BiggerPockets Real Estate Podcast - 402: Identifying Your Best Market, Neighborhood, and Property in 8 Steps with Brandon and David

Episode Date: September 24, 2020

When it comes to pulling the trigger on a rental property, what we have is a "paradox of choice." So. Many. Options. It's easy to suffer from Fear of Missing Out, and it's even easier to get overwhelmed by the vast array of options out there. That's where today's show comes in: press play, and Brandon and David will guide you through an 8-step process to closing on that first (or next) rental property. Along the way, they share the tools (BP Insights) and team members ("Core Four" and more!) they use to guide decisions about where and how to deploy their capital. Your action steps start with clarifying your goals, then we move to comparing markets and sizing up different neighborhoods using school district ratings and crime data. Next, we tackling finding a deal – whether you're using an agent, a wholesaler, turnkey provider, or going off-market yourself... and how to avoid getting into trouble by "trusting your gut and hoping" when you're in an unfamiliar territory. If you invest out of state, should you fly out? What about systems and standard operating procedures once you've got a tenant in the property? We answer all those questions, and more. Finally: We mention it a few times in this episode, and if you want to take advantage of our awesome new Pro benefit, BPInsights, use the discount code BPDATA for 20% of a Pro Annual membership. You'll get access to exclusive BPInsights Facebook group, a bonus webinar showing you how to use this platform to identify a market, and a bunch of other great Pro benefits including unlimited calculator use. Oh, and be sure to use that discount code before it expires on October 1st, 2020! In This Episode We Cover: Comparing the Cashflow vs. Appreciation potential of various markets Rent-to-Price and "Rent-to-Income" ratios + other indicators How to find market rents, crime data, and school district info The one team member you should seek out to double-check your assumptions about a neighborhood Various types of deal finders and the pros and cons of working with each What to consider when working with turnkey providers Using BPInsights data in your quest for a property And SO much more! Links from the Show BiggerPockets Forums BiggerPockets Bookstore BiggerPockets Pro discount code: bpdata BiggerPockets Insights Meet Property Management Extraordinaire, RE Investor & Hotel Owner Jesse McCue BiggerPockets Marketplace Realtor Zillow Trulia 5 Markets With Promising Rent-to-Income Ratios: September 2020 Markets of the Month BiggerPockets Events BiggerPockets Bookstore Check the full show notes here: http://biggerpockets.com/show402 Learn more about your ad choices. Visit megaphone.fm/adchoices

This is the Bigger Pockets podcast show 402 work. And that's where a lot of people get bogged down. Okay, I want to invest. How do I pick a market? I'm going to pour through all the data and I'm going to meticulously analyze all of this. And they do all of this work. And then by the time they finally pick their market, they're exhausted and they're like, I don't even know if I want to keep going. 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 is going on, everyone?

It's Brandon Turner, host of the Bigger Pockets podcast here with my co-host, Mr. David Green. David Green, how you doing, man? I'm doing really, really good. Finally got a little bit of fresh air. The wildfires have calmed down a little bit, and I'm ready to talk about some real estate. Real estate. All right. Well, let's talk about some real estate.

So today's show is about the market that you buy in. We're specifically going to talk about go from how to define your market, how to choose your market, how to research that market, how to find the neighborhood in that market, how to find the neighborhood in that market where you're actually going to invest. And then how do you find that right property within that neighborhood? So in other words, by the end of today's show, this is a very how-to show.

We want you to be fully ready to go out and buy a property. And this is actually the reason I'm doing this show is because I am gearing up to buy a property, a small deal. And then normally you guys know I buy a lot of big deals. I buy the big mobile home park. and stuff with my fund. But in this case, I need to buy Wilder, my little boy who's 10 months old, I need to buy him his property.

If you're not familiar with the whole what I do for Rosie, what I did for Rosie, what I'm going to do for Wilder is everyone my kids, I buy him a property, put it on a 15-year mortgage, pay it off, and then I can use that paid off property when they're ready to go to college and it'll fund their whole college education. So rather than buying, you know, Wilder a piece of a mobile home park, I decided I'm going to actually go buy an out-of-state rental property. I'm going to document the entire journey. and this is kind of the first step of that as we kind of do this research phase here today.

So you guys can learn along with me. So if you're investing in an expensive market or competitive market or even in a local market, you want to invest locally, this stuff will help you pick that right market, the neighborhood, and property. And of course, I am super lucky to have the man who wrote the book on long distance investing. What's it called Long Distance Real Estate Investing? That's exactly right. I would have written it sooner, but I couldn't think of a name.

Okay, good. I'm glad to have you today because I'm going to be kind of a lot. almost like interviewing you in a way today, David. You know, we'll have a conversation here, but you're the smart one here on this stuff and you've done a lot more long distance investing than I have. So with that said, let's get into that in just a moment. But first, today's quick tip.

I actually have two quick tips for you today. Number one, if you didn't notice, we have just recently announced that the Bigger Pockets podcast is now twice a week, not just once. People love the show, so we thought, why don't we do it? Give them more of what they love. And so now you can listen to the other show.

It comes out on Sunday, so you can listen on Sunday or on your Monday morning commute if you're driving to work on Monday. That show is going to be geared a little bit more towards the entrepreneurship, the personal development, the success principles that help real estate investors, less like story, how'd you buy your first duplex?

And a lot more of like, how did you get up every morning and run a marathon for, you know, a week straight? And how does that apply to real estate investors? Right? So like it's the idea of success in general applied to real estate. Anything you want to add on that, David? I would say this is half the battle.

If you just listen to Brandon say that, you thought, eh, I don't know. I just want to know, like, how do I analyze a property? You can be really good at analyzing properties, but if you don't know how to take those techniques and actually put them into practice, it doesn't help you. So it's a two, two pronged attack here. Half of it is knowing what to do and the other half is knowing how to do it. Yeah. Yeah. And I would say, I would even say it's more than half the battle, right? Like, I mean, like everybody here can know exactly how to do everything we're talking about how to. The real question is, why didn't you wake up early when you said you were going to? The real question is,

why didn't you go to the gym when you said you were going to? The real question is why didn't you do that marathon you signed up for? Whatever those things in life are, why didn't you go to that open house? Like, why do the fear stop you? All those things, they are not talked about enough. So we wanted to spend a little more time on that. So that's the first quick tip today. The second quick tip, today we are talking on this show a lot about markets.

And so inevitably, we are going to talk about the new Bigger Pockets insights, which is a new feature that we have on Biger Pockets, where we actually just pay an ungodly amount of money for big data. We license big data from these huge companies. And then we take all this massive amounts of data about property values across the entire country of the United States and rent prices and all this stuff. And we made it into a easy to use platform, essentially, for investors to be able to learn ideally about where the best markets are, where the trends happening, what certain properties will rent for and all that. So that's Bigger Pockets Insights. Again, we'll mention it today on the show.

I just wanted you to be aware of what we're talking about when I mention it. And in case you're not already a Bigger Pockets Pro member, which you do need a pro membership to access. insights. We are currently, because of the launch of this, to celebrate the launch of this, we are offering a sale. We're having a sale on Bigger Pockets Pro. So if you use the code, BP Data, BP data, it's one, one word, if you can call that a word, BP data, you can get 20% off a pro annual membership. So instead of like 390, it's like 312. So anyway, do that. That expires midnight on September 30th. Now, today's show, again, talking about the market, talking about the property. Do you ever notice how every passive investment somehow turns,

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And I want to start with number one. And I want to ask you, we wrote down before a show, number one is start with the end in mind. Can you explain what does that mean? Why is it important to start with the end in mind? Well, this is really good. And I think we even kind of glossed over another good point when we said market neighborhood property. If you look at the order of that, You are starting with a very general idea and you are whittling it down into specifics. That is the best way to come up with a plan to move forward. You start with a big picture and you scale it down until you get it so minute that you actually know, okay, now I know what to do.

I know where to start. It ties into starting with the end in mind. What I've noticed that what I did when I was new at business and a lot of other people do is they say, okay, I'm ready to go. Someone tell me where to go. What's step one? And then they go to step one. They say, okay, now what's step two?

And then what's step three? And eventually they decide, okay, show me steps one through 10 all at the same time. I just want to know everything I'm supposed to do. But once you've been successful at a couple endeavors, you start to realize that it doesn't work that way. Like, let's say someone wants to be a real estate agent. They say, David, how do I make a bunch of money as a real estate agent? What do I do? Well, there's all kinds of people that are going to come out and they're going to say,

well, you got to go knock on doors. You got to go say this thing. You got to go learn that. I typically say, no, no, no, start with the end in mind. If you were going to buy a house and you had to pick the person that you were going to help you find it or you wanted to sell a house, what would you be looking for in that person? Well, I'd want them to be confident. I'd want them to know the market.

I'd want them to be pretty successful. I'd want to know they were honest. Okay, how would you know that? Well, they'd probably talk this way and act this way. This is the stuff they'd say. Now you know what you need to go turn yourself into. Do you struggle with communication so you don't convey that you're an honest person very easily? Boom.

Now you've got a plan. This principle applies to whatever it is you want to do. start with what you want it to look like and work backwards. So that's basically this idea of you start with the end in mind and then you ask yourself, what would I need to do to have this? What would I need to do to have that? Okay, in order to have that, what would I have to have? And you work all the way back to where you are right now. Give an example of that. How does that look tangibly? Are you talking about with real estate investing? Sure. Okay. The first thing you'd ask is, why am I investing in real estate? Am I doing this for my retirement? I don't have a great retirement

and I need cash flow in retirement. Is this purely investing? I have a chunk of money and I want to turn this into more. And I think real estate's the best way to do it. Is it a financial freedom? I want to get out of my job specifically. I don't like this job or I don't like the requirements that I have to be in this place at this time. All of those are different goals, right? Like fitness is an overall goal. That's kind of like, you know, choosing the market. But how fit do you want to look? Do you just want to be skinny? Do you want to be muscular? Do you want to be strong? Do you want to be fit? You have a low body fat? Do you want to be able to run forever? Is it for a sport? Is there specific movements you want to do? That's like choosing the neighborhood, right? What kind of

fitness do you want? And then picking the property would be like, okay, what actual machines are you going to train with? Which movements are you going to go practice? Because once you've got that, now you say, okay, I know I'm doing these exercises on these machines. You can start tracking your lead measures. I'm going to do this many bench press things. I should be going up this much. This is what I want to squat, whatever the case would be. So with real estate specifically, you want to start and ask yourself first, what is my goal? How do I want this to look when I am done? what is the benefit I want? Because you find that different properties work for different purposes, just like different exercises work for different fitness goals. If you're looking for,

I just want to get out of my job. I want to get out of this thing right away. I want to replace this income so I don't have to go to work. Small multifamily will likely probably be what makes the most sense to you. You want to buy two, three, four unit properties. They may not appreciate as much, but you know you've got consistent income coming in and you can now regroup and decide where do you want to go. Another example would be, is this something you're like, I don't really need money right now. I'm doing pretty good. I like my career. But I want something that's going to be worth a whole lot more 30 years from now, right? You're going to focus on different neighborhoods. Maybe they even don't cash flow right away, right? That's okay for some people.

If you make good income, you manage your money wisely, it's okay to lose money when you first buy a property every month. I know you've heard many people say never, never. I wouldn't say never. For certain human beings that live paycheck to paycheck, I'd say never. But if you're saving five, 10 grand a month, you have a really good paying job. It's okay to go buy in the best neighborhoods and not make money right away when you know that that $9 property that you buy in San Francisco is going to be worth $5 million in 30 years. So these are some examples.

Exactly. If the goal is not to get out of your job next week or next month or next year. Yeah. And I love to use the analogy of the fitness, right? If you want to be a bodybuilder, you're going to do a certain type of workout. So the same thing. If you want to invest in a certain type of real estate, you're going to find a certain location that supports that.

What do you call that a target rich? Is that a target rich environment? That's exactly right. When I'm picking which market I want to go to, every market is known for a certain dynamic, right? Which markets are rich in the targets that I want for my goals. Yeah, that's really good. So giving an example of something. When I was writing the book, The Multifamily Millionaire, which comes out next spring. So it's still got a while before that.

But I just pulled up some of the research I did here. And I wrote this. I'm just going to read this. It says, it's important to recognize that in some real estate markets, the cash flow made me high and appreciation low. But in other markets, the opposite may be true. For example, many coastal markets like Seattle, L.A., New York, experienced tremendous growth through appreciation.

When we say appreciation, we're talking about just the value goes up over time, much faster. So here's the data. Seattle has seen, for example, Seattle has seen an increase of 6.5% per year on median home prices from 1998 to 2018. So over those 20 years, it saw 6.5% every single year in increase. But Cleveland, take Cleveland. Cleveland saw 0.4% per year over that same time period. So Cleveland went up as well, just like, you know, they both went up in value. But Cleveland went up at a much smaller rate than Seattle went up on.

Now the thing is, trying to find cash flow in Seattle is incredibly difficult. Right. And so, again, go back to the same thing. What do you want? If you're trying to get out of a job as quickly as possible, maybe you get a bunch of good cash flow in Cleveland, but it probably's not going to be worth five times more 20 years from now. I might be worth, you know, 50% more 20 years from now. And that's why we start with the end in mind.

What do you want? What are you looking for? So for me, like to go back to the Wilder example, like I want a property for Wilder that can be fully paid off in 20 years. I don't care necessarily about cash flow. I don't want to lose money on it. I'd like to make a little bit if I can. But I really just want a property, it's going to be worth a lot of money 18 years from now

or 17 years from now when he's ready to go off to college. So I'm going to be looking at a market that's a little more geared towards appreciation. And let me fire this at you, David. How do you know a market is geared towards appreciation? Does past performance, like, is that the number one indicator of future performance? It's like, wow, how it's been. That's like a whole podcast episode we could do. This is really, really good.

And I'll tell you, I'll go before I answer it, I'll get one step further. you don't get this information hardly anywhere. You can ask that question of 10 real estate expert gurus they never want to answer because nobody ever wants to be held accountable if they tell you, well, this is the way I do it and then it doesn't work out, right? The reality of what affects real estate prices, I can simplify this. There's on one hand, supply and demand, on the other hand, ability to pay. Okay?

So if there is a ton of supply and not much demand, it doesn't matter how much money you make, prices aren't going to go up. there's more inventory than is needed. On the other hand, let's say it's the opposite, like where I live in my market, there's not much inventory and there's a ton of demand. That will push prices high, but there's a ceiling as far as how much people can afford to pay. Because most people that buy real estate get loans that are conventional loans and they're created based on debt to income ratios. In fact, almost every underwriting uses debt to income ratios. So if you're not making more money, it doesn't matter how much you would pay for the house,

you can't afford it. So I look for in appreciation markets, market that has a limited supply, some form of barrier. Now, sometimes this is a political barrier. Like Grant Cardone has mentioned, he only buys in liberal areas because they issue less housing permits. So he knows they're never going to have a ton of supply. That would be an example of a political barrier. You've got geographic barriers, okay, like Austin, Texas. You can only build so many houses within city limits. And then you got to get on the other side of the river. And then you can build suburbs out there. But you have to like basically sit in line to get across the bridge when you're trying to go into Austin. So if you bought inside that area,

there's a geographic barrier that limits supply. So the first thing that if you want appreciation is you look for that. Kansas is probably never going to have a really big supply demand area because they could just build a bazillion houses in Kansas. There's plenty of space. The next thing you look for are where are wages increasing because people, if they make more, they can afford to pay more and if they have to pay more because there's a lack of inventory, then they will. So I look for what kind of jobs are moving to an area. I don't just want to know jobs are moving there. I wonder what kind of jobs are moving there. Is this where the tech industry is going? Is this where research type jobs are going where you're a highly specialized person that's

going to do something? Or is this like, you know, Detroit, where they had a really good economy for a while based on the auto industry, but people weren't making a ton of money working in these auto plants. So those are the two things that I look for when I'm determining an appreciation market. Yeah, that's really, that's really, really good. And I was going to add one more thing as the income growing there, but also I look at population trends a little bit. Like where is population headed because again, supply and demand, the more people that are moving into a city. Yeah. Yeah. So if I think like population where it's growing, I mean, Nashville's growing like a weed,

Austin's growing like a weed, Denver's growing like a weed, like, you know what, like, what's not? Now, I don't know the data on this. I haven't actually looked specifically, but I get the feeling San Francisco maybe is not growing like a weed right now. And maybe that will come back. What do you know about that, David? Is it still or is it?

The single family rental market in San Francisco is exploding. It's not slowing down. The condo market has softened a lot. So you're just seeing a shift within that market from condos and to single family homes. Makes sense. Make sense. So yeah, again, we're starting with the end in mind.

We're saying, what do we want? And then what market is going to apply that? Now, before we move on to number two, and I know we're spending a lot of time in this one, because it's so important. Two quick points. First of all, where do you get this data? Again, you can search 100 different websites online.

It's all out there. You can find it. Or we make it easier by we have all this kind of put down for you. If you go to biggerpockets.com slash insights, you'll find a whole bunch of stuff. We have a team of data scientists that kind of go through the data and write articles and kind of figure out what's going on and where the trends are. So make sure you check out.

It's called expert analysis on bigger pockets. If you go to the insights page and then go up to expert analysis, they'll like write multiple blog posts every week just about like the data that they're receiving and what it means for investors. So definitely check that out. The second point I'll make is this. Sometimes we say, well, you know, for example, I used earlier, Seattle versus Cleveland, right? So Cleveland may have better cash flow and Seattle may not have very good cash flow.

And you made this point about losing money earlier, David, but I did some other, remember the data I read a minute ago that said that Cleveland only grew 0.4% per year over those 20 years where Seattle grew 6%. Well, here's the next piece of data that's super interesting here. It says between those same years, Seattle saw rent growth of an average of 3.6% per year. So in other words, if you had, if you had a $1,000 rent in 1998, your rent would have climbed to 2048 in 2018. On the other hand, Cleveland style rent growth of an average of 1.6 or 3.6% rent growth per year in Seattle 1.6 in in Cleveland. So what does that mean? It means that even if you buy in a market that is

primarily more of an appreciation type market, that means you're not for sure, but there's a good chance your rent will also climb faster, which means you may not be getting a lot of cash flow in year one or year two. But what about five, six, seven, eight, nine, ten long term, you may actually find that you get better cash flow in an appreciating market because of rent growth then you would ever get in a That's exactly right. Cash flow market. Isn't that fascinating?

I'm so glad you're bringing this up because there's this assumption that when you run a deal, you look at it from year one and that's as far as it goes. You say, what's my cash on cash return? Year one, oh, I don't like it. You just move on. But I know for my experience, the properties I bought in California in 2009, 2010, up to 2000. I bought a fourplex in 2013.

When I bought it, the rents were $700 a unit. I just had a vacancy last month and we put it up for $16.50. Okay, from 2013 to now seven years, it is more than doubled with what the rents were coming in. When I bought it, my cash flow was like $800 a unit. Take whatever I just described, how much it's gone up. What is that? $700 to $1,650. So like around another $800 or $900 unit times four, add that to my original cash flow.

That is destroying the property that I could have been bragging. I'm getting an 18% return in this market that doesn't see appreciation. So don't bet on appreciation, but look at reasonably speaking. What will this market do? If the properties are going up in value, wages are likely going up in value, which means people can afford more for rent. And it's going to be harder for them to buy the house because it's getting more expensive. So rent should go up to. Yeah, that's really good. And one final note there on that whole idea of buying a property in another market appreciating versus a cash flow market. Again, I don't want to say there's anything wrong with buying in a cash flow market,

especially if your goal is right now to get out of your job or get financial freedom as fast as possible, then you may want to just do that and then shift later. And that's what I did. I started in Grays Harbor County, Washington. Average purchase price was under $100,000. And I got really good cash flow, but it was hard. I had to manage my properties and I had to deal with crappy contractors. And I had all the problems that come with cash flow areas. You get a lot of problems with them.

But it got me out of my job. When I was 27, I was able to quit my job because of this cash flow. Now today, I buy it in nicer areas and I buy in Maui. And I buy in, I mean, all over, you know, mobile home parks now over the Midwest, mostly. But it just, it changed my ability to change over time. So you don't have to be stuck with one forever if you want. one to get out of your job and one to go later? Or, you know, again, start with the end of mind, move backwards that way.

And that, see, I just love you pointing out because that's how life works. You start off, I want to do more with my life, but I'm stuck in this job. It pays the bills. I can't focus on anything. So you buy a couple of these cash flow properties replace your income. It frees you up. Now you use that time, maybe not to focus on real estate investing. You went and got a better job.

You became an entrepreneur. You did something different. You listened to Jay and Carol Scott's business podcast. You got a great idea. You went and did good. You made a bunch of money. Now your goal's different. Where do I park this money?

so that it will get me a better return. You do that for a while, okay? Okay, now I'm actually doing fine financially. I want to think of where I can go for long-term appreciation so I can fill in the blank. It's totally fine to switch your approach based on what your goals as they switch are. That's why you have to know all the different ways you can make money through real estate investing. It's not different than fitness. If you're super overweight and you first start, you're probably just going to get in the pool

and do like the pool exercises, right? But you wouldn't do that forever. At a certain point, you'd be like, okay, now I need to work on my cardio. then you get your cardio up. Now I can actually hit the weights and you progress in that way. Yeah, that's really good. So number one, start with the end in mind that helps you determine your market. Now you might have started a zone in on a market or maybe there's a few markets that

you're thinking. You're like, okay, I want a somewhat cash for like, oh, you go back to my example because I think this applies to a lot of people. They want something that has a good potential for appreciation, but they also would like to not lose money. Like I don't want to lose money. I want to get something. So I'm going to be looking at markets like, for example, Dallas.

I'm going to be looking at Orlando. I'm going to be looking at, does I say Nashville? Nashville and Memphis would both be good for that. Yeah, yeah, exactly. I might look at that. I might look, honestly, I might look a little bit here in Maui, but only because like the, like, I know where you can buy cheaper properties. And the other thing is I don't have a, I don't want to spend 200 grand down to buy this

property for a while there. I want to spend only, I want to spend 20 grand down, 30 grand down. So that puts me in a certain type of market. I'm not going to go buy two or $300,000 property because the amount of, of money you have will dictate the market you go in as well. Yep. So if I want, if I want to put down, let's say 30 grand and I'm going to need 20% down, that means I can buy roughly, roughly what, 150,000, 140,000 somewhere in there. Maybe, you know, there's some closing costs I'll add in there. But okay, so where can I buy a house

that'll cash flow, but also maybe have some chance of appreciation for around $150,000 or less. Like where does that happen? And now I can get, now I've got a specific like, you know, goal to go look at. And I can start asking on the bigger pockets form, I can come asking other investors like, hey, is Kansas City? I bet Kansas City is probably similar to that. Now, I don't know where the the high growth areas of Kansas City are, but I bet you I could find them and I bet I could focus on that. That's actually a point I should make as well is when we say market, we don't necessarily mean only like Kansas City. It could be West Kansas City is completely different than East Kansas City. I don't know. I don't know Kansas City. But West Kansas City might be just like Seattle,

where East Kansas City is just like Cleveland. And so we go from broad market, now we can start looking at a bunch of markets and we can start focusing in a little bit. And for that, actually, it brings us to number two on our list here. It is you want to start looking at the market data, the data behind the market. In other words, things like rent to price ratio,

which is, you know, we often say the famed 1% rule or the 2% rule, which I don't like the word rule. I'd rather call it a test, a 1% test. And here's how that works. If you guys are, it's really simple math. what is the current monthly rent, call it $1,000, what is the property worth, call it $100,000? That means the monthly rent is 1% of the purchase price. Now, does that mean it's a good deal?

No, don't, like, people need to stop thinking that just because it meets the 1% rule or the 2% rule, it means it's going to be a good deal. All it is is just a way for us to go is, you know, for example, a property in L.A., let's say that it costs a million dollars to buy and the monthly rent is only a thousand. that's a 0.1%. There's almost no way that would ever cash flow ever. You had a property that was $50,000 and rents for $10,000 a month. That's some stupid, I mean, that doesn't exist.

But if it did, like, you'd pay back in five months the entire investment. So like, in other words, there's this somewhere in there, there's a ratio. The higher the rent to price ratio, oftentimes the better cash flow you get. Again, it's not a hard and fast rule. It's simply a quick and dirty test we can run. but I would like looking at that at least to see at a general level. And again, BP Insights can help with this. But what is a rent to price ratio across the entire country?

And you can look at that through Bigger Pocket Insights. That's huge. Guys, just remember this, as Brandon says it, this rule or test was originally created that we would ask ourselves this question before we put it in in the spreadsheet to actually analyze it. Yes. Am I even going to put it in there?

Because if I know that I'm buying the place for $200,000, and it rents for $1,000 a month, it's probably not going to cash flow. So I won't even run my analysis. I see a lot of people that say, oh, I would never buy that. It doesn't meet the 1% rule. You're thinking the wrong way.

And a few caveats of that. The higher you get in price range, the less strict you have to be with that rule. A $50,000 property is probably going to have to rent for at least $500 a month just to cash flow. And by the way, that doesn't mean buy it just because it cash flows. But that's what you're using this to determine. Whereas a $500,000 property could rent for,

much, much less than five grand a month and still cash flow. It also is sensitive towards interest rates. Interest rates are getting lower and lower. This may surprise you. I was walking a house that we're doing one of our buyers for in San Francisco. He's buying it for $1.475 million. The bottom unit's going to rent for $3,800, the top for around $45 to $4,800. It's not anywhere close to the 1% rule. They're going to cash flow really strong and with a low down payment. Because when you're getting a $2.6 interest rate or whatever we're getting them, you can borrow a lot of money. it's not as expensive, plus the property's priced higher. So those are some things to remember when it comes to how to apply the price to rent ratio.

But if I'm picking a market and I know I'm going to buy a rental, it's not a flip. I want to ask myself exactly what you said, Brandon, where are price to rent ratios close to 1%. Yeah, that's really good. Now, when I'm looking right now, actually, when pulled up Bigger Pocket's Insights, there's an article that Dave, one of our data scientists wrote, it says the top five markets to invest $50,000 in. So I scroll through here and he basically narrowed down a lot of different markets. And he found five markets that he's got the list here of what the rent to price ratio is.

So like how close to 1% is it getting in 2017, 18 and 19 and 20 and then what that growth rate has looked like. And then also what the rent, like how much rent has grown over the past three, four, five years. And so like I can look and say like, for example, Joliet Illinois has a 0.7% rent to price ratio in 0.07.9 in 2020. So we're almost at 1% in 2020. And it's seen a, let's see, 11% annual growth rate in rent over the past few years, which is pretty awesome. So, yeah, why don't I go look at Joliet and see if Joliet is an area that I might want to buy it? Now, the one that we didn't talk about earlier is the politics of rental properties. There are certain cities that I am generally not in favor of buying.

And I'm going to get a lot of flak from people because there are people who love these states and cities. right but one of them for me is Illinois. I don't like to buy in Illinois necessarily because they have pretty strict landlord-tenant laws which don't favor the landlord at all. They favor the tenant. Now, again, I mean, those people in Illinois saying, oh, you know, you just don't understand our market.

But I would definitely look at that and consider it. Same thing with California. I don't love California for rentals because they don't have a very friendly landlord-tenant rules and laws. Now, there's another one on this list would be Palm Bay, Florida. I like Florida. Could be good. Trenton, New Jersey.

I know New Jersey has crazy high property taxes. And so again, now we go into the data. Once we know what we want, which was step one, step two was we dig into the data to try to get more detail on which is this ideal market. And then you want out on that? Yeah, the caveat I would add before people write off a market completely. You make a very good point. It's one of the things you should look at is, is this landlord friendly or tenant friendly?

Yeah. Okay. Yeah, it's just one thing. It's not a make or break necessarily. But in the entire time I've invested in California real estate, which is where I started for almost my whole career, the only issue I ever had was the first house I ever bought when I had no idea what I'm doing and I ran into the wrong tenant. And the reason I never have issues is because I'm in B or A class neighborhoods in California.

Oh, so good a point. And those people have so much to lose, it's never going to get to an eviction. They're never going to make me evict them from the property because they care about their credit score. They care about their rental history. They have something to lose. So if you're if you're owning real estate in areas where the person who is renting it would never want an eviction, it almost doesn't matter what the laws are because it's never going to come up. Those issues come up when you're renting in an area where you're going to find tenants that have less to lose and maybe they just don't care, right? Like if their credit is already bad, they don't care if it's bad. So I asked myself that question when I'm choosing the tenant, would this person force me to evict them?

Would they have any skin in the game? Would they have something to lose here? And if you're buying in areas where that's not the case, it almost will never even come up with the laws are. Yeah, that's actually, I love that point. That's really good. And actually makes me think, makes you second guess my, my choice there. So again, there are ways to buy in those markets, like where things might be hard.

But it's the quality of tenant that's going to dictate again. So you guys, I hope you guys aren't getting overwhelmed here by all this. But I want you to see that this is not necessarily an exact science. It's kind of a painting and artwork. Where we're like, we're taking a little of this and trying this. And this one pulls, this one pushes. And all together, we end up getting a picture of a market and an area that we maybe want to invest in. And the data helps with that a lot.

And that's what we're trying to do at bigger pockets, is provide more and more data that will help you. So dig in there, just start playing around, start talking to other investors on where they're investing. And then once you find a market, you're like, yeah, I think that sounds like a good mix between, you know, appreciation and cash flow. Great.

Well, then let's go to the next thing and let's look at, you know, building our team there. And that's actually one of the other points we're gonna bring up here in just a moment. In fact, I guess we can just go to right now. Number three, it says, where is your unfair advantage? Or what we call, boots on the ground maybe or what David calls in his book your core for. In other words,

one of the areas that I'm going to look really careful, actually two places I'm going to look really carefully to buy property yet. Now, I haven't even looked at the data on these cities yet. I'm working on that right now. But Minneapolis, Minnesota, or St. Paul, Minneapolis, the Twin Cities of Minnesota and Bangor, Maine. Now, why would I choose those two cities? It's not because I've looked at the data yet. I'm going to make the data make sure it validates what I'm trying to do. But I'm going to look at those markets very carefully because I have an unfair advantage there because I have people there because I grew up in Minnesota. I know the Twin Cities really, really well. I know good cities, bad cities. I know good neighborhoods, bad neighborhoods.

And I have family there that could go check out a property for me that could go do stuff for me. That could help me out if needed. So I have an unfair advantage of there. I know some really good real estate agents in the Minnesota area. And I have an unfair advantage. Bangor, Maine, I have a killer good property manager there. Jesse, he's been on the podcast before. Jesse McHugh. He's awesome. Amazing property manager. And we all know that management is like the key to a long term. successful real estate portfolio because you could buy the best deal in the world, but bad management will kill it. So I have an unfair advantage in Bangor-Main because of Jesse McHugh, and he's an amazing manager. So I'm going to look at those two markets because that's my thing. Anything you

want to add to the core, maybe explain David, if you would, what is the core for? And why is that so important? Yeah. And this concept comes right out of long-distance real estate investing. This is literally advice that I'm giving is this is a question to ask yourself, where do I have an unfair advantage. So just Brandon knowing the Twin Cities has saved himself many, many hours of research to try to figure out, would this even work? And that's where a lot of people get bogged down. Okay, I want to invest. How do I pick a market? I'm going to pour through all the data and I'm going to meticulously analyze all of this. And they do all of this work. And then by the time they finally pick their market, they're exhausted and they're like, I don't even know if I want to keep

going. You've skipped all that. You're putting all your energy directly into probably getting your core four and then looking at deals right off the bat. So the core four is, When I started investing in different markets around the country, what I realized is, and I'm doing the same thing every single time. I'm getting a new market and I'm going through the same pattern. I'm finding an agent to get me deals. I'm finding a property manager to advise me on the markets and what rents for what, where I want to avoid.

I'm finding a contractor to get the place ready to go or a handyman to fix up the stuff in the inspection report. And I'm asking who knows a lender so that I can get financing. And I literally just started repeating that every single time I went to a new market until I realized, man, anybody could do this. You just got to have these four different people and they can connect you with everything else. So it's the contractor, the property manager, the deal finder, which is usually an agent, but it could be a wholesaler or someone else or just a friend that you have.

That could be your unfair advantage. As you know somebody there who can find you deals or the property manager. Yeah. What do you think you should start with? What's the most important of the core for that people should build? Okay. So for David, the lender, because financing is the hardest thing for me. I have so many properties.

It's very difficult for me to get loans. So I start with who will give me a loan? In fact, if you're listening and you live in a market right now that you're, think has really good deals and you have a portfolio lender or a commercial or somebody that can do things other people don't do that's good you should be reaching out to me because I'll probably buy there it's it's this big of a deal if I get the lender after I get financing lined up but for everyone else is probably the last thing because everybody knows a lender it's not a hard to find a good lender they're not going to hide their referrals of lenders they're going to connect you the next thing I would

look for would be the deal finder because I have nothing to analyze and there's no reason to have people to help me analyze it I don't need a property manager if I don't have a property that I need to be looking into. So then I start looking for either an agent or a deal finder or sometimes a property manager is the deal finder in certain cases. They can get stuff in front of you. Then I would look for the property manager because I need them once the deal gets brought to me. Hey, David, one, two, three, Main Street. I think you should buy it. Here's your ARV. Here's your purchase price. I'm going to go to the property manager and say, is this an area that I want to rent in? Is this an area that you want to manage? Is there anything I need to know about this

part of town versus that part of town, right? What's the vacancy rate like around there? And if it passes that sniff test, then I move on to getting the contractor. Okay, I'm going to need a person who's going to fix this up. Now, finding a good contractor is very hard. So I start off just finding a mediocre contractor. Is it good enough, right? I'd rather find the deal than try to make the deal work with the contractor because it's very hard. But once I get my foot in the door with a mediocre contractor, on the next deal, I'll be looking for how do I improve this? And I'll just ask everyone, Hey, I need a guy who's really good with this and this. Do you know anybody who does that kind of work?

And with each deal or each iteration of building in a market, the people you work with slowly start to improve until it becomes really easy to invest there. That's really good. That's really, really good. So do you think, so we talked about having your unfair advantage. If you have a location where you have an unfair advantage, for example, I have Bangor, Maine, let's say.

Or I have Minneapolis, let's say. Or I chose Roseville. I went to college in Roseville for a year. And so I chose, if I went to bigger pockets insights, I typed in the zip code for Roseville. I see that the median rent in Roseville is $1,600 a month. But then I can go down, I can scroll the page. You have this thing called Property Insights.

Basically type in any zip code or any address of any property. And it pulls up like the area, the median rent, the median rent by bedroom count sales data. So I can see that since 2018 in Roseville, prices have risen from about 250 over the last three years up to 300,000. So it means that there's properties around $300,000 in Roseville that will rent for. on average,

between, it says, between 1,200 on the 25th percentile and 1900 on the 75th percentile. So I can see, like, we're not 1% necessarily. We're probably more like 0.6%,

I'm guessing. I'm just doing that math in my head. But it might be worth, now I'm going to go dig in a little bit deeper and see other areas around Roseville, maybe I'm just missing out on. Is it Coon Rapids? Is it Minneapolis itself?

Is it St. Paul? And now I'm going to dig in deeper. And because I get, now I need to find that agent. I know a couple agents in the area. So boom, I got my agent done. Now my agent's going to know

some great property, managers and if they don't, they can at least point me in the right direction, connecting with people in bigger pockets who invest in that area as well. They'll know some good property managers. So you see, I kind of, you can approach it from I have a core for already and I'm going to choose an area and then build my core four better. Or if you just don't have boots on the ground anywhere and you don't, you don't know, then you can just start with the data, find the location based on data, and then find your core for from within there. And one good spot to go look for agents, by the way, if you don't have one. I've said this on recent shows, if you, if you're looking for a drunk,

Go to the bar. You're looking for an athlete. Go to the ball field. If you're looking for a real estate friendly agent, try BiggerPockets.com. Go up to networking and then go to real estate agents. You can find agents that are active on bigger pockets, which means they probably have an interest and excitement to help real estate investors, which is a good type of agent to work with.

So there's just a little bit more on building your core for. And again, make sure you guys check out this whole property insights part of BiggerPock's insights where you specifically go into rental rates, buy bedroom in an area, and where things are moving in that zip code or in that area, which is kind of cool. You could also see comps of other rentals, like what they've rented for. Like I can see here that in June 19, there's this property here right near the one that I'm looking at, rented for 2175. So 2, 175 for 3-bedroom 2 bath. And here's another one that rented for 2020 and one for 1,500.

And then this one right here only rented for 1,000-49. So why did that rent for so much lower? Now I can dig in and find out. Is that area just a lot lower? Probably. So what's it cost to buy a home in there? Now, I might even jump over to like the bigger pockets marketplace to look at what different properties are for sale in that area or like a realtor Zillow, you know, Trulia.com,

one of those sites. And I could find it as well. So again, that is kind of how we use the unfair advantage and the market data and are starting with the end in mind to all really focus in on a specific area that we want to invest in. Did that make sense? I hope that made sense to everybody out there that, again, it's not a necessarily step one step two, step three, like this is how you find the perfect property for you. It's just a matter of

like what feels right with the data, with the core four, with your goal in mind. It all comes together into a nice spot that you can say that is my market. People love to call real estate passive income, which is interesting because most of the investors I know are very busy. Busy finding deals, busy managing teams, busy worrying they pick the wrong market. Rent to retirement flips that model. They help investors buy turnkey new construction homes, often 10% below market value in top rental markets across the country. Their local teams handle the build, the property management, and the details, so you don't have to. In some cases, investors even receive 50 to 75% of their down payment back at closing, and there are interest rates as low as 3.75%. They've been trusted

partners with BiggerPockets for over a decade, and if you want to learn more, visit BiggerPockets.com slash retirement. All right, rental property investors, listen up. Our friends at Dominion Financial already already have some of the best DSCR rates in the industry. Now, they're the fastest, too. They just launched 10-day DSCR closing. That's right, 10 days. And they're still the only lender with a DSCR price beat guarantee. That means faster closing, the best terms, zero guesswork. That's Dominion Financial. Check them out at biggerpockets.com slash dominion. Again, that's biggerpockets.com. DEMION. Tax season reminder for all the real estate investors listening. If you own rental properties, short-term rentals, commercial buildings, basically anything that's not your primary

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Let's go to number four, which is find it a neighborhood. Because now, let's say you've got your idea of a market. You feel pretty good about it. You've got the data from BiggerPockets, insights, or wherever you got your data from. You got your team that you're starting to reach out, your networking now. Now, let's talk about the actual. neighborhood you're going to buy in. Because if I just said I wanted to buy in the twin cities of Minnesota, that's a big area. That's a huge area. And so I want to focus it on a certain area.

Like I said, Roseville, or I want to focus it on Coon Rapids. I want to do Minneapolis or downtown Minneapolis. I want to go, you know, whatever. So a few things that we look at there. And David, I'm curious of your thoughts on this stuff too. Like I look at crime data and school districts. I'm kind of the two primary things that I care a lot about. School districts, because if a area has a really good school district, they likely attract better tenants that pay more because people are competitive for schools. They want their kids in the best schools. And crime, obviously, I want to stay away from where there's lots of crime.

Crime tends to slow the growth of property values. And again, one of my goals is to have this property go up and value a lot over the next, you know, 18 years. So what about you, David? What else do you look for in terms of the neighborhood, like the area you're going to invest in within a city? Yeah, that's really good. I like to look for what the occupations of the people who live there are doing.

So I will frequently ask my agent when they pitch me on a deal and say, hey, this is a deal. I think you should buy. Tell me about the jobs at the people who live here work. Okay? Oftentimes, you're going to get like, if you're looking at the areas with a better price to income ratio or, yeah, price to rent ratio,

you're going to see that they work blue collar jobs. That's nothing wrong with that at all. But if that's the case, I'm like, I'm not going to see as much long-term price appreciation on the property. If they say, oh, no, this is a neighborhood where, like in my market right now, if you look at a city like Walnut Creek, Danville, it's very expensive properties.

and the people who live there commute about 30 minutes into San Francisco. And they're like executives that work within big companies that are inside of San Francisco. That's who's living there. Probably not going to be a great market to find rental properties in. Probably is going to be a good market for long-term appreciation. So on top of crime data and school districts, I like to get a feel for what are these people doing? Are they on a career path? Every year they're going to make a little bit more than they did the year before.

Their accountants, their engineers, they have a pretty steady job. They're not going to lose that job. and they're going to make a little bit more money so they can keep up with rent increases? Or are these people that are kind of like seasonal? They're in, they're out. They have jobs all over the place. There's really no identity of that neighborhood,

in which case they may always be struggling to keep up with increasing rents if that's what I was going for. Yeah, that's really good. You know, you mentioned you said rent to income and then you correct it and said rent to price ratio, but there is actually a rent to income ratio. That is a number that we talk a lot about

on Bigger Pocket's Insights if you're kind of behind the scenes on that as a pro member. In fact, there's an article Dave wrote called five markets with promising rent to income ratios. And let's tell you what they are. What he kind of determined. Montgomery, Alabama, median home price of 92,000, 330. They've actually, their appreciation has actually gone down the last few years.

So if appreciation's your goal, they're, they don't historically last few years, I've not seen a lot of appreciation. But their rent appreciation has gone up by 2%. And their median income is $50,000, which means that they're what, it's like your rent to income ratio. Like what's the, the rent to the, your income is $20? 21%, which is interesting. And then there's 19% for Springfield, Illinois.

There's Akron, Ohio. Is it Akron? Akron, right? Akron, Ohio. Yeah, somebody in Akron hates me right now, which was 20%. Independence, Missouri, which was up to 20%. And Cedar Rapids, Iowa, 16%. So let's have higher rent to income ratios, which means that tenants can afford to make good incomes compared to the rent.

Now, I like higher rent properties simply because higher rent typically is an indication of it's more of an appreciation type market. So I'm looking at the highest one on this list was Independence, Missouri. I mean, price is average house there is $154,000 or the median price. But the average, you know, or the median income is $55,000, a little bit higher there. And then, of course, the rent appreciation has gotten up by 9% in that area. So it's a growing, the rents growing there. Property values are growing there by 16%.

Is there appreciation over this time? Yeah, really, like, again, those are just five markets that base of rent to income are justifying what you're saying there is there's people are making more money based on, their rent, which is kind of cool. So that's another neat market. So yeah, Independence. Another one I probably look into here and dig in a little bit deeper, Independence, Missouri.

So kind of cool. All right. With that said, so again, school districts, crime data, sales trends for zip codes is another thing. I like to see where property values are increasing. I said earlier, Cleveland saw a, what, 0.6% property value increase over the past 20 years. So if my goal is appreciation, this is not guaranteed, right?

Maybe Cleveland had nothing for 20 years, and then they're going to see a explosion the next 20 years. We don't know, right? And we can maybe make some guesses if we see a lot of tech industry and a lot of movement in a certain area. I don't expect that necessarily. Again, cash flow might be awesome

and very consistent in Cleveland. I'm not saying don't go there. But it's just what we look at. But I'm also looking at areas where are sales going up faster and faster and faster all the time? Like, where is appreciation happening? And coupled with job growth, coupled with the right kind of industries going in,

that might be another market that I want to look at if my goal is, again, appreciation. So you can look at sales trends as well. I'll tell you something that I think smart people are paying attention to. California has typically been known as really good for appreciation, really good long-term growth, but politically unfavorable towards landlords and very difficult to get cash flow. A lot of the reason that California has seen increasing prices is the wages.

It's directly tied to it. You make a lot more money doing the same job here that you would somewhere else. Well, there's a trend right now of a lot of these companies leaving California and going towards more tax-friendly states. A lot of them are going to Tennessee. They're going to Nevada, to Arizona, to Texas. That's exactly right. So if you want to play that appreciation game, find a market that these companies are moving to that already cash flows. Get in, get your cash flow, then watch as appreciation comes as the companies move there, the wages that they pay increases to the people who live there and you can get the best of both worlds.

Yeah. You know, I mentioned earlier about having, you know, my unfair advantage, these boots on the ground. Another market that I have a lot of unfair advantage in is Nashville. I have a lot of friends that live in Nashville. Like, for example, an agent named Michael Gomez. I'll give him a shout out. Like, he's a great agent out there in Nashville. There's also, you know, Seth Mosley, my buddy, who's been on the podcast. He's an investor there in Nashville. And so, like, I'm going to be looking heavily at that market as well because I know that's where a lot of the California tech companies and a lot of the movement in the world is moving towards, again, Nashville, Austin, Denver, these cities. And so if I can find cash flow enough to at least make a little something in Nashville or in the area around Nashville. And I can find out, again, we're going from broad. We're focusing more in what neighborhood of Nashville or what suburb of Nashville happens to be, you know, where's the trends moving?

Where are things going? And again, between talking with our core four, talking with property managers and agents, we can really narrow into that a little bit. And talking with, you know, or just looking at the data, we can get a lot of that details too. And so within a few hours of work, I can nail, down what city I'm going to start looking in, start building the core for, know the exact neighborhood I'm going to go buy in. And now we move on to step number five on our list today, which is we've now narrowed from region to like basically like market to city. And, you know, we decided, you know, Midwest versus, uh, coast. We decided what city. We decided what neighborhood.

Now we need to find the property. And the property within that market. I mean, that's like, that's it. Like that's the game, right? We got to find a very good property. Because most properties will never cash flow regardless. They're just not good deals. Like you really have to sift and find the best ones. So a couple ways to do that. Of course, you guys know this. You can find a real estate agent.

And the great part of that is an agent is typically paid by the seller. So there's no excuse for every single person listening to this show right now. You should have an agent. If you don't have one, go find one. Find the real estate friendly one, hopefully a real estate investor friendly one. Doesn't mean you shouldn't just naturally grab your brother-in-law because he's got a license. Just because somebody has a license doesn't mean they know what they're doing. David, you want to speak on that for a second because this is the point that I think a lot of people missed.

It's like, you got a license. You must be a successful real estate agent. Yeah, it comes from the belief that all agents are the same. They do the same thing, which is definitely a fallacy. I think most things in life, that doesn't apply. You could say, oh, they're a licensed mechanic. All mechanics are the same. Not true. You can get a mechanic that can diagnose your problem, work on the car, and in 45 minutes have you up and running and charge you $150.

Or you could take it to a different mechanic that's not as good. they're going to spend 15 hours on it and you're going to be getting a bill for $8,000 to get you the same result. So first off, just check that way of thinking that everyone is the same at anything. Property management, contractors, agents, that's not true. Licensing is a minimum standard and anyone who has gone through any licensing, at least in my experience, largely unrelated to success in that industry. I don't think anything that you learned getting a real estate agent license will have any impact on how good you are as an agent. The license itself from a practical standpoint is not helpful.

It just shows that now the state can get the agent in trouble if they do something illegal. So I look at a real estate license. Like even a real estate agent, they're just a person that has a license that has a right to earn a commission. It's not having a job, okay? Just because you have a license doesn't mean you have a job as a real estate agent. You just have the right to collect a commission representing a client. It's up to you if you want to go find people to do that for and how good you want to get at it.

So when you're looking for agents that are going to, to work with you. Ask yourself what you need help with the most. Do you need help with someone analyzing the deal? Do you need help with the super connector? They got all the pieces that you need to make this happen. Do you just need access to the MLS as someone who's responsive? Do you need someone that's going to write 50 offers a week for you? Okay. What is your strategy and what do you need from the agent and be up front in telling them? I can tell you right now, if you come to me and say, hey, David, I want you to write 50 offers a week for me. I'm the wrong agent to be talking to. That's not the way we work. We work where you come in, we give you a free consultation, we talk about what your goals are.

I lay out a strategy to help you get there. Then you sign up to work with my team and then we commit to finding you those properties. It's very purposeful with me. Other agents are much more kind of like willy-nilly. Hey, I'll send you some properties. You tell me what you think. It's more casual. So not every investor is looking for the same thing from their agent. And not every agent is the same, which means you have to get very honest with yourself about what you want and how you want it It's a look. Yeah, that's good. Yeah, it's good.

So, again, you have no excuse not to have an agent. Go get an agent. Find one that's awesome. And they're going to help you find deals. What I like to do is I, I like to, you know, obviously I want an agent hook me up with emails and automatic emails that have listings. But I also spend a good amount of time just on Realtrow.com or Zillow, just digging around. And now certain areas are good for Zillow and certain areas are not.

Some, some areas don't license their data to Zillow. Zillow. But I wish they're calling it Zilla. But it gives me a starting place. I can pull up Realtor.com, I can type in Independence, Missouri. I can see what, I can look at their map and see where the property values higher,

where they lower. I can then compare that to another map of school districts. I can then look at crime rates and I can kind of find like these areas, these zones that might be a really good spot to start looking at it. Then I start looking at individual properties there. Again, we're on step number five here,

which is finding the property. I'm going to start digging into property saying, hey, what is this property like? Okay, here's a three-bedroom, two bath. It's mostly fixed up. It looks like all it really needs is just a good cleaning and maybe some new carpet. Okay. Now I'm going to go run the numbers.

And of course, you can run the numbers. If you have a super fancy spreadsheet, you can do it that way. I don't like spreadsheets personally because of, well, three reasons. Number one, spreadsheets are really easy to make a mistake on. You add a comma somewhere inside of one of the cells that you never remembered or you don't notice it. You add a period in somewhere. You change your formula slightly.

It's really easy to make a mistake. So number one. Number two, it's hard to stay organized. As an investor, you have to make a lot of analysis. is. And you have to make an analysis analysis. And it's just hard to say organized. When you're not organized,

you're not offering. And number three, it's hard to present a deal to somebody with a spreadsheet. Like, if I just show my wife a spreadsheet, me like, look, honey, this deal is going to be awesome. And she'd like, her eyes would gloss over. And she'd be like,

that's just a lot of numbers on a page. And she doesn't know, she didn't go through every one of my formulas to find out if I screwed up one of them. When people give me a spreadsheet today, I don't look at it because I don't want to go through every formula to find out where they screwed up. So again, you can use a spreadsheet if you have a really good one and you're confident in it.

We also built tools at Bigger Pockets to help with that. Again, I don't want today's show just to be, hey, sign up for pro, but just FYI, there are tools, there are calculators, a burr calculator, a flipping calculator, a rental calculator. What am I missing? The wholesaling calculator. That's designed to help you analyze deals and not the formulas aren't messed up because they're hard coded onto our site and creates nice little PDF reports you can show to your wife or husband or partner or whatever.

So point being, I want to start looking at the property. then running the numbers. I'm going to put them into the calculator. I'm going to run the numbers. I'm going to see how close am I to where this thing could cash flow that it makes sense for me? Because now I got a market. I got a neighborhood.

Now I find these properties. That's like the next step, which I want to get to here in just a second, which number six we're going to get to is how do you know what the rental rate is going to be for that property? But I don't want to gloss over some of the other ways to find deals in a market. Now, we could do a whole show just that I'm sure we have on just how to find deals in a competitive market.

and right now everything is pretty competitive. But specifically, we talked about the real estate agent way to find deals. I want to talk about three other ways to find deals. So the first one was the agent. The second one is through a wholesaler. So a wholesaler are individuals in a market who do all the deal finding things that they should do to find deals. They're doing direct mail marketing. They're doing driving for dollars.

They're doing all that stuff. They're out there just hustling to find deals. When they find it, they basically give it to you for a, for lack of a better word, finders fee. Now there's legal ways to do wholesaling. There's illegal ways to do it. But a wholesaler might make five or 10 grand, maybe more, maybe less off flipping a deal to you. And now it's your deal. So wholesalers can be a good way to find deals. There's a lot of wholesalers on bigger pockets. There's a lot of wannabe wholesalers on bigger pockets and everywhere. So find a good wholesaler by just networking and connecting with people. And maybe they'll find a deal for you. Again,

wholesalers are kind of notorious for being newbies. And when I say that, I don't think there's anything wrong with being a newbie. Everyone has to start somewhere. But because of that, They might not understand everything we're talking about today. They might understand it what rents are or what crime rates are in an area. And they're incentivized to not lie to you, but to only show you the best parts of the deal because they want you to buy it so they can make their $5,000 or $10,000 or $20,000 or move on to the next deal. So always trust your own numbers, not the wholesaler's numbers.

And that actually leads to anything you want to add on that, David, before I move to the third one. No, I think it's a really good point. Trust your numbers, not the wholesaler's numbers. Maybe once you have a good relationship with that wholesaler and you know them as a person. But again, it's like if you can't trust a licensed person, you have even less trust for someone that doesn't even have to be licensed. Yes. Yeah, who just like went to either weekend boot camp or listened to a podcast and I'm going to be a

wholesaler. Holeshaling is a title. It's not anything more than just a name that you call yourself. Yes. Yeah. So be careful with wholesalers. But if you find a good one, they can be goals for giving you deals. But closely related to wholesalers would be I would call turnkey.

So turnkey are companies out there. that will find the property because they're really good at finding deals. They'll find the property. They'll fix the property up for you. They'll put a tenant in it. And then they'll manage it for you. So they do everything. Like all you have to do is like get the loan.

Like you go and buy the property and they take care of everything. Now, if that sounds too good to be true, many times it is. For the same reason that wholesalers can be difficult to work with. Because turnkey companies are incentivized to make their properties look good in the best light possible. And so they may fudge their numbers or just be less conservative than maybe you are. So I love turnkey companies when they work. In fact, I'm going to look into turnkey for wildest property. I'm definitely am.

But I'm not going to trust their numbers as much I'm going to trust my own numbers. And so definitely dig in. David, I know you have some more, even more harsh thoughts on turnkey than I do. But I like it when the numbers work out. And I think there's a lot of good legitimate turnkey companies out there. You just got to find them. It's not that I have harsh thoughts on turnkey companies. It's that I have harsh thoughts on people thinking that

they're going to avoid the hard work by just jumping into Turnkey. If you know your goal, like we said earlier, and you just need a place to park your money that's going to get you a better return than somewhere else, then that's what Turnkey is great for. You're not going to build a ton of wealth right off the bat. It's going to put you a little bit further behind the eight ball when it comes to building equity because you're usually paying market price or higher.

But the goal is if you need a place to put your money, you don't have a ton of time. They make a ton of sense. There will probably be a point in my career where either I will use Turnkey, turnkey or I will have staff that goes and looks for deals for me, right? It's not going to be the best use of my time forever to literally analyze these properties myself. So I do know there is a role for turnkey. Most of my negative opinions of them came from the turnkey providers that were marketing themselves as it to say, ah, you don't have to learn anything. Just come to us. We'll take

care of everything. And then when everyone complains about the deal not working out the way they liked or their buddy got a better deal and they say, well, that's not fair. The turnkey provider like, no, they told you what they do. You believe that you could use that strategy for a different goal. If you were trying to get stronger and you got sold on just eat better, you're going to get fit in a way, but you're not going to get stronger if that was what your goal. So know what a turnkey provider's value is and what role they play in your overall wealth building strategy.

That's really good. It's really good. All right. So then the last one, so we talked about agent wholesalers turnkey properties. And by the way, on the real estate rookie podcast with BiggerPockets, you know, we have another show called Real Estate Rookie Podcasts.com. BiggerPockets.com slash rookie 29. It's actually a guide to turnkey investing from the perspective of an investor. Like what questions to ask, et cetera. So if you want to do more about turnkey, definitely check that out. And again, there are good turnkey companies out there and there are not necessarily great ones out there. Do your research. Make sure you get referrals, get recommendations. You know, call up those referrals. like, what's what I'm you're looking for, not referrals, but references. References, references, call the references, yeah. And make sure that that turnkey company you're going to supports the goal in which you're

trying to, you're trying to do here. Again, appreciation, cash flow. So choose their market, then find a turnkey company. I think what most people make a mistake of is they find a turnkey company before they find their goal, before they've identified what their goal is. Right. So now they're buying a property in, you know, again, Cleveland, Ohio, even though their goal is to have that property grow in value a bunch over the next 20 years.

And it's like, well, why don't you start with a property, an area that's going to grow in value and then find a turnkey company there that you can trust that has good references where the numbers actually work. And now you can find a good deal with not as much work. And the reason I'm looking for turnkey myself that I might do it is because it's just my time is best spent buying $10 million mobile home parks and raising tens of millions of dollars. That's what I do.

We're just about to launch Fund Three in my company. And we're going to raise $20 million. in this fund. Like, that's my best use right now is making myself, my company, and all of our investors' money. Not trying to find the very best deal on a property in Independence, Missouri, or Roseville, Minnesota, or Bangor, Maine, or Nashville, right? So, like, David, you said, you've got a great point.

It's based on where you are, like, I could either go turnkey or I could have my team. I have a new intern named Drew who's out here. That's helping with our flipping business in Maui. I might just be like, hey, Drew, like, go find me a property for a while there. Like, go find this property. here's how you do it. Let me walk you through it and have him do all the hard steps of making the phone calls. And that's another way to get around it too. If you're busy and your time is best spent elsewhere, again, turnkey or having an assistant or an employee do it. That would be another way to do it.

Now, maybe your best use of your time is to get to the point where you get to be a Drew. You're like, oh, I'm going to go work for Brandon. I'm going to learn a ton. So your goal is how do I get as many cash selling properties? I don't need them to appreciate. I just need enough money to feed myself and pay rent so that I can quit my job, go work for this other person and prepare for the next phase of my life. Okay, it doesn't have to be one and done. I bought five properties. I dropped the mic and I retired at 27 years old and now I don't work. That's not always, in fact, that's probably rarely the best use of anybody's time.

But you can't know what strategy you want if you don't know what your goal is or where you're trying to go. So keep that stuff in mind when you're making those decisions. Yeah, really good. All right. So next, I want to talk about how to know what the rental rates are going to be. because when you're running your numbers, you do your math on a property, you're doing a bunch of sample properties. And honestly, I would recommend analyzing at least, at least 50 properties in a market.

I know that sounds excessive, but like I said, with bigger pockets, you can analyze them in under five minutes. So get in there, start analyzing deals, run the numbers quickly. Just do a couple every day for a few weeks. And you're going to get the hang of it. You're going to understand what areas are a little better. Talk to your agent, be having a constant conversation with your agent in that area on what areas are up and coming. analyze a bunch, and then you're comfortable making offers. But before you make an offer, you've got to verify what the rent.

You got to know what the rental rate is going to be. Now, I mentioned this earlier, but we have a rent estimator as part of Bigger Pocket's insights. We call it property insights. It includes what the current rent is. It includes what rental rates have done recently. It includes what the area is for different bedroom types. So you can look there for rental rights. You can also, and I would even say in addition, before making an offer,

I always talk with a local property manager. or a landlord. Because even though data is amazing and data can give you really good information, it doesn't give you the subjective stuff. Like, oh yeah,

that street, they have a power plant nearby that smells really bad. And so it actually lowered the rent there quite a bit. Your rent is going to be way less there. And only somebody local boots on the ground

that's a rock star property manager or landlord is going to know that information. And so you always want to double check your data with somebody who understands the subjective side of real estate. Yeah.

And I would add to it, look for someone who's interests are aligned with yours. If I own a property management company and I have a good reputation and I'm pretty big, I don't want to take on properties that might pay me a little bit of money, but, but ruin my whole flow. I'm going to say, no, I don't want to manage that property because it's going to be an area that's going to cause way too many headaches. You've got to understand property management companies run at razor thin profit margins. They do not make hardly any money from the rent

they collect. In fact, most of them do this as a way to generate leads for another business. They want to get your listing when it's time to sell the house. Or they want to buy that, house for themselves. The property management component is like a loss leader sometimes. So they don't want to manage a property that's going to take a ton of their time and require their staff to come in and fix the problem. So I like to get really good ones because they're going to tell me no. I want a property manager who says, nope, I don't want to work there. If they don't tell me no, I probably don't trust them as much. That's good. And on that note, then you can talk to your property manager about locations as well in a city. Like where do you have a lot of luck with? Where are the tenants always paying rent?

where do you have no problem renting a unit? And then they tell you a bunch of areas. Now go find out where the cheaper prices or where the higher price to rent ratio is in that area. It will work with your property manager to find a property that they can manage that they want to manage. And now it's a win-win for everybody.

You have a better property. And again, you're aligning all these things together to be able to identify the perfect property for your investment strategy. All right. So those were three ways to find deals. One last way, I'll say this. Even though number six was verify rent

with a property manager, by the way. I don't know if I actually labeled that as number six, but that is number six today out of our eight. But going back, I know we're jumping a little bit, the last way to find deals in a market you can do is do what's called off-market funnels. In other words, you're doing the work that a wholesaler would do. You're sending direct mail marketing.

You're driving around looking at properties if you want to fly into a market, which we'll talk about in just a second. You're doing all the hustle, the Craigslist ads, you're going to the courthouse steps. You're doing all that off-market work yourself. Now, if you're going long distance, if you're trying to invest at a distance,

that is much harder to do. Not impossible. I can send direct mail letters to Independence, Missouri right now if I wanted to from Maui. But without being there, without knowing the market, I'm going to be at a slight disadvantage to those who are already there. And so just consider that. You can do those off market strategies if you want to. But I guess I would highly recommend find an agent as well. Find an agent.

Look at the turnkey options before you maybe go down the trying to find amazing killer deals by yourself. Just because it's a little bit harder. And in the beginning, it's more important to just get a deal and get momentum. than it is to land a home run. Off market funnels will give you a home run, but turnkey and agents, they can give you a base hit. And there's nothing wrong with that.

Yep, absolutely. All right, moving on next. We talked about number five was find a property. Number six was a verified rents for the property manager. All right. Now, let's talk about when flying out to an area. If you're going to invest long distance, now many people, you might find that,

like, after listening to this whole podcast now, you're like, you know what? I live in Seattle. And I thought for sure I had to go invest in Cleveland. But actually, maybe I can invest in Olympia, Washington, or Seattle or Tacoma. Maybe I'll just stay local because you realize that your goals are better suited locally. And that's fine. Still listening to this.

But I want to talk specifically to those who are going at a distance. Should you fly out or should you not fly out to the market? David, what do you think in all, share my opinion? You fly out primarily to meet people, is my opinion, to develop relationships with the people. And maybe to get an overall feel for the market itself. If you don't have, like for you, you know St. Paul. you don't need to fly out there, right? Maybe you have a really trusted agent who you trust and they say, no, this is good.

I wouldn't fly out there. If I'm just not sure and I want to get a feel for an overall perspective, that's where I fly out. I do not fly out to look at every single property themselves and we'll get into more about why I don't later. Yeah. I guess I'm the same way. I think it's not a bad idea. If you're just getting started, flying out, I think gives you some sense of like oomph or like,

not purpose, but like, motion. momentum. Like you're doing, you're taking a big action step that people don't do. So I think from a from a personal like mindset win, I think flying out is good. It gets you committed. Yes. That's it. You're, you're putting something in the pot. Yes. Yes. Yes. I love that. You're, you're in it. So like, if you're like, okay, I've, I've really decided that Nashville is going to be my market. I want to go there. Go take a week vacation to Nashville. Go do something fun while you're there. You know, go to the grand old opera or something like that. But then really spend a lot of time driving around. Checking the streets out. Just get a feel for it. You just get comfortable. You just get comfortable.

with it and talk with agents, talk with lenders, meet with a bunch of BiggerPockets people. If there's a local meetup happening, great. If not, maybe host one when you're there. Just to get to know who are the big players in town. And of course, you can host events if you're a BiggerPockets Pro member, another benefit of being pro. Or you can attend one if you're just anybody. Go to BiggerPockets.com slash events for more on the meetups that are happening around the country all the time, especially as this COVID thing, hopefully starts to dissipate over the coming months and year. There'll be more and more of those happening out and about.

So again, you don't have to fly out to look at every single property. And specifically, David, why don't you fly out to look at every single property you buy? Because frankly, I would not be doing that for a practical purpose because I'm not a home inspector. Me and many other people, we don't know what we're looking for. I definitely am not going to catch as much as a professional home inspector would. It's something that we do because we think we're supposed to. We don't have a plan. We don't know what we're doing.

And so when that happens, you rely on your gut instinct. seen this time and time again when we work with buyers and we take them to go look at homes and they don't know if I didn't put enough time in the front end saying what exactly do you want what are your goals why is that important to you if I have not invested the time in walking this person through what they really want what they do is they walk a home and they wait for their gut to say this is it and sometimes you can't understand your gut you're not used to listening to those feelings that come out of it so you sit in the home for 45 minutes trying to figure out do I like it or do I not like it investors should not be taken

taking that approach. It's bad enough when a primary residence homeowner's doing it. If you're running a business, you should know what you're looking for before you get there. Walking the house and the emotional comfort that you get from it is not how you want to be making business decisions. That's really good. That's really good. Yeah. I know me personally, like I, I like the feel of like, okay, this is the house I'm buying. I like this thing. But when I really think about it like it's it's mostly just for my own comfort than it's for anything and if that's what you need great do it like who cares that's 500 bucks for a flight yes if you need that for comfort that's more important okay you're spending money in the flight you're spending time but you got the deal

ultimately that's all that matters my advice would be figure out a way to get that comfort that's more objectively or empirically based as opposed to just yeah i walked it and i feel good about it yeah yeah that's really good all right so that's that's maybe when you want to fly in or fly out next Number eight, let's move on to the last tip today. Systems for managing rentals. So in other words, we talked about it earlier that the management of the investment matters more than almost anything else because, like, again, good management can make a bad deal okay, potentially. But bad management can make any deal bad.

I mean, the bad management will just destroy you no matter how good you, you could get the best home run deal in the world. And bad management and bad systems later will just destroy it. So story, I don't want to go too in depth in this because I know we're already like, what I'm well over an hour into this show. But I bought two properties. I did a 1031 exchange a few years ago. You guys might remember from the podcast. I sold my apartment in Washington State.

I bought two other out-of-state properties. One I bought in Cincinnati, Ohio, and another 24-unit apartment there. The other I bought in Bangor, Maine. Now, I already told you about Bangor and I have a really great property manager there. I have boots on the ground because Ryan Murdoch was there, and he knows the market.

He connected me with the investor, the property manager. That property has, almost doubled in value in the past year and a half, two years. Like I've almost gained a million dollars of equity in that property in a year and a half, two years. Because we bought this property. We improved it dramatically. The property manager cleaned it all up.

It's been amazing. It's been just a home run deal. I mean, the grand slam deal. The other property in Cincinnati, I broke even every single month. Then I got hit with like a flood in the area, which was just unfortunate. And I got hit with a big, like, I don't know, it was 30 grand or something like that. I lost. And then I broke even.

I made a little bit. Then I broke even. And I had so much stress and drama. And I went through three different property managers before I finally ended up selling it for what I, basically what I bought it for. I sold it to a guy who actually, he was the agent who brought it to me, Slocum, who's awesome. Shout out to Slogum.

And he has like single-handedly today turned that property around and he's making a killing off of it today. And so what went wrong? What's the difference between my two properties here? is I did not have a system for management in Cincinnati in place. I did have one in Bangor, Maine. And then I took the money I made from the, you know, by getting back the money I put into the Cincinnati one, I bought a property in Maui,

and that one's crushing it because here I have a system of management. And so, no, the bottom line is you have to have a system of management going forward. You have to have a property manager you can trust, or you better be doing it yourself and be really good at it if you want to do yourself. But yeah, management matters so much. All right, I've been talking for 20 minutes. Dave, what do you think? I think this should be its own podcast episode too,

because the more I grow in business, the more I start to realize, I thought systems were important. They're even more important than I thought. I mean, I had an epiphany about this a week ago when we had a client that said, hey, I want to find a house in this specific neighborhood of Oakland, but I also want to do an off-market campaign

where I go find a property through direct mail and I can get a better deal. But if I find it, I want your help with representing me, negotiating it, writing up the contracts, but I don't want to have to pay for that. So how can we do it? And I had that feeling in my gut that was like, this does not feel right. I'm going to disappoint this person. It's not going to go well. And I recognize after I thought about it for long enough, I don't have a system in place to represent someone on off-market deals. I don't have a compensation

structure in place. I don't have scripts in place to even explain to this person. No, I'm not going go put all this time into a deal that may or not work out and I'm not going to get paid to be doing. The systems I have in place are for this. And as I thought about it, more I realized, I helped people with certain goals. I want to refinance a house. I want to sell a house. I want to buy a house. And I have these paved highways that run to those goals. Those are my systems. Processes, team members, experience, right? I know what to expect when it comes to those three places that this business helps people with specifically. And when I get outside of that highway, it turns into this dirt road. It's really bumpy. You can break your suspension. You get flat tires. So what happens

is when an opportunity comes to me and I don't have systems in place, I subconsciously just say, no, I don't want to deal with it. It doesn't feel light. It doesn't feel easy. I get anxiety. When something comes to me that will work in that system, I am insanely aggressive about going out and grabbing what I want and putting it there. So if I work this way, other people do too, even if they don't realize that they're doing that. So when you have systems in place, you will naturally put way more effort into accomplishing the goal that you want, right? Brandon, if I say, hey, I want you to tell me, do you want to buy this condo in Maui with me? You'll be like, yep, I'll put it right down my system.

I'll get Greg involved. I'll get Drew involved. Boom, they're going to do everything. That's not a ton of work for you. I can get an answer quick. Mobile home park. If it matches certain criteria, boom, you will go. If I said, hey, I'm thinking about buying this commercial space where we're going to have a strip mall.

And it's got a twist. Let me tell you about my vision. Immediately your eyes are going to gloss over and you're like, no, I can't. I don't know what I'm doing when it comes to that. And I don't want to learn. Yeah, I got to rebuild that whole system. There you go. And that's how everyone is.

We're like that ourselves. If I bring an opportunity to myself that does not work within the system I've created, I will not take it as serious, right? And I've disappointed people in friendships, including you, Brandon, by committing to something that I did not have systems in place and I was not 100% engaged in, hoping that it would just work out. And I've learned that lesson. I don't do that anymore.

Same thing. Right? So now if you know how important those systems are, those paved highways that you can just put eight semi-trecks up and down if you need to. You're going to get massive help. Work on paving that highway. Don't spread out amongst all these different dirt roads and hope that you end up hitting the destination you want. Mike drop.

That's awesome, man. Yeah. It matters so much. The management, the systems that you have in place. So how do we find a great property manager? again, it comes down to how people have been is how they are likely going to be. So we want to get referrals from other investors. We want to know who are other investors using, right?

We want to contact a few of them. We want to interview some. I like to start small. It's also why I like to choose one market. And if I'm going to invest in a distance, and I know, David, you kind of do this too. You have a market or two or three that you kind of focus on when you buy out of state. You're not buying one in Kansas City, one in Memphis, one in Dallas, one here, here. Because every time you have to start your system over again.

You got to find that new property. Like find that property. That's why, like, of all the places that I could buy, my top choice is honestly probably Bangor, because that's, I already have a management in place. I can buy and just trust that it's going to be taken care of there. But Bangor might not support my goals for appreciation because it's not an appreciating market, which is why I might not go there. But you can kind of see like the way that we think about these things. And I hope you guys can apply this to your own life as well. Anything you want to, you want to kind of close on that with this, David?

Yeah, we touched on a lot of practical advice combined with mindset advice, which is kind of. funny because that was we started the show talking about that's what we're trying to do here is we're trying to yeah we have i have that analogy i'll use it again of if you want to get better if you're sick you need two things you need medicine and you need a delivery system if you've got a vial full of medicine but you can't get in your body it doesn't help and if you've got a drip set up but you have no medicine to put in it that doesn't help you either so always be thinking with every one of the goals you have i might do i have both of those things there do i have the knowledge and the skills that I need to succeed here. And do I have a delivery system to put it into place? It could work

with our paved highway thing. The paved highways is a delivery system. The semi trucks that go back and forth that deliver the actual stuff would be the knowledge. You got to have both. So this is probably when I will listen to a second time because I know that you and I, we can go really quick when we get excited and we have a lot of information here. But this is how it works. You start with a very broad, what's my goal, what do I want to accomplish? How do I want to get there? And then you nail it down. okay, I've got a market. What neighborhood do I want to be in that market? You ask all the questions related to neighborhood. Okay, I know my neighborhood. Where do I go to find the property? These people can help me find deals. I can look for him with this way. I can look for this type of a property.

And then once you've got that, you aggressively go after what your goals are. Yeah, really good, man. Really good. This, I second that you should definitely, I mean, I'm going to listen to this episode again and take some notes on here just because it was, it was great to kind of hear your thoughts on all this because you are the, you are the long distance guy. Now, we're going to get out of here in just a moment. I do want to ask a couple quick favors. If you are listening to this show and you have not yet left a rating or review, please do so. It helps us

reach more people. And if you're not following us Bigger Pockets on Instagram and YouTube and Facebook, follow at Bigger Pockets everywhere you can go. You can also follow David Green personally, David Green 24 at all those places and I'm at Beardy Brandon most active on Instagram.

And David's got a new TikTok set up. He was doing some dances earlier today. You guys go check that. I'm Just kidding. Felt cute. Might delete later. All right, man. Well, let's get out of here.

Again, I want to recommend one more time. Go check out BiggerPockets Insights. It's a new program that helps you really dig in to the data to make smart decisions on what market to go to, what neighborhood to invest in, and what property to end up ultimately buying. Our whole goal of Bigger Pockets is to help you achieve your goals. Everything we do at Bigger Pockets is designed to help that. This podcast, the webinars we do weekly, the books that we put up, Everything is designed to help you.

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So it takes your 390 annual membership down to 312. Again, code is BP data. One word. And with that said, David, I'll let you take us out of here. Thanks, B. Great time today. This is David Green for Brandon. Finally got a haircut.

Turner. Check him out on YouTube. He's looking handsome as ever. Signing off. David, I didn't get a haircut. I got them all cut. Oh, but him. Dad jokes.

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