BiggerPockets Real Estate Podcast - BiggerNews: 2 Real Estate Markets That PROVE Cash Flow Is Alive in 2024

Episode Date: September 27, 2024

Cash flow is hard to find in 2024, but these real estate markets have plenty of it. Since so many previously “cash-flowing” markets have seen rising prices, higher expenses, and limited housing inventory, we went back to the drawing board to reevaluate which markets in the United States offer the most cash flow potential. Today, we share these markets and hone in on two specific ones with real-life on-market examples to prove that cash flow is still possible. But before we get into that, we’re sharing the cash flow formula even beginners can use to quickly calculate whether a rental property will cash flow. Then, we describe what type of cash-on-cash return WE target in today’s market and list some of the most cash-flowing markets of 2024. Want to see real cash-flowing rental property examples? We’re hopping over to BiggerPockets Deal Finder as we quickly analyze two separate rental properties in two cash-flowing markets to prove that these properties do sport some serious cash flow. Don’t believe us? Head over to BiggerPockets Market Finder, where you can see the nation’s top rent-to-price investing areas (that’s where the cash flow is!).  In This Episode We Cover: Two cities that have cash-flowing rental properties for sale RIGHT NOW Precisely how to calculate cash flow for rental properties (and why most investors do this wrong) The optimal cash-on-cash return we target that properties must meet before we bid on them The 1% rule explained and whether or not it’s still worth using in 2024 When to sell a cash-flowing rental, even if it’s making you mailbox money every month  And So Much More! Links from the Show Join BiggerPockets for FREE Let Us Know What You Thought of the Show! On the Market BiggerPockets YouTube BiggerPockets Real Estate Investment Calculators Try BiggerPockets Deal Finder Learn All the Rental Property Formulas with “Real Estate by the Numbers” Find an Investor-Friendly Agent in Your Area See Dave and Henry at BPCON2024 in Cancun! Top 10 Real Estate Markets for Cash Flow in 2024 Connect with Henry Connect with Dave Check out more resources from this show on BiggerPockets.com and https://www.biggerpockets.com/blog/real-estate-1023 Interested in learning more about today’s sponsors or becoming a BiggerPockets partner yourself? Email [e-mail]. Learn more about your ad choices. Visit megaphone.fm/adchoices

If you've been analyzing deals or trying to get into the real estate game for the last year or two, you already know this, but I'm going to say it anyway, strong cash flow is getting harder and harder to find. And a lot of people are saying that the 1% rule is dead or that it's just impossible to find cash flow today. But harder doesn't mean impossible. And today we're going to prove it to you with real markets, real deals, and real numbers. I promise you all, great deals. do exist. You just need to know where to find them. Hey, everyone, it's Dave. It's Friday, which means it's time for bigger news. And we've got a great one lined up for you today, my friend and on the market co-host, Henry Washington,

is here to talk about the best markets for finding cash flowing deals right now. And we're actually not just going to talk about what markets are great, but we're going to actually analyze real deals from the MLS in the markets that we're talking about. So you can see what kind of returns you can expect. Henry, man, it's good to have you back on the show. Thanks for being here. Hey, man. Thanks for having me. You know, I love doing shows where we're talking about finding good deals. That's my jam. Yes. Well, we have the expert in the house. So thank you. And I do want to hear what you've been up to recently. And in order to do that, we're actually trying something new, everyone. After this episode records, Henry and I are going to record an after show. It's going to be

exclusively on our YouTube channel, where we just casually talk about what he and I have been up to in our portfolio, because we don't always have time for that on these shows. But we think it's going to be helpful for you to just see the challenges, the successes that Henry and I are both having in our real estate investing. So if you're listening to this, go check out the YouTube channel and check out our new idea that we're testing out the after show. Yeah, it's cool. I just snagged a couple of cool deals that I want to talk about. So that'll be fun. Oh, I'm very interested to hear more about. this, I'm having the opposite problem right now. So at least we'll hear some successes from you.

Great, great. Well, on this show, we are going to talk about which metrics investors should use to project future cash flow. We'll also talk about what regions pop when you start running the numbers and seeing where you can actually get some cash flow. And which markets in those regions are our top picks for cash flow right now. Awesome. This is going to be a lot. lot of fun. Before we get into it, I should just correct something I said that after show that we're filming, it's happening, but it's not coming out till next Tuesday. So I know you all are going to be waiting all weekend, furiously refreshing. Set your alarms. Set your alarms for Tuesday because you can hear more of me and Henry on the Bigger Pockets YouTube channel. But with that, let's get into

our episode today talking about cash flow markets. All right, Henry, so today we're obviously talking about cash flow. But before we get into specific. markets and the specific deals. Let's just define the term for anyone who's new to real estate investing. When we talk about cash flow for property, how do you think about and calculate cash flow? Isn't cash flow just any money that's more than the mortgage payment? Oh, yeah. All you got do is you just take your rent, you subtract your biggest expense, and then just ignore all the other expenses. You don't need to think about them. Absolutely. Absolutely. Yes. So when we talk about cash flow. What we're really saying is net cash flow. That is what you net after all of your

expenses. And a lot of investors like to leave off certain expenses to kind of make the numbers work. But the truth of the matter is in this market, that is very difficult to do because people, everybody thinks, oh, well, interest rates are higher, so it's hard to cash flow. Unfortunately, it's not just interest rates now that are higher. So when you are calculating your net cash flow, you take your total rent amount for the month. You subtract your debt service so that's your mortgage payment and whatever your interest is. You also need to subtract your expenses. And we're talking all expenses. And these are going to vary based on your market. But one expense people always forget about is vacancy, right? Because you're never going to

have your place 100% full all the time. It will be vacant. There will be turnover. And so in order to calculate this correctly, you need to understand what vacancy rates are in your market. You can get this by doing a little research yourself. You can get this by talking to an investor-friendly real estate agent. I'd urge you to talk to several of them to make sure that the data is accurate. So you subtract your vacancy. You subtract your maintenance. Everybody knows about maintenance, right? Normal wear and tear, things are going to break. We typically do about 5%. If it's an older house, we'll do a little higher. We may do 8 to 10% for vacancy. When Henry says five to eight percent, you're talking about of rent, right?

Like you take five to eight percent of your revenue and set that aside as an expense. Even if you don't need it every month, you just put it on the side. We have a rental expenses account that we automatically set up draws to come out of our rental income account every month based on those percentages. So we need to think about it. And then if we need it, great if we don't. It's there. So five to eight percent, depending on the age and how much maintenance you think it's going to need.

and then capital expenses because there are things that just go bad over time. HVACs don't last forever. Water heaters don't last forever. Roofs don't last forever. They're big capital expenses. You need to be budgeting a little bit every month for when they do fail. You can't afford to replace them. So you got your capital expenses.

And then you have to budget for property management, even if you are managing properties yourself. Yes. Because you may think I'm never hiring her property manager and then you grow your business. or something terrible happens and you're like, you know what, property management isn't for me and you want to turn your portfolio over to a property manager and you didn't budget for it. Well, all your cash flow gets eaten up by this new 10% expense you have to pay. So budget 10% property management when you're doing your cash flow. So then make sure that your insurance budget is accurate because insurance has gone up over time.

If you have been investing for a year or two now and you haven't adjusted what you're budgeting for your insurance, you need to take a look at it because they have gone up over time. the past year and you want to make sure that that's accurate. And so your cash flow for this very long-winded answer, your net cash flow is what is left from the rent every month after you subtract all of these things. Well, said, Henry, thank you for putting it so clearly and actually using the right metrics and the right categories here for expenses. It just makes me so mad, honestly, seeing people on social media, honestly, being like, I get a 10% cash on cash return. I get a 15% cash on cash return.

And you ask what expenses they're taking out. They're like principal insurance, taxes, and maybe maintenance. But there are things like vacancy, property management, turnover costs for when you eventually do have to do it. And when we talk about cash flow for the remainder of this episode and for the future of this podcast, we, you're talking about underwriting using all of these categories. And some people may say that you're being overly conservative. Fine. I'm fine with that. Yeah, exactly. I would rather invest in a deal

that has a 5% cash on cash return that is underwritten with all the things you just said it, then just pretend that I'm going to get a 12% cash on cash return and hope that everything goes extremely well. So just keep that in mind as we're talking about this, that we're talking about fundamentally sound conservative underwriting so that the cash on cash return that you get at the end of this analysis is hopefully the worst case scenario, right? Like that's how I always think about it is like if I'm looking at 5%, that's if everything goes wrong. Hopefully not everything is going to go wrong. I get 8, 9, 10% cash on cash return. But I think that can be confusing for people when you see other educators in the real estate space talking about these massive numbers that

maybe aren't underwritten with the same degree of scrutiny. And to be fair to people, like, you could be a little wishy-washy about your numbers two, three years ago because values were going up so high. Insurance wasn't as high. Taxes weren't as high. Interest rates weren't as high and rents were going up. So you could underwrite a deal, miss a couple of these expenses, and look at the end of month and still say, man, I made some good cash flow. You probably did. But it's not like that anymore. You really, this new market with the interest rates and the taxes and the insurance, all being higher, it will eat your lunch if you are not prepared. And if you're a new investor who doesn't have other cash loan properties helping to carry a portfolio, or you're not sitting on cash reserves

that you can use to fund your portfolio when you miss one of these, uh, exescent. then you're going to find yourself in a world of hurt. It's really the new investors who don't have that cushion yet that really, really need to pay attention to this episode. That's such a good point. I'll talk about this more when we catch up later, but I've had this rough week as a property manager. But it was okay because I've owned this property forever. So the cash reserves have just like, you know, built up a lot over time. So I'm fine. Like I had cash reserves for it. But if you're brand new to it and you hadn't allocated for some of the things I've gone through the last week, you'd be in a tough situation.

All right, time for a break, but we'll be back shortly. Do you ever notice how every passive investment somehow turns into a very active lifestyle, active spreadsheets, active phone calls, active stress? Here's a better question. What if you could buy brand-new construction homes, 10% below market value in the best markets across the country, without making real estate your second job? That's exactly what rent-to-retirement does. They're a full-service turnkey investment company handling everything for you.

In some cases, investors get 50 to 75% of our down payment back at closing, plus interest rates as low as 3.75%. They've partnered with BiggerPockets for over a decade, helping thousands invest smarter. If you want to do the same, visit BiggerPockets.com slash retirement to learn more. For decades, real estate has been a cornerstone of the world's largest portfolios. But it's also historically been sort of complex, time-consuming, and, expensive. But imagine if real estate investing was suddenly easy, all the benefits of owning real, tangible assets without the complexity and expense. That's the power of the Fundrise flagship fund. Now you can invest in a $1.1 billion portfolio of real estate, starting with as

little as $10. The portfolio features $4,700, a single-family rental home spread across the booming sunbelt. They also have 3.3 million square feet of highly sought after industrial facilities thanks to the e-commerce wave. The flagship fund is one of the largest of its kind. It's well diversified, and it's managed by a team of professionals. And it's now available to you. Visit fundrise.com slash BP Market to explore the fund's full portfolio, check out historical returns, and start investing in just minutes.

Carefully consider the investment objectives, risks, charges, and expenses of the Fundrise Flagship fund before investing. This and other information can be found in the fund's prospectus at fundrise.com slash flagship. This is a paid advertisement. Have you ever lost a DSCR deal because the financing just took 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. 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. Check them out at biggerpockets.com slash dominion. That's biggerpockets.com slash dominion. 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 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. Thanks for sticking with us. We're back

with bigger news. Okay, so we're going to get into our list of top markets and then actually analyze some deals in those markets just to show you what type of returns you can expect. But before we do that, Henry, let me just ask you what type of cash on cash returns do you normally look for? Yeah, I mean, obviously a 10% cash on cash return is great. I'd love to underwrite it and see a 10% cash on cash return. That doesn't always happen. Quite frankly, it's pretty rare that I'll see them now.

If you're truly underwriting deals properly like we just talked about, we're typically seeing somewhere near half of that. And I'm okay with that right now for a couple of reasons, right? Again, guys, I am a seasoned investor, which means, yes, I want cash flow, but there's other parts of how real estate pays you that are important to me as well because of the tax benefits, because how much equity am I walking into on day one. There's other things that I'm also looking for. But sure, I'd like to underwrite it at a 10% cash on cash return, but typically we're seeing probably closer to five, six. And I like those deals. Those are

solid deals because that's telling me that in the worst case scenario, this property is paying for itself and still paying me a little bit of money every month. And given all of the factors working against me right now, I think that's pretty selling. Totally. I don't want to go on a whole resource allocation tangent here. But it really, you have to think about how you're allocating your money. And a five or six percent cash on cash return is so much better than any cash that you can get anywhere else. Even a high yield savings account, they're at 5 percent right now, probably this week in the middle of, you know, Fed's going to cut rates. That means savings account rates are going to go down. So, you know, you're getting 4% there. Bonds aren't as good. So you are getting better

cash than you can get in pretty much any other type of investment asset plus the amortization, the appreciation, the tax benefits. And so like, to me, that's still a great deal. And again, we're underwriting these deals that that is the worst case scenario that you're going to get for the deal. So just keep that all in mind as we are talking about this. deal. All right, let's start talking about just some of the ways that we look for cash flow. So you've probably all heard this term or this metric, the RTP or rent to price ratio. If you've heard of the 1% rule, that is applying this metric called the rent to price ratio. And it's basically this very, frankly, pretty crude metric that looks and helps you estimate

cash flow. It basically looks at how much a property costs and compares that to how much rent that you can generate from it. And when you divide one month of rent by the purchase price of a property, the closer you are to 1% the better. If you're above 1%, that's generally seen as really great. Now, I don't know about you, Henry, but I gave up on the 1% rule a long time ago. Is it something that you think about? I've never used it as a hard and fast rule. For me, it's always just been a rule of thumb or a measuring stick to know if I'm actually considering or looking at a what could be a good deal. If I get a lead in my inbox and I do some quick math and go, well, if I rent it for this and if I buy it for this, will it hit 1%? Yeah. Then I know that I can

pursue that deal and then I'm going to try to get it cheaper than that so that I can get more than 1%. But I've never thought, oh, well, it hits 1%. I'm buying it. That's not what it. It's not a hard and fast rule. For me, it's always just been a measuring stick to know, am I looking at what could potentially be a good deal here? Yeah, that's a perfect way to put it. I think it's good way to compare two similar assets, right? So if you are looking at in the same neighborhood where taxes and insurance are likely to be the same and two different properties, one's better, you know, one has a higher enterprise ratio than the other, you can say, okay, this one probably is going to generate more cash flow. Or if you're doing, comparing markets, for example,

It works as a proxy, but it's not a be-all end-all because different markets, like you might have a really high rent-to-price ratio in Texas. Texas has some of the highest property taxes in the country. It has really high insurance costs right now. So those are things that you obviously have to factor in as well. But it still can be useful. It's like as long as you take it with a grain of salt, it's still useful. But I also just think the 1% rule at this point in the investing. cycle does more harm than good because, right? Because more people are saying like, oh, I can't

find a deal that's 1% rule. I'm not going to get into real estate. You're like, well, a deal at 0.8 or 0.9 is still better than anything else that you would do with your money. So you should probably reconsider that rule a little bit. I agree. Anyway, I wanted to talk about rent to price because just to help people understand where regionally in the country, cash flow is generally easier to find, you find the highest rent-to-price ratios right now in the Midwest. So you look at places like Indiana, Ohio, Michigan, Illinois, those places tend to have better rent-to-price ratio. It's been like that in the Southeast a lot, but the Southeast has gotten more expensive over the last couple years. But I still think, I mean, you know better than me. I still think there are places

that offer cash in the Southeast. When I was doing research for this show, it's pretty much you just draw a circle. around the Great Lakes. It's like, it's like, you know, they have lake effects snow. You have lake effect cash flow. That's what that's where you get it right now. That's such a good term. You should, you should trademark that lake effect cash flow is great. Yeah, you definitely see a place like Milwaukee or a lot of Ohio or Michigan. There's like a sweet spot right in between Milwaukee and Chicago where it's like cash flow heaven. Yeah, it's great. And just so everyone knows, Like, there's usually a trade-offs.

A lot of places that offer the best cash flow don't appreciate as much. Right now, a lot of those markets are appreciating. But historically, that relationship does exist. I will just tell you that I did put out a list of top cash flow markets earlier this year. And they're not all in the Northeast because I did sort of some other metrics other than rent-to-price ratio. I looked at job growth, population growth. And number one was in the Great Lakes. It does have Lake Effect cash flow in Peoria, Illinois. But then you see places like Shreveport,

Louisiana, which I know our colleague, Tony Robinson on the Rookie podcast, is much maligned to admit he is invested in. But you see places like Pittsburgh, Pennsylvania, which has a great economy up there, places in Texas, like Lubbock, Texas, Corpus Christi. So they really can be found all over the country. But I thought it would be fun, Henry, to just pick two markets that have decent rent to price ratios and just walk through one of the deals. Are you, want to do this? Dude, I'm a deal junkie. Let's do it. Let's do it. Okay. So the first one I picked, I think I picked this on, I went on the rookie show recently and asked me to pick a market

I would invest it. And I picked Pittsburgh. So the things that I like about Pittsburgh is one, it has a, it's a big population, 2.4 million people. It's growing. But the median home price is $200,000, which means that it is half the national average. So it's super. affordable, but it's like the epicenter of the robotics industry in the United States. And so there's a lot of really high paying good jobs. There's great price growth. And from what I read, there's decent quality of life and quality of living. So just for the record, Pittsburgh's rent to price ratio on average is about 0.7, which might sound terrible. But by rule, that means half of the deals in that market are better than 0.7 and half of them are worse. So I went on the bigger pockets deal finder and just poked around for honestly, two or three minutes and found this deal is on the market MLS. It's a four-bed, two-bath, 1,800 square foot house. It looks really nice. It's like one of these brick buildings. It looks like it's recently had a cosmetic update. Are you looking at these pictures? Yeah, man, no, it looks clean. It looks pretty nice, right? Like, it's ready to go. Yeah, it's on sale for 175.

and the rent estimate from the bigger pocket deal finder is $1,737. So it's not quite 1%, but it's like the 0.99% rule, which is great. So what I analyze this deal, full purchase price, no rehab, paying VMs, capex, maintenance, vacancy, everything that you said, this deal is a 5% cash on cash return. That's a solid deal, bro. Right? Rick all the way around. Final windows and a couple of them.

Like, it looks like this is pretty solid, man. I know, right? So I got me excited because I felt like I spent almost zero time looking for this. And this is an already renovated turnkey property. Like, this is one that you wouldn't have to do any work for. If you wanted to do more work than this, you probably could get even a better cash-on-cash return if you're willing to do some of the cosmetic rehab yourself. Oh, yeah.

So I just wanted to show you this just as an example, because to me, it showcases the fact that cash flowing deals on the market are absolutely still possible if you just look in the right places. Is this a kind of deal that you would see in your market, Henry? Like, could you think you get cash on cash return 5%? Turnkey? Turnkey like this? No.

No, definitely not. So when you were saying 5% earlier, that's after a little bit of work, right? Yes, absolutely. That's after buying value ad. Like what's cool about this deal you're showing is this is 5% cash on cash return day one. Day one. Right. And so in my market, I'm getting 5% cash on cash return.

It takes me six months to renovate it. I mean, three months to renovated another month or two to throw somebody in there and then they're paying rent and deposit. And so by the time that happens, you're six months down the road before you're actually starting to see some of the fruits of your labor. Yeah. And so this is a day one property. And what's also cool about it being a day one property is you can go ahead and start

getting the tax benefits because the property has to be in operation before you really get a lot of those tax benefits. Right. Yeah, absolutely. That's so true. That's a great point. And of course, there's a benefit to doing what you were talking about and doing a rehab because, you know, you're increasing the value of the property and building equity at the same time. But if you're the type of investor who just wants low headache, easy type of deal, like, do go do this. Go buy real estate The Pittsburgh, I don't understand. But it just, it squashes that because everybody's saying it. You can't find cash flow.

It's too hard to get cash flow. You can't find any good deals. You found one in five minutes. Dude, it was so easy. Yeah. And I started investing earlier this year in a market with a little bit of lake effect cash flow. And I'm finding these kind of deals as well.

Like, in my mind, the best one you can find is somewhere that has like a three to four percent cash on cash return. But after it comes. cosmetic rehab, you can get like a seven or eight cash on cash return, which definitely exists in a lot of markets. This was just one I picked up out of nowhere. Okay, we have to take a quick break, but I first wanted to remind you that if you're looking for deals right now, the bigger pockets deal finder can help. This is actually what I used when I was doing research for this show and I picked these markets and just wanted to find a deal as an example of what you could find in there.

It took me just a couple of minutes to find cash flowing deals. And you can check it out by going to biggerpockets.com slash deal finder. We'll be right back. People love to call real estate passive income, which is interesting because most of the investors I know are very busy. Busy finding deals, busy managing teams, busy worrying they pick the wrong market. Rent to retirement flips that model. They help investors buy turnkey new construction homes, often 10% below market value in top

rental markets across the country. Their local teams handle the build, the property management, and the details, so you don't have to. In some cases, investors even receive 50 to 75% of their down payment back at closing, and there are interest rates as low as 3.75%. They've been trusted partners with BiggerPockets for over a decade, and if you want to learn more, visit biggerpockets.com slash retirement. For decades, real estate has been a cornerstone of the world's largest portfolios, but it's also historically been sort of complex, time-consuming, and expensive. But imagine if real estate investing was suddenly easy, all the benefits of owning real, tangible assets without the complexity and expense. That's the power of the Funrise 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, 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. Real estate investors, the April 15th tax deadline is coming fast. If you own rental property, and haven't done a cost segregation study yet,

you could be handing thousands of dollars to the IRS that you don't have to. These studies let you write off as much as 25% of your building and generate huge tax deductions. Costsegregation.com is an online, self-guided software that makes cost segregation fast and affordable. So it finally makes sense for smaller rental properties purchased for as low as $100,000. With pricing under $500 and an average savings of over $25,000,

it's just a no-brainer. What's more, audit support is included by the number one cost segregation company in the U.S., but you must complete it before the tax deadline. Go to costsegregation.com and use code tax deadline to get 10% off your first report. Don't overpay the IRS. Head to costsegregation.com before April 15th. New Year, clean slate, and maybe a vacancy that needs to get filled fast? That's where a veil comes in. With avail, rental listings can be published to 24 top rental sites with one click, completely free. That includes places renters are already searching, like Realtor.com, apartments.com, redfin, and more. No copying and pasting. No juggling multiple platforms, just one listing that shows up everywhere. If getting rentals organized and filled fast is on the list this year,

start with Avail. Sign up for free at Avail.co slash Bigger Pockets. That's A-V-A-I-L-C-O-Bigger Pockets. Welcome back. Let's jump back in with Henry Washington. So the other market people tell me about a lot is Augusta, Georgia. Never been there. I just know the Masters is there. You ever been? No, never been, but I obviously would love to go watch the Masters. I tried. I put myself in the lottery, and that was like seven years ago, and I've never heard a single people about it. I don't think I'm ever going. But it looks so fun, and apparently, have you heard this thing about the Masters where the food is, like, extremely cheap? They're cheap. Yeah. Yeah, what is that? So it's like they make you wait nine years and pay $1,000 for a ticket, then you get a $2 cheeseburger. Yeah, it's totally worth it.

That works. That kind of marketing works on me. So I would go. All right. So in Augusta, just a couple stats. Again, I've never been there, so I don't know that much about it. But I can tell you that the median home price is about $230,000. Rent-to-brice ratio is lower at 0.6%. But something I like about it is that it's still relatively affordable when you, for the average citizen there, it's easy to relatively easy to pay rent compared to a lot of more expensive places. It seems to have a growing economy, population is growing, low unemployment rates. So a lot of things that you look for in a city. And again, at 0.6% rent-to-price ratio, I thought I would take a look and see if I could find a deal. So instead of spending three minutes looking for this deal, I really, I dug deep and I spent

maybe seven minutes looking for this deal. Yeah, it was pretty intense. And this one, what we got here, again, on the market, another four two. It's about 2,000 square feet. It's built in 1957, which is pretty good. I think a lot of, one of the things about the Midwest, I've noticed investing there is a lot of the houses are super old. Like you find houses in 1890s, 1900s. So that comes with some challenges.

But this place, to me, the outside exterior is nice. The inside, it needs a little bit of love. So I actually went to the Bigger Pockets calculator and ran the analysis. I still plan to buy it for full purchase price, which it is listed for $185,000. But I said that I was going to spend, I just really roughly estimated this. So take this with a grain of salt, $20,000 on repairs. I don't know if that, do you think that's like a reasonable estimate? Just look at the pictures. I think that might be a smidge low. I'd say this is probably a $30K. Okay, $30K. No, I'm going to use Bigger Pock's Calcutter. I'm going to just change this right now.

30K. Tell me, Henry, it's listed for 185. If we put 30K in, what do you think the after repair value is? 230. 230. All right, I like it. Obviously, everyone, this is not how you should underwrite deals long term. But honestly, this is how I do a lot of, like, preliminary analysis.

Like, if someone sends you a deal, I just use estimates, rules of thumb to see if you're in the right ballpark and then start refining. your estimates from there. So if we do this, I assume that I'm going to be able to raise my rent a little bit. I'm going to hit next expenses. Update my analysis here. Okay. Dude. So if we did this, even putting in 30 grant, this property would generate $446 a month in cash flow for a 6.6% cash on return. That's right in your wheelhouse. That's solid. Yeah. And in addition to that, you were improving the value of the property. So you were also gaining equity in this type of deal. Yeah, man. Now, obviously, we don't know if this deal is exactly right. You might walk into this place and say, there's foundation issues, there's structural issues. This is going to cost 70 grand,

80 grand. But my hunch is that if in seven minutes of looking on the MLS, I could find a deal that sort of makes sense just by the eyeball test, that if you spent some time doing what your job, job is as an investor to go in and analyze and look for these deals. Diligence? That you will be able to find them. Yeah, exactly, right? I mean, this is solid. Like, this is, and to kind of echo what Dave is saying here is you do this eyeball test, and this will tell you, you get a handful of properties like this that you can now dive deeper into and you can get somebody out there to get eyeballs on it, to walk it, to tell you the things you can't see in pictures. And then you can select from those three, four, five properties.

is the one that's actually going to work that you've had physical or had somebody to put physical eyeballs on. And then you can make offers. And also, Dave is analyzing this saying he's going to pay what they're asking. But guess what? You don't have to do that. Yeah. This is as conservative underwriting as you can get. You can pay less than they're asking. I tell people all the time, Like, what if I told you that every deal cash flows, every single one cash flows at the price that it cash flows at for you? Like, you can make whatever offer you want. You don't have to pay what they're asking. Yeah, exactly.

That is the whole job, right? Like, we're just showing you that there's opportunity. You as the investor have to go and figure out and sort of design the deal in a way that works for you. And for some people that might be offering less, for some people that might be maybe looking at a property that's not as in good as condition. Like the property I picked in Pittsburgh was like Turinkey. That place was nice. If you want higher cash flow, you might find something that needs some work. Or maybe you go the opposite direction.

If you just want to break even, you just find something that's even nicer. But it's totally up to you. I think my goal is I looked at these two markets and I said, what kind of? of deals would I personally, just given my preferences, my investing style, what would I look for in these markets? And I was able to find deals like instantly. And these aren't just two markets in the whole country. There has to be dozens of them if these two that I sort of just picked based on some analysis, but they weren't the only two options I had. I can hear it already. People are like, yeah, but I don't live there. Right. And so I get that. You don't live there. There are tradeoffs,

right? So if you don't live there, but you want to find a market that has cash flow, congratulations. These are some markets that have cash flow. The tradeoff is you've got to do the hard work to build a team in that market to help you get your deals to the numbers you're looking for. So if you're going to, like, for example, if you're going to buy this deal in Augusta, Georgia, well, you're going to have to do the hard work to find the contractor that's going to do the work. You're going to have to do the hard work to find the property manager is going to manage the property for you. Right. It's, not as easy as if you could do it with people who are in your backyard. You're right. It is going to be a little harder, but not impossible. There are people who invest out of state every day. There are people who own properties out of state who've never seen them. If they can do it, you can do it too. It does take more work. If you live in one of these places, congratulations, you probably already know everything we're talking about with these markets. Right. And so that's just part of it, right? But there are tools that can help you do this. There's technical. that can help you do this. And there's good old fashioned buy a plane ticket and carry your butt over

there that can help you do this too. Yeah, absolutely. And if you're one of those people who don't want to invest out of state, I would question why, first of all. But then second of all, it's to say, if you don't, that's fine. You should just invest where you live locally, but you're probably not going to get as good cash flow. Like if you live in a place like Los Angeles, like it's just going to be very difficult. There's still ways to invest in real estate, but you're probably going to be investing for equity in that market by doing flips or burrs or something like that. The topic of this show is cash flow. And the reality of the market right now is that unless you want to do heavy rehab or maybe an owner-occupied strategy like house hacking, in really

expensive markets, it is going to be hard to find cash flow. That is going to be very, very difficult. So your options are to not invest for cash flow. And that doesn't mean that they have to be risky strategies. You just have to use other strategies. or consider investing in some of these markets like the ones that we're talking about here. So last question here, Henry, before we go, once you find these deals, you know, you're making five, six percent in year one, I should say, because hopefully your cash flow is growing over time. What, like, what's your philosophy about it? Do you hold on these deals forever? It depends, right? So it depends on location. Let's say you buy one of these deals and you buy it

in a phenomenal location, right? Then that's probably one I'm gonna look to hang on to for the long term. Let's say I buy this deal and it's cash flowing well, but then I realize I'm not getting the equity or the appreciation that I want over time. As I become a more seasoned investor in this market and I buy more deals,

I might look to sell one of these deals to invest in a neighborhood. I understand more that's gonna get me the equity and the appreciation. you start to learn the market. So it really truly does depend on what your investing strategy and how sophisticated are you in that market because I bought deals in my market in my first couple of years of investing that made great cash flow sense. But we've since sold because the taxes have gone up or they're not appreciated like we want them to. And as I've become a more

seasoned investor in my market, I know where I can buy those. I'll sell those and buy in better areas. you also have to consider your tax implications. So if you've bought these properties and you did a cost segregation study on that property, that means you accelerated your depreciation. Well, then you probably have to sit on that thing for at least seven to 10 years or you're going to end up having to pay back what you were able to write off in that depreciation in the front. So you really do have to have a strategy. What you and I have talked about this before, you need to be doing an analysis of your portfolio at least on a yearly basis, but you should probably do it quarterly and just take a look at, are the properties producing the income that I underwrote them to produce? If they're not, why are they not? And then what should I do about it if they're not? Like, that's something you should be asking yourself. So that you're evaluating your portfolio when you can make decisions along the way. Exactly. I know I've beaten a dead horse here, but it's resource allocation, right? Like, you might be getting great cash flow on a deal,

but is that the best place to put your money? I don't know. Your life changes. The rest of your portfolio changes. It's like always shifting and changing. It's not as simple to say, like, I'm just going to buy assets and hold on to them forever. In fact, that was probably the biggest mistake I made early in my invested career. It was like, I bought an asset.

It was going up. It was cash flowing. And I had so much equity that I could have, you know, grown way faster. But I was just so enamored by the cash flow number that I didn't reallocate quickly enough. So just hopefully that you. everyone just continues to think about that and to look at it holistically. Cash flow is important, but it's not the only thing that you should be looking at. And did want to just call out something you said earlier, Henry, about depreciation and that

if you do a cost seg, you need to hold onto a property longer. That's another potential tradeoff with turnkey properties. You know, if you buy a, you know, a stabilized nice asset, like the one I found in Pittsburgh, you know, it's making 5% cash on cash return. that's a great cash and cash return. But the way that real estate works is the transaction costs are heavy, right? If you're going to sell that, we'll see how NAR changes things. But as of right now, you're still paying 6% in commissions plus marketing fees and staging,

all that stuff gets you to 8, 10% transaction cost. And it takes several years of cash flow equity amortization on a stabilized deal to build up enough money to even turn a profit if you're going to sell it. So that is just something to think about. You have to hold on to those problems. properties longer than if you did that second deal, like a value ad, you can overcome some of those transaction fees by forcing appreciation. So last diatribe here. Well, Henry, thank you so much. This was a fun episode. This was great. This was like the fundamentals of real estate in this

episode, man. It seems like boring stuff, but man, this is the stuff you got to do right right now. This is as everything you and I love is finding deals, talking data, talking numbers. This is a good one. Well, thank you so much, Henry, and thank you all for listening. And again, if you want to check out and learn more about what's going on in Henry and my portfolio, make sure to head over the Bigger Pockets YouTube channel. We'll put a link below, and that will come out this coming Tuesday. For Bigger Pockets, I'm Dave Meyer. He's Henry Washington.

Thanks for watching. Do you ever notice how every passive investment somehow turns into a very active lifestyle, active spreadsheets, active phone calls, active stress? Here's a better question. What if you could buy? brand new construction homes, 10% below market value, and the best markets across the country, without making real estate your second job. That's exactly what rent to retirement does. They're a full service, turnkey investment company handling everything for you. In some cases, investors get 50 to

75% of our down payment back at closing, plus interest rates as low as 3.75%. They've partnered with Bigger Pockets for over a decade, helping thousands invest smarter. If you want to do the same, visit BiggerPockets.com slash retirement to learn more.