Speaker 1: Welcome to How to Money. I'm Joel, and today I'm
Speaker 1: talking real estates taking time bomb with Bigger Pockets Dave Meyer. Okay,
Speaker 1: so the housing market fascinates me, but if I'm being honest,
Speaker 1: it confounds me at times two. It's incredibly complex and
Speaker 1: there's rarely a simple explanation for why the real estate
Speaker 1: market moves in the way that it does. And so
Speaker 1: that's exactly why I wanted to bring on Dave Meyer.
Speaker 1: He's a real estate expert, he's a longtime podcaster, he's
Speaker 1: the chief investment officer at Bigger Pockets. And so we're
Speaker 1: gonna dig into the forces shaping the housing market right now,
Speaker 1: and then we're gonna zoom out. We're gonna look at
Speaker 1: the bigger trends that could influence how we buy homes
Speaker 1: in the years ahead. Dave has some really interesting predictions
Speaker 1: that I'm stoked to dive into both as individuals and investors.
Speaker 1: We're gonna going to look at both. And so Dave,
Speaker 1: he believes that the next decade in housing could look
Speaker 1: a lot different from the last one, and that makes
Speaker 1: his perspective especially valuable. And it's because it's deeply grounded
Speaker 1: in data, not just like gut instinct. So Dave, thanks
Speaker 1: for joining me today.
Speaker 2: Joel, thanks so much for having me. I'm really excited
Speaker 2: to be here.
Speaker 1: Ah Man, I always love talking to you and listening
Speaker 1: to the way you think about the housing market. I
Speaker 1: said it's grounded in data, which is true, like you
Speaker 1: use a lot of data to inform your analysis. First question, though,
Speaker 1: before we get to that, is what do you like
Speaker 1: to splurge on? What's your craft beer equivalent?
Speaker 3: You know?
Speaker 1: Uh yeah, I'm curious to hear what you waste money on,
Speaker 1: even though you're going smart stuff for your future.
Speaker 2: Oh, I'm so bad about bougie hotels. That's like my thing.
Speaker 3: I am pretty frugal in the rest of my life,
Speaker 3: but if I go on a week vacation, I'm spending
Speaker 3: up for the nice hotel.
Speaker 2: I want all the pampering.
Speaker 1: That are you getting, like the massage and stuff like
Speaker 1: that too at this fancy hotel.
Speaker 2: Not always. Sometimes it's not even that.
Speaker 3: I just I love like going to a really nice
Speaker 3: place where the service is really good and the food
Speaker 3: is great. I love eating, so I'm a big food guy,
Speaker 3: but I don't normally splurge on that.
Speaker 2: But vacation.
Speaker 3: It's just the one time I can mentally unlock from
Speaker 3: being frugal and thinking about investing and trying to build
Speaker 3: for the long term. And I just let myself turn
Speaker 3: off my brain and just spend a little bit of
Speaker 3: money and enjoy the fruits of my labor.
Speaker 1: There you go, Yeah, we got to do that, man, Like,
Speaker 1: that's important. You got to have the outlet and remember
Speaker 1: why you're saving, which is spending, right Like saving is
Speaker 1: delayed spending, So you got to spend it at some
Speaker 1: point exactly.
Speaker 3: And I you know, when I first started as a
Speaker 3: real estate investor and entrepreneur, travel was the thing that
Speaker 3: motivated me. It was always the thing I wanted to do.
Speaker 3: I wanted to see the world. And that's still the
Speaker 3: thing that motivates me. And fortunately I've been doing this
Speaker 3: for sixteen years now and so I have a little
Speaker 3: bit more capital. I'm able to not stay in the
Speaker 3: hostels anymore, and which I did for many many years.
Speaker 3: But canw you know, married now take my wife on
Speaker 3: nice vacations.
Speaker 2: It's it's worked out well.
Speaker 1: I think I can't think of many instances where my
Speaker 1: wife would leave me, but trying to make her stay
Speaker 1: at a hostel with me. That's that's one where she
Speaker 1: might she might piece out real quick.
Speaker 3: Right, Yeah, Well, we've been together for oh gosh, thirteen
Speaker 3: years now, and so we did it together. We've definitely
Speaker 3: stayed in the bunk rooms and done all that. But
Speaker 3: now we're able to upgrade a little bit, which is nice.
Speaker 1: Nice. All right, let's talk. Let's talk housing. And I
Speaker 1: want to I want to kind of look down the
Speaker 1: road further in just a second. But I'm curious, how
Speaker 1: would you describe the housing market in twenty twenty six
Speaker 1: and did it change reason like what you expected from
Speaker 1: the spring housing market. I don't know. Some curt events
Speaker 1: kind of might have mess with that.
Speaker 3: Absolutely, we are in what I've dubbed on our podcast
Speaker 3: at Bigger Pockets, the Great Stall. That's how I help
Speaker 3: people understand what's going on in the housing market. I
Speaker 3: think we're in a period of prolonged flat housing.
Speaker 2: It might even be negative.
Speaker 3: I actually, I know this is unusual for real estate
Speaker 3: investors or people who work in this industry, but I've
Speaker 3: been predicting negative home prices for the last year or so,
Speaker 3: and I think that's what we're going to have here
Speaker 3: in twenty twenty six. A lot of people like to
Speaker 3: call you know. The reason for this, the reason we're
Speaker 3: stalling out is just affordability. Everyone knows this, whether you're
Speaker 3: a renter or a homeowner or an investor. Home prices
Speaker 3: are no longer affordable to the average American, and I
Speaker 3: think that's a big problem. I know real estate investors
Speaker 3: do tend to make money off that, but for a
Speaker 3: just from a society perspective, it's bad. People can't afford it.
Speaker 3: And so I think we need to see and the
Speaker 3: data shows that when you reach this level of unaffordability,
Speaker 3: home prices need to go down. Now, A lot of
Speaker 3: people like to predict something dramatic happening, like a crash,
Speaker 3: something that we saw in two thousand and eight where
Speaker 3: home prices peak to trough went down twenty percent.
Speaker 2: And I'm not saying that can't happen.
Speaker 3: It is certainly still possible, but it is unusual. In fact,
Speaker 3: we've only had one period of really significant home prices
Speaker 3: since the decline, since the Great Depression, and that was
Speaker 3: during the two thousand and eight Great Financial Crisis. There
Speaker 3: is another way affordability gets restored to the housing market.
Speaker 2: It's just more boring.
Speaker 3: It's not as exciting to talk about on social media.
Speaker 3: And that's what I call the Great Stall. It's basically
Speaker 3: home prices stay somewhat stagnant or maybe decline a little bit,
Speaker 3: single digit declines. At the same time you see mortgage
Speaker 3: rates start to decline a little bit. Real wages have
Speaker 3: been going up and hopefully that will continue. And when
Speaker 3: you see the combination of those three things, that actually
Speaker 3: improves affordability just slowly, and we're actually starting to see
Speaker 3: that nine months in a row now, housing affordability is better.
Speaker 3: The average mortgage payment if you bought a house today
Speaker 3: a monthly, it's about eight percent lower than it was
Speaker 3: a year ago.
Speaker 2: Long way to go.
Speaker 3: We still need affordability to improve, but we are trending
Speaker 3: in that direction, and outside of sort of black swan
Speaker 3: event where something crazy happens, I think that's the trajectory
Speaker 3: that we're on for the next several years. It could
Speaker 3: be another year, it could be three more years, it
Speaker 3: could be five more years.
Speaker 2: We just don't really know.
Speaker 3: And so when I look at the spring market, it's
Speaker 3: kind of what I was predicting. I actually think I've
Speaker 3: been saying that we're going to have a slow market,
Speaker 3: and because mortgage rates, you know, we're recording this at
Speaker 3: the end of March. Mortgage rates have gone up since
Speaker 3: the invasion, you know, sort of the war conflict, whatever
Speaker 3: people call it in Iran. You know, it's probably going
Speaker 3: to be even slower than we were expected. But I
Speaker 3: was not expecting some big movement in the housing market
Speaker 3: this year. I think we're in for a frustratingly slow
Speaker 3: housing market for the foreseeable future.
Speaker 1: I think you're right, and I think it is is
Speaker 1: it's kind of like when what Vanguard is predicted for
Speaker 1: the stock market, right, It's like, hey, actually, we've had
Speaker 1: incredible returns over the last like since the Great Recession.
Speaker 1: Don't get used to it. Is kind of what Vanguard's
Speaker 1: saying in their predictions moving forward. I think you're saying
Speaker 1: something similar, is like, hey, the housing market had some
Speaker 1: crazy years there where home prices were going up insane
Speaker 1: and an insane rate. Don't get used to it. That's
Speaker 1: not normal, and and maybe we need a plateau here
Speaker 1: to kind of help help us get back to a
Speaker 1: state of normalcy.
Speaker 2: Exactly right.
Speaker 3: Yeah, I've read those same reports about from Vanguard, and
Speaker 3: I agree.
Speaker 2: I think it's similar.
Speaker 3: There's this term you hear sometimes calls a pull forward, right,
Speaker 3: where basically the average in the stock market, the average
Speaker 3: in the housing market is probably not going to change
Speaker 3: that much if you zoom out. But after years of
Speaker 3: incredible above average growth and returns.
Speaker 2: You sort of have to have a counterbalance. You have
Speaker 2: to have years of underwhelming growth. And we can talk
Speaker 2: about this.
Speaker 3: I think there's still ways to invest in real estate,
Speaker 3: because real estate investing is not all about the price
Speaker 3: of an asset. There's definitely other ways to make money
Speaker 3: from it. But I think when you just look at
Speaker 3: pure appreciation, I'm not expecting it in most markets.
Speaker 2: Of course, real estate is very regional.
Speaker 3: There'll be markets that grow, there'll be ones that have
Speaker 3: real significant declients that you could potentially call it crash,
Speaker 3: but I think the average is going to be just
Speaker 3: slightly down to flat.
Speaker 1: How do you think investors are impacted by recency bias? Right?
Speaker 1: Think about oh Man, big run ups. I guess I
Speaker 1: should predict more of that, or the longer this housing
Speaker 1: plateau continues, they are people going to expect that housing
Speaker 1: is not where it's at, it's not worth investing in
Speaker 1: because prices aren't going up, and I was banking on
Speaker 1: appreciation of this asset. I just purchased a lot.
Speaker 3: That's a very good student observation, Joel, is that people
Speaker 3: are really impacted by sort of this recency bias.
Speaker 2: I have dubbed.
Speaker 3: The period from twenty twelve ish to twenty twenty three
Speaker 3: as sort of this Goldilocks error for real estate investing.
Speaker 3: If you know, it couldn't have gotten better for people
Speaker 3: from an appreciation perspective. We had artificially low mortgage rates
Speaker 3: and the lowest we've ever seen. We saw a structural
Speaker 3: supply shortage after the Great Financial Crisis, huge demographic tailwinds
Speaker 3: from millennials, now the biggest generation in the US, reaching
Speaker 3: their peak home buying age.
Speaker 2: Just all these things.
Speaker 3: Came together to make it an extremely good time for
Speaker 3: real estate investing.
Speaker 2: And that's great.
Speaker 3: You know, I sort of came of age as an investor,
Speaker 3: you know, slightly before that, but was a beneficiary of it.
Speaker 3: But what I encourage people to do, as Joel, I'm
Speaker 3: sure you encourage people to do outside of just real estate,
Speaker 3: is not compare to the best possible returns. The job
Speaker 3: of an investor, whether you invest in in real estate
Speaker 3: or any other asset class is to compare to what
Speaker 3: else can you do with your money? Right The question
Speaker 3: is I have a certain amount of time, I have
Speaker 3: a certain amount of money. What's the best way to
Speaker 3: optimize for my financial future given the realities of the
Speaker 3: ground on the ground. And unfortunately, I do think we're
Speaker 3: just in a period of lower returns across asset classes
Speaker 3: right now, unless something crazy happens, you know, if we
Speaker 3: start seeing quantitative easing or you know, like there're you know,
Speaker 3: some things that are not currently happening start to happen.
Speaker 1: New AI models, right yeah, right.
Speaker 2: Like stuff that we can't predict.
Speaker 3: But if there is, you know, the status quo I
Speaker 3: think right now is lower returns doesn't mean you can't invest,
Speaker 3: doesn't mean there aren't good returns out there. But I
Speaker 3: think it's just gonna be a little less obvious, Like
Speaker 3: you're gonna have.
Speaker 2: To look a little harder for it.
Speaker 3: You're gonna have to probably be a little bit more
Speaker 3: skilled than you were. But what I say to most
Speaker 3: investors is we're in a period similar to the eighties
Speaker 3: or nineties in real estate investing. People were still making
Speaker 3: money there. You don't need everything to be perfect to
Speaker 3: make money, but you do need to adapt. You need
Speaker 3: different skills and different strategies and tactics to make it work.
Speaker 1: What you're getting. I mean a little bit like twenty eleven,
Speaker 1: twenty twelve, twenty thirteen, twenty seventeen, you could any old
Speaker 1: idiot could kind of get into real estate, right, Like
Speaker 1: I was gonna say, I including myself exactly right, So
Speaker 1: I am. I am that idiot and have done well
Speaker 1: because of the momentous forces behind me that were that
Speaker 1: the wind at my back, right, And you, just as
Speaker 1: a real estate investor moving forward, you you've got to
Speaker 1: do more due diligence to ensure that you're making a
Speaker 1: good investment versus just like, hey, the tailwinds are at
Speaker 1: my back, I'm just going to take that and run
Speaker 1: with it. Well, the tailwinds aren't at your back anymore,
Speaker 1: and at least not in the same way that they were,
Speaker 1: And so you have to be just a lot more thoughtful.
Speaker 1: I think in Parson data specifically where you live, you
Speaker 1: have to you have to do a lot more I
Speaker 1: would say analysis, do you agree before making a purchase?
Speaker 3: Absolutely, you could get away with being a bad investor
Speaker 3: for a really long time in real estate, and it
Speaker 3: made people focus artificially in my opinion, on appreciation as
Speaker 3: the way to make money. But real estate investors can
Speaker 3: make money. I would say four or five ways. It's
Speaker 3: an appreciation that market appreciation, which is really out of
Speaker 3: your control.
Speaker 2: It's just macro.
Speaker 3: Conditions pushing home prices up. But there are things that
Speaker 3: are still in your control, like generating cash flow, paying
Speaker 3: down your loan, or value add investing, which I think
Speaker 3: is the number one way people can still make money.
Speaker 3: Buying something that's not up to date and fixing it up.
Speaker 3: That's still a way to make huge gains in real
Speaker 3: estate investing. There's also tax benefits to real estate that
Speaker 3: are very powerful and haven't gone anywhere. In fact, they've
Speaker 3: probably gotten better over the last couple of years given
Speaker 3: recent policy.
Speaker 2: And then there are defensive.
Speaker 3: Reasons to be in real estate as well, which I
Speaker 3: think things like inflation hedge. I know we're getting over
Speaker 3: a period of inflation, but I think there's still a
Speaker 3: lot of inflation risk long term in the economy if
Speaker 3: you look at our national debt, and so there's reasons
Speaker 3: to do that as well, and so you need to
Speaker 3: be able to analyze these deals for that combination of
Speaker 3: benefits that come from real estate, not just oh my god,
Speaker 3: the price on Zillo went from four hundred thousand to
Speaker 3: four hundred and fifty thousand.
Speaker 2: There's just more to it than that.
Speaker 1: Yeah, how do you when you talk to investors and
Speaker 1: they are super stoked about well, man, I think this
Speaker 1: is a market where I'm going to see outsized appreciation.
Speaker 1: Do you think of that? Is there a way to
Speaker 1: bank that into the way you think about how intelligent
Speaker 1: that is of a purchase versus what the fundamentals of
Speaker 1: cash flow are for that property. Do you think of
Speaker 1: the goal of outside appreciation as just a speculative maneuver
Speaker 1: or is there like, is there something worth worth considering
Speaker 1: in that.
Speaker 3: It's a great debate. This is something that happens in
Speaker 3: real estate all the time. And you know, people say
Speaker 3: a lot of old school investors would say, you never
Speaker 3: count on appreciation. Actually, I wrote a book called real
Speaker 3: Estate by the Numbers with a guy named Jay Scott,
Speaker 3: fantastic investor, better investor than me, and he never underwrites
Speaker 3: for appreciation. And we always debated that because I think
Speaker 3: during a zero interest rate policy era, you should count
Speaker 3: on appreciation like you could for a really long time,
Speaker 3: and I underwrote deals when I was doing my analysis
Speaker 3: with modest appreciation, never more than three or four percent,
Speaker 3: you know, pace of inflation, something like that. But I've
Speaker 3: stopped doing that, I don't, you know, in the last
Speaker 3: couple of years. I think the last two or three
Speaker 3: years I said zero appreciation. I've been wrong about that,
Speaker 3: which is good, but that's I guess I'm not wrong
Speaker 3: because doing that is not necessarily a prediction that prices.
Speaker 2: Won't go up.
Speaker 3: I want my deals in today's day and age to
Speaker 3: do well even if there is zier appreciation. I think
Speaker 3: that's the way to think about it. Where can the
Speaker 3: combination of cash flow value, add amorization and tax benefits
Speaker 3: get you to the return that you need and then
Speaker 3: appreciation is just gravy and you might get it.
Speaker 2: You probably will, you know, like it will probably.
Speaker 3: Pick back up again at some point. But I like,
Speaker 3: I'm just a conservative investor. I like underwriting deals and
Speaker 3: being very very selective about deals, and luckily, I think
Speaker 3: that is sort of the benefit of this market. In
Speaker 3: a market where there's less appreciation, usually have more choice,
Speaker 3: you have more leverage, You're better able to negotiate, and
Speaker 3: so I think this is a time where you have
Speaker 3: to be very precise and patient, and if you are
Speaker 3: and underwrite with sort of these conservative principles, you can still.
Speaker 2: Definitely make money.
Speaker 3: It's just a it's a different mindset than this scattershot
Speaker 3: like I just got to buy anything and make all
Speaker 3: cash offers because it's going to go up ten percent
Speaker 3: by next year.
Speaker 2: Is a different way to think about it.
Speaker 1: Yeah, Yeah, And I think you're right, like, what's happening
Speaker 1: in the market is very indicative of what you're likely
Speaker 1: to see as far as appreciation in moving forward. And
Speaker 1: a lot of people who bought a home a year ago,
Speaker 1: a year and a half ago, if they need their
Speaker 1: need to or want to sell, they're a little nervous
Speaker 1: because they haven't seen they have to come to the
Speaker 1: closing table with a lot of money. They didn't. They
Speaker 1: were like, but I just thought housing prices always went up,
Speaker 1: and I thought they always went up significantly, And again
Speaker 1: that's recency bias. That's not always the case, and what
Speaker 1: we've experienced over the timeframe you mentioned is kind of
Speaker 1: an outlier. Ultimately, when we talk about the history of housing,
Speaker 1: let's talk specifically about markets, and you did a video
Speaker 1: on this recently, but I'm curious to know what you
Speaker 1: think some of the hottest markets that people kept talking
Speaker 1: about Austin, Austin, Texas, and it seems like maybe we've
Speaker 1: reached a little bit of equilibrium there and prices are
Speaker 1: not rent prices are not falling in the way that
Speaker 1: they were. But how do you help investors think about
Speaker 1: what markets make sense to invest in and what markets
Speaker 1: maybe to avoid.
Speaker 3: Generally speaking, you can invest in almost any market, even
Speaker 3: Austin while it was correcting. It really depends on your strategy.
Speaker 3: I think that you know the basics are look for
Speaker 3: strong economic fundamentals. Markets where there is good job growth
Speaker 3: and where there is something called household formation are the
Speaker 3: number one and number two things that I personally look for.
Speaker 3: Economic growth tends to bring people to an area that
Speaker 3: increases demand. It also, you know, as people's wages and
Speaker 3: incomes go up, the pushes prices up for homes and
Speaker 3: for rents as well, which can help your returns as
Speaker 3: an investor. So those are I think two things that
Speaker 3: I like to look for. I think the place where
Speaker 3: people air, especially in recent years, is only focusing though,
Speaker 3: on the demand side of the market, because every market
Speaker 3: they're a supply and demand, and Austin is a perfect
Speaker 3: example of that.
Speaker 2: People were moving.
Speaker 3: There in droves right during the pandemic or Florida. A
Speaker 3: lot of places people moving there, and that means demand.
Speaker 3: It also means that developers are going there and building
Speaker 3: tons of supply. And what we're seeing right now in
Speaker 3: a lot of markets is that even in markets where
Speaker 3: there's sustained demand people want to live there or rent
Speaker 3: there or buy there or.
Speaker 2: Whatever, they've just built too much. There's an over supply.
Speaker 3: There's a glut in some of these markets, and so
Speaker 3: that is pushing down performance. In a market like Austin
Speaker 3: is a great example of that. They are you know,
Speaker 3: people saw Google moving there, Tesla moving there, and developers
Speaker 3: built literally tens of thousands of units. And even though
Speaker 3: we are in a sort of a structural supply shortage
Speaker 3: in the United States, you can't have all that inventory
Speaker 3: and all those housing coming in at the same time.
Speaker 3: Not everyone's ready to move or to buy at the
Speaker 3: same time. That price is dropping right exactly, and so
Speaker 3: we are seeing prices drop, which is probably a good thing.
Speaker 3: In Austin, right like it's it got a little unaffordable there.
Speaker 3: And so that's the other thing I really recommend people
Speaker 3: look at is the supply side and trying to understand
Speaker 3: where are markets in equal librium. You basically, as an investor,
Speaker 3: want supply and demand to be roughly equal, ideally a
Speaker 3: little bit more demand than supply because that's going to
Speaker 3: keep some upward pressure on rents and prices and at
Speaker 3: least keep paced with inflation.
Speaker 2: So that's good.
Speaker 1: Yeah, I love what you just said there. It makes me,
Speaker 1: I guess just for the person in the how to
Speaker 1: money audience who's like not thinking like an investor, They're
Speaker 1: thinking of someone who wants to buy their first home.
Speaker 1: Seeing rents decline or seeing prices moderate is like music
Speaker 1: to their ears, right. They're like, I've been trying to
Speaker 1: buy a house, and every time I'm trying to save
Speaker 1: up and down payment, the market continues to outpace me.
Speaker 1: And but for an investor, like they're seeing it through
Speaker 1: through different eyes. So I don't know, how do you
Speaker 1: think about what's good for the investor is often bad
Speaker 1: for the individual home buyer.
Speaker 3: Yeah, you know, I think I have maybe a little
Speaker 3: bit of a contrarian take here. As an investor, I
Speaker 3: don't look for markets that have exploding growth. My personal
Speaker 3: thesis about investing is affordability. I like to invest in
Speaker 3: places where the average person can afford the average price home.
Speaker 3: I just think that's good for society. I don't want
Speaker 3: to be a kind of investor who's like pricing people
Speaker 3: out of their homes. And it's not necessary to be
Speaker 3: a successful investor. You don't need these massive swings of
Speaker 3: appreciation that push people out of the market. In fact,
Speaker 3: on my podcast, and what I do is I look
Speaker 3: for markets where people can.
Speaker 2: That literally, that's the equation.
Speaker 3: Can the average person, based on their average income, afford
Speaker 3: a home here? That to me, is going to ensure
Speaker 3: that there's sustainable growth. Right like that prices keep going
Speaker 3: up in a predictable pattern like two three percent a year.
Speaker 3: That's plenty, and it means that you're not going to
Speaker 3: have these wild swings in valuation. For me, I'd rather
Speaker 3: invest in a market like Chicago or a Milwaukee or
Speaker 3: something like that than Las Vegas. Vegas, you can have
Speaker 3: huge run ups in prices, but you have big corrections
Speaker 3: as well. And I think the thing people need to remember,
Speaker 3: whether you're a homeowner and an investor. Is that the
Speaker 3: way you make money in real estate is time. You
Speaker 3: don't need to time the market. You need to buy right,
Speaker 3: but you just need to wait. And so for me,
Speaker 3: I'd rather be in a market that's just going to
Speaker 3: do two three four percent appreciation a year, where people
Speaker 3: are happy. My tenants are not rent burdened. They can
Speaker 3: easily afford to pay the rent. It just makes for
Speaker 3: a better sort of mutually beneficial relationship, which is how
Speaker 3: I believe real estate investing should be approached. So I
Speaker 3: agree with you. Some investors do see it that way,
Speaker 3: but I encourage them not to. I think being in
Speaker 3: a market and being providing a service that the average
Speaker 3: person in your market can afford to me is on
Speaker 3: a personal level, and it's just good business.
Speaker 1: I feel the same way, like I enjoy being a
Speaker 1: landlord and I have a good relationship with my tenants,
Speaker 1: Like there's something really that I love about that. I mean,
Speaker 1: I think that there's conversations, you know, in the past
Speaker 1: about the ethical nature of landlording. Is it ethical? I
Speaker 1: think it totally can be. I think there's a lot
Speaker 1: of unethical landlording, but I think there are a lot
Speaker 1: of great ethical landlords out there too, who just want
Speaker 1: to provide who are not getting getting wildly rich overnight,
Speaker 1: and just want to provide a great place to live
Speaker 1: for individuals and families. I'm curious too on financing right
Speaker 1: rates have come down a little bit. How do you
Speaker 1: help home buyers and investors think about what lending products
Speaker 1: are worth looking into? And like, there's a rise in
Speaker 1: adjustable rate mortgages right now, people are more interested in those.
Speaker 1: To me, they've gotten better as a product and the
Speaker 1: savings can be significant. How do you versus just like
Speaker 1: a traditional thirty year fixed How do you help people
Speaker 1: think about that the lending conundrum.
Speaker 3: Yeah, it's tough right now because we're seeing wild mortgage swings,
Speaker 3: unusually large volatility in the mortgage market. I think it
Speaker 3: really depends on who you are and what makes you
Speaker 3: sleep well at night. And the third question, which is
Speaker 3: always hard, is how long you intend to stay in
Speaker 3: a home? If you intend to stay somewhere for a
Speaker 3: long term, and the difference between a thirty year and
Speaker 3: a fixed rate mortgage and an adjustable rate mortgage is
Speaker 3: not that big. I'd take the third year fixed most people.
Speaker 3: It helps you sleep at night, you don't have to
Speaker 3: worry about it, and you can always refinance, so that
Speaker 3: is beneficial. That said, I use my first adjustable rate
Speaker 3: mortgage of my life about a year ago for my
Speaker 3: primary home residence because I don't know how long I'm
Speaker 3: going to live here, and it was more than a
Speaker 3: point for you know, it's hundreds of dollars a month
Speaker 3: for me, and I'll keep an eye on it.
Speaker 2: Maybe I'll refinance.
Speaker 3: But I think you're right in that the products have
Speaker 3: gotten better. I think adjustable more rate mortgage has got
Speaker 3: a very bad rap during the financial crisis with good reason.
Speaker 3: They were garbage loans and they were irresponsible for people
Speaker 3: who are listening. What was happening was the loan officers
Speaker 3: were giving out mortgages an adjustable rate, and you'd have
Speaker 3: what they call the teaser rate is to three percent whatever,
Speaker 3: and they would underwrite the borrower based on that two
Speaker 3: or three percent, not what the adjust what it would
Speaker 3: adjust to. So when it adjusted to six seven eight percent,
Speaker 3: a lot of those borrowers couldn't pay, and that was
Speaker 3: a major contributing factor to the housing crash and the
Speaker 3: financial crisis. Now you do the underwriting standards are much higher,
Speaker 3: and so under you know, the loan officers and originators
Speaker 3: have to underwrite based on willingness to pay for what
Speaker 3: they you know, the adjusted rate will be. There's no
Speaker 3: teaser rates anymore, and I think you see longer term
Speaker 3: adjustable rates. So the example, the one I got is
Speaker 3: a seven one, which means that for the first seven
Speaker 3: years of my loan it's locked in. So I know,
Speaker 3: I have a five point twenty five mortgage rate for
Speaker 3: one year for seven years, and then after that it
Speaker 3: can only adjust every one year and the maximum it
Speaker 3: can adjust in any one year.
Speaker 2: Is zero point five percent.
Speaker 3: So for me, although it is a little bit there
Speaker 3: is some risk, the upside was worth it to me
Speaker 3: saving money right now because the worst ten years from now,
Speaker 3: even if it adjusts up three times ten years from now,
Speaker 3: it will be roughly what I would have paid with
Speaker 3: a thirty year fixed So I think it's worth considering.
Speaker 3: But you really do need to just make sure that
Speaker 3: you read all the fine print on these to make
Speaker 3: sure you're not putting yourself in a position where you
Speaker 3: might not be able to pay your mortgage. That to me,
Speaker 3: it's the biggest risk in real estate, Like if you
Speaker 3: can pay your mortgage, you.
Speaker 2: Will almost always make money.
Speaker 3: The risk is when you cannot pay your mortgage, and
Speaker 3: so you should, in my opinion, do anything you have
Speaker 3: to to not take that risk.
Speaker 1: Yeah, more even like ten year arms local credit union
Speaker 1: has a fifteen year like it doesn't awesome. Yeah, the
Speaker 1: rate doesn't adjust for fifteen years. When you think about
Speaker 1: how long the average person is in their home like that,
Speaker 1: that doesn't look less very whisky at all. And yet
Speaker 1: the savings an interest are significant. So all right, I've
Speaker 1: got more I want to talk to with you, Dave.
Speaker 1: I want to talk about the future of real estate.
Speaker 1: Let's go a little further out and make some projections
Speaker 1: because yeah, I don't know, maybe it was a little
Speaker 1: the title the taking time bomb. Maybe that was a
Speaker 1: little too clickbaity. I don't know, but we'll get your
Speaker 1: thoughts on that for a second. O. We're back from
Speaker 1: the break, still talking with Dave Meyer. That was my
Speaker 1: fault on the clickbaity headline, but I went with it anyway,
Speaker 1: just because I don't know. Dave's gonna pay it off, right, Dave?
Speaker 1: The taking time bomb? What is it? And no, I'm kidding,
Speaker 1: so I said it too you did. Okay, all right,
Speaker 1: so you said this too, so maybe I stole it
Speaker 1: from you. But like we've been hearing this argument about
Speaker 1: a lack of supply in the United States or so
Speaker 1: like that's Hey, that's part of why real estate prices
Speaker 1: have run up so much is because we're short millions
Speaker 1: of units. And we talk about these parts of the
Speaker 1: United States where just building has not kept up with
Speaker 1: population growth until recently, at least in some parts, but
Speaker 1: still in much of the country, especially in places where
Speaker 1: people want to move, there's just not enough supply and
Speaker 1: the regulations around introducing new supply are stringent, and so gosh,
Speaker 1: we need more homes. But you don't know or you
Speaker 1: don't think that's going to be the case for too
Speaker 1: too much longer, right.
Speaker 3: Yeah, I think we're in a structural supply deficit. Depending
Speaker 3: on who you asked, the estimates are huge, Like some
Speaker 3: people say one million, some people say seven million.
Speaker 2: I like to just average them all.
Speaker 3: I think it's somewhere between three to four million housing
Speaker 3: units short.
Speaker 1: And as predictions from what the National Association of Realtors
Speaker 1: and who else.
Speaker 3: Yeah, we see a lot of private companies do them
Speaker 3: as well. I think Toutality puts out one, there's a
Speaker 3: whole The National home Builders Association puts out one, you know,
Speaker 3: and they all very different methodologies, so it's kind of
Speaker 3: hard to pin down, but the logic behind it makes sense.
Speaker 3: After the Great Financial Crisis, there's just a lack of building,
Speaker 3: you know, a lot of builders just went out of business.
Speaker 3: It wasn't profitable to be building new homes in the
Speaker 3: United States. But at the same time, millennials again now
Speaker 3: the biggest generation of the US, reached their peak home
Speaker 3: buying age. So there's a lot of demand for housing
Speaker 3: and that is something that in my opinion, absolutely has
Speaker 3: pushed up the price of housing.
Speaker 2: And it's really location dependent.
Speaker 3: A lot of rural areas are not seeing this. If
Speaker 3: you live in parts of the Midwest, you're probably not
Speaker 3: seeing this. But for large parts of the country this
Speaker 3: has absolutely been true. We just see it all over
Speaker 3: the place. But I do think there is a chance
Speaker 3: that starts to change. There's a couple of things that
Speaker 3: are happening in the world that are probably going to
Speaker 3: impact this dynamic. Now I should caveat this by saying
Speaker 3: normally I don't make predictions for the housing market more
Speaker 3: than a year or two in advance, but you start
Speaker 3: to see some of these big trends taking shape, and
Speaker 3: you wonder, what's going to happen to me. The two
Speaker 3: big variables, there's three big varials. Two are on the
Speaker 3: demand side. One is just lower birth rates in the
Speaker 3: United States. They're lower than the replacement rate. There's this
Speaker 3: thing in demographics where basically every couple has to have
Speaker 3: two children two point one children for population to grow naturally,
Speaker 3: and we're at about one point seven. So that means
Speaker 3: that we are probably going to hit peak population in
Speaker 3: the United States, at least from domestically born people sometimes
Speaker 3: in the twenty fifties, is sort of what people are expecting.
Speaker 3: The other thing that usually supplements, or at least over
Speaker 3: the last several decades in the United States, have supplemented
Speaker 3: population is immigration. Immigration is a pendulum that swings back
Speaker 3: and forth. We are at one end of the extreme
Speaker 3: right now, and actually saw that the net immigration decline
Speaker 3: last year.
Speaker 1: Wow.
Speaker 3: And so a lot of the demand for housing that
Speaker 3: we've seen over the last couple of years is from immigration,
Speaker 3: both legal and undocumented. So like it's not just from people.
Speaker 2: Who are here illegally.
Speaker 3: You also see it from people who are getting visas
Speaker 3: that has actually declined as well. And so when you
Speaker 3: look at those two things together, you say the population
Speaker 3: of the United States unless something changes, because again that
Speaker 3: it's going to decline. Birth rates I have a hard
Speaker 3: time imagining going back up anytime soon. There's all sorts
Speaker 3: of reasons why birth rates are declining, but it's happening
Speaker 3: across the world. It's not just a US phenomenon. That's
Speaker 3: expensive to raise children is the number one reason people
Speaker 3: say that they're having fewer children.
Speaker 1: Yes, some say that having four children is like the
Speaker 1: new status symbol.
Speaker 3: Right, Yeah, it's so expensive, and so I have a
Speaker 3: hard time imagining that. You know, I can't predict what
Speaker 3: immigration policy is going to be ten years from now,
Speaker 3: but if you stay on the same jectory that we're
Speaker 3: in now, we're going to need less housing in the
Speaker 3: United States. Like that's just going to happen. I don't
Speaker 3: think it's going to be in the next couple of years.
Speaker 3: I think that's going to happen, you know, slowly, probably
Speaker 3: starting in the twenty thirties.
Speaker 2: And then the third thing.
Speaker 3: Is what people call this silver tsunami or the time bomb.
Speaker 3: Is that a lot of the housing in the United
Speaker 3: States is owned by boomers. And although I think the
Speaker 3: calls of this tsunami and crash have been really overblown,
Speaker 3: I've been hearing this for twelve years now, that the
Speaker 3: market's going to crash because boomers sell their homes.
Speaker 2: There is some.
Speaker 3: Inevitability to the demographics there right that they're going to
Speaker 3: have to get rid of some of their homes. I
Speaker 3: don't think it's as dramatic as people say, but I
Speaker 3: think this could take these three things combined can take
Speaker 3: us from a supply shortage to hopefully a neutral market.
Speaker 3: But there is a potential that it swings the pendulum
Speaker 3: swing so far in the other direction, where we actually
Speaker 3: have more supply than you need. And I do think
Speaker 3: that's another thing that could potentially suppress appreciation in certain areas,
Speaker 3: in certain asset classes, in real estate for the foreseeable future.
Speaker 1: So as a real estate investor who sees the demographic
Speaker 1: riding on the wall, right, And I talked to an
Speaker 1: economist from Notre Dame who is it focuses on demographics,
Speaker 1: and I was so curious to pick her brain, because Yeah,
Speaker 1: that's going to impact a whole lot of the future
Speaker 1: of our country, and you're right to point out not
Speaker 1: just declining birth rates, but a declining immigration and an
Speaker 1: influx in immigration has at least softened the blow of
Speaker 1: declining birth rates in this country for a long time,
Speaker 1: and it's no longer doing that. So, as a real
Speaker 1: estate investor who sees this coming, how do you react?
Speaker 3: I think it's further reason to be really precise about
Speaker 3: what you buy, because I actually I got into this
Speaker 3: on my show. I was super curious. I started looking
Speaker 3: at what happened in Japan. That's they've had a declining
Speaker 3: population for a while. Look at Germany, and this is
Speaker 3: happening in a lot of Western Europe as well. And
Speaker 3: what you see, generally speaking, is that certain areas are uneffective.
Speaker 3: If you look at large economic centers, urban areas largely unaffected.
Speaker 3: Right that a lot of the demand for housing just
Speaker 3: gets concentrated in these areas where rural and suburban areas
Speaker 3: are hit a little bit harder. And so for me,
Speaker 3: if I'm looking at places where I want to buy,
Speaker 3: and I want prices to at least keep up with
Speaker 3: the pace of inflation, which is sort of a goal
Speaker 3: as an investor, you want at least to keep pace
Speaker 3: with inflation, I would be skeptical. I'm worried about suburbs
Speaker 3: or rural areas with higher age groups, higher demographics. You're
Speaker 3: going to see a lot of people selling in those markets,
Speaker 3: and you're not going to be able to find demand.
Speaker 3: Like I don't think a lot of young people are
Speaker 3: going to move to those areas and absorb all that housing,
Speaker 3: and so I think it's just another reason you need
Speaker 3: to be very careful. I don't think prices are going
Speaker 3: to go away everywhere. I also think there's other things
Speaker 3: that can soften this blow. For example, how does construction
Speaker 3: respond right if construction slows down because they see the
Speaker 3: writing on the wall, that will soften the blow as well.
Speaker 3: I think people also forget that four hundred thousand homes
Speaker 3: a year just become obsolete because they're too old and
Speaker 3: it's not economical to fix them up, and so there
Speaker 3: could be supply coming.
Speaker 2: Off the board.
Speaker 3: So there are a lot of variables here, But I
Speaker 3: think the key takeaway is we're probably going from demographic
Speaker 3: tailwinds to demographic headwinds, and that's going to further.
Speaker 2: Challenge appreciation.
Speaker 3: Again, though I want to call out that the opportunity
Speaker 3: exists for real estate investors because or home buyers, it
Speaker 3: means you can buy for cheaper, right, and so like
Speaker 3: that's the correction that people need to make, is that
Speaker 3: if you think prices are going to go down or
Speaker 3: they're going to flatten, you need to be able to
Speaker 3: buy below current market value. If the current value of
Speaker 3: a home and I'm not saying list price, that's a
Speaker 3: key difference because people can list their price for whatever
Speaker 3: they want. The current value that you need to figure
Speaker 3: out through comping. If it's four hundred thousand, can you
Speaker 3: buy it to three eighty five? Can you buy it
Speaker 3: at three eighty can you buy it at three fifty?
Speaker 3: And I know that sounds like just making up numbers,
Speaker 3: but that is the ben That is the way the
Speaker 3: market shifts. Right when you go from a seller's market
Speaker 3: to a buyer's market, there are you know, you have
Speaker 3: more leverage as a buyer. And so that's the discipline
Speaker 3: I encourage people to have is don't buy a current
Speaker 3: market value because if it goes down two percent, you're
Speaker 3: not going to get killed. You'll still make money other ways,
Speaker 3: but it will not perform as well. But if you
Speaker 3: can buy ten percent under market value. You're insulating yourself
Speaker 3: against some potential declines and you're ideally walking into some return.
Speaker 1: And that's where I think a lot of people who
Speaker 1: and it's really hard not to in real estate, especially
Speaker 1: as buying your primary residence, get a little emotional about it.
Speaker 1: But that's where you have to remove some of that
Speaker 1: emotion because like it's I've already spoken to how to
Speaker 1: Money listeners who have bought something, let's say in the
Speaker 1: not too distant past, and they like, let's say, I
Speaker 1: don't want to move or want to upgrade their house already, like, oh,
Speaker 1: we we're having twins or something like that, right, and
Speaker 1: we need more space. And my goodness, though, I think
Speaker 1: we overpaid a little bit. And the housing markets often
Speaker 1: and that can feel like a double whammy that makes
Speaker 1: it really difficult to sell and it feels like you're
Speaker 1: forced to stay put then in the house that was
Speaker 1: a joy to purchase now becomes this headache that you
Speaker 1: have to hold on to. And but so much of
Speaker 1: that boils down to purchase price and being able to
Speaker 1: negotiate wisely on the front end.
Speaker 3: Absolutely one hundred percent real estate. Yeah, being able, that's
Speaker 3: the two things you can't change. In real estate, it's
Speaker 3: kind of a note saying is what you pay for
Speaker 3: it and the location. So those are the two things
Speaker 3: that I think you really need to focus on is
Speaker 3: in an area with high demand and paying the right price.
Speaker 3: I know it got crazy in twenty two twenty three
Speaker 3: where you had to be really aggressive and if you
Speaker 3: start in a family like you just got to do
Speaker 3: what you got to do, you know, Like I totally
Speaker 3: get that we're in a totally different market now, though
Speaker 3: you have to be disciplined. You have to be patient
Speaker 3: if that means renting for another year, rent for another year.
Speaker 2: Like I.
Speaker 3: Think I surprise people a lot when I tell people
Speaker 3: to rent all the time. I just think it makes
Speaker 3: sense real estate, not just the purchase price, the transaction
Speaker 3: costs or what really kill people. Because when you go
Speaker 3: to sell a home, you're usually paying five or six
Speaker 3: percent of the purchase price on commissions.
Speaker 2: It's a lot of money.
Speaker 3: You know, if you bought a home for four hundred
Speaker 3: thousand dollars, you're paying five percent on commission, that's twenty grand.
Speaker 3: Means that you'll need to have even either paid down
Speaker 3: twenty grand of your mortgage or appreciated twenty two twenty
Speaker 3: thousand dollars just to break even.
Speaker 2: And so especially if you're a homeowner.
Speaker 3: The way, if you are not going to live there
Speaker 3: for three or four years minimum, I'd say keep renting. Like,
Speaker 3: I just think that's a better decision. You could rent
Speaker 3: and buy a rental property if you're going to hold
Speaker 3: onto that for four or five years, if you want
Speaker 3: to put your money to work, that makes sense. But
Speaker 3: you know, it's really hard to It's not hard, but
Speaker 3: it's much riskier to buy a home if you don't
Speaker 3: know if you're going to live there for three, four
Speaker 3: or five years.
Speaker 1: Yeah. I heard you say recently that your goal, and
Speaker 1: one you suggest for investors is to buy ten percent
Speaker 1: below comps, like what what a similar house would recently
Speaker 1: sold for right in the neighborhood, same similar size acreage,
Speaker 1: all that kind of stuff. Okay, people are like, sounds good.
Speaker 1: They we all want that, Right, How do I get
Speaker 1: that sweet ten for us?
Speaker 2: So easy?
Speaker 1: Right? The four hundred thousand dollars house for three to
Speaker 1: sixty How do I do it?
Speaker 2: Yeah?
Speaker 3: I think it's about patients. There's different ways that people
Speaker 3: do this. A lot of real estate investors will do
Speaker 3: off market deals, they'll do direct to market to direct
Speaker 3: to seller marketing. They'll you know, email sellers and try
Speaker 3: and do that. That's a great way to do it,
Speaker 3: but I actually think you can still you can start
Speaker 3: to find these things on the mls just publicly listing
Speaker 3: things on Zillo. The best way to do it is
Speaker 3: to target either relistings or properties that have a high
Speaker 3: days on market. These are this is data that you
Speaker 3: can find on Zilo, on redfin, and any real estate
Speaker 3: agent should be able to help you with. Basically, the
Speaker 3: longer a property sits on the market, the more likely
Speaker 3: it is that that seller is going to be willing
Speaker 3: to negotiate. And there's this psychological thing that definitely happens
Speaker 3: in the housing market where it's like a property might
Speaker 3: be priced ten grand over so say the property is
Speaker 3: worth four hundred, they put it on for four to ten.
Speaker 3: No one wants to buy that house at four ten
Speaker 3: because everyone's like this is bad. Maybe that seller they
Speaker 3: take too long to adjust and they eventually drop it
Speaker 3: to four hundred, but it's already been sitting on the
Speaker 3: market for one hundred and twenty days.
Speaker 2: People don't look at it.
Speaker 3: It doesn't show up in their filter, they think there's
Speaker 3: something wrong with it because it's been sitting on the
Speaker 3: market for so long, and then they drop it to
Speaker 3: three ninety and then they drop it to three seventy
Speaker 3: or whatever. And it might just sound like fanciful that,
Speaker 3: but this happens all the time, and I think it's
Speaker 3: going to happen more and more, and so go on zillo.
Speaker 3: Now Redfin's actually better for this, But you can go
Speaker 3: and put a filter on where it says only show
Speaker 3: me properties that have been sitting for at least ninety days.
Speaker 3: If it's been sitting for nine days, most sellers are
Speaker 3: willing to entertain an offer, So go in and write
Speaker 3: offers like you don't have to pay what people are
Speaker 3: asking and it's not disrespectful. I know people call it
Speaker 3: the disrespectful offer, but like, this is a free market, right,
Speaker 3: you know, this is you were You can pay what
Speaker 3: what that asset is worth is what two people are
Speaker 3: willing to agree on.
Speaker 1: Right, And they can tell you no and laugh in
Speaker 1: your face.
Speaker 2: Exactly, and you have to get comfortable with that.
Speaker 3: I think that's sort of the thing that a lot
Speaker 3: of people, especially homeowners, used to because you're it is emotional.
Speaker 3: It's your home, right, you want this home so badly.
Speaker 3: I really think in today's day and age, write it,
Speaker 3: write it for less. Maybe they'll come back and you
Speaker 3: agree on something in the middle. But I think that
Speaker 3: discipline of trying to get something under asking price, especially
Speaker 3: if you're only going to live there for a couple
Speaker 3: of years, is sort of a crucial skill to learn.
Speaker 3: Not all agents are going to want to do this,
Speaker 3: but find an agent who will, because those are the
Speaker 3: ones you want to work with in today's day and age.
Speaker 1: So is there a specific way to write this offer
Speaker 1: to maybe grab more attention or to not offend and
Speaker 1: to you and to get them to counter back instead
Speaker 1: of just laughing in your face? Is there a way
Speaker 1: to make this offer appealing, appetizing in a way instead
Speaker 1: of potentially frustrating to the person who's got their house
Speaker 1: on the market.
Speaker 3: Yeah, I think it's almost hard. It's hard to avoid.
Speaker 3: I think you don't want to do something totally disrespectful.
Speaker 3: People will write that off, but usually if you have
Speaker 3: logic to the price that you're putting in front of them,
Speaker 3: you can explain that through the agent. I mean, there's
Speaker 3: most ways you offer you don't actually communicate directly with
Speaker 3: the seller, but you know, if the agent can convey, hey,
Speaker 3: this is you know, the only way as an investor,
Speaker 3: I can make money is buying it at this price.
Speaker 3: If you can't take it, I totally understand, but this
Speaker 3: is the only way it's worth it to me. I
Speaker 3: think that's usually the best way to do it. Or
Speaker 3: as a homeowner, just say this is my budget, Like
Speaker 3: I love your home, this is my budget. If you
Speaker 3: can't do it, you can't, but I can't pay your price,
Speaker 3: like both of you are entitled to say. You know,
Speaker 3: as a home buyer say I can't pay for four hundred.
Speaker 3: That doesn't work for me, and the seller could say
Speaker 3: I'm not going to sell for three to sixty.
Speaker 2: That's going to happen.
Speaker 3: And I think if you're going to take this approach,
Speaker 3: you need to see it as a numbers game. It's
Speaker 3: not going to work every time. It's probably not going
Speaker 3: to work your first time, it might not work your
Speaker 3: fifth time. But if you do this enough and there
Speaker 3: will be more inventory so you'll have more properties to
Speaker 3: offer on I think it will. You know, for the
Speaker 3: majority of people who are willing to be patient, it
Speaker 3: can work depends on the market, right If you're in
Speaker 3: the Northeast right now, super competitive, like it's.
Speaker 2: Not going to work.
Speaker 3: But if you're in Florida, if you're in Texas, if
Speaker 3: you're in California where prices are flat and inventory is
Speaker 3: going up, like that's the way to go about this.
Speaker 1: And I've been shocked to see just how much of
Speaker 1: a discount people get versus the list price. Like sometimes
Speaker 1: I'm like, oh, that house, it's listed for eight hundred,
Speaker 1: maybe it'll go if somebody gets lucky for like seven hundred,
Speaker 1: And then I see the final details and it sold
Speaker 1: for five sixty because some patient investor was like, well,
Speaker 1: this stayed on for a long time, and I'm going
Speaker 1: to try to get the price I think. I think
Speaker 1: it's fair at giving the work that this needs. And
Speaker 1: most people just assume the list price. Well, yeah, maybe
Speaker 1: I can get a little bit of a discount, but
Speaker 1: not that much. But the truth is a lot of
Speaker 1: people are getting big discounts.
Speaker 2: It's true.
Speaker 3: On average, the average discount right now is eight percent,
Speaker 3: So just.
Speaker 1: Think about that, like that's average.
Speaker 2: Yeah, the average discount.
Speaker 3: If you get a discount, I should carveout that the
Speaker 3: average discount off list right now is about three percent.
Speaker 3: But for the people who bid under and succeed at this,
Speaker 3: the average is eight percent. On an average price home
Speaker 3: in the US four twenty, that's like thirty five thousand dollars.
Speaker 2: That's a lot of money, right like, So that is average.
Speaker 3: So I would recommend trying to do at least that,
Speaker 3: if not more. And the other thing I'll say is
Speaker 3: to be patient. Sometimes the seller are not. They haven't
Speaker 3: come to terms with their market. This is just human nature,
Speaker 3: right They anchor to what their neighbors sold three years ago.
Speaker 2: And they're like, I want to get that. That's not
Speaker 2: the market anymore.
Speaker 3: It's softer, it's slower, prices are lower in a lot
Speaker 3: of markets, and they might need three months to come
Speaker 3: to terms with that. But if you're respectful and explain
Speaker 3: what you're willing to pay, they might call you three
Speaker 3: months from now and say, you know what no one
Speaker 3: else is offered, and you know, I'll take your price,
Speaker 3: or you know, you go back to the negotiating table
Speaker 3: and figure something out. But I think that's that, you know,
Speaker 3: this game of patients in precision is the way to go.
Speaker 3: Right now, it's there's too much. I don't want to
Speaker 3: call it garbage, but like there's two because they're not
Speaker 3: they're like nice homes for people homes. But there's too
Speaker 3: much bad financially. Too many deals are bad financially out
Speaker 3: there right now, and so you need to wade through
Speaker 3: that and find the ones that make sense for you.
Speaker 1: Yeah, it takes time, takes patients. You're right, all right.
Speaker 1: I got more I want to talk about with you, Dave,
Speaker 1: including I want to get to maybe advice that you
Speaker 1: have for a want to be first time investor. We'll
Speaker 1: discuss that right after this. I'm talking with Dave Meyer
Speaker 1: talking about the taking time bomb in real estate. And Dave,
Speaker 1: one of the things just thinking about moving into the
Speaker 1: future and demographic changes is and we talked about how
Speaker 1: that should impact you the way you think as an investor.
Speaker 1: Do you think some investors right now need to change
Speaker 1: their strategy meaningfully? Do they even maybe need to start
Speaker 1: unloading some properties that don't make sense moving into the future, Like,
Speaker 1: how are you helping current investors who have let's say, eight, ten, twelve,
Speaker 1: fifteen homes they run out think about the supply they
Speaker 1: currently they currently own one.
Speaker 3: Hundred percent Joel I know this is another debate among
Speaker 3: real estate investors. Many of them say, never sell, you
Speaker 3: just buy and never sell. I completely disagree. I'm always
Speaker 3: trading out and sort of optimizing my portfolio.
Speaker 2: That' said.
Speaker 3: I still buy every property I own with the intention
Speaker 3: to hold it for at least five years. You know,
Speaker 3: you got to offset those transaction costs. But I think
Speaker 3: we're entering It depends on where you are in your
Speaker 3: sort of investor journey. But I just think right now
Speaker 3: is an opportunity to sort of reload.
Speaker 2: I you know, I'm going.
Speaker 3: To sell certain properties I have been selling. I'm selling more,
Speaker 3: but I'm not just like exiting the market. I'm just
Speaker 3: repositioning my portfolio into better assets right now. I think
Speaker 3: the opportunity is there for real estate investors who are
Speaker 3: in this for the long run to buy great assets
Speaker 3: and great locations. This almost never doesn't work, right, even
Speaker 3: if demographics shift, even if we're in a high interest
Speaker 3: rate environment for a long time. You buy a good
Speaker 3: asset and a good location, you're going to do well
Speaker 3: in real estate like that, I feel very confident about
Speaker 3: During the last couple of years.
Speaker 2: You know, I bought some.
Speaker 3: Older homes in ex serbs of the neighborhood because the
Speaker 3: trends were good there and I've made money on all
Speaker 3: of them. But like, is it something I want to
Speaker 3: hold for five years, ten years, fifteen years.
Speaker 2: I don't think so.
Speaker 3: So I'm going to give it to someone who will
Speaker 3: and who will probably make more money off of it
Speaker 3: than I would by holding onto it, and just refocus
Speaker 3: my portfolio.
Speaker 2: I think right.
Speaker 3: Now it's a good time to just sort of take
Speaker 3: stock of what you got and prune. You got a
Speaker 3: property that's a pain in your butt, property that sort
Speaker 3: of hit its peak in terms of performance, sell it,
Speaker 3: sit on the cash to attend to thirty one exchange,
Speaker 3: and buy something that you do want to hold on
Speaker 3: to for ten.
Speaker 2: To fifteen years.
Speaker 3: That's sort of the framework that I'm working on right now.
Speaker 3: Is I'm thirty eight years old. I've been doing this
Speaker 3: for sixteen years.
Speaker 2: I would love to be sort of retired by fifty.
Speaker 3: I'm not one of those people who wants to retire
Speaker 3: right away, but fifty sounds like a good year for me.
Speaker 3: So I'm like, what properties do I want to own
Speaker 3: when I'm fifty years old that are going to be
Speaker 3: still in great shape, still in a great location regardless
Speaker 3: of what's happening macro.
Speaker 2: And that's the opportunity.
Speaker 3: Because the inventory going up, more of those properties are available.
Speaker 3: And so that's sort of at least how I'm doing it.
Speaker 3: And I think that that mindset I see consistently adopted
Speaker 3: by experience investors right now. It's like, how do you
Speaker 3: just prune down to the good stuff and not be
Speaker 3: in growth mode all the time and just focus on
Speaker 3: the stuff that really gets you your long term goals,
Speaker 3: which I think most investors is like long term financial stability,
Speaker 3: not trying to make a quick buck in the next
Speaker 3: year or two.
Speaker 1: Well, I'd love that you have a long term focus,
Speaker 1: but that doesn't mean you're averse to making changes along
Speaker 1: the way too. But you're moving your runner slowly instead
Speaker 1: of dramatic turns right based on Well i saw this
Speaker 1: study and now I'm freaked out, and so I've got
Speaker 1: to make like a massive overhaul of my portfolio now.
Speaker 1: And it's like tweaking, pruning like you would with your garden.
Speaker 2: Exactly.
Speaker 3: Yes, I think that's exactly the way to think about it.
Speaker 3: I'm not the kind of person who's like, oh my god,
Speaker 3: I'm going to sell everything and get out of the market.
Speaker 3: I think that's crazy. Like if you just look historically,
Speaker 3: time in the market. It's an old saying, but it's true.
Speaker 3: Time in the market works. You pay down your mortgage,
Speaker 3: your cash flows go up. It's the beauty of real estate.
Speaker 3: You have a fixed rate mortgage, your rents keep up
Speaker 3: with inflation. You're going to keep making more money over time.
Speaker 2: It's great.
Speaker 3: So I it's a great tax you know tax advantages.
Speaker 3: It is an inflation has There's so many reasons to
Speaker 3: be in real estate. But you know, there is a time,
Speaker 3: the same thing as stock market. There's a time to
Speaker 3: take some bets on growth stocks. Right, there's times and
Speaker 3: take some bets, and there's a time to be a
Speaker 3: little more risk averse. And you know you hear this
Speaker 3: from private equity to stock investors. Risk on times and
Speaker 3: risk off times. I think it's a risk off time
Speaker 3: in real estate. Buy the good stuff. It's out there,
Speaker 3: it's still going to perform. I just some people will
Speaker 3: make money doing the risk.
Speaker 2: I just don't. For me, it's not worth it.
Speaker 1: So what does that mean if we're in a risk
Speaker 1: off time For the first time investor, the person who
Speaker 1: wants to buy their first rental property, who is still
Speaker 1: trying to figure out how to evaluate and assess whether
Speaker 1: something is a good deal or not. What do they
Speaker 1: need to pay attention to? And then also, are there
Speaker 1: specific types of properties that made me make more sense
Speaker 1: for them? Does it make more sense to buy like
Speaker 1: a multi family house and live in part of it,
Speaker 1: do some sort of like a rental hack right where
Speaker 1: you're reducing your monthly costs at the same time and
Speaker 1: it's kind of a can't lose situation, Or how would
Speaker 1: your advice be for someone who's like considering buying their
Speaker 1: first rental property right now?
Speaker 2: Absolutely great question. So I think we've covered two of them.
Speaker 3: Location and purchase price two things you really got to
Speaker 3: focus on. If you're in a area that's a little
Speaker 3: bit outside the city, not great demand, I wouldn't buy
Speaker 3: that these days. You want to be in the place
Speaker 3: where you know you're going to find great tenants and
Speaker 3: if you have to sell or want to sell that,
Speaker 3: people are going to like that area. I don't like
Speaker 3: tertiary markets these days, you know, or tertiary neighborhoods, you know.
Speaker 3: I just like being in the thick of things and
Speaker 3: there's more.
Speaker 2: And more good deals there.
Speaker 3: Purchase price we talked about a little bit, and then
Speaker 3: I would also say conservative underwriting. I think a lot
Speaker 3: of people got into this mode where they were presuming
Speaker 3: they were going to get the highest rent comp or
Speaker 3: that appreciation was going to be what it was the
Speaker 3: last couple of years. I you know, if I go
Speaker 3: to my agent and say I'm going to buy this property,
Speaker 3: what's the rent and property manager agent says fifteen hundred bucks,
Speaker 3: immediately say thirteen fifty, Like I'm going to take ten
Speaker 3: percent off of that. They're probably right, but I just,
Speaker 3: you know, risk off to me is does this deal
Speaker 3: work with no appreciation and lower rent and high vacancy?
Speaker 2: Like I know it.
Speaker 3: Sounds crazy and a little bit I don't know, like
Speaker 3: pessimistic or paranoid, but there are the deals still work.
Speaker 3: So like why wouldn't you in this kind of market
Speaker 3: be that disciplined?
Speaker 2: And so that's that.
Speaker 3: Those are the things I recommend to anyone.
Speaker 1: Like planning for the worst and hope for the best.
Speaker 1: And exactly I mean, vacancy for me and the properties
Speaker 1: I own was non existent for like a decade, and
Speaker 1: in the last couple of years I've actually had vacancy happen,
Speaker 1: and I'm like, yeah, it's a good thing you plan
Speaker 1: to build for because it does happen. For the longest time,
Speaker 1: I was like, what are they even talking about with
Speaker 1: vacancy thing, But it's it happens, it's.
Speaker 2: Real, I think.
Speaker 3: I don't think I had one for ten years in Denver,
Speaker 3: you know, and like not even a day. You know,
Speaker 3: you just have to have to line it up and
Speaker 3: it's changed, and that's fine if.
Speaker 2: You underwrite for it.
Speaker 3: I think that's the thing that people that really hurts
Speaker 3: people is they underwrite the deals, they analyze them really optimistically,
Speaker 3: and then when things don't do go perfectly, then it
Speaker 3: doesn't do well well. I think Morgan Housel, I think
Speaker 3: said in his book I don't know he said, or
Speaker 3: someone in his book Psychology of Money said, plan for
Speaker 3: your plan to not go according to plan. And I
Speaker 3: love that because it's just like, if you do that,
Speaker 3: then nothing phases you. It's not stressful when you get
Speaker 3: a vacancy. It's not stressful when your rents don't come
Speaker 3: in what you expected them because you weren't expecting that.
Speaker 2: And then I say this on the show all the time.
Speaker 3: I love being I love putting myself in a position
Speaker 3: where I benefit from being wrong, Like that is the.
Speaker 2: Best to me.
Speaker 3: If I say there's gonna be no appreciation rent growth
Speaker 3: is going to stink, and then it does well great.
Speaker 3: I love being wrong about that. It's really beneficial. So
Speaker 3: I think people should really sort of adopt that mindset
Speaker 3: you did mention, though, I just wanted to say, Joel
Speaker 3: about house hacking or like living in a rental. Personally,
Speaker 3: I think it's the best way to invest in real estate.
Speaker 3: It's boring. I still do it, you know. I'm trying
Speaker 3: to do a live in hack myself. I've a living
Speaker 3: flip excuse me, done house hacking for a lot of
Speaker 3: my life. I think it makes just a lot of sense.
Speaker 3: It's solo risk, and there's really good side. There's just
Speaker 3: you know, there's so many benefits that our society has
Speaker 3: created for owner occupant investors, and it's.
Speaker 2: It's kind of fun.
Speaker 3: Like it's a great way to learn the business, see
Speaker 3: if you're good at it, see if you like it,
Speaker 3: and a great way to get into it even if
Speaker 3: you don't cash flow.
Speaker 2: Most house hacks.
Speaker 3: Will allow you to reduce your living expenses significantly. So
Speaker 3: even if you're still coming out of pocket five hundred
Speaker 3: bucks a month for your mortgage, average rent right now
Speaker 3: is eighteen hundred bucks a month. So if you can,
Speaker 3: you know, pulling numbers right, you know, out of thin
Speaker 3: air right now. But if you save one thousand and
Speaker 3: fifteen hundred bucks a month after your living expenses, that's
Speaker 3: a big return on that investment. Plus you're getting the
Speaker 3: loan paid down, on the tax benefits and all these
Speaker 3: other things. So I still think that works almost everywhere.
Speaker 3: You know, there are a couple of really expensive markets
Speaker 3: where it doesn't make sense.
Speaker 2: Seattle, LA and New York.
Speaker 3: But outside of those super expensive markets, it's a really,
Speaker 3: really reliable way to get invested in the market.
Speaker 1: Even today, it's I agree, it's so underrated, and it's
Speaker 1: it's uncomfortable right in so way and you're like, I
Speaker 1: don't know people living with me, or I'm gonna have
Speaker 1: to like settle for the duplex and rent it out
Speaker 1: the back. But man, it worked for us, and I've
Speaker 1: heard it work for so many other people. Just the
Speaker 1: ability to it's like the snowball rolling downhill, and it
Speaker 1: rolls so much quicker if you if you start with
Speaker 1: house hacking. So I think more people should consider it.
Speaker 2: One hundred percent.
Speaker 3: And I will just say I often think people are
Speaker 3: a little dramatic about the discomfort of it.
Speaker 2: You know.
Speaker 3: Yeah, some people do it in an extreme way, you know,
Speaker 3: where you buy a single family home, you live in
Speaker 3: you know, one bedroom, you.
Speaker 2: Rent out the other and have roommates.
Speaker 3: I don't even think that that's that bad, but it's
Speaker 3: probably for younger people just generally speaking. I live with
Speaker 3: roommates for a long time after college, and why not
Speaker 3: be the landlord if you're going to do that, you know,
Speaker 3: but even with a family, I know tons of people
Speaker 3: who do this. You can find ways to make it work.
Speaker 3: Buy a side by side duplex, like, you can absolutely
Speaker 3: still make that work. You could buy a single family
Speaker 3: home with an adu or an apartment above the garage.
Speaker 3: You know, Like, there are ways to make this work
Speaker 3: that are comfortable for you and your family.
Speaker 2: It's just a matter of what you want more.
Speaker 3: And I think for a lot of people they choose, Hey,
Speaker 3: I'm willing to do that for a couple of years
Speaker 3: to jumpstart my financial future, because you know, I've done it.
Speaker 2: It's really not that bad. I think it's most people.
Speaker 2: I don't know.
Speaker 3: I grew up in the Northeast, so I'm used to,
Speaker 3: you know, living in an apartment. My mom lives in an apartment.
Speaker 3: It's no different than that, you know. It's like, Yeah,
Speaker 3: I've lived in a dorm in college. It's no different
Speaker 3: than that. Like people, it's not that bad.
Speaker 2: I know.
Speaker 3: We have this dream in the United States of living
Speaker 3: in a single family home and having privacy.
Speaker 2: And if that's what you want, go for.
Speaker 3: But if you're willing to sort of give up a
Speaker 3: little bit on that, the financial benefits are significant.
Speaker 1: Yeah, sometimes it's short term pain for long term gain
Speaker 1: as well, right, if it's not your ideal. But Dave,
Speaker 1: this has been a great conversation, man, I really really
Speaker 1: appreciate you taking the time. Where can how do money
Speaker 1: listeners find out more about you and get more of
Speaker 1: those long term predictions and insights that you're throwing out.
Speaker 3: Absolutely well, if you're interested in real estate investing, I
Speaker 3: host two podcasts, the Bigger Pockets real Estate Podcast and
Speaker 3: on the Market, and we do those every day, so
Speaker 3: you can find those at the Bigger Pockets podcast network,
Speaker 3: or if you want to connect with me directly. The
Speaker 3: best place is on Instagram where I'm at the data.
Speaker 1: DELI love it, Dave, thank you very much, Thank you,
Speaker 1: Joel all right there there are There are a few
Speaker 1: people I enjoy talking about real estate more with than
Speaker 1: Dave Meyer. My buddy Chad Carson, He's up there too,
Speaker 1: and it's I think it's largely because their philosophy is
Speaker 1: so sound, it's so steady. And Dave alluded multiple times
Speaker 1: during this talk, during during this interview to the long
Speaker 1: term nature of how he thinks about real estate investing,
Speaker 1: and I think that's what makes like we're kindred spirits
Speaker 1: in that way, like when you hear us talk about
Speaker 1: investing in the stock market, it's it's the it's the
Speaker 1: same thing. And and I have never I actually never
Speaker 1: sold a rental property. Doesn't mean I'm against it, and
Speaker 1: Dave's not against it. He's repositioning his portfolio, as he said,
Speaker 1: But I love that. My goal, my thought process, at
Speaker 1: least when I'm buying a rental property and it's been
Speaker 1: a minute, but is to ensure that this is a
Speaker 1: property I want to own for a long time, and
Speaker 1: that there are a number of reasons I see this
Speaker 1: as a sound investment for not just a couple of years,
Speaker 1: but for a decade plus, and man, so much good stuff.
Speaker 1: Like if I'm coming up with a big takeaway, it's
Speaker 1: really hard, but Dave literally said the way you make
Speaker 1: money is time, and it's truly when we talk even
Speaker 1: about the transaction costs of real estate, it's prohibitive if
Speaker 1: you don't own the home for very long. And it's
Speaker 1: why so many people if their timeline is too short,
Speaker 1: that eats into their ability to do well with that
Speaker 1: with that purchase. And man, just so much good advice.
Speaker 1: Though I think I loved it the most when he
Speaker 1: said that the best deals are going to be less obvious.
Speaker 1: You're going to need to look harder, and you're going
Speaker 1: to need to bring more skill. And it really was
Speaker 1: like shooting a fish and fish in a barrel in
Speaker 1: twenty eleven, right twenty thirteen to buy a property that
Speaker 1: would cash flow well, that was going to appreciate meaningfully
Speaker 1: over the next decade. Like you're sitting pretty, you look amazing,
Speaker 1: you look super smart, but the truth is the tailwinds
Speaker 1: were at your back. And it's not that you weren't smart,
Speaker 1: but it's you have to be even shrewder to make
Speaker 1: a smart decision in today's market. And then at the
Speaker 1: end what Dave said was so brilliant and so insightful
Speaker 1: and so true. It's a matter of what you want more.
Speaker 1: We're talking about something like house hacking or buying a
Speaker 1: rental property. There's a lot of sacrifice that goes into
Speaker 1: it because you're taking a lot of money and you're
Speaker 1: squirreling it away in hopes of making an investment that's
Speaker 1: going to pay off for your net worth, that's going
Speaker 1: to pay off for your ability to live the life
Speaker 1: you want in the future. And so you have to
Speaker 1: be really really think about what do I want more?
Speaker 1: Do I want to utilize this money now, spend it
Speaker 1: on myself in my own life like nicer apartment, whatever,
Speaker 1: or buy a better single family home for myself and
Speaker 1: my family now? Or am I willing to make concessions?
Speaker 1: Am I willing? Do I want something else more than
Speaker 1: I want to inflate my lifestyle right now? Don't want
Speaker 1: the new car, whatever it is. But that's ultimately what
Speaker 1: investing is right in the market or in the housing market,
Speaker 1: to say, actually, I would rather build wealth for the
Speaker 1: future than to consume all my resources right now, and
Speaker 1: if you want to listen to sound advice on real
Speaker 1: estate investing, Dave is one of the best places to
Speaker 1: turn and so highly recommend checking out all the content
Speaker 1: he creates. But I hope this at least gets your
Speaker 1: brain ticking, whether you're a real estate investor already or
Speaker 1: you want to be a real estate investor. It's not
Speaker 1: as simple, right, but there's actually there's more opportunity I
Speaker 1: think right now in the real estate market than there
Speaker 1: has been in the last few years because of some
Speaker 1: of that softening in the market. So if you're like,
Speaker 1: I don't know the market top prices are high, well,
Speaker 1: we're finally seeing a lot more movement and a lot
Speaker 1: more willingness to negotiate from sellers. And as always, thank
Speaker 1: you for listening to the show. We really appreciate it.
Speaker 1: You can find show notes up on the website at
Speaker 1: Howtomoney dot com. Until next time, best Friend out