BiggerPockets Real Estate Podcast - 937: Seeing Greene: Paying Off Rentals, Estimating Crime, & Replacing Your Salary

Starting point is 00:00:00 This is the Bigger Pockets Podcast Show 937. What's up, everyone? It's David Green, your host of the Bigger Pockets for Real Estate podcast here today with a Seeing Green special joined by Rob Abasolo in a green sweatshirt. What's going on, Rob? Ahoy, I'm excited. I'm ready to traverse the world. I just booked a 20-day stint in Copenhagen. If you guys aren't following Rob on Instagram, you need to be. I was on the edge of my seat for days as he was going back and forth.

Starting point is 00:00:30 sharing where will I be traveling will it be Holland will it be Copenhagen will it be Bosnia I wasn't sure what you're going to decide on but you end up with Copenhagen huh I did yeah so I'll be I'll be coming live for y'all from five hours ahead I'm a little nervous about the time change this is great all right you know what else is great today's freaking show we've got tons of good topics including how to navigate tax benefits as a business owner and real estate investor who doesn't like saving in taxes how to find crime data for buying in a neighborhood that you might want to live in, cash flowing commercial real estate thoughts, how to improve the value of commercial real estate, and what to do when you think your job might be on the chopping block, some really good

Starting point is 00:01:08 stuff here. And up first, we're going to talk about using extra income to pay off your rental mortgages early or putting that money towards cash flowing real estate. And most importantly, we can't do this show without y'all. So go submit your question over on biggerpockets.com slash David. Pause this really fast and send me your question and then jump back into the pod. Let's do it. Let's get into it. Hi, David. My name is Daron from Houston, Texas. And my question is the following. I'm about to buy my first investment property. And my monthly income allows me to make large payments toward the mortgage to pay off much quicker than the 30-year rate. The property will cash flow

Starting point is 00:01:46 a little bit even with the current interest rates. And my question is, is it a better strategy to pay off the mortgage as quickly as possible using my own money? And then, of course, refinance once interest rates go down and then just repeat the process? Or should I just let the rent payments slowly pay off the mortgage and slowly increase equity at the current environment and refinance once interest rates go down, but just with less equity in the property? Thank you. Hey, thanks, Jerome. This is a great question. All right. What we're talking about here is a best use of deploying capital. So you're asking the capital that I have coming in, should I put it towards the loan of the property that I have and pay it?

Starting point is 00:02:27 down faster or should I put it somewhere else? Now, I know that you're cash flowing at today's interest rates, but our note show that you didn't mention, that's because you're putting 35% down. Here's the ugly truth that a lot of people don't want to hear. Properties do cash flow today. They often don't cash flow at 20% down. We've become accustomed as investors to putting down the bare minimum and thinking that it's supposed to cash flow at 20% down. Hey, sometimes I hear house hackers say, hey, I want to put 3.5% down and I want to live in one of the units. And I still want it to cash flow. You're just making such an uphill battle for yourself. You can get cash flow in real estate, but when rates go up, that just means your loan of value has to adjust for that,

Starting point is 00:03:06 and you got to put more money down. So here's my advice to you to Rhone. Rather than putting the money towards the mortgage, I'd rather see you save that money up and buy more real estate with a bigger down payment. So to simplify that, don't think about putting your capital towards the loan you already have. put it in the bank and use it to buy your next property, but put more money down on that. That's why I don't want you paying off the loan in this case, because you need that extra capital to put towards the next property in order to make it cash flow.

Starting point is 00:03:33 And if you're able to continue buying properties when other people can't, which is what you can do if you have more money to put down, and you can hold those properties when rates do drop again. You'll be able to refinance all of them. So if I was you, I'd be thinking, how do I save up as much money as possible to buy as much cash-filling real estate as possible with bigger down payments so that I have more of them to refinance when rates drop, and then you'll get the best of both worlds.

Starting point is 00:03:56 Yeah, I think that's good. 35% on 85 to 100K. I mean, I like that. Part of me wonders, is it better to hold out and see if there's a 20% down payment on a more expensive property and if maybe he could achieve cash flow there? Obviously, he probably explored that option. I'm going to just throw in my little philosophy here on paying down equity because I've been a big fan of this.

Starting point is 00:04:17 I've been talking about this lately. I'm a big fan of paying down my personal equity, like in my primary residence. I probably wouldn't use my personal income to pay down rental equity or pay down rental mortgages. I would just use the actual income from the rental itself to pay down the mortgage. It's a fine line there, and it's a very subtle difference. But personal money, I don't use that to pay down my rentals. I just use rental money, all profits from that to bring that down. That's my personal stance anyways. All right. Our next question comes from Sean Chua in ATL. Sean is looking for his first house hack and he wants to know how do you analyze a neighborhood for crime rates?

Starting point is 00:04:54 I've tried using city data, but most information seems outdated and it usually can't give me specific neighborhood crime rates. For example, I'm looking in a 20-minute radius for an Atlanta, but I'm not sure which neighborhoods are safer to live in. Thank you for your help. Well, this is fun because this used to be public information on a lot of the websites. My gut tells me they probably took this data down because of fair housing laws. it's often interpreted when you share crime information that that somehow relates to fair housing regulations. And so everyone says, hey, it's safer to just not tell you. So now you're going on the bigger pocket podcast and ask you the same question that all these other companies said they didn't

Starting point is 00:05:29 want to answer. And I'm going to let you handle this one, Rob, since you're not a licensed broker. You know what? I don't, I don't, yeah, I try to look it up back in the day, the, I guess the hack, if you want to go to Trulia and look up the crime app. But I do think that sometimes that data does skew things a little bit. I remember living in L.A., pulling up the Trulium app and thinking, oh, my gosh, nothing in L.A. is investable or livable. Really, I think there's a couple of ways to do it. I think this is the very unofficial answer. Drive by. I drive by, and if I don't live in the same city, I will ask my realtor to drive by two times, right? One during the day, but most importantly, at night. And that's kind of my initial, like, I have to feel the neighborhood is right

Starting point is 00:06:08 if I'm going to buy a property. And then outside of that, typically what I'm doing is I'm actually looking for like anecdotal stories or insights from people in the neighborhood. So probably not going to look at like a next door or a ring app because typically those apps are very like, everything is on fire. Do not. This neighborhood is blah, blah, blah. You know, I actually look at Reddit personally because you get a lot of people from the community actually talking about their community and talking about the nuances. Not an official answer, though. That is not how you look up crime or statistics. You're doing a great job politicizing your way right out of this thing. Say a lot of words of that answer.

Starting point is 00:06:43 question. You will not cancel me. Okay, so Reddit is how I get the personal anecdotes. That's step one. And then step two would also be like the bigger pockets forums and actually talking to investors in specific neighborhoods. The bigger pockets forums is really, if you want it from the lens of an investor or people in that community that actually have properties there, I think you're going to get a little bit more of insight that you actually need for investing in that property. And then I need my realtors to go and drive by or I'll drive by two times a day. You know what I think we need? We need a Karen map. I want to know where you got a bunch of annoying, nosy neighbors that are going to just blow up your deal or like a nimbie map where you can see how favorable the neighbors are. I just

Starting point is 00:07:23 kidding. Is it in the shape of a Bob? That's good. Yes. That's right. And it comes with a casserole counter. That's one of the ways you can tell how many carons are in your neighborhood is by the casserole count. So can you tell us, I know you probably have a little bit more of an official answer. So what is how should someone actually look at the crime and everything? Yeah. You're not going to get the data the way that you are looking for it here, Sean, because of fair housing laws. That's the short answer. But that doesn't mean you can't get it. You just have to do more work. That's all it comes down to. So one thing that you can do is you can actually call your local police department, like the Atlanta PD. And you can say, hey, I'd like to talk to an officer that works in a beat in this neighborhood

Starting point is 00:07:57 or a dispatcher that could tell me, hey, off the record, I'm looking to buy a house here. If you are going to buy an Atlanta, would you be nervous about this neighborhood versus that one? What are your calls for service like over there? You may not get the. that data that the highly analytical people love. You might not be able to put this in a spreadsheet. That's going to be very disappointing to all my Excel lovers out there. But you can still get the information. You're just going to have to do more work yourself.

Starting point is 00:08:21 Another thing you could do is you can ask real estate agents that work in the area, but you're going to have a hard time because they've been trained to not answer this to. Everyone is just walking around, keeping their lips closed, all thinking the same thoughts. But yeah, yeah, because real estate agents are susceptible to fair housing laws too. I mean, that's truly less susceptible to it. than a real estate agent or a broker would be. So we get this all the time. People are,

Starting point is 00:08:43 we're driving a neighborhood with a client and they say, what do you think about this neighborhood? And the agent's just straight, white knuckle it looking straight ahead. Well, it's up. It's up and coming. There's a lot of good things.

Starting point is 00:08:54 There's a lot of changes, a lot of interesting activity. Yes, that's what you're going to get. So whenever you get that generalized answer, it might mean they don't know, but it also might mean they don't want to tell you. And so I'm just shooting straight with everybody here.

Starting point is 00:09:06 This is the Brass Tax Pockets podcast. We don't want you to be frustrated. So Rob's advice was really good. You're going to have to drive the neighborhood and look for signs of violent crime. So Oakland's an area that I worked in a lot. I also police there a lot. And my team sells a lot of houses there. And I can tell you there's certain parts of it that are much better than others.

Starting point is 00:09:25 And you can tell when you drive through it. So the longest short of it here, Sean, is you're not going to be able to get that data anymore. It's been taken out of circulation. You're just going to have to be a little more clever with how you get it. Yeah, I think really my stance very clear. talk to people in the neighborhood because I just think there's the perception of what maybe a neighborhood is and then there's the actual insight that you get from someone that's like, hey, all the stuff out there's a little overblown. I say this as someone that lived in a neighborhood right next to like

Starting point is 00:09:55 it's on the border of Englewood and I mean pretty much one street over is Englewood. Dude, everybody told me not to buy. Everyone's like, dude, do not do it. And I was like, it's fine. And I talk to people and I drove it and I was like, I'm so glad I made that decision. And so many times, I almost walked away from that property because of the scare. The reputation of it. Yeah. The reputation. Yeah. And I'm, I mean, my whole life would be different had I just listened to like what the scary headlines were. If that makes sense. All right, folks, we're going to take a quick break. And when we come back, we're going to get into suggestions for a business owner trying to take advantage of tax benefits in real estate. So stay tuned. For decades, real estate has been a cornerstone

Starting point is 00:10:32 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 a 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.

Starting point is 00:11:09 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.

Starting point is 00:11:31 Running your real estate business doesn't have to feel like juggling five different tools, and the tools are blades or flaming torches. With Resimply, you can pull motivated seller lists, skip trace them instantly for free, and reach out with calls or texts, all from one streamlined platform. The real magic? AI agents that answer inbound calls,

Starting point is 00:11:48 follow up with prospects, and even grade your conversations so you know where you stand. That means less time on busy work and more time closing deals. Start your free trial and lock in 50% off your first month at Resimply.com slash bigger pockets. That's R-E-S-M-P-L-I-com

Starting point is 00:12:04 slash bigger pockets. Have you ever lost a DSCR deal because the financing just took too long? Red flags popped up late. The lender needed more time. The deal fell apart. Well, our friends at Dominion Financial just launched a program to help prevent that.

Starting point is 00:12:20 With their new express rental loan, you can close in 10 days or less. And they still offer their price beat guarantee so you can get great pricing and a timeline you can count on. Fast, simple, reliable. That's Dominion Financial. Check them out.

Starting point is 00:12:34 at biggerpockets.com slash dominion. That's biggerpockets.com slash dominion. Managing properties can feel like a full-on circus. You're juggling vendors, tracking payments, chasing approvals across multiple properties, and maybe a few HOAs, all while trying to keep tenants happy and owners confident. One delay can throw everything off, and suddenly your day is all clean up, no progress. That's why hundreds of property managers rely on bill to streamline their finances. Bill for property management lets you add all your properties, assign permissions, pay bills, and receive payments quickly and efficiently, without the usual bottlenecks. It syncs with platforms like QuickBooks, Zero, NetSuite, and Sage intact, so your accounting stays aligned. You can

Starting point is 00:13:19 automate bulk payments across properties and HOAs. Choose flexible payment methods like same-day ACH, international wires, card, or check, and set custom roles in approval policies. There's even a dedicated bill inbox for each property to keep everything organized. Ready to simplify your workflow, book your free demo at bill.com slash bigger pockets, and get a $100 Amazon gift card. That's bill.com slash bigger pockets. All right, welcome back. We're here with Lindsay Pete in Philly.

Starting point is 00:13:51 She's actually from West Philadelphia. Rob, I believe you're also from West Philadelphia. Born and raised, right? Born and raised. Yes. From the playground, you know, it's where I spent most of my days. What were you doing there? I was chilling out, maxing, relaxing.

Starting point is 00:14:05 I was all cool. Just shooting some B-ball outside of my school. All right, well, let's see what Lindsay beats up to. Hi, David. My name is Lindsay, and I'm from Philadelphia, Pennsylvania. I am a new investor and currently have one investment property, and my husband and I close on our second one in a month. We own and operate our own business,

Starting point is 00:14:22 and our accountant recently informed us that if we make more than a certain amount of money a year, we cannot deduct more expenses than we earn in passive income. The house we are closing on in a month need some work, and most likely we are going to incur more expensive than our passive income for our property this year. We invest in real estate for cash flow, appreciation, and for the tax benefits. Do you have any suggestions for how to maximize the tax benefits with this income rule? Do you suggest that I qualify as a real estate professional by spending at least 750 hours a year

Starting point is 00:14:52 in real estate and more than half my total working hours in real estate? Or is there another way to get all the benefits of real estate while working full-time in our own business? Thank you in advance. for your advice and time. Well, thank you, Lindsay. Rob, I'm going to let you start off with this one. You do a lot of short-term rental loophole work. What do you think here? Here's my take on it. I would say probably going the real estate professional route, going to be a little bit tough because figuring out how to spend $700. If she's not already a full-time real estate investor, she's not going to be able to get $750 hours in, especially if she does have a full-time self-employed

Starting point is 00:15:27 job. I don't think that's going to be possible. However, what is possible is she could turn it into a short-term rental. And if she materially participates in the management of that short-term rental, in most cases, that means she's self-managing it and she's spending 100 hours a year and spending more time on that property than anyone else, she could actually qualify for bonus depreciation if she gets a COS-Agg report. And she can get massive bonus depreciation in year one. That's going to be the easiest way to do it. Otherwise, I don't know, I think getting qualified for 750 hours is kind of hard, unless you're just really full-time, like a realtor, a broker, a flipper, anything in the real estate space. What do you think?

Starting point is 00:16:08 I think there's several layers to this question. So first off, we do share these strategies with people because we want them to save in taxes, but they're often portrayed as if it's just like a push a button and get the bonus. But these things come when you make adjustments to your life. You are a full-time real estate professional or, You are actively managing a property. It doesn't come easily. You can't just avoid taxes because you don't like them. If you want the benefit of avoiding taxes, it's going to come at a cost.

Starting point is 00:16:38 And it's going to be restructuring how you spend your time or how you make your money. So I've told people before, hey, I've avoided taxes by buying real estate. But I wasn't just buying real estate. It was buying big real estate. And the money that I make comes from real estate. I'm making real estate commissions as an agent. I'm making real estate commissions as a loan officer. I'm flipping properties.

Starting point is 00:16:59 I'm making rental income. I'm selling properties. My gains come from real estate. I basically, because I wanted to take advantage of these taxes, had to change my whole life and structure my entire income around real estate. So what are those things where you kind of have to decide? Are you going to be all in on this? Are you not going to be all in on this?

Starting point is 00:17:17 It's tough to dabble in real estate. That's another way to put that. It's tough to stick your toe in the water and want all the benefits that come from real estate. And also get all the tax benefits that come from owning real estate. And also one thing that I probably should have said, I mean, obviously the STR loophole is like amazing, but your property may not be a good short-term rental property. So don't go that route if it's not going to cash flow or if it's going to lose money. That should be obvious, but some people, you know, they go all in on the Cossack stuff. And yeah, you still want to make sure it's a sound

Starting point is 00:17:47 investment. If you want to learn more about this short-term rental loophole, we're going to point you to two places. You can check out Natalie Collodi's rookie episode, which is I think episode 368, or you can check out our episode on the STR loophole on the Bigger Pockets Real Estate Show with Mitchell Baldridge, and that's episode 823. I'll sum it up for you this way, Lindsay, if you want to get normal depreciation, you can only get the depreciation out of the property itself. If you want to get accelerated depreciation, you can only get depreciation if you're a real estate professional out of the income that real estate professionals make.

Starting point is 00:18:22 But it's still, the depreciation from real estate is used to shelter income. from real estate. It's not used to shelter income from other things unless, like Rob said, you take advantage of the loophole, in which case we have a short time period where if you're owning a short-term rental, you're able to depreciate W-2 income, which is typically done by like doctors or other medical professionals. But if you're serious about it and you've got that much income to shelter, my advice would be you buy a short-term rental. It's going to have to be expensive to have enough depreciation to cover your income and you have a professional that you trust, manage it to at least limit your losses if it doesn't perform very well and make sure that the tax

Starting point is 00:19:01 benefits offset whatever those losses would be. I think that's mostly accurate, but I think that if you're a real estate professional, you can use COSSEGs and the bonus depreciation against other 1099 income, just not W2 income because you can't be a real estate professional and have a W2 job at the same time. But the 1099 income you're talking about comes from real estate related activities because you're real estate professional. Technically, but you could also have like other 1099 like side hustles and stuff like that. I guess, yeah, you could be like a person like me, but have a cleaning company or something. You could shelter the income that way.

Starting point is 00:19:36 But in practical terms, if you're real estate professional, you're doing real estate stuff. It's very difficult to say, sure, hey, I'm going to be over here as an ice cream store owner and I want to get all the tax benefits that come from real estate without being fully engaged in managing an asset. Sure. Do you know that episode of Key and Peel where he starts like sweating professional? that's me right now, the more we get into this tax talk. I'm like, uh-huh. Yeah, you're questioning me and you're doing it with taxes. That's it teetering on the edge like Wiley Coyote looking down.

Starting point is 00:20:05 Am I going to fall? Thanks, Lizzie, for asking the trickiest questions the world. All right, so far we have somehow navigated fair housing laws and tax-related CPA questions. Two things that everybody in our industry runs away from, but Rob and I are charging into the storm like big hairy buffaloes. All right, at this segment of the show, we like to get into your comments on previous episodes. So thank you so much for submitting all your questions and making a show like this possible. If you would like to submit your question, please head over to biggerpockse.com slash David, where you can upload it there. And at this segment of the show, Rob and I like to get into going over comments on previous episodes. Make sure that if you're listening to this on

Starting point is 00:20:43 YouTube, you like, share and subscribe as well as leave a comment so we can read your comment on a future episode. Our first comment comes from user MG1YP4X C18. who looks like he made a fake account just to say. I can't believe user MG 1YP4XC1G was taken. Inside joke there. If you guys caught that one, you're a loyal, bigger pocket listener. And if you did it,

Starting point is 00:21:10 means you need to be listening to more of our podcast. User says, let's start a trim the beard chant, L-O-L-L. Which, you actually, quick aside, was making me think you said like two hairy buffaloes, and I didn't know if you meant like two hairy, buff, comma, fellows? Or two hairy buffaloes, as in bison's? Bisons charge into storms to get out of

Starting point is 00:21:31 them faster. That's where I was taking it. But you are a buff fellow and I suppose one might refer to me the same way when not caught up on my beard. So I will say, yeah, yeah, I don't love it, but I don't want to cut it because it takes a long time to grow. I was hoping that as we went, it would sort of develop into something and find its voice. It seems like my beard is stuck in a perpetual puberty. and I can't get out of it. So I may have to actually shave it. Rob, what do you think? Because you kind of got a beard growing on the top of your head. I've been waiting for you to build me a house without modern electricity and modern power tools, you know? Based on the hair of my chinny chin. And of course, I expect you to arrive to the build site in a horse and carriage. That's right.

Starting point is 00:22:14 And we'll store it in the ADU that we built to add value to the property. So Rob's trying to say that I look Amish. Let us know in the comments, do you think my beard is out of control or should I give it a little bit more time before I make a decision and possibly cut it down. All right. Our last comment comes from Midwest Matthew. Pretty cool name. I'm a newbie, but does an appreciation basically just keep pace with inflation. It couldn't outpace it by much at any rate.

Starting point is 00:22:40 Seems more like a savings account than an investment, albeit one where dependents make the deposit. Am I wrong? Matthew, I love this question. Actually, I wish people recognize this more. It sort of does imply that real estate. appreciates, but you're not gaining wealth. You're just keeping wealth you've already gained. That's one thing to think about. If you're not investing in real estate, you're actually falling behind. This is an important mindset shift because a lot of investors see real estate investing as

Starting point is 00:23:05 risk. I don't want to buy something because what if I lose money? They don't understand that not investing their money is losing money and that not making money is also losing money. So no, you are not wrong at all. Rob? No, this is great. For being a self-proclaimed newbie, Matthew, you, I think you really hit it on the head because he's like, hey, I mean, it just seems like all you're doing is keeping up with inflation. And I've always told people, you should think of real estate as a savings account. Like, don't spend it. You really, it's a savings account you can't really touch until you sell. So if you own a property for 30 years, you're paying down that equity, and then in 30 years you can sell it. And great, you have this savings account that has gone up

Starting point is 00:23:44 with inflation over time. One thing I would say, though, is you shouldn't just look at a real estate investment from the standpoint of appreciation. Because if you're looking at it that way, then yeah, it is just keeping up with inflation and it's a bit of a break even. But once you start adding in cash flow, like if you're making 500 bucks a month for 30 years, that's significant. Once you think about the fact that the actual debt pay down has gone down to zero, that doubles, right, with the appreciation. And then you have your tax benefits too where you're able to lower your tax bill every single year, keep that money in your pocket. And of course, you do have to eventually repay it.

Starting point is 00:24:20 That's just the tax game. But if you can hold on to money every single year because you're able to lower your taxes, that's more money in your pocket that you can then reinvest into more real estate. If you do this five, 10, 15 times, you'll retire a millionaire. If you've ever had similar thoughts to Midwest, Matthew,

Starting point is 00:24:36 or if you like the commentary that Rob and I just gave, head over to biggerpugts.com slash pillars and get a copy of my latest book, Pillars of Wealth, How to Make Save and Invest your Way to Financial Freedom. In that book, I cover how many of us think that we're standing on a stairwell and we're like, well, I could go up the stairs, but that's a lot of work. I don't really have to. That would be like buying more property. But you're actually standing on an

Starting point is 00:24:57 escalator that's going down as inflation is continually eroding your wealth. And you have to go up the escalator just to stay even. You got to run up the escalator if you want to make progress, which is what this podcast is all about, trying to help you, convince you and equip you to run up that escalator going down so you can save more of the wealth you already create it. Love it, man. All right. We got one more Apple review for you. y'all. And this one says, this podcast has changed my life for the better as I now own five properties and I'm a licensed agent in Denver, Colorado. I specifically love the tricky balance that y'all strike of due diligence and taking action. It can be easy to lean one way or another, but bigger pockets consistently places value on both. Thanks so much. And this is brought to us by the MAMCub via Apple Podcasts, which is actually that was your nickname back in college, right? Still is. Go by that all the time. A rookie. All right, everyone, thank you so much. We appreciate your engagement. Please continue to like, comment, subscribe on YouTube. And if you're listening on a podcast app, it's even more important that you go leave

Starting point is 00:25:54 us a review and subscribe to the podcast there if you love seeing green and you don't want to miss an episode. All right, we're going to be taking a quick break, but when we come back, we've got a pending tech layoff question as well as how to get into real estate more seriously with commercial cash flow, where you have opportunities to do so right after the break. 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.

Starting point is 00:26:28 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 a 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,

Starting point is 00:27:05 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. What if your CRM actually did the hard work for you? I know, crazy. ReSimpley lets you pull seller lists, skip trace them at no cost, and contact your leads by caller text without bouncing between apps. Then it's AI agents takeover. Answering calls, following up automatically, even grading your conversations

Starting point is 00:27:30 so you can focus on the deals that matter. Everything's under one roof. Design to simplify your day and scale your business. Start your free trial today and lock in 50% off your first month at resimply.com slash bigger pockets. That's R-E-S-I-M-P-L-I dot com slash bigger pockets. You just realized your business needed to hire someone yesterday. How can you find amazing candidates fast? Easy. Just use Indeed. When it comes to hiring, Indeed is all you need. That means you can stop struggling to get your job notice on other job sites. Indeed, sponsor job posts help you stand out and hire the right people quickly. Your job post jumps straight to the top of the page where your ideal candidates are looking. And it works.

Starting point is 00:28:11 Sponsored jobs on Indeed get 45% more applications than non-sponsored post. The best part, no monthly subscriptions or long-term contracts. You only pay for results. And speaking of results, in the minute I've been talking to you, 23 people just got hired through Indeed worldwide. There's no need to wait any longer. Speed up your hiring right now with Indeed. And listeners of the show will get a $75 sponsored job credit

Starting point is 00:28:37 to get your jobs more visibility 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. Tax season reminder for all the real estate investors listening. If you own rental properties, short-term rentals, commercial buildings, basically anything that's not your primary residence, you need to know about cost segregation. It's an IRS compliance strategy that lets you accelerate depreciation on your properties, which means you're paying less in taxes this year and keeping more cash in your pocket for your next deal. Cost segregation guys is the go-to firm, having done over 12,000 of these studies with $500 million in total depreciation identified. Head to Costsegregation guys.com slash BP to get a free proposal and see your potential tax savings.

Starting point is 00:29:35 All right, welcome back. Our next question is about commercial investment. for cash flow and how Rob and I would handle a similar situation. The question comes from Ken Kay in Charlotte. Ken currently has six residential income properties in North Carolina and can ask what commercial real estate investments do you think are currently best for generating cash flow? Well, Rob, I believe you have zero commercial assets. So why don't we let you start with this one? I've got one. I've got the hotel. I've got a hotel. And then, yeah, we're looking at, We've been in the trenches, you know, analyzing another hotel deal in San Diego.

Starting point is 00:30:14 But, you know, to be honest, like after all fees and everything like that, it's kind of funny. Like even a $7 million hotel deal after all splits and everything, the cash flow is really like, you know, one or $200,000. So I don't really enter in commercial deals necessarily expecting to cash flow at the gate. I think the job that you have going into commercial real estate is trying to figure out how to get cash flow up because the more cash flow you make on that property, the more that cap rate gets juicy and the more money you actually make on the back end when you sell the property. So for me, and I don't know, like you have more experience in this, but I go into commercial real estate typically with not as much cash flow with the

Starting point is 00:30:52 expectation to raise the cash flow, which I guess, I don't know, is that a dumb thing? I guess everybody does. No. But I mean, you're not buying it for cash flow. You're buying a value add opportunity. Exactly. That's like, I buy it expecting to exit that property with a seven figure profit. I don't go expecting a seven-figure cash flow. Very rarely does that actually happen? It's really a question of equity, which is nobody wants to talk about, but that's where the opportunity is in real estate today. It's incredibly hard to just buy cash flow, just get an income stream and not have to work.

Starting point is 00:31:21 Everybody wants it. And so everyone's going for it, which makes it very difficult to achieve. This is an aptly timed question because my next book for Bigger Pockets is going to be titled Better Than Cash Flow. And it's all about the 10 ways that you make money in real estate. and I'm writing the chapter on forcing equity in commercial real estate. That's funny, Rob, you just mentioned it. Because commercial real estate is valued by its profitability, the net operating income,

Starting point is 00:31:46 you add equity to it by increasing its cash flow. The two of them works synonymously, right? So I don't know that there's an investment that's best for generating cash flow. You have to find something that someone else is operating poorly. So somebody in my mastermind had a property that they brought to Kyle, my chief operating officer, and they're like, hey, I got this hotel. It's in Northern California. My contracting business took off.

Starting point is 00:32:09 I don't have time to work on it. I lose money when I pay attention to the hotel compared to what I can make as a contractor. I just want to sell this stupid thing. So one of the members in there was able to buy this thing off market, similar to how you do, Rob, with creative financing. They picked it up. They're going to move there.

Starting point is 00:32:24 They're going to put some time into getting it ready. And it's like 2025 units that they're going to turn around. That's an amazing opportunity, but you didn't find it on a loopnet. You kind of had to know somebody that knew somebody would be in the right. circle. That's typically how it was for me. Same idea, right? Yeah. But when you find them, you're not just walking into cash flow. You're walking into

Starting point is 00:32:42 a problem. And when you solve that problem, you earn the right to cash flow. That might be a better way to look at this. You don't walk right into fitness. You walk right into a problem. You're going to go sweat and be uncomfortable. And you earn your way into fitness. That is the future of real estate investing, at least until we have our next recession. Now, you will find more opportunities in investments that are less passive. And that's because everybody wants passive. They're like, can I just buy something that makes a bunch of money and I don't have to work on it. So something like a car wash, it's real estate that's tied to a business. That is something that you can actually get more money in.

Starting point is 00:33:15 The same with the hospitality industry. So Rob's Hotel, he had the opportunity to buy that sucker because it's also a business. He's going to have to bring his systems, his models, the way that he advertises properties, his skill when it comes to design and management. There's going to be active energy put into that property. And if he pours it into there, ideally, the problem. property will become worth more, that energy will grow inside the asset, then he'll be able to sell it or he'll be able to keep it and have a cash flow. So if you're in a similar position to Ken K here,

Starting point is 00:33:44 start looking for opportunities that require active work, get away from the passive trap, and you're probably more likely to have some luck. Yeah, to drive this one home, just to hear more, that specific deal I was looking at was actually a break even at its current. And it was already operational, remodeled, but our job is to buy that at a break even, you know, sort of maneuver the systems, if you will, increase rents. And by doing that, we think it'll go from $7 to like $11 million. And that's from increasing the cash. I can't remember off the top of my head, but it's like from $200,000 to $400,000. And that's our opportunity is moving that NOI up as high as possible. So I would not go into commercial real estate if you plan on retiring

Starting point is 00:34:27 off the cash flow. You're going to retire off the exit. That's a great point. All right. Our next question comes from someone in the Bay Area who wants to remain a not And I don't blame them. In fact, Rob, I'm going to let you read this one. But before we do, I just want to say to whoever wrote this question, don't feel bad. I have been warning people about this, both in my teams and occasionally on the podcast for about two years now. And I think that wise listeners will ask themselves what would I do if I was in Mr. or Mrs. Anonymous's position myself.

Starting point is 00:34:55 Okay. So the question here is, hi there. I'm in my mid-40s and anticipate losing my job in big tech this April. I have about $400,000 in savings, congratulations, that's a lot, $750,000 in a 401k, and significant equity in two single-family homes, $1.7 million in our primary home, and about $700,000 in our second home that is a profitable Airbnb. Rather than returning to a corporate job, I'm interested in using my capital to make money in real estate. Concepts I'm considering are house flipping, burr, and or acquiring multi-unit rentals. I live in the Bay Area so likely need to seek other markets for

Starting point is 00:35:32 what would you recommend as a first step to building a new career and cash flow in real estate? And then a side note, should I take out a HELOC now while I have steady income coming in to give myself options? Creative. I like that last question. So I guess he's basically going against the grain here because our recent episode was how to quit your job for real estate. And we said, hey, make sure you make a lot of money before you do that. And he's saying, hey, not only am I not quitting my job, I'm losing my job and I'm going to be a full-time real estate investor. My harsh advice here, tough love is go get a job. Go get a job and do the real estate stuff at the same time. I think trying to build a career without much experience in real estate is not a good idea because you're going to eat through those savings and your 401K. And I'd hate for you to do that without the security of a job. I'm going to assume that's probably easier said than done. And maybe he's already considered getting a new job or maybe that's really tough. But man, I do not like this whole like, man, I'm not going to get a job. I'm just going to become a real estate. a full-time investor.

Starting point is 00:36:35 That's not that easy. That is one of the hardest things in the world to do. I am more worried about people saying, I can't find a job versus I don't want a job. I want to invest in real estate instead. And that's what Rob's getting at here is like sometimes you got to be grateful for what you got instead of just thinking that you deserve more. So what's your advice to somebody who is in this position where they're saying,

Starting point is 00:36:57 I don't want another corporate job, which understandably, they probably feel burned. They don't want to go back to a job if they're just going to, lose it again. But what's your alternative right now? Yeah, I mean, I'm still fine. I mean, it's like I am fine with them undergoing like a house flip or a burr. I just don't want that to, I mean, it's, it's a long road. Like a burr, they're not really going to solve their problem with the burr. They're going to, they've got 400K. Let's say that they bought a house cash and they burned in and they got their 400k back. I mean, they might make some cash flow, right? But it's a couple hundred bucks. It's not going to replace your six figure income. And then if they are

Starting point is 00:37:30 flipping a house, well, sure, they could make like a, you know, a $20,000 rip or a $50, or $100,000 rip, but that's going to take six to 12 months. And also, the market could correct and it could still be a break-even or it could be a loss if it's its first property. So, you know, I'm not saying don't do a house flip. I'm just saying you shouldn't just rely on that. I think I really, I don't like it. I don't like it. I think they should try to get a job. And it may not be a job in big tech, unfortunately. I think you got to just figure out how to make money. It's just a longer road than it ever was before. I like. that you said that, Rob, it's a long road. It used to be a short road. Hey, start buying real estate.

Starting point is 00:38:07 It goes up in value right away. Stop flipping houses. I mean, man, when I was on my like, burr run, I was buying them off the MLS. I would just have a meeting with my agent and she'd bring me a whole bunch of distressed properties in northern Florida. And I just find the gnarliest ones that I could get at the best price that needed the mostly cosmetic work. And that was all that it took. You were constantly telling people about this method. And if you got in at that time, there's a lot of opportunity. Well, eventually everybody heard the message. And they're all buying those properties. And now you got people buy an off market deal.

Starting point is 00:38:37 So they don't even make it to the MLS anymore. You can't buy some of these properties because they get scooped up by wholesalers or other investors that get them because they're actively targeting these things through direct mail campaigns and cold calling and driving for dollars. They're hungry for this stuff. It's not an easy time to go replace your income with real estate. It's a slow burn at this stage in the game. I just, I'm, gosh, I don't know. I want to give them something. but I feel like the advice is to not do this without getting a job.

Starting point is 00:39:07 Like do all that at the same time of, at least a part-time job, at least figure out what your fixed income is and do the other stuff with the nest egg that you've earned. But you got to earn the right to be a real estate investor before you do it. And they haven't earned it with one house, not in my opinion. Yeah, and that doesn't mean you shouldn't. It just means you got to work harder to earn it. That's a great way to put it, Rob.

Starting point is 00:39:30 So I like this. I think that this needs to be. I've said this for years. Real estate should be the carrot that gets you to put your financial house in order, not the meal replacement where you say, hey, I don't want to have to work hard. I just want to do real estate instead. So ask yourself, what skills do you have?

Starting point is 00:39:47 How did you get to where you got in your previous job? Who needs the skills you have? And how uncomfortable are you willing to get in order to start a new opportunity? I am constantly telling my employees, is we need to be asking, where is their demand in the market and how do I meet it? Because if you're not asking that question, you know, a question they end up asking instead, Rob, what's the easiest way that I can make the most money? Yeah.

Starting point is 00:40:09 It's a problem right now. That's the question that you ask when the economy is amazing and you're full of options. But when your options go away, if you still have that old mindset, you're going to get hurt. So for everybody listening to this, please take us serious. We love you. And that's why we're talking about this. If you got a competitive advantage, you can do it. But this might be the time to look at how you can go get a different job.

Starting point is 00:40:28 and how you can improve your skills. And seen. Well, we're going to leave them with a little fluffy, nice rainbow and butterfly tip there. But as a side note, you did ask us, should I get my helic now before I lose my job? That's a hell yes. Go get the helic while your debt to income ratio. Yeah, definitely need that. Absolutely. Just don't take the money out because it's not free money. You still have to pay for that. So you want the helic available to you, but you don't want to actually go spend that money until you have a really compelling reason to do so. But you will never get that he lock back if you don't get a W2 so you may as well at least qualify for it now. All right, everybody.

Starting point is 00:41:03 Thank you for joining us on Seeing Green, the podcast where we give it to you straight and healthy, just like your vegetables, and we enjoy all of you that have been with us today. If you like to show, please make sure you stop what you're doing right now and go subscribe to this podcast on Spotify, Apple Podcasts, wherever you listen to them. And if you're on YouTube, make sure you leave us a comment that head over to biggerpogs.com slash David and submit your question. We want to know. If you would like to know how to get in touch with Rob or I, you can find our information in the show notes. And if you got a minute, check out another Bigger Pockets podcast. This is David the hairy buffalo green for Rob the Squishmalo

Starting point is 00:41:40 Abasolo. Signing off. Thank you all for listening to the Bigger Pockets Real Estate podcast. Make sure you get all our new episodes by subscribing on YouTube, Apple, Spotify, or any other podcast platform. Our new episodes come out Monday, Wednesday, and 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.com. The content of this podcast is for informational purposes only. All host and participant opinions are their own. Investment in any asset, real estate included involves risk. So use your best judgment and consult with qualified advisors before investing. You should only risk capital you can afford to lose. And remember, past performance is not indicative of future results. BiggerPockets LLC. claims all liability for direct, indirect, consequential, or other damages arising from a reliance on information presented in this podcast.

BiggerPockets Real Estate Podcast - 937: Seeing Greene: Paying Off Rentals, Estimating Crime, & Replacing Your Salary

There aren't comments yet for this episode. Click on any sentence in the transcript to leave a comment.