BiggerPockets Real Estate Podcast - 897: Seeing Greene: Generational Wealth 101 and Getting Started in a Tough Market

Starting point is 00:00:00 This is the Bigger Pockets podcast show 897. What's going on, everyone? This is David Green, your host of the Bigger Pockets Real Estate podcast. And if you're listening to this podcast, you are a part of the growing and thriving Bigger Pockets community and a part of the show. In today's show, we have a seeing green episode. This is where we get to connect with community members like you directly by answering listener questions that everyone can learn from.

Starting point is 00:00:23 And I've brought backup. I've got Rob Abas Solo here with me to start. How are you, Rob? Hello. I'm excited. I'm excited, man. I'm excited because you and I were just discussing our trek out into the snow and to the wilderness to do some snowshoeing in a couple of weeks. That's going to be fun. Yeah, we can't wait to go snowshoeing. It was pitched to us, and I was like, does that just mean

Starting point is 00:00:44 walking in snow? And they're like, yes. And I was like, I think I'd rather just sit by a fire. But yeah, you know, if it's if it's by your side, my friend, then I'm excited. It's kind of like when you as a parent try to sneak vegetables into kids food, they're like, Yeah. Do you want to do leg day for four hours, but call it fun? That's exactly. Not falling for that one. Well, in today's show, we are going to get into some fun stuff. Our first guest has a great question about how to build generational wealth for children through real estate, as well as how to get them involved in the business. And we've got some really good advice for everybody there. We're also going to be talking about markets that Rob and I think are some of the safest places to invest in, as well as when investing for appreciation can be smart versus when it can be foolish. All that, plus. the affordable housing dilemma, what to do when it's tough getting started, and what to do when you're doing well in life, but you want to go full time into real estate investing. All that and more in today's seeing green. Yeah, it's going to be a good one. And the first question we're actually going to let James in on this. I'm going to share the mic with him, hand the baton, but I'll be back a little

Starting point is 00:01:45 later. And up next, we have Felicia Rexford out of Las Vegas, who I like to refer to as the Air Force Angel. Felicia, thank you for joining us today. Thank you for having me. What's on your mind? Okay, so I've got, again, Felicia Rexford from Las Vegas, Nevada, realtor investor, Air Force, veteran, wife, all the things. But my question is going to circle around being a mommy. So here it goes. And we're going to incorporate real estate. So a lot of people slash real estate investors want to talk the market right now or the deal that they're working on right now or their next move. But as a mother with a real estate investment mindset, I'd like to change the perspective for a quick moment. What should parents, and soon to be parents be thinking in terms of not only real estate investing, but pure ownership of real estate for their kids 20 years from now. Good question. James, you have kids. What's your thoughts on this?

Starting point is 00:02:39 I do have kids. I love bringing my kids the job sites and keeping them around the product. You know, I think this is a great question because, you know, I've definitely done some things over the last couple years to kind of get my kids in a better spot, right? Because as things get more expensive, you know, it's like, what is housing in a cost? by the time they are ready to buy. So things that I have done actually, you know, everyone does those 529 plans and I have one of those for them to get them going down in life. But one thing I have done is I actually invested 20 grand each into a hard money fund that compounds at like 13%.

Starting point is 00:03:15 And the goal of this is to just let it compound through their 18 years. And I put it both in when they were one years old. And then by the time they're graduating college, they're going to have enough for a down payment on a house. And so I'm trying to get prepared to give them the money and the help to get in without also bleeding out my own cash. It's just investing and letting it sit. I think one big thing that people should think about when they're talking about their kids right now is there is a gifting tax exemption that is changing very soon. If your kids are going to inherit property from you, once that property's changed, they're going to owe an estate tax. And the thing is, what you can do is right now you can gift $12.92 million to your kids up to

Starting point is 00:03:56 but in 20206 it's decreasing to $5 million. And so right now, I've been rapidly trying to figure out my portfolio, the properties I want to keep, and that's what I'm looking at gifting to my kids now so they don't owe a big estate tax later. And it's about kind of getting in front of that bill and planning that way, because by the time they're ready to buy, the market is going to be a lot more expensive, but if I can gift them something and they don't have to pay a tax, it's a huge benefit. All right.

Starting point is 00:04:24 I've got two thoughts on this whole, how to bring. bring kids. And the first one is practical and the next one is more of an overall philosophy. People don't realize it. But when, especially when you are a small business owner, you can actually pay your children a certain amount of money. I don't know. Do you know how much it is, how much you can pay them per year? It's like 13,000. I think it's also dependent on age and what they're actually capable of doing. But like right now, I have an 11 and a 13 year old and I can pay them like about $2,400 a year. It's not that much right now because you have to make it equal to what they're physically able to assist with. There you go. But as they get older, you can pay them more, right?

Starting point is 00:04:59 Yes. So one thing you could do is to pay your children, put it in an account to the side, use that as a tax write-off, and let that become the money that they are saving up every single year for the first down payment of their property. And you can use them in your real estate business so that they earn that money, which gets them exposed to what's going on. Like James said, bringing them to the job site. You could have them helping with various elements, learning just, I mean, just as a kid to get a head start on how an Excel spreadsheet works is really, really valuable, much more important than learning calligraphy or cursive in school, right? Getting exposed to some of those trends that are going to help them when they get older,

Starting point is 00:05:36 bookkeeping. Can you imagine if we've been exposed to bookkeeping when we were young, how less scary and frustrating that would have been when it happened later? So I'd recommend everybody with a child who is in real estate investing or some form of entrepreneurship, definitely talk to their CPA about taking advantage of that. The other is just the overall philosophical approach. Too many people get scared, like you said, Felicia, because they're looking at real estate right now. Like, what is it going to cash flow today?

Starting point is 00:06:02 What is it going to be worth in this moment? How much below the appraised value did I get now? But real estate changes. The values go up and they go down. You could get a property that appraised for more than you paid for and think you won. And then when the market crashes, nobody cares what it had appraised for six months ago. It's what it's worth right now. And the same when it goes up.

Starting point is 00:06:19 Rents tend to go up over time. So I don't know why we got into this terrible approach of just analyzing a property for day one cash flow when you're not going to own it for one day. You're going to own it for a long period of time. Buying in areas where you're going to have restricted supply but increasing demand is going to lead to a much higher level of rent increases and property value increases. And if you're turning it over to your kid, this looks obvious. I need to have a house ready for them in 20 years. Where should I buy it? Are you super concerned with cash flow in that case?

Starting point is 00:06:49 Probably not. but your wealth is going to grow significantly more if you're like James buying in somewhere like Seattle or you, Felicia, buying in somewhere like a growing market in Las Vegas, then if you go buy the cheapest property that you can somewhere in the Midwest where you're not going to see very much improvement, what I'm getting at is when you invest for your child, it forces you to take the big picture approach and real estate becomes simple. You lose that fear of right now, right? And I don't know why we do it.

Starting point is 00:07:14 We don't analyze a person that we're going to marry for right now in this moment. You don't just say, well, how do they make me feel right now on this day? date you think about for the next 50 years, is this a person that I'm going to want by my side? Is this the person that I'm going to want to choose? And I think it would be better off to look at real estate from a similar perspective. All right. This has been a great start of the show here with Felicia. And we're going to be getting back into this forward thinking conversation right after the break.

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Starting point is 00:10:28 We're here with Felicia Rexford, who is taking us through the long view approach to looking at real estate as a mother and an investor. I think the reason why I brought this question up for myself, watching how fast the market has been moving and knowing even myself, my first home I bought, for my personal residence was like $303,000. And then in 2008, when I bought my first investment property, it was $75,000, $85,000. Now those same homes are worth, you know, $375 again in Las Vegas. I'm just trying to think 20 years from now, what is the first home that our kids are going to purchase?

Starting point is 00:11:04 What does that look like? That could be a $800,000 property, you know, and we're not necessarily seeing income, you know, move at the rate that we're seeing these home prices. So I'm just trying to change my mindset, my perspective. I'm trying to talk to my friends and say, hey, do your daughters need the $75,000 wedding? I don't think that that needs to be like the mindset that we have anymore. We really should be thinking about the now and maybe buying them a condo now, you know, attaching their name to it, renting it out and letting that be the asset that they get down the line to become the down payment for their house versus the $75,000 wedding, right?

Starting point is 00:11:41 So it's just I'm really trying to change my mindset. And I feel like I'm kind of talking into an echoey chamber sometimes because the Americanized mindset is so like, you should do this, you should do that, you should go to college, you should have this beautiful wedding. And I just don't, I think if we don't change our mindset now, but there's a lot of people 20 years from now that are going to be caught. And there's going to be a lot of kids that aren't going to be homeowners. And it's just kind of sad what we're seeing right now.

Starting point is 00:12:09 right? So I was just very interested in your guys' perspective on that. You know, James, you're someone that doesn't, I don't think you deny yourself of some of life's pleasures. You always dress really nice. Your hair is impeccable. You spend a lot of money on really expensive moose. You've got yourself a nice boat. You live in Newport Beach, but you're also incredibly financially savvy and you're still prudent. I think you're a great example of the person that really handles both sides of wealth. Well, your bookkeeping is tight. Your businesses are run very well, you pay attention to all the details. You're not just at the club making it rain. What's your thoughts on Felicia's idea here that you could actually buy a property for your child, let it appreciate

Starting point is 00:12:46 for 20 years and let them walk into a lot of equity? You know, I think you could definitely do that. The issue will be is, you know, you can add them to the title, but you're still going to need to get the financing. And you really can't buy anything for 20 grand. And so for me, what I'm trying to do, I'm identifying the properties that I want to make sure that they have an option on. Like, recently I bought a duplex in a nice area that doesn't usually hit my normal buy box, but this is kind of like my backup plan for my kids because they could have one unit each. We can also condo the building so they could have one unit each. And the plan is more to get it inside, is where I can set up in a trust so I can gift it to

Starting point is 00:13:24 them later and they can avoid the nasty taxes because it's, I'm trying to set it up more for them to work smart because, you know, if I pass away and I give it to them, they're going to owe that estate tax. And, you know, and just by setting it upright today, they're not going to owe the state tax. And it really depends on also where you are and as you plan for your kids. In Washington, it's one of the worst states that die in as far as state tax goes. And so as I'm looking at giving assets to my kids and trying to get them set up right, because I think Felicia is right. The wealth gap is widening right now. And the COVID really help widen it. And it's going to continue to go. And if you don't set them,

Starting point is 00:14:02 up right, they could be way behind. And so I'm trying to set up my portfolio to where I can keep trading it around and gift it to them and then they can avoid the tax and they can get that. But also it's about reloading assets out of Washington because I don't, it's a gnarly place for taxes. So it's about looking at the big picture and sometimes you can just do your business the way you normally do it and then earmark the ones you want to give them. And then what you want to do now though, because this is expiring soon, is get it set up in that trust, get it and then gift it to them now. So then you can actually avoid those taxes. And there's other ways you can leverage those properties too.

Starting point is 00:14:40 So you can gift it to them and still set it up to where you can actually borrow against it to continue to acquire real estate and set them up better down the road. I was going to throw something in really fast just because James was talking about a trust. And I have a client that I was trying to sell his house to. And it's going to probate because it was invested correctly. and that made me and my husband spark the thought of, man, we did our trust. It felt like we did our trust last year. We did our trust.

Starting point is 00:15:04 We re-uped our trust like three years ago. And since then, we have all these new properties that need to be put back into the trust. I just think that's a great topic to just throw out to anybody and everybody listening that if you haven't touched your trust and you have kids as well, kind of along the same lines as we're talking, it's probably time to do that, make sure it's all up to date because probate and all that stuff, it's sad. It's so sad, all that hard work and then just to lose it all. So I feel like that's been in my world this week.

Starting point is 00:15:29 So I thought I'd highlight it. Well, thanks for that. I got one last question for each of you, if you could briefly answer. Handing $250,000, $300,000 of equity to an 18-year-old might not be the wisest thing to do. So what steps are each of you taking to prepare your children for how they're going to manage that wealth and be a good steward of it? So it's a blessing not a curse. I'll start with you, Felicia. Well, in our trust, just because we're talking about it, I don't actually allocate anything to my children

Starting point is 00:15:56 until they're 31. So I definitely took time to think through the age gap. My kids don't have to go to college. I'm not a huge proponent of people having to go to college. They don't have to go to college, but they do have to be productive humans in society. They do have to take a drug test. And I did want to wait till an age that I felt like they would be reasonably capable of handling a portfolio and a substantial size of money. So for me, it's not an 18-year-old. And I did some self-evaluation with my own self and how much I've grown within my age range, right? So for us, it's 31 if we were to die. But from the time that my kids were little, they've been in our Airbnb business. They've been helping with communication. They've been going to listing appointments.

Starting point is 00:16:42 I feel like my kids will be a little bit further along than most because we've immersed them in this business. So I hope that there'll be a little bit bit well-versed to handle this if and when the time comes. So I don't see myself handing $300,000 over to an 18-year-old. But if they want guidance on how to invest it and how to grow their wealth, I would absolutely be there for that. But I don't think I would be relinquishing that kind of money to an 18-year-old. James, what about you? Oh, yeah, they're not getting that 18. There's no way. I would not have wanted that money 18. It would not be still my account. I didn't mature until 19. But you can put anything in this trust and you have certain benchmarks, whether it's they get this when

Starting point is 00:17:28 they get married or they have kids. And you can also change it as you get to see your kids grow, right? They're going to change over time. And I think what Felicia said is really important, exposing your kids. And I think that is fundamental. We do that at our house. They're active with what we do at work. But then we make them work. Like our kids, they don't really get presents. They can work for an allowance and earn money and then go buy. their own presence. So we make our kids buy their own stuff. They have to earn the cash. And I think that is really important. I know I got put to work when I was like eight when I was a kid. Was that when you started at Red Robin? Was that like why you were the top waiter in the whole

Starting point is 00:18:06 country because you got to start at eight years old? I think it contributed. I was packing paper in a warehouse. But, you know, that work ethic lasts, right? And get your kids to, like they have to, you know, they can't live in a bubble. We put our kids to work because it's just good for them. And my son really thinks about what he spends his money on. And that's the beautiful thing. My daughter blows it. Son, he saves. But it's just a good thing to be doing with your kids. All right, Bigger Pockets.

Starting point is 00:18:34 What do you think? Let us know in the YouTube comments what your plans are to teach your children about wealth and what you're doing to set them up for success. And as a second question, I'm curious, how many of you think that the job of a parent is to make their child happy? And how many of you think that the job of a parent is to prepare their child for the world that they are going to be entering into as an adult. And Felicia, thanks for being here today.

Starting point is 00:18:57 Please keep us up to speed with how things shake out with what you end up deciding to do with setting up your children and how these thoughts progress through your beautiful mind. Thank you, guys. Bye, Felicia. Good meeting you. All right. Thanks to everyone for submitting your questions to make it work in today's market. Get those questions in at biggerpockets.com slash David and you too can be featured on an episode

Starting point is 00:19:18 of Seeing Green. I hope you're joining the shared conversation. so far and thank you for spending your time with us. Make sure to comment, like, and subscribe to this video helps us out a ton. And James had to leave. He was late for his hair and teeth whitening appointment, but no fear. I have a man who never needs help with his hair or white of teeth. Rob Abas Solo. Welcome. Thanks for stepping in. Ahoy. Yes. I love it when you show up. You're like an Avenger. You arrive just like Iron Man. You hit the ground and you are ready to help me tackle these problems. When I sense trouble, I'm there. I'm just a heart tap away, my friend, just a heart tap away.

Starting point is 00:19:57 That's right. Now, I'm glad you're here because you and I both have experience in this very topic. In fact, you lived in this area and I vacationed there all the time. We are talking about none other than the Smoky Mountains and how to decide if a property is worth buying even if it's only breaking even in cash flow. This question comes right out of the bigger pockets forums, which if you haven't been in there, I don't know what to tell you. You're missing out. It's like never eating at Chipotle. That will give Rob a heart attack and we want him heart tapping, not heart attack. So check out, Poteley and check out our answer to this question. Colin is addressing someone who was having a hard time finding cash flow and they were looking in the Smokies, which has been a solid short-term rental market for a very long time. But the question is, how do you beat inflation through investing in real estate? I think the Smokies are probably the safest market that I'm familiar with in the market today. So this is a great background to explore this question through. What do you think, Rob? Should you buy a property for the purpose of beating inflation if it's in a solid, defensive, strong, likely to never have problems with vacancy.

Starting point is 00:21:03 What's your thoughts here? I mean, the Smoky Mounds, all in all, is a very safe place to invest. But, I mean, I think that some people are still, you know, I think there might be taking a little bit of a haircut there. I don't think that the prices are really holding as strong with the interest rates. I am not a fan of going all in on one single lever in real estate. When we talk about real estate, we talk about the four levers, right? tax writeoffs, debt pay down, appreciation, and cash flow. I think there are certain levers that are

Starting point is 00:21:30 more important at whatever journey that you might be in respect to your experience. For example, when you get into the real estate game, cash flow, that's a really important lever for you. And appreciation is not as important for most people because they don't understand how powerful it is. But as you scale your portfolio and as you have time for your properties to actually appreciate, then you kind of realize that real wealth is built in the actual appreciation side of things. But I don't ever really pull one lever one way or another. I try to have a pretty equal spread. So I'm not sure that I'm really going into a market thinking that my play is only appreciation.

Starting point is 00:22:07 I try to have a little bit of everything. And I don't know, maybe that's just a little conservative. But do you typically go into these things kind of all in on one specific lever? Do you like to spread it out too? No, especially in the beginning of your journey, you want to spread it out more. and you want to be more heavily weighted towards cash flow. And then later in your journey, you can actually spread it out amongst your portfolio instead of amongst the property.

Starting point is 00:22:28 So you may have a foundation of cash flow and then you get into stuff that you can buy for the purpose of depreciation to save money. And then you get into stuff that you buy for the purpose of appreciation. And the cash flow that you bought in the beginning shelters, maybe cash flow you're not making on the stuff that you bought in areas that are going to appreciate. And the appreciation shelters the fact that the cashling properties are never going to make you wealthy. and you get a nice, well-balanced diet that turns you into someone who is just as wealthy as you, Rob, are fit.

Starting point is 00:22:56 Yeah, so let's get into like some of the actual fodder that was happening in the forums here because I think people raise pretty good points. Mike said, I think too many investors justify a poorly performing investment with appreciation. And then John said, I strongly disagree with this. It's not rocket science to pay attention to demographic trends, economic signals, and basic human behavior to figure out what areas are a safer bet for investing. I agree with that. I think there are certain trends. And so if you want to secure an investment a little bit more, then I do, I am a big believer in national park or vacation or destination vacation type of area simply because we know people are always going to spend a lot of money to travel to those areas, meaning people will make a lot of money in the rents in those areas, meaning people will always be willing to pay competitive prices for those homes. There you go.

Starting point is 00:23:43 The point here was if you bought a property for $500,000, put 20% down. So you're all in for $100K here. 10 years later, let's say that property is not worth a million. You've made yourself $500,000 in equity for $100,000 investment. That's a really, really good return. That's a 20% return year over year. And that doesn't count the depreciation you might have gotten, the loan paydown that you might have gotten, and the fact that it may be cash flowing pretty strong 10 years later.

Starting point is 00:24:08 So the point here is there are ways to do this that are safe. The Smokies, in my opinion, are one of the safest short-term rental markets, probably the safest one in the entire country. But they may not be the sexiest, right? But if you're playing the long game, you're looking 10 years down the road. This is as close to a turnkey thing as you can get still buying in an appreciation market that you don't have to worry about the local municipality shutting down short-term rental. So I like the nuanced approach here.

Starting point is 00:24:33 Like, hey, let's look at 10 years down the road how your investment's going to do. A 20% return on your investment only from the appreciation here, hypothetically, is going to strongly outperform inflation. Yes, yes, I agree with that. Just keep in mind for anyone listening, though, breaking even for most people is like not great. If you think about it, the way you think about your 401k or your Roth IRA and you say,

Starting point is 00:24:56 hey, I'm going to max that out every year. And I know that I'm never going to get a dime from that until I'm 65. And that's your mindset buying property. Hey, I'm going to buy this break even property in the Smoky Mountains. And I'm never going to take a dime from it. No problem.

Starting point is 00:25:10 No harm, no foul. But I would say the vast majority of people breaking into the short term rental space do it for one reason and one reason alone. And it's because they want to cash flow. or they might be a little bit savier and want to take advantage of the short-term at the loophole, get bonus depreciation and all that good stuff. So there's some valid reasons why one might break even. But I think the Smoky Mountains is like, that's one market you should be making money.

Starting point is 00:25:33 You should not be breaking even in that market of all markets in the country. That's my opinion. Ideally, yeah. But sometimes things go wrong. You mismanage things. You miscalculated things. It took longer to get it turned around than what you thought. You had to take some time, build your skills up.

Starting point is 00:25:47 So if a failure is breaking even, there is light at the end of the tunnel that you still could be getting a... What other asset can you say I screwed it all up and ended up with the 20% return? Yeah, I ended up with half a million dollars in 10 years. Not a lot. It's what I love about real estate right there. All right. Thanks for that, Rob.

Starting point is 00:26:04 Before we move on, I just want to prompt everybody, look, these are good discussions that are being had every single day in the Bigger Pockets Forum. So go expand your brain. Go get in the conversation. Jump in. Give your insights. And I promise you'll become a stronger investor for it. So head on over to biggerpockets.com slash forums to get connected.

Starting point is 00:26:20 In today's Apple review comes from Donovinis, who says this podcast is life-changing. Long-time listener, and I can't express how much the show has changed the game for me. I'm now up to six units in my investing journey. Thank you for that review. And if you're listening to this on a podcast app, we need your review. Apple is always changing their algorithm. So is Spotify, so is Stitcher, wherever you're listening. So if you could go on there and leave us a review to keep us near the top, we would love you.

Starting point is 00:26:48 As much as Rob loves guacca and a breedable. Hey, I just want to point out that you called it the apple. That's a very boomery way to word it. If you're listening to this on the information super highway, please do me a favor and leave us a review in the World Wide Web. It's hard to read and talk and think and also make up a joke about guacca and a breedable at the same time. I know. I was in saying it because you were so nice, but you said the apple and I had to say something. you're a millennial, which is very funny to me.

Starting point is 00:27:16 I'm the most grouchy millennial that you're ever going to meet. But that's true. Technically, I am a millennial. All right, we love and we appreciate your engagement. So please continue to do so. Leave us a comment if you're listening to this on YouTube. And let us know what you think about the Smoky Mountains as a market, as well as the cash flow versus appreciation approaches.

Starting point is 00:27:35 And right after this quick break, we're going to be getting into how to move past being overwhelmed and an affordable housing dilemma for your first property. So stick around. Did you know your house gets bored when you leave? I can't actually prove that, but it probably misses out on the action, the footsteps, the late-night fridge raids. Yeah, when you're gone, your place is basically on unpaid leave. It's sitting there in the dark thinking, I could be contributing right now.

Starting point is 00:28:01 Your side room wants a side hustle. Even your Wi-Fi is like, we could be networking. You're on vacation, spending money like it's a sport while your staircase at home. is fully capable of sending your income upwards. Here's the twist. You can go on a trip and actually earn money. Airbnb makes that possible with the co-host network. If you're away for a while or have a secondary property,

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Starting point is 00:31:58 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. Welcome back to the Bigger Pockets Real Estate Podcast. Let's jump back in. Hi, David. My name's Mike Fortune. I'm 48 years old from Jarrett, so Maryland. I'm married with three children, 14, 18, and 20 years old. 20 years ago, my wife and I started a residential design build construction company. And two years ago, we decided that the juice just wasn't worth the squeeze when it came to construction. So we've got to

Starting point is 00:32:37 out of that and now I do architectural design work and she's got a job outside of the home with good pay, great benefits. It's really much better. Back in 2013, we had the opportunity to start a real estate partnership that we're 50-50 partners with that has now grown to have six properties, about a little over a million dollars in net worth and zero debt. In addition to our primary residents, we also own a four-bedroom single-family rental, as well as the four-bedroom Airbnb. We manage all of these properties ourselves, and together they net us around 6K a month. So currently, I find myself at an intersection professionally where I'm able to lean into real estate investing more seriously, and I'm working very hard to clarify what is the best path

Starting point is 00:33:31 or a course of action to get to a point where I can build a legacy level portfolio. David, I know you always give it your best. I'm so thankful for what you do. I'm really interested to hear what you have to say. Thank you. Okay. Thank you, Mike, for the question. If I understand you correctly, you had some success with various real estate ventures.

Starting point is 00:33:51 You've got several different opportunities or paths to take, and you're just trying to figure out what is the best one for you. I typically like to answer this question by looking at the skill set of the individual. paired with their long-term goals, paired with the opportunities that they have that are unique to them. Rob, what are you thinking? Well, it seems like he has pretty decent cash flow. I'm not sure if his idea here is to go full-time in the real estate world, but ultimately, I would say, what makes your cup full? What are you happy doing? Are you happy doing long-term rentals? Which he has a few of those? I'm not sure he is. Is he happy from the Airbnb side of things? I would really try to look at the spread in his entire portfolio and say, all right, well, what side of this portfolio? is making me the most money every single month. And am I happy doing that? And if the answer is yes, then I would divert 80% of my time to the thing that makes me 80% of my money. Does that make sense? Yeah, it does. So based on what he said, does anything jumping out at you that we could

Starting point is 00:34:46 give him some concrete advice? Well, one thing that was interesting is that he does architectural design work, which leads me to believe that he's a little bit more in sort of the creative side of things. If that's what he's good at, if that's his skill set, I think that's what he should be chasing. Like, I think he should be leveraging his strengths. He has obviously formulated a career and his experience around architectural design work. So why would you go and, I don't know, open up a sober living facility? Not that you can't, but, and not that he's suggesting that, but obviously it's a little disparate, right? So I would probably try to hone in on his creative skills and his design skills to say, all right, how can I use the current skills that I'm very, very good at to make me more money in my

Starting point is 00:35:26 portfolio. Maybe that's more Airbnb, if that's what he's doing right now. Maybe he likes the creativity side of things. That ultimately either push him in that direction or something in the world of like utilizing skills, like maybe designing and building his own properties that he can convert into an Airbnb. I like that. You know those like Rorschach ink, uh, ink, uh, ink blot things where they put like a blot of ink and they ask you, what do you see? And it's supposed to, you, yours would always be an Airbnb or a burrito. Everything you look at is going to go that way. Well, Doc, I've been having these dreams. It's the same burrito every night. All right. You ready for a hot take here? Hungry. I don't know that we share this information very often, especially on a podcast like, this is going to be hotter than a green chili. I think that in today's market, real estate investing is more challenging than ever. And at the same time, it is more crucial than ever. We have seen interest rates go up to the point that cash flow in year one is incredibly hard to find. Like, it's so hard to find that the return on your time.

Starting point is 00:36:26 that you get, if you go full time into real estate investing, almost is less than what you'd make working at a job. So the whole thing of, hey, I don't like my job. I don't like hard work. I want to become a real estate investor so I can get easy money and just quit. We kind of had a window where that was available. Maybe it'll come back. We don't know. But I wouldn't say that overall it's here right now. It doesn't mean you can't find that deal, but you're not just going to step out there and find that deal. It might actually make you more money to keep working. Now, in order to get cash flow, you got to put more money down than you had to put before because rates are higher. So it puts us in dilemma where having capital, having wealth is actually a prerequisite to be able to be a

Starting point is 00:37:02 full-time real estate investor or even a successful real estate investor. You just have to have money to put down on these properties. All these creative things like, hey, throw a helock on this property to buy your next one and then that one will go up in value and then you can refinance that one and do the next one and you can borrow money from somebody. That all worked really good when we had this eight-year window where properties were going up at value everywhere and rents were going up. I'm actually getting back to a perspective. of fundamentals that I think people like Mike should continue working. You should actually think, how do I grow a business? I know how to do design work. I know how to do architectural work.

Starting point is 00:37:37 That itself, Rob, is an asset in a sense. This set that he took a long time to build, just like if you have a property that you've taken a long time to let appreciate, it's going to be worth more. I don't want to see people throwing this stuff out the window to chase this dream of real estate investing just to find that it can go sour sometimes. And if you don't have money coming in, when real estate goes bad, you can get really, really hurt. So I'd like to see it might continue working in this architectural design firm, but maybe expanding your skills there. Can you hire a couple new promising architects and teach them and leverage them to do some

Starting point is 00:38:11 of the work and you can focus on taking on new clients? Can you get into doing more design work for clients that need more money? Can you do what Rob said? Can you get into helping improve people's designs on their properties to make them worth more money? That's something that I started doing. people with struggling short-term rentals come to me. I have a design team.

Starting point is 00:38:29 We help them improve the performance of the properties, and they pay us to be able to do that. That's money that you make that can then go into your next deal to increase your down payment. So I know that everybody wants to be the full-time real estate investor. It's just harder to do than it used to be, and I don't want to see people make the jump prematurely. So don't worry about it. I don't have the time to commit to real estate investing.

Starting point is 00:38:50 Hey, money is money. You make it how you can make it. And when you got enough of it, almost all the deals are going to work. You invest in the better areas if you have more money to put down. Not a popular opinion. It is a hot take, but I think it's sound advice. Hey, hot tea and hot coffee is a very tasty thing to drink, so I liked it. All right, coffee. Hot coffee. All right, we're getting to our last question of the show. Rob, I'm going to read this one. I'm going to let you take it away. This comes from Bayee in Minnesota. Hey, BP, thanks for all that you guys do. I've been

Starting point is 00:39:20 consuming your content via podcasts and YouTube the past year and a half. I'm 26. six years old and trying to start my real estate journey using a VA loan. But most properties in Minnesota within affordable ranges that are near me will still need some rehab before I can live in it. The multifamily properties that I've seen, I'm afraid, won't cover the mortgage payments alone in case of vacancies. I've recently decided that I need to buy something that I can afford and pull out a helock later for some multifamily investments or just rent it out and repeat, what do you think? Also, most of the nice homes around me are townhouses is investing in townhouses a good idea. So, Bayee here has got himself in a bind where the properties that he can afford

Starting point is 00:39:59 with a VA loan aren't going to cash flow. The stuff that may cash flow is not in good condition. He's in a tough market and he doesn't have a lot of capital. Don't you love these ones, Rob? I'm going to let you take it. Yeah, I know. Well, first and foremost, I don't think that the, I mean, generally speaking, when you're getting into this world of real estate, the first deal isn't necessarily going to be the sexiest deal. It's not necessarily going to be the easiest deal. Most of us come into this, not being able to afford our first investment. And we've got to get really creative with how to make that investment worth it. And so I think first thing that comes to mind here is a live and flip or something where you can live, understand that, hey, you know,

Starting point is 00:40:36 need some TLC, right? We need to work on it. And it's something that you can make a compromise to your comfort for just a year or two years while you fix it up and force equity, you know, force appreciation into that property, build up some equity. And unfortunately, as much as I want to come in here and say, yeah, you know, when you get into real estate, you can scale to 50 units in your first year. That's not always the case. You know, we have those stories often on bigger pockets, but the real story is it's a slow start. And sometimes you really have to just work hard, wait it out, fix up a property, maybe not have a kitchen sink for like a month in your kitchen while your kitchen remodel goes horribly wrong because you're doing it all yourself. But that's how we

Starting point is 00:41:15 learn the game. And so you might just have to make the sacrifice, I think, for a year or two, while your property appreciates a little bit. Yeah. And I was reading in the forum somewhere that someone said, it was like a joke, but they were mentioned, yeah, David Green's advice for everything is house hack. And I was thinking, well, in situations like this, what can you really do? You're putting zero down. You're hoping that something cash flows. It's in a solid market in Minnesota where you're going to have some competition. It's not going to be easy. You're talking about the best asset class to invest in available to anybody in the country. It's going to be hard. You're not going to be just step in there and crush it right away. Most things in life, you don't step out and crush it right

Starting point is 00:41:55 away. You're not going to become a cage fighter and be good at it right away. You're not going to get in super good shape right away. You're going to have to put some time in to develop the skills. Well, real estate needs its own time. You have to let it appreciate. You have to let rents go up. So I would be thinking, just like you said, Rob, buy something that's going to be uncomfortable. You're going to rent out the rooms in a house with the most rooms that you can find. Guys like Craig Curlop were literally sleeping on a couch when they were 26 years old so that they could rent out the bedrooms for more money. Now, not everyone has to go that drastic, but you see Craig's career really took off because he was willing to do that. When you find yourself in Ba'i's position here and that doesn't seem like there's any good options, you got to play the long game.

Starting point is 00:42:34 You got to do what you got to buy a house that you can rent out the room, save as much money as you can. Let what you used to pay and rent become money that you save. That's the down payment for the next property. and just let that snowball build very slowly. Yeah, and I do want to give a little bit of insight into his last question, which is also most nice homes around me, are townhomes a good idea? I think if there are a lot of townhomes around you, that means that there are comps and there are properties that there are townhomes

Starting point is 00:42:58 that are being purchased. I think if you're like the only town home in the area, then it's probably something I shy away from. But the fact that there is a decent amount of that in your area, I wouldn't really shy. I wouldn't shy away from it per se. You know, I don't love townhomes for an investment. I don't love condos as much as I did before.

Starting point is 00:43:15 And the reason is inflation has gotten so bad, those costs are getting passed on to the associations that manage them. And people are finding that their HOA fees are doubling or tripling, just like insurance fees are, just like the assessments are. Like, it used to be annoying that you had those fees. Now they can be like backbreaking. They can be really bad as they're going up, especially for a new investor.

Starting point is 00:43:35 What he's saying here is most nice houses around me or townhomes. You have to decide if you want to be wealthy or you want to be comfortable. especially when you're young and you don't have a lot of money. If you want to live in a nice house, you're not going to be able to make it a great investment when you start. If you want to become wealthy, you're going to have to sacrifice the niceness to find something that makes work on the numbers. And at minimum, you can move out of it in a year and you could get another house once you've

Starting point is 00:43:59 saved up some money. But for everybody who's finding themselves in a bind, I want to make money in real estate investing, and I want to do it in a great area. And I don't have any cash. You've stacked everything up against you. It's going to be harder. you're just going to have to sacrifice on the comfort level, but it's okay, it builds character.

Starting point is 00:44:14 You'll get there. You'll get there little buddy. Actually, I don't know. Maybe he's old. Oh, no, he's 26. You'll get there, a little buddy. Listen, when I was 26, back in my day, you know, my wife and I, we bought a really, you know,

Starting point is 00:44:26 kind of dinky home in a neighborhood that we thought had a lot of potential. And we remodeled that house three times to the point where nothing in that house is original. And it was really hard. And it was oftentimes created a lot of frustration because, like I I jokingly said we wouldn't have a kitchen sink. And then we were like, always reminding. We're like, let's try to wash our dishes in the bathtub.

Starting point is 00:44:45 And we did that one time. And we were like, let's never do that again. And it's a really tough road. But we stuck with it. And it was so worth it. That house is worth double what we paid for it. So I think you just got to, yeah, you got to be willing to put the pride aside a little bit. It's a long game.

Starting point is 00:44:59 Yeah. Remember when we were in L.A.? We were driving through your old neighborhood. You pointed out that house and you were like, at one point, that house was listed for so much money. Oh, yeah. How much was it listed for? It was listed for 1.2 million. And you just thought that was insane that anyone would ever.

Starting point is 00:45:14 And what was it worth when we drove past? Probably like 2 or 2.2, something like that. And I was like, oh my gosh, that was such a deal. And that was like four years ago. Yeah, that. I mean, that's not always going to go up a million. No, no, no, of course not. But the principle does remain.

Starting point is 00:45:27 It feels expensive when you do it. You have to tighten your belt. And then over time the belt slowly becomes looser and looser. And if you find yourself in Bayee's position, check out our podcast episode number 896, where we interview Jesse Rodriguez and get some ideas for what to do to increase the value of your home to build that equity to put into future projects. With that said, David, bye, to our audience. All right, thanks everyone for joining us. Remember, you can be featured on an episode of Seeing Green yourself. Head over to biggerpox.com slash David, where you can submit

Starting point is 00:45:59 your question. Today, we covered several topics, including how to keep the youth in mind as you invest, evaluating appreciation markets, and when it may make sense to not cash flow or if it will never make sense, being overwhelmed and how to move past it as well as getting that snowball started in your real estate journey that will hopefully someday become a juggernaut. Don't forget to check the show notes because you can get connected to Rob or I there if you'd like to reach out. This is David Green for Rob. Bye. Iba Solo, 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.

Starting point is 00:46:59 Our new episodes come out Monday, Wednesday, and Friday. I'm the host and executive producer of the show, Dave Meyer. The show is produced by Ian K. Copywriting is by Calicoe content, and editing is by Exodus Media. If you'd like to learn more about real estate investing or to sign up for our free newsletter, please visit www.biggerpockets.com. The content of this podcast is for informational purposes only. All host and participant opinions are their own.

Starting point is 00:47:22 Investment in any asset, real estate included, involves risk. So use your best judgment and consult with qualified advisors before investing. You should only risk capital you can afford to lose. And remember, past performance is not indicative of future results. BiggerPockets LLC disclaims all liability for direct, indirect, consequential, or other damages arising from a reliance on information presented in this podcast.

BiggerPockets Real Estate Podcast - 897: Seeing Greene: Generational Wealth 101 and Getting Started in a Tough Market

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