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BiggerPockets Real Estate Podcast
Is Real Estate Still THE Best Path to Passive Income? (Invited to Debate)
00:40:11
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- [00:00]
Dave Meyer
Is real estate really the best path to passive income? We say it all the time, but today's guest has a different perspective, and today we're going to debate it, so strap in. Hey, everyone. I'm Dave Meyer, Chief investment officer at BiggerPockets. Our guest today is Ryan Sterling. Ryan is the CEO of Nerd Wallet Wealth Partners.
- [00:26]
BiggerPockets Host (Possibly Brandon Turner or Co-host)
He's been a financial advisor for more than 20 years.
- [00:29]
Dave Meyer
So on this episode, we're getting an unbiased outside perspective. If you think I only talk about real estate because I'm a real estate investor myself, Ryan is a neutral party
- [00:41]
BiggerPockets Host (Possibly Brandon Turner or Co-host)
whose only incentive is to help his clients build as much wealth as possible,
- [00:45]
Dave Meyer
including some who want to replace their income and retire early. Ryan's take is that you may not actually need passive income in the way you think, and I'm excited to hear him out and not afraid to debate him on some of these points.
- [01:01]
BiggerPockets Host (Possibly Brandon Turner or Co-host)
So let's get into it.
- [01:02]
Dave Meyer
Ryan, welcome to the Bigger Pockets podcast.
- [01:05]
BiggerPockets Host (Possibly Brandon Turner or Co-host)
Thanks for being here.
- [01:06]
Ryan Sterling
Yeah, thanks for having me. Excited to join.
- [01:08]
BiggerPockets Host (Possibly Brandon Turner or Co-host)
This should be a lot of fun. We're going to dig into a topic we don't always talk that much about, which is equities in the stock market. And hopefully we can compare and contrast it a little bit to real estate and help our audience understand when and where they should be putting their time and attention based on their own individual goals. Ryan, maybe start tell us a little bit about your own background in investing in finance.
- [01:32]
Ryan Sterling
Yeah, so I've been in the wealth management business now for over 20 years. Bulk of my time spent working at some of the larger investment firms. Worked at Lions Bernstein, Goldman Sachs Capital Group, and 2019, I left to start my own wealth management firm. One thing I think we all have in common here is that I always say that financial independence is mandatory. So our job is to solve for what is our client financial independence number. Even if they don't think they can reach it for the Next, you know, 20, 25 years, we still want to know what that number is and carve out a path to get there. And I think about, you know, what was my wealth building journey? My wealth building journey was saving, investing in the stock market, you know, having the benefit of compounding, but then also starting a business. And ultimately I sold the business in 2025, and now I'm the CEO of NerdWallet Wealth Partners, where it's very much an extension of what I built at the US as her firm. You know, we're just doing it now with a bigger team and, you know, we're really excited to continue to grow this business.
- [02:36]
BiggerPockets Host (Possibly Brandon Turner or Co-host)
Well, I love what you said there, Ryan, about financial independence or financial freedom being mandatory. I don't really see another objective in the professional sense that's worth pursuing more than financial independence. I just think not that many Americans think of it that way and don't
- [02:57]
Dave Meyer
have that critical number that you're talking
- [02:59]
BiggerPockets Host (Possibly Brandon Turner or Co-host)
about of just an idea of like where they need to get to. So maybe if you can do it briefly, like tell us how people can go about figuring out what that big picture long term goal should look like.
- [03:13]
Ryan Sterling
The general rule of thumb, and I know the bigger pockets audience is probably very familiar with is the general rule of thumb is like the 4% rule, right? So if you're a family who's spending $200,000 a year and that's kind of your baseline, that's what you want to maintain, you're going to need an investment base that, that can sustain spending $200,000 a year into perpetuity, you know, as it relates to liquid portfolios. You know, that means you're going to want to have a stock portfolio of roughly speaking, $5 million. You know, in terms of the value of a real estate portfolio, it's probably pretty similar to that, but that's more kind of focused on, you know, what's the income that is coming from, from the, the real estate assets. But generally speaking, again, when, when, when we are building plans for our clients and again, let's say it's hypothetically it's a 200,000 is the number that they need to reach on an annual basis. You know, we're targeting a net worth of outside of their personal residence in the 5 million range.
- [04:16]
BiggerPockets Host (Possibly Brandon Turner or Co-host)
It's funny you say that. I think of it very similarly for real estate. And I talk to investors every day, all the time, and I present this idea to them that you need to back into the total value of your portfolio. For us as real estate investors, I think about it as the total equity value value. And that's how you should be thinking about growth rather than what is my cash flow this month? Like don't focus on, hey, I went from 500 to 600 bucks a month in cash flow. The big picture, the hard thing is building up that 3, 4, 5 million dollars in equity. As a real estate investor.
- [04:52]
Dave Meyer
Once you got that, it's kind of easy, right?
- [04:54]
BiggerPockets Host (Possibly Brandon Turner or Co-host)
You could just go out and buy stuff for cash. You don't even need a mortgage. If you got 5 million in equity, go buy a bunch of properties free
- [05:01]
Dave Meyer
and clear and you'll have your number.
- [05:03]
BiggerPockets Host (Possibly Brandon Turner or Co-host)
Don't focus on getting from 200 to 300 to 400. So I really like that. You know, Ryan, I think I debate this all the time with people about having this number because I think it's hugely important. I wrote a whole book called Start with Strategy. The whole idea is starting with these, your personal values, what your big picture goal is. Once you set that goal, can it change? What's your take on that?
- [05:26]
Ryan Sterling
Oh, absolutely. We tell people all the time. You know, analogy I use for a financial plan is I'm based in New York City. Imagine you're on a road trip from New York City to Los Angeles, right? You know, you can put on ways right now and say, okay, I know the exact route to take the most efficient route that's going to get me to Los Angeles and I know exactly how much time it's going to take. There's no way that right now leaving New York City that I'm going to know that when I get to Oklahoma City, there's going to be a traffic jam, right. That's going to delay me for two hours. And by the way, I might get to Oklahoma City and decide, you know what, I actually don't want to go to la. I'd rather go to Denver. And you have to completely recalibrate the route that happens all the time with the wealth building journey. And I always joke that, you know, when we build out financial plans and we go through the Monte Carlo simulation and go through the modeling, I always tell clients that, hey, here's the one thing that we know for sure. The one thing we know for sure is that this is going to change. It's not going to happen this way. But this is, this is the guide that this is the best that we have today. But we're going to update and we're going to recalibrate so many times over. But you still need to have that direction, you still need to have that intention. Because once you have that, once you have the blueprint, that makes updating it and again, some of these audibles, it makes it easier then to execute.
- [06:51]
BiggerPockets Host (Possibly Brandon Turner or Co-host)
Absolutely. There's this quote, I think it's Zig Ziglar said, if you aim at nothing, you'll hit it every time, 100%. I just think about that all the time, right. It's like, doesn't mean you can't change, but you have to be aiming at something.
- [07:03]
Dave Meyer
You have to, otherwise you're just completely adrift. And whether you're buying stocks or going
- [07:10]
BiggerPockets Host (Possibly Brandon Turner or Co-host)
out and buying real estate, that is not a strategy. That is just let us guessing and hoping that you're going to profit. But there's clearly a better way to do this. And starting with that number or a goal of lifestyles, what your values are,
- [07:24]
Dave Meyer
what you want is such an important
- [07:26]
BiggerPockets Host (Possibly Brandon Turner or Co-host)
thing for an entrepreneur who's pursuing real estate or for someone who's just buying equities.
- [07:31]
Ryan Sterling
You know, that's, I mean, I love the saying, you know, where focus goes, energy flows. And it's so true is that like you've got to have to focus and you have to know where you're putting in your energy. And I'll say the mistake that I see people make is that their energy is divided up into way too many areas and they're doing everything kind of 40 to 50% of the way there. And that really doesn't work very well.
- [07:51]
BiggerPockets Host (Possibly Brandon Turner or Co-host)
But that kind of goes against the idea of diversification, right? Or maybe are you just saying you have to have the big goal and then with once you have that, you can diversify assets and put attention different, or do you really just recommend people focus on one asset class, one kind of investing?
- [08:08]
Ryan Sterling
Well, I think, I think it depends. Like, we're a huge proponent of diversification. But what I caution against is if somebody is like, let's think of a fact pattern of, you know, you have a married couple with a couple of kids, working professionals, you know, big jobs, W2 income, and they're diligently putting money away in the stock markets and they say, hey, you know what? I heard I can get passive income through real estate. And it sounds really easy. So I'm going to buy a rental property. To me, what I always tell clients is, hey, if you want to get in the game, let, let, let's put it through the plan and let's get in the game. But you have to want to be in the game. You have to want to see it as another, as a side business that like, that's why I always say, like, with the passive piece and this is like for me, nails on the chalkboard. I always say you got to take a big black marker and cross out passive. Because I don't believe that it's passive income. I feel like it really is more of a side job. A side job that can be very lucrative, very rewarding. It's not going to take up as much time as your day job, but it's still a job. So I like to remind people of, hey, if, if, if we're building through the stock markets and you want to diversify and you want to build a rental portfolio. Let's build a rental portfolio portfolio. But you have to know what you're getting into. And if you're going in thinking it's going to be easy, you're going to be disappointed because the first hiccup's going to happen and you're going to bail on it.
- [09:34]
BiggerPockets Host (Possibly Brandon Turner or Co-host)
Totally.
- [09:34]
Podcast Announcer/Disclaimer Voice
Yeah.
- [09:35]
BiggerPockets Host (Possibly Brandon Turner or Co-host)
And that's the way to lose money in real estate. Like, if you stay in it, you will make money if you bail early. That's the big risk, at least in my opinion.
- [09:41]
Ryan Sterling
I mean, that's how I lost in it. I mean, look, look, I. Like I said, like, I've. I've built my wealth through investing my. My excess cash in the stock market and then started a business and had a liquidity event. But I did d in real estate, and I had a rental property with some people in Florida, and a hurricane came through and completely disrupted our plans. We did not have that in the model, and tenants had to move out. We had to do the whole cleanup thing. Insurance company wasn't being very helpful, and I bailed on it. And I think that's the lesson that I learned personally, is that, hey, you know what? This isn't the game that I want to be playing because, like, my time and attention got too divided. And I know for myself that my time and attention there are higher value uses personally for my time and attention. Now, other people in that group, they went full on into it and they've done very well with it. So that's where it's like, know who you are, know who you're not.
- [10:34]
BiggerPockets Host (Possibly Brandon Turner or Co-host)
I think calling it real estate investing is one of the big misnomers in the industry.
- [10:40]
Dave Meyer
It's entrepreneurship. You are starting a business.
- [10:43]
BiggerPockets Host (Possibly Brandon Turner or Co-host)
This is a small business. Like, you are the bottom line. You are not opening an app and buying a stock. You are not passively investing in anything. For me, it is worth it. Maybe it's just my personality. I don't think the stuff you're describing is that I don't find it that stressful. Maybe it's because I've done this a while. And what I think we recommend to our audience is like, yeah, it is stressful at first. The first time that happens, when you have someone who can't make rent or you have a big repair, it just gets easier over time. Like, you just get better at it. So I don't personally find it that stressful, but I do think you need to have a higher bar for performance in real estate than you do for a stock that's kind of what I have tried to teach people on this show, or at least my recommendation. It's like long term average of the S P500 is right. 8, 9%, 10%, whatever, depending on who you ask. If you reinvest, I think you got to get 12 to 15% on a real estate investment all in to make it worth that time, 100%. And if that number is going to be different for different people.
- [11:48]
Dave Meyer
But if I'm only making 7% on a rental property, that is not worth
- [11:52]
BiggerPockets Host (Possibly Brandon Turner or Co-host)
it just to do nothing, like do nothing. But if you can do 12 to 15%, man, that compounding over 20 years is the difference of potentially millions of dollars.
- [12:04]
Dave Meyer
So I'm curious how you think of
- [12:06]
BiggerPockets Host (Possibly Brandon Turner or Co-host)
that and is that like a reasonable way to, to consider the trade offs?
- [12:10]
Ryan Sterling
You know, kind of the building blocks of investing are the first step is you have to price everything relative to a Treasury bond. So you can buy a 10 year treasury bond right now and get 4.5% or so. So any incremental amount of risk, whether it's risk in the stock market or any sort of sweat equity, you need to get a return in excess of that. And I completely agree with you that if you go through a building blocks approach and say 4.5% for a 10 year treasury, let's call it 8% for the S&P 500, which is completely passive, I mean, you don't have to do anything that it's going to require risk, time, attention, you have to command a higher return than 8%.
- [12:49]
BiggerPockets Host (Possibly Brandon Turner or Co-host)
Absolutely. I think this is something a lot of newer investors miss, especially coming off these insane years that we've had over the last couple of years in real estate where people are like, oh, I'm just going to buy and I'll hold on to it and I'm going to make a bajillion dollars maybe. We've probably went through a once in a lifetime event with the appreciation that we saw during COVID and we're just back to the fundamentals and I personally think that's a good thing. I think that this is what should happen. Real estate should grow, you know, a
- [13:17]
Dave Meyer
little bit above the pace of inflation.
- [13:19]
BiggerPockets Host (Possibly Brandon Turner or Co-host)
That's what normally happens. You're going to have increases in expenses. But if you, you know, get fixed rate debt, if you could buy good cash flow, like you can get that 12 to 15%. But I don't see a lot of newer investors thinking that way. And I think what Ryan said, I hope everyone in the audience is paying attention to like the job of the investor is to think about what is the best use of my time and money today. And if you can, if you're earning, you know, in a low appreciation market and getting a 2% cash on cash return, you are better off. In a Treasury bond, you are better off than the S and P and 500. Now, I hope from listening to the show, you can buy better deals than what I'm describing there. That's kind of the goal here. But I think that should always be the framework. And instead of thinking about, you know, how do I just keep buying all the time in real estate? And I recommend that you do. It's like, how do you keep buying
- [14:15]
Dave Meyer
at a level that's better than the stock market?
- [14:18]
BiggerPockets Host (Possibly Brandon Turner or Co-host)
Right? Like that's, to me, the framework I use.
- [14:22]
Dave Meyer
All right, a lot of good stuff
- [14:23]
BiggerPockets Host (Possibly Brandon Turner or Co-host)
here from Ryan Sterling. We got to take a quick break, but we'll be right back. Stick with us.
- [14:29]
Dave Meyer
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- [15:06]
BiggerPockets Host (Possibly Brandon Turner or Co-host)
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- [15:07]
Dave Meyer
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- [18:29]
BiggerPockets Host (Possibly Brandon Turner or Co-host)
Let's get back into my conversation with with Ryan Sterling.
- [18:33]
Dave Meyer
Now.
- [18:34]
BiggerPockets Host (Possibly Brandon Turner or Co-host)
Ryan, though, I'm sort of unusual here in the bigger pockets universe with a lot of our other hosts who have just gone full in on real estate. They just only all every dollar they own is in real estate. I am not that way. I'm closer to 50 50, probably 60, 40 in terms of real estate. How do you advise people who want to take a diversified approach but they are sort of in they're in on real estate, right? Like they've embraced it. They like it. They want to do it. How do someone like that diversify.
- [19:05]
Dave Meyer
Because I get this question all the
- [19:07]
BiggerPockets Host (Possibly Brandon Turner or Co-host)
time and I'm not a financial advisor. So I'd love your take on this.
- [19:10]
Ryan Sterling
It's a good question. I would say that we usually get it through the lens of I feel really comfortable with real estate's. The stock market, I don't feel comfortable with. So I think for a lot of those clients, it's actually educating them on the benefit of diversification in the stock market. And it goes back to risk. I think, you know, examples where someone is buying, you know, 10 rental properties in, you know, one specific location, there's a lot that can happen in that specific location. The neighborhood could change. It could be in a really good commercial center that for some reason falls out of favor. Natural disasters happen. So I mean, when you think about diversification, owning 10 rental properties isn't actually diversified if they're all clustered in the same area. So again, it's, I never want, if someone is comfortable with it, they, they understand the risk, they're willing to put in the hard work and the sweat equity all day long. I want people to own rental properties. However, when we think about being risk managers, it is important to note that you are taking on a lot of concentration risk. And when we're talking about the markets, we are broadly diversified. Does it mean we're immune to a 20, 30% pullback? Absolutely not. But, but the thing that makes me laugh is, you know, when people come to me and say, you know, the real estate, I can see it, I can touch it where the stock market, it just, I just, I don't, I don't see it and I just, I don't want it to go to zero. And I always laugh and I'm like, I hope the stock market goes to zero because I'll take a dollar and I'll own all of Apple, I'll own all of Microsoft, I'll own all of Google. And the reality of it is like, that's just, that's not going to happen. So I think as investors in the stock market, I think we need to do a better job connecting people to. You're not buying dots on a screen. You have ownership in companies and companies that are producing goods and services that are adding tremendous amount of value around the world. So get away from looking at the dot on the screen and what it's doing day to day. Like that's largely irrelevant. You know, when we, you know, construct our investment portfolios, I really don't care what's happening today. We're looking at how it's going to help build and compound wealth over decades. And I think about, you know, when it comes to building wealth, you can't do it through earnings alone. You just, you're one person. It's impossible to do it. You need to get the benefit of leverage. Now in real estate, the benefit of leverage that you get is that, look, you, you can put down a down payment, you can borrow, you can buy an asset bigger than you can afford and by the way, you can use that, that leverage to acquire 10 rental properties faster than if you're doing with cash. That's a beautiful thing. When I think about the st using leverage in terms of I'm an owner of Google, I'm an owner of Microsoft, I'm an owner of Apple. I have the smartest people in the world who are building products that we're all using. I'm an owner of that, they're working for me. And when I think about my path to building wealth, I can't do it alone. I need help and for me I want to leverage the help of the people at those companies.
- [22:17]
BiggerPockets Host (Possibly Brandon Turner or Co-host)
Yeah, I'm with you. I think it's just there's a dose of humility that's helpful in diversification and just admitting you don't really know. Like I think that that's just super important. Where I study the housing market all day, I think I have a pretty good grip on it. But like you don't know what's going to happen on an individual property. You don't know what's going to happen. Regulation if you went all in on short term rentals. I think a lot of people have seen that concentration in short term rentals was a risky strategy. Or in recent years concentration in commercial real estate and multifamily in the Sunbelt booming for a while now. It's really hurting. You know, you just, we don't even. The smartest people in the world don't really know why. I personally preach diversification. I diversify both in real estate and the stock market.
- [23:03]
Dave Meyer
But even within my own real estate
- [23:05]
BiggerPockets Host (Possibly Brandon Turner or Co-host)
I do a lot of different stuff. I'm invested in different markets and different asset classes across the country.
- [23:10]
Dave Meyer
But I have the luxury of that,
- [23:13]
BiggerPockets Host (Possibly Brandon Turner or Co-host)
Ryan and I think that's sort of where I think a lot of people have questions is like I've gotten to a point where I have enough capital that I can spread it around and that's a fortunate place to be. But when you're starting in real estate, it's so capital intensive, like you kind
- [23:27]
Dave Meyer
of have to go all in on it. Right. Like if you're, if you have to save up to put 25% down on a rental property, that could be 100 grand, you know, it takes people years
- [23:37]
BiggerPockets Host (Possibly Brandon Turner or Co-host)
to get to that. So, like, can you diversify in that scenario or do you just kind of have to take a leap of faith? If you're in, in real estate and trying to grow a portfolio, I would
- [23:48]
Ryan Sterling
say, you know, who is the best candidate for going all in on building a rental property portfolio from scratch? It's someone who's young and it's someone who's just starting. So it's like, look, if you can scrap together $40,000 and use leverage and buy the first property, and if you can have that vision to then a year later buy another one, and then two, turn into four, that turn into eight, et cetera, that is the fastest way to build wealth.
- [24:14]
BiggerPockets Host (Possibly Brandon Turner or Co-host)
I think so.
- [24:15]
Ryan Sterling
But it takes a lot of direction, it takes a lot of intention, it takes a lot of sacrifice, and I'm all for it. So I would say that if there's someone starting out today and they're like, I want to get to financial independence as fast as possible, I would probably be the first to concede that real estate is probably the best option. Building a real estate portfolio. I think the one caveat to that is for people who are in high earnings areas, you know, I think about sales, for example, if you're a good salesperson, is your time and energy better spent potentially being distracted on real estate deals or making 20 more calls a day?
- [24:52]
BiggerPockets Host (Possibly Brandon Turner or Co-host)
Yep.
- [24:52]
Ryan Sterling
And 20 more calls a day could turn into an, making this up an extra $200,000 of income. It's going to be really hard to replicate that in real estate for the short term. You know, I think about our clients who are corporate attorneys or investment bankers. They are working so hard and such long hours, and they're making so much money, you know, their time is at a premium. And it's kind of what you were saying before is that it does require extra time and effort. If they don't have it, you're better off going for the biggest bonus you can get and then diversifying in the stock markets and, and, and having that be a way to build and compound your wealth. But I would say that, you know, if there's someone who's starting out and they're like, hey, I've got a decent enough job, but, you know, there's, you know, there's, there's some upward mobility, but not crazy, and I've got time on my hands And I'm young and I'm willing to take risk, like, all day long. Like, this is a perfect profile to start building a diversified rental portfolio.
- [25:45]
BiggerPockets Host (Possibly Brandon Turner or Co-host)
Yeah, I think that makes a lot of sense. So that, that's sort of what I. When I was started, I was 22, 23. I was like, I had nothing to lose. There was nothing in my bank account. So I just figured I could try and hustle and got, you know, was so into it that I could pay such close attention to every deal that I did that I thought I had a higher probability of success. And I think that's true.
- [26:09]
Ryan Sterling
By the way, though, too. A really important point is, like, we've been talking a lot about risk, and I think, look, everything needs to be through the lens of risk first. But list is risk is a very fascinating concept. And I would actually argue that someone who doesn't have anything to lose at 22, 23, who's taking a swing at real estate, guess what? If you don't take that swing at 22, 23 and you decide to stay in a safe, stable job that might not be around in 10 years from
- [26:36]
BiggerPockets Host (Possibly Brandon Turner or Co-host)
now, I. I totally agree.
- [26:38]
Ryan Sterling
Yeah, so you're taking concentration risk on your job. So that's where, like, I would actually argue that if you're 22, 23, taking a swing at some investments, like, that's actually potentially the least risky thing you could be doing.
- [26:50]
BiggerPockets Host (Possibly Brandon Turner or Co-host)
Yeah, diversification. Yeah, exactly. Because especially that early in your career, at least speaking for myself, I don't know where I was going to wind up. You know, I didn't know what I wanted my career to be. And you sort of putting a couple irons in the fire, so to speak, to see what works out for you. So I think, yeah, I totally agree with you. You're young, go out house, hack, hustle, do those things that we talk about all the time on the show. It really just works like there's still risk. You got to mitigate that risk. But it really can work.
- [27:17]
Ryan Sterling
It's all risk. It's all risk.
- [27:19]
Dave Meyer
The other, I think big group of
- [27:21]
BiggerPockets Host (Possibly Brandon Turner or Co-host)
biggerpockets, listeners, and people who I talk to all the time are people with jobs that they like that they're not intending to go full time into real estate and they want to diversify or they want access to capital and income in a way that they, at least, I'll ask you about this, don't feel that the stock market provides. Right. So, you know, of course there are dividend stocks, but they feel, you know, the cash return on real Estate is better and worth the time. Right. So, again, this is the idea of worth the time. How should someone like that think about diversification? Because a lot of these folks, maybe they have a 401k, if they're fortunate through work, they've been investing in the stock market for a while, but now they say, okay, I want some. Some of that real estate action. How should they think about balancing and what capital to put where that is?
- [28:17]
Ryan Sterling
Kind of what we see more often is that, you know, you have people who are, you know, in their late 30s, early 40s. They're still very much in the wealth building stage. They're established in their job, they have a family, they have responsibilities, et cetera. And that's where it comes back to what we were talking about at the very beginning of the episode is, you know, having that plan in place, having that direction and intention, and putting real estate into that. So it goes back to if someone's like, I want to buy one rental property, and that's it. Run the numbers. And I think you'd probably agree with it. It's probably not worth the headache.
- [28:52]
BiggerPockets Host (Possibly Brandon Turner or Co-host)
Just a single one. Yeah, yeah.
- [28:54]
Ryan Sterling
I mean, it's just. It's not going to be worth it. You really have to have the mindset that we're going to start to acquire a rental portfolio over the next five to 10 years, and let's put that into plan and let's see what it looks like. Now, of course, it all starts with one. So action produces information. So, you know, of course, you know, buy that first rental property and let's see how it goes. But go in with the mindset that this is going to be part of our portfolio of building wealth. Just know that's what you're doing.
- [29:26]
Dave Meyer
All right, everyone, we need to take one more quick break, but we'll be back shortly.
- [29:32]
BiggerPockets Host (Possibly Brandon Turner or Co-host)
Stick with us.
- [29:33]
Dave Meyer
You know what changed the way I invest? Realizing that scaling rentals shouldn't mean creating more work for yourself if you're trying to build that kind of system. Baselane is giving away $10,000 to help investors build rentals that run themselves. I own and manage dozens of properties. I travel a lot, and I still work a W2 job. And there was a point where I was checking multiple bank accounts, chasing rents, and updating spreadsheets, just trying to stay organized. Even on vacation, I was constantly checking if rent came in. Now everything runs through baseline. It's BiggerPocket's official banking platform that automates my rental cash flow. Rents get deposited into dedicated property accounts. Transactions get automatically categorized and everything stays organized without me constantly managing it. That's the difference the right systems make. You can finally step away mentally without
- [30:25]
BiggerPockets Host (Possibly Brandon Turner or Co-host)
feeling like something's going to fall apart.
- [30:27]
Dave Meyer
Now my rentals practically run in the background, and yours could too. Deposit qualifying rental income into baselane for a chance to win $10,000 dollars finding a strong rental property usually takes time, research and calculated risk. Lennar Investor Marketplace helps simplify all of that. With a free account, investors can browse new construction homes built for rental potential alongside real time data showing estimated returns, expenses and local market insights. It's all in one dashboard, making it easier to compare opportunities and move when the right deal shows up. Up go to biggerpockets.com lennar to create a free account and take a look. That's biggerpockets.com Lennar Sign up for free and start exploring this smart investing opportunity today. Please consult your own legal and tax advisors to help evaluate the risks of any real estate transaction. Lennar is an equal housing opportunity builder There's a point where basically every investor realizes traditional financing stops scaling with you. At first it works. You qualify with your income, your job, your tax returns. But as you grow, that model starts to break. Now it's not really about your personal income, it's about the income from your properties. That's where DSCR lending comes in, and it's why a lot of investors end up working with lenders like Host Financial. Host Financial qualifies deals based on property income, not personal income. So you're not dealing with W2s or tax returns or DTI constraints. And with 80 to 85% LTV, you can stay more flexible as you scale. It's just a different framework, one that tends to align better with how investing actually works. If you're buying rentals, refinancing or growing your portfolio, go to host financial.com that's h o s t financial.com and see what you qualify for. Tax Season Reminder for all the real estate investors listening, if you own rental properties, short term rentals, commercial buildings, basically anything that's not your primary residence, you need to know about Cost Segregation. It's an IRS compliance strategy that lets you accelerate depreciation on your properties, which means you're paying less in taxes this year and keeping more cash in your pocket for your next deal. Cost Segregation guys is the Go to firm having done over 12,000 of these studies with 500 million in total depreciation identified. Head to cost segregationguys.combp to get a free proposal and see your Potential tax savings. Welcome Back to the BiggerPockets podcast. I'm here speaking with the CEO of Nerd Wallet Wealth, Ryan Sterling. Let's get back to our conversation.
- [33:15]
BiggerPockets Host (Possibly Brandon Turner or Co-host)
And there's risk everywhere, including the stock market. So I'm curious your read on the situation. Right now we're hovering around all time highs. Obviously I'm asking you to pull out a crystal ball that you don't have, but just give us your sense of how the stock market is performing and where it might go from here.
- [33:33]
Ryan Sterling
You just hit the nail right on the head in terms of look, we're at all time highs. The stock market valuations are stretched and are stretched to not the highest we've ever seen, but certainly very much on the high uncomfortable side. So valuations are not gravity. So high valuations do not mean that we should expect a correction or bear market in the next 12 months. Markets that are richly valued can be even more richly valued a year from now, two years from now, et cetera. Same thing with, with markets that are attractively valued. So the, the high starting valuations do not do a very good job of informing you of what to expect over the next 12 months. However, they do a good job of telling you what to expect over the next decade. And what valuations are telling us right now is we should expect lower returns over the next decade than the previous decade. How is that going to materialize? We'll find out. Is it going to be instead of 10% returns, are we going to see 7% returns? Maybe. Is that going to be at a straight 7% clip? Probably not. We're probably going to see markets get up to bubble territories and then have a crash and correction. That's typically what happens. I would say that 1996, during the dot com boom, Alan Greenspan, who is the head of the Federal Reserve at the time, gave a speech that he called it irrational exuberance and he basically was saying the prices of these dot com stocks are in unsustainable territory. He was right. However, it took four years, it was
- [35:05]
BiggerPockets Host (Possibly Brandon Turner or Co-host)
four years off for that bubble to pop.
- [35:07]
Ryan Sterling
So if you're sitting there right now and saying God, the stock market, it looks too richly valued, I'm going to be on the sidelines. You might have to have a good amount of patience before the dam ultimately breaks.
- [35:20]
BiggerPockets Host (Possibly Brandon Turner or Co-host)
Yeah.
- [35:20]
Ryan Sterling
The other thing though, I think that's important to note is the mega cap companies right now that make up the US market. So I'm talking about the Nvidias, the Apples, the Googles, the Microsofts, the Amazons, metas, et cetera. These are the greatest companies we've ever seen in the history of the world in terms of their scale, in terms of their cash flow, in terms of their capital allocation, in terms of their future growth prospects. So that also has to go into your consideration as a long term investor and that you are having exposure to. Again, the companies that we've never seen in the course of human civilization. These are the best companies we have ever seen. So how does that populate itself in terms of what we're advocating for our clients? It goes back to diversification and that we feel very comfortable being invested over the long term. I always think about, you know, do I think Google's going to be around 10 years from now or do I think Apple's going to be around 10 years from now? The answer is yes. Do I think it's going to be bigger than it is today? The answer is yes. Do I think it's going to be a straight upward trajectory from now to 10 years from now? Absolutely not. So you have to be able to stand the volatility and the diversification serves to mute the volatility when it presents itself.
- [36:32]
BiggerPockets Host (Possibly Brandon Turner or Co-host)
That's very well said, Ryan. Thank you. I think that's a very sober way of looking at it.
- [36:36]
Dave Meyer
I just want to provide a little
- [36:38]
BiggerPockets Host (Possibly Brandon Turner or Co-host)
bit of context here too, because I agree, you know, I read a lot about the stock market and you know, you hear this like decade of lower returns often. And I think the same thing is true in real estate. I say it on the show all the time. I, you know, but I want to provide some context that the last decade for equities and for real estate were abnormally good. So some reversion back to lower returns is to be expected and is not necessarily a catastrophe. Right. The second thing is I just think the job of the investors. What do you do with your money today? And I think we, I see a lot of people get hung up on this on real estate where it's like, oh, I don't want to get into real estate because they won't, the returns won't be as good as they were in 2022.
- [37:21]
Dave Meyer
Or I don't want to be in
- [37:22]
BiggerPockets Host (Possibly Brandon Turner or Co-host)
the stock market because in the next 10 years they won't be as good as the last 10, 10 years. What else are you doing with your money?
- [37:28]
Dave Meyer
What's the other option?
- [37:29]
BiggerPockets Host (Possibly Brandon Turner or Co-host)
You know, I, I still think you need to be, I'm not just saying throw your money into anything, but saying, I'm going to wait till there's Going to be the best decade just makes no sense. Like you have no idea when it's going to come. Thinking that you're going to be able to identify it is the height of arrogance. Like you're not going to know. And if you're going to wait, you'll probably miss the whole thing. So taking a more pragmatic approach and adjusting your expectations, I feel like is just really important. Don't do this to get rich overnight, do it to get rich 20 years from now.
- [38:01]
Dave Meyer
And if you take that mindset, your chances of success are pretty high.
- [38:05]
BiggerPockets Host (Possibly Brandon Turner or Co-host)
At least I think so. So anyway, I really appreciate that. So, Ryan, like, what, what is your approach to that, like, for people, like, is just dollar cost averaging kind of the right way into the market? I know it's boring, but it's just works.
- [38:19]
Ryan Sterling
I mean, I mean, by the way, the boring is really effective. Like we always say, like, like what we do is simple but not easy. Having people stick with the plan over the long term, it's actually a lot harder than it sounds. You know, there's a saying that we overestimate what we can do in a year and underestimate what we can do in a decade. And that is so true as it relates to building wealth and that if you think starting from zero that you're going to reach financial independence in a year, that's just arrogant. This is likely not going to happen. But the progress you can make over a decade, it's substantial if you stick with the course. Now, you know, to your point, like, what do you do if valuations across the board in asset classes are high? Good luck being in cash and picking the best opportunity to deploy your cash. It's likely not going to happen. I can tell you in the stock markets, tell me when a 10% decline turns into 20% decline. When a 20% decline turns into 30, when a 30 turns into 40. Look, we've had some air pockets of volatility in the last couple of years. And I know people who have been in cash and they still have the bat on their shoulder, even though there have been multiple opportunities to deploy cash down 20% because they thought it was going to be down 40%. So you have to get timing right, which is impossible. So the dollar cost averaging piece, I think as it relates to real estate, it's the same principle that, you know, if you have a plan and a direction and intention to own 20 rental properties, and in this year in the plan, you're going to acquire two rental properties, acquire two rental properties, obviously you know, don't force yourself to do it. You have to do the research, you have to do the diligence. You have to make sure that you're underwriting the deal in a way that makes sense for you. But, like, don't get too cute and say, let's wait for things to correct and I'm just going to be out of the game and I'll get back into it in four years from now. Like, that's going to derail you over time.
- [40:11]
BiggerPockets Host (Possibly Brandon Turner or Co-host)
I completely agree. Just sticking with the plan, it's harder, it's easier said than done, but it is absolutely the right approach. One more question for you here, Ryan, before we get out of here. And that's about finding and working with a financial advisor. Most real estate investors I know do not do that. I personally have one. I, one of my wife and I, we've been together for 13 years, but we, we finally got married three years ago, and I was like, man, I got to get a financial advisor because I don't want to be around wrong and I just want someone else to gut check because I've been doing it by myself for 10 years. It was super hard to find a financial advisor that knew anything about real estate. I think I probably, I'm not exaggerating, probably interviewed eight or nine before I found one, and I was specifically talking to people who said they understood real estate. Why is that? And do you have any tips for
- [41:07]
Dave Meyer
people on working if they want to be in real estate, presuming that they
- [41:12]
BiggerPockets Host (Possibly Brandon Turner or Co-host)
are all in, either all in or doing this at diversification, but they want to build a portfolio? How do you best work with a financial advisor?
- [41:19]
Ryan Sterling
You know, unfortunately, in this industry that, you know, financial advisors, oftentimes the vast majority of their job is to be a salesperson and their salespeople first, practitioners second. So I think it's important to find an advisor and find a firm that considers themselves practitioners first before anything else. You know, there's of course, you know, certain clues, like people who have their cfp, et cetera. But unfortunately, I do think, you know, it does take some work and it does take some interviewing. And I think it's important to articulate what your values are. And, you know, for people listening to this podcast, real estate is probably a deep value in terms of it's going to be a part of your plan. I would only work with an advisor who understands you and understands what you're trying to build. It doesn't mean that they're going to underwrite everything. It doesn't mean that they're going to sign off on everything. It doesn't mean mean that they're going to agree with everything you say. However, they understand with the spirit of what you're trying to accomplish and really take financial planning in a holistic sense, not just try to gather your assets and invest it in a stock portfolio. Again, there's a place for that. You know, investing is one of our core tenants, but it comes with financial planning and coaching. And you know, one thing, I loved what you said because I say this all the time. You know, building wealth is like. Like building a reputation. Warren Buffett has that famous quote of a reputation. Takes you decades to build and only seconds to destroy. Wealth is the same thing. Wealth can take three decades, two to three decades to build, and one to two bad decisions can completely erode the process. So a big part of our job as financial advisors is also making sure our clients aren't making the big mistake. But unfortunately, in this industry, there are a lot of people that are going to try to sell you product, that are going to try to sell you on just their investment portfolio. And again, while there's a play place for that, you really have to interview people and to feel like they understand you, understand your values and ultimately what you're trying to accomplish.
- [43:21]
BiggerPockets Host (Possibly Brandon Turner or Co-host)
Awesome. Well, thank you so much, Ryan, for being here for all of your insight. We really appreciate it.
- [43:26]
Podcast Announcer/Disclaimer Voice
Yeah, absolutely.
- [43:26]
Ryan Sterling
I will say, just kind of quick plug. We are starting a podcast. It is called you'd Next Dollar. Andrew Giancola is our host and I know he's been on this show before.
- [43:36]
BiggerPockets Host (Possibly Brandon Turner or Co-host)
Andrew's awesome.
- [43:37]
Ryan Sterling
Yeah, Andrew's great. We're super excited for Andrew to launch this and I will be a recurring guest. So if you enjoyed this, make sure to tune in.
- [43:46]
BiggerPockets Host (Possibly Brandon Turner or Co-host)
Awesome. Well, good for you. That's awesome. We'll definitely check it out. Andrew's great. Was on the show just a couple of weeks ago and obviously, hopefully we got some good practice for you being a guest. Good.
- [43:56]
Ryan Sterling
Yeah. Well, thank you. This is a good warmup.
- [43:58]
BiggerPockets Host (Possibly Brandon Turner or Co-host)
Well, thanks again, Ryan. And thank you all so much for watching this episode of the Biggerpockets podcast. We'll see you all next time.
- [44:05]
Dave Meyer
Thank you all for listening to the Biggerpockets Real estate podcast. Make sure you get all our new episodes by subscribing on YouTube, Apple, Spotify, Spotify, or any other podcast platform. Our new episodes come out Monday, Wednesday and Friday. I'm the host and executive producer of the show, Dave Meyer. The show is produced by Ian K. Copywriting is by Calico content and editing is by Exodus Media. If you'd like to learn more about real estate investing or to sign up for our free newsletter, please visit www.biggerpockets.com.
- [44:34]
Podcast Announcer/Disclaimer Voice
the content of this podcast is for informational purposes only. All host and participant opinions are their own. Investment in any asset, real estate included, involves risk, so use your best judgment and consult with qualified advisors before investing. Investing, you should only risk capital you can afford to lose. And remember, past performance is not indicative of future results. Biggerpockets LLC disclaims all liability for direct, indirect, consequential, or other damages arising from a reliance on information presented in this podcast.