventional loans almost never are. And there are millions and millions and millions of homes in the US right now with assumable mortgages below 5% and most sellers don’t even know that they have this. This is your edge. You do have to make sure you account for the equity gap. That’s the main challenge. You got to run the blended math on your rate and then the sweet spot of sellers who bought recently but don’t have a ton of equity built up, guys.
The process can take a long time to make sure you build in your patients. But if you guys can do all of those things, then you’re setting yourself up in a really strong position to hopefully find and close on an assumable mortgage at a really low rate.

Ashley Kehr:
And let’s start with where to find those deals. You can go to roam.com, assume list or assumable.io or just start when you’re looking at properties, you’re asking the agents, you’re asking the seller what type of loan that they have on the property and just trying to find out the information that way. Next, you can work with a real estate agent that actually has the knowledge of doing an assumption. Ask them if they’ve ever worked with somebody to figure out this process to negotiate that, especially if a seller is not even aware that this can be done for a property. If you’re going ahead and you have an agent that you work with that is already knowledgeable about assuming a loan, then they can help facilitate that conversation with the seller and be knowledgeable because that’s one thing I don’t like sometimes about negotiating a deal with an agent is that they’re really the middleman and they really need to understand, especially seller finance, things like that, they need to understand how it works for them to properly negotiate that for you inside of the deal.

Tony Robinson:
So one challenge for all of you that are listening, take what you’ve learned in today’s episode and just go out there and try and start searching on these different tools that we presented with you or to you to see if you can find anything. And if you do find something, start having that conversation. I was looking at some of these websites where we were on here and you’ve got to sign up for some Rome, you’ve got to create a profile, but there’s houses listed, assume list, same thing. Just go out there and start talking to folks. Call the folks that have these listings and just ask questions. And the more you ask, the more knowledge you gain, the more confidence you build. And hopefully you’ll get to a point where, man, I’ve talked to five or six different agents. I think I got a good sense here.
Let me try and submit an offer on one of these and we’ll see what happens.

Ashley Kehr:
Well, thank you guys so much for listening to this week’s episode of Real Estate Rookie. If you’ve done an assumable loan, maybe you’ve sold a property with it or you’ve bought one comment below, tell us about the deal and how it worked out for you. I’m Ashley. He’s Tony. I’ll se you guys on the next episode of Real Estate Ricky.

 

In This Article

If “Texas is a state of mind,” as author John Steinbeck once famously said, many people are thinking alike. New data from the U.S. Census shows that the five fastest-growing cities in the nation from July 1, 2024, to July 1, 2025, are all in the Lone Star State. 

This growth is led by Celina, a suburb north of Dallas, whose population increased by nearly 25% in a single year, climbing to 64,427 residents. By comparison, the overall U.S. population increased by only 0.5%.

“The main reason for the extra boom and development is almost purely related to builders being able to get lot costs less expensive in those cities moving further out,” Damon Williamson, a broker with The Agency Dallas, told Realtor.com.

Why Dallas and Houston Are Running the Show

All the cities cited orbit the super-hot Dallas and Houston metros. Four of the five cities—Celina, Princeton, Melissa, and Anna—are based in North Texas, around the Dallas-Fort Worth metroplex, while the fifth, Fulshear, is near Houston, scoring blistering growth rates of 15%-25%. Part of the appeal is these cities’ small-town feel, with proximity to a big city and its amenities.

“People want land, space, great schools, restaurants, sports, and that hometown feel,” Georgina Hennen, a Keller Williams North Country agent, told CBS News.

However, with land cheaper here than elsewhere, the growth potential remains undiminished, regardless of the explosive increase in residents. “In 20 years, we’ll be as big as or bigger than Frisco or Plano—Celina has the land,” Hennen said. “It feels slow until suddenly it’s here.”

Long-Term Buy-and-Holds Are a Good Strategy in Texas

It’s also a reason why investors would do well to consider long-term buy-and-hold investments in some of these master-planned communities—demand for housing is unlikely to dissipate anytime soon. In fact, with strong job markets and positive net migration from pricier northern and coastal cities, it seems set to continue, albeit at a slower pace than in recent years, in part due to immigration shutdowns.

“Midsize cities found a ‘Goldilocks zone’ where domestic and international migration, paired with new housing, helped prevent the sluggish growth seen in small towns and larger metropolitan centers,” Matt Erickson, a statistician in the Census Bureau’s Population Division, said in a news release.

Dallas-Fort Worth: A Rental Property Investment Haven

According to the Urban Land Institute and PwC’s Emerging Trends in Real Estate report, DFW is the No. 1 market to watch in 2026 and, as such, is a haven for investors.

Andrew Alperstein, partner with PwC’s U.S. real estate practice, told CNBC Make It at the end of last year:

“What’s really changed in the last couple of years is that the financial services shift in Dallas has further accelerated. Companies are moving, and populations are moving, but it’s not all about financial services. It has a pretty diverse economy, is still relatively affordable, and there’s easy access to it. Dallas has a great story that will likely continue from a migration perspective and ongoing development and expansion.”

Fueling the economy and housing are the vast number of jobs that have flowed into the areas due to business-friendly tax laws. The metroplex has attracted 100 corporate headquarters from 2018 to 2024, according to the PwC and Urban Land Institute report, including AT&T, Southwest Airlines, and Texas Instruments.

The Numbers Work

Crucially for investors, the numbers work. The average house price in Fort Worth is around $300,000, with median rents of $2,300 or more for a new three-bedroom home, according to Zillow.

Landlord insurance platform Steadily notes that northern Dallas-Fort Worth suburbs such as McKinney, Frisco, and Allen target stable, higher-income, long-term tenants, while secondary markets such as Sherman and Denison offer lower purchase prices and greater cash-flow potential.

Steadily champions Houston’s credentials as a cash flow leader with rental yields between 6% and 8%—based on average home prices of around $265,000 and average rents for a two-to-three-bedroom apartment or house of $1,500-$2,000—fueled by a diverse economy, with jobs in wide-ranging industries such as energy, healthcare, aerospace, technology, and logistics.

However, investors also need to pay attention to property taxes and landlord insurance, which can be high depending on the geographic location. That said, Obie landlord insurance ranks Texas as the most favorable market for high rental ROI in the U.S., given factors such as the lack of state income tax and high demand for rentals.

Don’t Forget San Antonio

Although San Antonio is not one of the fastest-growing cities in the nation, it is still favorably mentioned by Steadily as a solid rental investment hub, with median home prices around $250,00; a strong economy anchored around medical centers, a $2.5 billion airport expansion, and a military base.

Rents are around $1,600-$1,700. Rentals are affordable at $200,000-$350,000 in good neighborhoods such as West San Antonio, Southtown, Tobin Hill, and Harlandale.

A Landlord-Friendly State

RentRedi names Texas among the most landlord-friendly states in the U.S.

“Texas is a gold mine for investors,” Gavin Yi, founder and CEO of Yijin Hardware, told the property management platform. “With no state income tax and flexible rental rules, it’s a great spot for growing profits. If you want to build your portfolio without the headaches, Texas is hard to beat.” 

Among the key factors that earned Texas its poll position were:

• No rent control
• No limits on security deposits
• A three-day eviction notice (notice to vacate) and a three-to-four-week eviction process
• No-entry notice (landlords do not have to inform tenants they intend to enter the apartment before doing so)
• Flexible repair rules

Final Thoughts

Having owned rentals in many states, including New York, New Jersey, and Pennsylvania, I can’t overstate the advantage landlords have in Texas’s three-day notice to vacate and the subsequent three-to-four-week eviction process. The churn of evicting bad tenants, renovating apartments, and re-renting is what ultimately kills budgets and makes for bad landlording experiences.

When a tenant knows they can game the system by calling Legal Aid and prolong the eviction process, it’s mentally frustrating and financially crippling for a landlord. When that safety net doesn’t exist, tenants are far more likely to pay on time. It’s just human nature, unfortunately—give an inch, take a mile.

It doesn’t apply to all tenants, of course, and the conscientious ones are who you ultimately want in your rental, but the school of hard knocks has taught me, and many other landlords, that having state laws on your side is a huge deterrent to tenants who put you at the bottom of their list of priorities.

With that starting block, the rest of the Texas metrics are gravy to investors—affordable, modern housing; decent rents; and a healthy job market.

I’m beginning to understand the Texas state of mind.

Dave:
How do you spot deals in a confusing market? How do you find opportunity when there’s a lot of negative sentiment about real estate? These are the questions that every investor is asking themselves right now and today on the show we’re going to help you answer it. If you listen to the show, you already know James Dainard. He’s a regular on our panel episodes, a friend of mine and one of the most active operators I know he’s done pretty much every kind of investing there is. And when the market is shifting, he’s one of the people I turn to. I always want to hear what he’s seeing on the ground, not just in the data, but in the real deals he’s doing, the real negotiations he’s doing and the real numbers that he’s earning. I’m Dave Meyer and today on On the Market, James is back for an open check-in on the housing market, his portfolio and how he spots opportunities that no one else sees.
And he’s also going to teach all of us how you can do the exact same thing. This is On The Market. Let’s get to it. James has obviously been a co-host of the show forever, four years now we’ve been doing this show, but there are new people listening all the time. So can you just give us a little bit of background on yourself and your involvement in real estate before we start talking about our topic for today, which is going to be about how you’re navigating the current market. But tell us about your history.

James:
My partner, Will Heaton and I, we’ve been a full-time real estate investor since 2005. I got in the business when I was in college, started wholesaling. Then we started flipping throughout the recession and we’ve taken going from sourcing deals to flipping properties to now we have almost a thousand doors in the Pacific Northwest and our passion really is value add construction. So we’re very heavy construction guys up in the Pacific Northwest. We do lending anything associated with creating value. We have either a business that’s associated or it’s an active project. I think right now we have a couple hundred apartments under renovation, 30, 40 town homes getting built. And then I don’t know. I have a bit of a problem, a little bit of a deal junkie problem.

Dave:
You do, but that’s exactly why I wanted to talk to you today because you have experience in pretty much every kind of real estate investing. You also, I think at least, are somewhat of a contrarian. You just said you flipped during the recession. I think a lot of people would be like, why on earth would you do that? You’re flipping right now. I think you go on social media, people say flipping is dead. But you have a very unique perspective. You’re able to see opportunity in the market that a lot of people don’t. You’re able to make deals work that a lot of people pass over. And so hoping that you can share with the audience today some of those lessons. So maybe let’s just start biggest picture here. When you’re looking at the market today, how would you describe it? What’s your feel for it?
And then tell us a little bit about how you’re adapting to it and what you’re trying to do in today’s market.

James:
When I hear people talk about that, it’s like, okay, well, today’s market was different in the spring than it is the summer. Because I always look at today’s market is the year.What are we planning out for the year? What are we buying? And I can tell you right now, it doesn’t feel great because it’s also the summer seasonal market. Seasonal markets are just back. And we are definitely seeing a slowdown in demand as things have gotten more and more expensive. And also part of the reason is we’ve seen a little bit of climate changes in economics in Washington state where I invest. And so things always change. That’s the thing about real estate. During the pandemic era, everything always went up and it was this bull rush to buy things. And that’s a short window of time, but the wealth and everything’s made about buying and securing properties when it doesn’t feel good.
And we kind of built our business in 2008, not because I think we’re like all these mad scientists are like, “We know what’s going to happen.” We just didn’t know any better, to be honest. But what we did know is how to look at a good opportunity and go, “Okay, we couldn’t buy this a year ago.” Because in any kind of market condition, there is always a buy. Market could be terrible. It could be free falling like it was in 2008 and we were still buying. And so you just have to buy deeper and deeper. And right now the good thing is people are a little bit salty on real estate right now so it creates a ton of opportunity.

Dave:
I think that’s perfectly said. And it’s something I’ve seen you do time and time again. Every time we have yawn or you’re talking about deals, you’ve tweaked your business. You have so many things going on. I could imagine it’s sort of tempting to just keep doing what you’re doing, but it seems like you stop, take stock of the market and reformulate your strategy pretty frequently. How often are you thinking about the market and making these changes to your approach?

James:
One thing about being an active investor is that one of the biggest things anyone can do is just you got to arm yourself with knowledge. And I’m not talking about investment strategies that make you spin in circles and you go nowhere where you’re just listening to every strategy you don’t know what you want to do. It’s what is going on in your backyard and where you invest in and what is the trends? And so I spend a lot of time in the data of the MLS and sales and what’s selling, what’s not selling, how long is things taking? And most importantly, we spend a lot of time not just on the market, but what’s going on internally in our business with what is our true cost and what are we best at? And so a lot of times when we’re picking our investment strategy, I’m going, what is our core team best at?
What are our contractors good at doing? How can we control the cost the best? And when the market does get a little bit sideways, I try not to dive into stuff that’s just completely new to me and unknown because there’s such a big learning curve. And so stick to what you know, but I’m the person that always looks the other way. When everyone’s looking left, I’m looking right. Anytime there’s like a trend, I’m like, I want nothing to do with it.

Dave:
Dude, I’m the same way. Anytime it’s on social media, I’m like, that’s not going to work. Not because it’s the person. I’m just like, anything that gets trendy, it’s too late. By the time people are talking about it, it’s usually too late.

James:
Yeah. You get this bull rush in and then everything gets out of whack on pricing. In Seattle, Daddoo Properties, people were losing their minds over them and overpaying. And there’s nothing wrong with the investment strategy. It’s a good strategy if you get the right deal and the numbers work. But when all of a sudden people start building these daddos, they started selling them for a lot of money, they’re running for a lot of money and it was like, this is what you do to make money in real estate. And everybody went to go find these type of deals. And the pricing on these lots went up by 20% over a 12-month period. But what that always does is it creates a gap. And during that time, the gap was, hey, properties that you can’t build daddos on, but there were big fixtures, no one wanted them.
And so it creates this opportunity. So I’m always looking to go against the grain or once that trend starts to sizzle out, that’s where you want to go hard at that. Once people go, “Nope, I do not want to turn left anymore. I got to look for something else to do or get out of the market.” That’s where the pricing just drops. And we just saw a deal this week where I was like, I can’t believe what price this is at.

Dave:
It’s crazy. Yeah. Let’s talk about that deal in a minute, but I just want to emphasize for everyone listening because James obviously is a huge, sophisticated, successful business, but what he’s saying right now is something that everyone can apply to their own investing.You are just saying, I look at essentially where the competition is. Where are prices getting bid up because everyone is enthusiastic about it and these other tried and true methods like flipping, or I even see it with regular rentals right now. It’s less competitive here because people are pursuing midterm rentals or rent by the room or whatever people are doing. It doesn’t mean that those old things have gotten worse, but it does mean that you’re going to have less competition, meaning that even if the returns don’t look as sexy on paper, if you can buy them for cheaper because there’s less competition, there’s less demand, prices go down, that means you have an opportunity to earn as good or better of a return than what everyone else is doing.
I think you mentioned daddoes, but to me, James, this is kind of what happened with short-term rentals. People started doing it and then people were making good money. So everyone started buying short-term rentals and built up the price of short-term rentals. Now there’s an oversupply of them. People are selling their short-term rentals. Meanwhile, the bread and butter stuff still worked. And I’m not knocking on short-term rentals. There’s still ways to make that work. But I think that mindset of looking for the opening, not where everyone is flocking to, but looking for the opening and looking for something that no one else is seeing is something everyone can do and it’s sort of like a time-tested approach to real estate.

James:
Yeah, because when the market and the economy and everything’s hitting, it’s easy to have any kind of asset class can do well and there’s potential there, but also sometimes it’s just a short-term thing where you’re like, “Oh, I’m going to get this for just a season and then I’m going to move on. ” So with the daddies, for example, I still got the deals, but I didn’t want to build them because I thought there was going to be too many of them coming to market. And so I was flopping off the lots. I was like, “Well, if everyone wants to buy this stuff, I will get this. I’ll permit it. I’ll sell the lot.” And people started realizing that was more profitable than buying the Dadu lot, building it and selling it and it was much quicker. Exactly.
But just you want to always look at what are you good at? And part of the reason I never built them out is I don’t have a crew that can build single units in the backyard. We’re not that efficient that. We do town home sites. So there’s like four to eight on a site. To take our whole construction company, put it in our backyard doesn’t make any sense. And so not that it’s not a good investment, it just doesn’t work for us. But it’s always like buyer beware when there’s a trend, short-term rentals, midterm rentals, daddy investing, syndicating big multifamily, big deals. That’s another

Dave:
Good example. Yes, for sure.

James:
And they’re all good asset classes.

Dave:
And now multifamily’s a perfect example. Everyone is saying, I go on Instagram all the time right now and people are like, syndications are terrible. They’re scams, they’re bad. It’s like, no, it’s not syndications. First of all, that’s just a deal structure. What you’re talking about is commercial multifamily. And now everyone’s like, commercial multifamily, it’s terrible. Syndications are bad. I personally believe in the next year, that’s probably going to be one of the best buying opportunities depending on where you live. But that’s where the distress is. That’s where there’s going to be good opportunity. No one’s going to be talking about it because a lot of the people on social media are the ones who are losing their shirts. But if you want to be the ones to go out and find the good assets, it’s what people are talking badly about on social media. Those are going to be the good assets in the year to come.

James:
I think there’s a lot of good deals coming that way. I mean, we’ve gotten some in Seattle heavy value add from operators that just got in too deep and there was nothing wrong. They bought what they didn’t know. It wasn’t like they’re a bad company. They didn’t have money. It’s just they didn’t realize how tough certain neighborhoods with certain types of tenants in there are going to be. That’s why we’re always going, “What are we doing well and where’s the gap?” And so right now building’s really hard. Making money building is hard. Land cost way up debt cost way up. It’s like two to 3% higher than it was back when the pandemic ever was. Build costs are still trending up. All the little war conflict tariffs, all that stuff is still driving up costs, but sale prices are taking longer and they’re going down.
And so some builders have been getting caught with things because that’s just what happens. You time it wrong, but then the demand just goes to the bottom. And so now I’m looking at development sites, whereas I wouldn’t even have bought those two years ago.

Dave:
Exactly.

James:
Once people start running out of town, that’s where you really want to look at it. But then once you find that gap, you have to then build the teams around it to make sure it works well because just because it’s a good buy, you still have to be able to operate on it. And usually it’s a tougher asset class than people think because that’s why people are exiting from it.

Dave:
Such great information here from James, but we got to take a quick break, everyone. We’ll be right back. Welcome back to On The Market. James and I are talking about how you can find opportunities even in the places people say you can’t find good deals in today’s market. Let’s jump back in. So how do people do this, James? You obviously have a big team, you’ve been doing this forever, you know that Seattle area, like the back of your hand. For people who are either new or just normal size investors, what is the data specifically, what should people be looking at to research the opportunities that exist in their market? Because it’s going to be different market to market, but how can people identify the right strategies for right now in their individual space?

James:
For any investor out there, it’s all about tracking the trends. And the thing with tracking the trends is you need that good real estate broker. And I think this is where investors do make mistakes quite a bit is they hire the person for a discount rather than the information. And I’m a real estate broker, but I have numerous brokers on each team. So any kind of asset class that I’m looking at, I have a broker that’s a specialist in it and I’m talking to them regularly about what they’re seeing in the market. A good example is there’s three or four dirt brokers that I work with all the time. They know it really well, they know the demand, they know how to look at things, but when I’m talking to them and they’re telling me that all of their big builder clients are bailing from deals or walking away, then that creates a huge gap in that specific market.
And then I start looking there and going, “Hey, send me all that stuff because the deal that me and you walked through, that was something that should not have been sold to a person like me. It should have been sold to a developer, but the demand just went down.”

Dave:
That’s a perfect example and something everyone could do. Let’s just go out and make sure that you have a good agent who understands these things. And this is something like what you’re talking about isn’t really reflected in any data. That’s not something you can look up on Zillow or Redfin. That’s because you’re in a unique position, obviously, because you own a brokerage, but this is something people can do by working with a good brokerage. They can get this information as well.

James:
Well, yeah, and they can have their broker. There’s a couple of reports you can ask your broker to pull for you and that is sales stats reports. In a slow market, closing sales really matter. What’s in demand? And a lot of times you can see a trend of going, okay, certain price points in this neighborhood. Right now, there’s a litle bit of stink on flipping. People are like, “You can’t make money. It’s terrible. It’s too hard.” But it’s because they’re looking at the whole ocean, whereas I want to go find a lake deficient. And that lake is told by what is in demand from consumers. And that comes from that sale report of going, “Okay, the market’s slow right now.” In Bellevue, Washington, this is a great neighborhood, great city, very good for resale, but when the market slows, things come down. And so a lot of people are like, “Oh, Bellevue’s just not doing great.
It’s not doing great.” And it’s not that it’s not doing great, it’s just compressed, and it depends on the price point that you’re in. If you’re in 1.4 to 1.5 million in that specific area, you will sell your house quickly and you’re going to make great money if you buy right. If you’re above that, you’re going to be sitting for months and racking up a lot of cost and eating up all your profit. And so you want to find out where the velocity of the sale prices are because there is always a demand because even the stuff that’s sitting is different than what we’re selling because we’re still getting multiple offers on houses too when it’s in the right price point.

Dave:
How do people ask for that with a brokerage? I mean, you could just ask them what price point, what neighborhoods, how specific should people be when they’re trying to figure this out? And also, does this work not just for flipping, but for if you’re buying rentals or some other strategy too? Yeah,

James:
Because you want to look at what’s available inventory. Your property manager can also tell you how many units are for rent in a specific area. For me, if I see a lot of units coming online and their absorption rates takes a lot longer. If I’m seeing rents take 30 to 60 days rather than two weeks to lease up, that’s trending that the rental market’s going to take a lot longer, but that’s also going to tell me because it’s bad, they’re not going to rush in to go buy stuff like they were doing before where they would just buy it and it automatically goes up. And so the strategy has to come into play. And so what your broker can always pull you is active inventory. What is sitting on market? That’s the first thing I want to know. What is not selling? Not selling in Seattle right nws with no yards and no parking or anything with lack of amenities.
And so that tells me to avoid that asset class or no one else wants it because everyone’s sitting on it. When there’s a lot of stuff for sale, no one wants it anymore. That’s where I go, okay, well, I’m going to call my deal finders saying, “Hey, if you come across this lot, let me know about it. ” And they’ll be like, “Oh, no one wants that anymore.” So they get excited. And so I’m always looking for that active report is what’s sitting on market and then what does have the shortest conversion rate for closing or for days on market? Because if your average days on market in King County, for example, is 30 to 40 days, but in a zip code in a neighborhood in a certain price point, they’re selling in seven, that tells me I can go to that asset class because that’s where the demand is.
And so it’s a supply and demand thing. And once you start with the supply and demand, what do people want inside of asset class that has some stink on it, flipping short-term rental, that’s where you hit that magical spot.

Dave:
But there’s a tactical thing you need to do there where you need to develop a plan. There’s a reason people don’t want short-term rentals right now because if you’re just going to do a generic short-term rental, you’re not going to make money. If you have a great plan, you can make money. I’m sure it’s the same thing with flipping. There’s a reason people aren’t buying these lots. It’s maybe because the playbook they had been running for the last year or two is no longer working with that lot. So when you move to something that other people seem to be afraid of for whatever reason, how do you A, decide what you’re willing to pay for it? Because that seems like a big important part. But B, how do you come up with a unique plan to execute on these areas where other people are not being successful?

James:
Yeah. And I think that’s a really important point. You get deal goggles. So because everyone looks at it a certain way, me and you walked to property recently and I didn’t even throw out a big flip on this. I go, “This is a cool development flip deal just because of the size of lot and location.” But because development’s down, no one really wanted it. That was the only way to look at it. Last night in the last two days I kind of uncovered this, I thought that was 100% the plan, like doing a little flip and a little development, make the most money. A full renovation actually makes an absurd amount of return on this house. They were just looking at it the wrong way because a mistake that people make is highest and best use doesn’t mean what you can sell it for the most.
Just because you’re getting the highest sales price does not mean that’s the most profitable. And so I think what we’re good at doing is once we see something that we know we can buy for cheaper than we could even 12, 18 months ago, we’re not looking at it the same way. It’s not a development site because that’s not highest and best use. It’s I got an old house that’s big with a great feature. How do I maximize that? Well, I’m just going to renovate it, dig down the basement, put together a yard, and it makes a lot more than building five homes on it, which people can’t wrap their brain around a lot of times. No, if you can build five homes, you got to build that, but it’s actually not highest and best use for the property. And so you need to look at multiple exit strategies for each one of those lots and not look at it the same way because just because the asset class isn’t doing well doesn’t mean you can’t put that plan on a specific type of property.

Dave:
All right, everyone, we got to take one more quick break, but we’ll be back with James Dainard right after this. Welcome back to On the Market. Let’s jump back in with James Dainard. Maybe you can recommend some things people can think through like, do you want to flip it? Do you want to bur it? Do you want to sell it off? How do you do those analyses if you’re just like a regular investor and what are the metrics they should be looking at to figure out which approach to use?

James:
That is always one of the toughest questions because it’s like, okay, well, it comes down to your core surrounding team. I think sometimes people look and they’re like, “Oh, James, you’ve done all these deals.” And so you just know it. It’s like, well, no, I don’t know it. I know who the right people to call when I have to ask questions too, right? Because again, surrounding yourself with a good core team really matters. So on this deal that me and you walked development site, 6,600 square feet, that dirt was worth two to 300 grand higher than what we can buy it for right now.

Dave:
Insane, by the way, that’s amazing.

James:
It really is. And then I went kind of deep into the data on it too. I’m like, “Oh, this might be a better deal than I even think because there’s just a lack of comps.” But the first thing I did was call a development broker that really knows the product and say, “Hey, what’s this worth? This is what I’m seeing.” And he went through the whole gambit and he’s like, “You know what? We’re only worth about 500 grand in today’s market.” And it blew my mind.

Dave:
Interesting.

James:
But he knows that product better than me. So I didn’t go down the rabbit hole of this. I just made the phone call to that broker going, “Hey, what’s the story on this? I got it for this. I can do this. ” And he walked me through the deal and he’s like, “That’s kind of where you got to be at.” And so then that goes, “Well, that’s a no option.” And I go to the next thing because it’s like, well, 500 grand, this lot was worth 800 two years ago. So I don’t want to pass on an opportunity that I can buy 20% cheaper to 30% cheaper than I could 12 months ago. That’s always my, hey, if people were paying this historically and I can buy it 20% below that, I have to really stop and look into this deal because it’s not that development’s bad.
It’s not that flipping’s bad. It’s not that ADU’s in flipping’s bad for this property. The reason I’m fixated on this deal is because the replacement costs, I couldn’t get this property two years ago and this would be in high demand and nobody wants it now. So as soon as I hear no one wants it, my spider senses go off and I’m like, wait, why? That doesn’t make any sense. But the average investor, it’s about calling that person and go, “Hey, what do you think? Does this work this way?” No. Well, my dirt broker is going to be different than my flip broker. My flip broker, I say, “Hey, run me comps on this property for this square footage, this square footage,” and they’re going to be able to supply me that information. And then I can go, “Okay, well, I know what it’s worth, and then I got to go out there with my contractor and go, if I do this, how much will that cost?
If I do this, how much will that cost?” But I’m still going to put the time into this deal because it’s below that cost that I could get two years now. And that’s what investors make the mistake on. They go right to the next thing where you got to slow yourself down. If you’re buying below replacement cost, if you’re buying below what you could buy that deal for a year or two ago, there is an opportunity there because we already know what the runway is on that potential asset and whether it’s on the low or the high, you want to buy it on the low and sell high. So that’s okay. Get it on the low. In 2008, real estate went way down, but what happened? It went way back up, way past where it was. And so you want to get it when it’s low and so go where no one else wants to play.

Dave:
Well, let’s talk about that because there are a lot of examples though of the opposite. So I just want to call that out for people. Sometimes there’s a reason no one wants a property and it’s a good reason. Maybe there’s a legal issue, there’s a permitting issue, whatever it is, there are good reasons sometimes. Other times there’s just inefficiency in the market. I think that’s kind of what you’re talking about, James. Sometimes people just aren’t buying things because they’re scared, they’re nervous, their playbook no longer works and they’re one dimensional, but let’s go through this deal. I’ll try and describe it, but correct me if I’m wrong. It’s sort of like a large lot, good neighborhood, good street.

James:
Yes.

Dave:
It’s a two, one house, looks really beat up on the outside, but it’s fine. It’s like for you, for an average flipper, it’s actually kind of fine on the inside. And then the back in Seattle, you could develop multiple properties. So I thought it was really just kind of fascinating listening to you think about this the other day because you can buy this. Do you mind sharing what you can buy it for?

James:
So the property right now is a two bed, one bath, 1,100 square feet up and then there’s about another 800 square feet in the basement and part of it’s low, but it is finishable. We want to spend some extra money and it’s on a 6,600 square foot lot in Seattle, which allows you to, you can demo that property. I mean, me and Dave looked at a site two down and they had five homes on that property. The lot next door had built two big singles on them. So it’s a very versatile lot. And the reason it’s so attractive because development, you always want to look at, it’s not just zoning and location, it’s what’s your accessibility. It’s a wide lot which allows you to build better and it’s a street to street. So no home is in the backyard, which is always going to get you a higher price.
And so this lot is what every builder wants a wide lot street to street, you can put density on it and everyone told me it was a bad deal. They said, “You’re paying a hundred grand too much.” Now typically if someone tells me, “Hey, that’s a bad deal and they’re professionals, I got to walk away.” I’m like, “All right, they know that product.” If I was just looking to build on that property, I would’ve followed their direction.

Dave:
Yeah, right. But so you went to that one developer broker, right? They said, “Hey, this is what’s worth this going to do. ” You’re like, “Okay, check that off the list, not going to work.” But then you move on to other potential uses for the lot, right?

James:
Yes. And the reason I’m hanging onto it is because again, it’s about 20% cheaper that I could buy it for a year ago. And so that’s why I want to look at it. Everyone that’s talking about bad syndicators and bad apartment deals. If you can buy that deal today, 20% cheaper, maybe it’s not a bad deal. It’s a good deal, right?

Dave:
Exactly.

James:
And so I’m going, okay, well, it’s 600 grand, even though the broker’s telling me it’s 100 grand too much, that’s still 200 grand less than people were paying two years ago. And so my next step is I have to go see what’s going on with the site. And then I got in a car, I called Dave. I’m like, “Hey, I’m going to look at this thing. I don’t know what it is. ” And we went out there and then you could see me get excited.

Dave:
Oh, his eyes lit up. Well,

James:
Because as soon as I got there, I was like, “Okay, the street’s great. There’s lots of potential.” I still didn’t understand the development side, but they’re not wrong because if you do build on that site and you build five units, you’re going to maybe make a hundred grand over two years and that’s not worth the risk. But the reason I got excited is because I started seeing the potential of the structure. So they told me it was a bad deal for one option, cross it off the list. The next option is, well, can I do a cleanup and sell it because I’m buying it cheap or can I maybe do a flip and put a datu in the back? I have to go walk it at that point. And so when I did the flip and the daddy numbers, they weren’t that great to be honest.
I was like, “Nah, they’re okay for the amount of work it is. ” So I kind of crossed that one off the list. Once we walked through that property and I saw the square footage in the lot and the detached garage that didn’t even show up on the tax record and the size of lot and the street it was on, I go, “Okay, here’s some potential here.” So then I reach out to the flip broker, who happens to be me on this case, and I start going through all the different types of comps. So I’ve walked the property, I’ve identified, okay, how much work does it need? What’s highest and best use? What does the property have the potential of selling for and what does the potential have if I do a cleanup or a big fixer? And this deal that I had two different asset classes tell me it’s a bad deal.
Development and they’re not wrong, if I do it that way, it’s not a good deal. Flipping a dato, not the greatest deal for the amount of work, not good enough, probably wanted in the low fives. If you do this flip as a full rental, it’s a 95% cash on cash return.

Dave:
Just the flip?

James:
Just the flip. And I thought that was a no … When me and you walked out of this house, I go, the big flips, it’s just not going to be worth the headache.

Dave:
Yeah. That was your instinct, right? Yeah,

James:
Because I was like, yeah, digging out a basement, it’s just not worth it a lot of times. It’s so much headache. For a 90% return deal, I’ll look at doing that plan.

Dave:
Yeah, I think so.

James:
And so even though I walked out, I’ve done quite a bit of these deals, the plan that I said was probably the worst turned out to be the best. And so that’s why you can’t follow what everyone’s saying. You have to go look at it and then run your core number In every type of asset class you’re in, you need a specialty broker that can give you that advice, run your performa. If it doesn’t hit, throw it away. But also take the next step with your other performance. Does it work as a rental? Does it work as a flip? Does it work as a development site? Does it work as a short-term rental, a midterm rental? What number works and it doesn’t matter what the asset class is, every one of those ones I just listed are not doing that well, but you can still make money because of there’s opportunities.

Dave:
That’s awesome. I love that. That’s so cool. And I think that’s just a perfect example of why even you who’ve done this a million times, you know the process and you followed it and that actually showed you that maybe your instinct was a little off on this and that you had a different playbook and you found an incredibly profitable way to do this because you followed this process of looking through every angle of analyzing every possible playbook to find the right way to use this. And now you’re finding not just a way to make a little bit of money off this, something that developers were missing, but a huge return, like a 90% potential return on this is massive.

James:
And one of the reasons I didn’t think it would work originally is because a surface comps, when I looked at SpotCheck before I went to look at it, I was like, “Oh, it’s probably worth 1112.” But then I start breaking down those comps and going, “Oh wait, no, we are on a way better street. We got street to street. We got this garage. We have this yard.” And I start shrinking those comps down to what we actually have and there’s only really two sales and they’re far away. They’re not in our good part of the neighborhood because it turns out no one sells their property here. It’s like the amount of sales over five years is like three. And so I went back three years in sales and I’m like, “Oh wow, these numbers are a lot bigger than I thought.”

Dave:
That’s amazing.

James:
So once you see the opportunity, I can buy below replacement costs, I can buy below what I was paying where everyone was paying a year or two ago, you have to just keep digging, but don’t spend your time wasting digging on a deal unless there is that opportunity. I don’t want to go … If it’s 800 grand and people are paying 800 grand two years ago and no one wants it anymore, I don’t need to spend all these hours doing that. It’s just that I can buy 20% below today.

Dave:
Like you knew there was something here. You could look at this and say, in your words, there’s some juice on this lot and then you just have to figure out the right way to get the juice out of it. And that’s worth investing the time and talking and calling all these different brokers and doing all the stuff you got to do and doing the analysis. But that’s an acquired skill, right? You were able to identify the lot and then you took the time to do it. But this is something anyone can do. And it’s not just with development or flipping or anything as well. If you look at a rental property, you might be able to add a unit. You might be able to renovate a property to drive up rents. You might want to combine two units to make it into one better unit that gets a lot of rent.
Those are the kinds of things you can identify. If you start looking at data and talking to people about what is missing from the market, what are other people missing? I agree with you, dude. It doesn’t matter what the market conditions are, that works in any kind of market.

James:
Yeah, it’s that walk-in equity. And today it’s worth 600 grand to a developer or 500 grand to developer because that’s what they’ll pay. But seeing that they would pay 25%, it just tells me that’s the runway because anything you invest in, Bitcoin stocks, they go like this, right? They come down. And so when no one wants it, you’re on the down. And that deal does make me laugh though because the deal, I was like, there’s no way that’s the way it pencils. That’s the way it … When I went out there with you, I was like, “This is just such a good deal. I might buy this as a rental.” Remember, I was like, “I might just buy this a rental and keep it.

Dave:
” And do a Burr or something.

James:
Because it was a good jump. And I’m like, “Oh, no, this actually makes great money as a flip.” And not only that, we’re selling product that sells in today’s market, nice family homes, big lots, garages, that’s what’s in high demand. There’s no negative about this property that sells. And so don’t beat a bad deal to death, but if you can buy it below replacement costs for what people were paying a year or two ago, go through all the motions. Where does it pencil out?

Dave:
And that’s a good thing about this market. You can buy things below what they were trading for, below replacement costs.That is absolutely available. It’s not everything on the MLS, but this isn’t just wishful thinking like, “Oh, go out and buy something cheap.” You actually can. That’s the benefit of being in a buyer’s market. You can negotiate. There are things sitting on the market. There are opportunities for people who are willing to do this extra legwork.

James:
The difference between a seasonal investor and a full-time investor is you have to create your business around the opportunities that you’re buying in. If datas are making a lot of money, I had two data builders on my bench that I could put on those sites. I had to go get those builders, find them, talk to them, interview them. If you’re seeing big heavy fixers, I got to make sure I got a certain type of contractor that can run that job site. My guys that do my cosmetic flips cannot do that kind of site. And so once you see the opportunity, you have to go build the business behind it and the business is, how do I finance that deal? Who can help me analyze those? Who can help me facilitate that project, whether it’s an operator you’re partnering with or a contractor, how do I get it closed and then how do we sell it to get highest and best use?
You got to get the infrastructure and most of it is the facilitation process. How do I get it fixed? And there is always an answer because even if that deal can turn out to be about a 95 to 100% return on your investment, cash on cash, it’s a lot of work. If that’s 50%, it’s pretty good deal still. You could pay a contractor 30% more than I’ll pay them and it still hits. And so just get rid of your limiting beliefs on that because everything is for hire. You just got to make the phone calls and find the people.

Dave:
Yeah. I think the theme of what you’ve been saying about everything today is about networking. We talked about data. That stuff is important, but

James:
It

Dave:
Seems like the differentiation is not just having the right contractor, but having that broker to call to tell you not to buy it as a development, having a flip broker to call, having a property manager to call to talk about how to rent something out properly. That is the difference between finding good deals and not in this market, I think. I mean, even if through buying NLS deals, having those people to talk to about highest and best use and how to utilize it, it’s something you can really only get by knowing your market or knowing people who know the market really well.That’s how you get it done.

James:
Yeah. And use your time wisely. You don’t need to go meet everybody. Networking doesn’t mean how many investors do you know?

Dave:
It’s so true.

James:
It’s who do you know that’s in your backyard or the asset class that you’re buying in? I love networking events. I like meeting cool people hearing their stories, but I’m going to prioritize the people in Seattle and in Phoenix because that’s where I want to be. If I have to choose an hour to go spend with somebody or an event, it’s going to be in my backyard because that’s going to get me the people that are actually working in that class. Someone’s buying multifamily in Missouri, nothing wrong with that. They could be awesome. They could have a greatest story. They could have the best strategy. I’m not buying that, so I don’t care. Not that you don’t want to learn from people, but focus your time and energy in the spots that you need.

Dave:
Well, James, this was so fun. Thanks, man. I really appreciate it. I think this is great lessons for everyone. James obviously has a big business in one area of the country. Your business, your area of the country are going to be different, but it’s the mindset that I hope everyone takes away from this, which is just thinking a little bit differently. When everyone’s saying don’t do something, there’s usually opportunities there. Not everything, you have to be careful and if you have a good network, you will be able to spot those opportunities that everyone else is overlooking. That’s what we talk about. We talk about this upside era of real estate that we’re in. This is how you find the upside by going a level deeper and doing research that no one else is willing to do. That’s how you become a great investor. That’s how you really succeed in this market.
James, one of the best in the business. Thank you so much for sharing your knowledge with us. We appreciate it. And for everyone, I don’t know if I’m allowed to say this, but James’ show, Million Dollars Ombieflip, I’m going to make a very brief appearance on it. I think I’m on it for two minutes, but I think it’s on June 13th on A&E, million dollars omniflip. Check it out.

James:
Days flipping his first house.

Dave:
Mine was low drama though compared to the other ones you’re doing.

James:
Yeah, I still got a rash from one of them, just for the proof.

Dave:
All right. Well, that’s our show for today. Thanks so much for watching this episode of On The Market. We’ll see you all next time.

Dave Meyer:
Hey everyone, Dave here. Today on the feed, we are publishing an episode that previously appeared on the BiggerPockets Rookie Show. It’s the story of investors Sandy Lee from Houston, Texas. Sandy didn’t start investing in real estate until she was already in her 50s, but she was still able to buy four properties in just four years and retire early from her day job. So here’s rookie hosts, Ashley Kare and Tony Robinson with Sandy and we’ll be back with a new episode of The BiggerPockets podcast in a couple of days.

Ashley Kehr:
This is The Real Estate Rookie Podcast. I’m Ashley Kerr.

Tony Robinson:
And I am Tony J. Robinson. And with that, let’s give a big warm welcome to Sandy. Sandy, thank you for joining us on the Real Estate Rookie Podcast today.

Sandy Lee:
Thank you so much for having me. I’m a fan girling over here. I’ve been a big fan from the beginning.

Ashley Kehr:
Well, we are so excited to hear your story today and the journey that you’ve been on. And you actually started out with an engineering and construction degree working for two companies for 35 years. You had senior leadership roles and really a career that most people would call a success story. So what was actually happening inside the story around the time you turned 50? I

Sandy Lee:
Mean, I absolutely loved my career so you won’t hear me speak too ill of it. I was so lucky to have it. I worked my way up from pipe stress engineering into some senior leadership roles and I loved all of those different experiences along the way. But I could see that I didn’t want to live out the rest of my years in an office setting and keep doing the same exact thing that I was. So I was kind of just looking for more when I turned 50 and trying to figure out, like you said, how to get to retirement.

Tony Robinson:
So Sandy, I mean, 35 years is a good amount of time to invest into a career. Was there a moment at some point in that journey where a light bulb went off or was it more of a subtle shift or a subtle realization that you need to do something different? Just take us back to that moment where you realized that maybe a change was needed.

Sandy Lee:
It was very subtle and I think you hit on it with the long time that it was. By the time I was at the end of my career, I had had such great roles, but I was running our private equity division. I was still helping out a litle bit on the services side, but it wasn’t a role that necessarily fit any of my background or really my skillsets. Fantastic education. I didn’t even realize it at the time, but it wasn’t really me. And so I was starting to just feel like, I wonder what else there could be. I longed for more travel. I grew up with a mom who was a travel agent. So travel was in my soul from a very early age and I was looking for flexibility.

Tony Robinson:
And what about from a financial perspective, Sandy? I mean, to work 35 years, do you feel like you had put yourself in a position to kind of coast into retirement or was there something from the financial perspective that motivated you a bit as well?

Sandy Lee:
I was in a position that I could have stayed in the same career company industry for another five years and then coasted into retirement. I wasn’t quite there yet, but I certainly had more resources and I was very lucky to have been there. But no, I wasn’t ready to just hit the button and be done. Even if I was, I don’t think that would’ve felt great to me. I think I’m the kind of person who always needs something to focus on and I was trying to figure out what’s that next thing going to be.

Ashley Kehr:
Now what were you doing before you actually bought your first property as far as getting yourself ready and how long were you consuming content like BiggerPockets and reading and listening to podcasts before you actually pulled the trigger?

Sandy Lee:
I feel like I was doing all of those things and for at least two years I was thinking about how to diversify my portfolio. That’s really how this started. I was all in stocks. I had a lot of stock in my actual company. I was thinking about, I don’t want to be so invested in the stock market. So I started going to some, after listening to you guys forever and reading books, I started going and visiting some homes in Houston, Texas, which is where I live, thinking about long-term rentals. How could I just get a few long-term rentals, sort of the bigger pockets mentality and get something else in my portfolio, but it just wasn’t feeling great. So that’s what led to this big two-year time span where I was just listening to a bunch of content. It kind of started in COVID and trying to figure out what I wanted to do, but the long-term rentals just didn’t feel like me.
Everyone we walked into, I just couldn’t picture it.

Tony Robinson:
So Sandy, when you say that it just didn’t feel right or that it just wasn’t clicking, was it mathematically like you look at the numbers and the numbers weren’t working out, or was it like a fear that you had about actually pulling the trigger? When you say it wasn’t working, what did that actually mean?

Sandy Lee:
I don’t think it was a fear, though I am a single mom with one son, so there’s always a fear of jumping out and doing something crazy that comes back to bite us. The numbers were fine, not fantastic. Long-term rentals are good, they’re solid, but it just didn’t feel exciting to me. And I’m the kind of person that wants to feel excited, joyful. What’s the next thing going to be and how’s it going to benefit me, not just from a money perspective, but from a joy perspective.

Ashley Kehr:
Now with this version of your story, most people decide that they’re going to grind it out till 60, 65 and just work that safe career that they’ve had. What made you decide that that wasn’t the life, the path that you wanted to take?

Sandy Lee:
And for a long time, I thought that’s exactly what I would do. So many of my friends have and are doing exactly that, more power to them. That’s great, but I’m kind of the crazy one, which doesn’t sound like it when you hear about my career, but I’m kind

Ashley Kehr:
Of- Hey, you’re among like- minded people. We would not do the same.

Sandy Lee:
Right.
Things were changing rather quickly in my industry. I don’t know how much you guys knew about what was happening with oil and gas over the last 10 years, but things were shifting and it seemed like the right time to come up with a clear exit plan. So I wasn’t panicking because like I said, I had resources, I had had this great career, but I started to wonder what could it look like if I didn’t work in an office at all and started to just supplement that retirement by taking some of my money and putting it into real estate. Didn’t know I’d take all of my money in to put it into real estate, but hey, we’re getting ahead of ourselves.

Tony Robinson:
But you talk about the safe piece, right? You said you have a son, you think about what’s safe. Did you have to maybe redefine what safe looked like for you? Or how do you reconcile that desire for safety with maybe taking this bet on yourself?

Sandy Lee:
Well, to tell you the truth, I’m not sure I’ll ever reconcile that need for safety and I think that’s okay. About two, three times a year, I still have to get deep into financial models and convince myself that, yep, the value’s still there, the equity’s still there. Yep, I still have money. It’s just not in a big pile in the stock market that it used to be. So maybe it is about redefining safety and seeing it in other places, but I think it’s also okay to go chase something as long as you have some sort of a backup plan, which could just mean turning a corner and doing something different, believe in yourself kind of

Tony Robinson:
Thing. So you said redefined safety. So how was your definition changed as someone who climbed the corporate ladder, checked all of the boxes of typical American dream, how has your definition of safety morphed as you’ve gone on to do real estate full-time?

Sandy Lee:
Well, now I’m counting on myself and that definitely took some inward looking and some deciding that I could do that on my own, but that’s what’s happening is now I’m counting on myself. I get up every morning and I look at my own spreadsheets and my own things to do for the day. And I think about maybe how to grow my own businesses in a different way instead of going to an office, sitting down and seeing what’s needed of me. They’re just very different paths. I loved them both. I’m having so much fun with this, but I also loved that too. It was very safe.

Ashley Kehr:
Sandy had the career. She had the knowledge. What she didn’t have was the right entry point until her son kept whispering the same two words over and over again. “That’s right after this break, we’ll be right back. “Okay, so welcome back. We are here with Sandy and he son kept whispering ski condo, ski condo. And you know what? I hope my kids start whispering that in my ear and it manifests me to get a ski condo. But Sandy, you had spent years consuming every piece of knowledge of real estate education and you still couldn’t find the right entry point that was perfect for you until COVID happened. And your son actually went off to college in Colorado. So what happened from there?

Sandy Lee:
Right. This is where everything changes, right? I certainly never thought I’d be going to buy a ski condo, but it was about midway through my son’s college career. Like I said, he was in Colorado and his friends and he were leaving Colorado to leaving their campus to go skiing every weekend. I don’t know, side note, I don’t know how they got mechanical engineering degrees and went skiing every weekend, but somehow they pulled that off. I guess they don’t need a lot of

Ashley Kehr:
Skiing. Or could afford to ski in Colorado while in college.

Sandy Lee:
Boy, do they find out cheap ways to do it. You can do that wherever you are. They figure out these college things they can do. But anyway, they had so much fun doing all of that. And meanwhile, Jackson and I had gone every year at that point for 20 years in a row to Steamboat. It was kind of our love. We did skiing every year. We skied as a mother and son. And so because we loved Steamboat so much, I laughed at him at that point though and said,” No way, we’re not doing that. We’ll still be able to go every year. Don’t worry about that. “But it didn’t sound like an investment to me. It kind of sounded like a toy, but internally I hadn’t really dismissed it. I started thinking more and more about it. I started going down those rabbit holes that we all do in the evenings where you’re on your iPad or your phone thinking,” I wonder what this could look like.
I wonder if it could pay for itself even partially with some short-term rentals because I just hadn’t considered it at all before then. But boy, that rabbit hole works. And before you knew it, I was looking at properties.

Tony Robinson:
So you eventually end up buying a condo. Walk us through, how do you get from up late night, scrolling through on your iPhone to actually finding a property, turning it into an investment property? “What happens in between those two steps?

Sandy Lee:
During this time in the market, everything was moving fast and furious. So we scheduled a short ski trip and I knew that on a couple of those days I would just walk the neighborhoods and really get familiar with what is where in the area so that I’d be ready to pull the trigger when something came on the market. This was spring of 22. And so things were still really booming in the market back then. So found a couple, it took me a couple of offers to get the right one. Biggest purchase of my life, $1.3 million. I still can’t say it without choking a little bit on it and I didn’t see it until the morning of closing.

Ashley Kehr:
Oh my God. Wow.

Sandy Lee:
So I went from safe that we just talked about to, ” Hey, let’s buy the most expensive, most ridiculous condo and I’ll see it the morning and closing. It’ll all be fine. “My family thought I was ridiculous, but it all turned out just wonderfully. I had done enough research at that point to really believe in Steamboat. There were a few things happening at the resort that made me think this area is going to boom. Aspen had bought Steamboat a few years earlier. They were midway through a big expansion on the mountain where they were adding a second gondola, which was the longest, fastest one in the world, but it wasn’t there yet. They were adding a bunch of land, but the ski area wasn’t getting any bigger at the base. They also had just gone through all of that talk that so many towns are on the regulations and put in a bunch of new regulations in Steamboat.
So the opportunity to pick up a four bedroom in the green zone seemed a little bit infallible to me. How could this go wrong? At least I could sell it if this doesn’t turn out to be our thing.

Tony Robinson:
Yeah. Sandy, well, you answered my first question, which was how did you build confidence in that decision? And you kind of walked through what you saw there, but if part of the initial tension that you were feeling was around this idea of safety and someone protecting your investment. And you even said it now, like saying that the purchase price, you still get caught up on saying 1.3 million. Why start so big? Why not go buy something maybe in a different market for half the price? What pushed you to such a big purchase price to begin with?

Sandy Lee:
Well, at this point, I really didn’t know that this was going to become a business for me. I thought it was going to be one investment that would sit alongside the rest of my investments. I didn’t realize you could get a mortgage that was for, in my case, I think I put 25% down on that property. So it was still a big cash investment for me, but it could sit alongside the rest of my portfolio. So I was able to convince myself I’d be able to sell it. Things were still rising rapidly there. Sure enough, in the first year it went up another 25% in value. So it turned out to be a great decision even early, but I convinced myself that I could always just sell it. That’s how.

Tony Robinson:
So you buy it for 1.3. What do you have to put into it? Well, I guess first, what strategy you’re using on this? I’m assuming because it’s a ski town, this is a short-term rental, is that correct?

Sandy Lee:
That’s right. It’s a short-term rental. And we use it about two weeks a year, a little bit more sometimes in the off season if we want to go hiking and things, but we use it very little. It’s definitely a rental. It’s there to make

Ashley Kehr:
Money. I just have two questions on the money piece here. The first one is how much are you making on average at this property?

Sandy Lee:
So right now, well, last year my revenues there were 135,000 gross. When I started out, they were about 80. So in that few years, it’s gone up pretty material every year there and my expenses there are 72. So it started out just breaking even basically, but now it’s my biggest money maker even with much more equity in some other places, Steamboat continues to be my big. If I could do it over again, I would.

Ashley Kehr:
Your big cash cow.

Sandy Lee:
That’s right.

Ashley Kehr:
My second question is when you and your son would go on your yearly trip, how much were you paying to rent somewhere?

Sandy Lee:
Boy, that’s a really good question. So this was a while back, but still cluster $1,000 a night. I mean, it’s hard to get anything for less than $1,000 a night during ski season around these places. So certainly, now we get free ski trips, which is huge.

Ashley Kehr:
You said two weeks you’re going. I mean, that would be $14,000 you would be paying if you didn’t have your own place. So really that’s added on to the benefit, the bonus, I guess.

Sandy Lee:
Absolutely. So Tony asked how much I had to put into it. I did have to put some into it. We didn’t talk about that. I put about $40,000 into a light remodel. I did some light remodeling on all three of the bathrooms, painted the whole thing, and then I completely refurnished it. So that was another 25,000 or

Tony Robinson:
So. It’s actually not bad. 65 grand, you said it’s a four bedroom?

Sandy Lee:
Yeah, it’s a four bedroom. Yeah,

Tony Robinson:
That’s a pretty good price. It was set up a four bedroom. And to be able to net, you said maybe like 60 grand a year, give or take on that same property, that’s an amazing return.

Ashley Kehr:
Yeah. I already paid that back in one year, just the rehab and the furnishing.

Sandy Lee:
I brought my own contractor from Texas. That was another thing. One of the things that I did really right was you can’t find a contractor in a ski town, especially if you’re from Texas, especially if you’re from out of town. They don’t want to work for you. They’ve got so much work that they can do there locally. So I packed up my contractor from Texas and I asked him to drive to Colorado and do a remodel for me. And now he’s done that at every single one of my properties. So I kind of love that story. It’s like, find yourself somebody that’ll travel for you.

Ashley Kehr:
Does he just stay in the property then while he’s working on it?

Sandy Lee:
Exactly. I just tell him what I need to done. He takes his son, he goes and has a vacation and works for a couple of weeks when I need him to do something. I love it.

Tony Robinson:
That’s fantastic. Actually, we did the exact same thing for the hotel that we bought in Utah. We were having a very hard time finding contractors here locally. It’s a smaller town outside of a national park. We took our crew from California and they didn’t stay there the entire time because I think it took maybe three months to do or maybe four months to do that full rehab, but they would drive up from California. It was a six hour drive. They drive up every Sunday and then drive back every Friday and they would stay at the property in the meantime. But if you do have a connection to someone, I think it does help tremendously to kind of skip that part of finding someone to actually do the work for you.

Sandy Lee:
And lower the cost because there’s that mutual trust on both sides. Absolutely.

Tony Robinson:
Now, given that this was your first one, Sandy, did you self-manage this? Because you were still working a full-time job at this time as well, right? Or had you left already?

Sandy Lee:
I was still working a full-time job and this was, if you were to ask me what my biggest mistake was, this is it. I did not self-manage at first. I hired a management company and so that cost me all kinds of money. And as soon as my contract let me get rid of that managed company, that’s what I did. That was just a confidence piece and that’s something that I haven’t looked back on since then and try to educate other people on now of this is not as hard as you think it is. You can do this from afar that the tools will let you do it from afar these days.

Ashley Kehr:
And you probably realize you could do it better too.

Sandy Lee:
For sure. And I don’t like to say that too much out loud because these folks are doing their best. It was actually a fairly small company, but nobody cares about your property like you do. If you really want all five star reviews, you’re the one that’s going to get it there.

Ashley Kehr:
That would be an interesting comparison to look at some of these bigger nationwide companies and gather all the reviews and see how many of them are actually five star reviews compared to individual owners.

Tony Robinson:
That data has actually been put together already and it is 100% verified that as your number of listings increases, there’s like a direct relation to your review score decreasing. And the people who are one or two listings, they’re the ones that are really at the top when it comes to review scores. When you see the people with tens of thousands of listings, the Vacasas, the evolves of the world, they’re the ones that are really suffering when it comes to that. So you’re absolutely right. As the portfolio gets bigger, it gets harder to maintain those review scores.

Ashley Kehr:
Now from that first property, you went on to build distilled destination. So how did this plan evolve from one ski condo into four properties within two years?

Sandy Lee:
Right. So that ski condo, we branded it from the very beginning. We called it Whiskey Ridge. And like I said, about six months into it, I started to see, hey, this is doable and I enjoy this a lot. And that’s when I started really thinking about actual retirement, what could this be? And then yes, in the next year and a half, I bought three more properties. Whiskey Sands is in Orange Beach, Alabama. I’ve got Whiskey Hills just north of Asheville and Mars Hill and then Whiskey River in Texas and the Hill Country and Green. So have loved putting it together. It just started seeming like, how can I make this brand into something that we would enjoy? The theory was always the same vacation homes that the family could use. Both my son and I and our extended family were real close to my brother and sister-in-law and their three kids.
So how can we all go vacation together and enjoy some holidays, but also by the way, pay for my retirement along the way. So that’s what this became. What’s that minimum number of homes that I could do exactly that with?

Ashley Kehr:
Now for each of these properties, did you do the same kind of financing where you put 25% down for each and where was this cash coming from for each of these down payments?

Sandy Lee:
For the second property, I did do 25% down and I have a really large mortgage on that one. That was the Orange Beach property. The third and the fourth were lower entry points. And just to be blatantly honest, really liquidated some investments and went all in cash on those last two. My long-term goal different than some, maybe different even than what’s the smartest is to have no mortgages. So I’m now in that case where I don’t think I want a lot more properties. Scaling to me looks like getting rid of all mortgages in my life by a certain age. So that’s the big goal.

Ashley Kehr:
And I don’t think we hear that enough on the podcast as like that as an option. It is consistently put into your brain, scale, scale, scale, grow, grow, grow, buy, buy, buy. The bigger the portfolio, the more successful you’ll be. But really I think it’s refreshing to hear that that’s not the case. You don’t need a ton of properties to retire or to cashflow or to build the life you want. And some cases you could have these four properties and make as much money as someone with 20 properties that’s over leveraged on them. So I think it’s very refreshing to hear that.

Sandy Lee:
Well, that’s the goal.

Ashley Kehr:
Well, the path would be on, yes.

Sandy Lee:
Right. And now in the market, as you guys know, short-term rentals have been seeing some struggles over the last couple of years and especially in some markets. The goal is going to be to stay with them, to make just enough money to get by, to keep my own personal expenses fairly low and not quit, not walk away because I have a lot of faith that in five years this is just going to be the greatest decision I’ve ever made. I really do believe that. I think that sticking with it is the big key right now.

Ashley Kehr:
And like you said, the worst case scenario is that you sell the properties.

Sandy Lee:
Absolutely. Go back into the market. I could even go back to work. Lord, help me. Who knows? But hopefully not. Hopefully we can just stick with what we’re doing over here.

Tony Robinson:
Sandy, you went into a few different markets, right? You’re in Steamboat. You said Orange Beach just outside of Asheville and then Texas Hill Country. Walk me through your thought process on casting a wide net versus just buying all four in Steamboat where you started.

Sandy Lee:
Right. It definitely would’ve been easier to buy all four in one place, but my vision of retirement was to travel during the off seasons at each property and spend even months there to where we could go and do some hiking or some other things, whatever was in the area, still have that vision. Boyfriend lives here and we try to get out to … In fact, we’re going to Orange Beach this weekend. We tried us to see when things aren’t booked and get there. Couldn’t have really done that if we had four altogether. So I decided it was worth the operational headache to have four different states. I also did not want to invest much in Texas because the property taxes are so high here. So I’ve been trying to get out of Texas in a way as much as I could.

Tony Robinson:
But Sandy, I love that so much of your approach is really centered on what kind of life do I want my portfolio to support? And you said, “Hey, I don’t want a big portfolio because I want to take up too much time managing, so I’m making different decisions there. I want to be able to use them myself so I’m going to these different markets.” I love that approach, but how did you actually choose the other markets, especially that’s a pretty tight timeframe. Was it just places that you already knew and liked to vacation yourself where you felt the numbers made sense or some of these markets that maybe you hadn’t considered before just how did you land on all those cities?

Sandy Lee:
Actually, not at all. I had never even been to Orange Beach or to Asheville when I started all of this. So that’s kind of an interesting aside, but the approach was to try to replicate what I had found in Steamboat. Asheville’s a good example of that. The property in Mars Hill is on a ski hill where it was actually shut down, but new owners had already bought this resort and they were turning it into Hatley Point and it was going to reopen within six months of when this house was for sale. So it was another one of these cases of, I can see that this thing is about to happen and I can see that in three to five years it’s going to be amazing. I’m willing to jump in now, maybe even take way less revenue than I’d like right now. Orange Beach was kind of the same.
Some people will call it saturated, but I see something different. I see people coming from Florida and starting to vacation in some lesser expensive places. I see the airport and Gulf Shores just having gone public. I see some different things happening there with a beautiful beach town. So that’s why Orange Beach. And then green and the hill country in Texas, we’re on the river, we’re walking distance to the oldest dance hall in Texas and there’s great concerts there all the time. So that was just more of a money play. It’s kind of close to a lakehouse that

Tony Robinson:
We have. But Sandy, I think even taking a step back, and I appreciate the insight there, but how did you go from 20,000 potential cities in the United States to even get Orange Beach and Asheville on the list of potential places?

Sandy Lee:
Well, I will say I’m not much of an analysis paralysis kind of person. If I get an idea and then I think something looks cool, I’ll go look at it and I’ll pull the trigger very quickly. I realized that the first 10 minutes of this podcast did not sound like that, but once I’m in on something, I’m in. So we looked at Florida. I had gone to Destin quite a bit. I wanted to maybe invest there. I had concerns about the insurance costs there and everything that was happening in Florida, even taxes. So I said, “I don’t know anything about Florabama. Let’s go take a quick trip for a couple days.” Brought my son down to Orange Beach and we just fell in love with it. It’s beautiful. It’s more spread out. We back up to a Gulf State park that is hundreds of acres of just green area where there’s all this hiking and biking.
I’m not even much of a beach person and I love it there. So I just was really surprised by that. So it was kind of the same as Steamboat. We bought a house that we loved in an area that we loved and figured, okay, this’ll at least break even. And if it pays for itself, then it’s doing its job and if it makes more, even better.

Tony Robinson:
Just really quick, I’ve never heard of the phrase Florabama before. I had to Google that to- Oh, really? For Abama.

Ashley Kehr:
Wasn’t there an MTV/TV show that looked at it?

Tony Robinson:
There was. That was the first thing that popped up, MTV TV show, Florabama Shore. It’s

Sandy Lee:
Definitely the redneck version of Florida and I am right there. I’m from Texas. My dad’s from Alabama. These are my people. This is where I should be.

Ashley Kehr:
I actually went to a mastermind once and stayed in one of the houses right there on the beach and it was super nice house, great light layout. Every room had their own en suite and it was beautiful beach and it’s like house, house, house, house. And there’s like where we were, at least there was no hotels. So it was all just residential and super nice because it wasn’t overly busy. Yeah.

Tony Robinson:
Alabama. There you go. Learn something new today.

Sandy Lee:
There you go. It’s worth a visit. It’s pretty neat.

Ashley Kehr:
So even in this same market, there was actually a new build community that went up with 70 short-term rental units. So you knew the risk kind of going into this, but why did you decide to buy anyways and what ended up happening?

Sandy Lee:
Right. I knew the risks. Well, most of them I had lost some money on a personal new build, so I knew it wasn’t the smartest purchase unless I was going to hold onto it for a really long time, which is our plan there. But with a new build community, we were able to really get a vision for what it would be, get in fairly early while pricing was still good. We were one of the first six or seven houses in the community. We could pick the best lot or the best lot for us anyway, has the most land. It backs up to the Gulf State Park. Like I said, it’s got four en suites in there, which we can fit all king beds, no problem, and really just make it into something that would work great we thought for multiple generation families. We were looking for how can we support multifamilies, not just mine, but also other people who would want to go visit there.
So we made it beautiful. We took a chance on it. It’s stayed level in revenue, which I think for that area is a win over the last couple of years.

Tony Robinson:
Now I know one of the other things too, Sam, that you focused on was improving the occupancy. So I think you went from 51% occupancy in 2024 up to 77% occupancy in 2025. And given that occupancy is only one metric, we also want to look at revenues, but that’s a big jump, 51 to 77. What did you do that actually moved the needle?

Sandy Lee:
Right. That’s a big jump and it tells you, since I just told you my revenue was stagnant there, that I had to make a huge pivot to make the property work. What I really did there was really just to take a huge, fresh look at my pricing. Well, I did a few things. Let me back up. I did a remodel on the backyard to make it beautiful, put in a bunch of new plants, put some stone in, made it really nice. I put in a new bar in the kitchen area in a closet that always should have been a bar, very low cost, but just some things to make the property show a little bit nicer. But then I also took a look at my pricing and decided some of my pricing was just too high compared to the market. Along with doing that, I realized that I wasn’t paying enough attention to the pricing and I hired a revenue manager.
So that’s something that I’ve slurged on over the last six months or so to really take a closer look at my pricing, got rid of what I call ego pricing because I was like, “Oh, I’m never going to have a night that would be less than the cleaning fee.” Well, of course I am. So I’m looking at it way differently right now. I’m going to have the price that gets me the most overall revenue period. That’s what the house is for. It’s not for anything else. So yes, higher occupancy, which I’m proud of, but the revenue has stayed right at $100,000 there for both of the full years that I’ve had it.

Ashley Kehr:
Tony, you had hired a revenue manager before, right?

Tony Robinson:
I did. Yeah, we have one right now for our entire portfolio.

Ashley Kehr:
How for somebody like me that has two short-term rentals, what is the process to find and kind of vet a revenue manager?

Tony Robinson:
Yeah, I think my process was probably slightly more unique because he actually came to one of our events and we met there and I just kind of got to chatting with him, but my process for vetting him was I just asked him what his process was and I compared that to mine. And if I felt that everything that he was doing was maybe below the level of what I would be doing, would that be a red flag for me? But As we had conversations, a lot of his approach was similar to mine and there were even a lot of things that I’ve learned from him about how to really put together the right pricing program. So when we talked through and he walked me through his process, I was like, “Okay, this actually looks good.” And we started off, I think, by just giving him, I want to say it was just a hotel first and then we started with a few listings, then we kind of scaled up to the whole portfolio from there.
So we dated first and then once I saw some initial results, that gave me the confidence to give them everything. And now basically our entire portfolio has been up year over year since we started working with them. So it’s been great.

Ashley Kehr:
And how does the pricing look like the cost to hire a rep manager? Is it a flat fee? Are they getting a percentage of how they grow the profits? How does that actually work?

Tony Robinson:
We pay on a per listing basis. I would be very, I think, against anyone that charges on a rev share type model because we handed over a bunch of listings at one time. I think we’re somewhere around 100 bucks per listing. But I want to say if you’ve got maybe one or two, maybe expect to spend a couple hundred bucks per month or 300 bucks per month for revenue management. So if you’ve got a listing that’s only doing 40K a year, maybe doesn’t make a ton of sense. But if you have a listing doing 100K or 200K a year, spending 300 bucks per month to really optimize that revenue makes a lot of sense.

Ashley Kehr:
Sandy, is that the same kind of for you?

Sandy Lee:
Yeah, that was exactly my thinking. I mean, if I’m going to spend eight to $10,000 on a revenue manager a year, but my entire revenue for my four properties is about 350,000. Is it worth it? Well, yeah, I hope so. But that remains to be seen. I’m kind of early in the process. What I know for sure is that I’ve learned so much more about how price labs work and some of the things that … So it’s been a good investment no matter what, because I’ve learned a lot that I can take from this so I’m not sorry that I did it. Price Labs is a really complex and simple tool. You can either set it and forget it and still get good value out of it, or you can really go into it and do a whole bunch of little tweaks that I think AI is going to make that a lot easier in the future.
But for now, it’s a really complex tool with a lot of data science behind it.

Tony Robinson:
Couldn’t agree more, Sandy. And kudos to you for making that decision and seeing that value. Now, Sandy just told us how she nearly left money on the table and then fixed it by kind of killing the one thing her pride wouldn’t let go of. But what makes your story really different is what she brought into this business from her 30 plus years working in corporate America. We’ll cover that right after a quick break to hear where from today’s show sponsors. All right, we’re back with Sandy. Now, Sandy, you went from, again, sold right at 50 to retired just a few years later, not by abandoning your career, but by really redeploying what you learned in your career into your real estate business. I mean, you were known at work as a fixer, right? You got put on the broken department or a broken project or a broken process and you’d fix it, but it turns out short-term rentals are kind of full of broking things as well.
So you said that your background in corporate, again, being thrown at something and fixing it directly translated into running your short-term rental business. Can you give us, what is an example of what that looks like in action?

Sandy Lee:
Sure. I think you hit the nail on the head. I’d have to go into situations without a lot of information. Often it was taking over a department where I didn’t have any background and go in and learn the processes and then try to make everybody happy on the customer service side and within the department while I’m changing everything to make it work. So lots of different moving parts when you manage departments or come up with new operations. But with short-term rentals specifically, you’ve got to have all the same skills. You need organized, clear, good operations, but you also need to be able to problem solve really quickly and efficiently in order to not let it take over your life or stress you out really badly. There was a really fun recent example. Everybody’s got issues, but I had what I think is a fun one now because it came out so good.
In my Orange Beach place over Thanksgiving week, I had two families arrive on Tuesday of Thanksgiving week. They’re clearly big football watchers. I’ve got a big 85-inch TV, again, Florabama. So we’ve got an 85-inch TV on the walls where everybody can watch their Southern football and they get there and the TV’s broken. There’s a big line down the middle of the TV. It’s clearly just not okay. Tuesday, Thanksgiving week and they were definitely football watchers, like I said. So I learned this about 4:00 PM and I quickly went down a bunch of different paths to try to figure out what’s the best way to get a TV into that house this evening and on the wall.That’s hard. And I think a lot of people might just go, “Oh shoot, that’s hard. What am I going to do? I’ll fix it in the next week or two.” You can’t do that.
So everything I learned in my corporate business where problems don’t wait and you have to solve them right away, if you’re really going to be a great manager in a short-term rental world, you also need to solve problems right away. So between Costco, Walmart, Amazon, Best Buy, I found one at Walmart that worked. My handyman went and got it. He had it on the wall by 8:00 PM and everybody’s cheering that this all worked out. But it’s constant things like that. There’s always a problem and it seems big and people can panic, let the guests know that you care and that you’re working on it really hard and then do your best and then let it go emotionally. It’s just work. You’ve got to let it go. It’s just work, right?

Ashley Kehr:
I think one thing that I’ve learned on that piece as far as the problem solving and trying to deliver customer service, and this is more coming from my long-term rental side, but that just the more you communicate, it seems like the better the issue doesn’t escalate. You can keep it more controlled. And I feel like with at least long-term tenants and sometimes with short-term guests, I’ve learned that keeping them updated as to what’s happening, how you’re solving the problem and update on, he’s arrived at Walmart, he’s got the TV, he’s going to be there in 20 minutes. Those updating people and telling them goes such a long way. Every work order we receive, we are immediately acknowledging it that we have received it. We immediately acknowledge that it has been assigned to a contractor. They’ve been called. We acknowledge, are they going to schedule it?
Will we schedule it? Every little step of the way also, it’s great to have that documentation too, but it’s just letting them know and keep them informed and updated because what is the most frustrating thing to anyone is when you have no idea what’s going on.

Sandy Lee:
Right and you feel like no one cares. They need to know that you care. And so I got the best review from this guy. So it was fantastic. Everybody wins.

Tony Robinson:
Now you mentioned Ash, systems and processes and San Diego, that’s been a big focus for you as well. Your portfolio for properties runs on just a few hours a week. I think a lot of the thing that maybe holds new rookies back from investing in Airbnbs is that they feel that it’s maybe too labor intensive for them to try and take on. So you’re a few hours a week on managing. You don’t live near most of your properties and you’re traveling constantly. So what does the actual operational reality look like and what did it take to build to that level?

Sandy Lee:
Yeah, absolutely. I think this is really important and I’ve heard you guys talk about it so much. Having the right tech stack in place is the most key issue for me anywhere. And that’s something that I did from day one. Some people might not. I think it’s great if you go ahead and put that property management system in place right when you set up your property and then it does so much of the work for you in terms of messaging and controlling your locks and your thermostats and everything else. I knew I was trying for a large revenue for every property, so I just have never stressed about small software costs. Building automation into my processes has been a key for me from the very beginning. I think the software and the systems are the fun part for me also. So I’ve had a lot of fun with that, but remote management to me is so much easier with the right tech stack in place.
I think that’s the biggest key. Certainly the right cleaner, the right handyman. It’ll work well no matter where you are. If you have a couple boots on the ground and then you have a system in place that is set to work without you. It works while I sleep is what I like to say.

Ashley Kehr:
Now a lot of rookies are actually trying to get out of their W2. They want to escape from it, but what you’re saying is actually something you brought with you. What would you tell all the rookies listening who’ve been dismissing their own resumes as an investing asset?

Sandy Lee:
I think there’s a lot around this, right? Well, for one thing, it’s never too late. If you would’ve told me 10 years ago that you could be in your 50s and start a real estate investing career, I might’ve thought you were nuts, right? But absolutely. It doesn’t really matter when you start. It’s just crafting this to look like what you want it to look like. But absolutely taking those skills from your W2 or from whatever your life is and translating them to the next part of life, I’m going to sound a little book-like on you, but that’s just learning and improving and adapting and finding what’s next and taking everything you’ve learned along the way. So the further you go along, don’t leave behind anything that you might’ve learned there. It always translates. The leadership translates, the people skills translate, the team building translates. Certainly the operational skills, the Excel, the analytics, Tableau, all of that stuff translates beautifully to this career.
You just have to sort of know where to deploy those skills and when.

Ashley Kehr:
Now, looking back, if you could do this all over again and what would you have changed? Would you have started earlier? Would you have only focused on fewer properties, maybe more properties? For somebody that’s listening to this, what does this path look like for somebody listening right now and what would you have done differently?

Sandy Lee:
I think the only two things I would’ve done differently is started earlier, which I think is probably not a surprise answer. I bet most people you talk to say that. I definitely would’ve started 10 years before I actually left work because it only takes a few hours a week, which really surprises me. I really wish I had bought two of these properties 10 years earlier and then just let them ride and had fun with them along the way. That said, love where I am, so it’s totally fine, but I would’ve done that differently and I wouldn’t have hired a property management service from day one. I also think you guys have talked about this. If you really get into your own first property and understand how it works, even if you decide you’d much rather have it managed by others, totally fine. But if you learn it yourself first, you’re going to be a better owner in the long run.
I think all of that is just really important.

Tony Robinson:
Last question I have for you, Sandy. We’ve been talking more about AI and how that’s kind of seeping into the world of real estate investing. You said that you think guests will find their next Airbnb through a ChatGPT before they ever even open the app. What do you think Ricky’s need to do right now to maybe stay ahead of that curve?

Sandy Lee:
Right. So whether that’s right or wrong, it’s definitely a curve that I want to stay ahead of. So you’ll get lots of stories around AI, but I am so glad you asked this one. I actually just did two YouTube videos about AI and what I think the effects that we’re already seeing in the industry and where it might go. What an incredible tool. For rookies that are already operating short-term rentals, there are a few things that they can do even right now I think to get ahead of what’s happening in the industry, having your own direct website with some sort of branding and a really clear description of what your home is is really going to help AI find your home better. But Airbnb and VRBO are already using AI to overlap how we used to think they were showing homes to people and trying to show the home that will get the guests to book the fastest.
It used to be about keeping people in the scroll and now it’s how can we get that person with a shorter attention span to book quickly and get off the site. So it’s just different than it used to be. And what they’re saying is that AI wants clarity. So having descriptor words like beautiful is not going to help AI at all. They want it to be quantifiable. It needs to be amenities, bed sizes, beds and bath. Be really clear about who this home is for and say that in your listing even several times who you’re trying to attract with it. Try to call out a few specifics that makes your home better than your neighbors. All of this can be a game changer. I mean, I think we’re all using AI in some ways, but keep in mind that the software products that we’re using are probably all way ahead of us and using it in a lot of other ways that we need to be aware of as we go through this world.

Ashley Kehr:
That’s such a great point. I’m thinking about if I were to ask ChatGPT about a property, I’m going to this lake and I want to find a property that has this, this, and this. I’m not going to say I want it to have a beautiful living room. I’m not going to say I want it to look stunning. I need four bedrooms, four bathrooms. It needs to have a deck. It needs to have a dock to the lake. That makes complete sense.

Sandy Lee:
And then the other thing it can do is go through and compare pictures to words. So if you’re overstating what your property is, you may not be able to get away with that in the future. I think it’s going to be great for the industry. I think it’s going to up everyone’s game a little bit. I don’t think it’s bad, at least right now.

Ashley Kehr:
Well, Sandy, thank you so much for joining us today and sharing your story and all of the knowledge that you have learned from your real estate experience. Where can people reach out to you and find out more information?

Sandy Lee:
Yeah, so I’m so happy to have been here. It’s really been a joy. You can find me. I’ve started a new platform STR Jumpstart is what it’s called. So you can find me at strjumpstart.com and on both Insta and Facebook as STR Jumpstart, it’s really a step-by-step really manual for if you wanted to get your first property or second, how you could do that. It’s something that I wasn’t able to find when I got into this. When I got into this, I was a litle bit scared, as I told you guys. So having that step-by-step instruction, it’s got 50 lessons in there and a lot of downloads. Financial modeling is really a key behind it. So if anybody wants to check that out, I’d certainly love to tell you all about it. So reach out to me.

Ashley Kehr:
Well, Sandy, thank you again so much for taking the time to join us today. I’m Ashley, he’s Tony, and thank you guys so much for listening to this episode of Real Estate Rookie. If you’re not already, make sure you are subscribed to our YouTube channel @realestaterookie and you can find us on Instagram @BiggerPocketsRookie.

 

Dave:
What if today you could buy a $500,000 per year income stream? You could replace your salary, you could become the boss immediately and you could reach financial freedom faster. You’re probably thinking to yourself right now, Dave, that sounds impossible, but today’s guest proves that the average American, yeah, even you hearing this right now can get in on the action. It is not a gimmick. It is not a scheme. It’s actually kind of boring and it’s transparent and it’s something I’m actually considering doing myself very soon. It’s buying a small business. If you own or want to own rental properties, our industry is actually kind of similar to buying small businesses. In our industry, you buy a property, you get it rented, you run it well, profit and repeat, similar with small businesses. But these small businesses are sort of like rental properties on steroids, at least in terms of how much cashflow they can generate.
And just like rentals, you don’t actually need to put in all the cash upfront to buy them. Buying just one of these businesses could actually replace your salary and today we’re showing you exactly how to do it.
What’s up everyone? I’m Dave Meyer, Chief Investment Officer at BiggerPockets. Today we’re talking about buying small businesses with Will Smith, host of the Acquiring Minds Podcast. Of course, you’re probably thinking that it’s true, this is a real estate podcast. I myself am a real estate investor, but buying small businesses has emerged as a popular alternative, or I would argue as a popular compliment to real estate investing in recent years. So I wanted to have this conversation with Will and share it with all of you. Let’s bring him on. Will, thanks for joining the BiggerPockets Podcast. We’re excited to have you here.

Will:
Dave, thrilled to be here, know the podcast, have known it for years. So it’s really exciting for me.

Dave:
Well, let’s just start by hearing a little bit about your background and how you first got into the world of investing, personal finance, wealth building, all that.

Will:
So I’ve pretty much for my whole career been an entrepreneur of some kind, mostly doing my own businesses for the first few chapters of my career and then my most recent and probably final W-2. I was living in the Bay Area and working for a couple of startups, but had that entrepreneurial itch that just never seems to go away with me, but didn’t at that time have a business idea that I wanted to run after. So I had the energy but not the idea. And that was when I discovered the possibility of buying an existing business, which is what we’re here to talk about. And I can kind of give the origin story of acquiring mines in a minute, but I guess to answer your question directly have always been entrepreneurial, have always been interested in ways to build businesses and as a consequence of that, build wealth.

Dave:
So Will, tell us what is ETA?

Will:
ETA, entrepreneurship through acquisition, also known sometimes as search or search funds you might have heard of, is the idea of becoming an entrepreneur or business owner by buying an existing business as opposed to starting one from scratch. There is a lot of excitement around this path in the last 20, but especially in the last five years. Business schools are teaching this. A lot of people are coming from tech or finance and wanting to get out of those industries and become entrepreneurs and this is a path to do it. They’re demographic trends of a lot of retiring 60 and 70 somethings whose businesses need new ownership. So there’s a lot of trends that are contributing to this, not to mention the model itself is really compelling. So you can buy a small business with leverage with an SBA loan in the US, but there are also ways to do it with leverage in other markets, non-US markets.
So you don’t have to stroke a check and buy the entire thing. Like in real estate, you have a down payment of 10, 20% and can buy a multimillion dollar business and even for that 10 or 20%, you can raise investor equity to help you get there. So the economics are really compelling as well as a number of other trends that are sort of converging to make this a really exciting path. And then people like me and many other podcasts talking about it all the time. So raising the awareness of it as well.

Dave:
What made you feel like you could do it, Will? Because I wanted to be entrepreneurial too when I was first out of college trying to figure it out. It never crossed my mind that I could buy a business. And I think a lot of people feel that way about real estate too. They don’t realize that there are ways to get into real estate that don’t require as much money as you might think. My assumption was that small business was the same way. So were you coming from a place where you had a lot of cash or what made you feel like you could do this? Because to me at least, it feels daunting.

Will:
I didn’t have a lot of cash. I didn’t have no cash. With the SBA loan possibility, essentially 10% of a business’s enterprise value or total project cost, as they call it, is roughly what you’d need to bring.
And for certain size businesses that would be interesting enough to pursue, I could afford that. And then I also learned that you can, even for that 10% that equity, if you have a good deal and you know there are people in the ecosystem, investors in the ecosystem, usually individuals who will help you with that or will invest in your project. So I saw pretty early on that there was a way to make this work for myself. Now it was unlikely to be a very large business. I wasn’t going to be acquiring a $20 million business, but certainly something interesting enough, like as I said, to pursue.

Dave:
What is it that attracted you? Like you said, you didn’t have an idea, but there are other ways to be an entrepreneur, real estate being an example. What made you so enthusiastic about this?

Will:
I had spent a lot of time at that time of my life and frankly, really my whole career kind of ideating what is a new thing that the world needs
And spending time in communities where they spend a lot … There’s like the indie hackers world. This is kind of another niche of entrepreneurship where primarily tech oriented people are trying to come up with the next SaaS idea. And I had done a lot of that and spent a lot of energy doing that. And I don’t think that having a completely novel or a novel idea at all is that important to me. I just want to be building a business. And I think I had gotten too caught up in coming up with some new thing. You don’t need to do that. And I don’t even think that that’s like a bad thing or I was giving up on coming up with a new idea. In fact, the more I really thought deeply about this and really connected with people about this, the idea that you would launch something brand new is not even very wise.
Many of the most successful businesses, the market demand has already been demonstrated. So go where there are existing businesses that have already proven that there’s demand there for whatever the product or service is. So this was a path to entrepreneurship that got around that thing that was a big sticking point for me. The sense of possibility was completely wider than actually coming up with a brand new idea on my own.

Dave:
I mean, that resonates with me, you’re making me think. So before I started working at BiggerPockets, a couple careers ago I had started a tech company as well and I went to this mentor to get some information and I asked him to sign an NDA and he was like, “I’m not going to sign an NDA.” And I was like, “Why? I got to protect my idea.” And he was like, “If I could do your business better than you, then you don’t have a good business. Ideas are stupid. Execution is the only thing that matters.” And I remember just being so dejected by that, just being like, “I thought I had this amazing idea.” And he was like, “I don’t care at all about what your idea is. All that matters is like, can you run a business successfully?” And it definitely changed my perspective. And it is something I’ve personally grown an interest in ETA myself and it’s something I think about a lot, not having to focus on reinventing the wheel, inventing something new.
That’s the same thing I love about real estate, right? It’s like it’s a business model that’s proven. I don’t have to think about that. I just have to think about things that are in my control, how to execute and operate.

Will:
And just in case anybody’s hearing this and thinks, well, the creativity aspect of entrepreneurship, I guess that’s not what ETA is about because we keep talking about how it’s not doing your own idea or a new idea. And I just don’t want people to leave with that impression because sure, the thing the product or service that’s being sold may not be novel, but within a business it’s an animal, it’s its own ecosystem and there’s just constant opportunities for creativity and imagination within a business or within an industry that already exists that you get into. So I love creativity and I still see business absolutely as an outlet for that. So I just don’t want people to think that we’ve foreclosed the opportunity to be creative by going down this path, not at all. So

Dave:
Will, you clearly became interested in this. What happened next? You go out and buy your first business?

Will:
So I love at first sight and I decide, okay, this is the way, this is the path I’m going to pursue. My own entrepreneurial track record had been in building niche media, what I call authority media. And so as I looked around this space, the ETA space, it didn’t seem like there was what I like to call the authoritative voice of ETA. This path, it was so exciting to me, this niche of entrepreneurship that was clearly if I was having this reaction, other people were going to be similarly interested in doing this. And I already saw that people were doing it. As I said, business schools were teaching it, people were doing this. So I thought I could build some sort of media something here, try to become the authoritative voice of this space because I’m going to be studying it on my own anyway, trying to meet people, get stories, understand their learnings.
I’m going to be going through all those motions anyway. Why not capture that into some sort of media something? Interesting. And maybe that becomes something. Maybe that becomes something or it doesn’t, but I probably will have raised my own profile in the space. Maybe that will help me buy a business better or raise investor capital or whatever. So I didn’t see that that could hurt. I saw that it could only help and maybe even become its own business. And ultimately the media format I ended on, decided on was a podcast. And so I thought, I’m going to go heads down on this podcast for a year and then evaluate. And happily over the course of that year, year and a half, it really grew and there was a lot of market feedback that people were listening, that sponsors were interested. I was loving it and to this day, I love it.
So it was just having come off of this period in my life where I’d been looking for some idea to launch into the world and how challenging that was all of a sudden I had launched an idea into the world and the world was reacting positively. So I said, “This deserves all of my attention.” And probably around episode, I think it was episode 200, I said to myself and publicly, I was like, “I no longer am even going to consider myself what we call a searcher, somebody who’s out there

Dave:
Trying to

Will:
Buy a business.” I’m going full-time 110% on acquiring mines and I’m just going to have to live with the tension that I’m the guy who talks about this all day long but never actually does it. And it’s been okay. Nobody cares.

Dave:
Well, it’s so funny. I’m sure the irony is not lost on you that you wanted to get into search because you didn’t have an idea for a business, but just the idea of search gave you an idea for a business that you went out and started and didn’t actually wind up completing your search. Pretty funny. But good for you. It’s awesome that you’ve built this business. So Will, I want to talk to you about the basics. Let’s help our audience here understand if they want to pursue the great returns, the entrepreneurship, the freedom that search and ETA can really provide what they need to do, who’s good for it. We’ll get to that right after this quick break. We’ll be right back Welcome back to the BiggerPockets Podcast. I’m here with Will Smith talking about ETA or entrepreneurship through acquisition. It’s the idea of going out and buying a small business and using it to pursue financial freedom much in the way that you can through real estate investing.
Will, maybe give us some of the basics. What does it actually mean to go out and buy a business and maybe tell us a little bit of the steps that someone needs to take?

Will:
Sure. And let me just say, Dave, because I heard you mention the returns and that is something that draws a lot of people here, especially if they come from sort of an investor first mentality. We speak in multiples in small business land, multiples on earnings as opposed to cap rates like you do in real estate. And the multiples here are at first glance very low, call it three or 4X. So if you buy a business that’s generating $750,000 of earnings, let’s call it, that might sell for 2,250,000. Okay. Well, that’s incredible. That’s a 25% to 33% return on unlevered cash. And let’s not forget we’re using leverage in these. We’re using SBA debt or conventional debt to buy these.

Dave:
Will, can I just explain that to our audience just quickly? So in real estate, if you were to go out and buy a commercial multifamily property, I’m going to use round numbers at a 5% cap rate. That’s essentially meaning you are paying 20 times the net operating income for that business. So for every dollar of income, NOI, you’re paying $20. What the business’s Will is talking about for every dollar of income, you might be paying $4. You might be paying $5. You might be paying $3 actually on some of these deals. So the value that you get for every dollar that you invest in it in terms of cash flow that you can generate is really high. The efficiency that you can generate cash in these businesses is really exceptional. I don’t know any other way to do that, Will, do you?

Will:
No, and it is exceptional. Now caveat, caveat, caveat. Right.

Dave:
It’s hard.

Will:
It’s hard. And unless you really know what you’re doing, I just kind of have a blanket policy that you should expect you, listener, entrepreneur, that you’re going to get in and run this business. This is going to become your job, your career. So unlike real estate where you can start building a portfolio on the side, it’s a lot of work, but it’s passive, semi-passive.
This is the absolute polar opposite of that. This is highly active. And not only is it active 40, 50, 60 hours a week, it’s also really hard. What this looks like is you’re buying a business from probably a retiring boomer of an HVAC business who himself was an HVAC technician, came up through the trade, built a crew around himself, then another crew, then another crew. And by the time he was 70, he had a business doing $4 million a year and $750,000 of earnings. All of his people know him as the leader. He is the business. It’s held together through his willpower and the respect of his technicians because he knows what he’s doing. And then you come 20 and 30 years younger, not ever having turned a wrench and saying, “Hey guys, I’m your new boss and owner of this business.” So the dynamics are interesting and delicate and that’s what we talk about on the podcast on Acquiring Minds is all of these stories and how people do this and pull this off and there’s pitfalls everywhere and risk everywhere.
Now, I feel like I’m being just negative. I always put that out there first because this path can be oversold.

Dave:
No, that’s super helpful. Yeah, because you hear these amazing returns and you’re like- Yes, exactly. And I see this too on the internet, people are like, “Oh, it’s passive.” But you’re saying the opposite. It is not. This is hard and it’s difficult. So then how do you succeed? Who is the right person to go out and buy a business?

Will:
You need to be drawn to this path by much, much more than the returns. You need to want to live the life of a small business owner at least for a few years. Now I’m not saying you have to run the small business that you buy as the owner-operator from now until you retire, but there are a lot of people who try to accelerate through that part too quickly and it’s extremely dangerous. You need to know that you’re signing up to be a small business owner for a number of years and all that entails. And I’m happy to go more into that, but I think I just started to paint a picture. It’s a very particular lifestyle and a very particular path. So first things first, you got to be willing and more than willing, you got to be excited to do that because it’s going to try you.
It’s really hard. But if you’re excited by that or like the prospect of that, then this is a very exciting opportunity because I mean, you got into the business as an acquirer. So you’ve built this skill of business acquisition, which many boomers don’t have because they built the business from scratch. So you have this a whole other skillset of being able to buy businesses so you can start buying others adjacent locally or in adjacent services. There’s going back to that sense of possibility that ETA gave me, there’s a lot of ways you can take this. And by the way, now you’re in a business, you’re in your boring business and if you bought big enough and if you’ve improved it, there could be real cashflow coming off of it from which you can then buy other businesses. And so what this looks like after some number of years and you’re becoming more advanced and more sophisticated is you are less and less in the business, you’re working more on the business, you have more cashflow coming out of it, you have deeper relationships with lenders, local or otherwise.
They’ve seen you as an operator start to trust you. If you can get the business to a certain size, you have that much more debt that becomes available to you and you could really start to build something big. I mean, I’ve had a number of people on the podcast who have built businesses well, well into the eight figures of revenue, $50 million businesses and beyond.

Dave:
Wow.

Will:
So the potential here is really uncapped. So I’ve

Dave:
Been listening to your show a lot and one of the things I’ve learned that’s struck me is that it’s honestly kind of similar to many of the scaling and career paths that people take in real estate. It’s obviously different risk reward profile, different business thing. But what I’ve seen is that some people become cashflow investors, right? They buy a business and they want it to be a lifestyle business where they work on it a lot in the first couple of years, but then over time they can step away from it a little bit and have it be a lifestyle business. That’s what a lot of people do in real estate. That’s kind of the path I’ve tried to follow over the last 15 years as a real estate investor. There are other people who do what we would call something like a BER or value add investing in entrepreneurship through acquisition, whereas you buy something and you improve it.
Maybe you do that through sales, but there’s also ways to do that through systems and efficiency and operations, something similar you do in real estate. There are even people who essentially flip these businesses, right? You go in, you try and implement new management and new skills and grow them and then you sell them to private equity. And so that’s what I think is so cool about it is that there are a lot of different approaches, different strategies to acquiring these businesses and operating them that can align to your lifestyle goals provided that you’re willing to put those years in and that effort into it.

Will:
Yes. There’s all different types of models here. I gave you these outsized examples of people building $50 million revenue businesses, but yeah, you could also buy a business that throws off half a million dollars a year and it pays you half a million dollars a year and you’ve got a general manager. I’m not going to say it’s going to be passive, but you’ve got a guy who’s making the trains run on time as we say and you can have a more semi-passive or less intense relationship to that business and be earning taken home half a million dollars a year. And by the way, this real estate people will of course resonate with this. You’ve got debt on the business and the business is paying down that debt. The SBA loans are 10 year amortization loans. So after 10 years, you’ve bought the business for 10% cash and then after those 10 years you’ve paid down that loan.
So the entire equity value of the business you’ve also been generating over those 10 years and then you have an asset. I don’t like to use that word in business buying land, but people do. Then you’ve got an asset that is worth whatever you paid for it plus inflation plus appreciation plus growth that hopefully you’ve generated over those last 10 years. All the while having made $500,000 a year. That’s

Dave:
Amazing. Yeah. That is

Will:
Amazing.

Dave:
Can you give us some examples of businesses that people buy or maybe some industries that you have seen work on the podcast?

Will:
There are certain categories that are really popular where you see a lot of acquisitions occur. HVAC or home services broadly is one of them that’s been a very popular space, both at the private equity level, but also the individual entrepreneur buying a business level. That’s why I keep coming back to HVAC or plumbing. Landscaping is another one. And you see a lot of those stories because there are a lot of those businesses in every market. There are some dozen of those businesses. And while the trade and the technicians is complicated and you are unlikely to learn how to become a plumber, the business motion itself is relatively easy to understand. You’ve got people that you send into the field to go fix people’s homes and then they come back and you can figure this out. It’s not too specialized. It’s not too complex, not easy, but not overly complex for people to understand.
So that’s one common model. In private equity, there are some typical characteristics that make a business less risky and a good target for acquisition. A key piece of this whole model is buying with leverage, which again, a real estate audience will understand just intuitively. What real estate people might take for granted is that because when you buy real estate, you’re not worried that you aren’t going to have cash coming in. You’re going to rent the place and the cash is going to come in. In business land, when you’re running a business, that’s a far less sure thing. You need to be generating demand all the time and demand can ebb and flow. And HVAC, to keep going back to that, for example, if you have a mild summer and people are using their air conditioning less, all of a sudden you have a lot less demand that summer and that can bring your numbers down.
And when you have a lot of leverage on the business, that can put the squeeze badly on you and it can be really uncomfortable or worse. So because we are putting leverage on these businesses to buy them and because the demand is far less certain than in a real estate context, we get really scientific about what we call the quality of the revenue that the business generates. What is the quality of that revenue? And the more recurring it is, the better. SaaS businesses are the canonical example here, contracted Netflix style business where they have your credit card and they just ding it every month. That’s the highest quality revenue you can get if you can to find something like that. Reoccurring revenue is one step below that. And then there’s a whole spectrum and there’s vocabulary there. But what you’re looking for is the predictability of revenue.
So sometimes it’s less about the exact industry and more about the features of the business. People want recurring revenue, they want business to business revenue. It’s considered justifiably far safer to buy a business that services other businesses than services, fickle consumers. B2C businesses are generally considered weaker, the revenue quality, lesser. And so anyway, this is something that we spend a lot of time talking about on the podcast. I could go on about it. One more feature I’ll just share with your audience and then I’ll stop the essentialness of a service, how essential it is. So if you’re looking at a business to potentially buy and the service that it provides to other businesses, its customers is essential. For example, forklift repair, okay? So your customers need those forklifts to work or their businesses stop moving. That’s a service that they need that they’re going to call you for and that gives you pricing power and other things.
Although of course it depends on what your competition looks like. Maybe there’s a lot of forklift repair businesses around that you have to compete with and you have less pricing power. So it’s very nuanced and complex and this is kind of the fun and the art. It’s both art and science, this, but those are a couple of things to look for, essentialness, B2B versus B2C and the quality of that revenue, how recurring or reoccurring in nature is it.

Dave:
Maybe I could just relate some of these things to our real estate focused audience here. Like recurring revenue you could find in HVAC. Those are like probably why private equity is buying them is because they put you on a service contract or this is probably why every pest control company wants to put you on a service contract instead of just doing a one-time extermination. Or I think I’ve been dealing with this recently, but even when you talk about required mold remediation, right, you got to do it. That’s just something that as a real estate investor, you’re going to come across, especially when you live in Pacific Northwest like I do. It’s a damp place. So that’s required. You don’t have an option. You got to do it. And so those are the businesses that have sort of higher quality of earnings so to speak. Well, you’ve done a great job sort of explaining to everyone pros, cons, trade-offs, what’s this good for?
If someone’s really genuinely interested in this, what are the steps they should take? Obviously you need to educate yourself, but what does the acquisition process actually entail?

Will:
Okay. So there’s a lot of education here. So go out and listen to the podcast and read the books and so on, watch the videos. And then the other big thing I would start doing is looking at BizBuy/SellbizBuysell.com. I love this website. It’s a 25-year-old website and it’s basically all the local businesses that are for sale show up there.

Dave:
It’s Zillow for small businesses.

Will:
Right.

Dave:
But

Will:
Not nearly as polished as Zillow.

Dave:
No, no, no.

Will:
That said, it will give you a sense of what’s possible. It’ll maybe wet your appetite for particular industries, things that you didn’t even occur to you that such a business, that you could be the owner of such a business and it’ll just allow you to start fantasizing. “What if I bought that business? What if I bought this business? Ooh, I would never buy a business like that. “And it just starts to make this a little bit more real in your mind and allow

Dave:
You

Will:
To … So it’s more of a psychological exercise than anything. You’re unlikely to find a business there to buy. That said, I have had plenty of guests who did find their business on business myself. Now, okay, so that’s all your prep, but just to quickly walk you through the steps of what this really looks like to go out buy a business and become its owner, you find a deal you like, you submit the LOI, the letter of intent. It’s non-binding. So a lot of people get hung up here because they feel that they can’t submit that LOI before they have everything dialed in and they’re ready to act on it and so they just never do it. You shouldn’t treat it lightly, but you also, you need to get over this hump. This is where a lot of people just stall out and never get beyond this point.
So you need to get comfortable submitting an LOI on a business. There’s a guy in our space who admonishes people to just send the damn LOI. That’s just more for your own psychological evolution than for anything else.

Dave:
We talk about this all the time, just make an offer. Oh really? Real estate. Yeah. It’s funny. A lot of time people are like, ” Oh, they won’t accept it. Oh, it’s been sitting on the market. “Just make the offer. There’s nothing to lose. I mean, real estate offers can be binding, so just everyone knows that. But do your due diligence and make the offer, you’ll learn a lot from the process, but go on.

Will:
Yes, exactly. You’ll learn a lot from the process. Then you will, let’s say this is actually a deal that looks like it could happen. Then you’ll engage with The broker, probably. And then eventually if you have a couple calls with the broker and it seems like there’s a deal to be had here, they’ll introduce you to the seller, the owner of this business. There will be some getting to know you stuff. You’ll go out and meet them. Maybe you’ll go with your partner and he’ll bring his partner and you’ll go have dinner together and break bread and see if there’s rapport. And there’s a whole process here. This is probably very different than real estate in that the emotional piece of this for sellers is delicate because this is their, in many cases, their identity. They are riding off into the sunset. This is the last thing that they’re going to do.
This is something that they, this is the proverbial, this is their baby. They care about their people. They want to make sure their people are left in good hands. It’s a lot of money. It’s probably their first and last big liquidity event in their lives. So this is a notoriously unpredictable, choppy and slow, multi-month, sometimes longer process. But you’re going back and forth, you’re building rapport, you’re getting to know people, you’re negotiating all the items, which are many. You’re then bringing in all of the service providers, the lenders. Then eventually, if everybody can come to terms, and you’re probably renegotiating that offer, renegotiating the LOI, but eventually you’re finally getting to the table and closing. And that’s probably not unlike a real estate close. Then you show up day one and hopefully you and the owner walk onto the shop floor or whatever it is and the owner introduces you and says glowing things about how you’re going to take this business

Dave:
To

Will:
The next level and he really trusts you with the business with his people and everybody should welcome you and give you the best shot and then you give a speech and you’re off to the races.

Dave:
Awesome. Well, thank you. That’s super helpful. I mean, it’s not totally dissimilar from buying real estate. You’re doing your due diligence, you’re underwriting, you’re getting financing. There is this piece where you got to go learn the specifics of a business in a way that does seem harder than real estate. You go into a rental property, if you’re experienced at this, even if you’re new, you could figure out what needs fixing, what looks like it’s a good shape. You know the people that call to contract stuff. It does seem like there are unknowns in this business and it’s going to take a lot longer to purchase one of these things, but it’s not totally dissimilar from the process. It’s just different timelines, different things that you need to focus on. Yeah. Now, Will, I want to ask you about the population, the demographic and sort of the macroeconomic, what I think are tailwinds that support this industry.
You mentioned a lot of times you’re buying from a boomer. Tell us a little bit more about this and why ETA is becoming popular right now because of some of these demographic realities.

Will:
So the conventional wisdom is that we are experiencing the so- called silver tsunami.
And this is the baby boomer generation retiring. Most, I think it’s fair to say of the small businesses that are the type that one might acquire are owned by people in their 60s and 70s and these businesses don’t have a succession plan. And so they need to transact or they need to go somewhere or they’ll shut down. And so there’s this demographic opportunity for people who are interested in buying these businesses that there’s a large quantity of them that are going to be coming on the market in the next few years. Now I will say that people have been saying that for a long time. People have been saying that for 15 years. I mean, you can find people talking in 2000s about … Oh, really?

Dave:
Oh yeah. Oh yeah. We’ve been hearing how the housing market’s going to crash for the silver tsunami, selling all their homes since 2010.

Will:
Oh, really? Oh, how

Dave:
Funny. Same thing. Yeah.

Will:
Okay. Well, then this audience will be rightly skeptical when they hear that. There’s probably some truth to it, but I think it’s also oversold. And I’ll tell you as well, because of the popularity over the last five years, this surging popularity of entrepreneurship through acquisition, ETA, there’s a lot of us buyers now. So the competition for these businesses is actually quite stiff. You’ll hear people in major metros talk about how hard it is to find a business to buy and that every other person looking to buy a business looked at a deal that came on BizBuy Seller that a broker had. I really caution people to not frankly believe the silver tsunami. There may be some actual demographic truth to it, but don’t be wooed by that to think that, oh, it’s going to be so easy. I can throw a rock and find a great business to buy at 3X.
Not going to happen.

Dave:
It is

Will:
Hard to find a business to buy

Dave:
Hard. Now one last question here before we get out of here, Will, asking for a friend, but really asking for myself. What about investing in someone else who wanted to do this? Does that happen? If I wanted to invest in someone who does love HVAC or does love has a plumbing business, I think a lot of our audience might be interested in dabbling in this without fully committing their time and effort to it. Are there other ways to participate?

Will:
Absolutely. So there are a lot of opportunities here, although not so many that are really formalized. If you were interested in investing in somebody who’s buying an SBA style HVAC acquisition, yes, those types of people are often trying to raise a few hundred thousand dollars and they often raise them in check sizes of 25 to $50,000. So if you wanted to invest $100,000 across four deals, you can do that. Now finding those deals, there’s a community here. And so you would need to embed yourself there. There’s a website called searchfunder.com where you might, which is a forum, you might get on and raise your hand to say that you’re interested investing in deals. There’s a pretty active Twitter community, X community, where you can go on and follow people and join the conversation and raise your hand to say, “I’m interested in investing in deals.” There’s a spreadsheet that floats around the ecosystem that’s a list of people who are interested in investing in this deals.
Sam Rosati, people can look that up in his spreadsheet. You can add your name to that. So as you can see, it’s a little scrappy, but like anywhere, you just kind of got to get into the ecosystem and make yourself known and then people will happily raise money for your deal. I will say that investing in anything, look at a lot of deals before you write that first 25 or $50,000 check. There’s a lot of bad deals out there. So you want

Dave:
To

Will:
Make sure that you’ve developed some sense of what a good deal looks like. And then if you wanted to go bigger than small 25, $50,000 checks, there are funds like actually ours where we invest in much larger deals and doing individuals. They’re called independent sponsors, but they’re more doing traditional private equity style deals, much larger businesses, $4 million, $5 million of earnings. These are bigger businesses. And those folks are raising much larger amounts of capital and we have raised from our own LPs to make investments in those. And so you could become an LP, an investor in a fund like Minds Capital where we give you that access to the lower middle market business acquisition ecosystem, but you’re not making the decisions deal by deal. We’re doing that work for you. And so there’s Minds Capital and things like it as well.

Dave:
Will, thank you so much for being here. This was a lot of fun. I learned a lot. I hope our audience learned a lot about this potentially interesting avenue for pursuing financial freedom, either in addition to or in lieu of real estate investing. Will, you’ve mentioned the show, but where should people connect with you if they want to learn more?

Will:
Well, the name of the podcast again is Acquiring Minds. You can find it on all your podcast feeds on YouTube. We published two interviews a week every Monday and Thursday is a case study, an interview with an entrepreneur who’s gone down this path all manner of stories and size and types of businesses and backgrounds of the entrepreneur who did this. So a great way to just wet your beak if you’re interested in this path is to just tune into acquiring minds and the many, many stories that we’ve already published and will continue to. Acquiringmines.co is the URL and I’m all over the place, findable, anything attached to that.

Dave:
Awesome. Will, thanks so much for joining us and thank you all so much for watching this episode of the BiggerPockets Podcast. We’ll see you next time. I

 

by Michael

The real pain from the closure of the Strait of Hormuz hasn’t even hit us yet. All over the world, countries are running down their strategic energy reserves, and the last tankers that left the Persian Gulf before the war started will be arriving at their destinations this month. After that, things are going to start getting really crazy unless we get some sort of a miracle and the Strait of Hormuz is quickly reopened. The shortages that we have seen so far are nothing compared to what could be coming, and as you will see below, we are being warned that one of the largest food producing nations on the entire planet may soon be forced to ration fuel.

According to the Washington Post, less than 10 ships a day have been traveling through the Strait of Hormuz…

Shipping traffic through the Strait of Hormuz remains constrained a week after the United States and Iran said they would facilitate vessel passage under a two-week ceasefire agreement. Instead, tensions have escalated. After Iran said ships must coordinate with its forces — and, in some cases, pay a toll — President Donald Trump called the demands “extortion” and announced Sunday that the United States would block ships entering or exiting Iranian ports, adding pressure to an already fragile truce.

But even as Washington seeks to squeeze Iran economically, Tehran retains a powerful advantage: geography. Over six weeks of conflict, Iran has halted virtually all traffic in the strait by laying mines, according to its military forces, and exploiting the vulnerability created by its terrain. Even under a U.S. blockade, these factors allow Iran to continue exerting influence over who crosses — and at what risk.

That risk, more than any formal closure, is what is keeping ships away. According to data from Kpler, only nine vessels have crossed the strait daily on average since the ceasefire, compared with the prewar traffic of more than 130 ships. “De facto, the ceasefire has done absolutely nothing to change the situation [in the strait]. None whatsoever,” said Lars Jensen of Vespucci Maritime, a container shipping consultancy based in Copenhagen.

Now that the U.S. Navy is conducting a blockade of Iranian ports, no vessels will be traveling to or from Iran, and the level of traffic through the Strait of Hormuz will go down even more.

Both sides are expecting the other to give in.

Meanwhile, the rest of the world is really suffering.

For example, a lack of fuel has created an unprecedented crisis for the nation of Australia…

In the film Mad Max, an oil shortage leaves Australian society teetering on the brink of total collapse.

In real-life, things aren’t quite that dystopian yet Down Under. But with barely a month of stockpiled diesel left and hundreds of forecourts running dry, the anxiety is palpable.

Australia has one of the highest per-capita rates of diesel consumption in the world but it relies almost entirely on imports to meet that demand. There are two domestic refineries producing petrol but up to 90pc of that is imported, too.

If the conflict in the Middle East is resolved very soon, Australia will come through this okay.

But if the Strait of Hormuz remains closed for an extended period of time, Australia will find itself in all sorts of trouble, because it only has about a month of fuel left before rationing will become necessary…

The country has 38 days’ worth of petrol left in reserve before reaching critical levels, at which point rationing would need to kick in. For diesel, it’s 31 days and for jet fuel, just 28.

For truckers and farmers in particular, the supply crunch feels near-existential.

Without enough diesel, Australia’s trucking industry will come to a standstill.

Even worse, Australia’s farmers won’t be able to plant their crops if they can’t get the fuel that they need.

And that is really bad news for the entire planet, because Australia is the world’s “fifth-largest producer of wheat and second-largest grower of barley”…

In a country that is the fifth-largest producer of wheat and second-largest grower of barley, McIntyre warns that “most farmers will need to decide before Anzac Day [April 25] whether they will plant a crop this year”.

Mathew Munro, the chief executive of the Australian Trucking Association, sounds equally alarmed. He recently described the situation for the country’s 60,000 trucking businesses as “an emergency”.

Yet again, we see another mention of wheat and barley in the news.

As I have discussed in previous articles, wheat production and barley production are both going to be way down all over the globe in 2026 because we are not getting nitrogen fertilizer from the Middle East into the hands of farmers throughout the northern hemisphere that desperately need it.

Nitrogen fertilizer is the primary reason why we were able to grow the population of the globe to 8 billion people.

And without sufficient quantities of nitrogen fertilizer each growing season, there is no possible way that we will be able to continue to feed 8 billion people.

If the Strait of Hormuz is not reopened, 6 to 9 months from now we will be facing a global shortage of food of epic proportions.

The Trump administration is convinced that a naval blockade will be so painful that it will force the Iranians to give in.

According to U.S. Central Command, during the first 24 hours “no ships made it past the U.S. blockade”…

No ships will be arriving at Iranian ports, and no ships will be leaving.

This will cut off the flow of oil revenue to the regime, and it will also cause excruciating shortages of gasoline and diesel because Iran does not possess sufficient refining capacity to produce what they need domestically…

Within 10 to 14 days, Iran won’t be able to store oil and will have permanent long term damage to oil wells for extracting oil. Oil wells perform poorly after you stop the flowing process.

Iran exports oil, but it also imports gasoline and diesel. Iran lacks the ability to refine enough of their own oil into gasoline and diesel. So very soon Iran will be running out of fuel everywhere.

Meanwhile, this naval blockade is deeply upsetting the Chinese.

Most people do not realize this, but normally over half of the energy that China uses travels through the Strait of Hormuz…

More than half of China’s energy comes through the Strait of Hormuz, which normally carries one-fifth of the world’s oil and gas supplies.

“Such actions will only intensify contradictions, exacerbate tensions, undermine the already fragile ceasefire, and further jeopardize the security of navigation through the strait,” Chinese Foreign Ministry spokesperson Guo Jiakun told reporters Tuesday of the U.S. blockade. “This is dangerous and irresponsible behavior.”

For the moment, the Chinese are fine because they were wise enough to stockpile absolutely enormous reserves.

But if we get a few months down the road and the Strait of Hormuz is still closed, the Chinese are going to start to panic.

If push comes to shove, I believe that the Chinese Navy would start escorting tankers to ports in Iran.

At that point, the Trump administration would have a major decision to make.

Let’s hope that it never comes to that.

Let’s hope that the crisis in the Strait of Hormuz is resolved very rapidly.

But at this stage there is no end to this crisis in sight, and that is really bad news for the entire world.

In This Article

Name	Cameron Philgreen
Location	Waco, Texas
Occupation	Full-time real estate investor & coffee shop owner
Assets	25 properties, 35 units
Investment strategy	BRRRR, long-term rentals, flips, commercial
Financing	Private Money Lender

In 2018, Cameron and his wife bought their first property in Lawrence, Kansas, a three-bedroom house they would Airbnb room by room to cover the mortgage. Cameron worked as a wedding photographer. 

Fast-forward to today: Cameron now owns 25 properties totaling 35 units, a specialty coffee shop, and has a 50,000-square-foot commercial redevelopment underway in Waco, Texas. Here’s how he built his sprawling portfolio.

How did you finance your early deals with no outside capital?

The BRRRR method was everything. My target is 70 to 75 cents on the dollar. If I hit that, I could refinance, pull all my cash out, and do it again.

Our first true investment property was bought for $95K. We put in $80K, so the after-repair value (ARV) came in around $200K. We left some money in that one, but five years later, it appraised at $270K, and we were able to pull cash out. After that, I began building relationships with hard money lenders, and capital stopped being a constraint.

How do you consistently find deals to scale?

The cheat code is a Redfin filter. Filter for a price per square foot under $100 and days on market over 45. It emails you automatically whenever something fits. Sellers sitting that long are motivated. 

I still have to make about 10 offers to land one, but between that filter, wholesalers, and Facebook groups, the deals are out there if you’re willing to make offers.

What’s the mindset that carried you through a decade of building?

Get clear on your “why.” We shared bathrooms with strangers. We gutted a house ourselves for six days a week, three months straight. None of it was comfortable. But real estate doesn’t have to be your passion. 

The whole point is to use it to fund your passions. Ours funded a coffee shop. Ultimately, you should figure out what you’d do if your time were yours, then go buy the property that gets you there.

You can continue following Cameron’s real estate journey on his YouTube channel.

by Michael

The economy has been the number one issue for U.S. voters for several years in a row, and it isn’t because things are good. Consumer confidence is at an all-time low, inflation is starting to accelerate once again, mass layoffs are being conducted all over the nation, and delinquencies and foreclosures are soaring. Nobody can dispute any of the facts that I am about to share with you. We have an enormous economic mess on our hands, and now the crisis in the Middle East threatens to plunge the entire global economic system into chaos in the months ahead. In other words, conditions are not good now and the outlook for the future is not promising at all. The following are 18 shocking facts that prove that the U.S. economy is in far worse shape than most people realize…

#1 Consumer confidence in the United States has fallen to an all-time record low…

Consumer confidence plunged to a record low in April as fears mounted over rising energy prices and the broader impact of the Iran war, according to a University of Michigan survey Friday.

The university’s headline index of consumer sentiment tumbled to 47.6, down 10.7% from the March survey to its lowest on record. Current conditions and expectations indexes also saw double-digit monthly declines.

#2 Student loan delinquencies have exploded to a level that we have never seen before…

Student loan delinquency has climbed to roughly 25 percent of borrowers with payments due during the first year of the current Trump administration, according to new analysis.

Researchers from The Century Foundation and Protect Borrowers said the sharp rise in missed payments, nearly triple the pre-coronavirus pandemic rate, has pushed millions into default risk and lowered credit scores, warning of broader financial fallout for households and colleges facing higher nonpayment rates.

#3 The monthly cost of owning a home has risen to absurd heights…

All in, the median monthly housing payment for an owner — including mortgage principal and interest, taxes, homeowners insurance, and estimated maintenance expenses — has ballooned to more than $2,800, a staggering 72% jump from $1,635 six years earlier.

#4 Foreclosure filings were way up in 2025, and so far in 2026 we are 26 percent above last year’s pace…

A fresh wave of foreclosures is sweeping across the United States, with more than 118,000 homes caught up in the crisis in just the first three months of 2026.

It is a grim omen – with echoes of the run up to the 2008 Great Recession – that financial pressure is mounting for thousands of families.

New Attom data shows 118,727 properties were hit with a foreclosure filing in the first quarter – up 26 percent on the same period last year.

#5 The number of Americans that cannot pay their credit card bills in full each month has reached another record high…

More than 111 million people could not pay off their monthly credit-card bills in full at the end of last year, marking a new record, according to new estimates from consumer advocates. That’s roughly 2 million more people unable to pay in full compared to the end of 2024, they noted.

These card holders now owe banks more than $1 trillion — and most are inching closer to maxing out their credit lines, according to researchers at the Century Foundation, a progressive think tank, and Protect Borrowers, a nonprofit group that advocates for borrowers.

#6 As the cost of living soars, people are pulling money out of their 401(k) plans at a record rate in a desperate attempt to make ends meet…

More Americans are digging into their retirement savings because of financial emergencies.

Last year, a record 6% of workers in 401(k) plans administered by Vanguard Group took a hardship withdrawal. That is up from 4.8% in 2024 and a prepandemic average of about 2%, according to Vanguard.

#7 Food prices continue to escalate, and the price of coffee has more than doubled since 2019…

A 16-item basket of groceries made up of staples like eggs, bread, and meat — no truffle cheese in our cart — rang in nearly 43% higher in March compared to the same month in 2019.

A few key categories are behind the rise: Coffee prices have more than doubled since the pandemic, while beef prices have soared more recently.

#8 For the first time ever, the price of a pound of ground beef is now higher than the federal minimum wage in many parts of the country…

The cost of a pound of ground beef has hit a major threshold. Depending on where you shop, the grocery staple likely costs more than the federal minimum wage.

Money analyzed ground beef prices at seven of the most popular grocery chains across the U.S., finding that 1 pound of the typical 20% fat ground beef costs between $6.49 and $8.96. Organic, grass-fed and leaner varieties tend to cost much more.

On the other hand, the federal minimum wage sits at $7.25 per hour.

#9 The Federal Reserve is telling us that 42.5 percent of recent college graduates were underemployed at the end of 2025…

Historically, college graduates have tended to find jobs faster and experience lower unemployment than workers without a degree. But recent data suggests it’s now harder to find a job that fits your skill set once you graduate.

According to the Federal Reserve of New York, 42.5% of recent college graduates (aged 22 to 27 with a bachelor’s degree or higher) are underemployed as of December 2025 — the highest rate since October 2020. Underemployment refers to working in a role that underutilizes your skills, usually at a lower wage or in a part-time position.

#10 We continue to see retailers close locations all over the nation at a staggering rate. For example, Grocery Outlet has announced that they will be permanently closing 36 stores…

Grocery Outlet – the California-based retailer famous for selling products at steep discounts – says it will close 36 stores nationwide as part of a sweeping restructuring plan designed to improve profitability.

The company revealed the move while reporting its latest financial results, saying it had conducted a ‘strategic, financial and operational analysis’ of its entire store network.

#11 Not to be outdone, Papa John’s has announced that they will be closing approximately 300 restaurants…

Pizza chain Papa John’s said it plans to close hundreds of underperforming restaurants in North America by the end of next year.

“We have identified approximately 300 underperforming restaurants across North America that are not meeting brand expectations or lack a clear path to sustainable financial improvement, as well as locations where we can effectively transfer sales to a nearby restaurant,” Papa John’s Chief Financial Officer Ravi Thanawala said last week during the company’s fourth-quarter earnings call.

#12 One of our “too big to fail” banks has decided that now is the time to cut about 2,500 jobs…

Morgan Stanley is slashing about 3% of its global workforce — roughly 2,500 jobs — across its key divisions, as the Wall Street giant realigns priorities amid a banner year for profits, sources familiar with the matter have told The Post.

The cuts hit the Ted Pick-led lender’s investment banking, trading, and wealth management units, the people close to the situation said.

#13 EBay will be conducting yet another round of layoffs. This time around approximately 800 workers will get the axe…

EBay said Thursday it is cutting about 800 roles, or 6% of its workforce, in the latest round of layoffs at the e-commerce company.

“We are taking steps to reinvest across our business and align our structure with our strategic priorities, which will affect certain roles across our workforce,” an eBay spokesperson said in a statement. “We are grateful for the contributions of the employees impacted and are committed to supporting them with care and respect.”

#14 At one time Wendy’s was doing great, but in 2026 it will be permanently shuttering hundreds of locations…

Fast-food chain Wendy’s will shutter 5% to 6% of its stores nationwide in the first half of 2026 as part of an ongoing downsizing plan.

Interim CEO Ken Cook first told investors in a Nov. 7 quarterly earnings call that the company would be closing a “mid single-digit percentage” of its nearly 6,000 locations nationwide.

#15 Meta, the parent company of Facebook, apparently intends to let nearly 8,000 employees go in the very near future…

Meta is preparing to cut thousands of jobs as early as next month, with deeper layoffs expected later this year, according to a report.

The tech giant intends to slash roughly 10% of its global workforce — or nearly 8,000 employees — in an initial round of cuts on May 20, sources told Reuters.

The company is also planning additional layoffs in the second half of the year, though details including timing and scope remain unclear, the outlet reported.

#16 From coast to coast, thousands of supply chain workers have been told to hit the bricks in recent weeks…

A wave of layoffs across U.S. supply chains — from EV battery plants and auto parts factories to warehouses and rail terminals — has affected nearly 4,000 workers in recent weeks, according to company announcements and WARN filings across multiple states.

Recent WARN filings and company announcements show job cuts across at least a dozen companies in states including California, Georgia, Tennessee, Texas, Ohio, South Carolina, Pennsylvania and Alabama.

The largest layoffs in the recent wave are coming from the automotive and industrial supply chain. SK Battery America said it laid off 958 workers — about 37% of its workforce — at its electric vehicle battery plant in Commerce, Georgia, citing shifting EV demand as automakers reassess production plans.

#17 According to Newsweek, the following list of companies have all announced layoffs during the month of April…

#18 The total unfunded obligations of the U.S. government have now reached a staggering total of 130.12 trillion dollars…

On March 17, 2026, the U.S. Department of the Treasury quietly released the federal government’s fiscal year 2025 financial report. Buried in its tables is a number that should dominate our national conversation – but doesn’t: Total federal obligations now stand at $130.12 trillion.

That figure is not a rounding error or a political talking point. It is derived from the government’s own accounting – combining the reported negative net position (driven largely by bonded debt) with the present value of projected shortfalls in major social insurance programs. Yet public debate continues to revolve almost exclusively around the much smaller figure of Treasury securities outstanding.

There is no way that anyone can spin the facts that I have just shared with you to make them look good.

So if conditions are already this bad, what will things be like six months from now if the Strait of Hormuz is still closed?

We really are in unprecedented territory, and the truth is the economic conditions could easily get a lot worse during the months ahead.

In This Article

In the quest to boost homeownership, a new bill has been floated that could gain enough bipartisan support to take flight: a tax-free homeownership savings account. For potential investors, should the bill pass, it offers a low barrier to entry to begin their investing careers.

Targeting First-Time Homebuyers, but It Helps Newbie Investors Too

Representative Haley Stevens (D-Mich.) has just introduced the Homeownership Savings Act (H.R. 9709), which aims to help first-time homebuyers save for a down payment and closing costs. Eligible buyers could deduct their contributions from taxable income (within set limits) and withdraw them tax-free, as long as they are used for qualified home purchase expenses such as down payments and closing costs, Newsweek reports.

Using the Program to Buy a Small Multifamily Home

Of particular interest to potential real estate investors is the likelihood that the program will extend to small owner-occupied multifamily buildings (two-to-four-family), allowing first-time homebuyers to house hack and have their tenants’ rental income cover the mortgage while they save enough money to buy property No. 2.

Although the act applies only to first-time homebuyers, not second or third properties, it could be an invaluable first step toward starting an investment career and benefiting from rental income, depreciation, and other tax breaks that owning an investment property offers.

“The Homeownership Savings Act addresses a real barrier by allowing first-time buyers to save in a tax-advantaged account specifically earmarked for a down payment, which could meaningfully shorten the savings timeline for moderate-income households who are otherwise competing against rising prices and high rates,” Hannah Jones, senior economic research analyst at Realtor.com, told Newsweek.

How the Bill Would Actually Work

The bill would enable first-time homebuyers to save money in a dedicated account for homebuying expenses only. They would be able to deduct contributions from their taxable income, provided they adhere to the annual limits.

Savings would then be able to grow tax-free, as with other tax-free accounts, such as Roth IRAs or 529 college saving plans. Borrowers can withdraw funds tax-free when they are used specifically for home purchase costs.

What Are the Limits on Saving?

Per the Newsweek article, the lifetime contribution is $40,000 per buyer. The annual tax-deductible contributions vary by filing status: $3,000 for married couples filing jointly and $2,500 for head of household. For single filers, the limit is $2,000. 

The bill also allows employer contributions, potentially shortening the savings timeline for eligible workers. But the limits are still low—more on that later.

Who Qualifies?

Qualification is targeted toward first-time buyers with limited incomes. All funds must be used for first-time home purchases and cannot be repeated for additional homes.

Although the savings limits are low, for potential investors, combining this with an FHA loan, which requires a 3.5% down payment (or a 3% down payment), and then bolstering it with rental income from tenants means there is a low-cost path to buying a first investment property. However, this is only likely to work in very affordable housing markets.

“With home prices up 60% nationwide between 2019 and 2025, it is increasingly difficult for young families to achieve the dream of homeownership,” Stevens’ office said in a press release.

The Affordability Conundrum

While the sentiments behind the plan are valid, the numbers are woefully off. At a savings rate of $2,000-$3,000 a year, potential homebuyers enrolled in the plan will likely never catch up to rising home prices.

Drew Powers, founder of Illinois-based Powers Financial Group, told Newsweek:

“This does nothing to address affordability, which is the real issue in housing. The current median new home price is nearly $400,000. After saving $3,000 per year to a $40,000 cap, a decade has passed, and the saver would have barely a 10% down payment on today’s prices, let alone what home prices will be 10 years later.”

Despite the obvious drawbacks, Newsweek reports that several industry groups, including the Mortgage Bankers Association, the Michigan Bankers Association, and the Community Economic Development Association of Michigan, have voiced their support.

As H.R. 8709 is still in the early stages of the legislative process, Newsweek contends that modifications to savings limits are likely. This could work alongside the White House initiative to allow would-be homebuyers to use their 401(k)s as down payments, thereby increasing the down payment amount.

Down Payment-Saving Strategies

Assuming that a would-be homebuyer requires 3% for a down payment and 2%-5% for closing costs and other fees and wishes to achieve their goal of saving $30,000 in three years, The Wall Street Journal calculates potential buyers would need to save $830/month. Multiple strategies working together will help buyers reach that target faster.

Cut down on housing expenses

If lowering your housing costs seems like an oxymoron, in the current climate, it’s not as outlandish as it sounds, but it might mean some inconvenience.

Living with roommates or moving back in with parents are tried-and-true ways to lower housing costs. Other methods include remote working and living in an affordable country as a digital nomad. That is also a savvy way to jump-start your real estate investing career, should you stay overseas and continue to acquire investment properties, deducting taxes and renovation costs in the process.

Forgo luxuries

Extra Starbucks runs, DoorDash, eating out, travel, and streaming subscriptions all add up. Forgoing luxuries to reach your investment goal will be more than worth it in the long run.

Use side hustles and gifts

A 2026 guide from AmeriSave mentions that strategic side hustles, such as Uber/Lyft driving, dog walking (which can net six figures in some cities), tutoring, and many more, can contribute to sizable additional income. AmeriSave also mentions websites such as Zola and Honeyfund, where friends and family can contribute financially to wedding registries, baby showers, and milestone birthdays.

Final Thoughts

While readers and viewers of BiggerPockets are used to hearing about investors talking blithely about the number of doors they own, it’s always worth remembering that they started somewhere. That’s unless they were handed an investment portfolio by their parents, which usually started with an owner-occupied home they later used as an investment property or a small multifamily home they house-hacked.

Getting to that all-important first home and having it pay for itself is an invaluable first step toward freeing you from a housing obligation that financially strangles most Americans. That’s why incorporating any savings strategy that helps you buy your first small multifamily building is something worth taking seriously.