BiggerPockets Real Estate Podcast - BiggerNews: “Boomtowns” Are Declining…It’s Time to Take Advantage

Episode Date: October 11, 2024

Real estate “boomtowns” present a massive opportunity to investors in 2024. A few years ago, buyers were fighting tooth and nail to purchase properties in Austin, Boise, Phoenix, and other red-hot markets. Demand was growing in these cities, and prices were shooting up with no end in sight. But then…it stopped. Prices started declining, vacancy rose, and investors were stuck holding onto properties now worth less than what they paid. The interesting part? These market declines might be only temporary, and those who don’t buy now could be kicking themselves a few years down the road. To give us insight into which boomtowns are worth buying in and which are worth ignoring is Matt Faircloth, multifamily real estate investor. He saw many investors rush to these real estate boomtowns during the peak and are now struggling to fill their rental units as the boom became a bust. He’s identified a sneaky strategy that allows you to buy properties at a discount in these markets to make money while the FOMO investors search for an exit option. We’ll talk about the cities with the most hype, the ones worth investing in, the future boomtowns that most are ignoring, and the massive opportunity of “economic spillover” that could lead you to markets with the best future potential. In This Episode We Cover: The future “boomtowns” that most investors have no clue about (get in early) How boomtowns form and what to look at to tell if one is worth investing in  When is it too late to invest in a growing city (metrics to check before buying) The secondary markets with “economic spillover” boasting huge opportunity The sneaky move Matt is using to buy boomtown properties at a discount  What to do if you bought in a boomtown that is already declining  And So Much More! Links from the Show Join BiggerPockets for FREE Let Us Know What You Thought of the Show! Grab Matt’s Book, “Raising Private Capital” Find an Investor-Friendly Agent in Your Area Corporate HQ Relocations Could Signal the Next Real Estate Boomtowns Connect with Matt Connect with Dave (00:00) Intro (02:39) Real Estate "Boomtowns" (06:07) How "Boomtowns" Form (09:44) Cities with the Most Hype (12:11) Hyped vs. Solid Housing Markets (16:33) When Is It Too Late to Get In? (20:41) HUGE Opportunity for Investors (29:26) What “Boomtown” Investors Should Do (35:15) Upcoming Boomtowns Check out more resources from this show on BiggerPockets.com and https://www.biggerpockets.com/blog/real-estate-1029 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

When I say the word boomtown, you probably think of some old Wild West situation. Maybe someone goes, strikes gold or strikes oil, and then sort of magically and overnight, this entire town springs up around them. And that, of course, creates all sorts of opportunities because the whole economy is growing. But it also presents risks because when things grow that rapidly and there's all this speculation going on, there's no assurances or guarantees that it's going to keep growing in same way or at the same rate. In some ways, the same thing still happens today. Cheap costs of living, remote work flexibility, and corporate investments have rapidly increased populations in a lot

of markets, probably in the Sun Belt, while taking those benefits away from other places. And it's tempting to want to invest in those markets. I think everyone looks at them and has some interest in them. But the thing is that these trends aren't a secret. And multifamily supply and a lot of investment and competition are sort of rushing towards these places. And that has created a boom, but it leaves all of us investors wondering, is it still a good time to invest in these markets or have we sort of missed the boat? Or if you're already investing in these markets and they're experiencing a little bit of a pullback or a correction, what do you do? Today, we're going to get into everything about boom towns.

What's up, everyone? I'm Dave Beyer. for another bigger news episode this Friday. Since we're talking mostly about multifamily supply here, I wanted to bring on a guest who one understands multifamily, but has also done single family investing, and also has just been around for a long time and I'm invested in a lot of different markets. So I'm bringing back one of the first people I befriended

when I became a Bigger Pockets in Play. That's Matt Faircloth from the DeRosa Group. Matt has been a full-time investor for almost 20 years, and you maybe have read his book, maybe you've seen him speak at bigger pockets, but he is just a wealth of knowledge about all things real estate. But today, I'm excited to hear from Matt about which fundamental metrics investors need to research to determine if a boomtown market is still heating up, maybe it's overheated, or you've already missed the boat.

We'll also talk about what to do if you've already invested in an expanding market, and you're now seeing rent drops or maybe even price. drops and make sure to stick around to the end of the show because Matt and I are going to name a few markets that aren't yet boom towns, but could be soon. Here's me and Matt. Matt Faircloth, welcome back to the Bigger Pockets podcast. Good to see you, man. Great to see you too, Dave. Thank you so much for having me. This is fun. We've interacted at Bigger Pockets in so many different ways, but I don't know if we've ever had this one-on-one podcast vibe before. I've never been one-on-one with you. I don't know if she brought gloves or not, but at the end of the day, you and I've been on

many, many shows together with others, but we've never done just a Dave and Matt Firesad chat. So I'm really grateful and looking forward to this today. Yeah, I think this is going to be great. And we're talking about a fun topic today with boom towns and some of the areas of the country that are just going absolutely crazy. And I wanted to just get your opinion on what's going on here. Given your extensive experience in most real estate things, but also just in your commercial real estate, multifamily portfolio, you're operating.

and a lot of the, I don't know if you're operating in all of them, but you're certainly aware of all the towns that we're going to be. All of the booms. We're booming all the booms. Wow. I hope not all them because some of them are no longer boobing. Well, it's so it's an interesting conversation that I'm looking forward to get into you with today because there is a certain vibe you hear out there about these towns that are booming. And it's almost like, I feel like we're back in high school sometimes, Dave, where it's like, hey, did you hear all the cool kids are investing in Austin? And so it's like, it's like you and I are in high school and we're hearing about the party that's happening at Austin's house.

Or did you hear what's going on at Charlotte's house this weekend and we all should go to Charlotte, right? It's so true. Yeah. Or, you know, that new kid Phoenix that just showed up, right? And you get fomo. A whole little fomo, man. I'm like, damn, I didn't get invited to Charlotte's house. It sucks.

You know, you didn't get invited to Charlotte's house. But did you hear that Jay Scott got invited to Charlotte's house and I didn't get invited to Charlotte's house or whatever, right? So there's a lot of FOMO that happens around these boom towns in real estate, you know, and some of it's warranted. You know, some of these kids are pretty cool, actually. And some of it's overhyped. But has it always been that way? Or is it new with social media and sort of the prevalence of our industry now as it's grown that these more individual or very specific markets get talked up more than other ones? I think so.

Social media, just like anything in life, is like a big old bucket. a bucket full of gasoline, right? And I think that you still need that spark of reality for social media to accentuate, right? And so I remember back in the condo boom to date myself, Dave, in the early 2000s, you know, pre run up and crash with 2008 and nine, that Miami was where the cool kids were, right? And other places like Vegas was a cool kid condo boom town. And there were people that were building out houses for sale. It wasn't so much of a rental frenzy, but it was a development for sale frenzy because of how cheap money was.

And because, you know, pretty much like if you could fog a mirror and had a heartbeat, you know, you could go and borrow for a residential property to buy for a lovely four-bedroom two bath. You could get in, seriously, no money down. This is like pre-Dodd Frank and all that kind of jazz, right? So there were people that were developing condo projects and development deals as fast as they could in those hot markets in Miami and Vegas and, you know, perhaps Phoenix to and whatnot. But, you know, it wasn't as frenzied as it is now, I think, thanks to social media.

So you mentioned a few of the cool kids. What are the other cool kids? When you think boomtown or just a market that's exploding right now, what do you think of? Well, okay. Obviously, what really is a foundational growth? metric of a boomtown is jobs, right? And, you know, we mentioned Austin, right? Austin, yes, it is or, you know, maybe was, you know, maybe boomed a little bit and the party's starting, you know, everybody's starting to get the hangovers now and all that. But, but Austin popped a lot the last couple of years. And it wasn't just because all the cool kids were posting about projects they were on in Austin and social media. It was certainly backed up by what, by

jobs. If Tesla goes and builds a gigafactory just outside of Austin, there is so many spillover factories that are needed to support that big gigafactory, right? So it's not just them. It's many, many other companies moved to that region for all the reasons, right, because land's cheap and because Texas had good rules around starting up businesses, was incentivized, all the stuff. So the local economy in Austin popped. And that spills down and creates workforce housing jobs. And it creates all kinds of things, and it's spurred an economic economy first. And then that created a housing boom behind it because, you know, people are moving into these markets and they need great places to live. And it's not like, you know, the tech guy that wants to go work at the

Gigafactory and Austin moves to town and ends up having to be homeless because there's no place to live. But there becomes competition for his dollar or her dollar for places for them to live. when they go work at that factory or go work at whatever the tech boom is. And that pushes up rents, supply demand, right? If you look at a chart of Austin rents, it's blown out the last couple of years. Now obviously hit a ceiling. And that increase in rents is where that's what drives, you know, people like you and me, right? We see that things are increasing. We see that Austin used to rent for, I'm going to make a number up, Dave. So don't back me up. Bigger pockets, listeners, put your pens down, $1,000 a month for a one-bedroom, right? Because I don't invest in Austin,

so I don't know. That's our baseline, though. We're just, we're using this as a straw man. You're the data deli, man. You should be telling me what the rents are in Austin, right? Well, as you know, I've memorized rent for every metro area back to 1915, so I could just recall that. He had an encyclopedia brown of data across the United States, right? But let's just say, for example, that rents on a one bedroom worth $1,000, right? They very quickly will become $1,200, $1,200, $1,300 for a renovated or new built one bedroom simply because there's more people coming in. So there's more demand in that.

So not to like 101 this thing, but for those that are newer to the market, supply demand is what's going to push rents up. Then the rocket fuel comes in. Then the big bucket of gasoline comes in and people start doing deals and you start having FOMO and you see that a cool kid is doing a deal in Austin. And so you want to get into Austin too because you think that cool kid's smarter than you are. And so you want to go in, that's what creates that real estate investment frenzy. And all of a sudden, that kid in high school named Austin is having a party and we want to go to, you know? Thank you. That's a very helpful

description just forever. It's sort of the cycle of events that happens when one of these markets starts to get hot. And I want to talk about the other part of that life cycle, which is when they start to cool down in just a couple minutes. But when you when you think of these types of markets or at least regions of the country that have experienced this change, Austin's obviously one of them. He mentioned Raleigh. What are some other ones that come to mind? I have FOMO too, Dave. Oh, totally. I think about this all the time. And I see my cool kid friends investing in Atlanta, I hear about. Yeah. I do hear a little bit about Orlando, but I think that was a bit, you know, you made a COVID reference.

I think Orlando personally day was a bit of a COVID market, as is a lot of these warm places like, let's say, Jacksonville, Florida, not as much Miami, even the Tampa area. Yeah, Tampa for sure. Yeah. Those are COVID poppers, I think. But Atlanta is a market that really, really increased for real fundamental job increases and things like that.

Raleigh. Yeah, Raleigh. Yeah. Research Triangle Growth and Charlotte. Yeah. Nashville, let's say. That is a market that I've seen become a cool kid market. I read some data that this was a couple of years ago. There was a five year, Dave, waiting list for a crane in the city of Nashville. Because Nashville at the time, again, don't be yelling at me, bigger pockets,

listeners, if this is no longer the case because this is a couple of years ago. I feel like it's a disclaimer. The views and opinions of Matt Faircloth, they're not necessarily. Anyway, at the time, there was a limit on how many permits you could pull for a crane in the city of Nashville. And so the waiting list for that permit to build anything, to build a large multifamily housing project and office building anything was five years, Dave. Wow. So that's a good sign. And that's actually a government imposed constraint that will cause the supply demand curve

to artificially push in a direction, right? So let's see, Nashville, Phoenix. Yeah, Phoenix was on the top of my list. I have one more that I'm thinking of that you haven't mentioned. I'm going to see if I can guess it. Okay. I'm going to speed around. I'm going to throw three more out, see if I can get it.

Okay. Either Salt Lake City or Boise. Oh, you got it. Boise was Boise was what I was thinking of it. Yes. If people listen to the show, I always pick up Boise. I feel like this is a game show. This is so great.

I'll send you a trophy or a prize. So, yeah, so those are some of the ones that you see a lot of energy and a lot of vibe going into, I'd say at least 50% of it is founded. And the other 50% of it is a bucket. of gasoline from social media and from a cool kid cold kid fomo okay but so that's that's really what i wanted to to talk about so in this episode is what how do you split that out what is a market that is for real and what is something that is perhaps either social media or the product of very unique and perhaps short-term circumstances because covid obviously

created boom towns in places like Cheyenne Wyoming, you know, like places that you would have never... Honolulu. Right, yeah. Places, I don't know, nothing against these markets, but they're not on any top of the lists for like job growth or population growth. You know, so they sort of defy a little bit of the conventional logic about where makes a good place to invest. Yeah. So like, how do you decide what party you want to go to, Matt? All these kids are having a party at a weekend.

And you, they're a popular guy. You get invited to all of them. Which parties do you choose? I love this party. Analogy Dave's retreat. You can't go to a party based on who's going to the party. So I can't look on social media and see, and I'm not going to name real names, but like those syndicators that we all know of.

And we see on social that they're either buying or building or investing in an apartment building in a cool kid town that like, oh, I should do that. they must know something I don't know, right? The idea of you doing something that someone else is doing because you think that they're smarter than you is absolutely the most flawed tactic for anything, maybe Dave in life, right? Yeah. You should never do something that other, I mean, I should tell this to my 10 year old. You should never do something that someone else is doing just because you think it's a good

idea that they're doing it. So they must know better than I do, right? The fact of the matter is that it's almost like a reason why you should not go to that party is because maybe when you get to the party, all the Doritos are eaten and all the soda's gone, right? Yeah, exactly. Yeah. They already called the cops.

We shut this party down. The reason why you should go, I mean, obviously, you could use it as an indicator, right? So maybe I see on social that somebody that I think is a cool kid is investing in Phoenix or whatever it is. I'll stop picking on Austin, right? They're investing in Phoenix. Okay. Why are they doing that?

Maybe you should allow what you see on social. to spark curiosity, perhaps not action, okay? And that curiosity could lead you, total shameless plug, to somebody like Dave Meyer, to the Datadalee. If you go and see some data that he might put out there or to go collect your own data, how about that? How about don't let Dave do it for you? How about go get your own data and learn how Dave does it and go get your own data

yourself, right, on markets. And so find out why those cool kids went to the party to begin with. What are they serving at that party, you know? right find out the economic factors that are driving the market and as I said before the primary factor that drives a market is jobs right we're no longer in a COVID economy the majority of Americans are no longer working from home or some companies at least require some sort of hybrid presence in an office so economic drivers in a market are what's going to keep a market sustained and so if you see good things happening in that market continued sustained good things happening in that

market and the propensity for those things to continue. Then that's then that makes it a good market to consider. But certainly not because of all the cool kids are going, Dave. That's well said. And now it calls your attention to places, but obviously don't do it. Most of the people who talk up as individual market repeatedly have a vested interest in that market. I'm not calling out anyone in specific.

But if you follow a realtor in Atlanta, they're going to talk about how great Atlanta is. You know, like these people are either just talking about the one market that they know about or they have a financial interest in it. But it doesn't necessarily mean they're wrong either. You know, so there are probably tons of great things going on Atlanta. And it's very important to look at many of the variables that Matt just highlighted. It's time for a break, but we'll be back with more from Matt Faircloth on the other side. Most investors spend all their time talking about their high level returns. But that's not the number that actually matters.

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I went to Austin and then down to San Antonio in 2022 because I just, you know, been bombarded with information about those two markets. Now, there's a peak of Cool Kid Town. Boy, that was like midnight. That was midnight and they turned the radio up a little bit louder and the party was jamming about two 2020 in those markets. Yeah, exactly. It was wild and I chose not to because it just seemed like people went crazy. You know, you talk to a realtor and they're like, well, the average appreciation in this area is 8%. I was like, yeah, for the last two, three years, like, why? That's not going to happen. But people were talking about it like it was matter of fact. And I was like,

this is this place has gone insane. And I walked away. But not everyone has the ability to go to these places. And I'm in a fortunate position where I know a lot of people in most of these markets. I could talk to a lot of them. So like, how would someone who's just maybe getting started or considering a new market know, like is even if there's great job growth? Because Austin has great job growth. But it had just gotten to this point where it was so overheated. that it didn't make sense. Like, how do you measure that? New construction tends to be the driver of rent growth in a market, right?

New construction and major renovations, that's what's going to push rents up 10, 15, 20%. And then if you own the building right next door to that new construction, they might be able to push rents up 20% and you'll, you know, get the spillover side effect of 7% rent growth, right? And if there's enough new construction happening, is that realtor you talk to, you're going to see rent growth across the board. And that's a new construction and new development tends to be what drives up growth. And so if you're seeing in the market lots of permits pulled for new builds and things like

that, then that's going to be, you know, oh, wow, there's a lot of economic frenzy. There's a lot of development. There's a lot being invested in this market. Maybe that's a good thing. Maybe that's an overheat. Right. Yeah. If you looked at Austin in 2022, you probably would have looked at that.

And that's maybe why you didn't get in because you just thought, man, this isn't sustainable. This cranes all over this town, man. And at some point, when they're done building all the stuff that they're building, they're going to have to lease all this stuff up. And that's going to cause pressure. Economic pressure on the market, right? Yeah. I mean, there's a reason rents are down 6% here in Austin. It's like leading the country and rent decline. It's not because the jobs are going away. It's not because employment's faltering. It's because there was a major, major spike in development. And listen, guys, it's going to be okay. If you're in Austin let property, or right now, you won't be just fine because their jobs are not going to go anywhere.

And eventually, eventually, all that housing that got developed will be absorbed and rents will start to creep back up. Maybe not at 10, 15% per year. And maybe they shouldn't. Maybe rents shouldn't grow that much. I totally agree. Well, that's a whole other question. I'm going to ask you in a few minutes.

But I want to continue on this theme. Looking at inventory numbers, because what Matt was talking about with construction permits, 100% true. That's like total housing supply. How many physical housing units are in that area? Super important. But also, when you start to see inventory tick up or when you start to see days on market tick up, both for rents and for properties, when you see things sitting on the market,

that shows a shift that maybe the frenzy is starting to cool off a little bit. Absolutely. And it's starting to shift more to a buyer's market. And frankly, that's what we've seen. over the last, let's say, two years, two and a half years, in some of these boom markets. Like Austin has been one of the biggest markets in decline over the last couple of years so has Florida. Most of the markets that are declining are in Florida.

And so if you're sort of a keen analyst of this data, those things were becoming obvious a year and a half or two ago because if you look at sort of these inventory numbers, you can start to tell that something is shifting. Yeah. That creates a really interesting dynamic, Matt. I'm very curious your opinion on. Right now, we're seeing Phoenix. We see Boise, some of these markets that have really good fundamentals, seeing the biggest declines.

So what do you do? How do you navigate a market where some of the long-term best-looking places have some of the worst short-term potential? There is a bit of like a gangster move that you can make. There is someone who thought that they were walking into the casino of real estate investing. They were going to go put all their money on red or whatever it was. And they took a bet that the market was that Boise was going to keep rising at 10% per year or that rates were going to stay down or that cap rates were going to stay down or whatever it is. And the gangster move is to go and find that person that took bets that the market was going to zig

and it zagged, okay? That developer or investor will be very clear as someone who's in distress, right? Like, okay, I'm halfway done this thing. I have some friends that are, that are buying a halfway done, a halfway done 50 unit apartment building. Oh my God. In Seattle, our company just bought a 20 unit just outside of Raleigh. Okay, cool kid town, right? Half done? Yeah, it's, it was, they were planning on building it out and keeping it and they couldn't get their refi. Wow. And so, they decided to just take their chips off the table because a refi wasn't going to get them whole. And so that it's like, okay, you know, you know what? Forget it.

We'll just sell. And so we got it for less than what they likely would have gotten appraised for when they had started the construction. Right. So there are moves that we as real estate investors can make to find someone. This sounds counterintuitive day, but it actually is working. I've got some friends that are doing this in finding things that were just built and either approaching the owner direct or getting a realtor to find you something that was built recently because something that was built recently was built under economic assumptions from two years ago, right? And they might have

thought the party was going to keep going. They didn't realize that rates were going to spike and that rents were going to have an 8% decline, as you said, right? So if they didn't bake all those things into their pie and they were not conservative enough, they are in distress and they might need to liquidate at a way more reasonable off the market number than we might be thinking. And that's a gangster move to go and find somebody like that and work out a deal to say, hey, looks to me like you either can't finish this thing or, you know, on the numbers that I can tell, it looks like maybe you projected rents to be X and now they're Y. Another thing that you could look for, Dave, that is an indicator of distress is major concessions on rents.

So if you see an apartment complex that was recently built and call them guys. And it could be, you know, a four unit. It doesn't have to be a 300 unit, right? Call up the listing. if you see a vacancy and say, are you offering any concessions right now? That means that I'm asking $2,000 a month in rent. But if you sign a lease right now, I'll give you two months for free. You know, that's called a rent concession.

And it's a backdoor way of dropping your rents without really dropping your rents. Meaning like I can still tell the market I'm asking $2,000 a month. But really, I'm going to go and give away two, maybe even three months worth of rent for someone that signs a lease at my apartment complex. Which is basically a 25% cut. Backdoor. Backdoor way to drop rent without having to tell the market. No, I'm still charging $2,000 a month, you know, but we're having a sale.

Yeah, exactly. Does this work for a single family or a small multifamily as well as large multifamily? I'm not a single family guy, but I would try it. Yeah. Another example, Dave, is builders realized that, geez, you know, we didn't expect that the interest rates to go to 7%, 6 and a half. I know the Fed just dropped rates. I get that. But they didn't drop them to the degree that they rose,

that they increased them, right? So rates are still pretty high. So you're seeing developers selling houses to end buyers, and they're buying rates down. Three and a half, four percent you can get the developer baking in a rate buy down. Dave, I guarantee you, when they broke ground in the development in 2021 or whatever it is,

they had not planned on doing that, you know? Right, of course. That was not in the equation. So I would start making offers. And maybe that's just being the shrewd buyer. And like the last, say, five, six years, Dave, we've all been used to, well, the seller is asking $300,000 for this single family home or for this duplex, whatever it is. So that's the starting conversation. People don't realize the buyers are in way more control than the market's letting on that they are.

And so just because the seller is asking a number, that should be of no consequence to you. You know, make a offer that makes sense. Because values have fundamentally change, right? Like, it's just that sellers are always going to ask for the maximum price. But when you look at the fundamentals of the market, and I'm not talking about the other fundamentals of demographics of the market. Yeah. The value of assets has declined in a lot, especially multifamily.

But in some small multifamily residential markets, especially in some of these boom towns that we were talking about, they just have declined. And so going to a seller and saying, hey, your number that you asked for is based off two years ago value. And they've changed. And here's what I think the real value is. They're probably going to say no. But if you do it 20 times, they might say yes. There's no harm, no foul in trying it. Yeah.

And the asset classes that I would be going after if I were, you know, perhaps listening to this podcast and wanted to go find a deal, right? The asset class that the cool kids were going after for the last five years, Dave, have been value add properties. And this is small assets too, like something built in the 70s, 80s, 90s, early 2000s or whatever. And I'm going to get in here and put a coat of paint. I'm going to drop in a new kitchen. I'm going to spruce it up and, you know, spit shine it up real nice and increase the rents and push. and push things up to market. That works.

That equation, the value-out equation works in a rising economy. It works when rents are going up 10% because the market rising will carry you a bit forward, right? We're no longer in that space. I don't recommend, nor in my company, the Dorosa Group, are we going after the older vincied stuff, the 1970s, 80s? We buy apartment buildings, right? But it's still that this conversation still applies to people buying smaller, you know, smaller assets too, because the value I played doesn't work anymore. But what works is to find,

I think, something newer built that, you know, somebody might be looking to offer a real concession on. So you can probably get better assets at a way better price right now if you're willing to sniff around, do some detective work and make some offers. I love this idea. It makes so much sense to me. Actually, I want to do the gangster move. So I in a market I invested in the Midwest, there's There's this brand new fourplex. It's super nice. It's at a great condition. And it's just been sitting.

And this is not a market where things are sitting right now. You know, it's like, I'll do it today. Maybe I'll go do it right after this thing. I've honestly just been waiting because, as people might know, I live in Europe, but I'm in the United States right now for BPCon. And I'm going to this market in a few weeks to go look at my properties. And so I was kind of like, if it's still around then, I'll make a baby. make an offer, but you're inspiring. Maybe I'll just do it today. Because why not? It doesn't cost me

anything. Distress is hiding right now, guys. That's a good way to put it. I don't think it's going to be in the open market. I don't think that you're going to see blood in the streets and maybe just because I'm hoping and praying that we don't because I don't think that real estate is going to see a drastic crash, but I do think that there is distress out there. It's just not going to be as in your face as you think that it might. And there are people out there that had expectations of, of, you know, saying it again, the market zinging, and it went zagged on them. And maybe they want to take their chips off the table, take a, like a modest profit, or maybe just get their money back, whatever it may be.

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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 costsegregationguise.com slash BP to get a free proposal and see your potential tax savings. We're back with Matt Faircloth on the Bigger Pockets Real Estate podcast. What about for people who already bought in these markets and who are maybe seeing what I would call a paper loss, you know, they're seeing the value of their their asset go down. But as long as you sell, you're not, it hasn't actually gone down. It's just in theory. But how, um, how? How?

would you recommend people sort of manage that piece of their portfolio in this sort of strange time for these types of markets? It sure is strange, right? And if I were, unless you're in major financial distress, I recommend holding what you got. I think that those that are able to hold out for the next year-ish or so, if we have a recession where Chessons don't last years and years and years. They tend to last, you know, I probably should I be asking you, but what, nine months to a year, nine months to a year, that kind of thing. So I think that if you're holding an asset that's either not penciling out very well, not going well, if you can find a way to hold it and to weather the storm and to, you know, just, air quote, get by, I think that that's the right play. You know,

things are going to be better a yearish for now. There was a mantra that a lot of folks in my world We're using survive till 2025 kind of thing. Yeah. Which I'm sure you've heard that one, right? I have, yes. But it's true, though, because like, I've talked about this a lot. And it's not just true of multifamily. Real estate is very, very forgiving asset over the long run.

And so what you really need to do is hold on. Like, I think the worst thing that you can do in real estate. And the only way you really lose money in real estate is what's known as forced sell. So if you find yourself in a situation where you just can't hold on to the asset anymore because it's not cash flowing, you don't have the money to front, your rate cap expires, whatever it is. You know, things happen. And that is sort of the defensive positioning. I think some people need to be in in these markets that are experiencing corrections. It's just like, how do I make sure to hold on, not because, you know, for pride, but because normally these things come back around.

Even if you bought, I did this analysis, even if you bought in the height of 2007, the worst possible time, in nominal terms, not inflation adjusted terms, you would have been fine after seven years. Now, you know, you're probably not earning the best return you ever did in your life. But if you had cash flow during that time, you'd still be getting cash flow. You'd still be getting tax benefits. You'd still be getting amortization. And then seven years from now, your property's values recovered. I did that, Dave. I bought assets in 2007, right?

Did you hold on? Yeah, I held them, right? And they were like break-even rentals. These were single-family homes, man. These were not like super, like enormous apartment complexes. These were, you know, very accessible to most investors, three-bedroom, two-bath, single-family homes. And we bought them as fix and flips, okay? The market went Caliwancas and Squirley and all that.

So we said, okay, this is probably not the best time to go flipping. So let's make the, you know, kind of make them good ironclad rental. So we shifted our business plan and we leased them out. And they made meager cash flow or break even cash flow for a period of time, amortized the debt over, you know, years. And we just kind of held them until it made sense to sell. And when we sold, Dave, we did very well on them. So you end up averaging out over long term, as you said, through patience.

And I think that's the mantra that those that already owned real estate. If you can, be as patient. as you can. If you're looking to get in and expand your portfolio, the word's probably not patience. The word is courage to get in there and just say, hey, let's just give it a shot and make that offer on an asset that's a little bit of a stretch quality-wise than what we're used to going after. And you might be surprised. But I highly recommend just be a little patient right now as things continue to shake. The Fed actually, they indicated, they indicate a lot of things and then don't do them. They change their mind a lot. But they've said that they're going to drop rates two more times,

potentially by the end of the year. They said a lot of things at the beginning of 2024 that they were going to do and didn't do. Certainly not. But they're certainly going to do something over the next 12 months. And I think that they will long-term benefit real estate. So if you can't hold, hold on. I agree. And I want to just make sure that everyone knows that what Matt and I are talking about are specifically

for markets that have these good long-term fundamentals. You know, like if you're in these good markets where things are going to turn around. I went to Austin. it was too crazy for me. But like, of course, unless something crazy happens. But by all accounts, Austin's going to keep growing, you know, over the long run. Like that, I'm not concerned about Austin as a city. Yeah.

The same thing with Raleigh, you know, same thing with Charlotte. Same thing with Tampa. You know, like, I think with the strategies that we're talking about, just to be clear, where you're holding on are for places that you have a strong indication they're going to cover. Yeah. If you're in a market, that's just kind of the town is unfortunately, quote unquote, dying economically. Like, I wouldn't hold on.

I'd probably cut bait and try and just move on and go somewhere else. So it's really mostly about what you think the long-term prospects are. Yeah. No, and it does depend on your analysis and predictions for the market if things are going to continue to grow, although long-term things like interest rates and just long-term national increases of cost of living do eventually push markets up. But certainly not with plenty of headwinds. Whereas if you're a market that's already showing economic growth, you're going to, you're going to recover much faster than other markets may.

So you might have to wait a lot longer. Yes, that's right. All right, Matt, last question before we get out of here. What are some secret boom towns that you think might be coming in the future? The ones that aren't booming yet, and we won't hold them to you, but do you have any like any hunches or hypotheses about future boom markets? I sure do. Yeah, Columbus, Ohio is one. We're not there.

I'll give you a few that we're not in. Columbus is booming, man. I went there to and didn't invest because it was too crazy for me. Yeah. But it's not a cool kid market yet, right? So there are real economic fundamentals there. They're building a chip factory there, man. Real fundamentals there.

Yeah. So, yes, it is booming. Yes, there are real estate investment ventures happening there, but I still think there's deals to be had. I like just down the road, Cincinnati. Believe it or not, yeah, I said it. That's right. Cincinnati, old steel town. That's right. But I think Sinci is going to show some longer-term growth in certain neighborhoods if you want to stick to Ohio. Now, I will say this is not a DeRosa

commercial for my company, because this is a market we are invested in, but this is a market that is growing that has real fundamentals, and that is Winston-Salem, North Carolina. I've heard a lot about Winston-Salem being a good market. Correct. But that triangle where it is, the Winston-Salem, Greensboro. And to give you a to Dorosa inside baseball and what our company invest, we tend to not go with the cool kids are. And if you look at where at the map, and that's my advice to the bigger pocket listeners here, is that if you look at a map, look at where Raleigh is. And we already talked, you know, Raleigh's having a big old house party at their house. And so is their little sister

Charlotte down the road, right? But there's Greensboro and Winston that are in between those two towns. And there is spillover that happens in these secondary and tertiary markets. Maybe cities that don't have major league teams that have minor league, you know, teams, right, Dave, you know. And so maybe not Austin, maybe San Antonio, right? Yeah. Maybe markets that are going to get the economic spillover and job growth or whatever for where people either can't afford or choose not to afford to live there or even companies

open up in those secondary cities that want to get some of the job growth and economic support. because they want to support companies like Tesla that are building out in Austin, but don't want to pay the rent in Austin. They want to be in San Antonio, right? So I would look at even like Tempe, okay, another example, Tempe, Arizona, right? Yeah. Not Phoenix, Tempe, right? That's what Boise was, you know, Boise, Idaho and Salt Lake City or whatnot.

They were kind of secondaries and they were spellovers from California, but they kind of became their own, you know, their own thing, you know, eventually. But find secondaries that are, are growing away. What are, you're the data dude, man. What are, what predictions do you have for markets that are beneath the sheets that haven't popped yet? I like the first one.

So people who listen to on the market probably know that I'm generally long on the Midwest. I don't think they're going to be the hottest market in the next year or two years or three years, but I think 10, 15 years from now, people who invest in the Midwest right now are going to be very happy about it. My whole hypothesis is about affordability. housing is unaffordable. And unfortunately, for a lot of people, I don't think it's getting better anytime soon. We're going to try and build more, but I don't think prices are going down.

There's just too many demographic tailwinds. I think the Fed learns its lesson. We're not getting 0% interest rates again. I generally think it will get a little bit better. But I think people are going to be attracted to markets where they could just, their dollar goes further. And I think the mid- West offers great value. Like, I know people, let's just say Chicago, people hate on Chicago because there's a lot of crime there.

First and foremost, look up murder stats. Chicago is not number one in the city. It's actually, there's a lot worse places in terms of crime than Chicago. Chicago's a wonderful city. I spend a lot of time there's great food, there's great culture. It's a huge city. There's huge companies that work there. I think cities like that, maybe not five years, been 10 or 20 years, are going to start

growing again. And because they're extremely affordable for the quality of life that they offer. And so I personally look for stuff like that. And I totally agree with your idea of the economic spillover idea. Living in Denver for 10 years while it was booming, you see this, towns like Longmont or Fort Collins, like cities were never anything. They were nice places, but I mean like housing market wise, they were not booming. And then you just see it gradually. when there's like an economic powerhouse like Denver is. You just see it spill over. And right now, I think the perfect example is that is the fastest appreciating market right now.

You're a northeast guy, Matt. I grew up in the northeast, is New Haven, Connecticut. Yeah, man. Would have never guessed. But when you think about it, it's right in the middle of New York and Boston, right? It's like between two of the biggest economies in the entire world. That's because it's affordable. And you can commute to Manhattan from New Haven.

Exactly. North Jersey. Believe it or not, as much as Jersey gets hated on, Dave, right? As much as Jersey gets hated on North Jersey is a way affordable alternative. And there's plenty of trains that'll take you right into right downtown Manhattan fairly quickly. So I would not be afraid of those secondary areas that actually get hated on in the Northeast or whatever. Our company's investing in Minneapolis, Minnesota to talk about a market that nobody's talking about, right? Yeah, exactly.

I agree with you. The Midwest, I think, is maybe in five years. is going to become the new sunbelt, you know, and that because people are not going to have the luxury of only moving to a place because the weather's nice. Yes. Because we're beyond that lifestyle. I think that people are going to, you know, for all the other things, for jobs and for culture and for food and for everything else.

So. Well, those are our guesses. We'll have to have you back on in five years and we'll see if we're right. Well, you'll be back before, but we'll revisit this topic in five years. Yeah. Hopefully it's sooner than that. Absolutely. Well, Matt, thank you so much for joining us.

I really appreciate it. This was a fun conversation. I loved our one-on-one banter, man. We'll have to do this again soon. Yeah, this is great. We will have to do it again soon. And of course, for anyone who wants to connect with Matt, hear more about what he's doing,

hear about what parties he's going to this weekend. We'll put his contact information in the show notes. Thank you all so much for listening. We'll see you soon for another episode of the Bigger Pockets podcast. Thank you all for listening to the Bigger Pockets Real Estate podcast. Make sure you get all our new episodes by subscribing on YouTube, Apple, Spotify, or any other podcast platform, our new episodes come out Monday, Wednesday, and Friday. I'm the host and executive producer of the show, Dave Meyer. The show is produced by Ian K,

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