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What Will Work Next Year

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If you want to invest in real estate in 2024, you need to prepare. This year could be a grand slam for those who know how to take advantage, but for everyone else sitting on the sidelines, don’t expect your wealth to grow. Expert investors, like the On the Market panel, are getting more aggressive than ever before as so many real estate investors give up on buying deals due to high mortgage rates, tight inventory, and a shaky economy. So, how do you get ahead of the masses?

In today’s show, we’ll share expert tactics ANYONE can use to invest in real estate in 2024. Some of these tactics come from our panel, but many can be found in Dave’s newest 2024 State of Real Estate Investing Report. This report includes even more data, tactics, strategies, and research you won’t hear on today’s show. And it’s completely free (head to BiggerPockets.com/Report24 or click here to download it!)

We’ve got tactics for flippers, traditional landlords, passive investors, and those still searching for cash flow in this high-rate world. Wherever you’re at in the investing cycle, whether you’re a beginner or a real estate veteran, these tactics could help you build wealth no matter what happens to the economy. 

Dave:
Hey, everyone. Welcome to On The Market. I’m your host, Dave Meyer, and today we’re going to be talking about the state of real estate investing as we come to the end of 2023 and head into 2024. To help this discussion, we have Kathy Fettke, Henry Washington, and James Dainard joining us. Thank you all for being here as always, we really appreciate it. How are you guys feeling right now? Just give me a quick summary. Kathy, what’s your feeling about 2024? Are you feeling optimistic?

Kathy:
I am, yeah. I think more and more people are getting used to the new normal, and that’s what they’ve been waiting for. They were sort of wondering what would happen, and I think we have a better idea. I think.

Dave:
Henry, if you had to name one thing you’re going to be looking at going into 2024 to make some decisions about what would that be?

Henry:
The word for me in 2024 is growth. It is a scary time because there is still some uncertainty, even though we’re starting to see some things flatten out and maybe feel more normal. But I am trying to follow the Warren Buffett principles this year, which is, be greedy when everybody else is fearful, and so we are focused on doubling our portfolio in 2024 to take advantage of what seems to be a great time to get lower prices.

Dave:
Awesome. What about you, James? What do you think the key to 2024 is going to be?

James:
I’m really excited for 2024. 2023 was kind of a flat year, and especially when you’re doing development and longer projects, you have to get through the muck. So 2024 is the year of the reset, where you just got to reset all your deals in 2023, and then you get to see the reward in 2024. So I think it’s going to be a really, really strong rebound year for people that didn’t get on the sidelines. If you got on the sidelines, 2024 is going to be lame.

Dave:
All right, I like it. Call it like it is. Well, for me, the word of 2024 is affordability. I just think of all of the economic indicators of all the data that we look at. Housing affordability is what I think is going to drive the market next year. If prices, if mortgage rates stay around where they are, I think we’ll have a sort of a boring year, which is not a bad thing, by the way. I think prices being up a little bit, maybe down a little bit, a boring year would be a great thing, but we obviously don’t know which way things are heading. Obviously, in the last couple of weeks we’ve seen mortgage rates go down a little bit, but there is still a risk that they go back up, and if there’s a serious recession or a big uptick in unemployment, we can see rates go down pretty significantly, and that might supercharge the market.
And so for me, what I’m going to be looking at most closely is affordability. So that’s just obviously one of my many opinions about the housing market right now. If you want to understand my full thoughts about the 2023 and 2024 housing market, I have a special treat for you. It is the state of real estate investing 2024 report. If you guys remember last year, this is the time of the year where BiggerPockets basically locks me in a room for a week or two and just makes me dump everything I’ve talked about over the last year or two into a single report. And then we give it away for free. It’s filled with all sorts of context, advice, tips, and there’s actually a download where we’re going to rank all of the markets in the country based on affordability. So you can check that out. If you want to download it, go to biggerpockets.com/report24. That’s biggerpockets.com/report24.
And then, in the rest of this episode, we’re going to discuss a couple of the tactics that I think are going to work well in 2024 with the rest of the crew here. All right, let’s just jump into this. So the first tactic that I wrote is kind of true all the time, but I personally think it’s just super important right now, which is underwriting conservatively. I think in an environment where things are as uncertain as they are now, it’s better to be pessimistic. I’m usually sort of an optimistic person, but I think right now I’m trying to underwrite deals pessimistically. Henry, you’re trying to double your portfolio. So tell us how you’re going to underwrite deals next year.

Henry:
With extreme caution.

Dave:
Okay, good.

Henry:
Yeah, I think this is, you’re right, this is something everybody needs to pay attention to all the time, but when a market is as unforgiving as the market is now, meaning, if you screw up, your screw-ups are magnified in this market. Three years ago, you could make a mistake, and as long as you sat around for another six months, then your value’s gone up by 50, 60, 70 grand, right? And it’s just not that way anymore. If you screw up now, you’re really getting your teeth kicked in.
And so the focus on underwriting conservatively, I’ve always underwrote my deals conservatively, but one thing I have made a change in underwriting is previously I wouldn’t factor too much into my underwriting for holding costs because I’m doing single families. It’s paint, it’s floors, I got crews, we can get them in and out of there. It just wasn’t that big of a deal to me because I knew we could get a property turned, it’s my bread and butter. And so if a deal penciled even without a massive holding cost calculation in there, then I was typically buying it. I do not do that anymore.

Dave:
That’s good advice

Henry:
Because money is more expensive in general. When I was underwriting a deal a couple of years ago, if I could get money at two, three, four, 5%, it’s way cheaper than now. Sometimes I’m getting money at 11 and 12%, and so that monthly payment goes up drastically. And so then it magnifies any delays you have in terms of delays on your construction. And it also in terms of delays on just normal things that cause delay, sometimes just closing just takes a while because maybe there’s a title issue or maybe there’s some paperwork. All of these little things that you wouldn’t think about before are now costing you a lot of money. And so you want to make sure on the front end that you specifically calculate what it is that you think you’re holding costs are going to be. So that’s your cost of money, but also your cost of utilities.
Utilities are more expensive than they used to be as well. And so you really kind of have to get meticulous about and be realistic with yourself about how long you think a project’s going to take. If you are brand new and you are buying your first BRRRR deal or your first fix and flip and you’ve got a 90-day rehab window in your underwriting, add two months because you’ve never done this before and you might spend that first 30 days just trying to find a contractor who will even do the job. There’s just so many things that would be tedious things you would overlook that you have to really consider now in terms of what are your true holding costs and that cost of money because it’ll eat away your profits super quick.

Dave:
That’s great advice, I really like that. All right, so Kathy coming at it from a more of a buy and hold perspective. Are you underwriting rents to grow, property values to grow? How are you thinking about things?

Kathy:
We are not changing our underwriting. It’s the same old deal. It’s buy and hold, and we need the property to cash flow. I want it to grow in value, so I want to be in areas that have potential for that. Potential for that would be areas where there’s jobs moving in, where there’s infrastructure growth, population growth, migration patterns, and then as long as it cash flows, then I’m good because it’s a long-term play. So it’s a little different, obviously, than a fix-and-flipper who needs to know what the market’s going to be like in two, or three, or six months. And based on your report and what we’re seeing, there are areas of the country where we’re still seeing rent growth, we’re still seeing price growth, and those are the areas I’m going to be in, and I’m just keeping things like they’ve been for 20 years.

Dave:
Absolutely. So, Kathy, what do you make of this? I hear a lot of people talking about these days that things don’t need a cash flow in year one, that rents will grow and things will get better. Do you buy into that?

Kathy:
Absolutely, because your costs are higher in year one. You’re paying closing costs. Your rents are most likely the lowest they’ll ever be if you’re buying right, and in the right markets, and estimating those rents properly. Then you’re going to probably, over time, and I do mean over time, see those rents go up. It might not be next year, it might not be the year after, and the markets were in, it probably will be, but over time, what do you think those rents are going to be in five or 10 years? They’re going to be higher, but you’re in a fixed payment. So yeah, I’m still bullish on the same long-term, 10-year, 15-year plan. That’s the goal.

Dave:
What about you, James? You said this is the year of the reset. Are you resetting all of your underwriting principles?

James:
Yeah, I really liked what Henry had to say because that is what is getting all investors is the debt and the soft costs that are compounding on people. And so yes, we’re adding a lot more hold times in and just more buffers. And underwriting, when people ask me, they’re like, “Are you being more conservative?” And yes, we definitely are, but the next question is always like, “Well, how much are you reducing the values?” And it is about those core principles of underwriting. We’re not actually reducing the values because we are buying on today’s value.
How we’re being protective in our underwriting is by adding, like what Henry said, an extra 25% in there for the debt cost, adding an extra 10% in to the construction budget, and just adding buffers in. But we’re not changing numbers around, so we’re just making sure that the deals are a little bit fatter. The fatter they are, the more room you have or the more profit you potential you have. And honestly, we were being very conservative adding these pads in, and now it’s going to come to fruition in 2024. A lot of the deals that we performed nine months ago are now up substantially in value because they re-corrected, and now we’re going to be hitting five to 8% above what we thought on our ARDs.

Dave:
That’s great. And do you redo your underwriting? How frequently do you revisit these ideas?

James:
In a more volatile market, we do it about once a month.

Dave:
Oh, wow. Okay.

James:
Yeah, because the market is always changing and the price points are moving around. We all look at this as nationwide or even statewide, but it’s really citywide and it’s block wide and we’re being really aggressive in some neighborhoods because there’s good growth, no inventory, and a high amount of buyer demand. We will be more aggressive in those neighborhoods, but maybe a neighborhood 20 minutes down the road, we might be way more conservative. And so you just really got to get very specific neighborhood by neighborhood and timeframe by timeframe.

Dave:
All right. Very good advice. Well, actually, that’s a good transition to the next tactical piece of advice here, which is focus on affordability. And I know that a lot of us assume that means focusing on affordable markets, but I think even within a specific market, my advice or what I see is that affordability is doing better even if you’re in an expensive market. So James, let’s stick with you. Do you buy that, because Seattle, the Pacific, Northwest, obviously, very expensive area, are you focusing on more affordable things or are you still buying across the price spectrum?

James:
I think we’re focusing on the affordability in our market, but we’re not going to cheaper price points by the nationwide median home price. There’s definitely blocks of the market that are selling really well, and it’s not just about the affordability, it’s about what the product is. If you have a really good product that people feel like they can be in there for five, 10 years that’s priced in the middle, that stuff is flying off the shelf because they’re not as worried about the short term.
They’re looking at more as the long term. So we’re really focusing on what appeals to the masses. Bedroom, bathroom counts, size of lots, is it livable? That is more what we’re targeting than the affordability. Now chances are those are all going into the affordable price range of us. We have certain blocks like 750 to 900 sells like crazy in Seattle, 1,1 to 1,3 sells like in Seattle, above two million has gotten a lot flatter. So yes, we are staying away from that, but we want to target where the masses are, and that’s why we’re focused more on density, smaller units, more units, higher price per square foot on a single lot. And that’s been trading a lot better.

Dave:
That’s a really good point, James, that affordability is relative. Obviously, Seattle is more expensive than almost all of the other markets in the country, but the median income in Seattle is also a lot higher than everywhere else in the country. And so what’s affordable to people in Seattle might be very different from what’s affordable in other markets. So even though the median home price in Seattle is well above the average across the country, there are still places that feel relatively affordable to people who live in that metro area. Now, Henry, you’re in a market that was affordable. Is it still affordable, and what’s your strategy related to where you’re searching and sort of the price spectrum?

Henry:
Yeah, I would consider it still affordable. Yeah, I think the average home price is going up as more and more people continue to move to the Northwest Arkansas area. But my business model has always been focused on affordability. I like single-family and small multifamily real estate, that’s my bread and butter. And the reason I got into it was because, most people, it has the highest percentage of buyers in that first-time home buyer market and the highest percentage of renters in that lower-tier price point rent. And so it was just a numbers thing for me. I want to be able to limit my risk by catering to the market that has the most buyers and most renters. And that’s more important now because, as a whole, we’re starting to see things are slowing down, especially with properties on the market for sale. So if you’re going to have less buyers out there buying houses, I, at least, want to be able to market to the majority of those buyers. And so we’re definitely not taking risks on luxury flips or A-class apartment buildings, that’s just not my cup of tea right now.

Dave:
Nice. Okay, good to know. Kathy, I feel like you’re the affordability evangelist and have been for years.

Kathy:
It’s my jam.

Dave:
That’s just your jam. So educate us.

Kathy:
Well, on a buy-and-hold viewpoint, you want to attract renters, and so you want to have the biggest pool of renters. So if you buy in the affordable range, and to me that’s the most people who can afford what you have, you’d want to be right below the median because the median is what probably the average person can afford in that market. And if you’re under that, then you’ve got a bigger pool. So a lot of people have the false belief that affordable is low-income areas, and that’s not what I mean at all. It’s just simply that people in the area can afford your product, they can afford to live where you are. So you just have a bigger pool of renters.
Plus, from a vision perspective and purpose, we’re solving a need. Builders aren’t really able to build affordable housing today. It’s really hard. I know, we’re trying. It’s hard. And so if you can do it by buying an older house, renovating it, making it feel like new, then again you’re solving a problem of people who would like to have a nice place to live. They probably make a pretty decent income, but just need an affordable place. So again, we’re not changing our underwriting, that’s what we’ve always done. We look for the median price of the area, and we stay just underneath that.

Dave:
That’s great. And I just wanted to clarify why, I think, personally, I believe affordability is going to dictate the market. When you look at the variables that are impacting what’s going on right now, there’s a lot of strong inherent demand. Demographics are positive, people still need places to live, of course. The thing that’s slowing down the market so much to the point where we’re at about 50% of home sales that we were two years ago is that affordability is low. And so demand leaves the market because people just can’t buy. But personally, I believe that in markets that are relatively more affordable, they’re just going to be more resilient. They’re just not as sensitive to interest rate fluctuations because people are already more comfortable and able to pay for it. They’re not stretching as much. And so if interest rates go up 25 basis points, it doesn’t matter as much.
Of course, it matters, but it’s just not going to have the same aggregate effect. All right, so here’s the third piece of advice, and we’ve already talked about this a little bit, and actually, before I say what it is, let me just get a quick reaction for you. Henry, when people ask you cash flow or appreciation, what do you say back to them?

Henry:
Yes.

Dave:
Okay, good. And just so you know, I don’t know if everyone listening to this hears this, but I feel like it’s just this debate like cash flow versus appreciation, which one’s more important? So Henry just says, yes, he wants it all. Kathy, what’s your opinion on this?

Kathy:
Same. Yes, please. Again, it depends on your stage in life and even though I’m getting older, I still am building a portfolio for a time when I won’t be working at all. So to me, it’s not so much about the cash flow today. I don’t need the cash flow today, but I need the investment to cover itself and hopefully have some cash flow to cover reserves and issues that come. But I’m really looking long term, this is 10 years from now when maybe I’ll still probably want to be working, but if I didn’t-

Dave:
Kathy, you’re going to be hosting this podcast in 10 years, we are not letting you retire.

Kathy:
Yes, I’ll be here, but it’s just having that optionality. So if you are at a stage in life where you don’t want to work and you don’t like your job, then cash flow is going to be much more important. But you have to have money to cash flow, and that’s the confusion. People think they could just cash flow right away with no money, and it just doesn’t work that way. You got to build the portfolio. I usually look at it like you need a million dollars to invest it to have a $70,000 salary income or even less.

Dave:
100%

Kathy:
Anyway, you’ve got to know your goal. And if you have that, if you inherited a million or you have a couple million, yeah, go find yourself some cash flow, and you might be able to just not work. But until then, it’s going to take a while.

Dave:
James, I know where you stand in this. You’re just all equity, right?

James:
Give me the juice, the equity. Give me the juice. The equity is the juice in the deal. I love what Kathy said. I will always be a juice guy and a nerdy juice guy until-

Henry:
Its just Monster.

James:
That’s my other jungle juice. But until I’m ready for financial freedom and to get that passive income, kick the cash flow down the road, get the appreciation, keep rolling it, stack it, and grow it, that has always been my juice.

Henry:
I want to add some color to this as somebody who’s kind of a small self-investor, which is, I think, what most people listening to the show probably are. I get it, cash flow and appreciation. You want to buy cash flow. Here’s what I’ve learned as a real estate investor, that cash flow is a myth because one bad maintenance item in your property can eat up your whole year’s worth of cash flow. Now, a lot of people get into this because they want to retire off cash flow, right? They want to replace their job income with cash flow. That was easier to do when interest rates were lower. It’s not as easy to do now. I still think you should buy something that cash flows. I’m not saying go buy a bad deal, but real wealth is not built through cash flow.
Everybody who is a real estate investor who’s now looking to retire, they got wealthy off equity and appreciation and holding onto their properties for the long term. So you just have to keep that into perspective. Don’t go buy bad deals, but don’t, what’s the phrase? I always get it wrong, but it’s like you step over a dime or step over something to… I think people pass up on a deal where they might make 60, 70, 80, 90, $100,000 in equity over a two to three-year period because it only made them $100 cash flow when they underwrote it when they first were going to buy it. And I think that’s shooting yourself in the foot.

Dave:
All right, well, you got the second idiom right, at least, the shooting yourself in the foot. I don’t know what that first one is either. It’s like tripping over a penny to pick up a dollar.

Henry:
I always get it wrong.

Dave:
Tripping over a dollar to pick up a penny. I don’t remember. It’s something like that. Anyway, well, I like this. Having this conversation before I said what my tip was, because I think we might disagree on this, but the way I look at cash flow as appreciation is sort of as a spectrum. On one end of the spectrum, there’s a pure cash flow deal that’s probably not going to appreciate. On the other end of the spectrum, there’s probably what James is talking about, a flip, a luxury flip, where you just build a ton of equity with no cash flow. And as Kathy said, where you land on that spectrum is very much dependent on where you are in life, your own risk tolerance, your resources, all these different things.
For me, I am always sort of being more towards the appreciation side of things, but I think in a correcting market, personally, I move more towards the cash flow side. And that’s for two reasons. The first one is because even then if the market goes down for a year or two, you’re still earning a return on your money. So even if the market goes down 2% for a year or two, that’s a paper loss, but you’re still with amortization and cash flow earning a positive return, which is great. And the second one is especially if you’re new and this is your first investment, I think the most conservative thing to do in a time like this is to make sure that you don’t have what’s called forced selling. So the thing that you really want to avoid is selling the property before you want to, before you’re ready to.
And before it is the optimal time to. Like Kathy said, buy something and hold onto it. But if you don’t cash flow and maybe you lose your job, you might have to sell that property during these short-term volatile times in the housing market, where it’s down 2% or 4%. Whereas, if you just cash flow and you can hold onto it for 10, 15, 20 years, that gives you more optionality. And so I agree with Henry saying that it’s not how you’re going to build wealth, but if you’re concerned about the market right now and you want to be a little bit more defensive, particularly if you don’t have a lot of other income to cover any shortfalls in a property, I recommend just making sure you have strong cash flow next year. But feel free to disagree any of you.

Kathy:
No, I think I agree, and I assure you, those 10 years will pass. And I have made that mistake where we had some negative cash flow properties in 2008, and it wasn’t fun. It wasn’t fun, especially when you saw the asset value go down. And so I am all about making sure that the expenses are covered and some so that you have extra money for future expenses because there will be, it’s a business, there’s going to be expenses.

James:
The only thing I would say about that is in a declining market or a market they could be shifting down, there’s a lot more fear behind it. The margins get substantially wider.

Dave:
For flipping.

James:
For flipping or even your multifamily fixer property right now. Two to four units, the rates are the worst, right? Commercial rates are better than a two-to-four unit by about a point. There’s not that much buyer demand for it. People don’t want to have to come up, they can’t really make it pencil very well. And they also don’t want to be negative on this higher interest rate for a six to nine-month period as they’re turning that property. And so the demand for that has fallen so greatly that you can now walk in with 20, 25% margins after stabilizing the house on a small multifamily, which was not possible 24 to 36 months ago. You can get better cash flow because the rates were better, but you couldn’t get that SWOT. And that’s the only thing is, like what Henry said in the beginning, when people are fearful, the margins get bigger. And so that’s why I’m still always going to be an equity guy.

Dave:
He’s a juice guy. I mean, once a juice guy always a juice guy

Henry:
Once you taste the juice, man.

Dave:
Well, that actually brings up my next point because one of my things, and just to be honest, I’m not a flipper. I’ve done some renovations, but not the kind of stuff you do, James, or you do, Henry. And so, to me, it looks riskier. So I’m curious, that’s one of my things is to do it with caution, especially if you’re new to it. I know that both of you have a lot of experience, you have systems in place, you know how to do this, but Henry, would you recommend people who are new to the value, let’s just call it the value add game, taking some big swings right now?

Henry:
No.

Dave:
All right, well, there we go.

Henry:
Here’s why. So I don’t think you shouldn’t try to flip a property. I think you can flip a property in any market. It’s more about you’ve got to make sure that you’re buying an extremely good deal because if you’re new and you’re getting into the fix and flip game, you’re going to screw up and you’re going to make mistakes, and you’ve got to have the cushion to cover those mistakes. It’s easier to buy a loser right now in this market and flip a loser because the cost of money is higher because there’s less buyers out there buying the property once you’re finished with it. And so you’ve really got to ensure that you’re buying a really good deal. And so you just got to be careful. Your deal has to be a good deal.
And I wouldn’t recommend anything that you’re going to have to spend six, seven, eight months rehabbing like a gut job. You want to do something where you can paint floors and put it back on the market fairly quickly. So I don’t recommend you taking big risks in the flipping game. You want to do something that’s going to be easier to get that rehab done, and that property turned around quicker, and something with a second exit strategy, it’s got to be able to cash flow as a rental property too. Because if you go to try to sell it and you don’t get, like right now, it’s hard to predict. I’ve got properties that I thought should have been sold months ago, and they’re not. And I’m a seasoned investor, so you got to be able to pivot.

Dave:
Yeah.

James:
And you can also mitigate. For new people, getting a value add is risky, and I don’t advise heavy value add, but if you pivot how you’re doing it, it’s totally safe. Right now, value add got harder, construction got harder. We started partnering with generals and cutting them into the deal, and it’s made it way simpler for us, way easier for us. They go faster, our budgets are lower, and then actually, by giving away 30% of the deal, we’re actually making more money by not having staff costs, the overages in debt times, and we’re getting in and out of the projects quicker. So you just mitigate the risk and bring in partners, right? If you’re new and you want to get into big margins, then partner with the right people.

Dave:
All right, well, what about some alternative ideas? I have one that I suggested here that I think Kathy you recently employed. So this other tactic that I am recommending is new construction, which is usually not a great prospect for real estate investors, but Kathy, why don’t you tell us why you recently bought new construction?

Kathy:
Well, if you follow Warren Buffett that he recently invested or Berkshire Hathaway invested, I think it was over $800 million in builder stocks, specifically in affordable with D.R. Horton, I believe it was. So if you think that he might do his research, he’s taking the bed that inventory, that supply is needed, not that we’re going to get flooded with supply, which means he doesn’t think there’s a housing crash coming, there’s an inventory crash. So that is obvious to me, too. There is such a need for housing, and yet it is still risky. Construction is risky. We’ve had projects we’ve knocked out of the park with 30, 40% annualized returns, and we’ve others where there were losses because COVID, sites were shut down, material costs soared. I mean, it’s a tough, volatile market. So now, like the guys were saying, being conservative is so important.
So we’re back at a time where there is distress out there, and this is an opportunity. I’m sorry for anyone feeling distress. Some of us are anyway with some of our projects, but it is also an opportunity. So we found a developer in distress. He wasn’t an experienced developer, he just had a bunch of money, bought a bunch of beautiful land in Oregon, Klamath Falls, on a lake, and tried to develop it, got the horizontal in, the roads, the infrastructure, but couldn’t get the project to the finish line. My partner, who’s been developing for 40 years, was able to negotiate a lease option where we don’t even have to buy the lots, we don’t have to do any horizontal development, it’s already done. We are just optioning it, and we’re getting the lots for half of what their current market value is, but we don’t even have to pay for them until the final buyer comes.
So we’ve really mitigated risk by being able to build on these homes and not have to acquire the land, which would be 10 million. I’d have to raise $10 million and be paying interest on that. We don’t have to. We’re getting these lots for $60,000 and don’t have to pay for them. The buyer pays at the end. So we’re mitigating risk that way and yet providing much-needed housing in an area where you don’t see builders flocking to Klamath Falls, Oregon. And yet there is a lot of actual job growth there in the military, Air Force, and officers coming in, moving in who want housing. And why not have one overlooking a beautiful lake?

Dave:
That’s awesome. Yeah, it just definitely seems like a great, great thing to be in if you can get into it right now. One of the other sort of alternative ideas here is something, James, I know you do a lot of, which is, learning to be a lender or trying to lend out money. Why do you do it?

James:
Oh, because it’s so easy. You spend 30 minutes vetting a deal, you click a button and the money goes out and you get paid. There’s no contract.

Dave:
Well, is that how it is for everyone?

Kathy:
It’s not like that for most. Ask commercial lenders today.

Dave:
Right, exactly.

James:
No, I mean, I love working money. I mean, me and Henry just did a loan this week, and it works out great because Henry gets to get his project done and gets him moving through, getting his goal for doubling his transactions this year. And investors are looking for more capital. The reason I love working money is we have numerous businesses in the Pacific, Northwest, we have eight that we run constantly. Those require a different amount of time at different businesses, depending on the cycle. And right now, what we’re really focused on is reshaping our businesses, reformatting some, that takes a lot more time in the infrastructure and the organization of your business. And as you lose time, that means I have less time to go spend in the field on a flip property. And again, that’s why we’re bringing these generals as partners to free up time.
But in addition to, because we might be buying a little bit less product, we have working capital that we can put to work, and that’s why I love hard money and lending it out. It pays you a high return, you know when you’re getting your capital back. It can’t get locked up, in theory, if you underwrite the deal correctly, and it’s this capital you make a good return on that you will have access to. I want to always know I have access to gunpowder if I really, really need it. If I get a home run crossing my plate, I want to have access to liquidity, and that’s what hard money does for me. And so it’s a great business, and you’re seeing it really get popular because running projects is not that fun right now. Construction is still unenjoyable. Working with wholesalers can be unenjoyable. Digging through hundreds amounts of deals before you find that gold mine can be unenjoyable. Hard money lending, again, it’s like vet it, find the right people, wire the money out, you can go do whatever you want, and it frees up a lot more time.

Kathy:
He’s so white collar now. Look at him just looking on the computer.

Dave:
Yeah, beep-boop, beep-bop, make a million dollars. Well, I am personally aspiring to learn, and James has offered to teach me how to do some of this, and I think we’re actually going to make an episode out of this, so definitely check that out because I know, hopefully, it’s just clicking buttons like James says, but I suspect there’s a little bit more to it than that. So I would like to learn a little bit more details here. Henry, what about you? Do you have any other alternative strategies or things that you’re pursuing next year?

Henry:
We’re going to focus a little more on midterm rentals. So we’re about to launch our first midterm rental, and if it goes well, we’re going to probably convert a few of my other long-term rentals to midterm rentals as the leases come due on those. So I’ve got a seasoned investor in my market who is doing midterm and corporate rentals in a few of his properties, and he’s shown me the numbers and the occupancy rates, and it’s really impressive. And so we’re going to give that a go. Now, I’m not going to do it on properties that don’t cash flow as a long-term rental.
That’s always my cover, is if I need to pivot, I can throw a tenant in it, and it’s still going to cash flow. But part of growth in your business, in your real estate business isn’t always acquisition of more doors. Growth can be like, what can I do? How can I leverage my current portfolio to increase the cash flow that it has? Maybe I can make some repairs that give me a higher monthly rent. Maybe I can convert a long-term into a midterm or a short-term. If you feel like you can operate that properly and then your dollar, you’re getting a higher percent on what you spend than if you go and buy something new.

Dave:
Dude, I’m so happy you said that. I feel like portfolio management is the single most overlooked part of real estate investing. Reallocating capital, figuring out if your current deals are performing at the right rate. If they’re not, should you sell them? Should you switch tactics? Should you do something else? It’s not talked about enough. So I love hearing that you’re doing that. It sounds like a great plan for next year. All right, well, James, Kathy, Henry, thank you so much for joining us. Hopefully, this conversation has helped you all understand that you can invest in any market. It really is just about adjusting your tactics and choosing the right tactics that work given the current situation. If you want to learn more about the current situation and some potential ways that you can get involved in the market next year, make sure to download the report I wrote, spend a lot of time on it, at least a couple of you have to read it, so just go to biggerpockets.com/report24. You can download it for free right there.

Kathy:
It’s so good, Dave.

Dave:
Oh, thank you.

Kathy:
It’s so good, yeah.

Dave:
You read it?

Kathy:
I loved reading it. And my company wants me to sequester in an office and write mine for two weeks. I’m just going to give them yours.

Dave:
There you go. Just put a new logo on it or just send them all to BiggerPockets. It’ll be fine.

Kathy:
Yeah.

Dave:
All right, well, thank you all. Hopefully, you guys enjoy it as well, and we’ll see you for the next episode of On The Market. On The Market was created by me, Dave Meyer, and Kailyn Bennett. The show is produced by Kailyn Bennett, with editing by Exodus Media. Copywriting is by Calico Content, and we want to extend a big thank you to everyone at BiggerPockets for making this show possible.

 

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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.

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