Young and Profiting (YAP) with Hala Taha
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– Real estate is not that complicated.
90% of the rental properties in the United States
are owned by people with one to 10 properties.
These are just normal people who are doing this.
And the amazing thing about real estate investing
is that–
– Why would you say that real estate investing
is actually entrepreneurship?
– Because even if you buy a relatively simple type
of real estate investment, you gotta do something.
You have to find tenants.
You have to run the books.
You need to be a good property manager,
provide a quality place to live.
To me, that’s running a small business.
– What are some of the tax benefits
that people can get from real estate?
– The most common one is just known as–
(gentle music)
Yap, gang.
I was today years old when I learned
that real estate investing was really just entrepreneurship.
I learned this from Dave Mayer,
the guest of today’s episode.
Dave is a VP of data and analytics at Bigger Pockets,
the host of the popular On the Market podcast
and the author of the new book, Start with Strategy.
Whether you’re a seasoned investor
or wanna start real estate as a side hustle,
Dave is going to give us a masterclass
in real estate investment, economic considerations,
and an overview of deal types
so that you can figure out the investment strategy
that’s right for you.
Let’s jump right into this amazing conversation
with Dave Mayer on real estate.
Dave, welcome to Young and Profiting Podcast.
– Hola, thanks so much for having me.
I’m really excited to be here.
– Yeah, likewise.
I can’t wait to learn everything about real estate.
You’re so knowledgeable about the topic.
And so I wanna start with a big picture question.
I wanna understand why you feel like real estate
is a good option to invest in over other assets
because I’ve heard you say in the past
that you should get as many real estate assets
as you can, as young as you can.
So why do you believe that?
– Real estate is such a unique asset class
and I do believe that acquiring assets,
particularly hard assets like real estate
when you’re young is super beneficial.
I’ll just name a couple of the reasons I like.
First and foremost, I am very entrepreneurship,
as I know you, entrepreneurial, excuse me,
as I know you are and a lot of your audiences.
And I just love the ability
to control the performance of your investments.
It’s not something that you’re able to do
in the stock market or with cryptocurrency or with bonds.
And to me, that makes it both fun
and more profitable.
And then there’s other more sort of technical reasons
where real estate and hard assets
tend to keep pace with inflation.
They appreciate over time.
And if you know a little bit about the market,
you know that supply is really constrained
in the housing market.
And so there are a lot of tailwinds
that I think will help increase the value of real estate
for the foreseeable future.
– And if you were to pay attention to the headlines,
you might think that real estate is really like volatile
and very risky.
Why is it actually a pretty low risk asset to invest in?
– I think a lot of millennials, I am one,
have this sort of housing market trauma
from the great financial crisis
because that was a very significant crash.
But if you look backwards in time,
it’s really the only crash of that magnitude
as far back as we have reliable data.
And so that’s nearly a hundred years.
We’ve never really seen a market crash like that.
And if you look at other times
where housing prices went down like in the early ’90s
or there were some times in the ’80s,
it was basically a flattening
or prices went down by one or 2%.
And usually prices were covered within six quarters,
eight quarters, so it’s really quite quick.
And we can get into why that is.
But if you often, when people ask me that question,
I say just Google the median home price
over time in the United States
and you’ll see that it’s largely just gone up
into the right for the last century.
– That reminds me of stocks.
It’s kind of like stocks just always go up, right?
So you’re saying housing prices just always go up,
so it’s a good long-term investment.
So talk to us about why real estate is a good way
to achieve financial independence.
– Real estate is, in my opinion,
the best way to earn cash flow from an investment.
And for that reason, it’s a great way
and a lot of people use it to replace their income.
It’s not the only reason to invest in real estate.
It’s not the only benefit.
But I think rather stock market,
if you even get great dividend stocks,
you’re talking about 2%, 3% bond yields
or 3% or 4% in terms of cash flow.
Whereas real estate, even when you buy something
on the market, you can get something
at 6%, 8% cash on cash return
in addition to many of the other benefits
like tax advantages and appreciation and loan paydown.
So you get better cash flow.
And the amazing thing about real estate investing
is that for the most part, your biggest expense,
which is your mortgage, will get fixed in place
’cause you lock in that price.
And then your rent, the income that you’re generating
goes up over time.
And so if you buy something that has a 6% or 8% cash
on cash return today, by the time you want to retire,
say that’s 15 or 20 years from now,
that could be a 30 or 40 or 50% cash on cash return,
depending on a lot of decisions you make
with your business over that time.
But that’s why it’s so valuable
as those rents tend to keep pace with inflation
or at least exceed inflation or sometimes exceed inflation.
But your expenses are relatively fixed
and that creates a growing margin over time.
– So for all the newbies out there,
what is cash on cash return?
– So cash on cash return is a simple metric
that we real estate investors love.
And you basically just calculate it
by how much cash flow you generate in a year
and you divide that by the total amount
that you have invested in a property.
So if, for example, you had a rental property
that made 10 grand in a year after all of your expenses
and you invested 100 grand into that property,
you would have a 10% cash on cash return.
And we just basically use this metric
to measure one part of the benefits of real estate,
which is just getting that monthly income
each and every month.
– So I know before you mentioned
that real estate is entrepreneurial.
And that’s something that I never really thought about.
When I think of real estate, I think about investing.
But why would you say that real estate investing
is actually entrepreneurship?
– The term real estate investing is somewhat of a misnomer
because although you are typically taking some
of your own capital and putting it into this business,
you really are operating a business,
even if you buy a relatively simple type
of real estate investment, like a long-term,
you just say you buy a single family home
and rent it out to people.
It’s not a ton of work, but you got to do something.
You have to find tenants, you have to run the books,
you need to be a good property manager,
provide a quality place to live.
And so to me, that’s running a small business
in a way that buying an index fund
or buying cryptocurrency,
which are both worthwhile investments
or worthy of consideration, just aren’t.
That’s kind of set it and forget it.
Where real estate, you need to be paying attention
to your portfolio and decisions and performance,
not every day, but on a weekly or monthly basis.
– And you actually started real estate
sort of as a side hustle.
You did it on the side of your career.
So talk to us about how you first got interested
in real estate and how you got started.
– I graduated college in 2009.
And if you remember that, it was a very bad job market.
And I moved from New York to Denver and was waiting tables.
And I had a lot of free time on my hands.
And so I would ski a lot.
And that’s partially why I moved to Colorado.
And I had a friend who wound up buying
a single family home with his girlfriend at the time.
And they were just killing it.
And honestly, my friend was not super sophisticated.
He wasn’t some great investor.
And I thought if he could do it, I could do it.
And I used the resource that I had at the time,
which was time to find a good deal.
I would drive around Denver and bike around Denver
and just look for properties.
I went and looked at a ton of them.
I sort of taught myself a little bit of financial modeling,
which I had a little bit of a background in.
And the numbers just made so much sense to me
that it felt like I was probably just so naive.
I didn’t really understand the risk
or what I was getting myself into.
But luckily, back then in 2010, which–
their deals were relatively abundant.
And so I was able to find something in my spare time
while I was still working 30 or 40 hours a week.
And that’s a really common way for people
to get into real estate.
And honestly, despite what a lot of social media talks about,
that is the most common way for people to continue
in real estate.
You don’t need to be a full-time investor.
It is very commonly used to augment your income,
either from a W-2 job, from another small business,
or just other investment classes.
And so talk to us about this first deal.
You were 23.
And then you ended up buying, I think,
was a multi-family home.
And you raised money to do this.
You didn’t use your own money.
So talk to us about this deal.
I was– I made decent money as a waiter.
But literally, they paid me in cash.
And all the money I had at the time
was in my bedside dresser.
So I could not qualify for a loan.
And people look back on 2010 sort of nostalgically right now.
And real estate’s saying, oh, my god, there was amazing deals.
And there was.
But getting loans was really difficult in the aftermath
of the financial crisis.
And so I, as a waiter, was not able to qualify for a loan.
So I brought in three partners, two people I knew,
and a family member.
And we each split the down payment on this property
four ways, equally.
And the property was a four unit in Denver
in a great neighborhood.
And people will be jealous of this.
But it was $457,000 for four units in Denver,
which is not possible anymore.
So that was the basic structure.
The problem was I did not have my 25% of the down payment.
And so I wound up taking a secondary loan
from another one of the partners at a 6% interest rate.
So I was basically borrowing twice on this.
And then I self-managed the property.
And normally, in real estate, the property manager
gets 8% to 10% of revenue.
And so I basically took that 8% to 10%
that I earned as the property manager
to pay off my secondary loan.
And did that for seven or eight years
until I built up enough equity and then we sold the property.
So it just goes to show you this really is entrepreneurship.
You’re raising money.
You’re trying to manage stuff.
You have a business model going for it.
So how did your portfolio grow from there?
And how much time did you spend in real estate?
For the first couple of years, I didn’t have money.
So I think for the first four years,
I just operated that one deal.
I was actually– I started a different business,
not in real estate.
And so I was very involved in a startup
that I had created in technology and was really
into that for quite a few years.
And so it sort of went on the side.
And I didn’t have money to pay people to do anything.
So I was still self-managing the property, probably, I don’t know,
20 or 30 hours a month.
So it’s still a significant amount of time.
That’s what I did for a while until 2014.
I bought a similar type of deal, another multi-unit in Denver,
and was continuing to self-manage.
And I lived in that one.
And this is sort of one of the things
I love about real estate is it’s so customizable to any circumstance.
And what I chose to do, because I was looking at a bunch of deals,
is I chose to buy a property on the same block as my first one,
because I was running a startup.
I didn’t have that much time.
And I thought, hey, if I’m going to manage this business,
I want to just be able to walk down the street and mow the lawn
instead of driving all the way across town.
So then for, I guess, two more years,
I was just managing these two properties.
It was seven units it’s time consuming.
Until 2016, the company had started failed.
And I was trying to figure out what I wanted to do.
And I was like, I really kind of like this real estate thing.
It’s fun.
And I was getting a master’s degree in data science.
And so I was just googling real estate data jobs.
And BiggerPockets, I had never heard of it,
was about a mile from where I was living.
And so I went and worked there.
And from that point, my real estate career sort of took off.
It had been a hobby.
And then I got really into it and learned a lot
from all the other podcast hosts and content creators
at BiggerPockets and people who have been around that community.
And so from there, I can talk about it more.
But my portfolio’s gotten much more sophisticated
to span many different asset classes, different markets
across the country.
That’s such an amazing story.
And so when it comes to your real estate endeavors,
did you feel like just getting started with no experience
was the best route for you?
Or do you have any regrets in terms of how you got started?
I think it’s one of those things that is just true of entrepreneurship,
where you just need to jump in and learn from mistakes.
And real estate, although it is capital intensive, which
can be intimidating, it’s a pretty forgiving business.
It’s not like a tech company where you have to have
some super amazing go-to-market strategy
and you need to be unique.
It’s like you’re just renting out a property.
In most markets, people want to rent that property.
And so you can figure that out.
There is a learning curve.
I always refer to it as short and steep.
You need to learn a lot, but it doesn’t take that long.
And so if you can put yourself in a position
to spend a couple dozen hours learning about a property
and then go out and buy something, you’re
going to be fine, the vast majority of the time
are going to be just fine.
And you’ll learn so much in that first deal.
And there will be hard parts.
But once you get the first one, the second one, I would say,
is maybe 20% of the effort.
And from there, it just keeps diminishing
in terms of how difficult it is, even as you get more
sophisticated and take on more difficult projects.
That makes total sense.
It makes total sense to kind of just get your feet wet,
learn as you go.
I feel like people learn so much better that way.
So you actually transitioned your career.
You were really doing real estate.
And then now you’re educating people on real estate.
You’re hosting bigger pockets.
You have books, which will get into your new book
in a little bit.
Talk to us about that transition.
Was that difficult for you as a data guy
to now be like a public figure?
Yeah, it’s so weird.
I never planned for this.
It just was one of these COVID things
where I started writing for the Bigger Pockets
audience about economics, which I’ve always just
been super interested in, and data,
and what was going on in the market.
And it just caught on.
And I was having a lot of fun.
And it was hard because just to be perfectly candid,
I’ve never really felt like I fit in in the real estate
education space.
There’s a lot of people in this industry,
good people who want to scale to hundreds of units
or thousands of units or to start funds and buy multifamily
and build a big business and team.
And that’s never been me.
Real estate, I find super interesting.
And I like doing it.
But I have other professional interests.
And I like my job at Bigger Pockets.
Not just because it’s real estate because I just
like being part of a tech company and a media company.
And that’s fun for me.
And so at first, I was trying to figure out
if I fit in here.
And I think over time, what I’ve found
is that the vast majority of the Bigger Pockets audience
and the people who want to be in real estate
are like me, have another career or have a family
and don’t want to do this full time.
And that’s been really fun and rewarding
to be amongst people who have a similar perspective
about this branch of entrepreneurship
and this part of real estate.
Because it’s so adaptable as I’ve
been saying that I’ve made it work for me
and to support my career.
And I think that’s what most people want to do.
And I’m really glad that the way I think about real estate
and talk about real estate has been resonating with people.
And so even till this day, you only
work 20 to 30 hours a month on your real estate portfolio.
Is that right?
Yeah, I have a rule for myself to only spend 20 hours a month
on my real estate portfolio, which sounds really low.
But I rarely even come close to 20 hours, to be honest.
Wow.
That’s amazing.
I mean, that gives me a lot of confidence.
Like, hey, I could do this.
I could start my Airbnb empire or whatever I’m interested in.
I’ll be honest.
It takes time to get to that level of passivity.
At first, like I said, my first deal when
I was self-managing that, it was taking me probably 10 hours
a week.
And then it was five hours a week on that property
as I got better on it.
Then over time, I’ve just designed my portfolio
to suit my lifestyle.
And I choose deals that are going to be relatively passive.
And that means that I make trade-offs.
I don’t flip houses.
It’s a super profitable, great way to make money.
I don’t do it because I don’t have the time to do that.
There are people who buy rental properties
that do heavy renovations.
I choose not to do that.
That means that I make trade-offs.
And oftentimes, I’m giving up some of my profit
to property managers or general partners who manage
my investments for me.
But that’s my choice.
And I’ve been able to evolve my real estate portfolio
with my lifestyle preferences.
Let’s hold that thought and take a quick break with our sponsors.
So property management is really interesting.
So I have a really big company.
I have money to invest.
I’m about to get some big distributions and stuff.
And so in my head, I’m like, well, I’ll just
get a property manager to help me with these investments
because I don’t have time to be so hands-on.
Is that a bad idea?
Like, should I learn how to do it myself first?
Or what should I look for in a property manager
or management company?
Well, for an average person, I would say all things being equal,
you should at least manage a property for a couple months
and just learn what to look for.
I will say that for you specifically, Hala,
you are an entrepreneur.
I’m sure you interviewed many people.
You understand operations.
You could hire a property manager.
It would not be that hard.
So I think if you have no experience
in sort of managerial positions or entrepreneurship,
get your hands dirty a little bit and learn.
But I think compared to running a large business,
selecting and overseeing a property manager
is really quite easy.
I’ll just say that for most people,
I have great property managers.
But not all property managers are great.
So it’s really worth meeting with a few.
On BiggerPockets, we have tons of free resources
to know what questions to ask.
Go meet them in person.
It’s worth a trip, even if you’re
going to invest outside of your local area.
Those types of things are worthwhile,
but it’s really not that hard.
What are they doing?
Are they taking care of the landscaping, the garbage?
That’s the type of stuff they’re doing?
Yeah, so it depends on the type of property
and the level of service.
I do full service property management.
I don’t want to do anything.
So what they do is they do everything
from identifying tenants and screening them,
getting the lease assigned, get handling the turnover.
So basically, having one tenant move out,
having a new tenant move in, they also
serve as the communication for tenants
when something comes up.
There’s maintenance requests, repair requests,
and they also are responsible for maintaining
the physical structure.
So that’s a full service person, and that’s great.
The one thing that I think is very difficult with property
managers is I always split up the operational part
of the real estate entrepreneurship game business
into property management and then asset management.
The difference to me is property management
is very day-to-day, all the things I just described.
The investor, I believe, their job
is to figure out how to make best use of this asset over time.
So when do you refinance it?
At what point do you sell?
Should you add a new bathroom?
The property managers, they can advise you on that,
but they don’t have a view into your entire portfolio,
into your entire net worth, into your overarching financial plan.
I still recommend to people that they
are active in that asset management part of their portfolio,
whether or not they hire a property manager.
What do you think about as an investor?
So for example, I have some friends,
and maybe I want to give somebody a portion of the deal
for property management.
Is that something that happens?
Yeah, I mean, that’s basically what I did when I was–
its mind was more complicated, but totally.
That’s a great way to–
for both parties, this is another thing–
sorry, I love real estate.
So it’s like another thing I love about it.
I love it too.
Is that this is a perfect scenario for both people.
You’re in a position where you have capital to invest,
but you don’t have time.
And so you can hire someone.
You can basically trade your capital for someone else’s time.
And there are so many people who want to get into real estate,
who don’t have capital, but have time to manage a business.
And so that’s why partnerships are extremely
common in real estate.
Even the most experienced real estate investors I know,
I would say partner on the majority of their deals.
It’s why it’s such a networking relationship business.
It’s why I think it’s fun, because you make a lot of friends
and you build a great community around it as well.
But that is an extremely common way to do it for you.
And you’re also giving someone else another opportunity
to sort of cut their teeth in the industry
and to learn the property management part, which
does take some practice, but is business most people can learn.
So let me ask you this, like real life scenario.
I want to buy a place in Miami.
I’ve got a friend in Miami who’s got a lot of time
and who has done Airbnb hosting before.
So she’s got some experience.
She doesn’t have money to invest in a place.
I’ve got money to invest in a place.
How would you structure that deal?
Would it be me just paying her?
Or would you give equity?
Like, what are the ways that we could structure that?
It depends on what you want to do.
So the most common investor property manager relationship
is about 10% of revenue goes to the property manager.
That’s kind of a standard rate.
Of the cash flow from the rent?
The cash flow.
So you could do that.
But if you wanted to do it in terms of equity,
I would sort of try and approximate
what that value would be each and every month
and sort of have the equity essentially vest over time.
So let’s just use easy numbers.
Let’s say it would be 10 grand in property management fees.
And perhaps she can earn a certain amount of equity
up to a certain point because obviously you
don’t want to have it eat into your equity over the time.
A rev share on the cash flow sounds like just a great easy
plan where everyone’s happy.
I love that.
That’s a great thing to do.
And depending on what your friend wants to do,
it’s a scalable business.
For people who are property managers,
it could be a really good business.
And speaking as an investor, we need more great property
managers.
So people are looking for a business
to start both in long-term rentals and short-term rentals.
It can be a really profitable business.
Yeah.
So you’ve got this new book, Start with Strategy.
Why did you put this book out?
Who is it for?
I wrote this book because I get a lot of the same questions
about real estate, things like that
are make the decisions about real estate investing
in your portfolio seem somewhat objective.
Where the reality is that real estate decisions are entirely
subjective.
What’s right for one investor is going
to be totally different from what’s
right for another investor.
And I wanted to create a framework
to help people think through all of those many questions,
like some of the questions you’ve asked me today,
Hala, like how much time should I put into this?
Should I– another common one I get
is should I flip houses or should I buy long-term rentals?
Should I get into multifamily?
Should I be passive?
Should I be active?
All great questions.
And without a framework, I think for people,
it can be overwhelming, the amount of decisions
that you need to make.
When in reality, it’s like 10 decisions.
I tried to create a framework that
explains each of those decision points
and help people essentially create a business plan
for real estate investing.
And it starts like a lot of business plans with a vision,
what you want to accomplish, then goes into the right types
of real estate deals that you can match to your vision
and then goes into explaining the optimization
of your portfolio over time.
I loved reading this book.
I can’t wait to pick your brain, especially
on these deal types.
But before we get into that, I want
to talk about the economics and the economic factors related
to buying a house.
So whenever I want to buy a property,
I’ve been toying with buying a property for years now.
I always get advice from people that are like, don’t buy.
Market’s about to crash.
Don’t buy.
Interest rates are too high.
Don’t buy here, buy there.
I always get told, don’t buy, don’t buy.
It’s not the time to buy.
And it’s frustrating to me.
How many years have they been asked telling you not to buy?
Like five years, at least.
Yeah, you should have bought.
I know.
So talk to us about are there actually
economic considerations to make or indicators
that we should be looking at?
Or is it just always the right time to buy?
I’m biased.
I don’t think I could say that it’s always
the right time to buy.
But I do think the old adage is true,
that time in the market is more important than timing
the market.
It’s extremely difficult to time the market.
And my advice to people is think about your time horizon.
If you are trying to make an investment for a year or two
or even three, real estate’s probably not right for you.
It’s a long-term game.
But if you give real estate time,
it is extremely low risk relative to other asset classes.
And I want to be clear, real estate is not risk-free.
There is no such thing as a risk-free investment.
But when you think, and again, going back to your early question,
like there’s just not a lot of volatility.
And so if you own property for five, six, seven years,
the chance of losing money on it is extremely low.
I think that’s a major variable.
There are markets right now that are experiencing what I would
say is like a correction, like a 1% or 2% decline in prices.
As an experienced investor, I view that as an opportunity,
not as a risk, because it means you can buy assets for lower
than what they will be in the future.
But I understand that people who are new to this,
that seems a little bit daunting.
But again, I would first advise people
to think about the ways that you generate income from real estate
because the value of the home is not the only.
And it’s not even necessarily the main way you make money.
So you get cash flow, which is one of them.
You do get the appreciation from property value going up.
But there’s two different types of appreciation.
One is what the market does.
The other is we call it forcing appreciation
by renovating or improving the value of the property.
When you take out a loan, you pay that back with your tenants’
income over time.
And so that provides you a really nice floor
for your investment that usually outpaces inflation
all by itself.
And then you have wonderful tax advantages
as a real estate investor.
And so when you combine all those things,
even when the housing market is flat,
you usually do at least as well as an index fund, if not better.
That’s sort of how I help people understand it.
Of course, if you are worried that there’s
going to be a market crash, I understand
why you wouldn’t want to buy.
I have not bought–
I study economics.
And for the last– in this cycle,
I have not seen a point where it looks like the market is
going to crash.
And I still think that.
Of course, there are a lot of opportunities
for black swan events, things that you can’t see.
But if you look at your real estate market and data
right now, and I’m happy to explain this more,
it just doesn’t look like prices are
going to decline significantly on a national level.
And even in the markets where they do decline a little bit,
it will probably be pretty modest.
So you were just mentioning these tax benefits.
What are some of the tax benefits
that people can get from real estate?
The most common one is just known as depreciation,
which is basically the value of your property goes down
in the eyes of the government every year
because it wear and tear, basically.
And you can use that as a tax deduction in year.
It’s this whole silly formula.
It’s basically you take the value of your property,
you divide it by the useful life, which is 27 and 1/2 years,
and you can offset your income by that amount.
And so what winds up happening for a lot of real estate
investors is all of the cash flow
that you generate in a given year is tax-free.
I think true every single year for me
is that you get this cash flow and you don’t pay taxes on it.
So that’s really beneficial.
What about when you’re renovating or paying
for a property manager is all of that kind of stuff
expensed because it’s a business expense?
Yeah, so all of that is expensed.
And what I’m saying is the cash flow, your profit,
after all of your expenses is also typically tax-free.
Now, you do have to, quote unquote, recapture that money
when you go and sell the property,
but it is really beneficial if you are using real estate
to live off of or you just want to generate some capital
to reinvest elsewhere.
Some of the other benefits– and there
are a lot of real estate tax benefits,
but some of the more popular ones are something
called a 1031 exchange, which is basically
if you own a property and you want to sell it
and reinvest it in a like property.
So basically, say you buy a duplex,
you want to sell it and buy a new duplex.
If you meet these criteria is basically
buying within a certain amount of time,
the gains on your first property are deferred.
And so this is super beneficial and very different
from other asset classes.
If you, for example, wanted to sell stocks
and then reinvest it into the housing market,
you would pay capital gains on the stock
and then reinvest it.
In real estate, you can make that trade
without paying taxes, which allows
you to keep more principal in your portfolio
that generates more income.
I’ll just mention another one for people
who are looking to just buy their primary residence.
If you live in a property for two out of the last five years
when you sell that property, those gains are also tax-free.
And then the most popular one, which is mortgage interest,
is tax deductible.
So there’s a ton of different ways
that real estate is advantaged in the tax code.
All perfectly legal, encouraged by the government.
And so it’s just one of those additional benefits.
Wow, it makes me feel really stupid for not investing
in real estate yet.
It can be really–
especially, I think, for a lot of high-net-worth individuals,
as you sort of grow your wealth,
real estate becomes not just an investment vehicle for growth,
which it is, but it’s also just a very tax-efficient asset
class and a good way to balance your overall portfolio.
So you mentioned that your first property was in Denver,
and you doubled the amount.
You sold it for double what you paid for.
What other hot cities should we be looking at in America
right now?
So a lot of this comes down to what your strategy is.
If you’re looking for appreciation and building equity
and the value of your property going up,
it will be different than if you’re targeting cash flow.
This is a big debate in the real estate investing world.
But I would say that trying to find properties that appreciate
is a little bit riskier, because no one knows.
This is macroeconomic conditions that you don’t really control,
but it is a really powerful way to build wealth.
And so these are markets where, in short, you’re just
looking for markets where demand outpaces supply.
And so these are places–
Miami has been a really hot one over the last few years,
and generally, the Southeast has been very, very popular.
So places like Texas, Tennessee, North Carolina,
even parts of Alabama, South Carolina, Virginia–
those have been really popular over the last few years.
In 2024, it’s actually slowed down in the Southeast.
And we’re seeing a very unusual pattern where, actually,
the Midwest and the Northeast are
seeing the hottest appreciation.
And I think that offers a real unique opportunity,
because the Midwest, in particular,
is where you find good cash flow.
And so this is a great time, in my opinion,
to buy in the Midwest, because there’s
this great opportunity to get cash flow,
to make money every month, but also
see the value of your property go up,
in addition to those other benefits.
And so I think the Midwest is quite popular right now.
So when it comes to investing in real estate,
I feel like it’s a little bit more overwhelming.
So for example, I’ve been investing in stocks
since I was 20 years old.
And I’ll not even bat an eyelash, transfer $20,000, $50,000
to my account, and not care.
But then when it comes to real estate,
it feels like overwhelming.
It feels like there’s so much to learn.
So for other people out there that are feeling like I am,
where should they start learning?
What’s the best place to start?
So of course, at Bigger Pockets is basically what we do.
Our whole goal is to help people learn how
to invest in real estate.
And a lot of our–
almost all of our education is entirely free.
So if you want to learn just the basics,
I highly recommend you do that.
And I’ll take the opportunity to pitch my book,
because I basically wrote it to help people understand
where they fit in the real estate investing ecosystem.
Because there are so many different options out there.
And picking short-term rentals, multi-families,
self-storage units, there’s all these different things.
But once you identify what you’re going for,
and why you’re investing in real estate,
you can really narrow it down to a couple.
So I’d recommend reading a couple books.
We have many on Bigger Pockets.
And then listening to our podcast,
we have two that I would recommend.
One is the Bigger Pockets Real Estate Podcast, which I host.
We talk about relatable stories to help people identify, learn.
Also one called Real Estate Rookie,
which is specifically for new people
to help them get up and running.
And I know in real estate,
it’s sort of become like a pretty spammy place
and scammy place.
And I just feel like there’s a lot of get-rich-quick schemes
and a lot of conferences that seem really shady.
And I just want to get your opinion on that.
Should people engage in that type of stuff
or run away from it?
– Run away from it.
I’ll just be honest.
Real estate is not that complicated.
And I think a lot of people who want to profit off new investors
try to make it seem really complicated
so that they can sell you some course
or some system or some strategy.
This is not rocket science.
This is a business that tens of thousands,
literally millions of people have done before you
and it’s normal mom and pop investors.
90% of the rental properties in the United States
are owned by people with one to 10 properties.
So these are just normal people who are doing this
every single day.
And honestly, I’m not special if I could do this.
Anyone can do it.
And I really encourage people to just try and learn for free.
We do this all in bigger pockets.
The other thing I highly recommend
is in almost every big city in the US,
there’s something called RIAs,
the Real Estate Investing Groups.
And they have meetups.
They’re just like at a bar or at a coffee shop
once or twice a month.
Go and just talk to local investors.
It’s totally free and you will find the answers
that you need for free rather than paying someone.
Honestly, it’s exorbitant amount of money.
Sometimes like a cheap course could be five grand,
some of them are 20 grand.
And I’ve never really met someone who said it’s worth it.
We’ll be right back after a quick break from our sponsors.
So let’s talk about these deal types.
You’ve alluded to them throughout the whole interview.
I thought we could do a fun, quick, fire style segment
where I’ll read a deal type out to you
and then you tell me the pros and the cons,
the time commitment, the considerations for each deal type.
Does that sound good?
Let’s do it.
Okay, rental properties.
Rental properties, bread and butter.
It’s like an index fund for real estate investing.
It’s very low risk but has a good upside to it.
The amount of time required is not a lot
and I think it’s accessible to almost any type of investor.
Short-term rental.
Short-term rentals are sort of like a growth stock.
They’re kind of a little bit exciting
and they have better cash flow potential
than long-term rentals.
But they can be a little bit risky in today’s market.
There’s a lot of supply of short-term rentals right now
and so you have to be really good at operating your business
and standing out from the crowd.
But if you’re good at it, it’s more lucrative
than long-term rentals and honestly, I only own one
but I kind of think it’s fun to own short-term rentals
and sort of be in the hospitality business.
But I will say one other thing I’ll say
is it’s a little bit more capital intensive
because I learned this the hard way.
Furnishing them can be very expensive
so you need to make sure that you have a proper amount
of money set aside to make the place really nice
and stand out because again,
there’s so many competitors right now
that if you just do the Facebook marketplace kind of thing
where you’re just getting cheap furniture,
it’s probably not gonna work.
That’s so interesting.
So long-term rentals, you don’t have to worry
about furniture, people just renting them out
for like a year at a time.
Short-term rentals is like your Airbnb, your Verbo.
Is that subletting too or no, that’s different?
I don’t recommend people do that.
It’s kind of legally questionable in a lot of places
and can be, some places it’s perfectly legal,
but I don’t think that’s investing in my mind.
I think it’s like an arbitrage game.
Yeah, it’s kind of like a job
and there’s nothing wrong with that if that’s what you want.
But if you wanna like build a business,
I think you need to actually put some capital in.
– Okay, fix and flip.
– Fix and flip is a great way to make money
but it’s basically a job.
I think people need to think
about how much time they want to commit to it
because it can be 20 hours a week,
it can be 30 hours a week.
It’s a steep learning curve.
Renovating properties can be very difficult.
You don’t really know what you’re going to get
with any particular property.
Working with contractors is much harder
than working with property managers.
I said earlier that if you have
some basic managerial experience,
you can manage a property manager.
Working with contractors kind of its own business,
its own game.
And so I sort of recommend
to people sort of progressing to that.
Maybe buy a rental property
and do a small renovation and learn that way
and sort of build up to doing an entire house flip.
I just signed up to do my first one ever.
I’m 15 years into it and I’m not managing it.
I’m just investing in it.
But if you really love real estate
and like you find it fun like I and a lot of people do,
it could be a great avenue to building active income
in addition to sort of building long-term rentals
to sort of set you up over the long term.
– That also sounds like a great like partnership idea, right?
One person being the investor,
one person being the designer,
somebody who has contract or experience
or something like that.
– Yeah, so I’ll just tell you,
I basically, with this deal,
my friend, a partner, found the deal.
He’s got a construction company, a designer.
He’s also an agent.
So he can do all of it.
I put in 100% of the capital
and we’re gonna split the profit 50/50.
So basically, I’m taking the risk,
but he’s doing all the work
and hopefully it’s gonna work out
and we’ll both make some good money off of it.
– It’s a business, it’s entrepreneurship like he said.
– Exactly.
And trying can be structured however you want.
– Commercial real estate.
– I’m a big fan of commercial real estate
because it’s a lot more dollars and cents
for someone like me who’s very analytical.
It’s a more efficient market.
And what I mean by that is real estate,
80% roughly of residential properties that get sold
are bought by home buyers.
There’s nothing wrong with this,
but they buy largely based off emotion.
And so as an investor,
you’re kind of contending with these less known quantities.
And it’s a little bit confusing sometimes.
Commercial real estate is just dollars and cents.
And it’s a little, you know,
it’s more sophisticated players.
And I think that that can be great.
I will say, just so everyone knows,
commercial real estate’s in a bit of a,
you know, when I said the market’s not crashing,
I was talking about residential.
Commercial real estate has crashed.
Like it’s not as in the media,
but prices are down 10, 15, 20% over the last couple of years.
I don’t know if it’s bottomed yet,
but I feel like we’re kind of getting close.
And so I actually think there’s going to be great
buying opportunities,
but commercial real estate is like I said,
it’s more sophisticated.
The loans are more complicated.
Do not just jump into that without really educating yourself.
Highly recommend finding a partner if you want to do that
or starting super small with like six unit or an eight unit.
Do not just like jump to 20 units, 30 units.
That’s where I actually see people take on too much risk
and potentially fail in real estate
is trying to get really big really quickly.
– Yeah. And it makes sense because right now
everybody’s working from home
and everyone’s buying stuff online.
So the need for commercial real estate
is becoming less and less.
So is that another reason why it’s so risky?
– Commercial real estate,
I think there’s actually like something
like 16 different subcategories
and it depends what office real estate is getting hammered.
And it’s even a lot of cities you’re seeing it down 50%.
So there’s massive crash in terms of valuation.
Retail is doing great.
So it’s like kind of depends where you are
and the market you’re in,
which is why another reason it sort of just makes it
more challenging is that there’s a lot of nuances
to understand with single family homes.
It’s kind of easy to understand like,
Hey, this is a growing city, properties are going to go up.
Whereas there’s a lot of nuance
to the macroeconomic conditions
that influence commercial real estate.
So it’s a little more challenging.
– Okay, last one, development lending.
And what is this?
Cause I feel like this is one that I never heard of.
– So there are actually two.
So development is building stuff ground up.
I actually think it’s great.
It’s super risky, but it’s how you make a ton of money,
especially if you can find great land.
I’ve bought a few properties where I hope to tear it down.
And, you know, these are literally 100 year old houses
that are in fine shape,
but like one day I’m hoping to redevelop
and you can make great money there.
I want to talk about lending
cause I actually think it’s a great business.
So we talk about real estate and entrepreneurship
as buying properties,
but there’s a whole other side of real estate,
which is creating mortgages and hard money loans,
which is rent bridge loans,
which are loans to either fix and flippers or developers
that are at pretty high interest rates, you know, 10, 12, 15%.
And so if you learn the business
and you want to generate cash flow,
it is quite easy to not easy,
but it is very common to generate 10, 12% cash on cash return
for doing almost no work.
It’s extremely passive.
And so if you can imagine,
this is common for people sort of later
in their investing career.
So if you have a high net worth
and say you want to invest $500,000,
you’re getting a 12% return.
That’s 60 grand a year in passive income
for doing very little.
I don’t know another industry where you can do that
with as low risk.
I’m saying low risk,
presuming that you learn how to do it properly.
But if you do lending properly,
it is relatively low risk.
– So in terms of lending,
is that basically real estate investors
are like pitching you to lend them money?
Or are you saying to like open up like a mortgage firm?
Like, sorry, this is a dumb question.
– That’s a great question.
There’s different ways to do it.
So the easiest, the least intensive way
is something called buying notes.
So people issue mortgages
and you can actually just buy those mortgages
from other people.
Those are just traded.
So that’s an easy way to do it.
I think the most profitable
and most common way that people like myself get into it
is something called hard money lending,
which is a lot of house flippers.
They’ll buy a property,
but they don’t have the money for the rehab
or they may even have money for the acquisition.
And they are willing to usually pay 10 or 12 or 15%.
‘Cause their whole business is to renovate that thing
as quickly as possible and then sell it off.
And so unlike a mortgage,
no one in their right mind at this day and age
would pay 12 to 15% on a 30-year mortgage.
But if you’re holding it for six months,
you’re willing to pay that interest.
And so people like myself will lend money to those people.
And the interesting thing about it
is it’s a collateralized loan.
And so if the borrower defaults, you get the house.
And usually they put 20% down.
And so even if they default,
you’re getting the property at 20% off.
You keep the equity and you get the house.
That happens very, very rarely if you do it well,
but it does limit your risk
because it is backed by a hard asset.
That is a common way people do it.
Or you could really get sophisticated and like set up,
but you know, bank essentially.
But I think most people do it sort of in that middle tier
that I was describing.
– And the reason is because banks wouldn’t give a loan
to somebody to do that.
– That’s right.
And so banks, like the way banks issue mortgages is
for them, they wanna do what’s commonly called
a conforming loan, which is basically they want it
as cookie cutter as possible
because the government has set these rules
that if you meet these XYZ criteria,
you can sell the loan to Fannie Mae or Freddie Mac
and offload that on your books, right?
‘Cause banks, they wanna give out money
and then they wanna take their origination fees,
collect a little bit of interest and then sell it
and then make another loan.
And so that’s sort of their business.
And to fit in that box of conforming loans,
they can’t be fixing up properties.
They have to be in pretty good condition
and relatively low risk for the government.
And so these types of fix and flip properties
that need a new roof, that need a gut rehab,
that need a new foundation.
Banks, unless they’re a specialized bank,
are not gonna do that.
Like you can’t go to Chase or to Wells Fargo
and get that loan.
And so they usually go to private money.
The other reason they do it is for speed
because a lot of times when you’re a fix and flip,
you’re dealing with off market properties
for sale by owner and you don’t have time
to spend 30 to 60 days closing a loan.
And usually a hard money lender
will be able to deliver you cash in two weeks.
And so it’s just a little bit more efficient.
– Wow, this was like seriously a masterclass on real estate.
My last question to you is these new trends like Fundrise
where you can basically invest online
in a really passive way.
What are your thoughts about that?
Is that a good way to get started?
Or how do you feel about it?
– I haven’t invested in Fundrise myself
but I was actually looking at it like three days ago.
No joke.
‘Cause I know their CEO, Ben Miller is a great guy.
Super smart.
So I would trust him pretty well.
Do your due diligence.
That’s just my read on it.
I think it’s a great idea because you can buy REITs
which are just publicly traded real estate investment trusts
which are great and they can be really efficient
but private real estate, the money is a lot better.
And so what people in the industry do
is they invest in funds and syndications.
These are basically ways of pooling your money together
to buy large commercial assets.
But you have to be an accredited investor to do that.
And it’s kind of an insider’s game.
Like there’s no public place
where you can go look up these people.
You kind of just have to know people.
What Fundrise and their competitors are doing
is trying to give you that benefit
without being accredited
and without being an industry insider.
So I don’t want to endorse any specific one
because I don’t know their investment criteria.
I will say everything I’ve heard about Fundrise
is extremely positive.
I think the concept is a really good idea
and will bring just people who are new to real estate
access to a type of asset within real estate
that was previously not available.
Yeah, so basically like the law changed
because of these apps
where now anybody can invest in this one before
it was only a certain type of investor that could.
And they’re typically really like lucrative deals, right?
Yeah, so you can basically get access
to all sorts of stuff.
I know Fundrise does built to rent,
which is a really interesting asset.
Multifamily, they do lending funds.
So if you’re interested in the type of lending
I was just talking about and don’t know how to do it,
you can invest with them.
They do the due diligence for you.
You’re not going to make 12%.
I’m sure they charge a fee for that,
but you still get a really good return
on that sort of thing.
So I think it’s great that they’re doing that
because otherwise it’s almost, it takes years.
Like it took me probably 10 years into investing
to like get into that world.
And I think that’s probably a pretty common timeline.
So if you’re interested in that
and don’t have the industry knowledge,
it’s a great way to think about
or it’s something to think about.
Well, I love that.
And before we go, I asked two questions to all my guests.
Now you can answer these however you’d like.
It doesn’t have to be about today’s topic.
You can let it come from the heart.
You’re speaking to entrepreneurs out there.
So what is one actionable thing
our young and profitors can do today
to become more profitable tomorrow?
– My biggest advice to people is to just understand
why you want to get into entrepreneurship
and to think really hard about the things that motivate you.
When I first started in entrepreneurship,
I just kind of wanted the vague notion of success.
And it led me astray and that business ultimately failed.
And I think with real estate, I’ve been successful
because I figured out the exact sort of lifestyle
that I wanted, the exact amount and type of money
that I wanted to make, the kind of leader I wanted to be.
And that made becoming successful
actually quite easy when you actually have specific goals
that you’re shooting for,
not just some like vague notion of growth.
– Really, really good.
And what would you say your secret
to profiting in life is?
– I honestly, I think that it’s hard to,
people in entrepreneurship,
it’s really easy to buy into your own business
and your own ideas.
And just recognizing that things can go wrong
and they will go wrong and to be prepared for that.
And when you prepare, I find that, you know,
if you prepare for those things
and you’re humble about your own skill set
and your own business,
that you wind up avoiding a lot of the pitfalls
because you’re thinking about them well ahead of time.
– That’s really smart.
Dave, thank you so much for everything
that you shared today.
I feel like we got such great learnings,
knowledge bombs from you on real estate.
Where can everybody learn more about you
and everything that you do?
– Yeah, come find me at BiggerPockets on the website
and on the podcast where you can find me on Instagram
where I’m at the data deli.
– Awesome.
And I’ll stick your links in the show notes.
Thank you so much for coming on YAP.
– Thank you, Holly, I appreciate it.
– Well, there you have it,
another epic episode in the books.
And I learned so much from Dave Mayer
about investing in real estate.
And although they call it investing,
like Dave said,
it actually has more in common with entrepreneurship.
You’re really operating a business
when it comes to real estate.
And you can’t just buy a property and forget about it
if you want to maximize your return.
And as investments go,
real estate is a pretty unique asset class.
It almost always appreciates over time.
Plus you can earn easy cash flow from your investment.
Rents tend to keep pace with inflation.
And then you can use some of that cash flow
to invest in more properties and grow your portfolio.
It’s really not a bad deal.
And how many investment vehicles give you
that kind of tax break that real estate does.
Still, the one thing to keep in mind
is that you’ve got to play on a long-term horizon.
It’s really hard to time the market in real estate,
but at the same time,
there’s really not that much volatility.
So over time, you should see a decent return.
And speaking of markets, when it comes to location,
Dave says you should look for markets
where demand consistently outpaces supply.
Recently, that included the Sun Belt States,
like Texas, Tennessee, and North Carolina.
And Dave thinks there’s gonna be some great opportunities
in the Midwest soon as well.
Finally, just like entrepreneurship,
when it comes to real estate investing,
you really just have to jump in and get started.
Don’t wait on the sidelines for too long like I did.
I had money to buy a place years ago,
and I wish I did.
And it’s just like starting a business.
You need to be willing to work at real estate,
take some risks, make some mistakes, learn as you go,
but it’s not rocket science,
and it’s a pretty forgiving business like Dave said.
You don’t have to come up with a unique offering
or a brilliant come-to-market strategy,
just learn the ropes and do the work step by step.
All right, guys, I’ll catch you next time.
Thanks so much for tuning in
to this episode of Young and Profiting Podcast.
If you enjoyed this conversation with Dave Mayer,
then spread the word.
Help us spread this podcast by word of mouth
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all of my interviews are on video uploaded to YouTube.
Just look up Young and Profiting, you can’t miss us.
You can also find me on Instagram @yappwithhalla
or LinkedIn by searching my name, it’s Hala Taha.
And of course, I’ve gotta thank my YAP team.
You guys are all living legends.
Thank you for all your effort on the show.
This is your host, Hala Taha,
aka the podcast princess, signing off.
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– Real estate is not that complicated.
90% of the rental properties in the United States
are owned by people with one to 10 properties.
These are just normal people who are doing this.
And the amazing thing about real estate investing
is that–
– Why would you say that real estate investing
is actually entrepreneurship?
– Because even if you buy a relatively simple type
of real estate investment, you gotta do something.
You have to find tenants.
You have to run the books.
You need to be a good property manager,
provide a quality place to live.
To me, that’s running a small business.
– What are some of the tax benefits
that people can get from real estate?
– The most common one is just known as–
(gentle music)
Yap, gang.
I was today years old when I learned
that real estate investing was really just entrepreneurship.
I learned this from Dave Mayer,
the guest of today’s episode.
Dave is a VP of data and analytics at Bigger Pockets,
the host of the popular On the Market podcast
and the author of the new book, Start with Strategy.
Whether you’re a seasoned investor
or wanna start real estate as a side hustle,
Dave is going to give us a masterclass
in real estate investment, economic considerations,
and an overview of deal types
so that you can figure out the investment strategy
that’s right for you.
Let’s jump right into this amazing conversation
with Dave Mayer on real estate.
Dave, welcome to Young and Profiting Podcast.
– Hola, thanks so much for having me.
I’m really excited to be here.
– Yeah, likewise.
I can’t wait to learn everything about real estate.
You’re so knowledgeable about the topic.
And so I wanna start with a big picture question.
I wanna understand why you feel like real estate
is a good option to invest in over other assets
because I’ve heard you say in the past
that you should get as many real estate assets
as you can, as young as you can.
So why do you believe that?
– Real estate is such a unique asset class
and I do believe that acquiring assets,
particularly hard assets like real estate
when you’re young is super beneficial.
I’ll just name a couple of the reasons I like.
First and foremost, I am very entrepreneurship,
as I know you, entrepreneurial, excuse me,
as I know you are and a lot of your audiences.
And I just love the ability
to control the performance of your investments.
It’s not something that you’re able to do
in the stock market or with cryptocurrency or with bonds.
And to me, that makes it both fun
and more profitable.
And then there’s other more sort of technical reasons
where real estate and hard assets
tend to keep pace with inflation.
They appreciate over time.
And if you know a little bit about the market,
you know that supply is really constrained
in the housing market.
And so there are a lot of tailwinds
that I think will help increase the value of real estate
for the foreseeable future.
– And if you were to pay attention to the headlines,
you might think that real estate is really like volatile
and very risky.
Why is it actually a pretty low risk asset to invest in?
– I think a lot of millennials, I am one,
have this sort of housing market trauma
from the great financial crisis
because that was a very significant crash.
But if you look backwards in time,
it’s really the only crash of that magnitude
as far back as we have reliable data.
And so that’s nearly a hundred years.
We’ve never really seen a market crash like that.
And if you look at other times
where housing prices went down like in the early ’90s
or there were some times in the ’80s,
it was basically a flattening
or prices went down by one or 2%.
And usually prices were covered within six quarters,
eight quarters, so it’s really quite quick.
And we can get into why that is.
But if you often, when people ask me that question,
I say just Google the median home price
over time in the United States
and you’ll see that it’s largely just gone up
into the right for the last century.
– That reminds me of stocks.
It’s kind of like stocks just always go up, right?
So you’re saying housing prices just always go up,
so it’s a good long-term investment.
So talk to us about why real estate is a good way
to achieve financial independence.
– Real estate is, in my opinion,
the best way to earn cash flow from an investment.
And for that reason, it’s a great way
and a lot of people use it to replace their income.
It’s not the only reason to invest in real estate.
It’s not the only benefit.
But I think rather stock market,
if you even get great dividend stocks,
you’re talking about 2%, 3% bond yields
or 3% or 4% in terms of cash flow.
Whereas real estate, even when you buy something
on the market, you can get something
at 6%, 8% cash on cash return
in addition to many of the other benefits
like tax advantages and appreciation and loan paydown.
So you get better cash flow.
And the amazing thing about real estate investing
is that for the most part, your biggest expense,
which is your mortgage, will get fixed in place
’cause you lock in that price.
And then your rent, the income that you’re generating
goes up over time.
And so if you buy something that has a 6% or 8% cash
on cash return today, by the time you want to retire,
say that’s 15 or 20 years from now,
that could be a 30 or 40 or 50% cash on cash return,
depending on a lot of decisions you make
with your business over that time.
But that’s why it’s so valuable
as those rents tend to keep pace with inflation
or at least exceed inflation or sometimes exceed inflation.
But your expenses are relatively fixed
and that creates a growing margin over time.
– So for all the newbies out there,
what is cash on cash return?
– So cash on cash return is a simple metric
that we real estate investors love.
And you basically just calculate it
by how much cash flow you generate in a year
and you divide that by the total amount
that you have invested in a property.
So if, for example, you had a rental property
that made 10 grand in a year after all of your expenses
and you invested 100 grand into that property,
you would have a 10% cash on cash return.
And we just basically use this metric
to measure one part of the benefits of real estate,
which is just getting that monthly income
each and every month.
– So I know before you mentioned
that real estate is entrepreneurial.
And that’s something that I never really thought about.
When I think of real estate, I think about investing.
But why would you say that real estate investing
is actually entrepreneurship?
– The term real estate investing is somewhat of a misnomer
because although you are typically taking some
of your own capital and putting it into this business,
you really are operating a business,
even if you buy a relatively simple type
of real estate investment, like a long-term,
you just say you buy a single family home
and rent it out to people.
It’s not a ton of work, but you got to do something.
You have to find tenants, you have to run the books,
you need to be a good property manager,
provide a quality place to live.
And so to me, that’s running a small business
in a way that buying an index fund
or buying cryptocurrency,
which are both worthwhile investments
or worthy of consideration, just aren’t.
That’s kind of set it and forget it.
Where real estate, you need to be paying attention
to your portfolio and decisions and performance,
not every day, but on a weekly or monthly basis.
– And you actually started real estate
sort of as a side hustle.
You did it on the side of your career.
So talk to us about how you first got interested
in real estate and how you got started.
– I graduated college in 2009.
And if you remember that, it was a very bad job market.
And I moved from New York to Denver and was waiting tables.
And I had a lot of free time on my hands.
And so I would ski a lot.
And that’s partially why I moved to Colorado.
And I had a friend who wound up buying
a single family home with his girlfriend at the time.
And they were just killing it.
And honestly, my friend was not super sophisticated.
He wasn’t some great investor.
And I thought if he could do it, I could do it.
And I used the resource that I had at the time,
which was time to find a good deal.
I would drive around Denver and bike around Denver
and just look for properties.
I went and looked at a ton of them.
I sort of taught myself a little bit of financial modeling,
which I had a little bit of a background in.
And the numbers just made so much sense to me
that it felt like I was probably just so naive.
I didn’t really understand the risk
or what I was getting myself into.
But luckily, back then in 2010, which–
their deals were relatively abundant.
And so I was able to find something in my spare time
while I was still working 30 or 40 hours a week.
And that’s a really common way for people
to get into real estate.
And honestly, despite what a lot of social media talks about,
that is the most common way for people to continue
in real estate.
You don’t need to be a full-time investor.
It is very commonly used to augment your income,
either from a W-2 job, from another small business,
or just other investment classes.
And so talk to us about this first deal.
You were 23.
And then you ended up buying, I think,
was a multi-family home.
And you raised money to do this.
You didn’t use your own money.
So talk to us about this deal.
I was– I made decent money as a waiter.
But literally, they paid me in cash.
And all the money I had at the time
was in my bedside dresser.
So I could not qualify for a loan.
And people look back on 2010 sort of nostalgically right now.
And real estate’s saying, oh, my god, there was amazing deals.
And there was.
But getting loans was really difficult in the aftermath
of the financial crisis.
And so I, as a waiter, was not able to qualify for a loan.
So I brought in three partners, two people I knew,
and a family member.
And we each split the down payment on this property
four ways, equally.
And the property was a four unit in Denver
in a great neighborhood.
And people will be jealous of this.
But it was $457,000 for four units in Denver,
which is not possible anymore.
So that was the basic structure.
The problem was I did not have my 25% of the down payment.
And so I wound up taking a secondary loan
from another one of the partners at a 6% interest rate.
So I was basically borrowing twice on this.
And then I self-managed the property.
And normally, in real estate, the property manager
gets 8% to 10% of revenue.
And so I basically took that 8% to 10%
that I earned as the property manager
to pay off my secondary loan.
And did that for seven or eight years
until I built up enough equity and then we sold the property.
So it just goes to show you this really is entrepreneurship.
You’re raising money.
You’re trying to manage stuff.
You have a business model going for it.
So how did your portfolio grow from there?
And how much time did you spend in real estate?
For the first couple of years, I didn’t have money.
So I think for the first four years,
I just operated that one deal.
I was actually– I started a different business,
not in real estate.
And so I was very involved in a startup
that I had created in technology and was really
into that for quite a few years.
And so it sort of went on the side.
And I didn’t have money to pay people to do anything.
So I was still self-managing the property, probably, I don’t know,
20 or 30 hours a month.
So it’s still a significant amount of time.
That’s what I did for a while until 2014.
I bought a similar type of deal, another multi-unit in Denver,
and was continuing to self-manage.
And I lived in that one.
And this is sort of one of the things
I love about real estate is it’s so customizable to any circumstance.
And what I chose to do, because I was looking at a bunch of deals,
is I chose to buy a property on the same block as my first one,
because I was running a startup.
I didn’t have that much time.
And I thought, hey, if I’m going to manage this business,
I want to just be able to walk down the street and mow the lawn
instead of driving all the way across town.
So then for, I guess, two more years,
I was just managing these two properties.
It was seven units it’s time consuming.
Until 2016, the company had started failed.
And I was trying to figure out what I wanted to do.
And I was like, I really kind of like this real estate thing.
It’s fun.
And I was getting a master’s degree in data science.
And so I was just googling real estate data jobs.
And BiggerPockets, I had never heard of it,
was about a mile from where I was living.
And so I went and worked there.
And from that point, my real estate career sort of took off.
It had been a hobby.
And then I got really into it and learned a lot
from all the other podcast hosts and content creators
at BiggerPockets and people who have been around that community.
And so from there, I can talk about it more.
But my portfolio’s gotten much more sophisticated
to span many different asset classes, different markets
across the country.
That’s such an amazing story.
And so when it comes to your real estate endeavors,
did you feel like just getting started with no experience
was the best route for you?
Or do you have any regrets in terms of how you got started?
I think it’s one of those things that is just true of entrepreneurship,
where you just need to jump in and learn from mistakes.
And real estate, although it is capital intensive, which
can be intimidating, it’s a pretty forgiving business.
It’s not like a tech company where you have to have
some super amazing go-to-market strategy
and you need to be unique.
It’s like you’re just renting out a property.
In most markets, people want to rent that property.
And so you can figure that out.
There is a learning curve.
I always refer to it as short and steep.
You need to learn a lot, but it doesn’t take that long.
And so if you can put yourself in a position
to spend a couple dozen hours learning about a property
and then go out and buy something, you’re
going to be fine, the vast majority of the time
are going to be just fine.
And you’ll learn so much in that first deal.
And there will be hard parts.
But once you get the first one, the second one, I would say,
is maybe 20% of the effort.
And from there, it just keeps diminishing
in terms of how difficult it is, even as you get more
sophisticated and take on more difficult projects.
That makes total sense.
It makes total sense to kind of just get your feet wet,
learn as you go.
I feel like people learn so much better that way.
So you actually transitioned your career.
You were really doing real estate.
And then now you’re educating people on real estate.
You’re hosting bigger pockets.
You have books, which will get into your new book
in a little bit.
Talk to us about that transition.
Was that difficult for you as a data guy
to now be like a public figure?
Yeah, it’s so weird.
I never planned for this.
It just was one of these COVID things
where I started writing for the Bigger Pockets
audience about economics, which I’ve always just
been super interested in, and data,
and what was going on in the market.
And it just caught on.
And I was having a lot of fun.
And it was hard because just to be perfectly candid,
I’ve never really felt like I fit in in the real estate
education space.
There’s a lot of people in this industry,
good people who want to scale to hundreds of units
or thousands of units or to start funds and buy multifamily
and build a big business and team.
And that’s never been me.
Real estate, I find super interesting.
And I like doing it.
But I have other professional interests.
And I like my job at Bigger Pockets.
Not just because it’s real estate because I just
like being part of a tech company and a media company.
And that’s fun for me.
And so at first, I was trying to figure out
if I fit in here.
And I think over time, what I’ve found
is that the vast majority of the Bigger Pockets audience
and the people who want to be in real estate
are like me, have another career or have a family
and don’t want to do this full time.
And that’s been really fun and rewarding
to be amongst people who have a similar perspective
about this branch of entrepreneurship
and this part of real estate.
Because it’s so adaptable as I’ve
been saying that I’ve made it work for me
and to support my career.
And I think that’s what most people want to do.
And I’m really glad that the way I think about real estate
and talk about real estate has been resonating with people.
And so even till this day, you only
work 20 to 30 hours a month on your real estate portfolio.
Is that right?
Yeah, I have a rule for myself to only spend 20 hours a month
on my real estate portfolio, which sounds really low.
But I rarely even come close to 20 hours, to be honest.
Wow.
That’s amazing.
I mean, that gives me a lot of confidence.
Like, hey, I could do this.
I could start my Airbnb empire or whatever I’m interested in.
I’ll be honest.
It takes time to get to that level of passivity.
At first, like I said, my first deal when
I was self-managing that, it was taking me probably 10 hours
a week.
And then it was five hours a week on that property
as I got better on it.
Then over time, I’ve just designed my portfolio
to suit my lifestyle.
And I choose deals that are going to be relatively passive.
And that means that I make trade-offs.
I don’t flip houses.
It’s a super profitable, great way to make money.
I don’t do it because I don’t have the time to do that.
There are people who buy rental properties
that do heavy renovations.
I choose not to do that.
That means that I make trade-offs.
And oftentimes, I’m giving up some of my profit
to property managers or general partners who manage
my investments for me.
But that’s my choice.
And I’ve been able to evolve my real estate portfolio
with my lifestyle preferences.
Let’s hold that thought and take a quick break with our sponsors.
So property management is really interesting.
So I have a really big company.
I have money to invest.
I’m about to get some big distributions and stuff.
And so in my head, I’m like, well, I’ll just
get a property manager to help me with these investments
because I don’t have time to be so hands-on.
Is that a bad idea?
Like, should I learn how to do it myself first?
Or what should I look for in a property manager
or management company?
Well, for an average person, I would say all things being equal,
you should at least manage a property for a couple months
and just learn what to look for.
I will say that for you specifically, Hala,
you are an entrepreneur.
I’m sure you interviewed many people.
You understand operations.
You could hire a property manager.
It would not be that hard.
So I think if you have no experience
in sort of managerial positions or entrepreneurship,
get your hands dirty a little bit and learn.
But I think compared to running a large business,
selecting and overseeing a property manager
is really quite easy.
I’ll just say that for most people,
I have great property managers.
But not all property managers are great.
So it’s really worth meeting with a few.
On BiggerPockets, we have tons of free resources
to know what questions to ask.
Go meet them in person.
It’s worth a trip, even if you’re
going to invest outside of your local area.
Those types of things are worthwhile,
but it’s really not that hard.
What are they doing?
Are they taking care of the landscaping, the garbage?
That’s the type of stuff they’re doing?
Yeah, so it depends on the type of property
and the level of service.
I do full service property management.
I don’t want to do anything.
So what they do is they do everything
from identifying tenants and screening them,
getting the lease assigned, get handling the turnover.
So basically, having one tenant move out,
having a new tenant move in, they also
serve as the communication for tenants
when something comes up.
There’s maintenance requests, repair requests,
and they also are responsible for maintaining
the physical structure.
So that’s a full service person, and that’s great.
The one thing that I think is very difficult with property
managers is I always split up the operational part
of the real estate entrepreneurship game business
into property management and then asset management.
The difference to me is property management
is very day-to-day, all the things I just described.
The investor, I believe, their job
is to figure out how to make best use of this asset over time.
So when do you refinance it?
At what point do you sell?
Should you add a new bathroom?
The property managers, they can advise you on that,
but they don’t have a view into your entire portfolio,
into your entire net worth, into your overarching financial plan.
I still recommend to people that they
are active in that asset management part of their portfolio,
whether or not they hire a property manager.
What do you think about as an investor?
So for example, I have some friends,
and maybe I want to give somebody a portion of the deal
for property management.
Is that something that happens?
Yeah, I mean, that’s basically what I did when I was–
its mind was more complicated, but totally.
That’s a great way to–
for both parties, this is another thing–
sorry, I love real estate.
So it’s like another thing I love about it.
I love it too.
Is that this is a perfect scenario for both people.
You’re in a position where you have capital to invest,
but you don’t have time.
And so you can hire someone.
You can basically trade your capital for someone else’s time.
And there are so many people who want to get into real estate,
who don’t have capital, but have time to manage a business.
And so that’s why partnerships are extremely
common in real estate.
Even the most experienced real estate investors I know,
I would say partner on the majority of their deals.
It’s why it’s such a networking relationship business.
It’s why I think it’s fun, because you make a lot of friends
and you build a great community around it as well.
But that is an extremely common way to do it for you.
And you’re also giving someone else another opportunity
to sort of cut their teeth in the industry
and to learn the property management part, which
does take some practice, but is business most people can learn.
So let me ask you this, like real life scenario.
I want to buy a place in Miami.
I’ve got a friend in Miami who’s got a lot of time
and who has done Airbnb hosting before.
So she’s got some experience.
She doesn’t have money to invest in a place.
I’ve got money to invest in a place.
How would you structure that deal?
Would it be me just paying her?
Or would you give equity?
Like, what are the ways that we could structure that?
It depends on what you want to do.
So the most common investor property manager relationship
is about 10% of revenue goes to the property manager.
That’s kind of a standard rate.
Of the cash flow from the rent?
The cash flow.
So you could do that.
But if you wanted to do it in terms of equity,
I would sort of try and approximate
what that value would be each and every month
and sort of have the equity essentially vest over time.
So let’s just use easy numbers.
Let’s say it would be 10 grand in property management fees.
And perhaps she can earn a certain amount of equity
up to a certain point because obviously you
don’t want to have it eat into your equity over the time.
A rev share on the cash flow sounds like just a great easy
plan where everyone’s happy.
I love that.
That’s a great thing to do.
And depending on what your friend wants to do,
it’s a scalable business.
For people who are property managers,
it could be a really good business.
And speaking as an investor, we need more great property
managers.
So people are looking for a business
to start both in long-term rentals and short-term rentals.
It can be a really profitable business.
Yeah.
So you’ve got this new book, Start with Strategy.
Why did you put this book out?
Who is it for?
I wrote this book because I get a lot of the same questions
about real estate, things like that
are make the decisions about real estate investing
in your portfolio seem somewhat objective.
Where the reality is that real estate decisions are entirely
subjective.
What’s right for one investor is going
to be totally different from what’s
right for another investor.
And I wanted to create a framework
to help people think through all of those many questions,
like some of the questions you’ve asked me today,
Hala, like how much time should I put into this?
Should I– another common one I get
is should I flip houses or should I buy long-term rentals?
Should I get into multifamily?
Should I be passive?
Should I be active?
All great questions.
And without a framework, I think for people,
it can be overwhelming, the amount of decisions
that you need to make.
When in reality, it’s like 10 decisions.
I tried to create a framework that
explains each of those decision points
and help people essentially create a business plan
for real estate investing.
And it starts like a lot of business plans with a vision,
what you want to accomplish, then goes into the right types
of real estate deals that you can match to your vision
and then goes into explaining the optimization
of your portfolio over time.
I loved reading this book.
I can’t wait to pick your brain, especially
on these deal types.
But before we get into that, I want
to talk about the economics and the economic factors related
to buying a house.
So whenever I want to buy a property,
I’ve been toying with buying a property for years now.
I always get advice from people that are like, don’t buy.
Market’s about to crash.
Don’t buy.
Interest rates are too high.
Don’t buy here, buy there.
I always get told, don’t buy, don’t buy.
It’s not the time to buy.
And it’s frustrating to me.
How many years have they been asked telling you not to buy?
Like five years, at least.
Yeah, you should have bought.
I know.
So talk to us about are there actually
economic considerations to make or indicators
that we should be looking at?
Or is it just always the right time to buy?
I’m biased.
I don’t think I could say that it’s always
the right time to buy.
But I do think the old adage is true,
that time in the market is more important than timing
the market.
It’s extremely difficult to time the market.
And my advice to people is think about your time horizon.
If you are trying to make an investment for a year or two
or even three, real estate’s probably not right for you.
It’s a long-term game.
But if you give real estate time,
it is extremely low risk relative to other asset classes.
And I want to be clear, real estate is not risk-free.
There is no such thing as a risk-free investment.
But when you think, and again, going back to your early question,
like there’s just not a lot of volatility.
And so if you own property for five, six, seven years,
the chance of losing money on it is extremely low.
I think that’s a major variable.
There are markets right now that are experiencing what I would
say is like a correction, like a 1% or 2% decline in prices.
As an experienced investor, I view that as an opportunity,
not as a risk, because it means you can buy assets for lower
than what they will be in the future.
But I understand that people who are new to this,
that seems a little bit daunting.
But again, I would first advise people
to think about the ways that you generate income from real estate
because the value of the home is not the only.
And it’s not even necessarily the main way you make money.
So you get cash flow, which is one of them.
You do get the appreciation from property value going up.
But there’s two different types of appreciation.
One is what the market does.
The other is we call it forcing appreciation
by renovating or improving the value of the property.
When you take out a loan, you pay that back with your tenants’
income over time.
And so that provides you a really nice floor
for your investment that usually outpaces inflation
all by itself.
And then you have wonderful tax advantages
as a real estate investor.
And so when you combine all those things,
even when the housing market is flat,
you usually do at least as well as an index fund, if not better.
That’s sort of how I help people understand it.
Of course, if you are worried that there’s
going to be a market crash, I understand
why you wouldn’t want to buy.
I have not bought–
I study economics.
And for the last– in this cycle,
I have not seen a point where it looks like the market is
going to crash.
And I still think that.
Of course, there are a lot of opportunities
for black swan events, things that you can’t see.
But if you look at your real estate market and data
right now, and I’m happy to explain this more,
it just doesn’t look like prices are
going to decline significantly on a national level.
And even in the markets where they do decline a little bit,
it will probably be pretty modest.
So you were just mentioning these tax benefits.
What are some of the tax benefits
that people can get from real estate?
The most common one is just known as depreciation,
which is basically the value of your property goes down
in the eyes of the government every year
because it wear and tear, basically.
And you can use that as a tax deduction in year.
It’s this whole silly formula.
It’s basically you take the value of your property,
you divide it by the useful life, which is 27 and 1/2 years,
and you can offset your income by that amount.
And so what winds up happening for a lot of real estate
investors is all of the cash flow
that you generate in a given year is tax-free.
I think true every single year for me
is that you get this cash flow and you don’t pay taxes on it.
So that’s really beneficial.
What about when you’re renovating or paying
for a property manager is all of that kind of stuff
expensed because it’s a business expense?
Yeah, so all of that is expensed.
And what I’m saying is the cash flow, your profit,
after all of your expenses is also typically tax-free.
Now, you do have to, quote unquote, recapture that money
when you go and sell the property,
but it is really beneficial if you are using real estate
to live off of or you just want to generate some capital
to reinvest elsewhere.
Some of the other benefits– and there
are a lot of real estate tax benefits,
but some of the more popular ones are something
called a 1031 exchange, which is basically
if you own a property and you want to sell it
and reinvest it in a like property.
So basically, say you buy a duplex,
you want to sell it and buy a new duplex.
If you meet these criteria is basically
buying within a certain amount of time,
the gains on your first property are deferred.
And so this is super beneficial and very different
from other asset classes.
If you, for example, wanted to sell stocks
and then reinvest it into the housing market,
you would pay capital gains on the stock
and then reinvest it.
In real estate, you can make that trade
without paying taxes, which allows
you to keep more principal in your portfolio
that generates more income.
I’ll just mention another one for people
who are looking to just buy their primary residence.
If you live in a property for two out of the last five years
when you sell that property, those gains are also tax-free.
And then the most popular one, which is mortgage interest,
is tax deductible.
So there’s a ton of different ways
that real estate is advantaged in the tax code.
All perfectly legal, encouraged by the government.
And so it’s just one of those additional benefits.
Wow, it makes me feel really stupid for not investing
in real estate yet.
It can be really–
especially, I think, for a lot of high-net-worth individuals,
as you sort of grow your wealth,
real estate becomes not just an investment vehicle for growth,
which it is, but it’s also just a very tax-efficient asset
class and a good way to balance your overall portfolio.
So you mentioned that your first property was in Denver,
and you doubled the amount.
You sold it for double what you paid for.
What other hot cities should we be looking at in America
right now?
So a lot of this comes down to what your strategy is.
If you’re looking for appreciation and building equity
and the value of your property going up,
it will be different than if you’re targeting cash flow.
This is a big debate in the real estate investing world.
But I would say that trying to find properties that appreciate
is a little bit riskier, because no one knows.
This is macroeconomic conditions that you don’t really control,
but it is a really powerful way to build wealth.
And so these are markets where, in short, you’re just
looking for markets where demand outpaces supply.
And so these are places–
Miami has been a really hot one over the last few years,
and generally, the Southeast has been very, very popular.
So places like Texas, Tennessee, North Carolina,
even parts of Alabama, South Carolina, Virginia–
those have been really popular over the last few years.
In 2024, it’s actually slowed down in the Southeast.
And we’re seeing a very unusual pattern where, actually,
the Midwest and the Northeast are
seeing the hottest appreciation.
And I think that offers a real unique opportunity,
because the Midwest, in particular,
is where you find good cash flow.
And so this is a great time, in my opinion,
to buy in the Midwest, because there’s
this great opportunity to get cash flow,
to make money every month, but also
see the value of your property go up,
in addition to those other benefits.
And so I think the Midwest is quite popular right now.
So when it comes to investing in real estate,
I feel like it’s a little bit more overwhelming.
So for example, I’ve been investing in stocks
since I was 20 years old.
And I’ll not even bat an eyelash, transfer $20,000, $50,000
to my account, and not care.
But then when it comes to real estate,
it feels like overwhelming.
It feels like there’s so much to learn.
So for other people out there that are feeling like I am,
where should they start learning?
What’s the best place to start?
So of course, at Bigger Pockets is basically what we do.
Our whole goal is to help people learn how
to invest in real estate.
And a lot of our–
almost all of our education is entirely free.
So if you want to learn just the basics,
I highly recommend you do that.
And I’ll take the opportunity to pitch my book,
because I basically wrote it to help people understand
where they fit in the real estate investing ecosystem.
Because there are so many different options out there.
And picking short-term rentals, multi-families,
self-storage units, there’s all these different things.
But once you identify what you’re going for,
and why you’re investing in real estate,
you can really narrow it down to a couple.
So I’d recommend reading a couple books.
We have many on Bigger Pockets.
And then listening to our podcast,
we have two that I would recommend.
One is the Bigger Pockets Real Estate Podcast, which I host.
We talk about relatable stories to help people identify, learn.
Also one called Real Estate Rookie,
which is specifically for new people
to help them get up and running.
And I know in real estate,
it’s sort of become like a pretty spammy place
and scammy place.
And I just feel like there’s a lot of get-rich-quick schemes
and a lot of conferences that seem really shady.
And I just want to get your opinion on that.
Should people engage in that type of stuff
or run away from it?
– Run away from it.
I’ll just be honest.
Real estate is not that complicated.
And I think a lot of people who want to profit off new investors
try to make it seem really complicated
so that they can sell you some course
or some system or some strategy.
This is not rocket science.
This is a business that tens of thousands,
literally millions of people have done before you
and it’s normal mom and pop investors.
90% of the rental properties in the United States
are owned by people with one to 10 properties.
So these are just normal people who are doing this
every single day.
And honestly, I’m not special if I could do this.
Anyone can do it.
And I really encourage people to just try and learn for free.
We do this all in bigger pockets.
The other thing I highly recommend
is in almost every big city in the US,
there’s something called RIAs,
the Real Estate Investing Groups.
And they have meetups.
They’re just like at a bar or at a coffee shop
once or twice a month.
Go and just talk to local investors.
It’s totally free and you will find the answers
that you need for free rather than paying someone.
Honestly, it’s exorbitant amount of money.
Sometimes like a cheap course could be five grand,
some of them are 20 grand.
And I’ve never really met someone who said it’s worth it.
We’ll be right back after a quick break from our sponsors.
So let’s talk about these deal types.
You’ve alluded to them throughout the whole interview.
I thought we could do a fun, quick, fire style segment
where I’ll read a deal type out to you
and then you tell me the pros and the cons,
the time commitment, the considerations for each deal type.
Does that sound good?
Let’s do it.
Okay, rental properties.
Rental properties, bread and butter.
It’s like an index fund for real estate investing.
It’s very low risk but has a good upside to it.
The amount of time required is not a lot
and I think it’s accessible to almost any type of investor.
Short-term rental.
Short-term rentals are sort of like a growth stock.
They’re kind of a little bit exciting
and they have better cash flow potential
than long-term rentals.
But they can be a little bit risky in today’s market.
There’s a lot of supply of short-term rentals right now
and so you have to be really good at operating your business
and standing out from the crowd.
But if you’re good at it, it’s more lucrative
than long-term rentals and honestly, I only own one
but I kind of think it’s fun to own short-term rentals
and sort of be in the hospitality business.
But I will say one other thing I’ll say
is it’s a little bit more capital intensive
because I learned this the hard way.
Furnishing them can be very expensive
so you need to make sure that you have a proper amount
of money set aside to make the place really nice
and stand out because again,
there’s so many competitors right now
that if you just do the Facebook marketplace kind of thing
where you’re just getting cheap furniture,
it’s probably not gonna work.
That’s so interesting.
So long-term rentals, you don’t have to worry
about furniture, people just renting them out
for like a year at a time.
Short-term rentals is like your Airbnb, your Verbo.
Is that subletting too or no, that’s different?
I don’t recommend people do that.
It’s kind of legally questionable in a lot of places
and can be, some places it’s perfectly legal,
but I don’t think that’s investing in my mind.
I think it’s like an arbitrage game.
Yeah, it’s kind of like a job
and there’s nothing wrong with that if that’s what you want.
But if you wanna like build a business,
I think you need to actually put some capital in.
– Okay, fix and flip.
– Fix and flip is a great way to make money
but it’s basically a job.
I think people need to think
about how much time they want to commit to it
because it can be 20 hours a week,
it can be 30 hours a week.
It’s a steep learning curve.
Renovating properties can be very difficult.
You don’t really know what you’re going to get
with any particular property.
Working with contractors is much harder
than working with property managers.
I said earlier that if you have
some basic managerial experience,
you can manage a property manager.
Working with contractors kind of its own business,
its own game.
And so I sort of recommend
to people sort of progressing to that.
Maybe buy a rental property
and do a small renovation and learn that way
and sort of build up to doing an entire house flip.
I just signed up to do my first one ever.
I’m 15 years into it and I’m not managing it.
I’m just investing in it.
But if you really love real estate
and like you find it fun like I and a lot of people do,
it could be a great avenue to building active income
in addition to sort of building long-term rentals
to sort of set you up over the long term.
– That also sounds like a great like partnership idea, right?
One person being the investor,
one person being the designer,
somebody who has contract or experience
or something like that.
– Yeah, so I’ll just tell you,
I basically, with this deal,
my friend, a partner, found the deal.
He’s got a construction company, a designer.
He’s also an agent.
So he can do all of it.
I put in 100% of the capital
and we’re gonna split the profit 50/50.
So basically, I’m taking the risk,
but he’s doing all the work
and hopefully it’s gonna work out
and we’ll both make some good money off of it.
– It’s a business, it’s entrepreneurship like he said.
– Exactly.
And trying can be structured however you want.
– Commercial real estate.
– I’m a big fan of commercial real estate
because it’s a lot more dollars and cents
for someone like me who’s very analytical.
It’s a more efficient market.
And what I mean by that is real estate,
80% roughly of residential properties that get sold
are bought by home buyers.
There’s nothing wrong with this,
but they buy largely based off emotion.
And so as an investor,
you’re kind of contending with these less known quantities.
And it’s a little bit confusing sometimes.
Commercial real estate is just dollars and cents.
And it’s a little, you know,
it’s more sophisticated players.
And I think that that can be great.
I will say, just so everyone knows,
commercial real estate’s in a bit of a,
you know, when I said the market’s not crashing,
I was talking about residential.
Commercial real estate has crashed.
Like it’s not as in the media,
but prices are down 10, 15, 20% over the last couple of years.
I don’t know if it’s bottomed yet,
but I feel like we’re kind of getting close.
And so I actually think there’s going to be great
buying opportunities,
but commercial real estate is like I said,
it’s more sophisticated.
The loans are more complicated.
Do not just jump into that without really educating yourself.
Highly recommend finding a partner if you want to do that
or starting super small with like six unit or an eight unit.
Do not just like jump to 20 units, 30 units.
That’s where I actually see people take on too much risk
and potentially fail in real estate
is trying to get really big really quickly.
– Yeah. And it makes sense because right now
everybody’s working from home
and everyone’s buying stuff online.
So the need for commercial real estate
is becoming less and less.
So is that another reason why it’s so risky?
– Commercial real estate,
I think there’s actually like something
like 16 different subcategories
and it depends what office real estate is getting hammered.
And it’s even a lot of cities you’re seeing it down 50%.
So there’s massive crash in terms of valuation.
Retail is doing great.
So it’s like kind of depends where you are
and the market you’re in,
which is why another reason it sort of just makes it
more challenging is that there’s a lot of nuances
to understand with single family homes.
It’s kind of easy to understand like,
Hey, this is a growing city, properties are going to go up.
Whereas there’s a lot of nuance
to the macroeconomic conditions
that influence commercial real estate.
So it’s a little more challenging.
– Okay, last one, development lending.
And what is this?
Cause I feel like this is one that I never heard of.
– So there are actually two.
So development is building stuff ground up.
I actually think it’s great.
It’s super risky, but it’s how you make a ton of money,
especially if you can find great land.
I’ve bought a few properties where I hope to tear it down.
And, you know, these are literally 100 year old houses
that are in fine shape,
but like one day I’m hoping to redevelop
and you can make great money there.
I want to talk about lending
cause I actually think it’s a great business.
So we talk about real estate and entrepreneurship
as buying properties,
but there’s a whole other side of real estate,
which is creating mortgages and hard money loans,
which is rent bridge loans,
which are loans to either fix and flippers or developers
that are at pretty high interest rates, you know, 10, 12, 15%.
And so if you learn the business
and you want to generate cash flow,
it is quite easy to not easy,
but it is very common to generate 10, 12% cash on cash return
for doing almost no work.
It’s extremely passive.
And so if you can imagine,
this is common for people sort of later
in their investing career.
So if you have a high net worth
and say you want to invest $500,000,
you’re getting a 12% return.
That’s 60 grand a year in passive income
for doing very little.
I don’t know another industry where you can do that
with as low risk.
I’m saying low risk,
presuming that you learn how to do it properly.
But if you do lending properly,
it is relatively low risk.
– So in terms of lending,
is that basically real estate investors
are like pitching you to lend them money?
Or are you saying to like open up like a mortgage firm?
Like, sorry, this is a dumb question.
– That’s a great question.
There’s different ways to do it.
So the easiest, the least intensive way
is something called buying notes.
So people issue mortgages
and you can actually just buy those mortgages
from other people.
Those are just traded.
So that’s an easy way to do it.
I think the most profitable
and most common way that people like myself get into it
is something called hard money lending,
which is a lot of house flippers.
They’ll buy a property,
but they don’t have the money for the rehab
or they may even have money for the acquisition.
And they are willing to usually pay 10 or 12 or 15%.
‘Cause their whole business is to renovate that thing
as quickly as possible and then sell it off.
And so unlike a mortgage,
no one in their right mind at this day and age
would pay 12 to 15% on a 30-year mortgage.
But if you’re holding it for six months,
you’re willing to pay that interest.
And so people like myself will lend money to those people.
And the interesting thing about it
is it’s a collateralized loan.
And so if the borrower defaults, you get the house.
And usually they put 20% down.
And so even if they default,
you’re getting the property at 20% off.
You keep the equity and you get the house.
That happens very, very rarely if you do it well,
but it does limit your risk
because it is backed by a hard asset.
That is a common way people do it.
Or you could really get sophisticated and like set up,
but you know, bank essentially.
But I think most people do it sort of in that middle tier
that I was describing.
– And the reason is because banks wouldn’t give a loan
to somebody to do that.
– That’s right.
And so banks, like the way banks issue mortgages is
for them, they wanna do what’s commonly called
a conforming loan, which is basically they want it
as cookie cutter as possible
because the government has set these rules
that if you meet these XYZ criteria,
you can sell the loan to Fannie Mae or Freddie Mac
and offload that on your books, right?
‘Cause banks, they wanna give out money
and then they wanna take their origination fees,
collect a little bit of interest and then sell it
and then make another loan.
And so that’s sort of their business.
And to fit in that box of conforming loans,
they can’t be fixing up properties.
They have to be in pretty good condition
and relatively low risk for the government.
And so these types of fix and flip properties
that need a new roof, that need a gut rehab,
that need a new foundation.
Banks, unless they’re a specialized bank,
are not gonna do that.
Like you can’t go to Chase or to Wells Fargo
and get that loan.
And so they usually go to private money.
The other reason they do it is for speed
because a lot of times when you’re a fix and flip,
you’re dealing with off market properties
for sale by owner and you don’t have time
to spend 30 to 60 days closing a loan.
And usually a hard money lender
will be able to deliver you cash in two weeks.
And so it’s just a little bit more efficient.
– Wow, this was like seriously a masterclass on real estate.
My last question to you is these new trends like Fundrise
where you can basically invest online
in a really passive way.
What are your thoughts about that?
Is that a good way to get started?
Or how do you feel about it?
– I haven’t invested in Fundrise myself
but I was actually looking at it like three days ago.
No joke.
‘Cause I know their CEO, Ben Miller is a great guy.
Super smart.
So I would trust him pretty well.
Do your due diligence.
That’s just my read on it.
I think it’s a great idea because you can buy REITs
which are just publicly traded real estate investment trusts
which are great and they can be really efficient
but private real estate, the money is a lot better.
And so what people in the industry do
is they invest in funds and syndications.
These are basically ways of pooling your money together
to buy large commercial assets.
But you have to be an accredited investor to do that.
And it’s kind of an insider’s game.
Like there’s no public place
where you can go look up these people.
You kind of just have to know people.
What Fundrise and their competitors are doing
is trying to give you that benefit
without being accredited
and without being an industry insider.
So I don’t want to endorse any specific one
because I don’t know their investment criteria.
I will say everything I’ve heard about Fundrise
is extremely positive.
I think the concept is a really good idea
and will bring just people who are new to real estate
access to a type of asset within real estate
that was previously not available.
Yeah, so basically like the law changed
because of these apps
where now anybody can invest in this one before
it was only a certain type of investor that could.
And they’re typically really like lucrative deals, right?
Yeah, so you can basically get access
to all sorts of stuff.
I know Fundrise does built to rent,
which is a really interesting asset.
Multifamily, they do lending funds.
So if you’re interested in the type of lending
I was just talking about and don’t know how to do it,
you can invest with them.
They do the due diligence for you.
You’re not going to make 12%.
I’m sure they charge a fee for that,
but you still get a really good return
on that sort of thing.
So I think it’s great that they’re doing that
because otherwise it’s almost, it takes years.
Like it took me probably 10 years into investing
to like get into that world.
And I think that’s probably a pretty common timeline.
So if you’re interested in that
and don’t have the industry knowledge,
it’s a great way to think about
or it’s something to think about.
Well, I love that.
And before we go, I asked two questions to all my guests.
Now you can answer these however you’d like.
It doesn’t have to be about today’s topic.
You can let it come from the heart.
You’re speaking to entrepreneurs out there.
So what is one actionable thing
our young and profitors can do today
to become more profitable tomorrow?
– My biggest advice to people is to just understand
why you want to get into entrepreneurship
and to think really hard about the things that motivate you.
When I first started in entrepreneurship,
I just kind of wanted the vague notion of success.
And it led me astray and that business ultimately failed.
And I think with real estate, I’ve been successful
because I figured out the exact sort of lifestyle
that I wanted, the exact amount and type of money
that I wanted to make, the kind of leader I wanted to be.
And that made becoming successful
actually quite easy when you actually have specific goals
that you’re shooting for,
not just some like vague notion of growth.
– Really, really good.
And what would you say your secret
to profiting in life is?
– I honestly, I think that it’s hard to,
people in entrepreneurship,
it’s really easy to buy into your own business
and your own ideas.
And just recognizing that things can go wrong
and they will go wrong and to be prepared for that.
And when you prepare, I find that, you know,
if you prepare for those things
and you’re humble about your own skill set
and your own business,
that you wind up avoiding a lot of the pitfalls
because you’re thinking about them well ahead of time.
– That’s really smart.
Dave, thank you so much for everything
that you shared today.
I feel like we got such great learnings,
knowledge bombs from you on real estate.
Where can everybody learn more about you
and everything that you do?
– Yeah, come find me at BiggerPockets on the website
and on the podcast where you can find me on Instagram
where I’m at the data deli.
– Awesome.
And I’ll stick your links in the show notes.
Thank you so much for coming on YAP.
– Thank you, Holly, I appreciate it.
– Well, there you have it,
another epic episode in the books.
And I learned so much from Dave Mayer
about investing in real estate.
And although they call it investing,
like Dave said,
it actually has more in common with entrepreneurship.
You’re really operating a business
when it comes to real estate.
And you can’t just buy a property and forget about it
if you want to maximize your return.
And as investments go,
real estate is a pretty unique asset class.
It almost always appreciates over time.
Plus you can earn easy cash flow from your investment.
Rents tend to keep pace with inflation.
And then you can use some of that cash flow
to invest in more properties and grow your portfolio.
It’s really not a bad deal.
And how many investment vehicles give you
that kind of tax break that real estate does.
Still, the one thing to keep in mind
is that you’ve got to play on a long-term horizon.
It’s really hard to time the market in real estate,
but at the same time,
there’s really not that much volatility.
So over time, you should see a decent return.
And speaking of markets, when it comes to location,
Dave says you should look for markets
where demand consistently outpaces supply.
Recently, that included the Sun Belt States,
like Texas, Tennessee, and North Carolina.
And Dave thinks there’s gonna be some great opportunities
in the Midwest soon as well.
Finally, just like entrepreneurship,
when it comes to real estate investing,
you really just have to jump in and get started.
Don’t wait on the sidelines for too long like I did.
I had money to buy a place years ago,
and I wish I did.
And it’s just like starting a business.
You need to be willing to work at real estate,
take some risks, make some mistakes, learn as you go,
but it’s not rocket science,
and it’s a pretty forgiving business like Dave said.
You don’t have to come up with a unique offering
or a brilliant come-to-market strategy,
just learn the ropes and do the work step by step.
All right, guys, I’ll catch you next time.
Thanks so much for tuning in
to this episode of Young and Profiting Podcast.
If you enjoyed this conversation with Dave Mayer,
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And of course, I’ve gotta thank my YAP team.
You guys are all living legends.
Thank you for all your effort on the show.
This is your host, Hala Taha,
aka the podcast princess, signing off.
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When Dave Meyer graduated in 2009, the job market was bleak. Inspired by a friend who found success buying a single-family home, he decided to give real estate a shot. Although Dave was unable to qualify for a loan on his waiter’s salary, he managed to secure his first property using creative financing. He continued to spend his spare time managing his properties until his tech startup failed in 2016. At that point, he decided to focus on real estate, combining his experience with his data science skills to build a thriving career at real estate platform, BiggerPockets. In this episode, Dave explains how anyone can start and scale a real estate portfolio. He also shares tips and strategies to navigate today’s housing market.
In this episode, Hala and Dave will discuss:
(00:00) Introduction to Real Estate Investing
(01:52) Why Real Estate is a Smart Investment
(05:50 Understanding Cash on Cash Return
(06:29) Real Estate as Entrepreneurship
(07:40) Dave’s Real Estate Journey
(18:29) Managing Real Estate Investments
(25:59) Economic Considerations in Real Estate
(29:32) Understanding Depreciation and Tax Benefits
(32:31) Exploring Hot Real Estate Markets
(34:14) Overcoming Real Estate Investment Fears
(37:35) Quick Fire: Pros and Cons of Different Deal Types
(41:39) The Appeal of Commercial Real Estate
(44:03) Development and Lending in Real Estate
(48:43) Final Thoughts and Advice for Aspiring Investors
Dave Meyer is a seasoned real estate investor and the Vice President of Data and Analytics at BiggerPockets. With more than 14 years of experience, he has grown a thriving real estate portfolio, starting with a fourplex he bought at age 23. Dave has authored notable books like Real Estate by the Numbers and Start with Strategy, where he combines his analytical expertise with actionable advice for investors. As the host of two popular podcasts, On the Market and the BiggerPockets Real Estate Podcast, Dave educates listeners on smart investing strategies. Known for developing tools like the Market Finder, he has made data-driven decision-making more accessible for investors.
Connect with Dave:
LinkedIn: linkedin.com/in/dave-meyer-5660846
Instagram: instagram.com/thedatadeli
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Resources Mentioned:
Dave’s Books:
Start with Strategy: Craft Your Personal Real Estate Portfolio for Lasting Financial Freedom: amzn.to/3ZLMG6e
Real Estate by the Numbers: A Complete Reference Guide to Deal Analysis, written with J Scott: amzn.to/4fo4BFY
BiggerPockets: biggerpockets.com
On the Market Podcast: youngandprofiting.co/3OZKWS5
BiggerPockets Real Estate Podcast: apple.co/4fpTZGo
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