BiggerPockets Real Estate Podcast - 675: Seeing Greene: When Does It Make Sense to Refi with High Interest Rates?

Episode Date: October 16, 2022

Mortgage rates are up, which is good news for (almost) no one. Those who have built huge equity gains over the past few years now feel like they’re stuck at a crossroads. You could pull a cash-out refinance to buy another investment property, but with such high mortgage rates, is it better to wait out the market? This standoff between buyers, sellers, and the Federal Reserve have many investors confused about the next move to make. Thankfully, our in-the-field investing veteran, David Greene, is here to help. Welcome back to another episode of Seeing Greene, where your host David answers questions on the spot from investors spanning every skill level. We’ve got video and text submissions this week, with topics ranging from whether to wait or buy now, how to push past negativity when you’re struggling to find deals, when to refinance while interest rates rise, asset protection basics, and much more. These in-depth answers from David will probably solve top-of-mind questions you may have too! Want to ask David a question? If so, submit your question here so David can answer it on the next episode of Seeing Greene. Hop on the BiggerPockets forums and ask other investors their take, or follow David on Instagram to see when he’s going live so you can hop on a live Q&A and get your question answered on the spot! In This Episode We Cover: Whether to buy now or wait for a housing market correction How to get out of a negative mindset when struggling to find deals “Timing” your refinance to get the lowest rate possible (and whether or not it’s worth it) What most investors get wrong about house hack “cash flow” Asset protection basics and if an LLC is necessary for your first rental Self-management vs. property management and when to trade money for time And So Much More! Links from the Show BiggerPockets Youtube Channel BiggerPockets Forums BiggerPockets Pro Membership BiggerPockets Bookstore BiggerPockets Bootcamps BiggerPockets Podcast Listen to All Your Favorite BiggerPockets Podcasts in One Place Learn About Real Estate, The Housing Market, and Money Management with The BiggerPockets Podcasts Get More Deals Done with The BiggerPockets Investing Tools Find a BiggerPockets Real Estate Meetup in Your Area Ask David Your Real Estate Investing Question David's BiggerPockets Profile David's Instagram Rob's BiggerPockets Profile Rob's Youtube Rob's Instagram Rob's TikTok Rob's Twitter Book Mentioned in the Show: Real Estate by the Numbers by Dave Meyer & J Scott Connect with Jonathan Jonathan's BiggerPockets Profile Click here to check the full show notes: https://www.biggerpockets.com/blog/real-estate-675 Interested in learning more about today’s sponsors or becoming a BiggerPockets partner yourself? Check out our sponsor page! Learn more about your ad choices. Visit megaphone.fm/adchoices

This is the Bigger Pockets podcast show 675. One of my like David's philosophies for building wealth is that you don't look for home runs. You're just trying to get a good pitch to get a hit. And every once in a while, the pitcher leaves one out there. They make a mistake and that becomes the home run. I look at real estate very similar. You can't go force a home run deal. You can't go make a seller sell you a house at a super good price.

What you can do is look for a lot of base hits in the same deal. And that's how I put my portfolio together. everybody. This is David Green, you are host of the Bigger Pockets Real Estate podcast here today with a seeing green episode. If you couldn't tell from the green light shining from behind my head, does it look like I have a halo? Do you think Beyonce would include me in one of her songs? I hope so. In today's episode, we take questions from people just like you that are Bigger Pockets fans that want to know what they should do in their situation, get some clarity on the next best step moving forward, or try to figure out how to maximize the opportunity that they have in front of them. And we have

some great questions and answers to share with you today. Just a bit of what you're going to get as you listen to today's show. Which house hacking strategies work in different markets? We go into some pretty good detail with different strengths of different markets and what you should be looking for specifically in a house hack depending which market that you're in. We talk about when you have equity, what to do with it, when a cash out refinance makes sense, when a rate and term refinance makes sense, and how you should be spending the equity that you pull out of previous good decisions. And one of my favorite things to talk about, we talk about

how to get multiple wins in the same deal. Personally, when I'm showering and I'm trying to figure out, oh, how do I help the bigger pockets community to get more houses? What is stopping people from getting houses? I think about people are always trying to hit a home run in one pitch. They're waiting for this unicorn of a deal that they heard someone talk about on the show that very rarely ever comes around and they spend six years hoping that the perfect deal comes around and then nothing does and they've lost six years of loan pay down, six years of rent growth, six years of equity. It's terrible. So I get a chance to answer this question by helping the person asking the question to look at properties and say, how can I get several smaller wins in one deal that stack up to more than one

big win so you can be buying more real estate? You have more options and you're not waiting for the unicorn that very rarely ever comes. All that and more in today's episode. Do you ever notice how every passive investment somehow turns into a very very very very. active lifestyle. Active spreadsheets, active phone calls, active stress. Here's a better question. What if you could buy brand new construction homes, 10% below market value in the best markets across the country, without making real estate your second job? That's exactly what rent-to-retirement does. They're a full-service, turnkey investment company handling everything for you. In some cases, investors get 50 to 75% of our down payment back at closing, plus interest rates as low as 3.75%. They've

partnered with Bigger Pockets for over a decade, helping thousands invest smarter. If you want to do the same, visit BiggerPockets.com slash retirement to learn more. For decades, real estate has been a cornerstone of the world's largest portfolios, but it's also historically been sort of complex, time-consuming, and expensive. But imagine if real estate investing was suddenly easy, all the benefits of owning real, tangible assets without the complexity and expense. That's the power of the Fundrise flagship fund. Now you can invest in a $1.1 billion portfolio of real estate, starting with as little as $10. The portfolio features 4,700 single-family rental homes spread across the booming sunbelt. They also have 3.3 million square feet of highly sought after industrial facilities

thanks to the e-commerce wave. The flagship fund is one of the largest of its kind. It's well diversified and it's managed by a team of professionals. And it's now available to you. Visit fundrise.com slash BP market to explore the fund's full portfolio, check out historical returns, and start investing in just minutes. Carefully consider the investment objectives, risks, charges, and expenses of the Fundrise Flagship Fund before investing. This and other information can be found in the fund's prospectus at Fundrise.com slash flagship. This is a paid advertisement.

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Today's Batman voiced quick dip is I am a huge proponent for pursuing excellence in your life, specifically your vocation. I think so many more people would be so much happier if they woke up every day and lived it like it was the last day of tryouts and they were trying to not get cut. Part of being excellent is giving your best every single day and it's looking to always improve, which is something that we at the David Green team and the one brokerage are always harping on. I harp on myself and us at bigger pockets feel the same way about. For instance, we are taking the pro membership and making it even better every single time we talk. I'm not joking.

Whenever I talk to anybody within BP, the question is always, how do we make pro better? So my question to you, what are you doing to make your own life better? What are you doing to be more useful or helpful to other people around you? What are you doing to improve your own future? Are you on cruise control hoping something happens to change in your life? Or are you proactively looking to get better every day like we are? Hopefully you're getting better every day. But if not, that's the question to ask yourself every day when you're showering.

All right, enough of that. Let's get to the questions. Before we jump completely into the show, I just wanted to give you a little bit of a heads up. We had Jonathan Green on the podcast and asked him a couple of questions to air specifically on Seeing Green. So you're going to hear from Jonathan and my co-host Rob Abas Solo. And then a couple of questions in, I'll be jumping in to provide my commentary. Hope you enjoy. We have a special treat today because typically with the Seeing Greens, we are getting a masterclass from David Green.

But today we are getting a masterclass from not just David Green, but his long-lost cousin, Jonathan Green. So we got a question here for you all today. if you guys can give us your most insightful answer. And I, depending on how prolific I'm feeling, I might even give a little POV too. All right. First question from Misha Parker asks,

buy now or wait a few months for more of a market correction? What do you all think? For me, it's always by now within reason. I'm always looking. There's nothing that I even identify about a market that throws me off, hot, cold. I still think I can find deals

because I look every single day and I know the data. So it's always a buy now, cautiously as long as the numbers look good, the market conditions don't bother me at all. David? Yeah, that's sort of, the way the questions posed is do I buy or do I wait? And it's not the best way to look at it. It's more like when the market is in the seller's favor, you're just going to spend more time and buy less.

And when the market is in the buyer's favor, you're going to spend less time. You're going to be able to buy more. So it kind of comes out with the expectations of what you think you can get for the time you put in. I would say in general, there's overall two different kinds of markets throughout the country. We've got markets where prices are softening as either the sellers were very ambitious and priced their homes way ahead of the curve of where things were trending and they're returning back to normal or there was not a great discrepancy in supply and demand and now that demand has gone

down. You're seeing an imbalance and prices are actually coming down based on fundamental. So in that market, you're okay to wait a little bit longer because that will probably continue to happen. So if you can only buy one house, you got $20,000 saved up and you've got to make a move. Like, it's okay to wait in a market like that. But many markets across the country, independent of these interest rate hike, are still red hot stuff is selling very fast. The supply and demand is just so off that waiting is going to make prices go up. So know the market you're in. Some of the markets where I'm seeing the prices sort of turning back down would be Sacramento.

That's a big one. Seattle, I'm seeing that happen in pretty big degrees, especially in the higher. price points. You've got some of like South Florida that's slowing down a little bit because it just got out of control. But don't expect to crash. There just is not enough inventory and there's still enough demand. But understand like what we're saying. It's not just wait or buy now. It's not that simple. This is not stocks where the price goes down or the price goes up and those are the only variables like Jonathan said. You might find a deal that just at the surface looks mediocre, but you poke and probe and you realize, oh, I can get them down another hundred grand and that becomes a great

opportunity. Rob, what about you? I don't know. It's hard to say. I always liken this to like stock or crypto, right, where everybody, when it is at the top, everyone says, oh, man, as soon as it falls, I'm just going to, I'm going to buy a bunch of it. And then now stuff is falling and everyone's like, ooh, I don't know. I mean, my dream came true with the price, but I don't think I want to buy it right now. But like, real estate is kind of the same way. Like six months ago, we were all paying all time highs. And now there is a little bit of a correction. Now everybody's like, ooh, I don't know. I don't know if I should do it. I'm kind of the person that I really believe that you got to take action. And so like Jonathan

said, like take cautious action, right? Don't just get into a deal just to do it, analyze it. If it fits your criteria, you should do it. Because at the end of the day, when you say, I'm going to wait six months, 99% of people will never actually take action in those six months because they will have talked themselves out of it. So I think if there's a deal that fits your criteria, you should go for it. And if you want to know more information about which markets are training up and which ones are trending down, I would suggest following Dave Meyer and the Bigger Pocket State of the Market Podcasts where they cover this exact topic in detail. All right.

Our next question comes from Janelle Poucher. And Janelle says, what would you suggest to an investor who is currently battling a negative mindset and struggling to find deals? What say you, Jonathan? Well, negative mindset is always a product of who you're around. I mean, if you surround yourself with negative people or, you're, don't know any investors, you're probably going to have a negative mindset. People are going to be telling you you shouldn't invest. You don't know what you're doing. You just need to get to more meetups,

meet more people who are newer investors like yourself. And that will change your outlook. But also negative mindset comes from confidence, same as analysis paralysis. So the more you know, again, this can all be achieved through meetups, listening to podcasts and making sure you find people you can trust. But I found that building relationships with other true investors, new and seasoned, as long as you have some value to add will help you in both of those negative mindsets always about who you're around because you're not just doing it to yourself yep I would say for someone in that position the most important thing you can do is build momentum once you get one deal two three they don't have to be home runs you just get on base you start to realize okay

this isn't as scary as I thought the analysis paralysis goes away you get excited about it now you want to look at more deals as you're looking at more deals you get a better feel for what a deal actually is and then the fear just sort of evaporates on its own If you're trying to get a deal like what Jonathan gets or what you see Rob getting, as your very, very first deal, you are setting yourself up for frustration. You don't have the skills they have, the resources they have, the network, the experience, none of the things that make someone really good at what we're doing. So set the bar lower. Start with house hacking. Buy a house in a great neighborhood and a really good location where there's a lot of demand, good school scores, low crime.

It doesn't have to be the deal of the century. But it's a couple different units where you can live in one unit, right out the other two, reduce your risk profile as much as possible. give it a year or two and see how much equity you've created. That could be the down payment for your next two properties. And you've got a little bit of the experience of the training wheels of managing a property, what goes wrong in a house, how you fix it. You're just going to get exposed to this. And it's not going to feel as scary as jumping out of an airplane into the ocean. It's more of kind of getting into the shallow end of the pool and letting you feel without water's like when it hits your body. You know, I think you should open a sugar-free red bull, slam it and hit the MLS and look for deals, man. I mean, honestly, just find a way to get inspired.

you're totally right. It's all about who you surround yourself with. Typically, negativity comes from being around negative people. I mean, I have always found that. But when you surround yourself around people who are absolutely freaking crushing it, what are you going to want to do? You're going to want to crush it. You're not going to be bummed about it. You're going to be like, wow, I want to do what they're doing. I remember about a year ago, I was invited to speak at a conference. It was a Cody Sanchez's conference. And I was in the green room, the G-R-E-N room. But I was in a room. I was in a room. with basically about 20 other millionaires and I think maybe even like a billionaire or two

and just talking to them and understanding how they've gamed wealth and how they've gained real estate and how they figured out how to master this business. I was just like, wow, I have never been more inspired than I am now. I didn't feel bad about myself. I just told myself, okay, if 20 other people in this room could have done it, I can do it too. So go find people that inspire you, like Jonathan said, go to a meetup and really try to get as close as you can to them because that will, I think, unlock a motivation that will make you attack it very positively. Hi, David, Dwayne, Long Island, New York. My wife and I recently bought a duplex, but because we did a double closing, we kind of got screwed because our buyer of our old property switched to

a note 203K, which pushed everything back. And so when we bought the new property, we were one of those people that fell victim to the interest rate hike. And so instead of us getting like, you know, a three point something or, you know, four, we ended up with 5.6%. Now, my question has to do with strategic refinancing. What are some of like the industry markers, market markers, or strategies that you use to kind of refinance? Because as this interest rate fluctuates and changes, is. And I'm just trying to figure out a good way to understand what a good marker is to say, okay, now is a good time to refinance. I mean, aside from the obvious equity and things like that involved, you know, like say if the interest rate drops, like I believe a couple weeks ago,

it went down to 4-9 or something like that. So just trying to figure out what strategies do you use when you're refinancing commercially or in multi-door units. All right. Thank you, Dway. I think this is a great question. I think this is the kind of I'd like to see more of on the show, so thank you very much for asking it. Okay, there's two ways that I think we can approach this question. The first is, Dwayne, exactly what you asked. David, how do you choose when to refinance? And I'm going to answer that question. The other way is what I think you might have been getting after, which is how do you play the market when it comes to refinancing? So I will answer that as well. Now let's talk about when it comes to my

specific portfolio. I don't try to time the market nearly as much as people would think. Now that will surprise you when I give you my answer about how to time the market because I actually think about it quite a bit. And I have a lot of advice and input for if you're trying to time the market getting in and out of buying when to buy, when to sell, when to refi, I do have a lot to consider. But when it comes down to my own portfolio, I don't try to outsmart the market as much as you would think. I refinance when it makes sense to refinance. So I recently refinance four California properties. I went from a 3.75 to I think of 5.625. I wasn't super thrilled about that. But I pulled out over seven figures of equity. And the cash flow from those properties is still more than what it used to be when I first bought them at the low interest rate. It's one of the cool things about inflation. When you buy real estate and you wait, your cash flow appreciates. You can now refinance and still make more money than you made when you first bought the properties when you had the lower rate. but before your rents had gone up. So I'm going to take that seven figures and I'm going to go

buy more real estate. Now let's say the difference in my interest rate was 2%. As long as the real estate that I go by is more than 2%, I'm going to win. So even though I lost on the rate, I won in so many other areas buying below market value, getting into appreciating markets, increasing my cash flow, take it on more debt that my tenants are going to pay down for me. All of that leads to being much bigger wealth than I lost because my rate went up. So that's the first thing I just want to say is I refinance when I want to go buy more real estate and when I have equity in the portfolio, not necessarily when rates are low. Now, that same portfolio, I did refinance a couple years earlier into a lower rate than what it was when I got them. So you can do that too. We call that

a rate and term refinance. When interest rates have dropped and you want to get a lower payment, but you don't take any money out of the property, that's called a rate and term. When you pull money out of the property, that's called a cash out refi. And the rates are typically a smidge higher on a cash out refi. Okay, now let's talk about how to play the market when it comes to refinancing. The question would be easier to answer if we saw increases in rates and drops in rates if it was kind of bouncing around. Unfortunately, the market we're seeing right now is the Fed has more or less come out and said, we are going to continue raising rates until we see inflation stopped. I'm going to interject in my opinion here. I'm not speaking for bigger pockets. I don't know this as a fact. I don't have a crystal

the ball. The way I look at economics is that increasing interest rates does not necessarily stop inflation. It slows the velocity of money, which can have an effect on GDP and it can have a short-term effect on inflation, but not a long-term effect. If you want to actually stop inflation, you got to take money out of the economy that we put into it. We don't see the Fed doing as much of that. Why do I interject this? Because I don't think that raising rates is actually going to stop inflation, which is one of the reasons that I'm still buying real estate. But raising rates will slow down how quickly properties change hands. And that can make it look like the price of the asset isn't going up as much because there's not as many buyers that are buying them, which mimics the effects of lowering

inflation. And that's what we're seeing is, oh, they're raising rates. So housing prices are starting to come down. It won't be a long-term effect, in my opinion, but it is creating a little temporary window right now where you can get deals that you couldn't get before. Why do I say all this? I'm I don't think that you're going to see rates come down, my man. That's what I'm getting at. If you're waiting to refinance and you're hoping rates drop and you're like, what's the milestone marker where I know? Jump in now and refinance, it would just be if the rates less than what you got.

I don't think they're going to go down. In fact, I think that they're going to keep climbing up. We just saw a three-quarter rate hike a couple days ago. We're going to see another one most likely coming soon. I think rates are going to continue increasing, which is good in some sense because it allows investors an opportunity to buy a home. It's bad. in other senses in that it takes away the ability to refi. It makes cash out refies less desirable

and it makes homes less affordable in general. So if you got a chance to get a good rate, Dwayne, I think you should take it. I think you should plan on holding it for a while. Don't be discouraged. If the property that you said you kind of got screwed on because of your double clothes and it taking too long to get to the point where you could get into the rate you have right now, you might not cash flow what you want. You might not even cash flow positive for the near future as rates continue to increase. But what goes up must come down. And they always do come down

because there's some politician out there that wants to take credit for lowering rates and stimulating the economy, the same economy that we artificially slowed, somebody will take credit for artificially speeding up by dropping rates. What we really need is to increase the productivity of the country. That's what you really want to do.

That's how wealth gets built. But it's easier to just tinker with rates, tinker with inflation, tinker with quantitative easing and make it look like we made some progress, not to get too deep into macroeconomics there, but there will come a time, Duane, where rates will come down,

and that's when you should refi and don't get discouraged. The property might not be cash flow like you hope for. You might even have to wait a couple years, possibly before it happens. But when it does happen, it's going to be awesome because you're going to see that rents have been ticking up that whole time, and then you're going to get this big rate drop, and boom, you're going to have a solid spread,

and then you're going to be telling everybody at your local meetup about your amazing deal that cash flow is great. Maybe you just don't have to tell them that you bought it five years ago. Hey, hey, we've had some great questions, So far, I hope you guys have been joining the commentary by my Bigger Pockets cousin, Jonathan Green, my co-host Rob Abasolo and that question from Dwayne we just had where we got to talk about the big picture economics as well as smaller picture tactical changes that you can make to increase the spread on your properties and bump up that cash flow.

I want to remind everybody if you would like to submit a video, please go to BiggerPockets.com slash David and submit a video. Duanes is a perfect example. He asked everything he needed to ask. He put in all the details I needed, and it was nice, short, and sweet. There was even an airplane flying above while he was filming it. They made a cameo into his video. Submit something like that.

We'd love to get you on the show. Also, be sure to like, comment and subscribe. Bigger Pockets Loves You. Please love us back. Just hit that like button or smash it if you prefer. Hey, you can even just like tickle it a little bit. Whatever it is that you're fancy, make sure that you press that like button so that other people can see this and then share it with other people.

And leave me a comment in this next segment of the show. We read comments from other listeners, people that tell us what they liked, what they didn't like, something funny. I want to read your comment on a future show. So please comment on our YouTube channel for us to go through and read. First comment comes from Matthew Cook. I love to see Deal Deep Dives. Well, Matthew, we have seen your comment and we have responded. Rob and I recently released an episode where we dove deep into the hotel that he is buying and got into every single aspect of that particular deal.

Tons of information there. Thank you for telling us what you want. Next comes from cooking with BB Laster. I really appreciate this podcast. The information is priceless. Even if you have not started yet, you gain so much knowledge. Thanks, David. Bebe, that's exactly what we want to hear.

Even if you're not at the point where you are able to buy real estate, we want you to not waste that time. Start learning about real estate so when the time comes, you are prepared. Next comment comes from Virajaj or Varage Dance. Portfolio architecture phrasing. Google search results from the building architecture and infotech fields. with one hit on wealth management, similar mixed results show for investment, in quotes, portfolio architecture, trying to be helpful as I love your playlist channel. Thank you for that Mirage

dance. I can garner from your comment that you went searching for the phrase portfolio architecture because you heard me talk about it and it piqued your interest. Well, the good news is that I do talk about this. The bad news is that no one else does. You're probably not going to find hardly any information on this out there, on the interwebs anywhere, because this information is typically only shared in the inner circles of very wealthy people. So you get around a bunch of Mark Cubans or people with huge portfolios and they're actually talking about how this business protects that business, how this property makes up for weaknesses and other ones and how to construct an entire portfolio. But typically the people who are listening to a podcast that's free,

they don't get to hear about this. So here's my advice. Listen to the stuff that I make because I try to take the information from those inner circles and bring it to you guys. guys, the masses. Also, check out the new Bigger Pockets book, Real Estate by the Numbers. They get into this concept there written by Dave Meyer and Jay Scott. If you want to learn more about it, I would go to BiggerPockets.com slash store by Real Estate by the Numbers and see if you like what they put in that book. And our last comment comes from Lisa Morrison. In its entirety, this broadcast was fantastic with all caps. Lisa went full Kanye there. I appreciate your work and commitment to helping and beginners grow our knowledge and courage because of this new knowledge. Thank you to everyone

involved in making this show and the Golden Nuggets. Frigan rock stars. Well, Lisa, you just made my day. So thank you for saying that. I never really wanted to be a rock star, but I suppose now that I am what I have to live up to the hype. Just kidding, no one's ever going to complain about being called that. So thank you. That was very sweet of you. I really appreciate it. I'm glad you like the show. Do us a favor. Tell your friends about it. If we could get more people listening to it, we can make more episodes. So thank you, Lisa. Please share this podcast with any else in your life that you love so they can benefit to. And hey, maybe you'll make a friend out of it. All right, we love and we really appreciate your engagement. So please continue to do so.

Like, comment, subscribe on YouTube. And also, if you're listening on a podcast app, take some time to give us a rating and honest review. We want to get better and we want to stay relevant. So drop us a line wherever you listen to your podcasts. People love to call real estate passive income, which is interesting because most of the investors I know are very busy. Busy finding deals, busy managing teams busy worrying they picked the wrong market. Rent to retirement flips that model. They help investors buy turnkey new construction homes, often 10% below market value in top rental markets across the country. Their local teams handle the build, the property management, and the details, so you don't have to. In some cases, investors even receive 50 to 75% of their down payment back at closing, and there

are interest rates as low as 3.75%. They've been trusted partners with bigger pockets for over a decade. And if you want to learn more, visit biggerpockets.com slash retirement. For decades, real estate has been a cornerstone of the world's largest portfolios. But it's also historically been sort of complex, time-consuming, and expensive. But imagine if real estate investing was suddenly easy, all the benefits of owning real, tangible assets without the complexity and expense. That's the power of the Fundrise flagship fund. Now you can invest in a $1.1 billion dollar portfolio of real estate, starting with as little

is $10. The portfolio features 4,700 single-family rental homes spread across the booming sunbelt. They also have 3.3 million square feet of highly sought after industrial facilities thanks to the e-commerce wave. The flagship fund is one of the largest of its kind. It's well diversified, and it's managed by a team of professionals.

And it's now available to you. Visit fundrise.com slash BP Market to explore the fund's full portfolio, check out historical returns, and start investing in just minutes. Carefully consider the investment objectives, risks, charges and expenses of the Fundrise Flagship Fund before investing. This and other information can be found in the fund's prospectus at fundrise.com slash flagship. This is a paid advertisement.

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And listeners of the show will get a $75 sponsored job credit to get your jobs more visit. at Indeed.com slash rookie. Just go to Indeed.com slash rookie right now and support our show by saying you heard about Indeed on this podcast. That's Indeed.com slash rookie. Terms and conditions apply. Hiring Indeed is all you need. All right. Let's get back to more questions. Hey, David. My question is regarding house hacking. Essentially, I'm wondering if I should find a unit or a deal that is good enough to just get into the market now. and just start that timer of house hacking so that I can get it now and start letting time work for me. Or should I wait until I find a better deal that is seeming to be more difficult to find

where I'm cash flowing from the very beginning? I'm having a hard time finding properties where I'm living in one unit, renting out the others and also cash flowing. Most of the properties I'm looking at, I can live in one unit, rent out the others for like negative $200 to $300 cash flow a month, which is better rent than we're paying right now. But I'm having a hard time balancing. Should I just get in now to at least start and have something start building equity for me? Or should I continue to wait to find not the perfect deal, but a better one? I don't know exactly what is a good deal and what's not if I'm not cash flowing.

Oh, Parker, my man, there are so many parts of this question that I love. That last question that you made, I don't know how to tell if it's a good deal if it's not cash flowing. is so, so good because I think so many people listening are thinking the same thing. Cash on cash return becomes the only metric investors look at. So that becomes the way that they make their decision. Is it a high cash on cash return or a low cash on cash return? I want to go for the highest one. And there's so much more to real estate that we can help you all with.

And then you've got the whole, should I get in now on a standard deal or should I get in later on a great deal? Should I wait? I think that's another question. A lot of people are struggling with right now. should I get in now or should I wait for a better deal later and then the better deal never comes. And four years later, you're at BPCon again. You're like, I still haven't bought a property. I'm such a failure. And so you go look at houses and go, I don't know if I should buy. Should I wait or there a better one? And you never get out of that cycle. So here's what I want to offer to you.

First off, my producer, Eric, is going to reach out to you. He is going to bring you in for a coaching episode if you'd be willing to do it. Please do it. There may even be a chance that we could bring you in for half an episode or a full episode where we just go through looking at different properties online and me showing you what people have started calling the David Green goggles. It's the way the goggles, the lens that I look at real estate through. I will with my experience see things in a property that makes it like tells you run away, don't even touch it that you might miss. Then there's other stuff where I'll say, oh man, this is an amazing opportunity that you wouldn't have seen if I wasn't showing you my perspective. And that's the whole idea of seeing green.

So I'd like to get you on another show where we can look at houses together and help you figure out which of the options that are available would be a great deal that maybe you're not seeing. Another thing I want to point out that you highlighted, you were saying, well, I could get a deal. It doesn't cash flow. I'm still going to spend $2,300 a month, which is less than my rent, is that good. The short answer is yes, that's very good. There is no rule that says a house hack has to cash flow positive. And I just want to bring a new perspective into this question. if you're living in an area with very low rents, say that you could rent a place for $600 a month.

In a situation like that, your house hack can and should cash flow positive. You can find a triplex or a fourplex that will pay you to live there if your rent was only $600 a month. But what if you're living in Miami, Florida, New York, New York, San Francisco, California, somewhere that rents are really high, San Jose, Southern California, San Diego. maybe your rents there are $5,000 a month. What if you can find a house hack that you only have to come out of pocket $1,500 a month instead of $5,000? Even though it's cash flowing negative, you are saving $3,500 a month. Compare that to making $200 a month and saving $600 a month on rent in that cheaper market. One of them is $800 net to you.

The other is a $3,500 net to you. which one of those deals is actually better, which one sounds like it's going to build your wealth faster. This is why cash on cash return can be misleading because the San Diego deal would be much better than the cheaper deal in Louisville, Kentucky or something like that. So there's a little more nuance that goes into, should I buy a house, does it have to cash flow all the way?

We've got to look at your whole picture and figure out what's going to build your wealth the fastest. So I'd love to have you on another episode and break down different options and kind of show you and the audience. This is what I see when I look at these deals. This is what I see when I look at these ones. I hope that that question gave you a little bit of insight and clarity into the decision

that's best for you. And please keep an eye out for Eric reaching out so we can bring you back on another show. All right. Our next question comes from Davian Medina in Florida. I've lived in my primary residence for over four years. I would like to rent it and buy a new property? My question is, would it make sense for me to create an LLC for the property since it is under my name, meaning the title and the deed?

or keep it as it is and rent it with it still being under my name. I don't know the correct way from a liability perspective. Thank you for all you do. All right, Davian, thank you for asking this question. I knew this was about liability protection from the minute that I started to read it. So on one hand, let's talk about your options. Option one is putting it in an LLC. Option two is making sure that you have enough homeowners insurance to protect you in

case you sued. I've said it before. I'll say it again. LLCs are not iron. clad protection against ever having other people touch your assets outside of that rental property. They can be pierced and they are often pierced. Now, it doesn't hurt to have an LLC. I just don't want you thinking that it's like a guarantee.

It's kind of like we're in a bulletproof vest. It's not a guarantee. It's going to stop every bullet or every kind of bullet. You're still taking a risk if you go out there even having it. So you don't want to act like Superman just because you got this LLC thinking that nothing can touch you. But a better question, one that probably wasn't asked here, but that I think it would be good for you to be thinking about. is at what point in your investing journey, does putting a focus on asset protection actually makes sense?

Do you need to be super worried about this? Let's say you don't have a big net worth. This house has almost all of your net worth in it, and you don't really have a whole lot of assets outside of it. Maybe you got some cash, but that's going to go into your next home. Well, do you need an LLC if you are sued and the judge rewards the tenant

and they take the wealth that's inside of that one home? if you don't have wealth anywhere else for them to get into, it doesn't really matter. They can't take what you don't have. So that's one thing that I would think about. Another one is I would say people don't realize that homeowners insurance often will cover you in many of these cases. And you want their lawyers fighting against if you're sued, not you yourself. That's just something else to keep in mind is these insurance companies pay professional

lawyers that know how to do this very, very well that are better suited to take this on than you. There's also a headache to opening a whole bunch of LLCs. I mean, when you get a really big portfolio, like when I talk about portfolio architecture like I did earlier, yeah, there's a lot of wealth that has to be protected and so it does make sense to do this. Not because it stops people from getting at the wealth, but it more deters them from suing you in the first place if they can see there's not a whole lot of equity inside of this LLC. So that's what it comes down to. When you have a ton of equity, you need to spread it out over different LLCs. If you don't have a ton of equity, there's really no need to do that. So I hope if you're a new investor, this is the last person

that's likely to be targeted for anything. The people that are going to go after you are looking for a bigger target, right? So I wouldn't worry about it too much when you're new, but as you grow and build a big portfolio, that's where these questions start to be more relevant. So please, Davian, don't let this stop you from scaling right now. Next question comes from Nate and Santa Barbara. First off, thank you for providing all of this amazing content. It has inspired me to really look at options that can move my family towards financial freedom through real estate. I just purchased my first home investment in 2021 for 875K. The current value of my home is 1.25 with a jumbo loan amount of 600,000 at 4%.

Well, first off, congrats on your equity going up. And second, I can kind of see where this is going because you're showing me that you've got a little under $500,000, maybe $400,000 of equity here. but oh no even more than that you've got about six hundred and twenty five thousand dollars of equity here uh and you're at this four percent interest rate that you're not going to want to let go of i'm looking for help with making the right decisions this is a two-part question on financing my next investment and what my next investment should be i'm looking to either refinance or use a helot to finance my next investment maybe there are other options i'm missing but these were the two i was looking at my investment was going to be a house hack or convert my garage into a short-term rental

which would pay off financing the conversion and eventually lead us to buy a new property and repeat the house hack strategy or should I buy a new property right now move into this property and rent out my current property as is and slowly upgrade thank you all right Nate I heard a person make a comment one time they actually heard me make a statement and then they said this and it stuck with me not have been Brandon Turner I don't remember who it was but they said millionaires don't ask should I do this or that millionaires ask how can I do this and that I think that applies so you're saying you have two options you could either turn your garage into a short-term rental, which would pay for the money that you spent to do it and pay off the

HELOC funds that you used to do it. Or buy a new property right now, move into that property and rent out your current property as is and slowly upgrade. Why can't you do both? In South Florida right now, the strategy I've been using is to buy properties that have big garages. There's not a lot of them. Turn the garages into ADUs that were either one bedroom or a studio, rent those out as a budget option, and then rent out the main house. as a different short-term rental. No reason that you couldn't do the same with the house that you're in. So you could either do a cash-out refi on this home or you could get a helac on it, convert the garage, you've got two different units. Now you've got two different units that can be rented out as short-term

rentals or long-term rentals if you don't want to do the hassle of managing vacation properties. Then move into another house and house hack and make sure the house that you move into has the same options. See, one of my like David's philosophies for building wealth is that you don't look for home runs, right? I played baseball when I was younger. It wasn't my favorite, but I did play it. And I noticed that the pitches you hit a home run off of, they're usually a mistake somebody else made. You can't go find that pitch. You're just trying to get a good pitch to get a hit. And every once in a while, the pitcher leaves one out there, they make a mistake and that becomes the home run. Maybe a better analogy would be basketball. I noticed this. If I try to

force a steal. I would be off balance and the guy that I'm trying to guard would be able to get past me and now I'm actually in a bad position. Steals would come when the offensive player made a mistake. Steels just happened. I had to be in the right place and wait for the opportunity. I look at real estate very similar. You can't go force a home run deal. You can't go make a seller sell you a house at a super good price. What you can do is look for a lot of base hits in the same deal. And that's how I put my portfolio together. Okay. I'm I'm getting this one a little bit less the market value. Okay, this one's in an area that's better than other areas around it.

All right, this one has a pretty significant value at. I can add an A to you. I can add a garage. Oh, this one actually has rents that I can increase right away. Hey, this one has an opportunity to do something I couldn't do somewhere else or it's in a better neighborhood in the better area, right? And if I can get four, five, or six of these small wins in one deal, it ends up being bigger than the home run that somebody got on just one thing, an amazing, burr and amazing purchase price and amazing location. If I can put a little bit of that together in every deal, the deals are easier to find and my wealth builds faster. That's what I want to recommend

to you. Do both. You could go buy a new property, move into that property. But when you're picking the one you're going to buy, I want you to choose a property that has multiple ways you could win. Two ADUs, an ADU in a basement, a multifamily property in a grade A location where normally it's only single-family homes. And before you move into it, I want you to convert that garage by putting a he lock on the house, doing all the work, and then letting the income that comes in from both of the units being used as short-term rentals on your previous house paying down your hellock. Then go move into a house. You can repeat this again. Just keep it that simple. Do this one thing once a year. And in 10 years, you're going to be a multimillionaire from just executing with these principles.

So thank you for asking this question. Don't ask should I do A or B. Ask how can I do A or and B, and then send us another video or write us another question, letting us know how this worked out. Thank you very much, Nate. All right, we have time for one more question. And this one comes from Daniel Paccaso. Hey, David, huge fan of the show. I love your insight. You've guided me so much in my real estate investing career. Now onto my question, I'm trying to be as quick as possible. I am wondering whether I should give up property management on my properties at this point. I'm very frugal. I think about things in terms of, oh, if I could give up, I make about gross rental income $9,000 a month in rent. So when I think of giving up 10% of that to a property

manager, I'm like, oh man, that's nine dates that I could take my girlfriend on. That's a round trip to Europe. And I am always thinking, man, it doesn't feel too heavy to me. The only heavy part feels like, is placing tenants. And so is that the portion that I should give up? Because that's what feels the most heavy. For context, I make between $200,000 a year as a traveling nurse. And so should that play into it my dollar per hour cost for myself am i just being too frugal in my mindset is it limiting me should i give up property management on my properties should i do a middle ground by just having somebody place the tenants since that's what feels heavy thank you so much i appreciate everything you do and i love the bigger podcast podcast hey daniel first off love the look of a dark car it looks like

he just climbed into the batmobile to make this video and i'm a fan i also love the questions you're asking here Let's see if I can answer them succinctly. First, yes, only give up the stuff that's heavy at first. If you enjoy managing the properties, you don't mind it. You don't have to let that go. But you should definitely be looking into someone that can supplement the work you're doing by placing a tenant. You might have a property manager company that says, hey, we'll take half the first-most rent

to place your tenant, and we won't manage the property, and you can get rid of it that way. But the next question, you're saying, hey, I don't want to give up 10% of this $9,000 a month. That's $900. That's a round trip to Europe. That's dates with my girlfriend. That's true. Don't give up if you don't have to. However, my guess would be as a traveling nurse making $200 to $300,000 a year. You could make more money working an extra hour or two, especially at time and a half or double time, then you would be with the hours you're putting into managing your properties. So I want you to think of it instead of I'm giving up money as I'm getting back time to use for a better purpose. So if you're spending 10 hours a month managing these

properties, that's about $90 an hour. Can you make $90 an hour or more as a traveling nurse at time and a half? If not, just, yeah, keep managing your own properties. But what if you realize, well, I'm actually spending 20 hours a month, that's more like $45 an hour. I'm sure you're making more money than that. So if you can give up the management side and pick up more hours working, and we're talking about after-tax dollars, you actually came out on top. And this helps you in a second way, because not only does it immediately make you more money, but it allows you to scale when you've already got a property manager that's doing things the way that you want them to be done.

When you get to 15, 20, 30 properties, there's no way you can be managing these, and you're going to have to give it up anyways. So why not give it up earlier and start making more money with that time, rather than waiting until you get to the point where you're at 20 properties and then being forced to give it up and you've lost money for that. whole time that you could have been making more, working more hours, getting more deals, doing something better. I also love that you're evaluating the heavy light thing, though.

I think that that's huge. So short answer, get rid of the part that's heavy, the placing of tenants. And then longer answer is find a property management company that you can transition into paying so that you can work more hours. And then what I always said was, hey, I'm happy to pay your 10%. How many houses do I need before we can drop this to eight? when I get four houses with you or five houses with you, can we drop this to 8%?

Most of the time they said, yep, when you scale bigger, we can go down. So my goal was to get to five in that market as quick as I could, get it to the better rate, and then I could kind of hit cruise control and go from there. Thank you for your question. Thank you for your hard work. Keep on that grind to your girlfriend that she's got an ambitious boyfriend and we'll see you on a future episode. All right, everybody, that is our show for today.

I hope you enjoyed this. And more importantly, thank you for being here. Thank you for the comments that you leave on YouTube. Thank you for the videos that you submit. Thank you for trusting me with answering your questions. Thank you for all the kind words. And even more importantly, thank you for doing smart, good things with your money.

I'm a big fan of people that invest it wisely so that they can have a better future rather than spend it frivolously and then complain all the time. So if you're listening to this, you just spent a good chunk of your time doing something that will help your future. I appreciate you. I appreciate your trust and your attention as I know that you could be getting this information

from many other places, but hopefully you see none are better than us. I will catch you on a future episode. Follow me at David Green 24 or on YouTube at David Green Real Estate and make sure you share the Bigger Pocket's YouTube channel with anyone you know who is interested in financial freedom. Do you ever notice how every passive investment somehow turns into a very active lifestyle, active spreadsheets, active phone calls, active stress? Here's a better question. What if you could buy brand new construction homes, 10% below market?

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