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The $100 MBA Show
MBA2464 Extended Interview: Dave Meyer - How to Use Real Estate Investing to Retire Early
00:54:38
What if there existed a path to attain independence from financial constraints well before the typical retirement age? Would you be interested in learning the secrets of using real estate investing as a powerful tool to expedite your journey to early retirement?
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- [00:00]
Omar Zenhom
Ryan Reynolds here from Mint Mobile with a message for everyone paying big wireless way too much. Please, for the love of everything good in this world, stop with Mint. You can get premium wireless for just $15 a month. Of course, if you enjoy overpaying, no judgments. But that's weird. Okay, one judgment anyway. Give it a try. @mintmobile.com Switch upfront payment of $45 for 3 month plan equivalent to $15 per.
- [00:25]
Dave Meyer
Month Required intro rate first 3 months only, then full price plan options available, taxes and fees extra.
- [00:29]
Omar Zenhom
See full terms@mintmobile.com and we're back, folks. It looks like Jim from sales just got in from his client lunch and he's got receipts. His next meeting is in two minutes. The team is asking, can he get through his expenses in that time? He's going for it. Is that his phone? He's snapping a pic. He's texting around. Jim is fast, but this is unheard of. That's it. He's done it. It's unbelievable.
- [00:52]
Dave Meyer
On ramp expenses are faster than ever. Just submit them with a text. Switch your business to ramp.com.
- [01:12]
Omar Zenhom
Hey O. Welcome to the Hundred Dollar MBA show, helping you navigate the challenges of business. I'm your host, your coach, your teacher, Omar Zenholm. And today's episode is an extended interview episode where with Dave Meyer and he'll be teaching you how to use real estate investing to retire early. I'm so happy I got the chance to sit down with Dave from Biggerpockets. If you don't know Biggerpockets, huge website and brand and podcasts and books and a whole bunch of other stuff that I'll talk about a moment. But Dave Meyer is a real estate investing expert and I wanted to sit with him because many of us as entrepreneurs, including myself, want to diversify our wealth, our income. We don't want to put all our eggs in one basket and just rely on our business for the money we make. We might make a profit, a dividend at the end of the year. What do we do with that dividend? How do we actually put it into an investment that can continue to grow with us and give us some flexibility, give us some diversity of investment. I was really sitting down and really grilling Dave because I really wanted to learn to know what are the first steps to getting into this whole real estate investing? Is that as simple as just getting a home loan, buying a house and getting a tenant? What are the gotchas? What are things you got to look out for? What makes a good landlord? How do you scale? Is Rent vesting a good idea. We get a whole bunch of topics so that you can consciously invest using your dividend, using the money that you make from your business and grow your wealth faster. Let's get into it. Let's get down to business. Today's conversation with Dave Meyer is a great one. Dave is a resident housing market analyst. Dave, this is what he does. This is what he is an expert at understanding how to get into this market of real estate investing. He's part of the BiggerPockets team that has a podcast with over 150 million downloads and a following of over a million subscribers over on YouTube. He's the author of the book Start With Strategy, a book that I am ordering right now, and the 2024 State of Real Estate Investing Report. But most importantly, he's a down to earth guy that really knows how to explain how to get into real estate investing. What are the options? What are the action items you need to put on your to do list? What are the things you look out for and what are the things you can look forward to? We're going to jump into this conversation right now with Dave Meyer, but I'll be back to wrap up today's episode with my takeaways and some homework for you to take action with. So let's get into it. Let's get down to business. Let's jump into that conversation with Dave Meyer.
- [03:40]
Dave Meyer
Dave.
- [03:40]
Omar Zenhom
Dave, so good to have you here on the podcast. I was really excited to see your name on my calendar because this is a topic that I want to explore not only for the audience, but also for myself. You know, I want to get into how to diversify my investments, my wealth through real estate. And I'm not really sure where to start. But before we get into all the nuts and bolts of that, I want to first welcome you. Thanks for being here.
- [04:06]
Dave Meyer
Thanks for having me. I'm excited to be here.
- [04:08]
Omar Zenhom
Awesome. And I want to start by just learning a little bit about. You said you grew up in Westchester. I want to learn a little bit about what were some of the influences in your life? What was the first moment where you're like, oh, there's other ways to make money than a paycheck. What was that moment in your life when you were growing up?
- [04:25]
Dave Meyer
It happened for me relatively early. My parents got divorced when I was around 11 years old and that's when my allowance basically just got cut off. And my parents were sort of like, we're going through a difficult financial time that lasted quite a while and I wanted to Hang out with my friends and do other things. And so I quickly learned how to make money for myself. And when I was in middle school, I started doing things as simple as walking dogs and shoveling snow. I did work at formal jobs in high school as well, but in college, I dabbled in a few other entrepreneurial endeavors, like throwing and planning parties and partnering with local event spaces. And so I just always was trying to find ways to make money. I wasn't really thinking about being an entrepreneur. I was more sort of thinking about how to just do the things that I wanted to do at the time. But it does leave a lasting impression on you. And actually, right after college, about a year out of school, I was waiting tables and decided that I wanted to start my own business. And that's how I wound up first getting into real estate investing.
- [05:46]
Omar Zenhom
I love this. You know, I've shared before that I started my journey by selling my Halloween candy to my. To my schoolmates at school.
- [05:56]
Dave Meyer
Exactly.
- [05:56]
Omar Zenhom
I was like, the margins are great.
- [06:00]
Dave Meyer
It's so funny. My mom loves telling this story that I think I was in, like, fifth or sixth grade, but she got a call from the school because I was buying baseball cards from kids and then selling them to other kids at a markup. The school was not appreciative of it. I don't really remember doing that, but I guess that's just entrepreneurial.
- [06:22]
Omar Zenhom
It's interesting that that was discouraged, but you didn't do anything wrong. But I guess the kids were getting angry, but you touched something else, you know, bussing tables and then deciding, okay, this is not for me. One of the things I talk about a lot, and I want to hear what you think about this is sometimes the best ways to figure out what you want to do is to just do a bunch of stuff that you hate. I remember one of my first jobs is washing cars at a wash bay in a car dealership. And I remember at the end of the day, my hands were crusty and dry, and I was just tired and aching. I was like, I don't want to do this rest of my life. Do you agree with this? Did you have the same experience?
- [07:01]
Dave Meyer
Oh, yeah. I had a lot of those jobs in college. I worked in sort of an office just doing, like, clerical filing work. I hated that right out of school. Another side hustle I tried was working in real estate, but I was cold calling for an agent that was absolutely miserable. There are a lot of things I actually didn't mind waiting tables. I actually kind of found it fun. But you Know, I definitely understand the sentiment. And there was a lot of. A lot of different jobs I had that, whether it's poor pay or poor treatment, just from either customers or from managers, honestly, I find it motivating, or did find it motivating to want to have a little bit more independence and a little bit more of a say into my own career.
- [07:54]
Omar Zenhom
And that kind of stems from that whole feeling of autonomy, like you want to do your own thing. And I think everybody who's listening has that itch and can. Can resonate with that. Having said that, if you meet somebody at a party, how do you describe yourself? Like, you know, we. We do a lot of things. We're all, you know, we podcast, we write, we sell, we invest, you know, like, so how do you describe yourself first to a stranger, and then if they get interested and they're like, oh, tell me more, what do you say then?
- [08:25]
Dave Meyer
Well, for a long time, I would have described myself as a data analyst, which is what I'm formally trained in, and I've done for a long time. Now at this stage in my career, I am a real estate investing educator. And I basically have taken what I've learned both as an investor for the last 14 years or so and spent the last 8 years professionally analyzing the housing market. And now I get to combine those experiences and talk about it and help people understand how to invest in real estate, why it makes sense, or I should say when it makes sense to invest and when it doesn't make sense to invest in real estate. And I get to do that in a variety of mediums. So I've written two books, I host a podcast on YouTube, all the other things. Working for a company called BiggerPockets, which is in the US the biggest community of real estate investors. We are just a big software and media company.
- [09:25]
Omar Zenhom
I love it. We're going to get into the investing part, the real estate part. But you mentioned you're an educator. That's what you love to do, to teach people how to invest in real estate. Talk to me a little bit about when people come to you. What are some of the common challenges they have? What are some of the common questions they have? What are some of the things that come to you and say, hey, help me with this.
- [09:52]
Dave Meyer
There are several themes and barriers that people experience when wanting to invest in real estate. I think the most common these days is fear that the housing market, at least in the United States, is going to collapse. And that fear makes sense given that most of us. I'm a millennial I think most people who are millennials, or, you know, really most people have a very real memory of the 2008-great financial crisis and what happened with the housing market then. And we can get all into that in a little bit. But that's a common fear that people have. The other two are one, well, I shouldn't say one. The other two are funding and figuring out how you're going to fund real estate because it is a capital intensive industry. And then the second is just how to operate the business because it is entrepreneurship. People call it, quote, unquote, passive investing, but it's not. Investing in the stock market is passive investing. Real estate actually operates more on a spectrum where some types of real estate investing are almost entirely passive. You can invest in funds or something called syndications, where you basically do nothing. On the other end of the spectrum, you could be actively flipping a house, which is as much work as a job. And so I think for most many people, it's difficult to figure out where you want to fall on that spectrum. I imagine for people in this audience, you already got your own entrepreneurship going on, you're running your own business, and you probably want to fall more on that passive side of the spectrum, which is entirely possible. It's mostly how I personally invest, but I think a lot of people feel like, oh, I don't want to actually be on site every day and don't realize that there's a lot of ways that you can invest in real estate without doing that.
- [11:45]
Omar Zenhom
Yeah, and you touched on that fear. 2008, the financial crisis, the housing crisis, all the stuff that happened. My parents are Egyptian and the Egyptians have this saying that says those who burn their mouth on soup blow in their yogurt. So they're like, overly, you could use that if you want. So people are blowing on their yoga right now. They're like, oh, this thing's going to burn my mouth. Just being burnt once causes them to be. You know, obviously I don't want to say pessimistic, but cautious. And that's healthy, I think, in some regard. And it also depends, like you said, on the market itself, us versus other places. Like, for example, here in Australia, the housing market is absolutely insane. Like, it doesn't make any sense. The housing prices are going skyrocketed high. The, the rent yield is just not there versus rent versus buying and all that kind of stuff. But people are so bullish on buying property here in Australia because of how fast the property increases in value. You know, people that bought before COVID Their properties that went up 20% already. It's like, it's just pretty insane what's happening here. But I want to talk a little bit about the business owner that I know who's listening right now is like, hey, I. I'm making dividends. I'm making profit in my business. I usually just reinvest that money into my business. Sometimes I take some money off the table so that my family can go on a vacation. So this heartache is not worth nothing. But I'm thinking about investing in real estate, maybe in an investment property. Maybe I'm looking for other opportunities. What is a way for them to say, hey, I have maybe a lump sum I can put as a down payment? Where do they get started? Especially for the fact that this is not their focus. Like, their focus is really just running their business and making sure that doesn't, you know, go sideways. Give us some advice on like a little bit about, like, is there an education piece they need first? Is there, you know, something that they are not aware of and should they just jump in two feet forward and don't worry about it? I'd love to hear more.
- [14:00]
Dave Meyer
I think that you hit it on the head when you said that there's an education piece. I think just getting a beginner understanding of the different options for real estate is a great way to start and just understand all the different things that you can be considering for people who are running their own businesses, like your audience. I think there's probably two critical questions that you want to think about first. First and foremost is do you want to be actively managing your investments or do you want to be passive? And the critical distinction here is whether or not you are an accredited investor. For people who don't know what that means, it's this somewhat arbitrary distinction made by the US government where if you make $200,000 a year or more, or you have a net worth of a million dollars or more, you are considered, quote, unquote, accredited, which will open up opportunities to you, like investing in real estate funds or syndications, sometimes called private placements, where it's basically you take your money and you give it to hopefully a very experienced operator who will go and buy probably a commercial asset for you, which is like a large multifamily building that's going to probably be a relatively stable investment. Throw off a cash on cash return, somewhere between 4 and 8%, going to provide you with phenomenal tax benefits. You probably won't pay any taxes on any of the income that you earn on that Rental property. And so that is a really good way if you're busy with your business, but you want to diversify to go into that. So I can talk more about that in a minute. But that's a critical sort of distinction if you want to be an active investor. There are benefits to that. Usually your returns are a little bit better, but you have to put in the work, as every entrepreneur knows. I would recommend for most people who have other things going on to consider the most stable vanilla type of real estate investment, which is long term rental properties. So that's just buying what I would say is either a single family home or a two to four bedroom multifamily. So four units or fewer and buying that out and renting it out to long term tenants who are going to use it as their primary residence. This is a very good long term way to build wealth. It's not going to make you huge sums of money by next year. But if you're trying to say, hey, I'm running my business, but I want sort of a secondary income plan, I want to be able to retire in 15 years, it's amazing because 15 years from now your cash flow is going to be excellent, you're going to have amazing tax benefits, you'll have paid off most of your mortgage and you'll be in a really, really good position with relatively low risk. And again, happy to talk about sort of the risk element too, if you want to get into that.
- [16:58]
Omar Zenhom
You mentioned multi unit properties. Is that like a few apartments in a building? Is that what you mean?
- [17:06]
Dave Meyer
So yes, in the US at least, anything that is four units or fewer is considered a residential property. And this is a key distinction because lenders, people who are going to provide mortgages for you, see them very differently. And you can get much better financing terms. And if you're buying something four units or fewer, you can get a lower interest rate, you can get longer fixed debt. So there's a lot of advantages to that, which is why I recommend for most people to stick with that asset class. The other reason is that they're sort of tailor built for the small to medium sized real estate investor. 80% of home sales in the US go to primary residences, which makes sense. Right? And those people are primarily looking for single family homes. So you're going to have a lot of competition in that market. On the other hand, you have big hedge funds, private equity, institutional investors, they want to buy real estate, but they don't want to buy thousands of small properties. They want to buy, you know, a couple dozen 300 unit buildings. And so that sort of leaves these small residential buildings, two to four units, as sort of a sweet spot for a lot of, you know, what we call like mom and pop investors. But by mom and pop we mean people who have other stuff going on and are trying to use real estate to diversify their portfolio.
- [18:27]
Omar Zenhom
That really paints the picture. My uncle does exactly that. He actually has, I guess it's like a townhouse kind of thing or a mother daughter it's called. But there's I believe three or four apartments in there and he lives on the top apartment and then he rents out the rest. So I could see when you mentioned those benefits, that's one of those education pieces that a lot of people don't really know. Ryan Reynolds here from Mint Mobile. I don't know if you knew this but anyone can get the same Premium Wireless for $15 a month plan that I've been enjoying. It's not just for celebrities. So do like I did and have one of your assistant's assistants. Switch you to Mint Mobile today. I'm told it's super easy to do@mintmobile.com.
- [19:12]
Dave Meyer
Switch upfront payment of $45 for 3 month plan equivalent to $15 per month Required intro rate first 3 months only.
- [19:19]
Omar Zenhom
Then full price plan options available, taxes and fees extra. See full terms@mintmobile.com got a 7am meeting on a Monday expensing breakfast because it's in policy wasting all afternoon submitting an expense report for that breakfast. If your company used Ramp, you could submit expenses with just a text.
- [19:45]
Dave Meyer
Yay.
- [19:47]
Omar Zenhom
Free your team from expense reports today.
- [19:50]
Dave Meyer
Switch your business to ramp.com.
- [19:58]
Omar Zenhom
What about commercial real estate? I'm sorry, go ahead.
- [20:00]
Dave Meyer
Yeah, I was just going to say what you're it sounds like what your uncle's doing is what we would call house hacking, which is living in one of the four units that you're buying. And to me that is the single best way you can get started in real estate investing if you if you want to for a host of reasons. One, again you get residential financing but you also get owner occupant financing, which is even better than residential financing. The best loans that you will get at least in the United States are owner occupied residential financing. So that is really beneficial. The second is you learn a ton. I personally did this and you know, living at the property, interacting with your tenants, doing a lot of the maintenance yourself is a great way to learn if you're going to try and build up a portfolio. And the third is that it doesn't necessarily even need to cash flow to be financially beneficial. As long as you can reduce your cost of living significantly, it's going to benefit you. So I know a lot of people who work full time jobs and want to get started in this and they basically buy a triplex, rent out, live in one unit, rent out the other two, and they may not be making $1,000 a month, but they've essentially gone from paying, let's say $1,000 in rent a month to paying nothing and getting the benefits of appreciation and all the tax benefits that come with real estate.
- [21:22]
Omar Zenhom
And fun fact, that's actually how Arnold Schwarzenegger became a millionaire before the movies is these types. Yeah, yeah. Big fan of his. And this part of his, his documentary is before even got his first role, he became a millionaire through this type of real estate strategy. And he did it because he didn't want to have to take, you know, roles that he didn't want to take. He want only leading man roles. So he was like, I don't need the money because the real estate is taking care of me. So fun fact. Yeah.
- [21:55]
Dave Meyer
Wow, that's super cool. I had no idea.
- [21:57]
Omar Zenhom
So what I was asking before was all about, you know, I have a friend that's in commercial real estate. So what about like, you know, buying property like a warehouse or office building, you know, does. Are there any advantages to that or is that a little bit more risky?
- [22:17]
Dave Meyer
I do think it's riskier, particularly right now. We talked a little bit about 2008 and housing markets and crashing. And while I personally believe that the residential housing market, at least in the United States is in a pretty stable spot right now, could go down a little bit, could go up a little bit right now. But relatively stable commercial real estate in the US and a lot, in a lot of ways globally is experiencing a real big shock right now. And there's a couple reasons to that. And commercial real estate is a pretty broad term, but office space, as you mentioned, is, is the most, is the riskiest asset right now. We've seen actually property values decline almost 50% in some cities, 30 to 40% in a lot of others. So commercial is kind of almost quietly, unless you're in the industry almost having its own like 2008 moment where we're seeing just massive declines in value, a lot less demand. And that to me makes it a little bit risky right now. Personally, I think in 6 months, 12 months, 18 months, there's going to be huge buying opportunities though, because we've seen these industries really See big price adjustments after huge, you know, property value growth during the pandemic, it's sort of correcting right now. But if you are new to investing, I would not recommend commercial real estate unless you're going to do one of those passive options that I said, where you are essentially investing in an operator. So you find someone who really knows a specific asset class. And that's really important because operating an office building is very different than operating a multifamily unit, is different than retail, is different than self storage or data centers or all the different things people invest in. And so if you're new, I think you find a good operator and you can invest with them. It's sort of like angel investing or VC investing, basically for real estate. It is not super liquid, which is something to consider because usually you invest for five to seven years with these people and you can't really get that money out. But it is a great way to invest. I personally do it a lot myself. But it is not advised, especially in today's climate, to jump into commercial by yourself trying to buy it and trying to operate that business. Because there's a lot of complexity to the operations. And right now, actually the biggest complexity is financing. It's really difficult to get good loans on those type of assets. And that comes with a lot of risk.
- [25:03]
Omar Zenhom
Interesting, because I was noticing in Sydney, in the cbd, in the central business district, a lot of the commercial offices are now being converted to residential buildings, which is quite hard because these windows now have to open and they have to change infrastructure and the ceilings and all that kind of stuff. It's a big investment. So they wouldn't be doing it if they didn't think that this is sort of a situation that's gonna stay for a while. Going back to. Okay, I, I gotta. Let's say, for example, I have $200,000 where I want to, you know, put a deposit on something. And maybe it's a four unit little apartment complex or maybe it's, you know, a few homes. Is it as simple as going to the bank and saying, hey, this is what I want to do? How can you finance me? Is there a way for me to shop around? Do I need to do this under the umbrella of a business entity or do I just do this under my name? You know, like I'm asking all these nitty gritty questions because I know people are thinking of them.
- [26:12]
Dave Meyer
Oh, for sure. Yeah. Honestly, it kind of is that easy. I think the main steps that I would take if I were new to this is one just educate yourself. Basic 101 how to be a property owner. You know, I think it's important that if you're going to do this that you take the responsibility of being a property owner seriously. It is your duty to provide safe, good, quality housing to the people that you are renting your properties to. And you should know what you're getting yourself into. So I think that that's number one. The second would be to pick a market that you want to invest in. Because, you know, my expertise is in the United States, but there are many other countries where people are able to be, you know, investors. I think honestly, the better word is real estate entrepreneurs. Like, it's, you know, for the people on this show, like you are starting a small business. And so I think picking the market that you want to invest in is super important. And I'm happy to talk about some of the nuances there. Then you basically just have to find a deal, which usually just involves contacting a real estate agent who understands investing. Not all of them do. And then once you have a property, that's when you go to the bank typically and say that you want to get a loan because the bank needs to evaluate your credit worthiness against the asset that you're trying to purchase. Because, you know, if you're say, if. Let's just say you make 100 grand a year, if you're going to look, buy a property that's 300 grand, they're probably going to be fine with it. If you're going to buy something that doesn't cash flow and cost $2 million, they're not going to be fine with it. So I think you have to present them with the property that you're looking at. But the good thing is if you do this four unit or fewer, they're not like looking at a business plan. They're trying to, you know, understand you. No, it's residential. So they're treating that as if you were buying your own home. And they will, in most cases, it depends on your background, but in many cases they will consider the rental income or the potential rental income as part of your income. And that's important because the bank is evaluating something called the debt.
- [28:26]
Omar Zenhom
Oh, interesting.
- [28:26]
Dave Meyer
They just basically make sure that you.
- [28:28]
Omar Zenhom
Service incorporate that in the loan application. That's interesting.
- [28:32]
Dave Meyer
Okay, yes. And those have been some changes that have happened recently to benefit, I think, real estate investors. That's not the purpose, but it does benefit real estate investors because now if you buy a property and it has adu, an accessory Dwelling unit, basically like a garage with an apartment over it. You can count the potential income for that apartment as your income. So the bank says, okay, we can lend to so and so, because they're going to be, they have their W2 job or their business that they operate, plus the money that will come in from this property.
- [29:10]
Omar Zenhom
I found that very interesting because just from a business point of view, that's not guaranteed cash, but the bank is so willing to give the loan that they're willing to say, hey, you have the potential, you have the earning potential to make that, and we're going to consider that in your income so that we're able to approve the loan. They're going to do it. Whatever they can. They give you the loan is basically the answer.
- [29:36]
Dave Meyer
That's right. It depends on the situation. When I first got started, you needed to be, you needed to have a rental property business for two years for them to do that. So it was less based on the property and more based on your, your track record as an operator. But now things are changing. One of the big trends in the United States is to quote, unquote, up zone properties, which is there is a housing shortage in the United States. And so they're making it easier for, for property owners to add an accessory dwelling unit, to add another unit. And that's why a lot of the mortgage rules have changed, is because if they're going to do that, they want people to be able to buy those homes. And so they've sort of allowed it so that you can get a mortgage on those properties.
- [30:26]
Omar Zenhom
A lot of my entrepreneurial friends are interested in real estate as an investment. Especially after Covid, they just felt like, oh, wow, the world can end at any moment. This is nuts. I need a physical asset. I need something that's real, that's tangible, not something that's not in digital form or something that I can't liquidize quickly. Do you think it's ever a bad idea to buy property just to secure an asset? Is it like a bad time ever, or is it just, hey, if you're going to hold onto it for long enough, you should be okay?
- [31:02]
Dave Meyer
I definitely understand that sentiment after Covid, for sure. I think generally speaking, real estate is one of, if not the best risk adjusted investment. I personally believe that real estate will continue to at least keep pace with inflation indefinitely. And that is because it's a physical asset. Like you said, it has always kept pace with inflation. And counter to what a lot of US Remember in 2008, the only time that the Housing market has, quote, unquote, crashed in US history is in 2008, at least far back as we have reliable data for. And so I think it's important to remember that while that can happen again, nothing is off the table. That that was a very unusual circumstance that was brought on largely by bad debt and really lax lending practices. Of course that could happen again. Right now, if you look at the quality of credit and debt in the housing market, it's very high quality. And so that particular risk is not as acute as it once was. I advise people, if they want to do something like what your friend is friends are suggesting, is just to make sure that it breaks even. Because real estate goes up over time. There are times when it dips. You know, when I say crash once, I mean, like, that's like a 10% drop. There are other times, you know, when it fluctuates, goes down 2 or 3% like any market. And so as long as you have the ability to decide when you're going to sell, you probably are going to do pretty well with real estate investing. And the only reason you wouldn't be able to decide when you're going to sell is if you faced some sort of liquidity problem. And as long as to me, the best way to mitigate that is as long as your property is bringing in more cash than you're spending on it, that mitigates the liquidity risk. And that way you can hold on to it for however long that you want to buy it. The only other caveat is for most real estate investments, you do need to hold on to it for at least two or three years because the transaction costs are pretty high. So if you buy a property, and even if it does well for one year because of the closing costs, because of the commissions that you have to pay, you're probably going to lose money even on a good deal if you sell it after a year. So I think you have to be thinking, I'm holding this for at minimum three years. And I think if you are more conservative in your investments, you should be thinking, I want to hold a minimum five years. And you're in almost all periods of history, you're going to do pretty well on real estate if you follow that formula. The only caveat would be if you bought at the absolute peak of the housing market in 2006, it would have taken you 11 years to make your money back, and that is the longest period in history. But usually if you buy at any other time, you'll probably be profiting after Two years maybe.
- [34:07]
Omar Zenhom
It kind of equates to even just starting a physical business like a pizzeria. Like, you need to be in it for at least a few years to recoup the cost of the oven and the furniture and the fittings. You know, you're putting in so much money up front, you know, in order for you to make any money off this thing and then be able to sell it for profit, you know, I think that's a good way to look at it. And that's good advice. You know, I even, like the five year and five years goes by like this, you know, like, you know, 2019 feels like yesterday. Oh, man.
- [34:41]
Dave Meyer
Yeah. And the great thing about real estate is that in addition to a lot of the costs being upfront, a lot of the effort is also upfront. And after the first year, what a lot of investors do is they buy a property, they do something we called stabilizing the asset, which is upgrading it, making sure that the apartments are safe and nice and good quality, and then rent it out. And hopefully you have the same tenants for five years, ideally, or maybe you still have to, of course, do maintenance and repairs and take good care of the property. But the amount of effort does decline over your hold period. For most, that makes a lot of sense.
- [35:23]
Omar Zenhom
Got a 7am meeting on a Monday expensing breakfast because it's in policy wasting all afternoon submitting an expense report for that breakfast. If your company used Ramp, you could submit expenses with just a text. Free your team from expense reports today.
- [35:47]
Dave Meyer
Switch your business to ramp.com.
- [35:55]
Omar Zenhom
So let's go back to this example. I went to the bank, they proved my loan. I got my property. Now, you know, I now have put it on the market. I'm going through applications for tenants so that I can get some rent from these, from these units, These two extra units that I have. Walk me through like I'm a new landlord. I don't know what makes a good tenant. What am I looking at in these applications? What is a hell yeah and what's a hell no?
- [36:22]
Dave Meyer
Yeah? I think the most common ways of analyzing this is mostly just in terms of credit score is what most people look at. And then history of eviction, criminal background are really the things that I look for. I want to make sure that obviously there's no history of violent crime or anything like that. A history of eviction is something that you want to pay attention to. Not that that necessarily disqualifies everyone for every property, but it's something you want to at least have a Conversation with a potential tenant about and then making sure that their income to their rent price is an appropriate ratio. I personally, you know, most budgeting experts believe that you should spend no more than 30% of your income on housing. And I personally try to find tenants. That is true. For I don't want to create, quote, unquote, rent burdens where people are spending more than they should on their rent. That's not good for them. That's not good for me. And so I want to make sure that people can reasonably afford the places that I rent out.
- [37:37]
Omar Zenhom
So what makes a good landlord? They're in the unit now. They're paying me rent month after month. How do I make sure that they want to stay and that I have this tenant as long as possible?
- [37:50]
Dave Meyer
I love this question. I think it's something that a lot of people don't think about, but it is super important to be a good.
- [37:56]
Omar Zenhom
I see them as like a customer.
- [37:57]
Dave Meyer
A good property owner. That's exactly right. You just took the words out of my mouth. Exactly. I think a lot of people see this as some, for some reason, some like, adversarial relationship, which doesn't make sense to me. Like you as the property owner or a business owner, and your tenants are your customers. And you asked what makes a good landlord? And I think it's the same thing that makes any good business owner. It's looking for mutual benefit and for thinking about all your stakeholders in your business. So that's you as an investor, of course, a stakeholder. But your tenants are a stakeholder. The vendors that you work with, you know, your electricians, your plumbers, those are stakeholders. The community that you invest in are your stakeholders. And trying to find mutual benefit in ways that everyone can be better off because you operate a business in that community is, to me, the hallmark of a good landlord. And, you know, at BiggerPockets, that's what we try and train people to do, is to be, you know, positive members of the community and to be adding to their, you know, all the stakeholders in the real estate industry.
- [39:04]
Omar Zenhom
Having said that, do you think it's beneficial or even advisable to. To get an agency, to get a property manager to be a middle person to, you know, maybe ease the tension between you and your tenants, where they can just contact that agency, they can contact that manager and say, hey, you know, the dishwasher is not working. And then they can contact you and say, hey, we got this message from the tenant. How do you want to proceed? We can fix it. We can replace it, whatever, like it. Is that a better situation for you as the, as the property owner?
- [39:41]
Dave Meyer
Honestly, I think it depends on the person. I did self management of my own properties for nine years and it was great because I learned a ton. I've dealt with some of the strangest situations you will ever imagine and had mostly wonderful, you know, relationships with my tenants and everything went well. That said, I moved to Europe in 2020 and had to figure out how to hire a property manager to be an intermediary. And I love it. I have to be honest, it's really nice to have someone focus on what I call the operational management or the property management of a deal. And that's dealing with tenants, helping, you know, when they have maintenance concerns, repair concerns, talking to them, redoing the leases, sort of like the administrative stuff, making sure that the snow gets plowed, that kind of stuff. And then I can focus on what I call is sort of the asset management, which is thinking more strategically about how the property is servicing my business and my portfolio as a whole. So as an example, my wife and I recently just bought a new property and we're trying to think about, okay, should we renovate it now? Should we add an ADU in the back? What upgrades should we make? And like, those are sort of the strategic things I can be thinking about and have more time to think about because I'm not answering the phone and doing all the administrative stuff, which is super important and obviously needs to be done. But it's nice to have another person helping with that element of the business.
- [41:28]
Omar Zenhom
What about rent increases? You know, for those who rent, they know that that is a possibility every time they renew. How do you approach, you know, the idea of increasing rent, knowing when to increase it, how much to increase it, all that kind of stuff?
- [41:45]
Dave Meyer
This is a, it's a delicate thing to think about. As a real estate investor. I personally am not very aggressive with raising rent and I never have been. And I just believe that when you have a good tenant, that is the best possible thing for your business. And I do think it's, you know, you can raise rents to keep pace with inflation, you know, and make sure that you're staying up to date on, you know, market rents. But having someone who cares about your property, who's happy in your property, is better for your business in the long run than making another $50 a month or even $100 a month. And I have lived that and I really strongly believe in that. That said, when people leave, for whatever reasons, I do try and get Rent back to market rate, if I've let it lag a little bit, then you try and get back to what is competitive and what is fair market value for your rent. So that's sort of how I think about it and I'm happy to say I think in 14 years I've never had a tenant leave because of rent prices. Because we have always been able to work out reasonable rent increases based on sort of what's going on in the broader economy.
- [43:06]
Omar Zenhom
Awesome. I want to get into a couple of different options when it comes to real estate investment that I know some of our listeners are thinking about. One is rent vesting. People that want to live in a really prime location, they want to live their best life. They don't necessarily want to buy a mortgage at that property. They want to rent that property because it's got an ocean view or it's, you know, right downtown or they're in a major city like New York or you know, Paris or whatever it might be and they want to, you know, take their extra money and buy property in different locations and be an investor. There's. Is this something that you're okay with, you recommend or do you think that people are wasting their money?
- [43:49]
Dave Meyer
I do it. I rent my primary residence. When I moved to Amsterdam, my wife and I decided to rent for a couple of reasons. We didn't know how long we wanted to live here and wanted the flexibility of renting like I said. And we were talking about if you buy something and you decide you want to leave, if you've lived there for five years, you're probably going to come out top. But if it's only a few years, you might lose money to transaction costs. So I think it's a perfectly good idea. It's really depends on your lifestyle and in a lot of ways it's actually a better financial decision. Particularly right now. I'm not as familiar with the Australia market, but I saw something yesterday that said that in the United states, in all 50 of the biggest cities in the country, it is cheaper to rent than it is to buy. And there are many good non financial reasons to buy a house if you want to. Not every decision has to be an optimal financial decision. If you want a place that you know you're going to be able to live in for 10 to 15 years, that's very valuable and you might be willing to pay up for that. But if that's not you and you're just trying to make a pure financial decision right now, it might be better to rent and In a lot of instances, it is better to rent and then to use that money to buy, you know, a duplex, a rental property, a short term rental.
- [45:13]
Omar Zenhom
To answer your question, this is how upside down it is in Australia. I'll give you an example. Like a three bedroom apartment in a prime location in Sydney, you would pay something between 4,500 to $5,000 in rent, Australian dollars. That property is like $3.2 million. It would be like 12 grand.
- [45:34]
Dave Meyer
Yeah, yeah. It's like. Yeah, yeah. So it doesn't make any sense. And I know a lot of people in the US at least I'm not sure how it is in Australia, have been conditioned to believe, like, culturally, it's like homeownership is the way riches is. That's your nest egg. And there is some truth in that. It is a very good savings account. You know, it's like you put some money in, it forces you to put some money to the side. It will probably gain some value for appreciation, but not as much as people think, especially if you consider inflation. And so there are a lot of reasons that people in the personal finance community believe that buying a home is actually not an ideal financial situation. And instead you should rent and invest in other assets, whether that's real estate, your own business, the stock market, whatever.
- [46:27]
Omar Zenhom
The other real estate investment model, that this might be opening up a can of worms. But I've seen a lot of people get into this, especially in the U.S. airbnb. Airbnb. They buy property and they rent. Put it on Airbnb, they furnish it, they put it out. I've heard incredible success stories. I've heard nightmare stories, horror stories, and somewhere in between. What's your experience with this? Is this something that you think is not a great idea for somebody who's getting started? Or maybe this is something that needs a further education. Love to hear what you think about this.
- [47:04]
Dave Meyer
Well, everything you just said is correct, that it's both great and there are horror stories, but that's true of every business, right? That's just entrepreneurship. But I will say that renting, what we call short term rentals can be a very good business. It was for a couple years an excellent business. I'd say from 2015 to 2018. 2019 was sort of what I would describe as like a gold rush era in Airbnb when it was an inefficient market. There wasn't enough Airbnbs for demand and so you could buy them. And people were putting up pretty low quality product and still doing well, in the last two or three years, there's been a little bit of a reckoning in the Airbnb space, probably rightfully so. Demand surged during the pandemic to probably unsustainable levels and has come, come back down. People are going to hotels again, they're doing international travel again. All the staycations we were all going on are slowing down a bit. And there is just an enormous increase in supply. I think for like two or three years in a row, there is 20% plus increases in Airbnb supply. And so there was just too much of it. And I have seen in my own Airbnb, I own one, the level of bookings go down. And I hear that across the industry that revenue is down. Even Airbnb has reported that, you know, they're a public company, so you can find out that their revenue per unit is down. It's still way above pre pandemic level. So keep that in mind that it's sort of a correction, not some crash. But I think what's happening here is what happens in every industry is that it's become an efficient market where you have to be a good player. You have. You have to be a good business person to succeed in the industry. And it's no longer this free for all, where you could just buy anything.
- [49:00]
Omar Zenhom
Yeah. And I think one of the things that I have a friend of mine that has a property, Airbnb, it for a year, did okay, but didn't like the inconsistency and, you know, the revolving door of different tenants, and then went long term, just rented out long term. But the thing that he told me that was interesting, he said he realized that he was not in the real estate business anymore. Now he was a hoteler, he's competing with hotels now. He's competing with other options for vacation lodging. And that's a tough market to be in. That's a whole business model. That's a whole thing. So that's something to consider. And I loved your insights on just realizing that, you know, there is some ease in. Once you get the tenants, at least you're. If they're good and they're stable, you don't necessarily need to worry about them for another year. You don't have to find another tenant, at least for a year, and maybe 18 months or 24 months spending on the lease. But with Airbnb, it's like every few days and it's. That's tough.
- [50:08]
Dave Meyer
Yeah. For me, I might be one and done on Airbnb, to be honest. I'M not sure I'll ever do another one just because it doesn't fit my lifestyle. I don't like the idea of having guests all the time. One has had headaches. I'm not looking to sell it. I think it's great property, it's a good business and learning experience. But I'm not interested in competing against hotels or constantly thinking of new amenities. I have some friends who are incredible at this. A friend of mine just went and he bought this property and he's building these custom mini golf courses in the background and he's putting in pickleball courses and the properties do amazing and he loves it. It's just like a passion, you know, he really likes running that business, but that's not me. And if it's not you, I wouldn't recommend it because you're going to constantly need to be evolving and thinking about new trends, how to. It's a lot more marketing. Whereas a long term rental people generally want the same thing. They want a safe, comfortable place to live. And yes, you need to update amenities and finishes but you know, you're not reinventing the wheel when you're upgrading.
- [51:23]
Omar Zenhom
Yeah. And I would argue that, you know, your friend, he's playing in a different market now. He niche to the point where now he's in the entertainment industry. He's kind of helping people, especially these larger properties that can house 12, 15 people. Now you're hosting a team retreat, now you're hosting a family reunion. And now not so much competition. Like you can't. It's not. It's kind of hard to find a place with pickleball.
- [51:46]
Dave Meyer
That's right.
- [51:46]
Omar Zenhom
Or a mini golf course or something like that. And that's. They're buying more than just. Or they're renting more than just, you know, a place to put their head on, you know, or rest.
- [51:56]
Dave Meyer
And that's what it takes now though, because there's so much supply that if you just own another two bedroom condo, even if it's in a popular destination, how do you stand out from every other two bedroom condo? You might be a great operator, you might have a great place. But think about how difficult it is to market yourself differently than everyone else. And so you can either compete, I think on amenities like my friend is the one I own. I like to think we compete on location. It's in a ski town, so it's in, you know, like there's a limited supply, you know, of places there. And so I think those things can work. A beach town, a lake you know, like those kind of things where there is one amenity that's not going away that people are really going to like. But I think in a lot of markets, just assuming that you're going to be able to buy it and get it rented out at a good rate is not always true.
- [52:52]
Omar Zenhom
Dave, I really enjoyed this conversation. I got so much out of it personally, but I know that all our listeners are, are absorbing so much. If they're not driving, they're writing things down, they're making mental notes of, okay, this is where I'm going to get started. This is how I'm going to do it. I'm going to check out Dave after this, see what programs he has and we'll talk about that. Towards the end of the episode, guys, I'll be giving him a shout out and making sure that you guys know what to do next. But as we wrap up, what can you leave our audience with in terms of one thing that they can do to help improve their mindset as they start this journey?
- [53:28]
Dave Meyer
The most important thing for any real estate investor is to start with the end in mind and not think about what's going to happen to the housing market in a year or two years, but think about what your long term objective is. Because if you're trying to make money quickly, you might want to consider things like house flipping or some of the sort of short term strategies. But if you say to yourself, hey, I'm an entrepreneur, My goal is to invest for 20 years from now or 10 years from now and sort of getting clear on what you want that end goal to look like, it's going to help you really focus in on the right tactics and the right strategies. Because there's so many different ways to invest in real estate. It's, you know, we call it just this one thing, but there's dozens of different approaches that you can take and just taking, you know, even an hour to sit down and think about why you want to invest in real estate, what, you know, outcomes are you hoping for and on what timeline is really going to help you think through and start taking actions today that can help you sort of build that long term portfolio.
- [54:33]
Omar Zenhom
Guys, you heard it first. Dave Mayer, thank you so much for the great, great advice and the conversation. I really enjoyed it. It was super comfortable and not intimidating at all. And I hope that those who are listening, if something went over your head, if something was unclear, make sure to just rewind. This is a podcast, guys, rewind, listen to it again and reach out to Dave and we'll show you how to do that in a moment. But thanks again Dave for your time. Really appreciate it man.
- [55:01]
Dave Meyer
Thanks so much for having me. This was fun.
- [55:03]
Omar Zenhom
Love that conversation with Dave Meyer. Super honest, super transparent, easy to follow. I took a ton of notes just listening back to that and even right after the interview, right after the discussion I had with him, I highly recommend you do what I'm doing and order his book Start with Strategy. It really helps you get started with crafting your own real estate portfolio. You can find this book by just going to biggerpockets.com and going to the menu. Go to books, Go to all books. You'll see the book right there. It's a beautiful cover. This will consolidate the ideas and give you a plan of action. So instead of just sitting around and just wondering what you should do, start taking the steps so you don't have regrets. Thanks so much for listening to the $100 NBA show and thanks again to Dave Meyer. Check them out over@biggerpockets.com check out their podcasts and all their great articles. Thank you so much for listening to today's episode. If you love what you heard and want more of this great podcast, hit the Follow button on the app you're using. Whether it's Spotify or Apple podcasts, it shows the algorithm that you love the show and allows us to reach new audiences so that we can continue to grow and reinvest in into this podcast to help you and your business. Thank you in advance for doing that. Before I go, I want to leave you with this. Everything that is new is going to be very challenging at the start, but what I found is that once you get started, once you start learning and building your knowledge, like Dave mentioned, things start to get demystified, things start to get simpler. It's not as hard as you used to think, it's not as challenging, and usually that learning curve is actually shorter than you think in no time. You are pretty much an expert yourself. Learning through experiences, learning through the knowledge and the books that you have been recommended. Like today's book recommendation. Start with strategy. This is going to give you more confidence as you go about in your journey, in whatever you pursue. Thanks so much for listening and I'll check you in the next episode. I'll see you then. Take care. And we're back folks. It looks like Jim from Sales just got in from his client lunch and he's got receipts. His next meeting is in two minutes. The team is asking, can he get through his expenses in that time he's going for it. Is that his phone? He's snapping a pick. He's texting. Ramp Jim is fast, but this is unheard of. That's it. He's done it. It's unbelievable.
- [57:36]
Dave Meyer
On ramp expenses are faster than ever. Just submit them with a text. Switch your business to ramp.com.