BiggerPockets Real Estate Podcast - 567: Seeing Greene: Finding Cash Flow, Refinancing Sooner, & NNN Properties

Episode Date: February 6, 2022

The 1% rule, HELOCs, BRRRRs, cash-out refinances, and cash flow are all topics on this episode of Seeing Greene. As always, you’ll be joined by our jiu-jitsu loving, metaphor-creating, top-tier agent and investor, David Greene as he takes questions submitted via video, on YouTube, and through the BiggerPockets forums. With so many new investors getting into real estate, there is no better time than now to sit down, relax, and get into the mind of an expert. If you’re a rookie figuring out how to get financing for your first real estate deal or a veteran investor debating cash flow vs. appreciation and the usability of the 1% rule, be sure to stick around. David touches on all these topics and more as he dives deep into some of the most asked questions around the real estate community. You’ll hear about out-of-state investing, the best real estate investment for cash flow, the implications of partnering with a romantic partner, ADUs (attached dwelling units), and how to get around the dreaded six-month seasoning period of cash-out refinances. If you’d like to ask David a question, be sure to submit yours here! In This Episode We Cover: Securing financing when you don’t have any deals under your belt Whether to use a cash-out refinance or HELOC (home equity line of credit) on your next BRRRR Whether or not triple net lease properties are worth investing in and the risks Why David changed his stance on cash flow vs. appreciation over the past few years Whether or not the 1% rule is still viable for modern real estate investors How to get around the six-month seasoning period of refinances  And So Much More! Links from the Show BiggerPockets Youtube Channel BiggerPockets Rent Estimator BiggerPockets Forums BiggerPockets Talent Search BiggerPockets Rental Property Calculator BiggerPockets Pro Membership Submit Your Questions to David Greene BiggerPockets Podcast 534: Seeing Greene: Should I Buy Now or Wait for a Market Cool-Off? BiggerPockets Podcast 513: Seeing Greene: BRRRR 101 – Loans, Deals, & Cash Flow — BiggerPockets Podcast 501: Seeing Greene: How Soon Can I Refi? + 11 Other Real Estate Questions BiggerPockets Podcast 558: Seeing Greene: Cash Flow—The Most Overrated Metric in Real Estate? David Greene Team Click here to check the full show notes: https://www.biggerpockets.com/show567 Learn more about your ad choices. Visit megaphone.fm/adchoices

This is the Bigger Pockets podcast show 567. I'm hoping that I can answer questions that newbies would have, because those are typically the people that bring it up, but do it in a way that experience investors gain some insight into what's going on behind the scenes. In fact, the whole idea of seeing green is that you're seeing it from my perspective. And I can offer practical insight and practical solutions. But I also like to sort of peel back the layers of the onion and show you what goes on in the industry behind it so that more experience.

investors can gain from it. What's going on, everyone. It is David Green, your host of the Bigger Pockets podcast here with a Seeing Green episode. Now, you know it's seeing green because I've got a green light behind me, a green shirt on, and green as my last name. And we are going to get into some awesome stuff. But first, you know you're in the right place if you're here to find financial freedom through real estate.

That is exactly what we help you do. We do that by bringing on different guests that have achieved this for themselves, that have found success in areas, have made mistakes and share how they made them, and then ask questions that you yourself are thinking. I want to try to give you as much educational help as I possibly can so you avoid making bad decisions and make good ones instead. And today's show is full of just that. Now, if you're new here and you like today's show, check out biggerpockets.com. It's a free one-stop shop for all things real estate investing to help you save time and money, avoid mistakes, and tap into the wisdom of two million fellow members. Another little piece of

advice for you. If you like the show and you like getting these questions answered, go check out the forums on Bigger Pockets. It is full of people asking questions just like this and other members of Bigger Pockets answering them. Now, today's show is pretty awesome when we cover a lot of really good stuff. Some of the best stuff would be how to get a hard money lender to give you capital. We get into trying to figure out how you can get approved for that loan to get started. There's a really good question about why certain asset classes cash flow much better than others that I think gives a lot of insight into how to pick the right one for you. And then one listener points out that BP seems to have changed their stance on something that has been preached here for a very long time.

And I give some insight into why at one point that is what was being told. Now it's a little bit different, but most importantly, why that's happening and how the changing of your strategy can help you be successful in an ever-growing and changing market. Now, if you want a chance to ask a question yourself and tell your friends that you were featured on the BP podcast, don't just send me an Instagram DM. Go to biggerpockse.com slash David and put your question there. You can be a featured guest on the biggest real estate investing podcast in the world. You can also find the link in the description to do just that. For today's quick tip, we want to know, what have you thought about our recent co-host?

We had a great time with Henry Washington, Craig Kirlop and Rob Abbas Solo. If you have feedback on what co-hows you've enjoyed, please let us know on the show notes page. Biggerpockets.com slash show 567. That's the web page and you can add some notes about what you thought about the co-host and what you'd like to see more of. Most investors spend all their time talking about their high level returns. But that's not the number that actually matters. What actually matters is what you keep after taxes. And that's where multifamily real estate quietly stands out. With built-in advantages like depreciation, the right deals can generate steady cash flow while reducing the tax drag. Bam Capital structures its multifamily investments around those fundamentals, pairing tax efficiency with disciplined operators and a long-term approach.

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book your free demo at bill.com slash bigger pockets, and get $100, Amazon gift card. That's bill.com slash bigger pockets. All right. That's all I got. Without further ado, let's get into today's questions. Hey, BiggerPockets. My name's Daniel Juhl. I've got a question in regards to proof of experience. So right now, the deal that I have worked out with my mentor slash boss, west slash partner, is I get paid $25 an hour to do work on his rentals or on flips. Now, if it's a flip, I get 10% of the end profits.

Now, I don't have to have anything invested or anything else like that. But I'm trying to branch off and do things on my own because he's going a direction where, you know, he's just going a different direction. So, but I can't, I don't want to bring him along with me because he's, he's, you want to go that way. I want to go this way. But I don't have a lot of proof of experience. I got pictures. I got invoices and all that of this stuff. But when I'm approaching a hard money lender, they want to see more.

They want to see more like JV agreements and everything else like that. But I don't have that. So is there any other kind of paperwork apart from title, which he won't let me be on, that I can get in the future or if anybody else has this kind of saving situation, maybe they can prevent this. All right, Daniel, thank you very much for your submission there. I see the quandary that you have found yourself in. So basically what it sounds like is you've been working for a flipper and this is how you've been

learning the business. He pays you $25 an hour and then as a kicker you get a 10% cut of the profit of the flip. This is a great way to learn the business. This is a great way for you to contribute to the model without having to take risk. Like you said, you're not putting any money in. I think more people should do what you're doing rather than trying to go borrow money from someone that they know and possibly risking it. It's better to work with somebody else who's doing it and learn the business that way. The downside like you're seeing is you didn't get this documented that great. So you have been being paid $25 an hour. I'm sure there's some kind of documentation for that. Your bonus probably won't be able to be documented very well. I think the key here is you've

talked to hard money lenders that want to see a JV agreement. I've dealt with many of them that don't ask for that. This might be as simple as just finding a different hard money lender that doesn't have those same requirements or maybe opening the conversation with, hey, I have been working for someone else doing flips for a long time. I'm ready to do one as the main person instead of as the JV partner. What do you need for me in order to move forward with approving me for the loan? And if they tell you, well, we need all this stuff, I would probably just move on and find a different one. Now look, in today's market, it is very hard to find deals. It's very hard to find contractors. It's not very hard to find money. Money is everywhere. That's

sort of what's fueling a big part of this rise in prices that we've seen in real estate. So look for the money because that's the easiest thing for you to find. I would start off by looking for different hard money lenders and not just working with one that says we need a JV agreement. Now, if you can't do that, let's talk about a couple of options that you might have. The first is you find a different partner that does have the experience doing flips that you don't and you bring them in as your JV. So imagine you find an experienced flipper that's not your partner because like you said,

you two are going different ways. You find somebody else and say, I will give you 10% of the profit on my flip. don't have to do anything, I just need you to be a partner on the deal so that the hard money lender will approve my loan. Problem solved. You might only have to do that one time because now that you flip this house as the main person in it, you have proof to go to the next hard money lender and you can do it yourself. So this is probably a problem you're only going to have to deal with once and if you can overcome it, I think that you'll be okay. All right. Our next question comes from Tim Mitchell. Tim says, I've seen several of your Q&As in episode 487 and 501. You answered

questions on when to do a cash out refinance versus a helic. You emphasized that for keeping property after purchasing it, a cash out refinance is better. And for short-term investing, like flips or rehabs, a helic is better. I just wanted to know if my purpose is to burr a property, which of the two would you recommend? All right, Tim, well, there's a little bit of ambiguity in the question. I'm not sure if you're saying once the property is already rehab, should I take out a HELOC on it or should I refinance it? Or if you're saying, I want to use the money to buy the property that I'm going to Burr. I'm going to assume that you mean the second one because most of the refinances in a burr are going to be a long-term loan, not a short-term helock.

Here's what you have to ask yourself. A lot of us associate in our head, I'm going to take money out of this deal to put it towards this deal. And it makes sense when we think that way. I refinanced this one and I bought that one. And oftentimes teachers like me when we're explaining how those whole thing works, we do share it that way because it's easy to digest. But in reality, I don't know that I ever take funds from one thing and put them into another. I take out the funds and then as opportunity comes, I send out the funds. I have money coming in from real estate sales, from loan commissions, from flips that I did, from short-term rentals that I own, from long-term rentals that I own, from book royalties that I write. There's all this income that comes in, and then I just

kind of keep it in different places and then invest it into properties when they come. So the first thing I want to say is free your mind from looking at it like I took money out of this house and into the next one. Money's money. And you can get it from a lot of places and you can invest it in a lot of places too. Now, you probably don't have a ton of money, and that's why you're refinancing the property to get the money out. So that's why you're looking at it the way that you are. But I want you to understand that money is money for a specific reason. If you do a long-term refinance, let's say you pull $100,000 out of a property on a cash-out refi, and now you have that loan locked in place for that $100,000 that you borrowed against the property. Now, keep in mind, it's $100,000

extra maybe. Maybe you already had a loan on there. And when you did a cash-out refi, you owed money and now you've added $100,000 to the balance. You can use that money for everything. You can use it for anything. You can use that money to buy your burr. And then when you refinance it out, you could just buy the next burr with that money. If you do the HELOC, you can use that money to buy the next property. And then when you get it back, you can pay it off. And then you can wait until you need it again and go get the next deal. So helocks are nice for what you're talking about because you're only paying the interest on the money for the when you're using it. If you do the cash out refinance, you're going to be paying interest on that money all the time.

Now, there's a couple downsides to the helock. Usually the interest rate is higher. So even though you're not paying to use that money all the time, when you are using it, you're going to be paying more. A helock is typically adjustable rate. So if interest rates go up, the amount that you owe and that helot can go up and can go up kind of quick. So I wouldn't say that there is a certain way that you should be. doing it versus what you shouldn't be doing. The question is, how quickly am I going to use that

money? What is the velocity of that capital that you're pulling out of your deal? If you know you're going to be turning it over really quick, you put it in the property, you refinance it, you rehab it, you refinance it, get it out. You just go buy the next property. Do a long-term cash out. If you're going to be using it seldomly, you're just waiting for the perfect deal to come along. Use the helox so that you can pay down the money that you borrowed to do your burr once you refinance it. and you can wait until the deal comes along to pull the money out. So it doesn't matter what type of asset you're spending the money on. What matters on is how quickly you're going to be using that money.

Now, I tend to use both. I usually do the cash out refi first because the rates are better. If I can lock it in at a lower rate, that's better than having a helock that's adjustable and can bounce around. And then after I've cash out refied my properties, I take a helic on the equity that is left. So I always start with the big rock that's going to be the, that's going to be the cash out refinance. And then I move on to the HELOC afterwards. And that's money that I just basically have interest that I'm running all the time. And I use it for flips or investments

into businesses, stuff like that. I hope that helps. Now, if you reach out to a loan officer, they can usually explain to you what the cost of each one would be. So when you do a cash out refinance, you're typically going to have higher closing costs, but you're going to have a better rate and it's locked in. Helox are going to be higher rates and they're adjustable. But the closing costs are significantly less. Happy to help you with that. If you want to reach out to me, I'll get you in touch with one of my guys. If not, just make sure you find a good loan officer that has both products that can explain to you how they work. And a lot of these questions, if you find the right person, they can kind of give you the details on it. All right, we're going to have a bonus question here from our producer,

Eric. Eric was listening to me talk and he had a personal question of his own that has to do with, when should you consider the cost of capital? So you often hear it said that if you refinance a property over 30 years. What's the total interest that you're going to be paying on that money? And a lot of people's minds go to that. They say, well, should I do it? Because over 30 years, I'm being paying this much more interest. That's an important question when you are doing it on your primary residence and you're going to refinance it to spend on like a boat, a car, a vacation because you're just spending money. So you need to know how much it's costing you over a long period of time. If you're reinvesting that, the question becomes how much money am I going to spend over 30 years to borrow it

versus how much money am I going to make over 30 years if I reinvest it? And you make so much more, it's not even worth wondering what you're paying on it. All right. Our next question comes from Zaid K. Zaid asks, I've been looking at triple net properties and evaluating deals and the cash flow returns are lower than what I'm currently doing with my residential stuff. They're higher risk because it's a recourse loan since I'm a beginner. and significantly higher debt. I am a little perplexed on how this type of investing is efficient

to scale, but yet seems riskier and less efficient to me. Not sure what I'm missing and would appreciate your thoughts and input. P.S. I have read commercial real estate investing books that have been networking with brokers and other investors. Okay, I really like this question, Zaid, and I'm glad that you asked it. And for those that are about to listen, I'm going to give you a different perspective at which you should look at your opportunity and the deals that you're looking at and the strategy that you're going to take, then you're probably using. And Zade's question is going to allow me to do that. Basically, Zade, what I hear you saying is, I'm told that I can scale triple net better and faster. But when I look at it, the returns are lower and the risk is higher. So why

would I want to scale that? Now, it sounds like Zaid is thinking the same thing we all think when we get started. What am I doing wrong? This doesn't work. I was told to look for cash flow. And so I'm looking for cash flow, but I can't find it anywhere. I was told to look for a lot of equity in the deal because you make your money when you buy, but there's no deals out there with equity. This is a very frequent thing that comes up all the time. And because I run the David Green team, I have to deal with clients that have these same questions constantly. And I'm very well equipped to answer this question. Here's what you're missing, Zade. You're assuming my guess is based on the way you ask the question, you have this presupposition that all real estate is basically the same. Okay? You've got

short-term rentals, long-term rentals, commercial, triple-net, flips, maybe not flips, but any kind of like buy-and-hold real estate. It's all apples and apples. And so I'm just basically comparing the return and the risk on every property and finding the best one. But it's not. Real estate actually works on a spectrum. It has a personality to it. So when you're investing in, say, a short-term rental, on that spectrum, cash flow is super high, but convenience is super low. It's a lot of work to run a short-term rental.

it's more like buying a job. It is not passive income. Okay. Having a business is just like owning real estate, but business is less passive. It's way more active than owning real estate. But it also gives you a higher upside. You can make a lot more money. It's a spectrum. Triple net investing where your tenant is basically paying for most of the expenses. They're paying the property taxes. They're paying for a lot of the maintenance. They're paying for the insurance. And then they're also paying you rent. It's very convenient. triple net investing means you don't have to pay for a lot of things. The tenant has to cover almost all of it. That's the benefit of it. This is why people say it can scale because you don't do a whole lot of work. Unless you have a vacancy, there is nothing to worry about. I recently bought a $16 million commercial property that was triple net just like what you're talking about. And I was floored at the analysis of it. I was expecting it to be incredibly complicated because it was such a big property and so expensive. But there was almost nothing to it. It was, here's the income that's coming in. Here's what we have to pay for property management. And here's what your loan amount is going to be in the debt you're going to

have. And that was about it. The diligence on this deal came from looking at the tenants. The leases is where the work was actually put in. Now, if you can understand that, it makes sense why the returns are lower. You've got to give something up to get something. If you want to get the convenience and scalability of triple net investing, what you have to give up is the return. You want to hire a return, get into short-term rentals. Now your risk profile will go up and the amount of work you're doing will go up, but you will make more money. What I want every listener to understand is so many people get stuck not taking action

because they haven't accepted that all of real estate operates on a scale. And the further you go in one direction, the further away you go from other things. I see this phenomenon with things like cash flow versus equity. In most markets, you're going to get more appreciation where there's less cash flow in the beginning, and you're going to get more cashful in the beginning if there's going to be less appreciation. I see this constantly. I see that returns can be really high and really bad areas where you have to spend a lot more time managing the property. So you're giving up time and you're giving up convenience to get that higher return. And this is why people get into bad deals,

is they look at a spreadsheet that says, I'm going to get a 25% ROI and they get really excited and they buy that turnkey property in a terrible area. And then they spend all their time trying to keep a tenant in there and they go, real estate sucks. I hate it. but if you had walked into it knowing that you were buying real estate that was going to suck and you were going to hate and you were willing to endure that in order to get the 25% return, you wouldn't have been upset. Now, this is something I've learned just from dealing with clients who come to me with these pie in the sky expectations.

Hey, I want to buy Bay Area real estate. I see the rents are going up. I see the property values are going up. Interest rates are really low. I really want to be able to borrow $900,000 at a super low rate and I can get really high rent. And they're right about all of it. but what they're giving up is the ease of buying it. It's very difficult. You're going up against

a lot of other people that want those same properties. So in the beginning when you're first on the hunt, you're going to work a lot harder than the person that just goes to Indiana or Detroit and can find a property right off the bat. But the upside once you get it is huge. You're never going to regret it. So the reasons aid to sum this up that you're having such a hard time understanding it is because you're looking at all real estate like it works the same, but it doesn't. All real estate has a personality, just like all kids. Some kids are very strong-willed and it drives you nuts, but then they become great leaders and they accomplish great things because their will overpowers it. You can't have a person who is very agreeable and doesn't really push for anything and then also

want them to go push through obstacles. That's how personalities work. You have to give and you have to take. So the reason they say it scales is because there's not a lot of work you do. So there's less time involved. And the less time is involved, the more scaling can happen. But the return's going to come down as well. Hope that helps, Dave, and everyone else. All right, we asked for your comments and feedback and you gave it. And I'm so pleased that I'm going to be able to share some of it. It's been overwhelmingly positive. It seems that people are loving this show format. And that makes me really happy because we put a lot of work into collecting all this information and setting it up so that I can answer it and making sure that I answer it well. So I'm really glad that you guys are

liking it. I want to take a minute to share some of the feedback that we've been receiving. First comes from Dave H. You ask for comments and feedback. This series of detailed Q&A has been some of the best content for a newbie like me. Some of the questions are exactly what I would have asked. Other questions from more experienced investors get me thinking about things I hadn't considered. Keep it coming. Dave, thank you.

That is literally what I'm hoping for. I'm hoping that I can answer questions that newbies would have because those are typically the people that bring it up, but do it in a way that experience investors gain some insight into what's going on behind the scenes. In fact, the whole idea of seeing green is that you're seeing it from my perspective. And I can offer practical insight and practical solutions. But I also like to sort of peel back the layers of the onion and show you what goes on in the industry behind it so that more experienced investors can gain from it. Ogars are like onions.

They've got layers. And Shrek was green, just like this green light behind me. Next from Joso-Salwald. Absolutely love this format. please keep it up. It would be helpful to hear advice on scaling, particularly as it applies to financing debt to income, loan type, et cetera, and how to balance debt load versus risk. I love that question. I love talking about it. If somebody wants to submit a question specifically on that, go to biggerpockets.com slash David and let me know what you're trying to figure out with

your scaling. J-So here has actually inspired me to make a video and I'm going to make one and put it out that talks about how I personally manage risk and reward in my own portfolio. This works with business. It works with real estate. It's really a principle I've developed that keeps me safe so that I can aggressively scale without having to worry about losing everything. So thank you for that. I'm going to work on that video today. Next is from Michael Randall. And this is great. I don't mean to be argumentative, but I thought I'd share my thoughts. It's kind of like when you say no disrespect but the whole ricky bobby thing except michael actually wasn't being disrespectful i just thought that was funny i don't mean to be argumentative but i'm about to argue all i would ever hear on bigger pockets

for years was to focus on cash flow and betting on appreciation and inflation et cetera was a gamble and that was a big no-no now you guys are saying the opposite sure over 30 years real estate will work out as an investment no one ever argues that and a deal today will most likely be a good investment the long term. That is the only part that makes sense to me. All right. So here's why I love this question. It is absolutely indicative of the culture and the background of bigger pockets in general. And if you've been listening to all the episodes that have ever been made like many of you awesome fans do, you're probably thinking the same thing. In fact, I had to wrestle with this very hard. So I'm going to do my best to give you some insight as to where the advice came from, why the

advice has changed. Now, also, to be fair, not everyone on bigger pockets agrees with me. Okay. Brandon and I have a way of looking at the economy and real estate and developing our strategies that some people don't have. So this isn't the opinion of necessarily bigger pockets. This is the opinion of David Green. And because you hear my voice on bigger pockets all the time, I want to take a second to give you some background into why this is the way that I'm thinking. First off, you got to understand the history of where bigger pockets came from. Josh Dorkin started this company after having a terrible experience owning rental property himself, I believe in Southern California.

And he had questions about what to do when things were going wrong and he had nowhere to go. So he started an online forum for real estate investors to come and ask questions so they could get answers that he never got. And that really hits close to home for me because that's how every business I ever started was. I had a problem. It was causing me pain. It was hurting me and I was frustrated. And instead of just being mad about it, I went out there and tried to create the solution. And Josh did the same thing.

And it grew up to this behemoth that bigger pockets is now. Now Josh ended up, I believe, losing those properties. because they didn't cash flow. And then when, and this happened at the same time as a lot of other people are losing property. So if you're younger and you don't remember, right around the years 2000 to 2006, loans were being given to people that they could not afford and they were, they were giving artificially low interest rates that would reset later so they could afford the house on day one, but they couldn't afford it two years later. And everybody started to lose their properties because they could not rent them out for as much as they had to spend on the loan. And they could not

sell them because the value of the properties was dropping too fast. So you ended up being left with a property that was going to bleed you dry every month or just let it go. And when the value of your property is less than what you owe on it and you're losing money every month, the majority of people didn't see any reason to keep it. So they all sold it. It flooded the market with inventory, tons of foreclosures. Most of these houses were in disrepair. And we walked into what I would say now is like the golden era of real estate investing. There was a ton of supply and very little demand. Now there were certain challenges to that market. Like there was a lot of going around. It was hard to get financing because banks were so gun-shy by giving loans to people

after seeing how many people had defaulted. But if you had the money, if you had a job at that time that was consistent and if you had the wherewithal to buy properties, that's when I got started, it was great. The reason all of the advice that was coming out of bigger pockets and probably everywhere else was cash flow, cash flow is because at that time, people were buying properties that did not cash flow and they didn't even know they were supposed to cash flow. They didn't even understand that cash flow was a term. They were buying for pure speculation. I'm going to buy it at this price. I'm going to sell it when it goes up. They were treating real estate like stocks. They were not listening to podcasts of people that talk about how to own property, how to analyze property, how to manage

property. They weren't educating themselves. They just saw that everybody else was making money and they said, oh, I think I'll go do it too. They were just hoping that it would work out. And nobody lost the house the cash flowed. The only people that lost houses didn't cash flow. So the overwhelming advice, like imagine where a general is going to send their troops. They're going to send reinforcements to wherever the line is the thinnest and they need the most help. And everyone was making the mistake of buying property that didn't cash flow. They just assumed it would always go up. And cash flow is what will keep you safe when values go down. Now let's fast forward all the way up to 2022 where we are now. You're hearing us say, I should say, you're hearing me say,

hey, if a property doesn't cash flow a ton, that's okay. I'm still buying it. Here's all the reasons why I would. And it's going to cash flow in five years. It's going to cash flow in three years. Basically, it's because the rules of the game have changed. There is now way more inflation than there was back then. We had more fiscally conservative policies than what we have now. People didn't just create money out of thin air and dump it into the economy. The reason that prices were going up so fast back then is because the loans were bad. The loans are actually good now. It's the money that we are spending is worth less, and people don't understand that. So a million dollar property might be worth like a $600,000 property back then.

There's been that much inflation. So it gives us this idea that everything's getting expensive, but it's really not. Our money's just becoming worth less. And if you look at saving money in the bank now, your money's becoming worth less and less and less as inflation eats it. Saving money in the bank back in 2010 was different. It was better to save money because that money could stretch. it could go really far. You could buy a property for 100 grand instead of 300 grand.

So you wanted capital to do it. Fast forward to now the price of the assets are going up so quickly that if you wait too long to buy them, they just become more expensive. And the money that you're saving in the bank is becoming worth less and less and less. You actually make way more money owning assets in an inflationary period than you do saving money. When there's not a lot of inflation, assets are sort of riskier. They're more work.

You're going to spend your money on that asset. And if you're only going to get a 7% return, Well, you could go get that on the bank and do no work. So why would you go buy real estate? Well, now you can't get a 7% return on the bank. You're going to get a 1% return. And the value of that real estate is going up much faster as well as the rents, as well as the cash flow in the future. So I'm not telling people to buy properties that don't cash flow. I can do that because I have enough other properties that do cash flow. It's fine. Or I have money coming in from other areas. But that doesn't mean that everybody else can do that. What I am saying is don't look at cash flow is the only reason to buy.

and don't assume it's going to be your savior. You don't make very much money in real estate from the cash flow. You make money from paying down a loan, having appreciation, and your rents going up every single year. Your cash flow grows. It very rarely is a significant impact in year one. So I hope that that makes sense. If you listen to older episodes, there's tons of talk about cash flow is king, cash flow is king because that's what would have saved you. That's what was hurting people. We were very worried about people buying properties that in cash flow. In today's environment, it's different. There's not as much worry about people losing their jobs as it was back then. Properties are going up in value so that if something happened, you can sell them much easier.

And it's not guaranteed. You still should be looking for cash flow in a property. But I don't think the ROI on your money is the number one factor that matters. I think buying in the right area is much more important than the ROI right now. I think looking at the ROI 10 years from now is way more important than looking at the ROI right now. Think about the story of the tortoise and the hair, right? The hair shot out the gates right away. That's like buying a turnkey property. in an area that is not going to appreciate and it's tough to own. You're getting cash for right off the bat and you feel really good about yourself. But that tortoise just kept steadily going and going and going and eventually it ended up passing the hair. That's what it's like

when you buy in a great area with a solid tenant base with a lot of great jobs moving in and rents going up every single year because of it. Your cash flow catches up to that hair pretty quickly and then passes it and keeps going where the hair stopped. That's where the advice is coming from. That's why you're feeling confusion. I really appreciate you asking that question, Michael, and I hope that my answer helped. Hi, David. Thank you for taking my question. I'm currently located in the greater Boston area, but have a six unit in upstate New York where I'm originally from. My family is actually planning to relocate back to the upstate New York area, and we plan to use some of the profit from our primary residence for investment purposes.

If our goal is to increase our monthly cash flow, what type of investment asset classes and strategy should I be considering? Should I look to partner with someone who has more experience to get into larger commercial deals, look into syndications, maybe venture into self-storage? How should I be thinking about this? Thanks so much. All right. Thank you very much, Carly McAulov, moving from Boston back to New York. This is a good question. Here's what I hear you saying. We're selling a property. We're going to have some equity. If our goal is primarily cash flow, where should I be looking? There's all these options. The short answer to that question is if you're just looking for the most cash flow you can get

and you're relatively new of an investor, the best asset class for you is small multifamily. That's your two, three, and four unit properties. Why, you ask? Well, the financing is really easy. You can get Fannie Mae Fridayback loans at 30-year fixed rates, even though they sort of function a little bit more like commercial property because they're meant to generate income. If you buy them as a primary residence, you can get away with putting way less money down. You can put down as low as like 5% on a lot of those properties if you get the right loan officer that finds you the right product.

We do that pretty frequently with my team. They're also the easiest to manage and they're very easy to analyze. So you can get a property manager that we'll just manage it for you. You don't have to do a whole lot of work. And the analysis is pretty simple. It's like taking the analysis of a single family home and it's almost the same thing. What's the rent? What are the expenses?

You can find the rent of each of the units. That's really the only difference is you're doing it for four different units instead of just. one. And then there may be a couple additional expenses. Maybe you're paying for the water, you're paying for the garbage. It depends on the area that you're in. I don't know what it's like in New York. But that would be really simple. Your questions about syndication and self-storage, those are niche strategies. I don't know that they would get you as much cash flow as as give benefit in other ways. So let's say, for instance, that you got into self-storage. That would probably give you a much more value add component. I don't know that the cash will be the

but it'll be a lot more work. You're buying a business. You're not buying real estate when you get into self-storage. You're buying real estate as a business would be the best way to look at it. But you're running that business by owning that real estate. That's a lot more time, not like buying small multifamily. A syndication, the value is that you spend no time. You don't do hardly anything. And you can get a good return. The problem is you don't get the long-term benefits of real estate ownership because the syndication is going to sell those properties in order to pay you back. You're just going to be getting some money over a short period of time. So you're not actually owning real estate, so to speak, as investing in a business that owns real estate. That'd be a better

way to look at it. So if it's purely cash flow you're looking for and you're new, this is the best way to get started. This is sort of like having a bike with training wheels. You could fall, but it's a lot tougher to fall. You're not going to go super fast, but that's okay when you're new. You don't need to be going really fast. And you learn the fundamentals of riding the bike. And once you get good at that, you can start looking at some of these other niches and other strategies taking off those training wheels and riding faster. Here's the truth about passive investing. If the strategy isn't right on day one, the returns won't save it.

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personal income statements. Think about it. A lender that values your property's worth over your paycheck, that's the host financial difference. Approved in 47 states, they are ready to help you make your next big move. Curious if you qualify, just head over to hostfinancial.com and find out. Stop letting outdated lending practices hold you back. That's hostfinancial.com, where your property's potential meets unlimited financing. It's Alex here from the west side of Cleveland. Hey, man, I just want to let you know, I love your stuff. I follow you and Brandon. You guys have awesome books and awesome feedback, and I've gained so much knowledge from you guys. So thank you for that. I'm wondering, I'm looking to start investing out of state. When you're investing out of state and

you're finding your deal finder, do you let them know that you're an agent? The reason I ask is, currently I'm an assistant to an real estate agent and I'm looking to get my license and I plan to become a realtor. Do you feel that it helps you letting the other real estate agent know that you are a realtor or do you suggest not letting them know? I appreciate your feedback, man. Thank you so much. And again, thank you for everything you've done for all us rookies out there. Appreciate you. All right. Well, thank you, Alex. That's actually some very nice things that you said. All right. So this question is pretty simple. And there's a couple of things that I'm going to cover when I answer it. It's if I am investing out of state and I'm an agent in,

do I tell the other person on the other end that I'm an agent? First off, what a lot of people do is they go to the agent that they are having represent them and they ask for a referral fee. They ask for a percentage of the commission back to them. That can be customary in the world of real estate agents. So if somebody is in Texas and they say, hey, I need to sell my house in Texas and I want to move to California. There's agents in Texas that will say, hey, David Green, I have somebody that's moving to California. If you give me 25% of the commission, I will let you work with them. And this does happen pretty frequently.

So what a lot of people will do is they'll ask for that same bonus back from their realtor. I rarely ever do that. I only do that when I'm buying very expensive property and like over a million. Like oftentimes around like one and a half to two, two and a half million dollars. And we're the easiest clients ever because we don't need that much work. So typically if you work with me, if you're a realtor, in the very beginning, I will ask you some questions that have nothing to do with analyzing the deal. I want to know about the area.

I want to know about what resources that you have to help me with this thing. I want to know about what type of people live in that community, what they do for work, what they do for fun, how many people are moving in there? maybe a little bit about what the city is building or not building, that type of stuff. And the rest I can do. I understand how the contract works. I understand how to do everything. I've done it so many times.

So I'm the best client you could ever have. In those cases, I'm okay asking for a referral feedback that I put towards a down payment. But when I was first starting off and I wasn't my expensive property, I never did that. I wanted the deal much more than I wanted the little bit of money that was going to come my way. And I didn't want the realtor to not work for me because they were going to be making less money. So I don't ask for the referral fee except in very specific cases. I do let them know I'm an agent. And that's mostly because I'm usually telling them, here's what I want you to do. And I'm

coming from the perspective of an agent. So let me give you an example. I have an agent in Phoenix that I recently was talking to about a deal that a partner and I were looking into that was very expensive. And I told him, here's what I want you to do. I want you to call the listing agent and find out why it was pulled off the market. He did. He got back to me. I said, okay, she sounds like she was pretty eager from how quickly she called you back to put her under contract. He said, yeah, she wants to get this thing sold. I told him, all right, here's what I want you to do. I want you to call her back and I want you to make the case that you are trying to sell your client on the property. And the reality was I was going to him and saying, I want to look at it. But I said, call the agent and say,

I've got a buyer for you. They do this all the time. They will close on this deal. I just need to know if we can come to terms on the price before I bring it to them. You guys are currently listed at 1.8. You've been on the market for 63 days. What are the odds we can get this thing below 1.7? I don't want to waste your time. And I said, I want you to tell me what her tone sounds like. If she's like, man, I don't know, but I really want to try. That lets me know that the sellers are ready to get moving and she wants to get it sold.

If she laughs at him and hangs up, that lets me know that there's not a whole lot of interest there. And if we're going to write an offer, it'd have to be higher. So I tell them I'm an agent because I'm often giving them direction on how I want the negotiation to go because I know how to do that as an agent. Here's the danger in it. If you tell them I'm an agent, they often assume that means you know how the contract works. And I got burned on this one time. I bought a property in Florida. Now, in California, if you have an inspection period of 12 days, on day 12, you get a notice to perform. And then 48 hours later, you have to decide, do I want to move forward with the deal or do you want to back out and get my money back? But if nobody makes you perform, your deposit is never

at risk. You could just get it back if you back out. In Florida, that doesn't work. that way. On day 12, you can no longer get your deposit back. So because the realtor in Florida assumed I knew how contracts worked there, they didn't know that it was different in California. I didn't know it was different in Florida. I never waived my inspection contingency and I assumed that that meant I could get my $5,000 deposit back. Well, 30, 40 days into escrow, they're asking me why we're not closing and I had literally forgotten. I'd put it under escrow. I was buying so many houses. So I looked at it and I realized that I can't buy it. There's a hole in the roof. It had been raining nonstop. The entire inner workings of the house, the studs themselves had dry rot.

The whole thing would have to be torn down and rebuild. I said, I can't buy it. But I didn't realize I wasn't get my deposit back. Now, the only reason my realtor wasn't hounding me saying, you need to move on this is she thought I already knew that. So that's an example of how if you tell someone your realtor, they might assume you know certain things that you don't. So I would say, yes, tell them your realtor, but be very clear that you want to be treated as if you're not a realtor unless you tell them any different. Okay, our next question comes from Jarrett. I'm currently house hacking, having trouble finding properties within the 1% rule that won't require lots of maintenance and repairs. And even though it's very cheap to borrow money, I'm not sure how to go

about my next deal. I have MLS searches all around Michigan with real estate agents, but they agree that the market just isn't great right now deal-wise. Should I wait for rents to appreciate the way housing prices have or is staying patient through these important years a potential mistake? Very good question. And I think, Jared, that this applies to a lot of people who are listening that are in the same boat. Let's start off with what you are using to refer to a good deal. It sounds like you're looking for something that meets the 1% rule. Now, the 1% rule is more of a 1% guideline. And it states that if a property will rent for 1% every month of what you paid for it, it will likely cash flow. So if you buy a $200,000 house, it should rent for $2,000 a month.

That would be the 1% rule. That's not a rule that I believe people should use to make their investing decisions. It is a rule they should use to decide, do I want to even look at it if I need to see cash flow? So I will do this in my head all the time. I'll be looking at a deal and I'm like, okay, that's a $400,000 house. The 1% rule is $4,000. The rents are $3,200. That is close enough to it that will cash flow.

I will actually analyze this deal and see how much the ROI would be. Let's say that it's a $400,000 house and the rents are $2,000. That's half of 1%. It's not even close. It's not going to cash flow at all. I won't even look at it unless I'm looking at it from the perspective of how I would increase rents. That's how the 1% rule is meant to be used.

It's a very initial once over to see if you like this thing, not something you should be using to decide, is it a deal? I think, Jared, what you need to do is to get clear with yourself on what a deal means. If you're looking for something that cash flow is a ton and is relatively easy, you're not going to find that in hardly any market. There is not enough inventory. You're competing with people that just want to buy a house because the rents are going up on them every single year and they're tired of it.

And you're trying to get a deal that makes you money while they're just trying to spend less money. Your competition is making this a lot harder for you. I do tend to look at long term. I don't think you buy a house for one year, so I don't see why you look at the cash flow for one year. You're buying a house for a long time. So I look at owning that property over a long period of time, what's going to make more sense? If you're waiting for rents to appreciate along with prices, like you mentioned, it won't happen. They never do. Prices always outpace rents. So what happens is both prices and rents continue to rise together typically, but prices go up faster and faster and faster and faster, okay? And then prices drop, but rents mostly stay the same. Sometimes they even

go up, right? And then when the market turns around, rents go up and prices go up and then they end up catching rents and then they end up passing them and then we have the next collapse and then they drop at rent stay the same. That's typically the cycle of what it looks like. So I don't think you should wait for rents to appreciate because they won't keep up. And the simple reason is if rents just kept keeping pace with price. Eventually, you'd be spending so much money on rent that it would make more sense just to buy the house. And that's what people do. And so renters are always in a certain price point because if they were able to afford more, they would become buyers. Another thing to consider, the 1% guideline that we're talking about here becomes less strict at higher price points

and with lower interest rates. So what I'm getting at is if you have a $100,000 property, it needs to bring in $1,000 a month for the 1% rule to apply. But if interest rates drop from 12% to 4%, you get a lot more slack as far as how much you need to stick to the 1% rule. It might be 0.8.7 and be fine because rates are so low. So as rates drop, like you said, money's cheap. The 1% rule might drop to the 0.8% rule. That might make more sense.

The other thing is that as the price goes up with low interest rates, the 1% rule becomes less and less applicable. So what I'm saying is if I'm going to buy a $50,000 house, it better bring in $500 a month if I wanted to cash flow. But if I'm going to buy a $900,000 house, it does not need to bring in $9,000 of rent to cash flow. It might cash flow at $6,000 or $6,500, which would be more like the 0.65 rule. So at that very low price points, that guideline is very, very solid.

You got to pay attention to it if you want it to cash flow. At higher price points, it becomes softer and softer and softer. That's something that a lot of people don't realize. So they go around looking at a $10 million property and wondering why it's not bringing in $100,000 a month, like apartment complexes and stuff like that. The next question comes from Craig D. David Green is a lifelong bachelor. Is it better to never be married and be a real estate investor or be married and be a real estate investor? Oh boy, this is really funny.

I don't plan to be a bachelor for my whole life. I just haven't found the right person yet. I'll be as lucky as Brandon and Heather. As far as, is it better to be an investor when married or when not married? Let's look at some of the differences here. So I'm looking at buying a property with a friend of mine and he is married. And so every question that we normally would just sit down and talk about and come up with a solution for how we're going to use the property move on, there's another layer of complexity. We have to now go to his wife who doesn't understand real estate investing and isn't looking at this at all like an investment who's actually much more concerned

with the fact that she gets saying what paint color we're going to use, then is the property is going to make money. So in that sense, I think being married can be tougher because you have a whole other person you have to respect who's in this deal. I think the tax benefits might be a little bit better being married in general. And that probably does apply to real estate. So let's go advantage marriage when it comes to the tax advantages of owning real estate. I think if your partner in this deal, your spouse wants to be a part of it, I think it can work for you. you. If you split up the responsibilities, right? This person collects the rent. This person sets up the systems. This person advertises the unit for rent. This person talks to the contractor, right? Having

different skill sets can help just like having any other partner. I think that when there's a difference of opinion, having a marriage partner involved can make a little more complicated, which is the same reason that I very rarely ever buy properties with partners. This is something I'm just now starting to do this year because for the most part, I don't like when I want to go this way and they don't because they're newer. They're not experienced. They don't see why I would want to go that way. A lot of the time, the newer investors that I know are just saying like, what's the revenue? What's the revenue? What's the revenue? What is the cash flow? And they would buy a property in a swamp if the calculator show that it would make sense, which is funny because Shrek comes from a

swamp and we talked about shrimp a little bit earlier in this show. And I'm looking at it from long-term perspective, right? I want to buy an area that isn't going to cause me a headache is going to appreciate over a long period of time. The rents are going to go up every single year. The value of the property and the ease of owning it is going to go up every single year. The revenue itself in the beginning doesn't matter, but I want to know what the revenue is going to be like later. So that often causes conflict between me and my partner. That's an example of when you have different ways of looking at at different priorities or different things you want. It can be tricky So because I've only bought real estate as a unmarried person, I can't answer all the questions,

but I do pay attention to the other people that I see who are doing it with their spouses. And I would say if your spouse is on board, it's probably going to become a superpower. You're probably going to get further along than if you were single. If your spouse is not on board, it's going to feel like you're dragging somebody along who doesn't want to be there and you're going to run a lot slower. Funny question, though. Thank you very much for that, Greg. All right.

Next question here. structuring on owner financing deal in Atlanta and there's a bit of land in the back that I would want to build on. Is that something I could get financing for or what I need to pay for that in cash assuming I got permission from the owners? P.S. it would be a cash-loan property, short-term rental or long-term rental. All right. So let's talk about if you want to buy property and build because this is a very, very common question, especially that we get in the Bay Area where now you can build ADUs on your property. So a lot of clients come to me and they say, hey, David, we want to buy this property, look at all this land, I can build another property on it. And it makes sense

in theory. Let's talk about if it actually makes sense in practice. So the first thing you have to understand is if we're not talking about building an ADU, we're actually talking about building a property. That is a huge, huge undertaking. You're basically becoming a spec home builder. You're going to have to get the land developed. You're going to have to get permits with the city. You're going to have to understand that process. You're going to have to get a contractor that knows how to build a house from the ground up, not just your standard contractor that doesn't do that. And then another thing people don't realize, like tiny homes are very popular. And everyone says, I'm going to put tiny home back there. And they don't think about the fact that you got to run electricity to that. You got to run water to

that. You got to run a septic line to that. There's a lot of infrastructure that goes into putting a property in the ground that the inexperienced investor doesn't often think about. Their financing is the other piece you have to think about. You're probably going to either pay your own cash or find a source of revenue that's not a Fannie Mae Freddie Mac loan. You might get a bank that gives you a construction loan. They're expensive. and they're burdensome. They're going to come out and check on the work constantly. They're going to be talking to your contractor all the time. The contractor's not going to like it that before they can get their next draw from you because you're going to get it from the bank, that the bank has to come

out there and inspect the work that's being done and tell them what they want to do different. It makes it very complicated. What I often find is the person who wants to buy a house and then build a $100 or $150,000 property on it, whether it's an $80,000 or something else, could have taken that same $150,000 and put it as a down payment on a house it's already built. And you're getting a full home as compared to the small ADU that you were going to build. You're getting to leverage and borrow money against that home that you can pay down versus you basically in a sense, once you've built that unit, you're sort of your cash is just sunk in it. It's not like you can refinance that one thing. You can maybe refinance your whole property and get some money out,

but you very rarely add the same value to the property itself as you spent. Like if you spent $150,000 to build an ADU, you didn't make your property worth $150,000 more in most cases. So you lose the power of leverage. You also lose the power of being able to sell it at some point. So if I buy my own property somewhere else, I can sell that. I can refinance it. I can split it into two units. I have all this flexibility with what I can do with it.

If I build an ADU in my backyard, sure, I can rent that out for extra income, but I can can't sell it individually. I can't refinance it individually. There's not a whole lot I can do with it. It's not nearly as effective as buying real estate and using the bank's very cheap money to do it. So I hate to be the bear of bad news. Everybody comes to me with these really big ideas and I got to be the terrible person that says I don't think that's the best use of your capital. But to be straightforward, it very rarely is. Now, if you find a company that will finance you building an ADU, they will let you borrow money over 30 years and it actually works the same as if you bought a house, I would be completely on board and I would be putting ADUs on every single property that I

owned. All right, we have time for one more video question. Let's take a look. David, simple question. When I purchase a flip or a burr, I have to wait six months before I'm allowed to refinance based on some seasoning in period. And this is in Georgia. I'm not sure. I guess my question is, Is there a way around waiting six months to do the refi? Or is there a trick to get money faster? Do I need to maybe? Because if I do a hard money at first and then I want to refi once I'm done with the rehab, is there a way to not have to wait a full six months?

Thanks. Ah, yes, the dreaded six month on the refinance question. This one comes up all the time. Let me give you a little bit of background into why you typically wait six months. off. This is not for every loan. This is for the best loan. If you want to get a Fannie Mae Freddie Mac product that has the lowest interest rate locked for 30 years, you often have to wait six months. This is because there's a rule in place that if you do a deal with a lender and then you pay that loan back within six months, the lender has to pay back all the commission that they made

on it. So if you refinance your house and then you go somewhere else and refinance it again, that first person that did all that work has to pay back the money. They don't get anything. So what happens is many guidelines are put in place that says we won't do a deal if it's been six months because we know that we're going to be screwing over the person that took it before. But that's only for certain loans. These are like the government conventional type financing. Many credit unions don't have that rule. Many savings and loans institutions wouldn't have a rule like that. Private lenders don't have a rule like that.

Like you said, hard money doesn't have a rule like that. I don't see any reason why you can't refinance with hard money. and then at the six-month period, do your normal refinance. Yeah, you're going to pay a little bit more money at front, but if you need that capital that bad, you're only paying that higher rate for a couple months. And what I would do is I would keep the points low and the interest rate high. So I'd go to them and say,

I'll give you a one point, but I'll pay 12% interest or something like that if you can do this deal. And I'd refinance it with hard money if I really needed the capital. And I'd only be paying that 12% for a couple months before I could refinance it again with conventional. If you want the best loan product, though, you are going to have to wait that six months. The question of can I work around it is you got to find something that's not conventional

financing. You've got to find a portfolio lender. You have to find a credit union. You have to find a private lending. You have to use a he lock on another property. You're going to have to do something like that if you want to get around the six months. All right. I really hope I was able to help some of you brave souls who took action to ask me questions.

And I look forward to answering more of your questions this year. We covered quite a few top. which is awesome. Some of them were about the six-month seasoning period. People were curious as to if that will work. What type of investing we should get into as far as if I want cash flow, that was Carly, I believe, should I get this asset class or that asset class? We talked about why you used to hear cash flow, cash flow, and now you're hearing there's more than just cash flow. I hope that my answer there sort of brought some clarity to the situation. We talked about triple net investing and how it can appear like it's not as profitable and just the confusion

that comes from it, which a lot of people have as they see, well, that person's making $5,000 a month on their short-term rental. I can't find a long-term rental that does better than $1,000 a month. What am I doing wrong? Well, it's because of the fact that real estate has personalities and you have to find the personality that fits for where you are. I want to thank you all for submitting questions. If you're listening to this now, I want to hear from you. Go to biggerpockets.com slash David and submit your question there so that I can answer it the same as all these people did. There are no dumb questions. You're thinking the same things that everybody else is thinking. Give me the opportunity to share that so that everybody else can hear. Also, if you are not listening

to this on YouTube, please go subscribe to Bigger Pocket's YouTube channel and leave me a comment there. Let me know what you liked, what you didn't like, what opened your eyes to something you might not have seen before, and how this show is affecting you and you're investing right now. As you see, I read the comments on air that we get there. So please keep that going. The funnier, the more insightful or the better the comment is, the higher the chance that we are going to read it on the show. I want to thank you all very much for taking this journey with me

and for trusting me with your time and attention. Please make sure you subscribe to this podcast on iTunes and anywhere else that you listen to your podcast. And I will see you on the next one. Thank you all for listening to the Bigger Pockets Real Estate podcast. Make sure you get all our new episodes by subscribing on YouTube, Apple, Spotify, or any other podcast platform, our new episodes come out Monday, Wednesday, and Friday. I'm the host and executive producer of the show, Dave Meyer. The show is produced by Ian K,

copywriting is by Calicoe content, and editing is by Exodus Media. If you'd like to learn more about real estate investing or to sign up for our free newsletter, please visit www.biggerpockets.com. The content of this podcast is for informational purposes only. All host and participant opinions are their own. Investment in any asset, real estate included, involves risk. So use your best judgment and consult with qualified advisors before investing. You should only risk capital you can afford to lose. And remember, past performance is not indicative of future results. Bigger Pocket's LLC disclaims all liability for direct, indirect, consequential, or other damages arising from a reliance on information presented in this podcast.