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- [00:00]
A
Have you ever felt like you're working harder but your savings aren't moving an inch? If you're dumping every spare dollar into stocks, hoping your crypto hits big, or crossing your fingers, hoping to retire 30 years from now, today we're going to shake things up and let you know everything there is to know about wealth.
- [00:20]
B
Building real estate isn't just for the rich or experienced. It's actually the fastest way to start building tangible wealth. And even if you're starting out with almost nothing. And Today, we've got 11 undeniable reasons why real estate should be your next move, especially if you've never invested before.
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A
This is the Real Estate Rookie Podcast. I'm Ashley Kerr.
- [00:43]
B
And I'm Tony J. Robinson. And with that, let's jump into the first reason. Now, reason number one is leverage. You can control a several hundred thousand dollars asset or with sometimes nothing, sometimes maybe a percentage of what it costs. And I think most other types of wealth building activities, it's a little bit harder to do that. Now if you're buying maybe a business, you go out and get an SBA loan or you sell or finance that. True, you can do it that way. But I think about, like, stocks and ash, you know, you're, you're probably more well versed in this than I am, but I can't walk into Chase and say, hey, can I get, you know, I want to buy a million dollars worth of stock. Can you give me 800,000 of that? I'm just going to give you, you know, 200,000. So the leverage ability to have a small percentage of the overall value of this asset come from you directly, I think is a big important reason why more folks think about investing in real estate.
- [01:39]
A
I always remember when I was younger, my uncle was talking about somebody who borrowed money to invest in the stock market. And he was just talking like, why would, why would they borrow money to invest? Like, you should save your money, then invest it. Like that's such a bad idea to owe the bank money. And then you're just investing in the stock market, like, don't take on that debt, blah, blah, blah. And that always stuck with me. And I find it funny today because as a real estate investor, I take on debt all the time doing that. But I do think there's like a different mindset around investing in stocks with taking a loan from the bank to invest in stocks versus taking a loan from the bank to invest in a rental property. So I guess technically you could borrow money to invest in the stock market and pay it back every month. But you really have to run your numbers. And I think that's a big divide there is that you do have more control over the portfolio performance and analyzing a deal than you do over a stock. So if you're getting dividends from the stock and you say, oh, I'm just going to use my dividend payments to pay back my loan every month, my loan payment, and I'm going to make X amount of dollars and cash flow, I don't know if that what the term would technically be called. I think that's a lot harder to analyze and to gauge compared to real estate. So I would say not to borrow money to invest in the stock market or other investments, but for real estate, I think you have that control. There's ways to know what your numbers are going to be. And yes, there are circumstances that come up when you need to put in a capital improvement, things like that, but that is also improving the value of the property. So there's those different things. As far as the business side buying a business, like, yes, you can go out and get the SBA loan, there are a million hoops to have to jump through sometimes. Like, I had a, a partner who bought a couple businesses and they actually took his rental properties as collateral. So not only were they lending towards the business, but he had to give up all that equity and put those properties as collateral. And so until he pays off this SBA loan, those properties, he can't even tap into that equity because they were collateral above and beyond the business value. So I would say SBA loans aren't as great as mortgages either because it's, you know, not as straightforward too.
- [04:25]
B
I think there's some misconceptions, Ash around how much cash do you actually need to control a piece of real estate? And a lot of rookies just automatically assume, hey, I've got to put down 20, 25, 30%. And yeah, while those are options, those loan products exist. We just had Jeff Wolgan on recently and he talked about all the different loan products that are popping up for real estate investors. And there are so many different options out there. Some lowdown, some no down payments. And I think we'll touch on those a little bit later. But, you know, say you go out and buy a house hack, you know, you could house hack your first real estate deal, fha three and a half percent. Right. Or if you're a veteran, you can use a VA loan for 0 down. If you qualify for something like NACA, which we've talked about a lot 0% down. So again the ability to go out there and get a true tangible appreciating asset for three and a half, 5, 10, maybe 15% of the overall assets value is one of the unique parts of investing in real estate.
- [05:19]
A
Yeah, I think one thing to add to on the business side is I think it is a lot easier to invest in a property like be a landlord for example than it is to actually run a business. And I'm not saying as far as like the time you have to put into it or things like that. It's more of like the laws, the rules, the regulations like paying workers like especially if you employees for your business, paying workers come making sure you have all the insurance that you need, paying, you know, paying into their disability. What are the HR rules that you need to follow? Making sure you're doing payroll every week like getting your business license. What types of license do you need? So I helped another investor start a couple businesses like an insurance agency. I started my own liquor store and especially doing ground up startup. Those are a lot harder to get funding for the liquor store. I had to use cash to fund the whole thing. So that was a lot of liquor. That first liquor order was very, very expensive. Expensive. But now I own all of our inventory in cash. So like that is that, that's great. But still I think it's, it's so much easier to get funding, have little money into something.
- [06:41]
B
So that's the first big reason. I'd say reason number two is you get cash flow today versus someday in the distant future. Right. 401ks. What's the age, Ashley? 59 and a half. Right. That you can tap into your, your 401k funds. But what happens if you want some actual cash flow, some extra income today? Right. You don't want to have to wait however long you need to wait to hit that, that benchmark. And obviously with real estate, if you buy the right type of property, not only do you get paid this very low down payment option, but you also get the ability to maybe have some cash coming in on a monthly basis as well. And I don't know, dividends pay maybe 1 or 2%, you know, barely keeping up with inflation. Um, so the idea that you get the long term payoff but you also get some, some cash in your pocket today is another reason real estate is so attractive.
- [07:31]
A
Yeah. And I, I think to kind of add on to that piece as far as the cash flow. Like with real estate or property you have the opportunity to create additional income stream. So say this property has a, a garage. You can charge people to rent the garage. You could charge people like you live near a stadium. You could charge people to park in your parking lot. Like, that is one of the best things I think there is about there's opportunity to generate additional revenue. So we just had Laika Dava on, and she talked about building an ADU or a DADU onto an existing property to basically create two single family homes and generate. She was like generating 300k above and beyond in additional equity above and beyond what she was putting into building these properties. So that's a huge chunk of equity to gain just from building an additional property or additional building on the property.
- [08:31]
B
I, you know, I, I get it might not sound super sexy to say, yeah, I have this Property, I'm making 200 bucks per month. But when you think about the, the work that goes into it after you own it, you know, you've got a property manager in place. You can start stacking these up without it taking up an incredible amount of your time. And although it's maybe not as passive as investing in stocks, the cash flow you're getting for the effort that goes into it is probably a pretty good return on your time. So I think that's the second reason is that you get this ability to, to get cash flow today. And, you know, if you keep buying, you know, we interviewed Dave Meyer not too long ago, and he said, like, my goal was just to, you know, very unsexy, buy a couple of rentals every couple of years and do that for 15 years, and I'll be in a really good spot. And like, I'm so happy he said that because he just simplified it in a way that I think a lot of rookies need to hear. You don't have to do anything amazing. You don't have to be a great marketer, you don't have to be a great copywriter, you don't have to be a great salesperson. You just got to know how to choose markets, analyze deals, and find good property managers. If you do that effectively over and over again, that $200 here, $300 there really starts to add up over time. And then, you know, Ash, I guess the other piece of this too is that rents go up. And we'll talk about this a bit more later. But it's like the rent you're getting today could be very different than the rent you're getting 10 years from now. Right? So it grows over time as well.
- [09:47]
A
And from what I've seen at least, is that you know your, your mortgage payment, the principal and interest will stay the same. If you've got a 30 year fixed rate, your insurance and your property taxes will increase. And as long as you're not in like Florida or somewhere where they're like doubling that rent should outpace how much your mortgage payment is increasing with those expenses. So as time goes on, you'll see that there becomes a wider and wider gap profit that you're making from the property.
- [10:18]
B
All right, moving on to reason number three is that your tenants pay down your loan. If you're investing in the stock market, maybe you've got like a, an employer match. But aside from that, you're the only person who's responsible for making sure that that amount is growing month over month and year over year. But when you own a piece of real estate, you sign a lease, tenants move in, or if you're like me, maybe you have guests staying at your property with a short term rental. They are the people who are paying you the money that's needed to cover your mortgage and hopefully a little bit more above and beyond that. So you don't need to be disciplined in the way that you do with the 401k to make sure you're stocking away money every month. It's just going to happen automatically.
- [10:54]
A
Yeah. I think that a big issue with this is that when someone like, I guess when you're growing up, you hear of retirement accounts and you hear that is that the standard way to invest? Like when you get a job, you've got to invest into your 401k, you've got to invest into your retirement account. But really that is not, not the complete answer. Like you don't have to follow that path. And I think this is one of the biggest, like eye opening, awakening things for me was the equity that, that gets built up in your properties. Like yes, your 401k as you put money in over time, maybe your employer match, like you see that grow, you see the compound interest of continuously investing in that. But what is also super amazing is when you own a property and after 10 years, and 10 years can go fast, you look at like, oh my God, I have so much equity in that property. And a huge part of that it could be appreciation, but it is that loan pay down from your tenant paying that down for you. And all of a sudden you can now tap into $100,000 in equity from this property and it's still cash flowing free every month. So it's still bringing in money and you're building all this wall. Well and I think that was a big like realization for me of like, okay, yeah, I bought these $200, $150 cash flowing properties for years and it's like, okay, yeah, that that adds up to a good chunk of money. And over time that cash flows, you know, increased and you know, it's great. But the real like aha moment for me was when I looked at how much my equity has grown over the past 10 years and in some of the properties and each additional and I think real like wealth builder right there. It's not usually the cash flow, it's the equity from the tenant mortgage pay down and the appreciation in the property.
- [12:49]
B
Even in a flat market to say that there's no appreciation, you're still going to win because of this loan pay down. And I we had David Green on the podcast at one point and he talked about just like if you just buy a property, put it on a 15 year fixed mortgage and you do that every year, every couple of years, like every 15 years you're going to have a property getting paid off where there's no loan on that property anymore and you own it free and clear. Now all of that cash flow is yours, right? Aside from, you know, your operating expenses and property taxes. But yeah, the ability to have the loan going down while the property value is going up. Another big reason why investing in real estate is such a big one.
- [13:23]
A
Next, we'll cover the legal IRS twist that can wipe out part of your W2 tax bill. Plus how 8% inflation might actually flatten your wallet if you're holding property. All that right After a quick word from today's show sponsors, there's something surprising.
- [13:40]
C
A lot of investors don't realize. Landlords actually file more insurance claims than homeowners. But most of the big traditional insurance companies, they're just not set up to handle those claims quickly or easily. That's why so many real estate investors are switching to steadily. They focus exclusively on landlords. So whether you got a single family rental, need a builder's risk policy for a brrrr or focusing on growing your portfolio, you get fast quotes, flexible coverage, and for property damage, liability and loss of rental income, it's a good idea to review your rates and coverages every year on your rentals. So go get a quote in minutes@biggerpockets.com landlordinsurance today steadily landlord insurance for the.
- [14:20]
D
Modern investor landlords, here's a quick tip. A standardized checklist for property inspections can save you time, money and headaches. Preventative maintenance means fewer expensive surprises later. Want to save even more? RentReady helps you stay on top of rent collection, lease management and maintenance requests all in one easy to use platform. And right now, you can get six months of rent ready for just $1. With promo code BP2025, visit rentready.com that's R E N T R E D I.com and use code BP2025 to get started. Rookie listeners, are you on the sidelines right now planning your first deal but not pulling the trigger? I get it. Making the leap into investing is hard at the best of times, and right now it's paralyzing. Invest in real estate. In this economy, what if you make the wrong deal? And how do you know who to trust? If you're ready to get unstuck and start building wealth through real estate, join us at bpcon this October. You'll leave with more clarity on your strategy, insider knowledge to help you make the right move and relationships with people you can trust. It's time to get unstuck at BPCON. Get your tickets before they sell out@biggerpockets.com rookie conference. That's biggerpockets.com rookie conference.
- [15:25]
A
Okay, you've got the quick wins. Let's see how real estate can protect and accelerate your wealth.
- [15:31]
B
All right, so reason number four. There are multiple ways to build wealth. And we talked about this a little bit before on reason number three. But stocks, I guess you really only win in one condition, and that's if the value of those stocks go up. But if the market goes sideways for a few years, and I think this is the worst for people who are like nearing retirement age and then the market does something crazy. And it's like right when they're looking to retire, they see this big drop in their stock portfolio. That sucks. Right? Uh, even for new investors, I think the volatility, the, the up and down of the stock market can maybe rattle new investors and get them to sell at the wrong time. But with real estate, I think there's multiple ways that you can really build well. So we already talked about your loan balance being paid down by your guests. There's the appreciation aspect of just the value of that going up over time. There's the cash flow component, which we discussed. And then you also have the ability to get tax benefits. Right? We have a very, right now a very real estate friendly administration. And the tax benefits of investing in real estate just got better. So you're not just looking at, man, I need the price of this stock to go up. There's a lot of different factors that can help you build wealth when it comes to owning real estate. Yeah, you know, it even reminds me of the first deal that I ever did, and it kind of combines a lot of what we've talked about already. But my very first real estate deal, I had a very low down payment option of a $0 out of pocket. So like, my cash to acquire this asset was pretty much zero. The property I purchased for $100,000. I had a loan that covered the purchase price and the renovation. And when I was done, it appraised for about $250,000. So with $0 out of pocket, I was able to get an asset that was valued at $250,000. Then in addition to owning the asset, I got tenants that moved in, paid me rent, and I was cash flowing close to about, I think 150 to 200 bucks a month. Not life changing money, but again, no cash out of pocket asset that appreciated. And I'm getting cash flow every single month. It's hard to beat that. Hard to beat that. So again, multiple ways to build wealth when you're doing real estate the right way.
- [17:36]
A
I had a situation where I was at a bank and I was getting a line of credit with my partner and he was getting a line of credit on a property. And we were talking to the loan officer as we're like closing on our line of credits together. And we're telling him about this property that we just got under contract. We were so excited. It was like $37,000, this duplex. And we were going to ask our private money lender to lend on it. And he, you know, I had the actual biggerpockets calculator report with me because I was showing my partner while we were waiting. And so I handed to the loan officer and he goes, well, you know, I probably could give you a better interest rate. Let me know what your private lender is doing. And we just kind of look at each other, so we're like, well, what could you do? And so he said, I'll give you a 90 day unsecured loan. So no collateral, not backed for anything with the exact dollar amount we needed to close on that property. And I can't remember what the interest rate was on that 90 day loan, but very minimal. So basically the loan started the day we closed on the property. And he just wanted us to come back to that same bank and refinance into a long term loan to pay off that short term loan. And so we did and we got an appraisal within a week. The only thing we had done to the property in that week was put $800 fridge in there and the property appraised for like 55,000 or something like that. And they let us take 80% of it. And me and my partner each like walked away with $2,000 each in cash. That was above and beyond what we needed to pay off that loan, the 90 day loan, and to put some reserves in the, the property, in the, the bank account for the property. And we each got 2k each. And so like that was like, wow, this is so cool that there are this many options out there to build wealth and that we were able to put money back into our pocket and our tenants will pay back that 2k plus interest for each of us along with the property.
- [19:43]
B
Hard to be. There's, there's so much flexibility in how you can approach these deals. Yeah. All right. Reason number five is real estate investing is one of the best avenues to build wealth. When it comes to taxes and reducing your taxable income. The average American is probably going to lose 20 to 35 to maybe even 40% of their earned income to taxes on an annual basis. And there are a lot of people who dread that April deadline every single year. However, again, real estate investing allows you to reduce or sometimes completely eliminate not only your income earned through real estate investing, but your income earned through other places as well through your W2 income. I'll give you guys a quick example. We invest a lot in short term rentals, obviously, and there's something called the short term rental tax loophole, not real loopholes, it's like in the IRS tax code. But basically, if you do what's called material participation, if you materially participate inside of your short term rental, managing it, talking to guests, setting up, doing whatever, then you have the ability to offset some of your paper losses against other forms of active income, including your W2 income. And I've, I've met a lot of short term rental investors. I've, I've worked with a lot of short term rental investors who have been able to eliminate their tax bill from their day jobs by investing in short term rentals, qualifying for material participation, performing a cost segregation study, getting bonus appreciation, and I'm throwing out a lot of terms right here that you may not be familiar with. But just know, if you get a good tpa, you buy a good piece of real estate, there is an opportunity to get your W2 taxable income down to zero. So imagine even if you Buy a property and you just break even. Like you get no cash flow, but you get the ability to offset or reduce or eliminate the taxes you're paying in your day job. Is that worth it? I know people who just buy a short term rental every single year for no reason other than to eliminate their tax burden from their day job. And is that not a great strategy? You know, how much more money are you getting back on an annual basis while still getting the appreciation that we talked about? While still maybe getting some of the cash flow we talked about. So the tax benefits I think are something that a lot of rookies overlook when it comes to investing in real estate.
- [21:59]
A
This is also something that took me a while to realize that like, okay, I'm paying X amount in taxes from my W2, but if I'm able to offset that, that's a money back in my pocket. So like a great way to look at it is if, okay, so if you make 200k a year, but maybe you do. I love the example with a live in flip where you live in the property for two years and then you sell it. And since it was your primary residence for two of the last five years, you don't have to pay any taxes on the gain. So like if you made 200k, that could be like you making 400k in your W2, you know, depending what, you know, what tax bracket you're in and other things you have going on. But like most likely you're paying close to 50% tax as if you're just straight W2 and have no other credits or deductions or anything like that. So I always think of it that way too. Like I don't have to work as hard if I take advantage of all of these tax savings. Hence why I'm doing a live and flip right now so that in a year and a half to go I can have a big payday and not have to pay any taxes on it. And yeah, it's a little bit of a sacrifice not living in a, you know, a very nice remodeled home and slowly getting remodeled. But you could also do a live and flip and completely remodel the home before you actually move into the property. But the live and flip strategy with selling your property for tax free gain. I think another big one is the short term rental loophole. I'm doing two of my first cost segs for this year, going through that, learning that whole side of things. But yeah, you can't get these kind of write offs and these deductions and these tax Advantages, these legal loopholes with investing in a lot of other asset classes.
- [24:05]
B
I think that's why there's the, you know, the saying that whatever, like 80% of millionaires own real estate. And I, I don't think it's necessarily because all of them maybe started off in real estate, but they realize that maybe they've got a really successful business and real estate is the best way to protect all of that income that they're making. So again, even if you don't want to build a massive portfolio, maybe you've already got a really successful day job that you enjoy, maybe you've got a really successful business that you plan to keep. Still, including real estate as part of your wealth building strategy can help just to offset the taxes you're paying on those other forms of income. All right, reason number six, real estate is actually a good hedge against inflation. We saw inflation go crazy post Covid and you know, whatever eggs were, you know, $13 a dozen. But what we saw was that real estate prices and rent for the most part paced with inflation. And while inflation was going crazy and egg prices were going up and all these different things, we also saw home values skyrocket during that same time. So when you think about trying to make sure that the money you have sitting in, you know, I don't know, your, your savings account losing value, had you parked that same money into a real estate deal, it would have gone up or maybe even exceeded what inflation was doing. So inflation sucks in a lot of different ways, but if you own real estate, it actually can be something that boosts your portfolio.
- [25:25]
A
Yeah, and I think a big thing about this too is that like inflation are a lot of things that it impacts you directly, especially when it's a lot of things you have to buy. And with inflation, with rent, you're on the other side of things. So you're seeing inflation when you go to the supermarket, you're buying eggs, you know, things like that. And usually as it goes through the supply chain, that inflation is being impacted by everyone. And it's most of the time, it's not like someone is making X amount and benefiting off of the inflation. Okay. Where you do see it benefiting is as a real estate investor, your mortgage payments stays fixed. As I harped on before. So like as rents increase and property values increase, the amount that you're paying in your mortgage payment is most likely the largest cost that you will have on your property and it is staying fixed. And I think that is one of the greatest values. Like as I Said the insurance, the property taxes can go up, but that is staying fixed. That your largest payment, most likely, hopefully mere monthly payment, is that amount and that is staying fixed. And I think that's where inflation can really be a benefit to you.
- [26:48]
B
All right, reason number seven, you can force appreciation on real estate. You can't call Tim Cook and say, tim, I need the value of Apple stock to go up 10% in the next 90 days. But you can with a piece of real estate, buy maybe an undeveloped piece of land. You can buy an old fixer upper type of home and over the course of 3, 6, 9, 12 months, however long it takes, improve the value of that property to a point where now you can maybe tap into some of that equity. With stocks, a lot of that's outside of your control. You know, like you just got to ride it out and, and have the, the patience to know that over time, historically the stock market has gone up. But I think waiting at times can make someone feel a little powerless. But with real estate investing, paint, flooring, siding, bedrooms, all of those things can raise value instantly. So much so that there's an entire strategy called the bird strategy where you buy, you rehab, you rented, you refinance, and in that process you're able to improve the value of the property, maybe get some cash back and then rent that thing out so you get the cash flow as well. So the ability to force appreciation, something that you don't really have in the stock market, I will say if you buy a business, there is the ability to maybe force appreciation in a business. Right, because you can go in, find a business that's under operating or mismanaged and improve efficiency. So that does exist there. But I guess when we talk about real estate versus stocks, very stark contrast in your ability to force appreciation. And I talked about this a little bit earlier, one of the earlier reasons, but remember my first deal, I bought it for 100k, I spent about 60k on the rehab and it appraised for $250,000 that, you know, and we're talking about a three or maybe four month rehab. So where in three or four months can I go out and, you know, almost double the value of what I bought something for in real estate, you can. So I think that's the major benefit here. Reason number eight is that real estate is tangible and insurable. Ashley, you talked earlier about your friend who bought the businesses and had to put up his real estate as collateral. And the reason why is because sometimes businesses don't really have a lot of inherent Value outside of maybe the machinery that's inside of them, if you even have that sort of business. So there's more risk for a lender to lend on a business because a lot of times you as the business owner are the majority of the value. When it comes to real estate investing, the value is in the tangible asset. It doesn't matter if I'm there or not. There's still value in those four walls sitting on a fixed foundation. So the ability to get insurance. We're talking about properties that are worth several hundred thousand dollars that cost maybe a couple thousand bucks a year to insure. So if it, you know, if something terrible were to happen, you can go get that thing rebuilt or replaced for a pretty nominal cost. So I think stocks are a little bit more ephemeral in that sense where it's like I can't really see the stocks that I have aside from the, you know, the dashboard to my E trade account. Crypto. Not, you know, I don't even know enough about crypto to, to speak confidently about where you go view crypto, but with that, but with real estate as an asset, you can see it, you can touch it. Banks like it. It's easier to ensure, easier to feel and to see and grow.
- [30:09]
A
The one thing I will say about this though is like the liquidity. Like banks are in the business to sell houses, they aren't in the business to sell equipment if your business fails and do a big auction. So banks do prefer, or people do prefer to lend with your brokerage account as collateral because that is way easier to dispose of and do a disposition and to recoup their capital based off of that. So like that is one good side is that if you are going to do stock investments is that they are better collateral because they are more liquid. So you are more likely to get favorable terms for the lending. Next would be real estate. It is easier to appraise the value. The value is, you know, the depreciation of a property is over, you know, what is it, 29 and a half years? I think it is. And equipment, equipment in your business probably has like a five year depreciation value. And most equipment, vehicles, cars, those are depreciating assets that even though on your tax return your property is depreciating, most of the time it's actually an appreciating asset. So that's, I think like a big difference there is that, you know, you have this equipment and stuff in your business that you can get insurance on, you can get money to finance and buy These properties. But by the time you're done paying off the loan, the property, the, the equipment has most likely decreased a lot in value and it's time to go ahead and buy another piece of equipment. So like you can get the insurance, you can get everything on the equipment, on the, the. I don't know if you can get insurance on your brokerage account, but you can, you can get financing on it. But the, the overall package of things that you can get, like for example, the, the short term rental insurance that you can get nowadays just amazes me. And a lot of this I'm learning from some of the reels you've been doing, Tony, on social media about. You know, just like if somebody does damage, like all of the things that can be covered if something happens to the property and you lose out on income, like getting the insurance to pay the full booking to you, like, it just seems like there's so like low risk of like things happening because your insurance will cover it. Obviously you don't want to have a million claims. But like, I just find it so interesting how much insurance can protect you not only for your property but also as a landlord or short term rental host. One more point on that too is like, as a business owner, what kind of protection do you have? Like okay, say you own a construction company and if you damage somebody's house or whatever, your insurance will kick in or like you know, your property that, that you're working on, something happens, your insurance will cover for it to be fixed, things like that. But you as the worker, do you actually have, you know, insurance on yourself besides just disability or do you even have it since you're the owner of the property and like disability does not pay a lot of money at all. So like I would actually be really interested to compare, like, as a business owner, what are your options if like you physically cannot work anymore or like you lose out on income because of something somebody cancels? You're supposed to put on a roof tomorrow and the person cancels because of whatever reason. Like I would love to like compare those two things and see like who is actually more protected as a short term rental host or as you know, a small business owner. So Tony, make that real comparing those two.
- [34:10]
B
Well, coming up, we're going to tackle exit flexibility and really just kind of the no excuse strategy that lets you live for free with real estate investing. But we'll take a final break to hear a word from today's show sponsors.
- [34:21]
C
If you want a short term rental, here's something worth knowing not all landlord insurance policies are built for your kind of property, but that's where Steadily comes in. Steadily offers insurance designed specifically for short term rentals. They cover things like property damage, liability, loss of rental income, and even unexpected issues like bed bugs. Steadily only works with real estate investors so they understand the details that make short term rentals unique. And they've built coverages specifically for short term rentals. One investor Pro tip I always like to give out is to review your rates and coverages every single year. So go get a quote in minutes@biggerpockets.com landlordinsurance today steadily rental property insurance for.
- [35:01]
D
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- [35:31]
C
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- [36:37]
A
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- [37:45]
C
I recently traveled to Breckenridge, Colorado for some goal setting and hiking time just for me. I went during shoulder season and stayed in a great Airbnb and I had such a relaxing and wonderful time. And you know, that got me thinking about hosting on Airbnb the next time we're away on a trip. And then guys, I found out about Airbnb's co host network. If you've ever thought about hosting, it may have seemed a bit overwhelming, but now it's easier than ever because a co host can do the hosting for you. With the co host network, you can hire a high quality local co host to help take care of your guests when you're gone so that you can travel stress free and earn a little extra income. Co hosts can help create your listing, manage reservations, message guests, and even provide on site support. It really is a win win. Find a co host@airbnb.com host all right.
- [38:31]
B
So with what we've covered so far, you've got Uncle Sam and inflation on your side when you start investing in real estate. But let's figure out how real estate investing can also protect your downside. Because I think that's a part of smart investing is not just looking at the upside, but looking at the downside as well. And that takes us to reason number nine is that real estate investing gives you more exit strategies, which means there's less risk associated with buying a piece of real estate. If you buy a piece of stock, I don't know, say you bought Blockbuster, you know, right before Netflix took off. What options do you really have with that stock? You either sell it or you ride it to zero, right? Like those are really your only two options with something like, like, like a piece of Blockbuster stock. But with real estate, there's so many different ways that I could go about trying to monetize or at least break even on a deal. I can buy a piece of real estate and I can wholesale it to another investor. Like, I don't even have to do anything. I can just get it under contract, sell that contract to someone else. Right? Check your local laws, right? Because it's different in every state. But I can literally buy a piece of real estate and just turn around and resell it to someone else. I can buy a piece of real estate and I can place a tenant inside of it and I can get cash flow. I can buy a piece of real estate and I can tear it down and I can build two townhomes on top of it. I can buy a piece of real estate and I can so on and so on and so on. There are so many different strategies you can put in place with a piece of real estate to try and protect, not only maximizing your upside, but also giving you more options if things go wrong.
- [40:07]
A
In, like, 2022, when interest rates really started to increase, I actually had to pivot my strategy because what I was going to do would no longer work. Because by the time I got a property under contract and by the time it closed, the interest rate had changed so much and I wasn't doing conventional financing where you lock in your rate, you know, when you're, you know, start the loan process. So this was, this was like a really great benefit to me at the time. And I was able to completely pivot and change what I was doing so that the deal still worked. And I think that is a huge advantage of real estate, is that there's so much you can do with it as far as revenue wise, strategy wise, tax wise, even just like your funding options for collateral, like if you really are in a hard spot and you have equity in the property, you could tap into the property and get a line of credit to help you get through the hard times. Where when you're a business owner and you're not showing cash flow, you're having a hard time, it may be a lot harder to actually get a line of credit from the bank to float you through a period of time. So yeah, I think this is a great reason to invest in real estate is just the, the multiple exit strategies that are available or pivots per se.
- [41:32]
B
Yeah. And you know, we're, we're obviously in a higher interest rate environment and what we've seen a lot of real estate investors do is maybe pivoting away even from the traditional rent out the entire house to one tenant. Where now they're pivoting to, well, hey, what if I rent it out by the room? Tenants are going to get more affordable places to live. I'm going to be able to make more money and cover my costs and still be profitable. So even within the same property, without changing anything, you can just change how you execute the renting strategy and change the amount of income that you make. You could do a medium term furnished rental in the same four walls. You could do a short term rental in the same four walls. So having multiple options around what's the best way for me to maximize this property while also minimizing my downside. Hard to do in other strategies, I think. All right, reason number 10 is there's less volatility, which means you get to sleep better at night. I think about when I used to work at Tesla and I wasn't the only person that did this. We all did this. But we would just every morning like the, the topic at the water cooler was, hey, what's the stock price at today? Every morning someone was talking about, hey, where's the stock at today? Hey, where's the stock at today? What's the stock looking like? And I think because there's this real time ticker in the stock market, it could just be a little bit more fear inducing. Right? Like panic inducing. Because you can see it go up, you can see it go down. It just feels like you're on this roller coaster in real estate. There's no ticker, right. There's no CNBC squawk box for Tony and Ashley's real estate portfolio. And I think because of that, you can sleep easier at night because you know that generally speaking, the value of your real estate is going to go up over time. So if you're someone who I think can maybe get a little bit emotional or maybe you, you experience decision fatigue, the, the kind of slower burning process of investing in real estate could be the change you're looking for. Way less volatility.
- [43:26]
A
Tony, I, I'm disappointed you're not tracking your Zillow Zestimate daily to see what the value. So I have like this money app and it you know, you put all your assets in it and it's just like a good dashboard for me to glance at everything. And I don't have like my business properties in there, but just my personal assets. And like it has you link your real estate to the Zillow Zestimate. So, like, just for my personal house, as it says, in the last month I've gained $18,700 in value from the Zillow.
- [44:02]
B
And for our rookies that don't know, the Zillow estimate is the bible that every single appraiser uses to gauge the value of a home. Right. And I'm totally kidding. Your Zillow's estimate is not worth the paper that is printed on. So you always definitely want to get a true appraisal. All right, moving on to our final reason. Reason number 11. Real estate offers multiple creative ways to get into real estate. We already talked about, I think, the low down payment options from a loan perspective. But I'll give you guys an example. We bought a 13 room motel in Zion or right outside of Zion national park in Utah. And we were able to negotiate directly with the seller and they financed the deal for us. So there was no bank involved in that transaction. Yet we were still able to go in and take control of that asset, become the actual owners, and now it's ours with zero bank involvement. And you hear stories like that all the time. So I think the, you're only limited by how creative you can be. And you know, obviously there, there's rules and regulations you need to follow in each market. But outside of breaking the law, there's really no limitations on what you and a seller can come to when it comes to an agreement. And whatever works for the both of you is what you guys can agree to.
- [45:20]
A
I remember my first like experience seeing creative financing. It was the investor I was working for, somebody was purchasing a building from him and they were getting bank financing and then they were putting in a little bit of their own cash for a down payment. But then they also had the seller hold part of the mortgage. So I think it was maybe like 80% was the bank, 10% was the, the buyer. And then 10% was seller financed over like five years for a very low interest rate. Very, it was like amortized over 30 years, but it would a balloon payment and five or something like that. So it was a very minimal payment. And the bank said, yeah, that, that the cash flow supports the structure. We are 100% okay with that. And this buyer didn't have to come with 20% down. He was able to buy this property with only 10% down. Being creative and like, that's kind of hard to do on the residential side of lending, but when if you go and get a commercial mortgage, which you can 100% get a commercial mortgage on a duplicate duplex on a single family home, if it's for investment purposes and you can do something creative like this, there's just so many options with it. Well, thank you guys so much for joining us for this episode of Real Estate Rookie. Make sure you are subscribed to us on YouTube and if you're not already, follow us on Instagram at Bigger Pockets Rookie. I'm Ashley. He's Tony. And we'll see you guys on the next episode.