BiggerPockets Real Estate Podcast - 152: Building Wealth and Passive Income with Rental Properties with Ben Leybovich, Brian Burke, and Serge Shukhat

Episode Date: December 10, 2015

How would you like to own ten, fifty, or a thousand rental units? That’s the topic of today’s podcast roundtable with three previous guests of the BiggerPockets Podcast, Ben Leybovich, Brian Burke, and Serge Shukhat. These three investors have three very different business models, and in this fascinating discussion, each shares how they use rental properties to build wealth and passive income. We discuss (and debate) every aspect of the investor’s journey — all in an effort to help you succeed! We also discuss the big dangers rental investors face and how YOU can avoid those problems! Don’t miss this incredibly powerful episode with three fun, smart, and successful rental property investors! In This Episode We Cover: Where is the rental market headed? Is planning for appreciation useless? (Debate!) What mistakes do new investors make? Overcoming challenges to investing in TODAY’S market Is it too late for newbies to buy rental properties? The best “single tip” from each panelist for newbies And SO much more! Links from the Show BP Podcast 014 : Cash Flow, Creative Finance, and Life with Ben Leybovich BP Podcast 061:How to Succeed in Multifamily Investing – A Unique Conversation with Josh, Brandon, and Ben BiggerPockets Radio Podcast 003: Getting Started in Real Estate and Raising Money with Brian Burke BP Podcast 076: Growing Your Real Estate Company Into a $30 Million Dollar Business with Brian Burke BP Podcast 060: From 0 to 68 Rental Units in Just Four Years with Serge Shukhat BP Podcast 131: Investing in Multifamily Properties in a HOT Real Estate Market with Serge Shukhat Books Mentioned in this Show The Book on Rental Property Investing by Brandon Turner The Book on Managing Rental Properties by Brandon & Heather Turner Brandon Turner’s The Book on Investing with No or Low Money Down Connect with The Panel Brian Burke’s BiggerPockets Profile Brian’s website Ben Leybovich’s BiggerPockets Profile Ben’s website Serge Shukhat’s BiggerPockets Profile Learn more about your ad choices. Visit megaphone.fm/adchoices

This is the Bigger Pockets podcast show 152. You're listening to Bigger Pockets Radio, simplifying real estate for investors large and small. If you're here looking to learn about real estate investing, without all the hype, you're in the right place. Stay tuned and be sure to join the millions of others who have benefited from biggerpockets.com. Your home for real estate investing online. What's going on, everybody? This is Josh Dorkin. to the Bigger Pockets podcast here with my co-host,

The Man of the Hour. It's Brandon Turner. What's going on, man? Josh Dorkin, not much. What's going on with you? Man, I tell you what, I cannot wait for today to be over. I've had those days. Why?

Why? What's going on today? Because then I don't have to hear you talking anymore about these books. That's right. Working so hard of them. I've been talking a bit about him, haven't I? you have you have a you've been working really hard man and and you know i i don't feel bad at all for that oh my god i worked such a long day yeah i know okay crime me everybody it's gonna it's gonna it's gonna be good

it's been it's been a few long days but it's gonna be all worth it so it is it is all right man well we have i a very very different show today with a very unique format that's unbelievable and this thing the conversation was so high level yet still like like really good for everybody. I like, I don't care if you have a thousand units or you've got, you know, zero properties. So good. Exactly. Exactly. Anyway, so today we've got an unbelievable show. And before we get into it, we do have a few things to talk about. And, and, uh, so let's just kind of get this thing going. Yeah, let's get to it. Uh, so we're going to talk about actually two new books that we just released on bigger pockets. However, if you don't care about books or you don't

like reading or you don't want to read about rental properties, go ahead and skip forward. to the eight minute mark or so on this podcast and you don't have to listen to us talk about it. But if you want to listen, let's talk about it. So basically, we officially launched the book on rental property investing and the book on managing rental properties. So today is the official podcast launch day. So today's podcast launch day. Yes. It is. It is. All right. So the first book, the book on rental property investing, you authored that. The second book, the book on managing rental properties was authored by yourself and Heather Turner. That would be Bride of Godzilla, otherwise, you're a lovely wife.

She did. She did. So tell us really, really quickly, what are the books and what's the difference between them? Because some people might say, oh, well, why do you have these two books and whatever? So tell me the deal. All right. So, I mean, there's a book on, you know, rental property investing, the book on

managing. So there's two of them total, because we originally released, what was that, three years ago, Jay's book? Was that something like that? It was about three years ago, the book on flipping houses and the book on estimating rehab costs. Exactly. Yeah.

So, like, three years ago, we released that. and it was huge. People loved it. Everyone who wanted to flip houses learned a ton. A lot of people have found a lot of success from that. And then last year, we released the book on investing in real estate with no and low money down. Also very, very popular. It's done very, very well. But ever since then, everyone's been like, you know, people love those books, but the vast majority of our audience, they don't necessarily want to go out and flip houses for the rest of their life. What they want is financial freedom. They want to be with their kids more. They want to travel more. They want to retire early. They want all those things, you know, in life that come with passive income. And we

didn't have a book on that. So that's where, that's where kind of the, these two books were born out of. Nice. Yeah. And, you know, the bigger pockets audience is probably, I think it's a little higher than 60% focused on buy and hold. So it just makes sense that we did this. All right. So like, like I said, we got these two books. It was originally going to be one. So how did they kind of end up getting split apart here. Sure. So actually, yeah, it started out as one book. My wife and I sat down and we're like, we should co-write a book on buy and hold rental property investing. So we did that and we sat down, outlined it. And then we realized very quickly that like rental properties is actually two completely separate yet connected things. And that is like the real estate business, like the

acquisition and the planning and the in the big picture. And then it's the management part. And look, if you don't have both those things, like I'm a firm believer, if you don't have both those things, you know, nailed down, you're going to have a hard time succeeding. Like, For example, like you could be really good at finding deals, really good at that. But if you don't manage correctly or manage your manager, right, you're going to fail. And if you're really good at managing, but you're terrible at finding deals, you're going to struggle and you're probably going to fail as well. So we wanted to, that's how it became two complete books. It's over 800 pages combined, 400 pages a piece. Yeah, nice. Nice. Yeah. When I opened up the mail and saw that thing is an absolute beast. Each of them is a beast. So it's awesome. Cool. So with those books, if you buy them for bigger pockets, you can get. these videos, these really exclusive kind of videos that we did totally, well, they're not free. You get to buy the books. But the videos, we put a whole lot of them into the package.

So tell everybody really quickly about those. Sure. So yeah, so I did interviews with some of my, like, closest kind of real estate friends, smartest people that I go do for advice whenever I have a question about real estate. I grabbed eight different guys with a Ben Libovich, Chad Carson, Al Williamson, Brian Burke, Bill Serious, Kevin Perk, Enrique Jeevins, and Serge Shukot. And three of them are actually on the show today. Because after talking to them, I was like, we need to get them all back on the show

and do a big roundtable. So three of those guys are on the show today. And then after that, I filmed the video called The Truth, about $30,000 houses, another one on the mistakes that investors make. And then one more, an hour long of me just analyzing a deal in depth. So there's all those videos. It's like 10 hours or so of video content that comes with it. Oh, and then I almost forgot forms.

We included like 30 forms, with the thing, 34, I think, 33, 34 forms. Anyway, landlord forms that people can get and they can download those as well. Cool. Awesome. Anyway, cool. That's great, man.

So, all right, before we get into this, pricing, our typical pricing, we do books at $25 a piece. And so tell everybody kind of what the packages are, and then let's just kind of get to this thing. Sure. So the price is $49 for digital. For both books, you get $49 on all the bonus stuff, the, what is that, total of 11 videos or something like that?

Anyway, and then, so. A retail value of $2,437. Yes, yes, these are $9,900. Nights. Anyway, $49 for digital, $69 for print and digital. You get it shipped to your house. However, for people listening to this podcast right now here in December of 2015 when we launched this, if you buy it before December 17th, actually everybody can get 20 bucks off that. So it means it's only $29 right now for the digital. You get both books digital and all the bonus books, bonus like videos for $29 or $49 for everything. including two physical book ships your house. But you have to buy before December 17th, and you have to get them on Bigger Pockets

in order to get those bonuses. Right on, man. There you go. All right, guys, go to biggerpockets.com slash rental book. That's BiggerPockets.com slash rental book, and you can get your hands on it. Oh, that said. Oh, I forgot.

Oh, really? Yeah. The audio book. No, this is like, the audio book. So at last time, I did not record the no and low money down book, the audio. And everyone gave me a hard time because I did not record it.

Everyone makes funny me all the time because we had a Canadian record it and apparently he says a lot. So this time, I recorded the book on rental property investing by myself, my own voice. It's 12 hours of audio. Anyway, that's recorded.

And we're going to actually throw that in as well for free for anybody who buys before the 17th of this month. That is reason enough not to buy this package. Who the hell wants to listen to me to talk for 12 hours? 12 hours. Yeah, that's still enough. Anyway, so anyway, that we're going to solve for $29.

You can buy that alone for $29 if you want to, but it's also free if you buy any of the packages on BP before the 17th. So there you go. Got it. All right. Shut up. All right. Moving on.

Moving on. All right. You guys, we're going to skip the quick tip. Yeah. Just. That was our quick tip. That was too much. Oh, yeah.

That was the quick tip. So let's do this. For decades, real estate has been a cornerstone of the world's largest portfolios. But it's also historically been sort of complex, time-consuming and expensive. But imagine if real estate investing was suddenly easy, all the benefits of owning real, tangible assets without the complexity and expense. That's the power of the Fundrise flagship fund. Now, you can invest in a $1.1 billion portfolio of real estate, starting with as little

as $10.10. The portfolio features 4,700, a single-family rental homes spread across the booming sunbelt. They also have 3.3 million square feet of highly sought after industrial facilities, thanks to the e-commerce wave. The flagship fund is one of the largest, of its kind. It's well diversified, and it's managed by a team of professionals. And it's now available to you. Visit fundrise.com slash BP Market to explore the fund's full portfolio, check out historical returns, and start investing in just minutes. Carefully consider the investment objectives, risks, charges, and expenses of the Fundrise Flagship Fund before investing. This and other information can be found in the fund's prospectus at fundrise.com slash flagship. This is a paid

advertisement. You've upgraded how to buy properties, but did your insurance get the memo? When investors start scaling, insurance can't be an afterthought. Most policies were designed for a single property, not multiple rentals, LLC ownership, short-term stays, or properties mid-rehab. That's where blind spots can creep in. NREG works exclusively with real estate investors. They understand portfolios, how risk compounds as you grow, and why insurance should protect your upside, not just a checkbox.

One uncovered claim can undo years of progress. Before your next acquisition, review your insurance. Talk to NREG and get investor-specific coverage from specialists who actually understand real estate at NRE.com slash BPPod. That's N-R-E-I-D. Here's why savvy real estate investors are obsessed with bonus depreciation. It lets you take that rental property or commercial building you own and depreciate most of the cost against your income.

Legally, 100% IRS compliant. That's instant cash flow improvement. Cost segregation guys is the number one firm nationwide, specializing and identifying these faster depreciating assets in your property. They've completed tens of thousands of studies across all. all 50 states from remote cabins to apartment complexes. So if you own investment property, this is a no-brainer. So visit costsegregationguise.com slash BP for your free proposal and find out how much

you could save this tax season. Today's show is going to be amazing. Stay tuned. All right. Ben, Brian, Serge, what's going on? Guys, welcome to the podcast. It is absolutely amazing to have you here. Hey, how's good, Josh?

Wonderful weather in Ohio. Wonderful weather in Ohio. I don't even think that's a possibility. Isn't Ohio either always too hot or too cold? There's sun outside, dude. Okay. All right. I believe you.

Serge, how you doing, buddy? Doing fantastic. Good, good. All right, so as people can tell, we've got five people on this podcast. We've never done that before, at least not on a... It might be a cluster. It might be, but we're going to get through this because what I wanted to do is we want to do a show on just rental properties, and I wanted to invite the three guys that I call.

when I have a rental property question. These are the three guys that I call more than anybody else to discuss issues. And when I want to learn something, these are the guys more than anybody else in the world that I learned from. So I thought it would be kind of cool to get these three on a show and ask them about rental properties. Do you guys up for that? Let's do it. These are the guys I called too. What was that been?

These are the guys I called. Except for you, Brandon. I don't call you because, like, you know, what would be the point? You just call me to complain. You called me to complain that Brian won't pick up the phone. I'm going to have to be referee. I can tell how this is going to go. Hey, Ben, Brian, shut up.

Let me get to the first question here, gentlemen. First of all, you guys are all, you know, as Brandon said, folks that he turns to, lots of people turn to. So before we just get into this, I'd love to get an introduction from you guys. So let's start with you, Ben, then we'll go to Brian, then we'll go to search. Ben, give everybody about a minute or two about who you are. What's your background? and what's your investing story?

I was born in former USSR. I came to America, immigrated to America in 1989. I played violin since the age of five. I went to top five conservatory in the United States at Cincinnati. I discovered I had multiple sclerosis. I was given the diagnosis. I was told not to choose a career that would require fine motor skill and yet not to do something stupid.

So, you know, in that spirit, I went into real estate. You know, because I didn't want to do anything stupid, you know, so like this seemed logical and reasonable. So I don't do anything in real estate that is not a long-term hold situation in one way or the other because if I get taken out, I don't want to leave my wife having to unravel stuff. And so, you know, syndication in a partnership whereby there's a chain of command that people wouldn't get stuck. It's different. Aside for that, it's just long-term holds. I don't do flipping. I don't do sub-toos.

I don't do any of that jazz. Right on. Cool. Awesome. Awesome. All right. Mr. Burke, talk about yourself. Well, I guess I would say that I'm the anti-Ben.

So everything that Ben is on the exact opposite. So I love you too. I don't know about that. I started investing in real estate. Yeah, right, sure. I started investing in real estate about 26 years ago. I've never really been a long-term buy-and-hold guy. Most of my stuff has been get in and get out.

Some of it get in and get out quickly, others not so quickly. it just depends. So I guess when you say buy and hold, that could be defined differently, depending upon how the recipient views holding. I think of buy and hold is forever, and I don't do that. So I've done a lot of flips, about 700 of them. I've done a lot of rental property. I've had about 1,000 units at one time or another. I've got just under 1,000 units right now. Most of that, is relatively short-term, hold, you know, kind of a medium-term, three-to-five-year type thing. So that's kind of my real estate career in a very short nutshell.

The rest of it was all on podcast three and podcast 76. That it was. Oh, I didn't mention this. I was going to mention this. This is the first three-peat podcast for anybody, and we decided to do a triple three-peat. So this is like a nine-peat. Is that correct? So like, well, you just did that because I was, you just did that because I was campaigning to be the first three Pete podcast and you just couldn't settle this, could you?

I could not settle this without having the interview tie. He didn't want to pick favorites. Yep, no favorites here. So, all right, so, Brian, before I should actually shoot myself. If I got to a third podcast before me. I mean, come on. Do us all a favor, Ben. I mean.

All right. Before we go on to surge, I just want to ask, because as long as you said this, Brian, why why not hold forever? Like, we heard Ben's reason for why he wants to hold forever is because, you know, if something happens, why don't you want to hold forever? Well, I just, I look at real estate as a series of opportunities. And what you're doing is you're looking for the opportunity and the strategy that's working in any given location at any given time.

And that isn't, that isn't anything that can be held in perpetuity. Things change and climate's changed. So it does mean I don't hold things forever. I do have about 40 or so rental units that I own personally that I may hold forever and use that as my retirement plan or maybe not. It's just not a very dominant portion of my business strategy. Okay. Okay, that's cool. Right on.

And Serge. I'm probably somewhat of a hybrid of these two guys. Definitely not a buy and a hold forever, but don't do a lot of flips. do longer term flips, anywhere from one to four years. I buy with a cash flow outlook, with a horizon anywhere from typically two to five years, mixed between single families, small multifamilies and medium-sized multifamilies. Right now I'm focusing on the anywhere between 40 to 100 unit multifamilies, primarily in secondary markets. I love secondary markets that other guys are scared of. I like looking at the riskier properties that

people, you know, outside of primary markets, primary MSAs that other investors may not see or may not know or would be scared to manage. I try to find my competitive advantage in both managing these properties through my property management company, as well as finding stuff that other guys can't find. I'll purchase maybe one asset a month, sell one asset every six months, and just constantly update and keep the portfolio dynamic. Nice. And what shows were you on previously? Oh man, I don't remember the numbers. Two of them. I think 60 and I don't remember what the other was. Yeah, something like that. We'll put it in the show notes at biggerpockets.com slash show 152. We'll link to all your guys' shows. And we'll probably talk about it in the intro and outro.

well of this, I think. So, okay, very cool. So yeah, I like the fact, too, that you guys all have kind of different strategies of using buy and hold investing or rental properties. Use them three different ways, which is kind of cool. So maybe real quickly, can we just ask, just so people listening have an idea of your markets, because your markets are very different as well. I know that. Can you guys give us a quick, you know, 15 seconds? What is your market like? What's a low price house that you would buy or, you know, what's a single family house typically go for? And what's more of the, you know, basically, what's your market like? We'll start with Ben.

You know, in the Midwest, you understand what you're dealing with with Midwest. You know, you've got declining population. You've got very low tech coming in. You've got cold weather in the winters. So all of... All you need to do is move to California, and they'll have a declining population too, Ben. That's right. I'll be the first one.

You're just taking everybody. Actually, I was thinking about this. Arizona is taking Ohio population and California population. There you go. So, place I need to go is buy a house next to Surge, not Brian. Good idea. But in terms of price points, you know, turnkey is very popular in Ohio, Indiana, Kentucky area. Because why?

Because you can buy a house, I call them pigs. You can buy a pig for $15,000 to $20,000 that you can put some lipstick on, and you can sell to a schmach from California for 50. You can do that in Ohio very, very easily. and you can rent it for $650. The only problem is it's a pig and the cleanup is going to cost more than $650 a month. So, you know, that's Ohio.

But interestingly, on an SFR level, the balance is not here because you can spend $90,000 for a nice 3-2 brick ranch in Ohio, in Columbus and Cincinnati, in Lima even, that you're going to rent for, for $800. Or you can buy a pig that you're going to rent for six.

So really, you don't get the spread and the rents, which is why, in my opinion, unless you do cash purchases, or even if you do cash purchases, SIFRs don't work well in my market, which is why I focus on multifamily. Okay. Brian. Well, I have two different primary strategies.

My largest focus currently is on multifamily, and I'm looking for properties over 100 units in size. I'm doing that in major Texas metro markets, but I'm also looking at other markets that have a significant substantial growth story. So, i.e., not the declining population Ben markets. Again, I'm the anti-Ben in that respect. So, you know, I'm looking at...

I'm not looking over here either. So on the multifamily front, you know, primarily just looking for job growth, income growth, prices in that. in that market are ranging anywhere between $35,000 and $75,000 per unit, depending upon property class and location and so on. On the single family side, I only do that here in Northern California where I'm based. It just isn't worth my time to travel across country for a single family house.

So I have bought a number of single family houses in Northern California. And price points here when I was buying them were between $80,000 and $250,000. but nowadays you're looking at $200,000 to $450,000 for pretty much the same houses compared to three and a half years ago when I was buying them. Okay. You guys listening to this, you need to pay attention to the wording very carefully. What Brian just said is when he was buying them three years ago. I'm sure we're going to get into that and explore that topic, but you guys listening to this podcast, This is meaningful. This isn't void of, I think. And he knows that I can see him on Skype and he's smiling.

Do you want to just host the show, Ben? Brandon, why don't we check out? I'm a teacher. I can't help myself. I love to teach people this stuff. That's good. That's good. That's a good. We will come back to that because I want to talk about what the current markets like today, investing in rental properties today versus what it was five years ago. But before we do, surge. Surge. What's your market like? I'm in Arizona, primarily Metro Phoenix. It's a very cyclical market, high population growth, siphoning off a lot of the population

from, like Ben said, California in the Midwest. We have a lot of transplants. Population has been growing very steadily for about a little blip during the recession for the past 10 years, one of the fastest growing states in the United States. Houses, again, when I was buying them in the Metro Phoenix, were 40,000 to, you. 100,000 for bread and butter rentals that would rent for anywhere between 700 to 1400. Today you're looking at probably a baseline of 90,000 to 250,000 for probably the same rents, maybe $50, $100 higher.

Multi-family is going to go for anywhere between $30,000 to $150,000. We've had a boom in multifamily building. one of the highest growth states as far as units to come online. A lot of Class A buildings coming online, a lot of competition, a lot of investors from all over the United States trying to capitalize on the cyclicality of our market. A lot of people made a lot of money during the recession, but a lot of people are still buying. Story gets very different as soon as you get outside of Metro Phoenix.

We look a little bit more like the Midwest. We have counties that populations maybe isn't growing as fast. And prices there, you're looking now at about 45,000 to 100,000 for about $600 to $900,000 rents. Okay. Right on. Right on. So I want to, you know, I want to circle back a bit for all three of you guys. Serge, you kind of touched upon it in your last statement.

but we want to kind of look at where the market is today versus in the past. Ben, you know, kind of hinted at that as well. So, you know, first, I kind of want your opinions. You guys are all experts. You guys know this business as well as anybody. What do you guys think the macro, at a macro level, is going to happen to the housing market over the course of the next, you know, 12 to 18 months. Do you guys see any major political economic things coming to fruition that are going to affect the markets on a micro scale? And then talk from a micro level, your local market, where do you guys see those markets kind of going over the next 12 to 18? What do we start with surge this time? I'd say it's a tale of two markets, right? Multi-family and single-family,

Although they're both susceptible to the same shocks, I think multifamily is probably one or two economic shocks away from, I don't want to say a crisis, calamity or collapse. I don't think it's going to look like it did last time. But I think you have people that are over leveraged. I think you have people that are getting into asset classes that they've never been in. I think people have gotten very used to low cap rates and low interest rates. I think the market, I don't know where we're at. I don't know if in the sixth inning or the eighth inning or fifth inning, you can have that debate all day, but we're moving along on that cycle.

There's no doubt about that. And my concern is what shocks can the multifamily sector withstand? So when you talk about shocks, you talk about perhaps it's an interest rate hike. How many points can we withstand? Can we withstand interest rates going up 1%, 2%, 4%. 4%, I don't know. But I don't think there's that much. When you look at the cap rates, people have purchased under, and the loans that they've purchased under, I think in five to seven years, you're going to see a very different story than you are today.

The second concern is the amount of building going on. Sorry, Brandon. No, no, keep going on. The amount of building going on, particularly in my market and some of the higher growth markets, even you look in Ben's market, Columbus, Ohio. You look at Houston, Texas. You look at, I was in the Bay Area over the Thanksgiving holiday, literally every single sliver of land has been, has new multifamily on it. So the amount of the units that have come online over the past three to four years with the easy money, you've got to ask yourself, is there an oversupply of multifamily? And where does that leave the class A space?

And then it all trickles down from the class A. When class A gets hit and class A slowly becomes class B, what happens to class B and what happens to class B and what happens to class A. class C. So there will always be a play for value add, but I think that at this point, really important to get in and know when and where and how your exit's going to look and not sit there and buy on a blank long-term whole 10-year approach because I think we're going to be staring at a very different market five to seven years down the road. Single family, a little bit different. Single family is always going to be driven by, you know, FHA, government-sponsored entity financing and what that looks like.

There's been some changes to that. I think that market can withstand a little bit more interest rate shock than perhaps the multifamily can. But I also do see a lot of building going on in single family as well. So in the states where population is going to grow and continue to grow, I think you'll probably be okay. You'll probably get back to historical norms where we're at. If you look at the, you look at through the recession and where we are now, you're back

to two, three percent growth. that you've seen regularly. So I think on the single family sector, you're probably just gonna hum along, again, unless there is significant shocks, which I don't know where those are gonna come from in the single family. So, and in my market in Arizona, again, it's gonna be,

where is our population? What happens with immigration? Do we still have net inflow of immigration in our state? What's government policy gonna look like there? Where interest rates gonna be? And where is building gonna be? and obviously the job outlook. So I'm a lot more bullish on single family as far as holding its value, not so much as far as equity growth.

And in the multifamily, I would be very, very careful and I would be sure that I'm buying projects at their intrinsic value rather than at a capitalized value or accounting on future rent growth. I would not underwrite future rent growth at this point in time. Interesting. There's a lot of really good stuff. stuff in there. Yeah. I'm going to let people know you can go back and rewind that and listen again because like I'm going to listen to that after the show of him. Like everything you just said there I think was awesome. Do you guys want to add to that, Brian? I was going to say do you want to add or do you guys want to kind of take a different angle? Well, I can take a little bit of a different

angle. It is a bit of a challenge to answer the question of what is the market going to do because I'm a strong believer that there's no such thing as the market when you're talking about real estate. You have macro and micro, and they can work opposite to one another. And furthermore, when you're talking about single family versus multifamily, those don't track in tandem either. And even within those asset classes, if you're talking rentals versus resale prices, those also don't track in tandem. So it's a little bit difficult to predict. There's a lot of different movements. And when I mentioned earlier that my strategy was focused on shorter term holds, it's because of all those dynamics and the way that they interplay with one another,

it causes me to try to focus on ones where I believe that there's some kind of a trajectory that I can predict. So from that standpoint, looking at just a macro overview of the market, if there is such a thing as the market, I think that we've had a run up in prices in a lot of areas. And I think that there's some sustainability to that, as opposed to 2000. five when it was unsustainable because it was primarily driven by funny loans and whatever else, but now there's some actual fundamentals behind single-family price growth. Now, looking forward, the question is, is how much sustainability is there for continued growth in pricing on the single-family sector?

And in some markets like California, for example, we've gone up substantially since the bottom of the market in 2008. and if you look at the San Francisco Bay area, in particular, the South Bay, you know, if you ask most people when the peak of the market was, in most places, people would tell you the peak of the market was in 2005 or 06. But in the peninsula, South Bay of San Francisco and San Jose area, the peak of the market is now. Prices there are well in excess of where they were in 2006 and climbing. So at a certain point, you have to ask yourself, how much additional runway is there in that pricing relative to the incomes of the people that are seeking to purchase those properties. And without income growth, there's a point where price growth becomes impossible. There is a lot of old money influence in California. So that does have some impact that negates the limitations of income growth. And we are starting to see some income growth.

But with this large run-up in pricing, I think we're going to start to see some plateauing, not a drop-off and not a calamity or a catastrophe. like some people predict, I think we're going to see a plateau. And that may be true in a lot of a lot of metros. On the rent side, on the other hand, we've seen tremendous rent growth in a lot of markets, especially California and Texas. Surge touched on whether or not rent growth has continued to be sustainable. And in some areas, I think it is.

In other areas, it's likely not, doesn't have much more runway. And as rents grow in multifamily, you say, okay, increasing rents. rent equals increasing prices, but they don't necessarily track in tandem because interest rates, influence cap rates, demand for a sector can alter cap rates. You can have compression and decompression. So with all those factors, it's pretty much a coin toss of trying to predict what's going to happen, but you just have to look at all the nuances of every market and try to find strategies in markets that have a predictable and logical path of success. I like that.

I was going to ask, you mentioned about, like, how long will the runway go compared to income, you know, what people can afford in those areas? And especially your area, I like to think about, you know, to me anyway, I can be totally wrong because I'm not in the Northern California area. But I like to think that the massive growth of the tech industry in that area, especially over the last, you know, five or ten years and these billion-dollar companies are throwing, you know, two, three, four hundred thousand dollars at, you know, developers who are coming out of school two weeks. You know, like, do you see that, do you guys worry about that bubble popping, the

tech bubble popping, which would then just destroy price values, or is it varied enough that it's not all dependent on that industry? Well, I don't, I don't worry about it day to day because I don't participate in it. I don't invest in the South Bay in those tech heavy areas. I think that I don't think I'd want to either. I do have some concern that if these companies decide that they could move to Lima, Ohio and open up all their shops over there, you know, that would dramatically impact both markets if they were to do that. But they're trying to stay where the talent is.

And as we know, you know, Ben doesn't have any talent, so they bring them to the all right, Ben, your turn. You got to respond to... Surgeon Brian's thing. Well, it's important to kind of funnel this conversation down to what people can understand. Most people listening to this are probably more concerned about buying a triplex than they are buying 300 units. And the high flying.

What you guys need to understand is, and I'm not talking to you guys, I'm talking to folks listening to this podcast. Yeah, Brian was like, yeah, let's hear it. What do I understand? that, you know, you have real estate investors. Then you have talented real estate investors. And then you have another level of people with imagination to reimagine what real estate investing really is. I suppose this is true in every profession.

That kind of, I mean, I'm fortunate to kind of have more of a glimpse than a lot of people into what Brian does. And it's brilliant. I mean, the way that he rationalizes real estate, the way he thinks about it, the way, you know, Arthur Schopenhauer said talent can hit a target, nobody can hit, genius can hit a target, no one can see. That right there is Brian Burke. So, you know, take this show with a grain of salt because you're not, you are not going to listen to every BP podcast and become Burke. Shukat, same thing. I mean, it's just, you know, I wrote an article about it like three days ago. I mean, how he does what he does, management-wise, is beyond my comprehension.

I don't want to know, you know. So I drive my car and I'm waiting for my wife who ran into the store and a friend and his father drive by. And I happen to be sitting on the Tesla. And they want to look at the Tesla because his father owned stock of Tesla. Yeah, I was waiting for that. He gets into the car and we start talking. And before he leaves, I say, hey, I want to buy all the real estate he's got. And he looks at it because I know he's got a lot of commercial storefront real estate,

which at this point I'm interested in. And he looks at me and he says, you know, at my age, I really kind of want to sell all of it and I want to finance it. That's how real estate bought and sold in small tertiary markets where you guys live where it matters. You know, you don't have to be a superstar. You don't have Brian Burke and Sir Chukot is Hollywood of real estate. It's very difficult to be and do what those guys are. I mean, it's, you know, like Josh Dorkin of the Internet.

You know, it's very hard. It's very hard. But you don't have to do that. You can, you know, you can tell everybody you know that you want to buy some buildings, that you want to buy duplex and a triplex and a fourplex. And you can simply retire better than your friends on Social Security. I mean, what do we care what happens to tech sector? At the end of the day, guys, I mean, you know, this is a podcast to launch a book teaching people how to buy real estate.

Right. We're not teaching them how to buy 300 units. We're teaching them how to buy a flipping duplex. Maybe. I agree. It depends. It depends. Because, I mean, you guys are out there doing these things.

Lots of people say, hey, I want to just go and buy a house or two houses or three houses, or they want to figure out what their retirement number. I forget what we call it, the magic number that we, you know, I need six houses to replace my income. Okay, great. But then, you know, bigger pockets is encompassed of folks who see Brian Burke and surge and say, I want to do what these guys are doing, not necessarily what Ben's doing, but what Serge and Brian Burke are doing. And it's important.

And I think the beauty of this conversation, this is gold right now, by the way. I mean, the amount of knowledge that's coming out is unbelievable. And, Ben, your points are very well taken because there are those people who just care about the two plexes and the twos and the threes. So what should that triplex investor be doing then? Given your thought or your take on the market,

the guy who wants to buy the two, three, or four? reflex. You have to buy below intrinsic value. I don't care what, when, how, or why. You just cannot be a retail investor ever. Because one of the things I learned from Brian is this idea of underwriting everything you do to the internal rate. There's a lot of reasons to do that, but the most important one is that doing so requires you to project an exit. And that goes back to... What do you mean by that. For those people who don't know what that means the internal rate. I mean, I know we can get really deep on that, but what's a good? Internal rate of return is a metric that tracks and times all of the cash flow events. And the biggest cash flow event is the disposition of the property

or refinance to get your money out of the property completely. So, you know, Brian is a flipper, and he looks at multifamily real estate as a slow flip, which leads him to understand, to underwrite, how am I going to get out of this thing before anything else? I mean, the most important thing. And I learned that, and it makes a whole lot of sense, because if you can make sure that you discount the worst case scenario and you can buy the thing right so you can get out as you planned, just, I don't care how much you got to discount it, just discounted enough so that you're guaranteed to get out of it.

then you that's that's that's that's the only way to buy you can't be a retail investor you can't go out there and capitalize cash flow and think that you're buying anything real you got to buy value add proposition you got to buy you know you got to buy below intrinsic value and in other words you're just saying you got to go out and buy a good deal you got to hustle to find a good deal yeah but you got to know how to define what a good deal is just because it's cheap doesn't make it a good deal but to to come back to uh To Josh's point, you know, or a joke, which wasn't good if you ask me, but what do I know? Listen to what Serge and Brian.

There's a big difference between me and Serge and Brian. Like I said, they are in my mind. This is who I call when I have questions, right? They're superstars. They see things other people don't see. What I am is a guy who discovered I had multiple sclerosis. play the violin. I don't know why in the world I even became a violinist, but I certainly didn't set myself up for financial success in doing it. And then on top of it, I was told I couldn't even do that.

So from there, I get to where I am here, which may not be much, but I don't have a job and I don't need a job, and I drive a Tesla, you know, and my wife doesn't have a job, and she doesn't need a job. So what I like about what you're saying is. It ain't all. But the point is they can relate to this. Yeah. So what I like about your saying, Ben, I mean, besides the Tesla, is, Hey, did you guys hear Ben? Did you guys hear Ben got a Tesla?

Listen, Tesla. What? By the way, I will say, Serge also was a Tesla, and I'm waiting for Brian to order his. I don't need one. I have an airplane. I fly over there. That's true. No, so what I like about what Ben's saying is that, like, you know,

there's people that their goal is to. become a superstar. There's people whose goal is to become Brian Burke and other people who's goal is to become Surge and other people's goals become Ben. And that actually changes throughout life too. Originally, I wanted to be Ben. I wanted enough to pay the bills to have a Tesla maybe and to just have that financial freedom. Other people want to actually build bigger well. Some people want to build, you know, massive financial freedom. So I like that. So, you know, Brian and Serge, do you guys agree with Ben on that? I mean, like, his, you can't be a retail investor. That's the only way to invest today. What are you guys the thoughts on that?

Well, I agree with them. It's absolutely true. I've never been a retail investor. I've never bought properties at full market value. It's never been part of my DNA. I think a couple of points that Ben brought up that were particularly good, and I say that in amazement because I think it's the first time that's ever happened, is that two things.

I just tell them that he's brilliant. Stop talking, Ben. No. Give him a chance. So what was I saying? Oh, anyway. So one thing that Ben said in there that was particularly important was the question of why. He asked, why am I going to become a violinist?

And then, you know, why did I make that decision? And why did I make this decision to get into real estate? And I think that that has a lot to do with this conversation. Because when I'm talking about what's happening in an economic perspective and Ben's saying, what difference does that make to the guy that's buying a dupe? or a single family, it all comes down to the why. And why would that person choose to buy a single family versus a duplex versus a strip center versus a hotel versus a commercial property? And you've got to think a lot about why you're getting into this business and what your

objectives are, because that's the most important question is why. The second most important thing is to always invest in reverse. You're doing the business backwards. So when you're looking at, I want to get into apartment buildings. Well, the first thing, thing you need to know about the apartment building you're looking at is what's it going to be worth when you go to get out of it. You want to look at that exit and plan that exit and then work backwards to what you can pay. It's just like doing a flip on a house. If you're going to flip a house, you're going to say, well, the ARV, the after-repared value is $250,000. It's going to cost me $50,000 to fix it up. So what can I pay for that house to acquire it and still make money?

buying an income property, whether it's a single-family rental duplex, triplex, or a 300-unit apartment complex, works no differently than that house flip where you're looking at what's it going to be worth, what's it going to take for me to get it to a point where it will be worth that, and what's the income stream going to look like in the meantime? And when you put all those components together, that's how you develop your internal rate or return. And, you know, that's a complex discussion for another day. But the biggest point is that Ben brought up there, is to look at that exit and never buy at retail. And I fully agree with him there. And please don't make me agree with Ben again. If I can add, though, because I'm in Lima, Ohio, so I cannot project appreciation. Period. Case closed. And that, my friends, is most of America.

The A-class markets isn't most of America. Most of America is secondary and tertiary markets where you have five factories, two, hospitals, and that's the entirety of your economic base. And so how do you project appreciation? You can't. So what do you have to do to guarantee an exit? You have to buy right. Can we get back to that?

Because I want to get to appreciation that's on our list. Can we just hear from Serge really quickly on answering your other point, and then we'll come back to you guys on appreciation? Yeah, Ben's point is absolutely right. But to get a little deeper into what Brian was saying, it's not just the way. Why, it's know who you are as an investor, right? Who are you? Why are you doing this? You know, I have friends that call me and say, it's so cool, you know, you're looking at multifamily. I want an apartment complex also. When I say, my comment is, why do you want an apartment complex

what makes you think you're an apartment complex investor? Why are you doing it? What's your competitive advantage? What's going to make you better than Brian Burke buying in your market or Ben Labovich buying in another market? What's going to make you better? What makes you think this is a very competitive market with very low margins. As simple as that, and a lot of risk. There's a lot of risk in these deals. So it's not for everybody, and real estate investing is not for everybody. You see it all the time. Half of the deals that we buy are from people that should have never been real estate investors to begin with. So a lot of people jump into this not knowing who they are. I want to buy single family because I know a guy that killed it buying single family. I know an old man

that never had to work for 40 years because he had 20 single family properties. Well, we all know that's not the real story. What makes sense for one guy isn't what makes sense for the other guy. Ben may look at me and say, you're crazy managing these properties. It doesn't make sense for you. For me, that's where I can compete. That's how I can push my margins, right? And those margins may be good enough for me.

That's why I invest in the asset class I invest in. Now, if I didn't have those competitive advantages, I may be a retail strip center investor. Maybe if I was a commercial real estate broker for 10 years and knew that market and had the connections, I'd be that. It all comes down to figuring out who you are, what you're good at, what's your competitive advantage, and then matching that to an asset class that sinks to who you are and realizing that it's not for everybody. The guy with no money in his bank account, I would tell him you're not ready to be a real estate investor. Yeah, absolutely.

Brian Burke told me at one point in time, don't play someone else's game. But knowing what your game is is about what Serge is just talking about, knowing yourself. And also you need to understand, everybody talks about cycles. Yeah, there are cycles in the marketplace.

There are also investor cycles. We all, as we mature, as we achieve, you know, through cycles. Something that's right for me five years ago is absolutely not something I'm going to do today. And it's very, very, very real. For decades, real estate has been a cornerstone of the world's largest portfolios. But it's also historically been sort of complex, time-consuming, and expensive. But imagine if real estate investing was suddenly easy, all the benefits of owning real, tangible assets without the complexity and expense. That's the power of the Fundrise Flagship Fund. Now you can invest in a $1.1 billion portfolio of real estate, starting with as little

as $10.10. The portfolio features 4,700 single-family rental homes spread across the booming sunbelt. They also have 3.3 million square feet of highly sought after industrial facilities, thanks to the e-commerce wave. The flagship fund is one of the largest of its kind. It's well diversified, and it's managed by a team of professionals. And it's now available to you. Visit fundrise.com slash BP Market to explore the fund's full portfolio. Check out historical returns and start investing in just minutes. Carefully consider the investment objectives, risks, charges, and expenses of the Fundrise Flagship Fund.

This and other information can be found in the fund's prospectus at fundrise.com slash flagship. This is a paid advertisement. There are two kinds of real estate investors, those who have reviewed their insurance, and those who think that they have. Most don't realize their coverage wasn't built for how they actually invest. Vacancy periods, rehabs, short-term rentals, or LLC-held properties. These gaps surface only when filing claims.

That's why investors work with NREG. They specialize exclusively in real estate. investors, understanding portfolios, risk at scale, and cash flow protection. One claim can erase years of returns. If you own a rental property, don't assume you're covered. Have NREG review your insurance with someone who gets investing at NREG.com slash BP pod. That's N-R-E-I-G.com slash B-Podd. Wouldn't it be great if your houseplants paid rent while you were out of town? I mean, they've got the whole place to themselves, lots of sunlight, zero responsibilities.

But no, they just sit there waiting for someone to spray them with some cool mist like a bunch of leafy loafers. But guess what? Your home actually could be earning you money while you're not there. Airbnb has a great feature called the co-host network, which makes hosting your home so easy. If you live far from your property or are away for extended periods, you can hire a local co-host to take care of the hosting for you. These co-hosts are vetted locals who already have experience hosting on Airbnb. A co-host can handle all the details like messaging guests, creating your host space, and managing reservations. So everything runs smoothly. It's a practical way to earn a little extra money, maybe even some cash toward your next trip.

Plus, you get to share your place with someone traveling to your area while you're off making memories somewhere else. Your home might be worth more than you think. Find out how much at Airbnb.com slash host. If you think property management is expensive, try mismanaging a vacancy or an eviction or a maintenance issue that turns into a five-figure problem because no one caught it early. That's expensive. A good property manager isn't overhead. Their protection against small mistakes turning into big losses. And that matters more than ever in this economy. That's why I like Mind. Unlike other property managers,

Mind manages your property like an investment. They obsessively measure the things that matter for your bottom line. Things like occupancy, delinquency, and net promoter score. And they have the results to prove it. Go to mine.co slash show me to see how mine performs and get your first month free, which is much cheaper than learning the hard way. Right on. Right on.

Hey, so I want to go back to what you had talked about before on appreciation. you're talking about you can't predict it. I believe that's true. I believe that you can certainly have educated guesses as you have a market where jobs are increasing, population growth, things like that. The odds of things going better than a Lima, Ohio, for example, or Detroit, or actually Detroit's probably appreciating at this point.

So I can't use that anymore. But appreciation as an investor. I know we've talked about this separately on all of the podcast with each of you guys, but particularly for newer investors. Should they be factoring appreciation at all into these deals and opportunities, or should it be something that's just the icing on the cake? Let's start with Brian. Well, the answer to that question is, yes, they should. But the way that they factor appreciation may be different than what you're thinking of. Appreciation to me is something that I can do to create added value to a property.

So, for example, let's say I'm going to buy a single family home as a rental. And your approach to how you view appreciation is what separates you and defines you as either an amateur investor or a professional investor or taking an amateur approach versus a professional approach. So an amateur's approach is to pay full value and it's a buy and pray model. You're just hoping that the market is going to carry. your value higher, you're hoping that the rental market is going to carry your rents higher. The professionals approach is one where you're actively involved and you're going in and you're buying the property under current market value because there's some type of a defect.

And what you're looking for is you're looking for a correctable defect. And that correctable defect could be bad ownership, it could be physical deficiencies, it could be any number of things that the property needs to bring it to full value. So what I'm looking at, when I'm looking at appreciation is, what is that property worth today if I do all of the things that I intend to do? So small scale example, single family house, it looks terrible, it's dirty, it's run down, it's the landscaping curb appeal or bad. Describing Serge's house. You've been there. and so you're you know what you're going to do is you're going to go in and you're going to

improve that you're going to make it look nice and and appealing to a different renter demographic so you can predict what that house is going to be worth after you're done what you can't predict is what it's going to be worth 15 years from now long after you've done what you're able to do and that's why one of the reasons why I tend to be more of a mid to short term in my buy and hold strategy. Because I know that if I'm going to, let's say on a larger scale, I'm going to do an apartment complex. And I know if I can buy this apartment complex for $10 million, put $2 million in repairs and

sell it for $20 million in three to five years, that's a darn good deal. And I don't really care what it's worth 20 years from now because I'm not going to be in it that long. And I can't predict that far ahead. So I'll do what I can predict. I'll take that hockey stick of the income and I'll get out at the top. And that appreciation is what I built, not what I prayed for. I like that.

Serge, what do you think? That's awesome. You know, I'd say it's an echo Brian's statement where you're not looking at what market forces, you're not looking at this asset's going to increase. It's not a stock. It's not going to increase 3% a year, right? I like to look at when we talk about intrinsic value, what does that mean? factors such as rebuild cost. How much does it cost to rebuild in this neighborhood per square foot? How much

are the builders going to build this type of comparable asset for? So if you're buying a single family home and you know that building is going to resume at one point in time, whether it's five years, whether it's 10 years, and one thing you can count on is inflation and the cost of materials, right? So you know that building costs are going to go up. So you know you're going to have an exit and you know that your floor is going to be set by the builders at the very least, right? There's always going to be foreclosures. There's going to be cyclical markets. If you buy cheap enough, you can hold through those dips.

If you know that comparable stock costs $100,000 and you can buy that asset for $50,000, and you know that worst case scenario rent is $800, even if it dips 20% and you still have cash flow, that's a pretty safe bet, right? it's where you're buying at the same $100,000 and you can't afford those dips in rent, that's what you're watching out for, right? Right on. That's great.

You guys, awesome. I just want to add in because, you know, it's half, you know, half my show here. So I'm going to jump in because, all right, so here's what I want to say about, like, appreciate my, a lot of it is going to depend. I know you guys kind of cover this as well, but like a lot of it's going to depend on, you know,

whether or not you appreciate, include appreciation in there. It's going to depend. on you and your goals as well. What I mean by that is when I first started, I was buying these just junky, you know, not as a junkie, but pretty lower income multifamily properties that cash flowed really well when I was managing it and I was doing my own maintenance and it all worked really well for me. And those ones will not appreciate. However, today now I don't need the cash flow anymore. I don't really want the month-to-month cash flow. What I want is long-term wealth. And so I've

shifted my strategy over a lot where lately I've been doing what Brian says. I've been doing more value adds, single-family houses where I can add a bunch of equity in. But at the the same time, maybe I'm not going to buy, I'm not going to buy a bad deal based on appreciation, but my plan is really, really hoping on appreciation because I'm buying in the best neighborhoods and I'm buying a great deal. And so even if appreciation carries forward at, you know, whatever just the economy takes it. I mean, not even like real estate, but just in general, the cost of the dollar going, you know, one direction. You know, I, my goal again is not cashful. My goal is a long-term appreciation with some of these properties because it's just a different goal.

And that might take me five or ten or fifteen years, but it's still part of it. So anyway, I just wanted to throw that out there that, you know, it does depend a little bit on your goals and where you're headed as well as your location. How do you predict that, Brandon? Yeah, we just said. Well, Brandon, you make a good point. You're probably also a lot more realistic on your expenses. You realize that the higher asset class, the reality of owning that, managing that, right,

over the long run as compared to your lower end properties where on paper, they always look like a home run. When you factor in the lack of appreciation and you factor in the true expenses with the turnover and that class of tenant, right, you get more of realistic picture, but you got to be in the business for how long before you get that, right? You have, you look at Ben's articles on not buying, you know, CD class assets. People still argue that, hey, I can manage it better than everybody else and my expenses, you know, they'll argue you on the cost of a window. When we were launched these books, like, well, officially they're coming out here in like an hour

from when we're recording this. But one of the things I did, I wanted to add, I added like an hour-long bonus video, and it's called The Truth About Investing in $30,000 rental houses. And it's based on you guys, Ben and Serge, you guys wrote that article a while back. And so I just talk about that concept, because it's the things that I learned, because I used to think that a $30,000 rental house was a great deal. You know, and things have shifted a lot in my mind. and because of mainly because of you three guys, you know, I have shifted it quite a bit.

Although I must admit before Ben outs me that I do still buy $30,000. So, okay, so I might as well, right? So here, like I actually talk about this in that video. Here's my thinking, right? If you want to buy a $30,000 house, great. But I want to buy that house in a location. Like, I want to buy the house for $30. I want to put $20 into it and have worth $100 when I'm done.

At that point, even if I get no appreciation, it's still worth hopefully $100. But that's not a $3,000. $30,000 house. When we talk about a $30,000 house, a pig, we talk about functionally and monetarily obsolescent. It's never going to be that $100,000 house, no matter what you do, you put gold-plated toilets in there, still a $30,000 pig. That's the essence of a $30,000 pig. What you're talking about is buying below intrinsic value, which is what you're supposed to be doing. Yep. Good difference. Good difference. Well, so, Brandon, I mean, you said that you don't want to do it anymore. You're not focused on it. Surge. You said,

don't tell anybody. I'm on it. What about the listeners? Should new investors be thinking about these $30,000 houses? Or, man, maybe I'm going the wrong way with this. But, you know, let's go to Burke. You haven't talked about these $30,000 houses. What's your take? It's like watching a tennis match between Serge and Ben about the $30,000 houses and, you know, who's going to have the stronger point one way or another. You know, I don't know. I've never done it, so I don't really have a really strong opinion. I have bought properties for $30,000, but they certainly weren't worth $30,000. I think there's a difference between buying something at a $30,000 entry and buying something that only has a $30,000 exit. And in the latter case, where it's a $30,000 exit, you know, there may be some

additional risk factors at play because there are fixed costs that aren't a percentage of the sales price or the rent. So, you know, that does come in and play a bit of a role. But aside from that argument, because of my limited experience in that market, I'm going to defer to these two guys and let them duke it out. Well, so let me, let me ask about, like, people were wondering about the $30,000 house thing because it's a very popular topic on BP. Ben's written like 17 articles about it because he knows he'll get like 100 comments every time. Well, and because people are attracted to it.

it at the end of the day. Especially newbies, they're like, hey, well, I hear I could buy a house for almost nothing. You know, let me get into that. It's very attractive. Yeah, in this video, bonus video that I did, I asked this question, I said, let me give you guys a hypothetical question. Should you buy a $30,000 house that rents for $500 a month? Because that's what turnkey providers are oftentimes selling. I see in the Midwest is a 30,000 house rent for $500 a month. And that's almost a 2% rule, right? That's pretty good. I mean, even $30,000 for $600 a month. That is a 2% rule. Why is that a, why is that a dangerous idea? Because of what Brian just said, there are fixed costs involved with running property and owning property for a period

of time that happen regardless of what you do on a management side. Things like CAPEX, just, you know, things have a lifespan. And once it's up, it's up. And $500 for an SFR just doesn't pencil out. It just doesn't work because of those fixed costs. And what are those fixed costs? What do you tell you? Well, every time you have a vacancy, if you trace that backwards, there's a story behind how that happened, why, how much it costs, and what's it going to cost to fix it? And so a lot of times what I see in TK performance is, you know, they'll be nice enough

and include a 7% vacancy. But there's never any bad debt. There is never any loss to lease. There is never any, you know, increased fees in terms of card fees and everything else, because, of course, you have to evict the bomb because, you know, they didn't pay. There's never any of that. By the time you really think the story through, the 7% physical vacancy becomes an 18% economic vacancy. And then you have capital expenses because the fact of it is is that a water heater is only going to last as long as it going to last,

no matter how you baby it, eventually you have to replace it. And it's not a cost that's a percentage of your income. It's a fixed cost. The water heater costs what it costs, a roof, a window, flooring, you name it. Every piece of that building costs what it does. And by the time you break those out, you understand what it costs to hold the property for five, seven, ten years. You don't know when this breaks down.

You can try to time to sell it before the next. next cap-x wave happens. But I don't think that's the wisest thing to do. The wiser thing to do is to be well capitalized so that when things come up, you can afford to pay for it. The problem is on a $500 S-F-R rental, you cannot afford to be that well-capitalized. Well, I can throw in a counterpoint to Ben just and then he can fry me and hang me from the tallest tree. But the real estate doesn't just throw off cash flow as an investment. It throws off one more thing, and that thing that real estate investments throw off outside of monetarily is knowledge. And so if you're a new investor who has no experience in owning rental properties,

and you just absolutely have to get into this business because this is your goal, and the only thing that you can figure out how to get your feet into is a $30,000 pig, as Ben likes to define it, then maybe that's not the worst thing in the world for you, because one of two things is going to happen. You're going to learn some valuable lessons that are going to teach you really why not to do $30,000 houses. Or you might have some level of success, which produces a result that catapults you into going to the next level and selling that $30,000 house and then buying a $50,000 house and then buying a $70,000 house. and being one that's come from absolutely having not one single dime to my name, literally living off the overdraft protection on my checking account when I first bought my first real estate investment, to where I am today of having bought over $200 million worth of real estate.

I didn't get there because I waited and waited and waited until I could get into the ultimate investment that I wanted to get into. I got into something that I probably shouldn't have. It wasn't the greatest deal, but it taught me so much that it allowed me to get to the next level. And you can learn how to do this business from guys like Ben. You know, he's really sharp and he can teach you how to be good. But one thing I've learned in watching a lot of investors over time is that I can teach them everything I know and they'll listen to about 5% of it and they'll go do their own thing and they'll learn their real lessons from their hands-on activity.

And, you know, so use Ben's knowledge to get you what you need to know, but you'll learn everything out on the street. And so to that end, I think $30,000 houses may have some place in the investor's repertoire. Just doesn't happen to be in mine. Yeah, I actually, I like that a lot. Or my, yeah, my early deals. I think all of us could agree to this, that our early deals, probably a lot of them sucked quite a bit. Yet we probably wouldn't go back and change that because it made us who we are today. That's right.

So like, I'm not single and buy a bad deal. And I don't think it to be here single by a bad deal. But, you know, don't let your fear of buying that bad deal stop you from ever investing in the first place. So wise. But there's bigger pockets, though. I mean, that's the point. There is bigger pockets. There's Ben Labovich. There's Brandon Turner. The point is, these guys don't have to lose money like we did in order to learn those lessons. These guys, you know, when I wanted to understand syndication, I reached out to Brian. There was a reason for that. Yeah. Yeah. And that's true. I said that like I did a webinar a few months ago and that was like my, the, the

line, the first line that I put on all the Facebook ads for it. And it just said, you know, yes, you should learn from your mistakes. But the secret is you can also learn from other people's mistakes. If, you know, if you're wise to do that. And I think that's important. And that's why, I think that's why all of us are pretty open with talking about our mistakes and our issues. We've all done that on separate podcasts. And we've all made them. Awesome. Hey, guys, starting to run out of time. So my, my last question, unless you guys strike up something in me to to beg more of you. And I want to start with surge is what are the downsides of rental properties? You know, we're doing this, this podcast today because we've got a

couple new books coming out on the business. And, you know, it's, it's not all, you know, it's not all roses, right? We've talked about some of this stuff. And, you know, I think that's kind of the thing that bigger pockets is best at. You know, I think, we are the best at being realistic about this business and this conversation so far. I think we need to go and do another three hours of this for future podcasts. What do you guys see as the big downsides of rental properties, particularly, again, for newer real estate investors? Let's start with you, Serge. Certainly, if you're managing yourself, dealing with tenants is going to be a challenge.

You may not be used to that caliber of person. You know, the lying, you're going to see all different sides of the human spirit, right, when you're a landlord. If you're not property managing yourself, you're probably not going to be making money, right, when you start out. If you... How's that? Right? So it's the difference between expectations and reality. for the real estate investor, especially on the low end.

When you grow and you can start to build some scale like Brian and build a professional organization, then you can make a corporate environment out of it. But for your average listener that's starting, it's going to be a lot of work for not a lot of money. And I like what Brian said, that $30,000 pig, whether you made you money at the end of the day or it didn't, it bought you an education.

And it's better than sitting on the sidelines and doing nothing. The first three rental properties I bought, I would never have bought those again. But it taught me my lifelong philosophy of what tenant that I want and what tenant I can make money with. And I build all my purchases based on going after that specific tenant, that specific customer. So you're going to deal with a lot. The numbers are never going to work like you think they are. And you're going to question why am I doing this? What's the point?

and be ready to switch models. Be ready to say, maybe I'm not a buy and hold investor. Maybe I don't got the capital or the skill or the knowledge to manage sense. Maybe flipping is what I need to do, right? There's a lot of different strategies and just be fluid and ready to adapt. Nice. Nice. What do you say, Ben, downsides, the rentals?

I think Serge's point is right on. Be ready to adapt. I'll come back to that. Yeah, I've had a knife pulled on me. by a sub you know I've had I've had them

call me names that I'm going to not mention on this podcast but you know when you are when you get in and you don't know the difference between a footer

and the rafter and you know and and you don't have any contacts you're just you're just shoestringing the whole whole operation because this is what your life needs to do right now. It's rough. I mean,

it really, really is rough. When you couple that with not having money, which majority of the listeners do not. I mean, if you have a $40,000, $50,000 job, you don't have any money. And a family, you don't have any money. That's just how it is. You just don't have any money. So when you do that and you're looking to creatively finance, I can't, it works. I'm the example. I'm not Brian Burke.

I'm not Sirchuk. I didn't take companies public. I didn't, you know, I don't come from a corporate background. You know, but it works. It, you know, but I haven't bought anything since 2013. I shifted my strategy because of my cycle, my investor. My investors, I mentioned it before my life cycle. So it works, but you're going to have to eat a lot of it to get to a point of stability where your life does what it's meant to do.

My back was really to the wall, and I really didn't have any other options, and I was going to succeed no matter what. But had I had a $120,000 corporate job, I don't know if I would have. Because I really don't like real estate. I think these guys get off in real estate. I really don't. I don't like real estate. I respect it a lot. I appreciate how powerful it is, what it can do for regular people.

But I don't love it. I don't love the chase. I don't get tingly feelings in my legs. I don't, you know, like Chris Matthews, you know, I don't. None of that about real estate. None of that. Because the numbers never are what you think they're going to be. The tenants never behave like you think they're going to behave.

The contractors, that's easy now. I've been around long enough. I hand them the key. They pick up the key off the board and they bring it back and it's done. But it wasn't like that in the beginning. I got knife pulled on me. So why are you doing this? I mean, it comes back to why are you doing this?

And I got to say, Ben, that's actually pretty brave of you to say that you don't like it. but you know you see it as a means to an end right i mean this it's a means to an end it taught me so much about what i know um but you know my my story and it's it's very logical you know i teach now i have a course and i teach now and there's a reason for that and that's because i financed myself up the wazoo in order to get into this real estate because when they told me i had a mess i had not a cent to my name so i got this job to build a music school for 30,000 a year and I had nothing. So in order to do this, I decided real estate was going to be it. I had to be very creative. I had to find deals below intrinsic value, but having said that, I financed 100% of

those things. What that meant is three-year balloons, five-year balloons, seven-year balloons. And do you know what your cash flow really looks like when you've got these balloons hanging over your head? And when your reputation is on the line and when my investors have never lost money, I've lost money, my investors have never lost money, but I finally then got to a point where I don't have any more balloons and I have a stable portfolio and I take account of my life and it's that life cycle thing. I take account of my life and I say to myself, do I want to buy more real estate like I have been in Lima, Ohio or is my life calling me to do something else? And frankly, from a place where a doctor told me, I'm not sure how long you're going to be out of a wheelchair to a place where I am now, people need to know what I know.

So I teach. That's what I do nowadays as I teach people. And next step is going to be buying a 40 unit in beautiful, you know, beautiful Arizona, buying a house next to search chukot. being done with the whole the whole thing. I think one thing you said there I thought was really good is that you just mentioned this. Like it is hard, especially when you have no money.

It is really hard and it's stressful. And like I said this before, there's so many nights where I'm up until three, like, you know, not so much anymore, but like I'd be up until two, three,

four in the morning trying to figure out how do I get out of this or how do I put this together? How do I get this? And I think that's just that happened. So like Brian, would you agree with that? What Ben and Serge have said? Do you have anything you want to add onto that?

Or what are your thoughts? Yeah, I do agree with it. And, And, you know, just to specifically answer Joss's question about what's the, or was that your question, Brandon, I forgot it was so long ago. The downsides of rental property is mine. The downside of rental property. You know, I think that the biggest downside of rental property is that it can fail to meet your expectations. So I think it's very important for people when they get into this business to realize it is what it is and realize it for what it is. In 2004 and 5, I remember people at real estate club meetings talking about how, oh my gosh, my

plumber made $100,000 on this house he bought as a rental and it's gone up that fast and I'm going to buy a bunch of rental houses for $450,000 at rent for $1,500 a month. Good luck. And then the market tanks. And so those folks, their expectations were not met at all because they bought at such a high basis. The market went down. They were underwater.

they were in negative cash flow because they thought they could accept negative cash flow because the appreciation would bail them out and that didn't work. So I think people have to realize that this is not a get-rich-quick scheme. It's not even a get-rich-quick business. And have the proper expectations going in or the downside will be that it won't meet your expectations. If you properly set your expectations from the outset, then the downsides are exactly what Ben and Serge outlined. Right on. Hey, guys, you guys have talked about some real scary stuff.

It's very negative, really, like, awful. Like, I never want to buy a rental property, actually. A lot of people are probably sitting and listening and saying, wow, this is scary. So I want you guys to flip it around. Let's keep it to one sentence per person, and then we're going to let Brandon close up the podcast. So why, given all the negatives, should somebody be investing in real estate, Ben? Because nothing else can do, ultimately. if you can sustain the heat,

nothing else is going to answer the call like real estate can. Cool. Surge? It's the fastest way to control your path to building wealth. Every other aspect, every other

investment, you're putting your money, you're betting on somebody else, you're betting on something else, real estate you're betting on yourself. Love it. Love it. Brian? I would say that everything those two guys said is absolutely true if you educate yourself and learn how to do it. And the one thing that's great about real estate is you can learn how to do it properly. And I think that that's part of the

reason why you're doing this podcast is to teach people this business. And there's books, there's podcasts, there's bigger pockets, and people need to leverage that and use that knowledge in order to get the result Ben and Search just outlined. Awesome. I love it. Cool. All right. Cool. Well, I'm going to take us out. Before we go to the, normally we have a fire round and then a famous four, but today we're going to combine those into what we call the famous one. It's going to be a one question to each of you on the so-called panel. And I'm going to ask you that. Before we get to the famous one, and before you hear that, that question is, let's hear from our sponsor of the famous one,

or the famous four, or the fire round. And that is Booth. Booth is a complete phone and voice mail service ideal for the active real estate investor. You can use Booth to accept phone calls from potential sellers, tenants, and more on your own device, but with a new local or toll-free number. You can control how, who, and when you receive calls, set up pre-recorded messages to save you time and hassle, and even get one of those press one for this, two for that, auto attendance, which can be really helpful in making your company stand out like it's a big deal. So give Booth a try today by visiting www.tribooth.com slash bigger pockets. Again, that's trybooth.com slash bigger pockets.

And now, let's get to the famous one. All right, the question is, what is the best real estate book you've read, written by Brandon Turner in the past? Just kidding. Just kidding. All right. But the question actually is, if you guys give one final tip, just one final tip for those listening today who are maybe, yeah, one quick tip, quick tip,

that you give people that are listening who are maybe they've never done a single deal or maybe they've done one or two deals. You know, like real, I don't also have to say complete newbies, but newbies or just, you know, they haven't done a lot. What's the one tip you would give them, just encouragement going forward in their business? Why don't we start with, I don't know, anybody want to take it? Raise your hand. Anybody? Ben will take it.

Ben will take it. I say by quality. I know what Brian said about the pigs. I understand the sentiment, but we are at the top of the market. the spreads are very narrow, mistakes are very painful, reverse is very fast, buy quality, buy something with a lot of aspects of desirability that people will want, have wanted in the past, want it now, they for some reason will want it in the future. Don't think you're going to take something and make it appealing to people.

buy something with a proven, intrinsic record of why it's quality. It could be mismanaged, but it's still quality. What it is, where it is, it's quality. Stick to that. You should be fine. Okay. I like it. I'll take the next one is to, my advice would be to align yourself with someone that has the knowledge or experience that you're,

in the field that you're trying to get into. So if you want to buy single-family homes and you don't know anything about buying single-family homes, get to know somebody that owns single-family homes, whether that's going to your real estate club, hanging out on the forms of bigger pockets, moving in next door to Ben Labovic and assaulting him every time he gets out of his car to walk into his house, whatever it may be, try to find somebody that you can learn the knowledge that you don't already have. That would be mine. I like it. I would second that. Invest in yourself first and foremost. Before looking to buy a $30,000, $50,000 or $100,000 house, it's irrelevant what you buy. You're going to fail if you didn't invest in yourself first and foremost. And getting to know who's doing it in your community, that's part of that process. You'll probably find out if you want to be a single family investor and you hang out with a guy like Ben for a month, you'll probably come to realize, hey, I don't want to be a single family investor. investor. I don't want a life like Ben, right? Or you might say that's exactly what I want to do,

but invest in that first before you figure out, before jumping into something. Invest in yourself, invest in your knowledge, find out who you want to be and why you want to be that. I love it. And why don't I ask you the same question, Josh, says we don't ever get to ask you because you're the host, you know? Why don't we ask you the question? What's one piece of advice you want to give people about getting into rental properties? I think I'd just pair it with these guys are saying. I get asked the question every day. I get emails. I get, you know, private messages on the, on the website. And what I tell them is pretty much the same. I'd say, you know, get out there, learn what it is that real estate is. Learn what your options are. Learn

what the possibilities are. You know, build up at least a base of knowledge. Now, there's a point when there's only so much you can learn before getting out there and doing it. And that's been parroted by guests after guest on this on the show so you know you want to learn you want to get the the base of knowledge know enough to not do what i did which is just going blind assuming you know enough and go and make every damn mistake in the book do not do that that is just a terrible idea i don't care if you go to mit or harvard and you're you know sharp as attack it doesn't matter that's not going to make you successful it's understanding the business that's going to make you successful so at least get the rudimentary understanding of the

business. A few resources would be our Bigger Pocket's Ultimate Beginners Guide, listening to this podcast. There's countless other ways, but those are the two ways I like to tell people. And then at some point, and I can't tell you what that point is, but you have to figure it out. At some point, you have to pull the trigger. You've got to get out there. You know, you got to be analyzing deals. That's part of the education process. But you've got to eventually go and pull the trigger. And it's going to be scary. And you're not going to know completely what you're doing. You're not going to have 100% of the knowledge that you need to go ahead and do that. And that's okay.

And you will make mistakes. And that's okay. Because everybody here has made mistakes and will continue to make mistakes. So just keep that in mind, know that. And go ahead and do it. And listen, at the end of the day, it may not be for you. You may try single family. It may not be for you.

You may try multi. It may not be for you. Real estate, after trying everything, may not work for you at all. And that's fine. There's something else that might work for you. but you got to give it a shot. And so that's my long, short answer. Nice.

Cool. All right. Shall we get out of here? Let's do this. Guys, it's been a pleasure. Serge, Ben, Brian, thank you guys so much for coming on the show. We really, really do appreciate it. You guys are all three for three.

Sorry, Ben, you're not the first. But thanks for coming on, guys. Thanks for having me. Thanks. All right, guys. That was Ben, Brian, and Serge. absolute, absolute all-stars in the bigger pockets world. These guys are, they're all-stars just in the world in general, man.

All really, really, really smart folks, fellas. And we love having them as part of our family. We love having them as part of the Bigger Pockets community. They really give so much of themselves to everybody at Bigger Pockets. And so we really do appreciate that. What a show, man. Mind blown. Want to go back and listen up.

and, you know, learn a thing or two, man. I got schooled. Yeah, I know. I know. Every time I talk to these guys, like, my brain hurts afterwards. And that's why I try to make a point to talk to them, right? They say, talk to people who are smarter than you. These guys are smarter than me.

Well, that wouldn't be hard for you. Okay. Thanks. All right. Well, let's get out of here. But one more time, Josh, we want to tell them where you can find the books. Oh, yeah. BiggerPockets.com slash rental book.

That's BiggerPockets.com slash rentable book. Check it out. Also, guys, thanks so much. We got lots of great, great, great, podcast lined up for you in the next coming weeks. So definitely stay tuned and be safe out there during this holiday season. Let's get out of here. I'm Josh Dorkin. Signing off. You're listening to Bigger Pockets Radio, simplifying real estate for investors large and small. If you're here looking to learn about real estate investing without all the hype, you're in the

right place. Be sure to join the millions of others who have benefited from BiggerPockets.com. your home for real estate investing online. Thank you all for listening to the Bigger Pockets Real Estate podcast. Make sure you get all our new episodes by subscribing on YouTube, Apple, Spotify, or any other podcast platform. Our new episodes come out Monday, Wednesday, and Friday. I'm the host and executive producer of the show, Dave Meyer. The show is produced by Ian K, copywriting is by Calico content, and editing is by Exodus Media. If you'd like to learn more about real estate investing or to sign up for our free newsletter,

please visit www. The content of this podcast is for informational purposes only. All host and participant opinions are their own. Investment in any asset, real estate included, involves risk. So use your best judgment and consult with qualified advisors before investing. You should only risk capital you can afford to lose. And remember, past performance is not indicative of future results. BiggerPockets LLC disclaims all liability for direct, indirect, consequential, or other damages arising from a reliance on information presented in this podcast.