BiggerPockets Real Estate Podcast - 582: Seeing Greene: Investing in Paradise, Timing the Market, and House Hacking

Episode Date: March 13, 2022

Should I invest now or wait? How do I set up my children for financial success? What do top agents do to stand out in the market? These are all questions of real estate investors, agents, and onlookers who wait to see what’s next in the 2022 housing market. With so much uncertainty around us and an environment of intense competition, it can be a struggle to know what move is the right one or whether or not to sit out of the game entirely. Well, if you’re looking for a top agent, investor, and podcaster with a very shiny head, you’ve come to the right place. David Greene is back with another fan-favorite episode of the Seeing Greene series as he takes questions directly from BiggerPockets listeners and commenters on YouTube. In this week’s seeing Greene, you’ll hear David go granular into commonly asked questions and topics like: how to finance a rental without W2 income, what to do when a home is zoned incorrectly, investing in expensive markets like Hawaii, asset protection for real estate investors, and why cash flow isn’t the most important metric when house hacking. Want to ask David a question? Submit your video here!  In This Episode We Cover: The exact way David provides value to his residential and investor clients Buying your child a rental property and the logistics that go with it What to do with a rental property that was zoned incorrectly  Investing in vacation rental markets like Hawaii and why they’re different than regular markets Whether to invest now or wait until the market has more cash-flowing deals The best way to protect your assets as a new real estate investor Why house hacking is the best way to get your start in real estate investing (even in expensive markets) And So Much More! Links from the Show BiggerPockets Youtube Channel BiggerPockets Rent Estimator BiggerPockets Forums BiggerPockets Pro Membership BiggerPockets Bookstore Submit Your Questions to David Greene BiggerPockets Podcast 569: Rich Dad’s CPA Shares 5 Steps to Eliminate Income Taxes through Real Estate w/Tom Wheelwright 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? BiggerPockets Podcast 567: Seeing Greene: Finding Cash Flow, Refinancing Sooner, & NNN Properties David Greene Team Click here to check the full show notes: https://www.biggerpockets.com/blog/real-estate-582 Learn more about your ad choices. Visit megaphone.fm/adchoices

This is the Bigger Pockets podcast show 582. I bought properties that didn't cash flow because I got them significantly under value. I bought one in Florida probably like five years ago, maybe six years ago that I was able to buy for around $195 and it was worth like almost $260,000. It was an incredible deal from a wholesaler, but it didn't cash flow. I didn't care. I basically bought myself $150,000 of equity and it's only gone up since then. Am I okay to lose a couple hundred bucks for a couple years so I can get that? Yes. Now, in what circumstance would that be a bad idea? What's going on, everyone? It is David Green, your host of the

Bigger Pockets podcast here today with a Seeing Green episode. On this show format, we take questions from people just like you that have submitted them to Biggerpockets.com slash David, and I do my best to answer them for everyone to hear, hoping to give you some practical advice and maybe some insight into how real estate works so that you can further your knowledge, your perspective, your education, and ultimately your success. Now, this is your first time here. Bigger Pockets is the company that teaches you how to build wealth through real estate. We've got an awesome website, so check it out at BiggerPockets.com. We've got a forum where you can ask just about any single question you can think of and somebody will answer it. We've got an agent finder where you can get

connected to real estate agents that are also Bigger Pockets fans. We've got this awesome podcast and a whole bunch of other things. So if you're looking for a community of over two, million people on the same journey as you. You found it. Today's episode is awesome. So we get into some pretty deep stuff. We talk about what an agent can do to get their business started and what you as a client should look for in an agent. We talk about zoning issues and what things to be aware of and what things probably aren't going to be as big of a problem for you. We talk about Hawaii real estate and the approach, the strategy that you should take if you're actually interested in investing in Hawaii like me. We talk about how to have a conversation with your spouse if they're not

wanting to invest in real estate or their debt-averse. And we talk about when cash flow is important and when it might not be important. Make sure you listen to that one. It's always controversial when you take on the cash flow gods. But I think I did a pretty good job of laying out when cash flow matters and when it's not as important and what the best use for it is, as well as when that applies to house hacking. Now, I also read some comments from the YouTube channel. So if you're listening to this on YouTube, please go to YouTube right now and leave me some comments. I'd love to read yours on the next show. All right, for today's quick tip, if you're not a BP pro member, consider becoming one. If you become a pro member, you can listen to every single

webinar that Bigger Pockets has ever done, many of them hosted by me. So when you're waiting for the next podcast to drop, you can go check out a webinar. I'll give you a second quick tip. Bigger Pockets has a YouTube channel that has content that isn't the same as the podcast where me and other people interview different guests, oftentimes in a shorter format where we just go right after the meat and potatoes, and we try to make those fun. So check out some of the interviews that I'm doing on YouTube for Bigger Pockets and then leave me a comment about what you thought. Here's why savvy real estate investors are obsessed with bonus depreciation.

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If you like this, please go to BiggerPockets.com slash David. Leave me a video or a written question. And if you didn't get a chance to get your question answered, you can always send me a message on social media. I'm David Green 24. All right, let's get into it. David, hi. Thanks so much for taking these questions. I have loved this section of the BP where real people get to ask you things. So I appreciate it. My name is Katie Lawrence. I'm in Arvada, Colorado. And I have an agent-related question. So I'm a long-time investor having to have a real estate investment company with my husband. we do fix and flips, we do burrs, we have rentals, renovations. So last November, I became an agent.

So I have a few questions around the agent side of things. So we've obviously selling and buying homes have worked with a number of agents. So my question is around residential clients. How do you provide value? What are a few things that you and your team do that make you stand out? as real estate agents from a residential client perspective. And then the same question for an investor client, because that's why I got into real estate from, you know, a licensed perspective because I wanted to buy and sell our own properties. So when you're dealing with an investor client, how do you provide value there? What are, what are a few things that, you know, might set you apart from other agents? Okay, that's it. Thank you so much. And I hope you.

You are having a great day. First off, thank you so much for such a great question. Katie, that was very sweet, very well articulated and very practical. Anybody who is in Katie's area, if you work with Katie, I don't know what kind of service you're going to get right now because she's brand new, but I would bet on the fact Katie is going to be a superstar. Why? It's not just because she's so nice.

She's asking the right questions. What Katie is saying is exactly what you want to hear from anyone you work with. What do I have to do to be better? There's two kinds of approaches to life. One is, how do I find an environment that is easier for me to be myself and I can still be successful? These are people that frequently change relationships. They frequently change jobs. They frequently jump from investing strategy to investing strategy.

They're trying to figure out, how do I avoid change and stay comfortable, but still be successful? Then you've got people that say, what do I need to change about me to be successful? in this environment. Now, my personal belief is that there is no way you will not be successful if you ask the question Katie's asking. Unless there's some physical deterrent like you're four foot tall and you want to play in the NBA or something where the competition level is so high that you just can't get there, you'll be fine. And the competition is not so high in almost everything in life that you won't be successful. In fact, most people are not competing with you at all because they're not asking that question. Now, I'll give you a practical example for both because

you're asking the right questions. And Katie, when you get this down, you should hit me up about being on the David Green team. I'd love to talk with you about it if this is your attitude. When clients come to us, me, my team, we say the exact same thing you do. What do we have to do to help this person be successful? And the entire system that has been created has been what we've found people need an order to be successful, either buying residential real estate to live in or investing in properties that are often residential as well. First off, there's this misnomer that because I'm an investor, I only work with investor clients or want them. Not true. I really, really want people that just want to buy a regular house. The job is so much easier and I feel like

we could do such a better job working with someone that just wants to find a place to live. We actually excel at that. And then the same comes for selling homes. We're even better at telling them they are helping buyers, believe it or not. So if you're listening to this and you're wondering about that question, like, I really want to work with people that want to just buy a house. Now, you also will work with investors when they come across your plate, but you need to understand, Katie, they're a lot more difficult to work with because they have a higher expectation. They have a harder standard to hit. Now, they're going to build more wealth because they're taking it on a more difficult endeavor. That's absolutely true. That's why I encourage

everybody to go ahead and do that and use us when you can't. but you need to know going into it, it's harder to make an investor happy. It's harder to get them what they want because what they're looking for has more dimensions to it. So the people who want to buy a regular house just to live in want it to be a good house and a good area at a good price. Investors want all that plus cash flow plus a rehab that has to happen. Plus they're going to compare it to every other house that might be better. Plus they're looking for ways that they can use creative financing. There's all these other elements. So in general, if you come to work with my real estate team and you want to buy a house. The first thing we do is sit you down and explain to you,

this is what goes into buying a house. It is a full presentation. Now, if we're going to sell your house, we give a listing presentation that explains, here's our technology, here's our marketing, here's how we negotiate, here's our plan to sell your house. Here's how we're going to make you as much money as possible. And here's our track record of where we've done it before. This is why you want to use us. Not every agent does that, but many of them will give some form of a listing presentation if they're good and if they're professional. Hardly anyone does it for buyers. We do it for every buyer. If you're going to work with us, we have to explain this is what the process looks like. The contract, the inspection reports, the appraisals, the loan, how the down payment works, how the earnest money deposit

works, what a contract looks like, how the system will work when we're showing you homes, how we're going to find them, what to worry about an inspection report versus what's not as important, what the markets like, what different homes are, how fast they're selling. We, we're We want you to know when you walk into this exactly what you're going to be getting. Then we assign you with an agent that we think would be the best fit for your personality. Now, they're all going to be working with you. So all you have to figure out when you're new is, is this a person who I mesh well with? My personality works well with theirs and I believe that I can help them.

Setting their expectations is something that many agents shy away from because it can be confrontational. But it absolutely has to happen if you want to be successful. They're coming to you because you are the expert. You know the market. you know which houses they can get, you know what price they can get them for. Don't be afraid to give them the truth up front and then back it up with facts. Now, there's also going to be an element of customer service, but that's the easiest part for agents because they're all really likable people that want to work with others and help

others. So you're probably just from your demeanor on this video not going to struggle with having a good attitude and being cheerful. It's going to be more giving people direction that you want to focus on. Tell them what it looks like and paint a picture as accurately as you can for what to expect and then they won't freak out when they actually go on the journey. As far as investors, you're going to have to be pickier because the word investor is never defined, just like the word deal is never defined. I mean, everyone's a real estate investor if they buy a property, even if they live in it, they still invested their money into it. So when they tell you what they're looking for, you have to help narrow down with them

specifically if it can happen or if it's not going to happen. And maybe that won't work, but this would. That's what I do with investors is they often come to. me after listening to this podcast and say, okay, David, I heard you and Brandon talking. And I want to deal at 70% of ARV in the best school district that's going to cash flow 25%. And I want a light rehab. I don't want a complete fixer-upper. And I want to be able to take my time when I see it. I don't want to feel rushed and I'm okay to wait.

And the problem with that is those properties don't exist out here. And if you did find one, it would go so fast you wouldn't be able to wait. So I have the unfortunate job of having to educate. them on the fact that that strategy won't work, but this one would. Now, many times that's just difficult for people to swallow. They don't want to listen to me. They want to go find another agent that's going to tell them what they want to hear. So many of those people end up losing money because they don't take action for a year or two as they're trying to find that one unicorn that's out there and prices go up. Conversely, we have a lot of people that I had to sort of push on and say,

you have to make the decision to buy this house. But if you pass on it, here's what's likely to happen. And those people did trust me and move forward. And they've now made hundreds of thousands of dollars over like a two to three year period. If they bought even earlier, they have even more. Many of those clients are now coming back and saying, hey, I want to sell this property and I want to buy a better one or a couple of them or I want to buy a new primary and I want to invest out of state. They have all these options that they can get into. They never would have bought those properties if I wouldn't have relied on my own expertise and confidence to firmly stand when I said, I know it's scary, but I think that you should do it.

As an agent, you have to have that confidence, Katie. You can't let the client go tell you, hey, this is what I want unless that client actually knows what they're doing. If they have experience, if they have a firm understanding of how the market works and they have a crystal clear criteria, yeah, that makes your job easier. You just go find what they want. If they're coming to you and they don't know how real estate works, assume that they're going to be wrong about a lot of things and educate them about what they can expect. and then they'll be able to make the right decision for themselves. I think the best thing you can do is to get deep into what their goals are. So we have a system that I call going three levels deep.

So if somebody says, I want a house with a pool, most agents will say, check, I'll find you a house with a pool. And then there's only two houses with pools that are in there, and neither of them are in the right market that that person wants to buy in. What we do instead is I'll say the first level is, well, what's important about a pool? And they'll say, well, when I was growing up as a kid, my grandparents had a pool and we'd have family gatherings and all of us, my cousins and I would swim in that pool and some of my best memories ever were for that time and I want my kids to have that. And I'll say, okay, what was it about that pool that made those memories happen? And then they'll say, well, I guess it wasn't so much the pool as it was just a place to meet. You know, I guess I don't need

to have a pool, but I do need a big backyard and I need a big enough home that I can entertain where everyone can feel comfortable. We need to have a bathroom close to the backyard that the kids can go in and out of and it needs to be in a safe area. And I'll say, okay, if you can have that, what would it mean to you? And that's the third level. That's when you'll start to see tears coming out of people's eyes. That's when they're going to say things like, I've been feeling like I'm a bad mom for the last five years because my kids are living in this apartment complex or the park isn't safe. And I hate myself every night that I go to bed. I feel like I'm screwing up in life. If I could find a house where I could give them that it would take so much pressure off of me. It would mean the world to me.

And they're just like the waterworks will just start pouring out. That's where you're finding out what actually matters to your client. They think what they want as a pool. What they really want is to feel like a good mom or to feel like they're making a good financial decision to feel like they're leading their family in the right direction. The best agents don't just become order takers and say, okay, you got it. I'll go find you that. Because then they come back and the bird goes, I don't know. It just doesn't feel right. you play that game forever. Don't be afraid to establish yourself as a trustworthy person, go three levels deep, find out what matters to them, and then propose a strategy that you can

actually make it happen for them. They will love you and your business will thrive. All right. Next question comes from Kevin B. Can you go into more details on buying a house for your five-year-old kid so the house is paid off when they're 20? Are you getting the loan and property in the kid's name? Are you using a trust or LLC to make the purchase and get the lending? Are you just buying it in your own name with plans of giving your child the funds in the future? I love this strategy and would love some more info on what Brandon has done for kids and what you have seen happen before I proceed completely from a blank slate. Kevin, so cool that you're looking to do this. I don't want to speak for Brandon, but I feel confident enough from the

conversations that I've had that I'm pretty sure I know what he did. And even if it's not what he did, what I'm not to tell you would work for you. You're overthinking it when it comes to should I put it in a trust, should I put it in my kid's name who's five years old. You're probably not going to find a lot of lenders that are going to give your five year old alone. So all you need to do is buy the property in your own name with the intention of giving it to your child when they turn 18. That can be selling the home and giving them the money. That could be transferring title from your name into their name. That could be putting them on the title and helping them to build credit so that eventually they can refinance it out of your name. You'll have a lot of options. What's important is that you

create those options by building equity. What you want to do is get that property and put it on it. If you have a five-year-old and you want to give it to them when they're 20 paid off, it needs to be on a 15-year loan. So you've got to go find a property that you can afford with a 15-year loan that will grow over time. When you get there, all of these questions can be answered relatively easily. You won't have to worry about it. Transferring title is not that difficult, especially if that person is able to refinance the house from you. Or you could sell it. and give it to them. There's lots of, you just add them to the title and let them take the cash flow and let them do what they want with the equity through your name. I think as long as it's

your child and you trust them, you don't have to worry about it. Don't put this much pressure on yourself to get it down right. As long as you're building equity with that property and you don't lose it to foreclosure because you buy it wisely, you're going to be fine and your kid is going to be set for life. Plug. Check out Scott Trench's book set for life about how you too can help set yourself and your kids for life. Biggerpockers.com slash store. Okay, next question comes from Gemma Silva. This is a two-part question. Part one.

Hello, David. Hello, Gemma. First of all, thank you for your work at BP. I always listen to your podcast. Well, thank you. I do want to buy my first rental property. I currently own the house that I live in, so I was trying to buy this second property to move into it,

house hacking. But the bank doesn't give the option of conventional 5% down. It says that it is an investment property, and I have to put 25% down because I already own a property. I do not know how that specifically works. Okay, so I'm going to have to basically speculate for the bank, but I can give you an idea of why this could be happening. And I also want to encourage you to reach out to us at the one brokerage. You can email me on bigger pockets. You can look up my website, whatever you want to do. And I can have one of my team members

look at this for you. Here's what I think is happening. When you own a primary residence and you try to buy another primary residence with a primary residence loan. This is the 5% down conventional loans. Bank underwriters will often look at that, or I say bank underwriters. It could be any form of lender. And they would say, well, we don't think you're actually buying a primary residence. We think you're buying an investment property because why would anyone move from where you are to where you're going? And they will often deny loans for that reason. And so they're telling you that if you put 25% down, you can still get the house because it has to be a investment property. But that doesn't work for you. This happened to me when I bought my house. So I was moving from one city to another

and I was trying to buy a primary residence. And the bank said, well, he's moving further away from work. Why would he be buying this to live in if it's further from work than where he's actually at right now? And this was before I even owned a house. I was renting a house. And so we had to write a really long explanation that explained I couldn't afford to buy a house closer to work. I had to buy this house that was further away. And then it happened to me a second time when I tried to move from that house into another one where I had to make the argument that my work location changed from one place to another and I was buying my next house to be closer to that work location. It was always a big pain. Now, that may happen and you might not be able to get around it,

but sometimes you can if your loan officer is diligent and hardworking enough. You need one that's going to fight for you. You need one that's going to write a letter to the underwriter and make a case that says, no, this is absolutely why she's changing from one house into the next. She needs more space or she needs to down space or there's something that isn't working about your current house. Maybe you need a bigger yard. Maybe you got a dog and you have to find a different place. There needs to be some explanation that you can have your loan officer give. So for part one of your question, that's what's most likely going on. And my recommendation to you it you have your loan officer fight for you a little harder part two on the other hand let's say that's

okay i will buy anyways and as an investment property and i have to put 25% down here's the question this house that i'm looking at is a single family home from an investor who owns a couple properties in the area this specific house that i want to buy he or she is renting the bigger part of the house to a person and the smaller part to another person but the zoning of this property is r1 legally described as a single family house so the real estate agent that I'm working with says that if the appraisal comes as a different zoning that it has now because the current owner is renting out to more than one family, the following could happen. The bank could deny my loan even given a 25% down. If for some reason I get it, I get approved and can make to

the closing, the city could sue me of make change the zoning of the property or the neighbors could sue me because I am using a single family house as a multifamily house. The current owner listed as a multifamily, even though it is a single family house legally. And he or she won't the legal process to change the zoning. So the buyer will assume all responsibility. I think she means they won't apply to change the legal process or won't apply the legal process to get the zoning change. The seller's not going to do anything.

I am scared. I don't know anything about zoning. I don't know what to do. Do you have any thoughts on this situation? All right. I do have some thoughts here, Gemma. I'm not a lawyer and you are asking legal advice. So we have to be careful about how we handle this.

The best course of action would be to talk to an attorney about this and say, can I be sued by my neighbors, by the city? Under what circumstances would they sue me? Is there any case law for this happening before? How did the judge's rule? So you want to know what you could be getting into, first off. You also want to make sure that it's not breaking the law. Then there's a practical component. People are doing this in many neighborhoods all over the place because we have an extreme housing shortage.

if this person is living in the home and it's their primary residence and then they're renting out a part of their home to someone else, a lot of the time these zoning rules won't apply if you live in the house. And every municipality is different. You have to check in with their specific codes. I'm sad because your realtor should be doing that for you. Instead of telling you, you might get sued, which sounds like it's their way of saying, I don't want to deal with this, they should be digging into this to find out if that's actually the case. Because in many neighborhoods that I've come across, if it's a single family home, it's true that you're not allowed to rent it out as a duplex because that would be a zoning violation. It's not a two-unit

house. But if you're living in it and then you have another person that's using it, a lot of those rules at that point stop applying. You're just renting on a part of your own primary residence. The last thing I would probably say is some cities care about zoning more than others. It typically only comes from a neighbor complaint if they make a big deal that the city may come and say, hey, you're not supposed to be using this as a rental property. Oftentimes, though, that just isn't the case that your neighbors aren't going to complain unless you give them some reason to. And many people in your neighborhood might be doing the same thing. So I can't really tell you, yes, go forward and do it. And I can't really tell you, no, don't do it at all. You shouldn't do

it because people are doing that all over the place. I think that the best case in this situation is to get advice from an attorney, tell them what your concerns are. And then call the city. I wouldn't give them the address to the house, but I'd say, hey, I want to buy a house and I want to rent out. part of it while I'm living in it. Can you put me in touch with the zoning department so I can ask them if they care? And then just talk to somebody from the city and say, hey, if I buy this house and I live in it and I rent out the back part or I have an ADU or something, is there an issue? And most of the time, they're going to tell you no. That's what happens with my team. We call when we have these questions for our clients and we ask the city, we tell the client what they said and then the

client gets to make the decision. So I wish that I could be a little more particular. The problem is Once you're getting into legal grounds like that, I can't be super specific. But I would imagine that in many cases, this is something that you're thinking about more than the city actually would be themselves. It's not exactly the same as if you're going to try to do construction on the house and not pull permits. Then the city does get involved. They're actively looking for stuff like that.

Okay. We've had some great questions so far. And I want to thank everyone for submitting them. On previous episodes that we've done, we've reviewed the comments. And in this section of the show, I'm actually going to go over the comments that people have left and share some of my favorites. The first one comes from Paul Richardson. Or maybe it's Richardson Paul.

I don't suppose Richardson is a first name. That sounds like a last name. So maybe this is just, maybe Paul's very fancy and he likes to introduce himself with his last name first. Aside from the knowledge given here, I commend this approach on assisting those in need on their journey. I listen to many podcasts and love the patience and attention given to the quest. I have not once heard a guest being rushed through their question or multiple

questions. Thank you. Well, thank you for that. I appreciate it. It is a lot of podcasts that we've done with a lot of different guests and some of them are nervous and we do try to make them feel more comfortable. Sometimes they get to rambling and so we have to kind of get them right back on the right path. But in general, we want to share the stories of the people that are just like you so you can get their perspective and then the host just kind of keep everybody on the path. Next comment comes from Jake Huffine. Great conversation here. I really have found the Q&A style podcast the most helpful as they are jam-packed with golden nuggets of information. Golden nuggets or green nuggets. The ability to have multiple subset conversations on different topics

is valuable compared to the typical BP podcast style where we are typically focusing on one topic the entire time. Well, thank you for that. That is a good point. Usually when we bring in a guest and we have a topic, they excel in one niche where they have some strategy. They're an expert in some area. So you're kind of getting a deep dive on that thing. But these shows, are definitely more practical answers that you can take and go applying to your journey right away. So I'm glad you're liking it. This one comes from someone who called themselves the best thing that never happened. David, I'm loving the style of videos the last few months. I'm also in Hawaii. Can you discuss strategies for real estate investing on Oahu or at least your Maui strategies? Yes, I would.

Now, this is something that comes up a lot because I have a partner in Hawaii who sort of helps the clients that want to be investing there, an expansion partner. And a lot of people know I'm buying in Hawaii so they come. Here's a few things that you need to know about Hawaii real estate. One, it typically works on Hawaii time, which is not like a New York minute. Things go slower and who you know is incredibly important when it comes to getting things done. Two, getting people to do work out there is typical than in many other markets on the mainland. There's not as many contractors that are there. And there's not as many people I found that are hungry for work. You don't go to Hawaii because you want to work your butt off. There are hardworking people there.

But in general, I would say that finding labor to do work is more difficult. Three, in Hawaii, the short-term rental laws are strictly enforced. For a long time, people have been buying short-term rentals and they've been playing kind of fast and loose, right? Maybe it's not zoned to allow, but nobody's checking. That's not the case in Hawaii. you don't want to play over there. They have city officials that will drive around and actually investigate you and have you taken to court if you're using your property as a short-term rental, meaning less than 30 days. And I believe the fine is $10,000 a day for the time that you're doing that. There's lots of reasons why there's some political pressures in Hawaii that are a little

bit different than in other areas. And it's understandable. There's a lot of people that don't live in and are not from Hawaii that buy properties there. They rent them out. It drives up the price. it makes it harder for the locals to be able to afford real estate. So you kind of need to understand the political environment if we're going to want to invest there. There's also a very strong hospitality industry that's a little protective over some of the people that are using short-term rentals so that guests can get around having to book in those expensive hotels. Now that's the downside. Let me tell you about the upside. It's freaking Hawaii. It's one of the most desirable locations in the entire world. The weather doesn't get bad there.

The amenities don't go bad. It's paradise. Anytime you can buy a property, in paradise, you're probably not going to regret it. There's also a lot of development that's happening on that island. It tends to just keep getting better and better and better. So a lot of the properties that were built 30, 40 years ago, I've only improved in both price and quality because they've built around them. Other properties, other stores, other shops, other entertainment. There are certain areas in Hawaii that are zoned for short-term rental. So the properties that I've bought out in Maui are in a very specific location where it's legal to do short-term rent. term rentals, and that's one of the reasons that I bought them. If you buy outside of that area

and you try to do a short-term rental, that's where you get in trouble. That's why I have an expert in Hawaii that knows Oahu and knows Maui. They can help you avoid some of the mistakes that people make and also fight hard to get you into contract when not every agent out there is willing to put in that same kind of work. Lastly, the financing is different in Hawaii. The lenders work off of different regulations and rules in many cases. And in general, I'd say they're a little behind the times. Things move a lot slower. It's very hard to get escrows to close quickly. So I'm working on that too. I now have a licensing that we're working on in Hawaii. We can do loans out there. That helps our client somewhat and it helps people close deals that normally couldn't,

but don't expect to have the exact same experience with your loan in Hawaii that you would have in some other areas. And the last thing that I will say is when you're buying in Hawaii, you really are taking a long-term approach. You're probably not going to crush it with incredible returns right off. year one because that's not normal for that market. What's normal for that market is the demand continues to increase. The building is very limited. The city restricts how much properties are actually able to be built and the zoning is pretty tough. So the value of the existing properties just keeps going up. If you're going to buy in Hawaii, which I recommend that you should, just like I did, take a long-term approach. Look five years out, 10 years out, and look at how much

wealth you can build. And then compare that to maybe somewhere in the Midwest that might get you quicker cash flow returns, but see if they're going to be able to maintain that advantage over Hawaii. In most cases, the answer is they won't. Are these questions and these replies resonating with you? Have you two wondered, where is David Green investing? Can I invest where he's doing? Can I invest with him? What would David do? What would Brandon do? What would anyone have bigger pockets do? Well, that's great. You should be thinking those thoughts and you should be asking your questions at biggerpockets.com slash David. I promise everyone thinks that they're the only one asking the question, but everyone else is always thinking the same thing. So please give us your submissions. Let us

know what you're thinking. We will pick the best ones and we'll put them on this show. And before we move on, take a minute to scroll down the comments and just leave one there for me. Let me know what you think about the show, what you've liked so far, what you liked on past shows and what you hope to see more of. We read those. We may pick your comment out to read on the show, especially if it's funny or unique. And we also adapt the show based on the feedback we get from people for what they're looking for. Did you know, you can go on vacation and actually earn money? Because while you're out exploring new horizons, your home is sitting there, dark, silent, and wildly underemployed. And it could be making you extra cash.

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All right. Thank you for that submission, Chris. And nice to know you're in Irvine. I know that's a great area. We sell property up that way. All right. Your question is, how do you get your partner? In this case, it's your spouse, but this could apply to anyone who wants to buy real estate with somebody else on board with the idea of taking on debt. Here's the first thing you have to understand. And I'm glad you pointed out good debt. You didn't just say any debt. My guess is the person in this case, your spouse is interpreting all debt as the same debt. You called it good debt. You're probably doing that because they're having a hard time seeing it as good. I have to speculate here, but my guess is your partner looks at this as debt equals risk. If you can take less risk and have less debt,

life will be better. It's a moral thing for people that are in that position. And it makes sense. I was that way at one point too. Like borrowing money from someone is usually bad. especially because you now are indebted to the person that you borrowed the money from. You're losing some freedom in some ways. And frankly, for many people, borrowing debt is not the best thing for them to do. If they're not educated on real estate, if they don't have the means to pay it back, if they're taking out bad consumer debt, they probably shouldn't be taken on debt. They should be saving up money and buying the things they want in cash.

Now, in my mind, real estate and other asset classes are different. And what makes them different is if the thing you are buying with that debt is going to pay you a return. I would recommend having your wife listen to the episode that I did with Tom Wheelwright, who is a CPA, and we talk about how debt actually lowers risk. It may take a couple listens and a couple conversations to get that point across, but that's a really good place to start. I would also listen closely to what she's saying when she tells you I don't want to take on debt. I talk about going three levels deep on my real estate team. So what a lot of people make the mistake of doing is they hear someone say, I don't want debt.

and they say, well, debt's good and they just argue. What's better is if you said, what is it about debt you don't like? Well, I don't want to lose our house. Okay. So what I hear you saying is you don't want to lose security. Yeah, I want to feel secure and debt makes me feel nervous and insecure. Okay. So what would it look like if we were able to find a way to take out debt that was not putting us at risk? If it didn't jeopardize our security, would you still be against it? Maybe they're going to think a little bit more. And then your third question could, be if I could figure out a way that we could take on debt, but it would grow wealth and make us more secure, would you be interested in it? What you're really dealing with is likely a security

issue, not a debt issue. And if you can paint a picture for your wife of how taking on debt will help set a stronger foundation for your family's finances, will protect you against downturns, will protect you against job loss, will help you build wealth that is tax-free that you're not going to lose. It basically could become a reserve of equity that you can. could tap into if there was an emergency. There's a lot of ways that you can show how real estate investing is not just increasing risk for no reason. It's actually reducing risk in other areas of life. And then just make sure you're listening when they're telling you why they're nervous about it. That's the advice I'd give to everyone else. When someone says they don't want to

do something, don't try to change their mind. Keep asking questions to get to the bottom of why they don't want to do it. Hey, David. My name is Scott. I am living in California. I have a rental property back in NC, North Carolina. My question is, since the price of these rentals have increased, and it's really hard to make them cash flow. Should I just accept some kind of negative cash flow for a rental property at this moment and get in and then lock in some really low rates?

Or should I wait until they drop the price? and whenever the cash flow makes sense and then make the investment. However, I'm sitting on some cash and I don't know if I should go in now or wait. I might never be able to find a positive cash flow probably anytime soon. And I don't want to wait until the mortgage rates increase. So yeah, let me know your thoughts. Should I look somewhere else or should I just go in to, these markets. All right. Thank you very much, Scott. We're neighbors in California, so it's nice to

meet you. Okay, I'm going to guess that the majority of listeners, as they heard you asking that question, were screaming at their phone or their car or wherever they're hearing this. No, don't buy. If it doesn't cash flow, don't buy it. Before I make a broad generalization like that, I think we need to clarify what cash flow is, what purpose it serves, and if that's the right thing for you. First off, let's just be honest with ourselves. Cash flow is one way that we make money in real estate. It's often our favorite way, but it is not the only way we make money in real estate. We make money in real estate by paying our loan down. We make money in real estate by the value of the real estate going up. We make money in real estate by refinancing and tax free and reinvesting

into other assets without having to sell the one we have. You can often make money in real estate by avoiding paying taxes on other ways that you made money in real estate using depreciation. There's a lot of clever ways that we make money in real estate. And yes, cash flow is absolutely a very important one. I don't want to discredit that. Let's go a little bit deeper. If I look at all the money I made in cash flow in the last 10 years and I compare that to what I made paying the loans down and growing the equity, especially if it's a combination of having the property value go up and the loan being paid down, I made way, way, way, way more in equity than I did in cash flow. So over a long period of time, in almost every single circumstance,

you are going to make more by buying and letting the property appreciate. Here's the other thing we don't talk about. Rent appreciates too. Buying now might not cash flow right away, but what if it's a circumstance where it's going to cash flow later? And in 10 years, it'll be cash flowing much more than something that somebody bought right now that cash flowed today. I'm just kind of setting the table. Don't crucify me yet. I'm here to make a point. Where is cash flow important? Well, cash flow is important for several things. If you don't have income coming in from other areas of your life and you need it to live on, cash flow is incredibly important and you shouldn't buy anything that doesn't cash flow. If you don't have healthy reserves or if you

don't make a really good income and save your money, otherwise you're not financially responsible. Cash flow is incredibly important. If we look at the ways that real estate makes money, the key is time. Time to pay down your loan, time to let it appreciate, time to let your rent grow. Time is a crucial, crucial ingredient in the wealth building element of real estate investing. Cash flow helps make sure you can make the payment so that you keep the property over time. I've said many times cash flow is best used for defense. Cash flow makes sure you don't lose a property. It's not great for offense. It's very difficult to build any significant form of wealth by saving a couple hundred bucks or even the thousand bucks a month that you might be saving in cash flow. Just think about if you

have a property that cash flows $1,000 a month, $12,000 a year. That is really, really good in most cases. Then compare that to properties that might go up 50 to 100 to $150,000 a year. That $12,000 doesn't look that amazing when you're putting it next to $100,000 of growth. And many people will say, well, the growth isn't guaranteed. And I will say that is absolutely true. And neither is the cash flow. Anyone that's invested in real estate for a significant period of time has seen cash flow is not guaranteed. You don't know what your tenant's going to do.

You don't know what's going to go wrong in the property. It takes one tenant trashing a place or not leaving or needing to be a lot. evicted. It takes one air conditioner breaking or roof leak to destroy cash flow sometime for years. So it is fair that we need to talk about cash flow is important. It is not fair to make it sound like that's the only thing that matters in real estate investing or that it's somehow safer. Now prudent investors do look for cash flow and I think that you should. Let's talk about a scenario where cash flow isn't as important. I'm about to drop a bomb here. I bought properties before that don't cash flow. I've bought other properties that cash flow very strongly. But for someone

in my position, cash flow is actually relatively unimportant. I have revenue coming in from probably 25 different income streams of different properties, different businesses that I own, different royalties, different things that I'm involved in. So the cash flow from one of those streams, like one property in an income stream, is not as important to me as others. In my overall financial position, the cash flow of a property does not mean as much. I bought properties that didn't cash flow because I got them significantly under value. I bought one in Florida probably like five years ago, maybe six years ago that I was able to buy for around $195 and it was worth like almost $260,000. It was an incredible deal from a wholesaler, but it didn't cash flow. I didn't care. I basically

bought myself $150,000 of equity and it's only gone up since then. Am I okay to lose a couple hundred bucks for a couple years so I can get that. Yes. Now, in what circumstance would that be a bad idea? If you can't make the payment, this is what I'm trying to get at. Cash flow best is used to make sure your mortgage payment gets made. If you can make that payment from other means, it becomes less important. So my question to you, Scott, with this money that you're sitting on and you're thinking about investing, are you doing anything to make cash flow with that money currently because inflation's eating it up? Are you buying in a market where you want the asset? You're It's likely to go up in value. The rent is likely to go up. It's not going to cause you a headache. It's an overall

strong fundamental market. Can you afford if you're going to lose a little bit of money every month to keep that house afloat for a couple years until rents go up? Do you have a significant amount of money set aside in reserves that you were disciplined enough not to touch if you want to move forward and buy this property that doesn't yet cash flow? Now, I can already see in my mind I'm going to get some hate mail for giving you this advice. I'm just trying to broaden people's perspective. It is very, very good to look for cash flowing properties. I would say it's not absolutely crucial for everyone. It depends on the person. If you're listening to this and you're living paycheck to paycheck and you don't have any money in the bank and you're tired of waiting and you're like, I just need to buy something. This money's burning a hole in my pocket. You're not the person that should say cash flow doesn't matter. You definitely need it to matter. If you hate your job and you hate

your life and you need to just get some money coming in so that you can get out of that position and put yourself in a place where you can chase your dreams. Cash flow is very, very important. If you're someone like me that doesn't really even need cash flow until I retire and stop working or has other streams of income, cash flow is not as important. So you have to take that approach when you're making these decisions. Scott, I think you have a pretty good idea about what your family's needs are and how prudent you've been with money. And if you feel good about it, look for the upside and be delay gratification, be disciplined. And if you can be a good manager of your own wealth and money that comes into your own household, not having it cash flow would be

acceptable. The next question comes from Mark R in Wellington, Colorado. I recently left a W-2 job, but now I'm realizing that in order to make another home purchase and put my former residents up for rent, that I'll need W-2 income as my realtor pay won't count for about two years or more since it's employment. Do you recommend that someone in my position go back to their old job in order to keep advancing in real estate, or do you suggest they look for off-market land contract deals to get in their next property or another strategy altogether if they don't want to wait for two full years of self-employment income? Thank you a ton for the podcast, also and former law enforcement officer. Well, thank you very much for your service there. All right,

you've got a couple options you could look at. One, in some cases, you can get a co-signer and use their income. And if you can find someone to do that, you've solved the problem. You don't have to use two years of your income. Two, you can wait. And once you have to two years of income, you can use that. Three, you can find alternative loan products. Now, I'm not talking about subprime loans that are shady. Our company has loans that work exactly for people like you. For whatever reason, their debt to income ratio isn't strong enough or they own too many rental properties to qualify or they haven't worked at their job for long enough or sometimes the income that people make, they're not allowed to use it to qualify you because it's based

on bonuses or commissions or something that isn't consistent. And we have loan products that will let you use the income of the property to qualify for the property. And there are conditions that go into that, right? You probably wouldn't use this loan. If you're going to buy a house you're going to live in because the lender wants to know that it's going to be generating income. But I think you should talk to us about that and let us figure this out for you. The other thing, if you're listening to this and you're having these same kind of problems, it's probably because you're going to the wrong loan officer. If you just walk into a bank like Chase or Wells Fargo or something and you ask that loan officer, can I get a loan, they're probably going to say no because they don't have a product that

will work for that. It's like going into an Italian restaurant and asking for a burrito. They're going to say, no, we don't serve burritos here and we're not trying to help someone that wants burritos. That's not our job. And then you're going to walk away with your head down thinking, oh, this sucks, I can't get alone. But if you go to a catering company and you say, I'd like burritos and they say, let us go find you a great burrito truck and have it come to your house. That's a different story. You want to look for a loan broker in these cases. It's their job. This is the kind of business I have where we go look at different lenders and say, who has a product that will work for Mark here? And then we propose, here's what your rate. Here's what your terms would be. These are 30-year fixed-rate products. You don't want to get

into anything that's adjustable or fishy in order to try to buy real estate. Good news, Mark, is I don't think that this is as dire as what you're probably thinking. You just haven't been going to the right location and get the right expert in your corner and you can solve this problem. Next up, we have Rob Marks in Philly. I love your work. Thank you for all that you do. I have a question regarding asset protection. The answer may be dependent on the number of doors. So in my case, I only have two right now. But I'm curious how the answer may change based on the number of doors. My question is, what's the best way to protect my rental properties? Umbrella insurance policy, some kind of writer, an LLC. This comes up all the time. First off, I can't give you the perfect answer here because I'm not a lawyer

and that would be legal advice you're looking for. I will share a little bit of information that might make it easier if you make a decision for yourself. First off, your homeowners insurance will have protections for you. One of the benefits of going that road of just beefing up your insurance is that if for some reason you get sued, your insurance's lawyers are the one that will handle that lawsuit. And they are going to be good at this because that's their full-time job. I talked about this when I interviewed Tom Wheelwright on the Bigger Pockets podcast.

Number two, an LLC is designed to sort of limit how much access people can get to what's in that limited liability company. So in an ideal world, if you have one property and you're sued and somebody wins the lawsuit, they can only take what's in the property. But it's not ideal. In many, many cases, judges have said, we're going to pierce the veil of the LLC and we're going to let this person get assets that were not held in the LLC. So I don't want you to get the false sense of security that an LLC is air to. tight and perfect. An umbrella insurance policy will probably start to make the most sense for you when you get a bigger portfolio, but this is a really simple question that one call to an insurance provider can answer for you. My recommendation if you only have a couple doors is start with regular homeowners insurance and beef your policy up to cover you in case of a lawsuit for an

amount that you feel falls within the realm for what previous judges have awarded to people who made claims against the landlord and the damages they received. Hey, David, thanks for the opportunity to ask you a question. My question is related to house hacking. In a previous asking or seeing green or whatever these is called, you mentioned that one of the niches that you would get in if you were just starting out to accumulate wealth would be house hacking and go into the nicest neighborhood in any town and house hacking in that neighborhood, not really caring about cash flow and just buying in that neighborhood, buying a lot of rooms running by the room. Number one, why did you say that? It seems like it goes against cash flow,

kind of the principles of real estate investing. Number two, for whom would this strategy be appropriate? I'm moving to an expensive market. And that's exactly why I'm asking. And might even be moving to a place like veil in which the medium household, the medium bills is incredibly expensive. All right. Thank you for that, Clayton. I would love to explain why I said that. First off, I never said house hacking and don't care about cash flow. That's not what I was saying. I was saying house hacking is the best wealth building strategy through real estate that I know of, especially for beginners. And many times people compare it to buying a cash flowing property and it ends up being a mistake. Let me break down the numbers for you of why I say you will get a better return house hacking than buying a traditional rental property.

Let's say you're looking at a $200,000 property that you're going to buy as an investment property and put 20% down. Now, there's going to be closing costs. There's going to be some repairs, but we're going to leave those out of this example. And we're only going to talk about if you had $40,000 to put towards a rental property. Let's say you could get a 12% return on that money, which is incredibly strong in today's market and higher than you're going to find in most areas. That amazing return would turn out to $400 a month. Now, let's compare this to house hacking. Let's say that you go buy a property with that same $40,000 to live in for yourself. That can buy you an $800,000 property with $40,000 down. Now, you might not have to go that expensive, but you could. So let's say in this case,

you go to Vail and you buy yourself an $800,000 property. At a 3.5% interest rate, putting the 5% down on an $800,000 property, your principal and interest will be 3413. I have your taxes at right around $800 a month, and your insurance will be right around $70 a month. That brings your total to right around $42.80 a month. Now, I don't know what rent is like exactly in Vail, but my guess is if the property is expensive itself, then the rent will be pretty high. Let's say you find a property for $800,000 that's big enough that you can either split it into different units or you find a property that's already split into different units and

you have three of them. Let's also assume that you can get $2,200 a month in rent for each unit. Assuming you live in one of the units and rent out the other two, this property will be bringing in $4,400 a month. If we subtract the $4,2.80 from that, you're making $120 a month. Now, obviously, $120 a month is less than the $400 a month that you could get if you got that awesome out-of-state property at a 12% ROI. But here's what you're not thinking about. You would have to pay rent yourself if you didn't house hack. So your rent would be $2,200.

Now, there's a couple ways to look at it. You could take your $2,200 in rent and subtract off the $400 that you're getting in cash flow. and your rent is still $1,800. You're still losing $1,800 every month. You could take the $2,200 a month that you're saving, not having to pay rent, and add that to the $120 that you're making on the Vail property. That puts you at $23 a month. Now, if we're comparing $2,3.20 a month on a primary residence house hack

to $400 a month on a long distance 20% down investment property, which one of those looks better? It's roughly four times as much money to be able to do the house hack back in your pocket, which puts you at around a 45 to 48% return on your investment. Much better than that 12% that would be incredibly hard to get on a rental property. Now, here's what's even better. You pay taxes on money that you make. So out of that $400, you might be paying some taxes on that.

You don't pay taxes on money that you save. That $2,200 a month that you don't have to pay and rent anymore is straight, into your pocket. And this is what people always fail to do when they wonder why house hacking is better. They forget to include the money that they're not spending on rent in the income that the property is producing, but it functions exactly like money that you made. In fact, it's even better because you don't pay taxes on it. Now, as icing on the cake, those other two units that you're renting out on your Vail property that we just put at $2,200 a month, they're probably going to go up every year. Let's say they both go up $100 a year.

Well, next year, it's $200, and then $400 and then $800. Five years later, you're making $1,000 more because you bought that property in Vail, that $800,000 great property. The property you would have bought out of state, rents are not going up nearly as much. And as even a cherry on top of that icing, the rent you would have been paying in a veil would have been going up also. So your rent would have been going up by $100, then $200, then $300, and you would have been losing money.

So when you house hack, you make more money every single year from what your tenants pay you. You save more money every single year from what you would have been paying to your landlord. You put less money down, which means you can afford a more expensive property. If you do it well, you get into a better area and you get to choose where you live. This doesn't even include paying down at $800,000 homes mortgage that you borrowed 95% of that and all the other benefits that come from buying better real estate. it's not that it doesn't cash flow. It's that it actually makes you way more money. We just don't call the money that you're saving and making when you're house hacking cash flow because it's a

little bit different. This is part of the danger of getting in these cash flow goggles that you're looking at all the time is you forget all the other ways that real estate makes you money and then you get confused when someone like me says house hacking is a better option. Clinton, I really hope that that answers your question and I highly encourage you to find the best deal you can and the best neighborhood you can in the best place that you can. Make sure it's a place where there's a high demand for rental property so that you can keep it rented and do this every single year of your real estate journey. All right. I hope you guys enjoyed that last question. I sure did. And I love when you guys ask me the tough ones. So don't send me the softballs. I welcome you. Please submit

your toughest questions to biggerpockets.com slash David. I want to know what is getting in the way of your journey. What's preventing you from taking action? Because if my knowledge or my perspective or insight on anything can help make it easier for you to take action. I will be very happy. Bigger pockets will be very happy. You will be very happy. This podcast will not have been a waste of anyone's time. And if you've enjoyed this episode, please be sure to like, share and subscribe on Bigger Pocket's YouTube channel, as well as tell me in the comments what you thought about my answers, what you wish I would have done differently and what I didn't actually get to. You can follow me on social media at David Green 24 and you can always email me through the Bigger Pockets

website by just sending a friend request and sending me a message. Keep an eye out for future episodes of the Seeing Green podcast as well as all the other formats that we're bringing you on Bigger Pockets. This is David Green, signing off. 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,

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