How to Diversify Your Rental Portfolio for Financial Freedom Faster

Summary

BiggerPockets Real Estate Podcast — Episode Summary

How to Diversify Your Rental Portfolio for Financial Freedom Faster

Date: September 12, 2025
Host: Dave Meyer, Head of Real Estate at BiggerPockets
Guest: Garrett Brown, short-term rental expert & host of Bigger Stays

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Main Theme / Purpose

This episode addresses a pivotal question in real estate investing: Should you stick with your proven investment strategy or diversify to accelerate your path to financial freedom?
Dave Meyer and guest Garrett Brown share a deep, practical conversation as they walk through three real-world deals Garrett is considering, weighing the pros and cons of each and the impact on portfolio diversification, time-management, and long-term wealth—offering listeners a framework for evaluating their own next moves.

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Key Discussion Points & Insights

1. Context: Why Diversify?

• Garrett owns 1 long-term rental and 8 short-term rentals and manages 7 more for others.

• Motivation for diversification: balance effort, mitigate “all eggs in one basket” risk, and create a more passive, less time-intensive income stream.

• Short-term rentals are frequently misrepresented as “passive.” Garrett calls them “a business, and almost a 24-hour job.” (03:16)

  “They talk about how passive it is and how easy it is. And I’m here to tell you...it is real estate mixed with a business.” — Garrett (02:45)

2. Deal Analysis: Garrett’s Options

Garrett brings three deals he’s actively considering, each illustrating a different approach:

• Triplex (long-term rental, Conroe, TX)
• Townhouse (short-term rental, downtown Houston)
• Two new-construction single-family homes (Willis, TX, long-term rental)

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Deal #1: Triplex in Conroe, TX (Long-Term Rental)

[05:09–12:47]

• Property: 3 units (2x1BR, 1 studio), 1982 build, partially renovated, HOA.

• Financials:

  • Asking price: Dropped from $450K to $375K (Garrett considers offering lower).
  • ~$100K available for down payment; aiming for ~8% cash-on-cash.
  • Annual gross rents ~$44K; expenses ~$19K (incl. $650/mo HOA), NOI ~$25K; mortgage ~$20K; annual cash flow $5–6K.

• Pros:

  • Lower effort than short-term rentals (“It is extremely easy”; 03:35).
  • Located in a fast-growing area north of Houston.

• Cons:

  • High, unpredictable HOA.
  • Lower appreciation (around 3%).
  • Supply from major homebuilders could increase competition.
  • Slightly older property, but not problematic.

• Market Dynamics:

  • 5–10% expected vacancy; solid rental demand (08:55).
  • Rents: about $3,700/mo currently; slow growth expected (12:20).

  “The one thing that’s been kind of holding me back is the appreciation...what I’m seeing at this moment isn’t as good as downtown Houston.” — Garrett (06:18)

Memorable Moment:
Dave’s take on HOAs:

“HOAs aren’t necessarily bad. It just introduces an element of risk and unknown...There might be great HOAs that add a lot of value because they make the property values go up. There are really bad HOAs that mismanage money, and then there are special assessments...it does add a question to this deal.” — Dave (11:19)

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Deal #2: Downtown Houston Townhouse (Short-Term Rental)

[16:16–22:00]

• Property: No HOA. Urban, legal for STR. Estimated $450K price.

• Financials:

  • $60–70K/year in revenue (as-is); $85–90K possible with $50–60K extra investment (which Garrett doesn’t have on hand).
  • Taxes are “about $800 a month—whoa, property taxes. Very high…about $10–11K/year.” (17:50)
  • Cash-on-cash return 10–12% (without extra investment); team infrastructure already in place.

• Pros:

  • High appreciation expected in a desirable area.
  • No HOA risk; strong short-term rental demand.

• Cons:

  • Very high property taxes & insurance.
  • Regulatory climate could change.
  • Highly competitive, potentially saturated STR market.
  • Not in line with diversification goal; would add more to STR basket.

• Backup Use: Could convert to long-term or mid-term rental, estimated $3,400/mo rent, 6–7% cash return (20:45).

  “I’m very good operator...and I still am scared of the competition and saturation that’s in some of these markets.” — Garrett (19:13)

  “You want to diversify. So I get why you would consider this…I don’t feel like this is the one for you.” — Dave (21:37)

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Deal #3: Two New-Construction Single-Family Homes (Willis, TX)

[26:10–37:13]

• Property: Two new builds, $220–230K each. Family-oriented, last phase in big development.

• Financials:

  • Down payment aiming for total acquisition ~$420–425K.
  • Each rents for ~$2,000/month.
  • NOI ~$33K/year; mortgage ~$27K (could be $25K with negotiations); cash flow ~$6K/year for both (7–9% cash-on-cash with builder incentives).

• Pros:

  • Low maintenance, low insurance, and more predictable expenses.
  • Better tenants expected (families, long-term stays).
  • Reasonable HOA ($50/mo/unit).
  • More passive, aligns with work/life balance goals.

• Cons:

  • Appreciation modest (2% expected).
  • High vacancy risk: 10–15% due to excess new supply.
  • Market “may be outbuilding the growth.”

• Key Considerations:

  • Must thoroughly research builder pipeline and permits to assess risk of oversupply.
  • Look for advantages versus competing developments (size, features).

  “My gut is telling me like new construction, single family at this moment fits what I’m looking for. Low maintenance, low stress, not a lot of expenses compared to other places…better family renters that probably stay longer…” — Garrett (32:48)

  “I like the idea of new construction…If you can make the new construction work, it just seems like it’s going to be a low lift thing for you to hold on to for a long time.” — Dave (36:34)

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Timestamps for Major Segments

• 00:00–02:18 — Framing: Diversify or double down? Garrett’s investment background and goals.
• 03:16–04:52 — Why diversify: time management, risks in STR, long-term goals.
• 05:09–12:47 — Deal 1 breakdown: Triplex, HOA risks, returns, and market analysis.
• 16:16–22:00 — Deal 2 breakdown: Houston townhouse STR, taxes, risk, backup plans.
• 26:10–37:13 — Deal 3 breakdown: New construction homes, pros/cons, supply risks.
• 35:02–37:13 — Decision-making process, specific investment questions.
• 39:06–40:16 — Clarity on evaluating deals based on personal goals, not just numbers.

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Notable Quotes & Memorable Moments

• On Short-Term Rental Reality:

  “I love this niche because I like the creative side. But...it is real estate mixed with a business… almost a 24 hour job.” — Garrett (02:45)

• On HOAs & Risk:

  “HOAs...introduce an element of risk and unknown that you may not want as an investor.” — Dave (11:19)

• On Houston’s Property Taxes:

  "I think it’s about 800 a month in just taxes. Whoa, property taxes." — Garrett (17:50)

• On Urban Short-Term Rentals:

  “I am very good operator...and I still am scared of the competition and saturation.” — Garrett (19:13)

• On New Construction as a Long-Term Hold:

  “What do I want to buy now that I don’t want to touch until I’m in my 60s and it will be paid off and I’m going to still be happy to own it. New construction is very appealing for that.” — Dave (33:38)

• On Making the Choice:

  “Since Garrett has that clarity, it allows him to make this sort of decision. So if you find yourself in this kind of dilemma, maybe focus less on the cash on cash return and maybe step it back and say to yourself, like, what am I trying to do? Where do I want to be in 10 years?” — Dave (39:32)

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Takeaways & Advice

• Personalization is Key: There’s “no one-size-fits-all”—what works for you depends on your goals, portfolio makeup, and appetite for risk and effort.
• Diversification Builds Resilience: Don’t just look at risk, but also time and balance.
• Numbers Must Work, But So Must Strategy: All three deals made sense numerically; final choice should suit your desired lifestyle and long-term plan.
• Due Diligence on Market/Supply: Research construction pipelines before buying in new areas to guard against overbuilding.
• Talk It Out: Talking through options, even with all details in front of you, helps clarify thinking and prevent “shiny object syndrome.”
• Choose According to Your “Season”: Your strategy can and should evolve as your career and life context change.

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Connect with Garrett & Resources

• Bigger Stays YouTube Channel & Newsletter:
  “We have our own short-term rental investing YouTube channel called Bigger Stays. And I also write a weekly Bigger Stays newsletter…it comes out every Wednesday.” — Garrett (40:16)

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Summary Table: Deal Comparisons

| Deal | Type / Market | Cash-on-Cash | Pros | Cons | |------|----------------------------|--------------|-------------------------------------------|----------------------| | 1 | Triplex, Conroe (L-T Rent) | ~8% | Easier to manage; solid area | High HOA; slow apprec| | 2 | Townhouse, Houston (STR) | 10–12% | High revenue, appreciation, no HOA, backup| High taxes, saturation| | 3 | 2 New SFH, Willis (L-T) | 7–9% | Low maintenance, family tenants, incentives| High vacancy risk |

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Final Recommendation:
Garrett’s gut and Dave’s assessment both point toward the new construction single-family homes (#3) as the best fit for current goals—contingent on deeper supply research—offering a blend of lower time investment, low maintenance, and long-term asset potential.

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For more, follow Garrett’s journey at Bigger Stays or his newsletter via BiggerPockets, and don’t forget to check upcoming BiggerPockets episodes for more expert real estate investing tactics!

Transcript

[A]

Should you diversify your investments with a.

[B]

New strategy or double down on a formula that's worked for you in the past? It's a question you'll almost certainly encounter.

[A]

As you scale a real estate portfolio.

[B]

And take steps towards securing your financial future. Today, I'll explain how to answer. Hey everyone, I'm Dave Meyer, head of.

[A]

Real estate investing at BiggerPockets.

[B]

You might only be 10 years away from achieving financial freedom if you start investing in real estate now. And this podcast teaches you exactly how to do that. Today on the show, I have Garrett Brown here with me. Garrett is Biggerpocket's short term rental expert.

[A]

And the host of the Bigger Stays YouTube channel.

[B]

But Garrett, the reason you're here today on this episode is because you're actually thinking about expanding your own investing outside.

[A]

Of short term rentals.

[B]

Is that right?

[C]

Yep. I've dipped my toe in the many facets of real estate investing before, but I got the short term rental bug and went full force there. But now I think it's time to maybe explore a little more diversification as I try to grow my portfolio.

[B]

I love it.

[A]

Because this is such a personal question. I don't know if there's really like a one size fits all, like should you keep doing what you've always been doing? Should you explore new diversification options? So I'm excited to get into this with you today, Garrett and and actually.

[B]

Garrett has brought three different real life deal options that he's actually considering pursuing. He's got a triplex in a new market that he could long term rent. He's got a short term rental or.

[A]

Two new build single family homes he's considering. So what we're going to do is.

[B]

We'Re going to break down the pros.

[A]

And cons of each investment and explain how we think about these deals in relation to Garrett's existing portfolio and his future goals. So even if Garrett's specific situation is different from from your own, because of.

[B]

Course it will be, the questions we're answering today are the same sort of thought process that you can use to.

[A]

Ensure you're making the best investing decisions.

[B]

For your own future when you're ready to jump into the market and make your next purchase. So let's just start there. Garrett, maybe you just tell us where your portfolio stands today and tell us a little bit about your goals that.

[A]

You'Re trying to pursue through real estate.

[C]

So I currently have one long term rental, but I own eight short term rentals and I manage seven short term rentals for other people. And so I kind of got way further in the short term rental investing side than I, than I expected. I love what I do and I love this niche of it because I like the creative side. But I think the one thing that I get disappointed when I hear, you know, short term rental investors and gurus, I have quotations going, is that they, they talk about how passive it is and how easy it is. And I'm here to tell you that when you're doing short term rentals, it is real estate mixed with a business. And so yeah, I'm growing a business on that side, but I need a little more diversification in my portfolio to not rely on one subset of it, but then also like, you know, have some different advantages and maybe just take a little pressure off myself of having another rental that is almost a 24 hour job. So I'm kind of exploring to see where, where I can end up, you know, in five to ten years from now and hit my financial freedom goals.

[A]

That makes a lot of sense. I think that diversification is kind of a point that a lot of real estate investors reach, but not necessarily just for risk mitigation, but just for time too. Because you said you have one rental. How does managing that compare to, for example, managing one of your short term rentals?

[C]

It is, it is extremely easy because I know all about the tenant application process. I know that being a realtor. So I've had great, I've been blessed with great tenants over there and it's been, it's been amazing as compared to short term rentals, which I built out systems and it became a lot easier. But it seems like there's always something you're dealing with, with a guest, you know. So I'm very excited to explore the possibilities of the long term rental side at least getting, getting some of my time back in, having a good appreciating asset.

[A]

So you said about your goals, you said five to 10 years. Like do you have like a financial goal? Are you trying to be fully retired? Do you want to be work optional? What are you working towards?

[C]

I would like to be work optional in about 10 years. And being in Texas and near Houston, Texas, there was some report I saw that I think five of like the fastest growing, like top 25 zip codes in the country were near Houston.

[A]

Oh, I'd buy that for sure. Yeah.

[C]

So I'm trying to like bank into the appreciation that's out there too. Like I get a ton of cash flow from my short term rentals. Yeah, I get a ton of tax benefits already. Yeah. So I personally am leaning towards probably the appreciation side. But there's, as you know, there's, there's, there's pros and cons to every single deal you're looking at. So I'm, I'm just kind of wading in the water right now. So I'd love, you know, hearing your, hearing your thoughts as I'm kind of, you know, going down it.

[A]

I love this. Talking to people about portfolio strategy is my favorite thing in the world. So I'm very eager to do this.

[C]

I'm very, very lucky to talk with you about it. So let's make it happen.

[A]

All right, so tell me about. But let's just start with the, the first deal that you're interested in. What does it look like?

[C]

So I live in an area north of Houston. It's about 45 minutes, Conroe, Texas. It's been named multiple times as one of the fastest growing places in the country. There's been a deal that's kind of been on my eyes. It's in a really nice neighborhood. It's a triplex, two one bedrooms and then one studio. So a little smaller. It's a little older, but some of the bones were renovated. It's. It needs a little sprucing up.

[A]

How old?

[C]

I think it was 1982.

[A]

Oh, that's not bad. That's not, it's not terrible.

[C]

It's not terrible.

[A]

For sure.

[C]

It's not 1928, you know, so it's not.

[A]

I was born in the 80s, so I don't want to hear that. That's super old. But from a housing and construction perspective, that's not that bad.

[C]

It's not terrible. So. And they've, they've done a little work on it. They had it listed at like 450,000 for months, and it was way overpriced. And they've kind of gradually been dropping it. They have it at, I think, 375 right now. I know what I need to get it at. It's a little bit lower than that. But as we know, this is a good market to make a couple disrespectful offers in, especially in my area.

[A]

Yeah, that's a market value offer. If no one's buying, it's not disrespectful. You're offering market rate.

[C]

Absolutely. So I think my biggest concern with this property and why it's been kind of holding me back is the appreciation. What I'm seeing at this moment isn't as good as you know, downtown Houston or where I'm looking at with these new constructions. I could see where appreciation over 10 years could be pretty tremendous in this area. But it's hard to kind of pinpoint. But the other big concern I have with this is it's in a really nice neighborhood. But we both know what comes with really nice neighborhoods. Really high HOA fees for, for this type of.

[A]

Oh, it's hoa. Okay.

[C]

It's about six something a month. Which is. Yeah, because it's kind of like a townhouse. It has a community club in it. Like it's one of those kind of places. Right.

[A]

Well, I was like it everything until I heard that. Let's, let's keep going now.

[C]

So, you know, like just to give some like quick, simple numbers on this. Like I have about $100,000 to invest, so I didn't mention that from before. That's about the base number I'm working with in cash in my possession of why I'm looking at these type of deals and analyzing these specifically. So went to about 20% down with say we get about a 7% interest loan, 30 loan. The gross income I'm estimating between all the units is going to be about 44,000 per year. My expenses estimated about 19,000, which leaves me with about $25,000 in, in NOI and then annual mortgage is about $20,000. So my cash flow sitting at about 5 to $6,000 a year, it's probably about a 8% cash on cash return.

[A]

That's with the HOA.

[C]

That's with the HOA. I think some of my concerns are it's not as high of an appreciating area as some of these other deals we'll talk about. And then I'm worried that the HOA could just, they could keep going up. Like if they're already at 6, 6:50 or whatever they're at like, and they have like a, a community club and it's a little more hoity toity or you know, whatever words you want to use for. Yeah, I'm a little worried that, you know, after a couple years they're like, okay, your HOA is $1,000 now, you know, so.

[A]

Yeah, right.

[C]

That's, that's the thing that's hard. And you know, they seem like they have good financials on their HOA from what I've seen. But as we both know, like, sometimes things aren't always what they see. When you walk into something, they could show you something and then it's a total nother way so vacancy, I'm not too concerned like it will have a small amount of vacancy but this is a pretty, pretty good area, pretty fastly growing area.

[A]

That was going to be. My question is just about rental demand in this area because a lot of times when you're in these like nice HOAs, like everyone is a homeowner, you know, there aren't as many renters. So I was just curious if you have any read on is there a renter population in the area?

[C]

Yeah, it's actually pretty high for this one because it's right on the lake that's really popular there and they have, it's a big community to where they have a ton of single family houses and a ton of like condos, townhouses, a couple multi families. Just like they have quite a few triplexes like this and that are in the market. So it's kind of like its own big community. So rental demand is pretty strong. Not as high as probably one of the other deals we'll talk about. But I'd say vacancy between all three units is probably going to be about 5%. I would say maybe 10%. Yeah, yeah. It's not bad at all.

[A]

So then you mentioned appreciation. So you said it's not as good. Like what, what is appreciation Been over the last couple of years because Texas has kind of been one of those markets where some markets still growing, some are tanking. What are you seeing?

[C]

Just from what I'm kind of seeing in the data out there, it seems like it's around 3% for the area which is normal. It's pretty normal. But I, you know, as a realtor, one thing that I really, really look at, especially realtor and investor is like where are all the big home builders going and building tons of communities? Because my guess is that they have way better data than I do of like where people are moving to. And this area has had a mass massive influx of Dr. Horton Lennar. Every single big home builder is just building tons of communities here. And so I don't know if that's a red flag to me. You know, like I'm going to be competing against all these new construction single family homes. And I did mention the triplex is they live on top of each other. So it's not like separate units. They're all, you know, it's like an apartment style more which isn't my favorite.

[A]

Yeah.

[C]

So yeah, so I've been battling with that and trying to figure out, you know, the same thing there. Like is this the route to go or should I lean into some of these new constructions that are coming out there that may not have as high of cash flow, but there's a lot, you know, a lot of positives to those too. So.

[A]

Yeah, for sure.

[C]

Racking my brain.

[A]

This one is intriguing. I wouldn't say at this point I'm like the hoa. If it wasn't an hoa, I'd say it's almost for sure. Yes. But that one is a little bit nerve wracking. And just for everyone's knowledge, hoas Homeowners association aren't necessarily bad. It just introduces an element of risk and unknown that you may not want as an investor. There might be great HOAs that actually add a lot of value because they make the property values go up.

[B]

There are really bad HOAs that mismanage.

[A]

Money and then there are special assessments, and that's the challenge. That's why I think Garrett and I are both saying this is an unknown. Not necessarily you can't do it. But it does add a question to this deal.

[C]

Yep.

[A]

So the last question about this one though, Garrett, is rents getting about 3,300 bucks a month in rent. Is that current and do you think go up at all?

[C]

I think they currently have tenants in two of the units and it's getting 1300 for the one bedrooms. And then I think the studio is open and they had it for around 1150, but it hasn't been rented. So I'm guessing it will be in the 1100 range. So it's about 3700amonth and I think they will be able to gradually increase. I could do a little bit of renovation on the inside, like a little bit of cosmetics here, but, you know, I wouldn't want to over renovate it for this particular area. So that's kind of why I've been on there. So I wouldn't say rental growth is super high. I'd probably say it's probably very similar to the appreciation rate of the area in general. So it's kind of where I'm at with it.

[A]

Not bad?

[C]

Yeah, it's not bad.

[A]

Yeah, it's good. I mean, I invest in a syndication in Houston and rent growth has been a struggle there because there's been a lot of building and so I was curious about that. Yeah, Well, I think this is an interesting deal. There's a lot to like about this. So I think you got a legit lead here. But we obviously have two other options to consider. We are going to take a quick break, but we'll get into those two other deals right after this.

[B]

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[A]

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[A]

Welcome back to the BiggerPockets podcast. I'm here with investor, short term rental expert and maybe you know a guy who's going into new construction or long term rentals here. Garrett Brown, before the break we talked about a potential long term rental for a triplex in the Houston area. Solid numbers. But there's an HOA which is kind of calling into question, you know, at least raises a couple concerns about the deal. So what are the other deals that you're looking at?

[C]

So the second deal that I've been kind of kicking the tires a lot on is a, a short term rental that's closer to downtown Houston. There's a few areas inside of Houston that are actually unrestricted even there's some of the biggest ones most popular downtown Houston is one. There's another one called Houston Heights. These are areas that are unrestricted places that typically will allow short term rentals. And they're not residential neighborhoods even though there's Houston is the home of townhouses. We built so many townhouses in Houston that you know, like that they're everywhere. So as I've been kind of looking at these deals, there's a townhouse, there's no HOA. It's in a really, really good area. It's about $450,000. So I'd have enough for the down payment and I can work out some seller concessions probably if I run it as a short term rental. You know, downtown Houston, there's a lot of competition out there, but there's also a lot of demand still. Surprisingly people, you know, there's so many people come to Houston, I could probably make about as is about 60 to $70,000 in revenue for a year. If I spent another 50 to $60,000, which I currently don't have. So I have to figure that out with maybe some creative things or you know, maybe partner with somebody. If I put another 50,000 or so into it, I believe I could get it up to about 85 to $90,000. Again, this is all the data I know and everything I know about short term rentals, but even then it's still not an absolutely going to happen. The big thing that weighs on me for this one is there's the taxes are so high in this area, really, I think it's about 800amonth in just taxes. Whoa, property taxes. Very high rate being in downtown Houston. Yeah, you know, it's about half a million dollars, so. Yeah, so I'm paying about 10 to $11,000 per year in property taxes. Texas is great because we have no state income, but they make that money back up on their property taxes.

[A]

So, yeah, it's one of the highest tax rates in the country. Property tax wise, the average for the country is about 1%. I think Texas on a state level is above 2%. And I think some of the municipalities, like you said, downtown Houston might even be above that.

[C]

You can get to 3% in some places in Houston very, very easily.

[A]

Yeah, I mean, that is sort of at the same level of the HOA we were just talking about in terms of cash flow. And although, you know, I'm, I don't think taxes are as unpredictable as an hoa. You know, they could still go up too if, if they're going to appreciate as well. So what's your, like, what's your gut, you know, better than I do about what your cash, cash on cash return would look like in a deal like this.

[C]

I like being very realistic, like without putting the investment into it, the extra $50,000 and just, you know, setting it up as how it is. I think we could get to about 10 to 12%. And I'm a little different than other people too, because I, I have a team built out for short term rentals. Like I have a business for short term rentals. Not everybody has that capability. So it's like I have assistance that can help and like this falls in line to what I already do, but it's, it goes back to, you know, am I putting all of my eggs into one type of real estate investing basket? Because I get a ton of tax benefits from buying another short term rental, especially with 100% bonus depreciation coming back. This is a townhouse too, so there's not much land. So the bonus depreciation is going to be pretty high because it's mainly on the structure and everything involved in it. I think my other kind of worry is that it's so tied to the short term rental performance and regulations still too. And I have always not been a big fan of investing in Short term rentals in urban areas for these particular reasons, it's vacation rental areas. They depend on short term rentals. They're not going away anytime soon. Place like Houston, it's still up in the area, you know, like you never never know. So I always get a little worried. Insurance is so much higher on short term rentals. It's probably double what I'm paying for landlord insurance usually to get good proper coverage. And it's a highly competitive market. It is like I'm a, I'm very good operator. Like I went to school for hotel management and I still am scared of the competition and saturation that's in some of these markets. So I think the appreciation will be pretty high though because it's a really good area. It's in downtown area of Houston which is to my knowledge is going to hopefully just keep going up quite a bit. But you never know how some things to go. So that, that's kind of what's worrying me with this one. I'm not 100% sold in and again I kind of want to diversify my portfolio.

[A]

So I know I'm hearing it in your voice. I don't feel like this is the one for you like this. I don't seem skeptical about this. I'll just one question, just for audience education as well is like if you had to, what would this rent out for long term? Like if something happened regulation wise?

[C]

That is one thing that is like gives me hope for this though because it's still do good. As a long term rental I think we'd be between about probably about 3400amonth as a long term rental. Just one unit by itself. It's a three story townhouse, really nice view, has a rooftop deck. And I think the cash on cash return for that would be about 6 to 7% because those taxes eat a lot into it.

[A]

Still good. I mean it's still very great. And if the rents, you know, if rents are going to go up, it's going to get better.

[C]

And I have the option to you know, short term rental or long term rent or midterm rental which you know is all options.

[A]

Well, I don't hate this deal. I mean it's like the numbers make sense but I think you're, you know this market, you know short term rentals better than I do. Your instinct about the risk I think is probably the most important element here. And you don't seem in love with this deal and it's not really aligned with your strategy.

[B]

Right.

[A]

Like you want to diversify. So I get why you would consider this, because I do this sometimes too. I'm like, oh, I should diversify. But then you just find one that's like doing the same thing that you've always done. It's just a layup, and then you just do it again. But it sounds like this is not so great that you would forego the diversification benefit that you're looking for. So I think we got to move on to the third deal. All right, we got to take one.

[B]

More quick break, but we'll hear about.

[A]

Garrett's third deal option right after this.

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[A]

Garrett and I are here discussing three deal options that he's thinking about investing in. Talked about the first two, Garrett. What's the third deal?

[C]

The third one has kind of really caught my eye there's quite a few new construction deals that I could look at, but they're all kind of fall into this similar umbrella. It's near where I live. It's in a different city that's called Willis, Texas. Still a little rural, but it has very similar growth to Conroe where I'm living at now. So I could buy two single family new construction homes. They're about 220 to 230 each, each. And I'm hoping that with, you know, seller concessions from the builders because they're offering all these crazy closing costs, really, really good interest rates, which I, I need to do a little more analysis on that. I was kind of penciling stuff out at traditional numbers because every new builder is different. But I, I think I could take advantage of that. And like I also as a realtor, like some of these places are offering really high btsa, like sales agent commissions extra on top of it. So that's like a personal perk that I don't mind.

[A]

No. Interesting. Okay.

[C]

So. So we're just keeping at the numbers though, like down payment. I'd have to get IT to around 420 to 425 for both properties. Total cost to make sense, the rents in the area, it's about $2,000 per unit. But I am buying in the last phase of a lot of these newer constructions. So, you know, I don't think the appreciation is going to be. It's probably closer to 2% in this area, this type of property. I don't think the rents are going to go up a ton because there's a ton of supply coming into this particular area. But the net operating income would be about $33,000 per year if I went this route. Mortgage is probably 27. If I can get these builders to get, you know, maybe I can buy down some rates and, and really start to, you know, take advantage of some of these negotiations. Right now, yeah, I could probably get that mortgage down to maybe, you know, 25 per year for both of them combined. So right now what I'm analyzing with, you know, with just traditional numbers, I think my cash flow would end up being about 6,000 per year for both units, which is like a 7% cash on cash return. But if I can do a little negotiating and really get a little bit better deal, I probably get closer to that, maybe 9%.

[A]

I think that's pretty good, man.

[C]

It's pretty good. It's low maintenance, low insurance, the taxes aren't great. It's another municipality that charges about 2% on tax rates, but it's, it's kind of steady in this area too. And HOA is much more reasonable. It's about, you know, I think $50 per month or something per house or something kind of in that area. But I think having two doors, I'm a little worried on the vacancy side. But I think single family homes seem to have a little lower vacancy in this area. And that's what I'm hoping for. And so yeah, I'm back and forth on it. I don't know.

[A]

Do you have a sense of vacancy in the area right now, like in this community with these new builds? Because that's, that's always the thing I think with these big sub developments is as an operator, I always worry about standing out. Like it's hard to differentiate. And so your rents and your vacancy rates are just going to be tied to the area. And that sometimes is good because sometimes, you know, the wind is at your back. Sometimes if there's a lot of inventory coming online, you're going to face inventory challenges that you really can't do anything about. Right. Like the only way you compete against your neighbors by lowering your price. And you might not want to do that. So just curious if you have any thoughts on how that's going right now.

[C]

I'd probably say they're leaning probably to 10 to maybe even 15% in this area because there's just so much supply, like even. And that's the one thing that scares me as a, as a creative short term rental person on the long term side is there's just not much I can do to really improve my chances short term. Like I could spend some more money and make it stand out. I'm really good at that. Yeah, that is my concern with the new construction is there's just so much supply. I'm afraid that even more builders are going to keep building over in this area and then who knows, you know, like where I could be in a few years. Like the growth seems good, but they might be, they might be out building the growth.

[A]

Honestly, I like the idea of new construction a lot right now. I think, you know, the numbers work.

[B]

Right now, like what you're saying.

[A]

If. Unless there's high vacancy, which is always a concern, I think the thing I would do next if I were you is look into the construction pipeline. That is one benefit of new construction and multifamily that you have is that these things get permitted years in advance. And so you actually get to look a little bit in the future. Whereas like almost every other Data set. You're like guessing, you know, are there going to be more short term rentals in a year from now? I don't know, but I, you know, these are a lot of these are publicly traded companies too. And you can understand like if you're going to invest this amount of money, it's worth spending a little bit of time and looking into that. Because my feeling on this deal is if supply is going to dry up soon and you're just in a short term like vacancy increase, then it's fine. But if they're going to keep building for two or three or four years and you're just going to keep seeing this at a time where I think Houston long term will probably keep growing. We got some labor data numbers. Like we might be going into a little bit of an economic lull. You know, it's like if there's a lot of supply in that, you might have some short term weakness, which you might be willing to do. But that is sort of what I would want to understand because everything about the deal sounds good. Unless they're just going to keep building a ton of competition for you.

[C]

What would be the best way to like research something like that where they're building or you know, kind of seeing what made the future may unfold in the new construction side?

[A]

Yeah. So I think the first thing you can do is most of them are publicly traded. So that means that a lot of their information is available. So I would look and see if you could figure that out.

[C]

Nice.

[A]

The second thing I would look at is there's publicly available information for housing starts and housing permitting. And I think that's what I would look at next, where it depends on how specific this neighborhood is. But you can look in Houston for sure. Yeah. And I would look for submarket and try and see just what are the trends in new construction. Single families in your area. Multifamily is going to be different. So really try and focus on single families and try and look at is it going up, is it going down? See if you can identify specific developments, how many properties they've built. Because sometimes with these big submarkets, you know, they do these things in phases. Like you said, you're sort of at the last phase. That's kind of a good sign. Right. Because it means they might not, but if they own three more lots, you know, like down the street, and then they're just going to move down there and start building, they might be willing to do that. So I think that's the big question. I would Want to answer before buying into this kind of market?

[C]

Yeah, no, that makes a lot of sense because like, my gut is telling me like new construction, single family at this moment in my, you know, investing career fits what I'm looking for. Low maintenance, low stress, not a lot of expenses probably compared to other places. And then it just probably better family, renters that probably stay longer and maybe just hopefully take care of the place better. You know, like that's a little more anecdotal probably than anything, but. But yeah, I think that's all great points about because I don't know what, what all these builders have planned because I, I know this area is very hot and there's a lot of land still left to be developed and I know they are just salivating at the mouth too keep it going. So I'm hoping I don't fall in the, in the weird corner of it that gets, you know, kind of trapped into something I maybe should have like looked into a little more. That's very good advice for sure.

[A]

Yeah, I'm with you, man. I have been really interested in new construction recently because at this point in my career I'm trying to buy 20, 30 year homes. Like the way I think about it is like, what do I want to buy now that I don't want to touch until I'm in my 60s and it will be paid off and I'm going to still be happy to own it. And new construction is very appealing for that for obvious reasons. It's a newer house. Thirty years from now it's only going to be 30 years old. You know, you buy a house from the 80s and 30 years from now it's going to be 70 years old. You know, it's just like a different kind of thing. And a lot of the rate buy downs are really good and so there's a lot to like here. I think the other thing that I would look at other than just sheer volume is how does your property compare to what else is being built out there? Because sometimes in these places where there's massive building, there's a lot of supply and that can be bad. But if your development is just better than the other ones, like, you know, or cost effective. Yeah, that can be fine. Like some of them might be one bedrooms or two ones and this area really needs three twos, you know, like you can sort of start to dig in a little bit just about the specific subset of the market that you're trying to buy into. Because like, I clearly like deals one and three here, you know, I think both of them could be good. The way I think about it is if you do this research and the building conditions are okay and you're not risk of supply. I'd probably go with three.

[C]

My gut is definitely leaning towards the new construction. I had a question. I'm curious. Some of these new construction, you can get four bedrooms and they're a little smaller, or you can get three bedrooms and they're just slightly bigger, but it's similar square footage. What are you, what are your thoughts as an investor around that? I know it's, it's all markets. That's a great question. But I'm like, I'm like, which one would work better for the family? Would they want the four bedrooms but they're smaller, or the three bedrooms and they're a little bigger? My, my head says the four bedrooms. Yeah, because the kids aren't gonna care. But I'm just kind of, you know, I don't know.

[A]

How is the primary?

[C]

It's, it's pretty good. Both about the same size in the primary. On each, the difference is three bedrooms, a little bit bigger for the. The guest bedrooms or, you know, or four bedrooms and third place. They're pretty tight, you know, but same square footage and all that.

[A]

I think if it were me in that scenario, I'd take the four. As long as the primary is good, because that's what people pay for is the primary. I think the adults will be like, my kids will be fine with 50 less square feet. And the other thing is, I don't know this area a lot, but in the downtown areas, I tend to rent. And you have a lot of tech workers, people who do hybrid work. And oftentimes they're using one of those bedrooms for an office. So having an extra one helps, but they don't care about the size. Like, you know, an 80, 100 square foot bedroom for an office is more than enough. And just having that extra space where it can be quiet is appealing to people.

[C]

I agree with that. I figured as long as the primary bedroom is good, it should be all good on my end too.

[A]

Yeah, right. So that's my take. I think my instinct is number three. I would double check all that supply number, but like, all the numbers on all these make sense. So that's good. Like you're looking at good deals. So it really comes down to your goals. And based on what you've been saying about diversification, buying things for the long term, not wanting to spend a lot of time on it. If you can make the new Construction work. It just seems like it's going to be a low lift thing for you to hold on to for a long time. And honestly, even if the vacancy is high a little bit for a year or two, you know, if, if you believe in the area and you're going to have a home that's going to last for a long time, that could be worth it.

[C]

Yeah. If I look into the supply and it looks pretty decent in the area, I think I've kind of figured out what I want to do or like what's the best for my season of real estate investing at this very moment too.

[A]

Exactly. That's a good way to think of it. And that could change. You got to look at what the market's giving you. And right now it's giving people new construction.

[B]

The average, the median home price on.

[A]

New construction is below existing homes right now. And they're doing rate buy downs, they're doing closing cost reductions. Like there's a lot of concessions on the seller side. 10 years ago I would have said you were crazy to look at new construction. But like, it makes sense.

[B]

Like the numbers make sense.

[A]

And I know a lot of people poo poo it, but like go in the numbers and tell me that it doesn't make sense because it does.

[C]

Yeah. Now I've been a big advocate for new construction in the past couple years, especially the same, like 10 years ago when I first started getting into it, it was, I always never, you know, buy, buy low. Find something that needs renovation, which still could work.

[A]

It still works.

[C]

But with how things are progressing and this insane, like new builder deals that are out there right now, it's almost like right in front of my face that it's like, I think I probably should take advantage of this right now.

[B]

So it does make sense. And the other thing that we didn't even mention, renters are going to want to live there.

[A]

Of course a renter is going to want to live in a brand new home. Like that is a very good selling point if they want to be in this area and they can rent in a brand new home.

[B]

Yeah.

[A]

And it will probably attract the kind of tenants you're saying. Because I think in these kinds of places, when I rent single family homes, you know, I want it to be family. I want them to stay for 10 years, you know, like that's the ideal situation and you might be able to do that in this kind of place. So I like it. This is fun though. You know, I go through these things too. It's just so Helpful to talk it out with someone. Even if you kind of know what you want to do. You just want some external validation always.

[C]

So, no, sometimes I just got to talk it out and get all the deals out of my brain to like, focus on one that's like, all right, let me stop getting shiny objects syndrome and get to the numbers and the things that's actually going to work for me.

[A]

Absolutely. Well, thank you so much for coming and sharing your story. You're thinking with us. I think this, this kind of conversation can be really helpful to our audience. So for everyone listening, I hope you appreciate what we've been talking about here today because oftentimes I'll get this questions. I'm sure you do too, Garrett. People say, should I buy this deal or that? And there's no way to answer it unless you have sort of these goals set out like Garrett did.

[B]

He has three good deals.

[A]

You could buy any of these and be happy. Like, I think that's the cool thing, is that you've identified three great deals. Good for you. And then you just kind of figure out what risks you're comfortable with, what upside you're trying to capture, what your long term goals are. And since Garrett has that clarity, it allows him to make this sort of decision. So if you find yourself in this kind of dilemma, maybe focus less on the cash on cash return and maybe step it back and say to yourself, like, what am I trying to do? Where do I want to be in 10 years? And I find that will probably help you make this decision more than any further deal analysis, provided that you have done the deal analysis correctly, that is. You have to do that.

[C]

Yep. Love it.

[A]

So thanks again for being here, Garrett. For anyone who wants to follow along with your journey and what you're doing here at BiggerPockets, where can they do that?

[C]

We have our own short term rental investing YouTube channel called Bigger Stays. And I also write a weekly Bigger Stays newsletter. It comes out every Wednesday. You can sign up for it at BiggerPockets. And I'm putting out a ton of content over there all the time.

[A]

It's awesome. Everyone, you got to check out the newsletter. I love reading it. Garrett is a wonderful writer, very funny and offers great opinions. And thank you all so much for listening to this episode of the Biggerpockets podcast. I'm Dave Meyer.

[B]

We'll see you next time. 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 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. 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. 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. Hey everyone, my favorite event of the year is almost here, the Bigger Pockets Conference. And I'm here with some exciting news that we just added.

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