BiggerPockets Real Estate Podcast - 515: Your Step-by-Step Guide to Buying Out-of-State Investment Properties

Episode Date: October 7, 2021

It’s not uncommon for investors to start out by buying properties in their home markets. It makes things like neighborhood research, rehabs, and tenant showings so much easier when you’re only a short drive away from your property. That’s how Dave Meyer, VP of Data and Analytics right here at BiggerPockets, feels. Dave is currently living in Europe and has invested exclusively in Denver, where he used to call home. Now, as an entirely remote landlord, he’s seen the data on how many markets (like Tampa, Florida) are doing phenomenally for appreciation and rent increases. David Greene, out-of-state investor and the man who literally wrote the book on long-distance real estate investing is here to offer some much-needed council. With David having the experience as an agent and out-of-state investor and Dave having robust housing data at his disposal, the two come up with some clear plans to invest in up-and-coming markets. David and Dave talk about cash flow, appreciation, wage growth, the investing “spectrum”, and why so many real estate investors aren’t planning far enough ahead. In This Episode We Cover: Cash flow vs. appreciation and which one matters most to you Developing your investment strategy and picking markets where it works Balancing the benefits of real estate investing and the investing “spectrum” What makes a market appreciate and cause rents to rise? What to do once you’ve found a great market to invest in Questions you should ask every out-of-state agent and property manager Where Dave and David are both looking to invest And So Much More! Links from the Show BiggerPockets Youtube Channel BiggerPockets Conference 2021 BiggerPockets Agents Finder BiggerPockets Insights BiggerPockets Podcast 108: Building a $350 Million Real Estate Empire Using the 10X Rule with Grant Cardone BiggerPockets Podcast 250: Grant Cardone on Multifamily Investing and Why You Should Never Buy a House! Zillow Check the full show notes here: https://biggerpockets.com/show515 Learn more about your ad choices. Visit megaphone.fm/adchoices

This is the Bigger Pockets podcast show 515. What do I do from there? That's what I really am confused because I like looking at the markets. I like doing this mathematical analysis. But where I keep getting stuck is like, all right, let's say I pick Tampa. What do I do next? You're listening to Bigger Pockets Radio, simplifying real estate for investors large and small. If you're here looking to learn about real estate investing without all the hype, you're in the right place.

Stay tuned and be sure to join the millions of others who have benefited from biggerpockets.com. Your home for real estate investing online. What's going on, everybody? This is David Green, your host of the Bigger Pockets podcast. Here today with my co-host, Mr. Dave, Data Scientist, Meyer. Dave, how's it going today? It's great, man. I'm happy to be back on the show so soon.

Yeah, we call you a data scientist, but you're more like Dr. Strange. You're like a superhero that happens to use data like magic. to conquer the enemy of financial destruction and achieve financial independence. Wow, that is quite a compliment. And I think I'm going to put that either on my job description or if it will fit on my business card ahead of the Bigger Pockets Conference. I'm going to try and get it on there. Maybe you can make that your voicemail when people call you, just so they know who they're talking to. I think they'll hang up before the end of it, but I can try. Well, Dave and I are here today to break down some data for you guys to help make better decisions

on where you should be investing and what type of investing you should do. We get into quite a few, actually, I think like nitty-gritty details that should be really good for investors. Would you mind sharing Dave a little bit about what you think some of the best parts of today's show are? Yeah. So, I mean, just so everyone knows, basically we're talking about how to invest out of state. It's something I've wanted to do for a really long time. I've been investing for 10 or 12 years now, but I've always invested in one state and I'm really interested in picking David's brain. So that's basically what I do throughout the show. We talk about the different ways you can make money in real estate. We talk about how to balance those different ways of making money based on where you are in your

life and what your personal goals are. And we talk about really interesting stuff about metrics and how to identify which markets actually fit your strategy. And then, of course, like, how do you actually pull it off? Like, how do you get an agent? How do you get a property manager? How do you do all this. And I just have to say, David, like, I learned a ton from you doing this, and it was a lot of fun doing it as well. So I'm excited for everyone to hear what we talked about. Well, I appreciate that. It's kind of nice being able to be on the other end of the mic instead of asking some of the questions I'm getting to answer them. And that's always fun. You did a great job. Awesome, man. Well, should we let people listen to it? Yeah. And everyone, be sure to listen all the way to

the end of the episode where Dave and I are going to list four questions or for things that real invested investors should be asking or licking that many people are neglecting. I think you'll get a lot of value out of that. So if you like the show, please share it with your friends. Subscribe to us on YouTube so you can be notified when there's new shows. And let us know in the comments what you thought. Without further ado, let's get into it. Do you ever notice how every passive investment somehow turns into a very active lifestyle, active spreadsheets, active phone calls, active stress? Here's a better question. What if you could buy brand new construction homes, 10% below market value in the best markets across the country without making real estate your second job.

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Mr. Dave Meyer, what's going on? It's good to have you on the podcast with me today. Thanks, man. I'm back. You can't get rid of me these days. Yeah, but I like that because you're the data guy. And you always want to have a data guy on your team, right? That one person that comes along and says, hey, what you're doing makes sense,

or this is a terrible idea. We should abandon ship right now and go the other way. Yeah, I can definitely serve the nerd role. I'll just like validate anything that you said or point out anything that's just horribly wrong. It makes me think about it in those like superhero movies. They always have a droid or something like C3PO that will say this plan has an 11% chance of being successful. I'm not sure that I love being compared to C3PO, although I do like Star Wars. That's a good point. But I actually think that that's a really good way to look at it. Like I like to look at an investing plan or any sort of plan and assign a probability to it. So it probably is a

good comparison. And for those who don't know, Dave Meyer is one of the OGs here at Bigger Pockets. He is a data scientist. So he's the person that can look at numbers, facts, objective metrics and help determine if what we're looking at doing or what we've been doing is something that actually makes sense. There's a lot of data. People don't realize that Bigger Pockets has on some of this. Would you mind actually, Dave, for a second, just sharing where people can find some of this stuff. through BP Insights? Yeah, sure. So we're going to start publishing this more on the blog, and you can see it through BP Insights.

But a lot of what we do is take market data like rent and sales data that's going on in the market right now and run some analysis. We do some visualization. So if you are trying to keep pace with everything that is going on in the super hot housing market, which is pretty much everyone right now, we are trying our best to get all that data out to you so you can make good real estate. investing decisions there. So you can go either search my name or BP Insights on biggerpocket's or on YouTube, the BiggerPockets YouTube channel. You can find that as well.

Awesome. So what do you think we should talk about today? So I would like to hijack this podcast a little bit because as you said, I'm the data guy. And I also should mention that I'm a real estate investor and have been investing in real estate for 11 years. So even long before I worked at bigger pockets. But I've always done it in Denver. That's where I live for 10 years. About two years ago, I moved to Amsterdam. So I'm living in Europe. And I want to be investing in today's market. Like I feel like it's a good opportunity to buy. But I have never invested out of state before. And since I have you here captive and you are the expert, obviously people probably know this, but you're the author of long distance real estate investing. I would love to

sort of learn alongside everyone listening today about how you would basically teach me how to invest out of state. Yeah, it's either that or teach you how to Dougie. Are you up for that? That sounds great. How about we start with the real estate, but then go to Dougie? Yes, that's a good point, right? First, build some wealth and then we'll teach you how to Dougie. I guess where do you start? Like, I'm a real estate investor. I like, I understand the basics, but like, I'm sitting here looking at this map of the United States. I'm like, what do I even do? Like, I could keep investing in Denver, but I'm curious if there's other opportunities out there for me and what the best use of my time and money is. So first off, you're asking the right questions. This is where every

investor should start. The mistake a lot of people make that I see is they say what's the best market to invest in. And what happens is you end up falling prey to whatever clickbait article is telling you these are the top five cities to invest in or what everybody else is doing. Sometimes you follow the herd. So some influential person could even be through bigger pockets. says, I'm investing, what, like three years ago was Huntsville, Alabama. I mean, everybody was going to Huntsville, Huntsville, Huntsville. And then you get a lot of people that are complaining saying there's no deals out there. The market's too hot.

Well, you just followed the same path that all the other people were going. And of course, there's no deals left. And who's to say that Huntsville was the best for you? That's the right question is we want to be understanding based on where I'm at in life, what is the best market for me to invest in? It would be similar to a football team that says, well, what's the best play to run, is if you just run the same play over and over and over. Depending on what the yardage are, where you are in the game, are you winning or losing?

What players do you have at your disposal? Like even where's your momentum, you're going to call plays differently. So while that answer is going to be a little bit more complicated, that's why we're going to take some time to unpack today, how we determine what the best markets would be. Does that sound good? Let's do that. That sounds great. Okay. So the first thing that I like to talk when I'm dealing with clients that are coming to the David Green team for us to help them find investment property,

is we want to create a framework with which they can understand what we're trying to do. And the best one that I know of is the spectrum. So we talk about everything is in a spectrum. On one end of it, you have something, and on the other end of it, you have something else. Okay, so you could live a life where you work out every single day. And on the other end of the spectrum is you're comfortable and never work out at all. You can't have a great physique and never work out at all. You're giving something up in order to do it.

So we typically find, yeah, wouldn't it be? Right. And that's actually how people get sold. things is that the guru selling this program tells you you can have something on this end of the spectrum, but you can have all the joy of the other side, right? Remember? Totally. There are always trails. Yes. I remember in the 90s they had stuff that was, hey, put this like shock thing on your abs and you can lay there and watch TV and wake up with a six pack when you're done. Like, it's working out, but it's not hard. Okay. And the reason I point that

out is that's how people get your money is they look for the part of us that just falls prey to whole, oh, I just have to take one course and I can make hundreds of thousands of dollars flipping houses and that's all it is. So nothing works that way. A few of the tradeoffs we make in real estate will help us understand where we should be investing. So the first would be on one end of a spectrum, you tend to have cash flow. On the other end, you tend to have appreciation. Now, this has often been presented in the past, like appreciation is risky and cash flow is safe or better. So you should always go towards cash flow. And I think at, certain times in history, that is true. Just like at certain times in the football game,

you might want to run the ball instead of throw the ball. That would make sense. There's some less risk inherent with running instead of passing. But at the same time, you don't get yards as easy. And so if you're losing, that might be the worst strategy ever. I'm just using this as an example to highlight that chasing cash flow is not always the best investment strategy for everybody that's out there. Yeah, I totally agree with that sentiment. I mean, just to continue the football analogy. I really believe in sort of like taking what the market is giving you. And in football, you call it, like taking what the defense is giving you, right? And so like sometimes if the other team is 11 people on defense and they're putting 10 people in the box to stop the run and you just keep

running and running and running like it doesn't make sense. And that is in some ways, not everywhere, but I feel about cash flow right now. Like people are saying like, I need a 1% rule deal. Like that doesn't exist in the vast majority of places in the U.S. Finding any sort of positive cash flow is tricky right now, but that does not mean that there are an opportunity. You could throw the ball. Like you could go look for appreciation. Like you said, there's this whole other side of the spectrum that is available to people.

And I hope people start to understand that and appreciate appreciation. Wow. That was quite a pun. But I hope people do start to recognize that it is a really good way to make money, because that is something that I was hoping to talk about today because I sort of see it the same way as you do. That might be the best way of describing this that we could have possibly come up. But that is exactly right. That feeling of the defense has stacked the box, but I am going to stubbornly keep running the ball.

And if I just run it enough times, eventually something will happen is the same feeling you get when you're chasing cash flow. And there's not a lot of solid investment properties that will cash flow. All right. Now, I want to give a caveat. What we're not saying is be reckless. What we're not saying is, well, if they're stacked in the box, just throw a hill marry every single time and hope it works out. We're not telling you to buy bad properties because you can't find cash flow. What we're saying is, like you said, look for ways, can you pass the ball for short yardage that is very similar to a run with a similar risk profile, but you're throwing it away from the defense.

So what I see right now, part of the reason there's not a lot of cash flow properties. I think there's a couple reasons that we should get into. The first is that private equity groups and hedge funds are buying a lot of those properties at cash flow. They're borrowing money from other people at a cheaper interest rate than you probably can get, Dave, because they're doing it in such huge amounts. And then they're going and buying cash flow properties and using the difference to pay back their investors. And then they're just making money off the loan pay down and maybe a little bit of cash flow leftover and then the appreciation that they get from the property. So your competitors are bigger and batter and stronger than you are when it comes to that space chasing these cash flow properties. another thing is that there has been so much appreciation in so many markets that you get a lot of

investors sort of at like my profile that are selling properties and 1031ing into bigger ones. And so if I've got a property that I'm going to make say $500,000 on and I'm going to pay capital gains taxes on that, if I can 1031 into something smaller that doesn't cash flow as well, but avoid paying taxes on $500,000, if I just get a 3% return or a 2% return, that's a win. because I saved all that tax. But you, on the other hand, who have no tax savings, a 3% return looks horrible. And this is something I see a lot of people beating their head into the wall. Why would somebody pay that much for that house?

This is just crazy. It's only crazy because you're looking at it from your very narrow lens of where you are in life and you're not seeing that they're in a different situation than you. So a lot of these properties that used to be very solid cash flow, the price has gone up because the demand for them has gone up because of people 10-30 winning up into bigger properties. And so that's just you're running into a stack box when you're going after those types of deals. Another thing is that what we tend to find, and I've talked about this before, is that rents that are low tend to go with properties that are priced low. And as the value of the property rises, what you can charge for rent rises to, but they do not rise equally.

They're uneven. At a certain point, the value of the property continues to increase while the rent levels out or sort of inches forward. and the reason is if you were able to keep pace with the rent forever, the rent and the price, then the person paying the rent could just buy the house for cheaper than what they're paying for rent. And most people that are renting are doing so because they can't buy houses. But if you were able to pay like $7,000 a month in rent, you're probably going to be able to buy a house, right? Like the things that keep someone from buying a house aren't present in a person who can pay $7,000 a month for a $700,000 property. And then their mortgage drops down to like, you know, $4,000.

And so it's cheaper to own instead of, instead of renting. And that's something just people don't realize. As the prices of this real estate has continued to increase, rent cannot keep up. So the amount of properties that are left over that will cash flow are smaller because a lot of them have graduated out of that. Does that sort of make sense how I'm describing it? No, absolutely. That is a perfect point because I actually have some data that I was just talking to someone about the other day that backs this up. So there's this popular metric.

People have probably heard it called the rent to price ratio. you've probably heard of the 1% rule. It's basically you just take a month of rent, you divide it by the sales price. And it's like an excellent way to estimate cash flow. And that metric, the rent-to-rise ratio, has been declining since 2011. And so people think like this hot market where cash flow is hard to find was brought on by the pandemic and everything associated with that. And that has accelerated it for sure.

But since 2011, home prices have been rising faster than rent, just like you said, to the point where it just squeezes cash flow. Like you are going to be able to earn less and less in that scenario. But on the other hand, it's great for the people who own the property, even if they weren't making that much cash flow because their property value is just going through the route. Yes. Now, that is what we should expect to see at a point in the market cycle or the economy where we have a very strong, healthy.

Maybe I don't know if healthy is right word because we've fleshed a lot of cash into it, right? Sort of like you put a lot of methamphetamine into this body of our country. Maybe it's not the best thing, but you definitely feel the energy, right? So that's kind of what's going on right now. If you rewind back to 2010, what we found was the opposite. Okay, it was not a good economy. The value of homes was lower and the rent was higher.

So rent stayed high because all these people lost their homes. They needed somewhere to live. So landlords never had to decrease the rent. And you couldn't buy a house. You had to rent for a lot of people because they lost their home and they had no credit. So rents were very solid. but the price of homes, the value of them was low because not as many people could buy them. The economy was bad.

There weren't a lot of people that had solid jobs. So here's what I noticed. A lot of people like me that got in around 2009, 2010, or maybe just got interested in real estate investing, that's when you kind of got into the bigger pockets world. Your baseline was set for what is normal at what was actually one of the strongest cash flow markets that you ever could possibly see. The first house I bought, I didn't know what cash flow was. I literally just knew the rent is higher than what my bills are. But I didn't understand ROI. I didn't know it was supposed to work that way.

I didn't know anything. And I bought a house that was three years old, maybe two years old. All I had to do was run a vacuum over the carpet. And it cash flowed $300 a month. It was like a 2,600 square foot, almost brand new home. That never happens. You cannot find that in today's market. But that was normal.

They were everywhere at that time. So I was going into market where cash flow was in my favor. Like the rules of the game dictated that running the ball was much easier to be successful. So everybody was running the ball. You took it for granted. We've now kind of come full circle. We're in an opposite market. There's tons of money out there.

When we go through a pandemic, the government is pushing more money into the economy. People are getting money from the government to pay their rent. There's a lot of factors like when did our back that's making things go better. And that means the value of these assets are going up. Now you throw into that, we haven't been building them for the last 10 or 11 years. hardly at all. And so there's a lack of supply. While demand stays steadier goes up as population continues to grow, we have a shortage of inventory. All these things together make real estate much more valuable. But the element of real estate that cash flows gets harder and harder to find. So you kind of have this

dichotomy going on where it's better to own real estate. It's going up in value. You want it, but it's not going to provide cash flow like it used to. And you kind of got to make peace with that. Yeah. That's sort of what I'm trying to deal with because on one hand, I'm like I can pick anywhere to invest in the entire United States right now because I have to. I can't be close to my deals. And so my option is like there are markets out there that's still cash flow. Like there definitely are. So I'm trying to figure out like should I go and do that because I think cash flow might even get harder to come by in the next couple of years. So like should I lock in some cash flow now while I can or should I just ride the appreciation wave that's been going up and probably will continue

at least in my mind is probably at least over the long run going to keep. on a pretty solid trajectory. So let's have like a philosophical conversation about the nature of cash flow. Let's go like, like what was the Oracle in the Matrix, right? Neo goes and talks to. If you own a property day for 30 years, do you think that you would be able to remember or even tell what the cash flow was on year one? No way. I've owned properties for two or three years and I can't ever know that. There you go. And if you looked at the money that was made over the 30 years from 30 years of potential cash flow plus appreciation plus loan paydown plus if you refinance it and buy more properties right it starts to get more complicated all the ways you're building wealth

how much does that year one cash flow even impact what goes on over the full 30 years very there you go it's similar to having a football team that's going to play a full 16 games or whatever we play now 18 games or whatever the first play of the game is the only thing everyone's thinking about for the full preseason but it ends up having a very small impact on your entire team's success, that very first play. That's kind of what year one cash flow is like. We're all looking for it right out of the gate. We want that cash flow right away. But if we look at how much impact that actually has on our financial success, it's tiny compared to what it's going to be in three to five years. So one of the things I like to do is zoom out and say, all right, if I'm buying this property

right now, what is the rent going to be in three years, in five years, in 10 years based on what we've seen. And if that looks super healthy and I don't make money more much money, or even let's say I lose money for the first year and the second year, the third year I break even, the fourth and the fifth year I start making money. If I'm going to hold it over 30 years, the only question left for me to ask myself is, can I afford to hold the house for the two years that it's losing money? That's where the no cash flow thing was really getting people in trouble because in 2005, 2006, 2004, they were buying houses assuming they would appreciate. They could not afford to hold them long term. It was like a hot potato game. They had no way to get that

potato out of their hands and it burned them. Well, cash flow is king. You got to have cash flow because then you won't lose your house. But what if the rest of your life cash flow is really strong? What if you're saving 10 grand a month because you have a great job? Does a property that loses $200 a month is that risky when you're saving $10,000 a month? Right? Like I've often I've explained to people like, if worst case scenario, you go get a job as a barista somewhere once a week. And in a month, you can probably make the 200 bucks that you're so worried about that property losing.

So you won't pull the trigger on buying the property. It is a much smaller risk in many cases than what we want to look at. So what I like to do is look at all the ways that real estate makes me money. So the first thing I'll say is there's five main ways that I see real estate earning wealth. One of them is cash flow. That's the difference between what you make every month and what you spend. The next is appreciation. and that would be the property going up in value over time naturally with inflation.

However, there's an appreciation element to cash flow that no one talks about. And that's really big, right? These properties that I bought in 2010 or so, you know, the rent was $1,200, $1,200. Now it's like $2,400. It's a very big jump for what they make now versus before. Then there's depreciation. And that's going to be the money that I do make from cash flow is shielded by the value of the property. Not the value of the property going down, but it's like a tax term in a cash flow.

county term that the usefulness of the property is slowly going away. So the money that I do make is taxed at a much lower rate or not taxed at all because of the depreciation the property brings. Then there's loan pay down, which a lot of people don't realize, but it's like a forced savings account in a lot of ways. If you can delay gratification, you're actually making a return on your money just from paying off your loan. And then there's forced equity. That's where I can make the property worth more, not by waiting for naturally occurring things like inflation to happen, but elbow grease and a rehab or doing something to improve the value of the property. So when you consider that there's five ways you can build wealth from real estate,

the one way cash flow sort of takes on a new context that it's not the end all, be all of real estate investing. Yeah, that makes it a lot of sense. And I think that there's this like interesting dynamic between all of those. And, you know, I have a pretty good sense of what matters to me right now in terms of that. But like, if you were new and just getting into real estate investing, it's kind of like overwhelming to think about these five different variables. And, you know, do I care more about appreciation?

Do I care more about loan pay down? Do I care about cash flow? And cash flow is easy to think about because it's like, you know, it's like getting another paycheck. It sounds really exciting where the other ones are delayed gratification. So how would you balance these things better? Like, is there a better way to think about than just like cash flow first, everything else later or is there, you know, what would you recommend to people in terms of like how to balance these five different ways of making money? That's such a good question. And in sticking with our

football analogy, there are times where a team will run the ball to try to get the defense to stack the box to open up the passing game. Okay. There are times with investing where you will start off with one strategy to open up doors for you in other areas to adapt to a different strategy. And that is where you have to start when you're trying to figure out where should I invest, what type of property should I invest in. Don't ask yourself what's the best. Ask yourself what's the best for me. So we know that there's a spectrum of cash flow versus appreciation. What we want to try to figure out is like, all right, what market am I going to invest in? And what are the strengths and weaknesses of that specific market? That makes a lot of sense. So for me, I have been

investing for a while. And I have a thesis, like what I want to invest in is really that like, appreciation, I think, is going to be really strong for the next couple of years. But at the same time, I want to come close to even with cash flow. Like you said, like if it's slightly under, I don't really care. I'd love to make a couple bucks a year just as a cushion in case anything goes wrong. And that's sort of like how I'm balancing these things. So I guess once I know that, like I know that that's my ideal goal that suits my part of life. Like I'm not trying to retire right now. don't care that much about cash flow. Like, is now the time? Like, should I be looking to pick a market at this point? You just said something very insightful that we should make sure we highlight. And it's,

in general, cash flow is most necessary when you're in retirement. When you're of working age and you have a career and you don't hate it and you're okay to work that job, for that person, cash flow is much less important. You don't need it as badly. You will need it later in life or you're going to want it later in life, okay? And what I've found is the concept of delayed gratification is very applicable to real estate. So most of the time, if you look at what creates the most wealth, it's appreciation. And I know that's a bad word to a lot of people because it sounds, well, you can't guarantee appreciation.

But I just want to challenge that a little bit. Okay, you can't guarantee appreciation? Can you guarantee cash flow? Okay? People say, well, I don't know if the value of the property is going to keep going up. They might go down. I don't know if the rents are going to keep going up. What if they don't?

Well, how do you know that they're not going to go down? If you don't know that they're going to go up, can you be sure that they're going to stay the same. None of this is guaranteed. There is no safe place that if you just go after cash flow, you know you're going to be all right. And what I found is if you can delay when you cash out on that property, you'll make more money in the long term. So what I like to say is on one end of a spectrum, you've got cash flow and the other end you've got appreciation, long term wealth building. How close to the appreciation part of that spectrum can you get without extending yourself so far that it's a risky financial situation for you? So what you said, Dave, was very, very important. So what you said,

day was very clear. Like, I want to be breaking even or making a couple bucks. I'll push it all the way to appreciation, but I don't want to get into negative. So now we can kind of figure out, well, which markets work for what you're describing there? Where can you get a property that will we have strong appreciation potential, but also not like Beverly Hills, you'd be losing a lot of money. I think your appreciation would be great. But you're going to go buy a mansion that's going to cost you $20,000 a month and you're going to rent it out for $12,000 a month. You're going to be coming out of pocket quite a bit. But over 20 years, what's that man? you're going to do for you, right? It's just, are you at a point where you have $8,000 a month to throw away?

Real estate, no, you don't. So that, on the far end of that spectrum, we start moving back towards the cash flow side. So what I would say is if you want to figure out which market you should be investing, and the first thing you look at is what is making markets appreciate, all right? One of the things that makes a market appreciate is supply and demand. So we want to look for areas that have a limited supply naturally or by any other means. So some of the things that I look for in, I talked about in Long's Listing, would be like geographic barriers. Okay, so Austin, Texas is sort of like, has a river on one end of it that stops them. They can't build any more houses past the other side of that river. And all the properties within the downtown side appreciate

much more than the properties outside the river because people have to sit to commute in across the bridge. Sometimes you'll see barriers that are political. Grant Cardone mentioned on this, on the Bigger Pockets podcast, that he invests in liberal areas. because they are much less likely to approve new building permits, which means that the supply stays sort of limited by political influences. So an area like maybe Kansas, I would not expect to be appreciating a whole lot because there's so much land. They could just build more houses.

The supply and demand never gets out of whack versus like Berkeley, California, where it's very difficult to build anything. It's very liberal. It doesn't have a whole lot of light available to it. There's some geographical limitations because it's sort of in the hills. that property is going to appreciate a ton of my making sense with that so far. Oh, totally. Yeah.

It's like there's just constraining half of the equation of supply and demand. I grew up in right outside New York City. And I just, when you said that, I thought instantly at Manhattan, like, it's this tiny little island. And all of the land is already taken up. So like the only way you build more in Manhattan is by knocking down that something already exists and building something bigger on it, which is super expensive. There you go. It takes forever.

and that's why homes appreciate. For 10 years before I moved to Amsterdam, I lived in Denver, and you may have heard of, you know, it's a smaller town, but Boulder, Colorado. They have some of the strictest building rules in the entire country. They have moratoriums on growth. And so think about that. A lot of people want to live there. They're desirable places to live for a lot of people. And you just aren't that many houses. That is like the perfect recipe for things to go out. So got that. Number one is like, Barry. to supply, essentially, like places where they can't just build their way out of rapid appreciation.

Those are perfect examples. And I like the way you phrased it. You've taken out half of the equation by barriers to supply. Just like if you're a defense in a football game, if I stop you from being able to run the ball and you have to pass it, much easier to defend, right? So the other half of that equation on this line would be demand. Now, if you have lack of supply, like Manhattan could end up not appreciating if nobody wanted to live in New York. So if the government over there runs their economy into the ground,

they chase everyone away, businesses don't want to be there, people don't want to work there, then Manhattan real estate becomes less desirable. What made it desirable is the combination of the lack of supply with the amount of money that you can make in Manhattan because that's where some of the best jobs were, similar to like the Bay Area in California, where I live. The reason that real estate is so expensive here is because you make so much money here. The wages are really high. A lot of people don't realize nurses in this area make 100. $100 an hour. So they can afford that higher priced home. So what we want to look at are what factors would limit the demand for an area. So the first one to me is always going to be employment.

Obviously, people want to live in a place with fun stuff to do. They like nice weather. But even more important than that, they want to live near where they work. So is this an area that is drawing business? Is this an area that has seen wage growth? What type of industry is moving here? okay. So if there's a certain city that is growing, but it's growing entire manufacturing, I wouldn't expect to see rampant wage growth from an industry like that. And the opposite might be the tech industry. So some of the hottest markets in the country, if we were to look at the last five years and say what's appreciated the most, Austin, Seattle, San Francisco, San Diego, Huntsville, where else? What am I missing here?

Denver, Boise, yeah. Miami. They're all, tech hubs. And that's because tech companies move there. And it doesn't matter that they're tech companies. It matters that they pay a lot of money. Tech companies can raise a lot of money from private investors. Then they can pay really high salaries. They're attracting the smartest talent. And so wages go up. And when wages go up, you can afford to pay more for a house. So if you can afford to pay it and you want it and there's not very much of it, the price of it is going to go up. So we want to look for cities that we have a stable or a growing economy. Like that actually matters. So one of the reasons Detroit has just been struggling for so long was that their economy was based on the automobile industry. And when that fell apart, they got hurt really bad.

Hollywood has typically done really, really well. But a lot of that's because movie stars live there. People that work in the entertainment industry, they make really good money. Executives for these companies live in Hollywood. Well, a lot of that is moving to Atlanta. They're actually filming movies in the Atlanta area instead. And if that continues, I would expect to see some of the demand for Hollywood could go down a little bit. and the demand in Atlanta would start to go up.

So the first factor on the demand side that I would look for would be, what is the job market? What's the economy doing in that area? Nice. That's great. So it's funny because for bigger pockets insights and a lot of the content I write for BP and YouTube, like I use statistical methods to predict depreciation and rent growth and these kind of

things. And all the stuff that I've found from a math perspective really aligns really closely to what you're saying. Like wage growth, employment growth. And the one thing I did want to add is just population growth, just like places that are growing and more people are one of the things that really sent, at least from a mathematical standpoint, like tends to drive up appreciation. So I'm glad that we see these the same way because I think that, you know, these are people always say that appreciation isn't predictable. Like you said, they're not, you know, it's not guaranteed. Of course it's not guaranteed. But that doesn't mean there aren't,

factors and indicators that you can look at to try and figure out where it's going to. And I think the list you just gave is a perfect example of that. And the other part of the demand spectrum after the jobs, you just mentioned, it's population growth. Where are human beings moving to? Because as more people go there, demand will naturally go up. So I don't know if I don't have any data to support this. And I don't know if anybody does.

But the three things that I look for in the area, the first is climate. Because you could get a $60,000 a house somewhere. but if it's miserably cold or something, not many people want to live there. So warmer areas, I think over time, tend to draw more of the population to them. The second piece would be the tax laws. And right now, this is huge. So you see a lot of Californians that are fleeing California because we keep hearing about we already have the highest state income taxes in the country.

They're wanting to raise it even more. So I think they would try to bump it up to 18% this last go round. And it was voted down, but the next time they'll get closer, the next time they'll get closer eventually that's going to happen. So if you're being tax 40, 45% on your federal tax and then you're also paying 18% on that, you're now looking at more than half of your income is being taken in taxes. So you're making all this great money in California, but you don't keep any of it. A lot of Californians are moving to states that have no or low state income tax.

So Texas, Florida, Tennessee are some of the biggest ways we've seen appreciation happening. And it's not any surprise that those are all states with no state income tax and positive climates. That's a really good point. You know, the climate thing is like something I can never put my finger on, but you always see the sunbelt. Like whenever I do these analysis, I'm looking at like the most popular places, it's like Arizona, Idaho, obviously Southern California, but Texas, Idaho. I mean, Colorado, people think it's freezing, but it's beautiful weather, pretty much year-round.

That's a really interesting point that I've never really considered. You don't hear a lot about North Dakota, South Dakota, Minnesota, Michigan, right? Like, you're just not hearing about rampant appreciation in those areas. No, no. You said cold and I thought, you know, I went to school at the University of Rochester in upstate New York. And it's like basically right next to Buffalo. And I mean, those are actually really good cash flow markets.

They tend to be, but they are freezing. Like, I just can't imagine people all of a sudden deciding that they want to live in a freezing climate. But. Well, and the people who are living there probably are there for some purpose other than leisure. Okay. They're going to school. There's a business there.

It's cheaper, right? Like, there's some reason that they're there. But if you're trying to find appreciation, you're trying to track the money. And the money's not going somewhere that they don't have to be. Like, they're going to places where they can afford to go and for leisure reasons. 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.

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But for a second, because I know there are people out there who do want to focus on cash flow. If you were looking for a cash flow market, I have some things written down, but I'm curious, what do you look for if you're looking for? if you're looking for a cash flow market, is there anything that can sort of predict cash flow your first and best metric is your price to rent ratio. So the closer I get to the 1% rule, the more likely they are that they're going to cash flow. And rather than trying to track where it has the highest rents, because you're going to see Beverly Hills show up for highest

rents, it just also has, you know, $50 million properties that they're getting those. What you should look for are the lower priced homes. So if you find the area that has houses in that like $70,000 to $130,000 range, odds are the rents in those areas are going to be very close to the 1% rule. I honestly, I think it's a great proxy. It's super easy to figure out too. Like you just look at the median rent and look at the median home price. And then, like you said, like taxes seem to be pretty important.

Like if you're getting tax less, cash flow can be better. I also think similar stuff that you said to appreciation is like income growth and wage growth. Like if people are making more money, then rent is naturally going to go up. And so I think that they overlap. And that's probably a good segue because like these are these metrics like wage growth, employment growth, supply and demand is sort of how I've been looking at markets. And so I've been seeing, you know, I'll just list off a few. Like when I look at the spectrum and I'm like, oh, maybe I should go to more on the cash flow

side. I do see things more in the Midwest, sort of, I guess upstate New York. York is like Rochester, Buffalo, Detroit. When I look at the other end of the spectrum, it tends to be the West Coast, like you were saying, California. But then the ones that I think show positive aspects for both are places like Tampa, for example. That seems to be like a good market to me. So I'm wondering, like, I don't know if I'm really going to invest in Tampa, but like, let's just say that I've looked at these metrics. I figured out, because I do think it is good stuff. like, what do I do from there?

That's what I really am confused because, like, I like looking at the markets. I like doing this mathematical analysis, but where I keep getting stuck is like, all right, let's say I pick Tampa. What do I do now? Well, Tampa is a funny market because I'm looking to start investing there myself. That's when I've actually identified as a place I want to get into, right? So the first thing I have to ask myself is what is my goal? So for me personally, my goal investing in Tampa Bay is going to be to get the best dirt I can,

the best area that I can, and then find a property that will work for what I want. I feel like a lot of people do it backwards, is they say, well, I want a property that will cash flow, so what market can I get cash flow in? I'd rather say, all right, I want to be in Tampa. How do I find a property that will cash flow there? It's going to be harder. They're not everywhere. Okay.

So a couple strategies that I've used for clients out here that will work for me out there. Buy a really big house with a lot of square footage that has a floor plan that's easily split up into set different units. Rent out by the room. That's another thing you could do. So that means you have to fight a place with quite a bit of demand, something near a hospital, something near a college, something near where people are going to want to go. Another one can be a short-term rental. Short-term rentals bring in more income than a traditional model typically would, but you got to make sure you're buying it in a place where people are going to want to visit or they're going to want to stay there. So you see how this becomes a little bit more complicated,

and that's what scares people away, is you have to think about it a little bit more. once I've identified what type like those are my three strategies that I'd be using right there it'd be a property with a lot of square footage a property I could rent out by the room or a short-term rental now I want to find a person who knows that area who can help me avoid buying into the bad neighborhoods or bad properties and can save me time so I'm not spending my whole day looking at every property available in Tampa Bay and trying to figure out that market myself so usually your real estate agent is going to be the first person you want to contact when it comes to someone who can like make this process much more likely for you to be successful. Well, that makes a lot of sense. Yeah, I want to get back to the agent thing in a second, but you said something that just sort of like made a light bulb go off in my head. You said that like you want to find the best dirt and then find a strategy that works. And like, that is definitely what I would do if I was investing in Denver. I would never just be like, oh, I want to find cash flow and then I'll go to any market. Like I know Denver well.

when I invest in it, I know the neighborhoods I want to buy in and I find something that works. And I don't know why up until you just said that. I was like thinking about it totally different for out-of-state investing. I was like, I got to find the right zip code. Then I'll invest in that. But what you just said makes so much sense. So thank you for saying that. Then, you know, like finding an agent, like I'll just be honest, my agent is, he's a great agent. But I fell into that because he's one of my best friends. And it just worked out really well that we're both into real estate. But like, how do I find a good agent? You're obviously an agent and know this really well. But like, what do I do? All right. So here's the bad news. You got to look

at finding an agent the same way you look at finding a property. You got to assume most of them are the wrong fit. And you got to find the right one. Okay. A lot of people assume every agent's the same. I just want to find the one that is most convenient or easiest or will lower their commission or something similar to, hey, every property is the same. You just got to find the one. that you can get under car you can write under list price and you can get it for the most under list all right expect to put some work into finding the right agent now this doesn't mean like interviewing a hundred of them and grilling them okay it's more do i know what i'm looking for in that agent so when i'm looking for rental property i know what i want right and when i find what i want i am happy to

pay over asking price i just put one under contract two weeks ago in uh the east bay california that was listed at 1.8, I believe, and I wrote it closer to 1.9 and had been on the market for two weeks, so it had just dropped, started above $2 million and dropped down. Well, the appraisal came back at more than what I paid, even though I paid over asking price. Okay. And the reason that I was able to move on that property that quickly is I knew to me this property is very valuable. It's got a ton of parking and I'm going to need that for all the people I'm going to put in there. It's got a very high a walking score, so tenants are going to want to live in it. It's not that far away from an apartment complex. So if I have a lot of tenants in there, the neighbors aren't going to be irritated by that

because they're used to an apartment complex being somewhat next to it. It's super close to the freeway. There's all these things that's very hard to find in a property that I recognize in Boom said, I'll go for it. And not only when I go for it, I will go for it aggressively. There's like an aggressive patience you have to develop. I will be patient for the right property. When I find it, I will go after with everything I have. Your agents like that too. You kind of got to know, I want a person who has knowledge of the things that I'll need to make this work. They have rehab and contractor referrals. They have lender referrals.

They know how to talk to other agents. They can get to the bottom of if you can get this property or not. They're not like, well, let's just throw our offer in and we'll figure it out. And you have to know what you're looking for in that person. And when you find it, you have to be very intentional about honoring their time and making them motivated to want to work with you. I think a lot of investors make the mistake of like, well, I'm the. person and they should be chasing me. But to the agent who doesn't know you, you're just another

of the 20 leads that came to them that month that wants information from them that isn't going to buy a house. Yeah, that's such an interesting thing you learn about. It's like, you assume that an agent wants to work with everyone. But like an agent, like yourself, has so many people probably coming to you that you can choose to work with the people who know what they're doing and think about or like and are going to actually act on a property instead of just sort of kicking the tires a little bit. And, you know, I have worked with an agent, and I know that on Bigger Pockets, like, you can find pretty good agents. I should mention that there is an agent finder. It's BiggerPockets.com slash agents. There's tons of good agents there. But I'm just trying to figure out, like, do you have examples of like

two or three questions I could ask to sort of get to the bottom of what you were just talking about? So first off, I love going to Bigger Pockets to find your agent because they're probably listening to the same podcast that you are right now. That's so true. They're hearing the same things that you're hearing, and they want these properties also. Now, there's this myth that goes around that, well, aren't we competing over the same properties? If your agent has like $10 billion, sure, they're going to buy all of them. They're not going to find one for you.

But if that's the case, they're not working as an agent. So no, even me, I buy a lot of rental properties. It pales in comparison to how many I find for our clients. There's always another one I can get for myself. In fact, I bought a couple, like I'm trying to get one right now in Maui, that our client has it in contract. it appraised for less than what it's worth, or sorry, it appraised for less than what he has under contract for, and he doesn't want to pay the difference.

And I'm grabbing that thing if he decides back out of the deal, right? So I could have bought it, but I would rather get it for the client, get his repeat business, make him more money, get referrals coming in, than I would just grab every single deal all for myself. There's plenty that will come around and there's plenty I can grab. So don't worry about your agent competing with you. What you want is an agent who is interested in viewing real estate

from the same lens that you do. they know this property is worth the list price is less than what it could be listed for or this is an amazing cash flow property. The reason I want to buy this one in Maui is it's in the same complex where Branden's is and it's a very unique floor plan where basically you can take a two bedroom, two bathroom and turn it into two different units, a studio of the bathroom and a one one. So your rent isn't doubled, but it's close to doubled because of that. The right agent knows those opportunities and sees those angles and says, look, you should buy this property and here is why. So one of the things you should ask is when you're finding like, hey, you're trying to figure out this is a good fit for you. What are some of the ways you recommend for investors to win in this market? So if you ask me that question, I could be like, boom, boom, boom, boom, boom, here's exactly what you're looking for.

If you go to one of the agents of my office that doesn't know this that is really eager to work with you, they're going to give you a, well, a very general roundabout, non-specific answer because they don't know. So that's one of the things that I like to start up right away. What strategy would you recommend? Another thing I always like to say is, do you have contacts that can help me with the rehab, with estimates on the rehab, okay? Because if they've worked with investors before and they know this, they have had to come across these same problems you're going to have and they've had to solve them. So if you ask them, I'm like, no, I don't really have any construction referrals.

No, I don't really know any lenders that do non-qualified mortgages that can help you. No, I've never talked to a property manager. They don't know what you're trying to accomplish, just right off the bat. doesn't matter if they tell me that they know. If they don't have any of those contacts, they don't know. You can also ask them, can you walk me through how you would analyze a property? Can we grab one on Zillow real quick on the phone and you show me how you would analyze this? So if you ask me that, I can tell you right off the bat, well, I look at the neighborhood and then this is a good neighborhood. And I can tell right now that if the property costs this much,

I can run it through my mortgage calculator, your payment would be this. That means rents need to be right around here. Bigger Pockets has a rental estimator that I can go look up really quick and see what the rents are. Nope, this isn't going to work. You're not close enough. And I don't know everything about everything in real estate, but just based on that conversation, you can tell, I probably have a pretty good idea of how to advise you. If they don't even know how to calculate numbers on one, then they're not somebody that's worked with investors before. Wow, that was really helpful. So just to recap, I think the three sort of questions are, once you find an agent, you're interested in talking to again, you can look on biggerpockets.com

slash agents to check that out. But the three questions were like, what strategy would you use to win in this market. You would ask for contacts, which I want to come back to because I think that's a super important thing. And the third one was like, can you analyze a deal at least as well as I can? You know, like, can we have a conversation about the numbers I'm looking at and you can weigh in on it intelligently and we can like actually have a good conversation about that. That's exactly right. And I throw a bonus one in there is a question I like to ask agents when I'm going to work with them is I'll say like in Tampa Bay, right? Tell me what most people do for work in this neighborhood. That's a good one. If they can tell me right off the bat, oh, they work over here. They're all software

engineers or whatever. They know that market. They're familiar with it. They've sold houses in it. They know the demographic of people. If I get up, well, you know, they work. Then they don't know that. That would be a nightmare. I can't imagine like being a real estate agent being interviewed by you to be your real estate agent. You would ask the hardest questions. That would be very uncomfortable. Well, what you're looking for is like they can't BS you, right? If I say, well, tell me why I should work with you, you can BS me with a bunch of reasons, okay? But if I ask specific questions that the only way you can know them is if you have done this before, then I'm saving both of us time. That's a great point. And so do you take the same approach with like the other people on your team? Because like I feel good that like I can go in bigger pockets, bigger pockets, find a list of good agents, interview them, talk to them. But like property managers, I feel. I feel. less confident about for some reason. And I mean, lenders, I think I can find one. But like, how do you build up the rest of your team? Because like the management and day-to-day stuff is kind of what really is like the hardest thing for me to wrap my head around. Yeah. And it's also the

piece that people pay the least attention to. It's a big mistake. Everybody, do you remember playing the Oregon Trail? Dave, are you old enough to have played that game? Absolutely played the Oregon Trail. You'd go, like, shoot the animals and they'd like go like up like this with all for their legs. So you remember the most fun part of the game was shooting the animals, right? Your little pellet moves across the screen really slow. So I would go out there and I would just do that the whole time. And I'd kill like three buffalo and two deer and a rabbit. And it would say, David has 9,000 pounds of meat. He can carry 15 pounds back. You can't carry it home. Yeah. It's so disappointing. Like you you snag yourself a bear and then you can't even carry it home. That's exactly right. The carrying at home is the property management aspect of rental investing. Everyone can go out there and take down a deal at some point. They can shoot the bear if they fire enough bullets. But once you've got it, how do you manage it? How do you keep it profitable? That is the hard part of investing. And we never think about it because it's fun to just go out there and hit space bar and shoot bears. And so that's one of the things that I just want to highlight is we tend to focus on podcasts like

this on analyzation and finding the deal and creative ways to put it in contract. Like it's all like lining your sights up with the bear, right? And timing the shot. But once it's down, there's like way more work that just the tip of the iceberg is the part we're talking about. And when you buy a property in a really bad area, there's no way you're getting all that meat home. You can't change that. You're always going to be struggling with that property. And what I find is most people are looking for a property manager that can rescue them because they bought in a bad area. And it's just not going to happen. They may be able to help you carry another 15 pounds of meat home, but you're still leaving 8,500 pounds or whatever on that bear. So the first thing that I do to avoid bad experiences

is the property managers is I just don't buy in areas where they have an uphill battle. It just isn't worth it. If you have to do that to get your foot in the door, you get in, you get in, you get in some better area, that would be a strategy that it works, but you don't want to, just like you don't want to on-site kick all the time in football. There's times where you might have to do that, but that's not a thing you want to be doing all the time. So when I'm interviewing them, I want a property manager that I will say, listen, I'm going to run this deal by you before I buy it. And I'm just putting you at, like a shirt, you will be the one who is my property manager. I'm not going to say, well, if you say no, I'll use somebody else, right? I want you to tell me

honestly, do you want to manage this property? Wow, that's an interesting approach. Yeah. Right. It's kind of like introducing your friends to your girlfriend and you're like, hey, what do you think about this person? Because they're going to shoot straight. Like, we got to be around her all the time if she's going to be your girlfriend, right? I want my property manager being very honest with me about, no, I don't want to manage that property. You want to be on the other side of the train tracks. We want to be looking over there. So that's the first thing I do is I just let them know you will be involved in this process because you'll be my partner once I take this bear down. Is this a thing that we want to be cleaning all the time? Is this meat? We want to be eating. Another thing that I'll do when I'm

talking to them is I'll find out how did they build their business. Now this is very few people talk about this, but there's two basic models that people get into with property management. The first would be like a franchise model where their goal is to make money in the company. So what they're going to do there is they're going to try to get as many doors under management as they can with this minimal amount of employees as possible, and they're probably going to have the nickel and dime you for a lot of different features they offer to make money. That's not what you want. What you want is someone who owned a bunch of properties themselves, managed it themselves, hired people to sort of leverage out their own work and said, hey, I got a business model here where I got this thing down

pretty good. I should start taking on other people's stuff. And they grew organically. So now they're more likely to treat your properties like they treated theirs. And the system was developed for their own property. And they're not trying to make money out of this business. They're trying to build relationships with landlords so that they can get rental property that they will buy too. That property manager is going to have a lot more like safe procedures to protect you. And they're going to care more about the properties because they have their own. Wow. That was that was awesome. Honestly, like I had no idea what I would even ask these people. And I want to just touch on the first thing. which is so true, it's like we focus so much on deal analysis because it's important. Like,

you got to find a good deal. But so much, once you've become a landlord, once you've been investing for a while, you realize like so much of investing is running the day to day of the property or hiring people who could run the day to day of the property. And in many ways, it is as important as the analysis and upfront purchase or maybe even more important depending on how long you run the property. So this is really what's like bothering me. But now I feel like I have some good questions to ask. Like I never would have thought of, you know, just picking one overhead and getting them involved. So like they are bought in. I love that because like they're on the hook now. They said that they can manage this property. And like I don't think a good property

manager would say they can manage a property that they don't want to. So like you know that they're bought in and they're going to go do a good job for you. Yeah. It's sort of like if you talk to your bookkeep, like my CPA, every time I buy a deal, I run it by him first. And we talk about, would this work for the tax savings that I'm looking for? Would I be able to shelter my income this way legally? Like, do I need to start a new corporation to take title of this one? Or can I put it in one that I already have, right? Like, we have that conversation and we make it all even and straight and nice and clean before I buy it. And then he is able to keep the books for it very easily. He's able to track the numbers. And when tax season comes, it's already taken care of. What everyone else does

is they just go buy a bunch of stuff and then they go dump on their CPA. Here's the big mess that I made. Can you clean it up? And then there are. always frustrated with their CPA because everything's taking longer than it should. We treat our property managers like that too, right? It's like kind of like my chiropractor. I go to jiu-jitsu and I get twisted into pretzels and I show up and I'm like, I need you to fix me. And I'm always showing up saying I need you to fix me. Don't do that to your property manager. Let them be a part of that process. Yeah. So that is awesome. I mean, I feel honestly almost better now already. I still need to think

about one market, but now I feel armed with the right question. So just to like summarize what we've talked about because I think I'm at the end of the questions I brought to ask you, which is basically like talking about looking at your own where you are in life and deciding like, do you need cash flow, do you need appreciation? Once you get there and you figure out what's important to you right now, then you can go on and pick a market. We talked about some of the metrics there. Then next step, find an agent. There are some good questions you asked. Next on property management. Great questions to ask there. What am I missing? Like, those are the questions I had. Are there questions I should be asking that I have not asked you yet? As far as what's to look for in the area that you're wanting

to buy in? Or just like to buy out of state. Like, I'm feeling excited now and like I'm going to pick a market and I find an agent, find a property manager. But like, are there other factors that I'm not thinking about? Or are those the main things? It's understanding why that market, what works in that market and what that market is designed to do. It'd be like if you drafted a running back with a 4.240, can fly, but then you're pissed off all the time because they don't block. They're not meant to block. And it's not their fault that they're not blocking. It's when you decide, hey, I think that Miami, like, that's an area that I think is going

to be appreciating massively. I think a lot of businesses from New York are moving into Miami. They're tired of what's kind of how that state's been managed with COVID. They want to be in a better climate. The technology increases we've had have made it so you can work from home. There's this perfect storm of you don't have to live in a freezing cold place anymore and be miserable. And Miami is definitely not freezing cold. And so a lot of businesses are going there. But because of that, you've got guys with just like millions and millions of dollars that will go

buy a condo there for two million and don't care if it cash flows or not. They just know in 10 years it'll be worth $5 million. That's as far as their sophistication goes. They make their money in the stock market. They make their money in other areas. So real estate is just like a diversification of their portfolio. They're not listening to a podcast like this. They don't care about all the things that we're looking at. If you're going to buy in Miami, don't expect it to cash flow super great. That's what we're getting at. So make your strategy tailored to that purpose. If you know we're going to Tampa and I might break even, make a little bit of money in the beginning,

understand that in five or six years, you should have X amount of equity and X amount of cash flow and have a strategy put in place that if I hit more equity than cash flow, I'm going to take that equity in 1031 into a different market that maybe is more cash flow strong at that point. Right. And so if you know, hey, we're going to. run the ball this many times and we're going to open up the defense and we're going to pass it. And then if we get to this point, we're kicking a field goal. But if not, we're going to go for a touchdown, you're way more likely to win than if you

just have one strategy and you just say, I'm just going to keep pounding this one thing over and over and over and they get frustrated all the time. So I know that's somewhat of a general answer. But when you're saying like, hey, what more should I be looking for? Ask yourself, is there a ton of land that can be built on top of this already that's going to limit my appreciation? Does that matter to me? Or maybe I don't care if it limits appreciation because it's cash for.

flowing really strong. Is this an area where I'm going to be competing with other landlords for tenants? That's the downside of the Midwest market that a lot of people don't think about. A lot of those turnkey companies operate out of the Midwest because they can give cash flow much easier to the investors. But when you have a vacancy and it sits forever and you're lowering your rent to try to draw people to be in your unit, that's a lot worse five years from now than when, hey, it was a little expensive and tough to get into that market. But every time I have a vacancy, I jack up the rent and people pay me even more than that to get in there. Awesome, man.

Now I'm excited. I feel like I need to come back in a couple of weeks and see if I can pull the trigger on something. All right. Well, this has been fantastic, Dave. I really like being interviewed by you. It's kind of nice to be able to sit on the other side of this thing and answer their questions instead of ask them.

And we will be here all day, but we go ahead. No, sorry. I was just say that. This has been a lot of fun. I've learned a lot. Like, I hope everyone at home was learning along with me because I feel like I hijacked the podcast for my own purposes. But I think this is just, it's a hugely important topic right now. It's a really good time to consider this kind of stuff. So thank you for, uh, indulging me and

teaching me all this stuff. I don't think anyone minds that you hijacked it because that's what Brandon Turner has done for eight years. And that's how he's built his real estate empire. So you're just falling right in line with what we're used to. He's not here today. He's not here today. So we get to do it. That's exactly right. So that we're not here all day. We're going to move this thing on. We're going to get into the furious for. And Dave and I are going to ask each other four questions that we think are most applicable to the plight of the real estate investor today. So I will start with number one, Dave. What is when metric investors should pay attention to when making decisions they often overlook?

One of my personal favorites right now is wage growth. I think it's like really interesting to see what's going to happen, especially with inflation right now and all the stuff that's going on in the economy. It's a really good predictor of both appreciation and cash flow. And it's sort of in flux right now. It's growing faster than it has in years if that's going to keep up. I'm not quite sure. So that's something I'll be keeping an eye on for sure. That's profound.

I love your answer. And I'll add on to what you're saying. Money is flowing into the economy, but it's not flowing equally into every part of the economy, right? Like some streams are much thicker and heavier than others. So wage growth is often dependent on the type of industry and certain industries are having wage growth that is in much higher proportion to others. So paying attention to specifically what type of industry is in that area will help you figure out what wage growth to be aware of. I think that's a very great piece of infight.

What I would say is investors need to pay more attention to how many days properties are on market. If you really break down what makes real estate work, you get to an understanding. And I'm writing about this in my next book for Bigger Pockets, which is for agents. It's that buyers drive markets. The number of buyers in a market is the most important metric that me as a real estate agent or an investor can possibly know. But there's no way that buyers don't register to tell you that they're in the market. It's not like a listing where you can look and see how many sellers are in a market. So I have to try to figure out based on how many loan applications went out and pre-approvals were issued because that number is tracked.

How many showings maybe happen? You're always trying to figure it out. But the number one metric that I can use that will tell me how many buyers in a market is how many days on market houses are sitting for. So when houses are sitting on the market for a low day on market, you should expect to write over-asking price offers. you will see appreciation because there's a lot of demand for it. It will be harder to get into that market. That doesn't necessarily mean it's bad, but it does mean it will be more difficult. When days on market starts to get higher, there's less competition.

You'll typically see less appreciation going on in a market like that. And you probably need to be a little pickier about which properties that you go after. And so most people don't look at that metric, but I recommend that they should. Nice. I completely agree. And it is crazy right now. So it is something you definitely need to keep an eye because it is pretty much at all time lows. I think it's bounced back a little bit, but it is pretty much as low as it's ever been.

Okay. So question number two, what is one habit investors fall into they should avoid if possible? I think it's the fact that investors get that. I'm going to shove this square peg into a round hole mentality and they just keep doing the same thing. So we talked about how that applies with cash flow because that's one of the things that people are just trying to force, whereas I've sort of like taking what the defense gives me. Hey, I can cash flow really strong after five years of rent increases and I'll be very glad I bought this property and it will have gone up and I'll probably refy and get my money out. But that's not happening for five years. So can I delay gratification and be okay with that result versus continuing to look for that one diamond in the rough that all the

other thousand buyers in my market are all looking for? It's like using someone else's game plan is the way I would think of it. It's like everyone's, you know, you listen to this podcast to get advice and to listen and learn some really applicable skills that you can use in your own investing. But everyone's financial situation, everyone's strategy has to be different. Everyone's, you know, the amount of money you have to invest your own personal risk tolerance when you want to retire matters so much. And so you need to look at like what you have and make your own decisions about what's right for you. We've talked a lot about that on this show, but I think that's the habit I see most from people is trying to apply their situation to a strategy that just doesn't work for them.

And I think people really do start getting away from that. That's a great point. It makes me think of sort of in sports. You can take inspiration from other players, but you can never copy their game completely because you don't have their body and you don't have their skills. And so in this podcast, I talk a lot about what I'm doing in my own personal portfolio. and I'm hoping that that inspires the listeners who hear, ooh, that could work for me or that wouldn't work for me, but that might work for me in five years after I hit these numbers.

So don't try, like you said, Dave, it's not good to try to copy somebody else's game plan, but take inspiration from their game plan, take the pieces out of it that do work for you and then apply it. Absolutely. All right. So next question, what is one resource, Bigger Pockets offers that many members are not aware of? Well, I'll just go back to the one I said because I'm excited about to you. use it now, which is the agent finder. And you can find that on biggerpockets.com slash agents. And

it's just a good place where investor-friendly agents, people who genuinely know what they're doing are and hanging out. So if you are looking to invest out of state, I would recommend looking there as a good place to start. And don't forget to ask those three questions, David, outlined earlier in the show. Yeah. And I'm one of those agents on there, by the way. So we're not just saying to use it. Yeah. I'm one of the people that you can go in there and find. And I can represent you in the areas that I work in. Perfect. And what is one BP resource that you would? I think people need to go check out Bigger Pocket's Insights. So this is the area where a lot of the information that Dave and his team have compiled data. And not only do you provide the data,

but you also write articles that summarize and help people process what this data means and how it can be applied. So there's information about which areas are expected to see the most wage growth or the most rent growth or where you'll get the biggest bang for your buck or where people are leaving, right? Like they'll take all this information and then they'll put it in an article that you can read that will save you a ton of time and you don't have to figure it all out. So not enough people talk about that, but I think that that's a very valuable resource. Sweet. Thanks, man. Appreciate the vote of confidence. All right. So our last question, what is a market you're interested in why? And you can't say Tampa because we both already said that. What I'm looking at right now outside of Tampa

is, and this is a strategy I recommend that everybody should use, is you go to the spot where everybody's already going to. So we mentioned like Huntsville, Alabama, that would be a spot everyone's already going to. Nashville, Tennessee, people have been going there for a long time. And instead of trying to jump into Nashville, I would ask myself, if somebody wanted to buy a house in Nashville and they just couldn't and they got discouraged, what city would their agent recommend that they go look at instead? Okay. It's often a secondary market. It might be the part of Nashville that's not as popular or a suburb outside of Nashville. And when I get there, I look at the days on market. If the days on market are six days, seven days is just as hot as Nashville, I'm probably

not going to find something. But if I see days on market 20, 30, 40 days, I know, hey, this hasn't heated up to the point that Nashville has, but it probably will. And I want to get there first. So one market that I'm looking in would be something outside of Nashville, which I haven't identified yet, but where people who want to live or work there would go. And if they couldn't find anything in Nashville proper or, and I think Franklin's really close, this is where they would spill over into. I think I would say, I don't have a city picked out yet, but I'm very interested in both Florida and Texas. And I would say Texas more specifically, you said earlier about no income tax, which is really important. The population is exploding. A lot of really big companies are relocating,

like you said, out of California, out of New York, to both of these areas. And I need to do some more analysis and figure out the specific cities, but I think those two states are really interesting opportunities right now. Texas hits almost every single metric that we mentioned outside of geographic barriers. So there's plenty of room to build in Texas. So that's one thing to be careful of. That's true. But businesses are leaving California and going there. Population is leaving California and going there. The state income taxes are very favorable. The climate is very, it's hard not to find something in Texas that way you would say that's not good for long-term investing. Yeah, that's a really good point. And it's so funny because what I do is analysis for BP Insights, like, and I, you know, do all this

data crunching and it comes out with like top five lists, top and bottom. And Florida is always both the top and the bottom. It's like everything else is in between. It's like the best cash flow cities in Florida. Worst cash flow cities also Florida. So it's like very polarizing. So you got to find the right place. But I think there's a lot of opportunity there as well. That's a great reason that people should be checking out BP Insights because you might just hear Florida and say, oh, I'll go invest there and end up in one of the worst parts that you could be in. And you missed out on one of the best. Totally. Absolutely. All right. Well, thank you very much, Dave. This has been a blast. If you guys have liked this show, please go to YouTube and comment there and let us know what you

liked, what you learned, what you wish that we had talked about so we can maybe cover it there. You can also go to biggerpockets.com slash show 515. And you can leave a comment there and get a discussion going with other Bigger Pockets members about this show, what you're thinking about where you might want to invest, what questions you might want to ask. Just basically improve your game. Dave, it's been a blast. Thanks you very much. We will have to do this again. And I'm going to get us out of here. This is David Green for Dave. 80% Luke Skywalker, 20% C3PO. Meyer, signing off. You're listening to Bigger Pockets Radio. Simplifying real estate for investors large and small. If you're here looking to learn about real estate investing, without all the height, you're in the right place.

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