BiggerPockets Real Estate Podcast - BiggerNews: How Much of a Return Should Your Investment Property Produce?

Episode Date: November 15, 2024

What makes a “good” real estate deal in 2025 and beyond? How much of a return should your investment property be producing? Are real estate returns good enough in this tough housing market to beat out other performing assets like stocks? Today, we’re sharing our exact investing criteria, defining what makes a “good” real estate deal to us, and how you can use key indicators to identify deals worth the effort. We’re breaking this episode into a few parts as we touch on the primary types of investment properties: long-term rentals, short-term rentals, and house flips. Garrett Brown is our resident vacation rental expert and shares how he’s routinely getting twenty percent (or greater) returns by reinvesting in his short-term rentals. Next, familiar face James Dainard discusses the unbelievable house-flipping returns he nets, but are they worth the risk? Finally, Dave shares the metric he goes after when investing in long-term, low-risk rental properties. Plus, we’ll share when it’s a better use of your money to reinvest in your current properties vs. going out and buying new ones! In This Episode We Cover: What makes a “good” real estate deal in 2025 and beyond The massive return James is making with house flipping (and the HUGE risks he takes) Garrett’s unique short-term rentals pulling in twenty percent (or higher!) average returns  IRR (internal rate of return) explained and why everyone should calculate this when investing When to buy more properties vs. reinvest back into your performing portfolio And So Much More! Links from the Show Join BiggerPockets for FREE Let Us Know What You Thought of the Show! Get a Quote on Your Next Short-Term Rental Loan with Host Financial Calculate IRR with Dave’s Book, “Real Estate by the Numbers” Property Manager Finder What's a "Good" Deal in Real Estate? 5 Criteria to Consider Connect with Garrett Connect with James Connect with Dave  (00:00) Intro (00:51) What's a "Good" Return? (06:21) IRR (Internal Rate of Return) Explained (07:59) What Makes a "Good" STR Deal? (11:14) Flipping Houses (High Risk/Reward) (16:43) Long-Term Rentals (Low Risk) (23:17) When to Reinvest vs. Buy More (29:23) Do This NOW! Check out more resources from this show on BiggerPockets.com and https://www.biggerpockets.com/blog/real-estate-1044 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

Everyone tells you you got to go out and buy good deals, but no one actually tells you what that means. Like, what is a good deal today? Well, in this episode, we're going to give you the real numbers you should be looking out for. What's up, everyone? It's Dave. And today I have my on-the-market co-host, James Dainerd here with me, alongside Bigger Pocket's short-term rental expert, Garrett Brown. So today, we're going to dig into some real numbers of what a good return is on a flip. on a long-term rental, on a short-term rental, and for different types of investors. Garrett, welcome back to the show. Thanks for being here. Thanks for having me back. I'm excited. Yeah, likewise, James. Good having you as well.

I always like coming on and talk deals. Well, we knew this show was perfect for you. We were talking about specific numbers, different types of return. So let's just start there, James. Before we talk about baseline for what your expectations of a return are, what metrics do you actually look at for determining what deals you should be? doing. You know, so when I'm investing, I'm pretty simple. I look at cash on cash return. How much cash am I putting into the deal? What is it producing me back on an annual basis? And whether it's a flip, a development, a rental property, that is my biggest concern. If I'm going to take away any cash and

park it on a property, I want to know what is going to be my return on annual basis because that tells me whether to spend it or not. Okay. Well, that's pretty simple. I love cash on cash return. And James alluded to this, but if you haven't heard of this term, it's basically just a measurement of how efficiently your investments produce cash flow. So you just take the total profit you make from an investment in a given year. You divide that by the amount of money that you put into that deal, and that doesn't include any financing. It's like actually how many dollars came out of your pocket. And you divide that, and that's cash on cash return. And it could be 2%, it could be 20%, it could be 200% and we'll talk about what numbers to realistically expect here at the end of 2024 in

just a minute. But that is how you calculate it. Gary, are you similar in the short-term rental space or is there something different you look at? I definitely take cash on cash return into a big equation when I'm factoring places. But another thing that I look into is just the sheer amount of people that are traveling to a specific area I'm looking in that can help change the cash on cash return that I'm looking at and the appreciation rate, appreciation rates that might come with. of it. But cash on cash return is definitely a big metric in short-term rental because we all want

cash flow when we're doing this. Well, that's a good point, Garrett, because looking at demand, especially in short-term rentals, helps you forecast what your growth might be. When you're looking at cash on cash return, I guess, James, you tell me, but I think with a flip, it's a little bit easier almost because you don't have to forecast what things are going to change a year from now or two years from now. You're sort of just figuring it out in year. So when you buy something, James, that's longer term, maybe it's, let's just call it, you know, an apartment unit or, you know, a single family home that you're going to rent out. Are there other metrics that you factor in to consider what future growth potential is or factor in the time value of money? Yeah.

I mean, those things, I call those accelerators, right? Like, if I'm going to, you know, make a strategic decision to buy something because there's economic growth, there could be tax incentives, there could be. there could be path to progress indicators. You know, like if I'm seeing a lot of economic growth in a local area, you know, like if I start seeing Starbucks goes in, big box stores, more infrastructure going in certain areas like opportunity zones. Like when the opportunity zone credit came up, people started really buying in areas developing that.

Infrastructure is getting built, which is going to typically attract more people. The more people that come in, you're going to get more potential for income, rent increases, appreciation, all those things. And so those are the accelerators. So I don't factor those into my internal numbers, though. Those are upsides and something that I do when I'm defining what I want to do for the year in my buy box.

Like I'm a big clarity guy. Every year I want to make sure I know what I'm trying to accomplish for the year and the locations that will get me to those goals. And, you know, if I'm trying to pick up a lot more rentals, like this year, one of my goals for 2025 is to buy more rentals outside of Washington. I want to get in a little bit more landlord-friendly states just to balance out my portfolio. Now, there's so many different ways that I could invest and get a still cash on cash return with a rental property, I still want to get at least 10% return on my money. In that first year? Not in the first year, because, you know, I do a lot of

value-add construction. So year-one's usually pretty ugly. You're not getting any type of income out of it. You're just creating the appreciation and creating the equity. But, you know, Based on me setting that core standard, I know what I want my return to be is I want it to be a 10% return. The reason I want it to be a 10% return is because I can achieve 25, 30, maybe 50% returns on flipping homes or developing homes. I want to make sure that I can still get a high growth on my cash. The rest of it is upside. And it's about how do I then take that 10% and go, what areas do I park it in to get extra appreciation? And that's where you can start looking at that population growth, what's going on, what's going on with the job market.

You know, like if I know the tech's expanding rapidly in Seattle in certain neighborhoods, I might want to look at that neighborhood and invest there. If I know things are going to get up zoned, you know, and there could be a change in density. I might change those returns too. And so based on the location and what I'm trying to accomplish in those locations, I move that cash on cash return number. I think that is really important. No clarity, what you're trying to accomplish. and then adjust your returns based on these extra accelerators too. If I think there's a high acceleration growth, I might go with an 8% return.

And if I think there's a low acceleration growth, I might go with a 10 to 12% return. That makes a lot of sense. And I do want to get to that in just a minute and talk about what our expectations are, because as James said, what return you should be targeting is really dependent on what upside there is and also what risks there are for a given area. Before we move on, though, I want to just say that maybe I'm nerdy here, but the metric I personally like to look at is something called IRA or internal rate of return. And this is, it's kind of difficult to explain and it's a little bit difficult to calculate. I've written about it in my book.

It's like half the book. That's why you know it's complicated to explain it. But the reason I like IRR and why I recommend people spend some time learning about it is because it measures. the return that you get on a lot of different variables. So cash on cash return is great. It helps you measure cash. It doesn't necessarily help you measure appreciation in year. And as investors, it's super important not just to see how much money you're making on a deal, but also to generate that return quickly, right? Because if you know anything about the time value of money, the faster you earn your return, the more it's worth. Just as a simple example, right? Like if someone

ask you if you wanted $100 bucks today or $100 in two years, you would say, I want $100 today because I can invest that money and turn it into hopefully $120 by two years. And so IRR is a really great metric that helps you sort of understand the whole picture, your appreciation over time, your cash flow under time, and the talent value of money into one number. I'm not going to call it a simple number, but it is into one number. And I just wanted to explain that before we get into the rest of the episode because I will probably refer to IRR a couple times here.

So let's jump into some of these questions about what a good deal looks like today. So, Garrett, let's start with short-term rentals. Do you have a sense, Garrett, like, of, you know, what other investors are getting in terms of their deals? And, like, what would be a good deal in today's market? I think in today's market, I think the average short-term rental investor probably is going to be closer into that 10 to 15 percent. bucket, especially depending on what type of property you're getting, what market you're going into. There's so many different factors because even myself, like even these markets I'm talking about that I'm getting 25% in and things like that, the appreciation in a lot of these markets is not as high

as some of the markets that are going to have a much less cash on cash return. But those markets probably are better markets for a lot of people that are investing in these type of rentals. I'm a short-term rental investor full-time. So I had a lot of free time to develop these types of stays. and plots and things like that, but not everybody can do that, and I understand that. So if you're going into a different type of market, and even if you have property management and you can get a 10% to 12% return and you have a property manager pretty much doing most of the work for you, that's going to be a really good deal in a short-term rental area now, especially if you're in a better market that's rising. But I would always look for at least 15% in the short-term rental area just to kind of mitigate

the amount of extra effort you have to put into and some of the risks that come involved with it I think this is a really important point that return and the number that you should be looking for is relative to your specific situation. And Garrett just mentioned some important ones, like, for example, how much time you're going to put into something. Like, if you're super handy and you have a lot of time on your hand, the target return for you should be a lot higher because you should go get into that property and go fix some stuff yourself. If you're more like me who's relatively passive, like I typically probably target lower returns than James or Garrett because I'm looking for deals that are really low headache and don't require a lot of my time. And so as we talk about this throughout the episode, just keep that in mind that it's a spectrum, right?

There's a risk and reward work on a spectrum. Deals that are really pretty safe and are going to, you know, reliably deliver you a pretty decent return and have relatively low risk are not going to have the best returns. That's just not how it works, right? The highest returns are there for people who are willing to take on that risk, people who are willing to put that additional effort into it. And so you just have to figure out for yourself, basically, like, where you fall on that continuum and what's important to you.

It's time for a quick ad break, but first, just a quick note. If you're enjoying this conversation, you may want to pick up James's new book, the house flipping framework. James has flipped more than 3,500 properties, and the book is his comprehensive guide to extracting value and maximizing profits with that strategy. You could order it at biggerpockets.com slash house flipping y-t. That's the letters YT. And that's it. We'll be right back. If the new year means getting rentals back in order, listings are a good place to start. Avail. Part ofrealtor.com makes it simple to list a rental. for free and get it in front of millions of renters.

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And listeners of this show will get a $75 sponsored job credit to get your jobs more visibility at Indeed.com slash rookie. Just go to Indeed.com slash rookie right now and support our show by saying you heard about Indeed on this podcast. That's Indeed.com slash rookie. Terms and conditions apply. Hiring, indeed, is all you need. Thanks for sticking with us. Here's more of my conversation with Garrett and James. So, James, I think I know you well enough to know where you fall on that spectrum. But tell us a little bit how you think about this risk-reward spectrum in deals that you're buying. Yeah, and I think this is a very important topic always, right?

Like, depending on what's going on with the market, what we're going on with the forecast. you know, the higher the return, the higher the risk. Now, I'm a very high risk person. You know, I have aggressive goals, a target to get to those goals, like in five years. And so for me, if I want to hit those goals, I got to be higher risk, which is, like, what Garrett's saying, I got to do asset classes that are more work. You know, Garrett's hitting a 25% return because you hear this all the time on, like, forums. They're like, no, everyone's lying. You can't hit those returns.

They're selling a dream. You can't hit those returns, but the more work you put in, the higher the return is going to be. Garrett's talking about doing a massive renovation project so he can do a bur to where he can buy it, discounted, rehab it, refinance out most of his cash. That gives him a higher return at that point. Then he has to manage a short-term rental operation business. That is substantially more work than long-term rental. I don't even do short-term rental because I have so much construction going on. I don't have time to do both those, right? It's like I need to focus on one thing or the other. We've finally found something that's too much time for James.

flipping buying short to rentals being on a TV show being on a two podcasts that's all fine though yeah this is a little bit too much but now that now I'm here 25% returns I'm like now you're going to go buy a geotube let's let's talk whenever you're ready let's talk good deals on those and I'm always like what do you do with this but you know it's I chase higher returns because I'm trying to get there quickly but they come with a lot of risk like on flipping I go for on each individual deal, a 35% cash on cash return in six months. Okay. And that includes levering that project, usually about 85%. And so that means I'm going to get financing on 85% of the total project, purchase price and rehab. After I put out my down payment, all of my cash out of pocket on that deal

to service that deal, I'm trying to make a 35% return. So if I'm putting 100 grand in, I want to make 35 grand in six months. On an annual basis, that's going to get me to about a 60 to 6 to 7. 70% annualized return. That's a very explosive return, but that also comes with some explosive risk. Timing is everything, right? Like as a flipper right now, it's slow. You got to wait longer. It's going to slow down your returns. You have more expenses. And the reason it's so rewarding is because it can go the other way very quickly too. Like, let's say I'm flipping a house for a million dollars in the Seattle market. And the property comes down 5%. That's it's not even that dramatic, but 5%.

Yeah. That can turn into 50 grand really fast. And I might only be targeting to make 50 grand on that deal or 100 grand on that deal. And so as the market goes up and down, you can catch those swings. And so you just, for me, I'm willing to get there because I want to grow quickly. But the higher the return, the higher the risk. And that's where you really have to focus like what Garrett said on your business, your operations. How do you reduce risk?

You create the right business. I love the specificity of these numbers. So you target a 35% return in six months. If you annualize that, that's a 70% return, which is just insane. You know, that's an incredible return. If you think about what's available in the stock market, it's like, you know, 8, 9% is the average of the S&P 500. So you're talking about eight times that amount.

So that will grow your wealth very, very quickly. So that's super impressive. But as James noted, that there's a lot of risk there as well. that's why I just want to make sure that we we underscore this main component here. Correct me if I'm wrong James. But the reason James wouldn't do a deal for 15% on flipping in six months, even though that's a great return. Like if you zoom out and say, hey, you're making 30% on your money that year.

Normally people would say yes. But when you talk about that 30% return that James is generating, you have to risk adjust it and understand that even though James is amazing at what he does, sometimes you're going to take a loss. And so you have to only target those really juicy gains because you have to give yourself enough cushion so that, like he said, if the housing market fluctuates or you have some cost overruns or something happens that you don't understand that there's still enough in there that you're hopefully not losing money. And even if you do lose money, you're only losing a little bit of money instead of having sort of disastrous return. You got to pad those deals for sure.

I mean, the risk can swing so quickly. When you're flipping homes, it's not a question of if you'll lose money. It's when you'll lose money because it will happen. Yeah. You have to build that in and that is not for everybody because it's a lot of work. It's a lot of long nights, a lot of random events that you have to deal with, like fires that are going off in all different types of areas. And it's not worth it to a lot of people. It's not for every investor either.

Dude, absolutely not. No way. I don't want to do any of that. I mean, I actually, I have become more interested in flipping over the years just because I spend all day talking to people about real estate and it sounds kind of interesting. But for the first like 12 years of my investing career, I had absolutely no desire to flip houses just because I work full time. I have other stuff to do. So I'll talk a little bit about my own targets because as the one person here who, well, Garrett, you work at Bigger Pockets as well. but you have professional experience in real estate, whereas I have always been sort of a part-time investor.

I'll share mine. But James, I just wanted to quickly ask you for like a long-term rental because I know you buy that. What kind of cash on cash return are you targeting there? So depending on the location, so if I'm in like a better neighborhood, you know, like let's say, an A-class neighborhood, right next to path progress, Seattle. We usually are targeting about an 8% cash on cash return, but we also want to have a minimum of 10% equity. position in that property where we're creating 10% equity. So there's a blend. I'm not just looking at the cash on cash return.

Now, if I'm in a neighborhood that has less accelerators, that might be more steady growth, I still target that 10% cash on cash return. And typically I want a 15% equity position on those neighborhoods, because usually I can buy them a little bit cheaper because it's less competitive. And so I do a blend when I'm looking at my long term rentals. What is my cash on cash? and then how much equity am I creating by doing my rehab plans?

Okay, that is a really good metric for people who are going to be active in their long-term rentals. So again, I want to just make sure everyone understands that James is not just going and buying these deals off the MLS and that they're stabilized assets and that they're going to be producing this type of 10% cash on cash return. Rather, what he's doing is going and buying properties that need to be renovated. He's doing the hard work. He's getting permits.

He's doing construction. He's doing the lease up. He's stabilizing that. and then they're producing these really nice returns that he's been talking about. So I do, now that we've just talked about this, I want to sort of, I want to give voice to the more passive investor. I guess I'm not like a passive investor, but I guess I would say someone who's not going to do a lot of construction and be on site a lot of the time.

And when people ask me for this type of situation what a good deal is, I have like an almost comically stupid and simple answer. here. Tell me if you think I'm crazy. But to me, a good deal is just better than anything else I would do with my money. Like, that's the frame of reference that I use for every decision I make about real estate. People are like, is a 10% return good? I'm like, well, are you just going to put it in a savings account? If you don't invest in real estate, then yeah, the 10% return is really good. Or, you know, are you going to, is a 10% cash on cash return good? If you could go out and find the 20% cash on cash return deal, Garrett,

was just talking about. No, it's not. So I think it's really important to sort of learn these benchmarks, but then also be realistic with yourself about what you're going to do with the money. And if your answer is, I'm going to just do nothing with it, then almost any real estate deal is probably going to be better than just like leaving your money. But with that said, I'll say that for like long-term rentals that I buy, I target a 12% IRA. And that is, again, a combination of, both cash flow and appreciation over time. And these are for relatively low risk deals where they are not going to take me a lot of time. And the reason I target a 12% IRA is that, again, I look at my whole portfolio. I don't just invest in real estate. And I can put my money

and reasonably low risk over the long term expect 8 to 9% compounding returns in the stock market. That requires no work. And so for me to buy something in real estate, it needs to be better than that. And because a 12% return is significantly better than 8 or 9%, I am willing to take on the work and the risk and the, you know, the stupid paperwork we have to do as real estate investors to justify that better return. And a lot of people are out there saying like, oh, the difference between 8 or 9% and 12% is not that big, I completely disagree. If you actually do the math on this, if you invest $100,000 over 30 years, the difference between an 8% return and a 12% return, do you guys have any guesses? How big the difference it will be?

100,000? It's $1.2 million. Oh, yeah. It's $1.2 million. Wait, you think that number again? $1.2 million. If you invest $100,000 and you invest in the stock market for 30 years, or you buy a real estate property that gives you a 12% IRA for 30 years, the difference. in that investment, at end of 30 years, will be $1.2 million.

So to me, that is well worth the extra work of being a real estate investor, because if you do that a couple times over the course of your investing career, you're going to make a lot more money. So it's not as sexy as what James and Garrett are talking about. But to me, just those types of returns are worthwhile. If I'm investing in passively in like syndications, for example, where there's a heavier value at or there's just more risk in a and not as an established area, I look for 15 to 20 percent for IRA, which is basically, I think, I don't know, James,

you probably know this well. Like that's sort of the standard, I think, for syndication operators to try and get their LPs, you know, 14 to 20 percent-ish. Yeah, I think that's the benchmark. Yeah, 15 to 17 is kind of like the sweet spot people plan. Yeah. And, you know, that's kind of that threshold. which is a great IRA.

Totally. You know, one thing that I always like to build into that, like, risk too when I'm looking at that for IRAs is the operator and their experience. Yeah. Who they are, what they're capable of, what they can do. And then, you know, based on that, I'm going to adjust my IRA numbers, expectations around as well. Yeah, I have the exact opposite of what you would expect.

Whenever you, as an LP, whatever you get a deck from someone who's not an experienced operator, their IRA returns are like 20 or 25%. and I'm like, yeah, no way. And then they, I don't know what they deliver because I don't invest with them. But then you go to an experienced person and they say they're going to get you 14%. And then they get you 20%.

It's just like the different mentality of how they operate. Okay, we have to take a break for some ads. But on the other side, James, Garrett and I will be back with more about the returns we look for when analyzing deals. Most investors spend more time chasing deals than reviewing their

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Get a quote in minutes at biggerpockets.com slash landlord insurance. Steadily, landlord insurance designed for the modern investor. 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 $10.10. The portfolio features $4,700, a single-family rental homes spread across the

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Check them out at biggerpockets.com slash dominion. Again, that's biggerpockets.com slash dominion. Thanks for sticking with us. Let's jump back into bigger news. So, Gary, I wanted to ask you one more question here about your portfolio because you are investing and reinvesting into a single property very often. So, like, how do you make that decision and how do you think about the math between buying a new deal, you know, a potential new deal, versus just taking the money that you're generating and reinvesting. into an existing property. So that's been something I've been going back and forth with a lot, especially between me and my partner and things, trying to figure out, do we want to keep expanding

out further and taking our operation more? But every time we crunch numbers, especially with the deals that are out there right now and just, you know, there's just not a lot. So everything that's kind of slow right now, even on all sides of my agent's side and everything, we decided that looking into, if we invest back onto our property, not only are we building the equity in there to make our long-term exit even more, you know, attainable for what we're trying to hit. But short-term rental insurance, especially in Texas, is through the roof. If we consolidate all of these properties onto one property, our insurance rates have been much lower because we have a, we have a liability policy as well that has to be covered. And if it's on one property,

the same company, the rates that have gone up through there are not as much as going to buy another property. Another reason is our taxes and Texas has really high property taxes. I go buy another property, my tax bill is going up. If I build on the property I already have, you know, hopefully my county's not watching. So if they are, I may not even say this, but they don't come out there and assess our properties a whole lot and know exactly how much we're putting in infrastructure-wise onto these properties. And so our tax bill is not just shot through the roof compared to what our actual value may be from all the things we've built on the property. And then at the same time, too, I self-manage a lot of my own properties, which is why I can hit these cash on cash returns with

all the tools that are out there now, it's so easy to, like, automate processes and things like that. But I already have my infrastructure built out there. I have a handyman. I have all my team, everything out there. I have a cleaning team of three to four people. It makes my life, now that I have a, you know, I'm working constantly trying to find other deals. I need this to go even smoother. And I've already built out the whole operation there. Short-term rental is a big operation thing. And we are dominating that market in operations and in our marketing in the Houston, Austin kind of area. So we just haven't found a real reason to not invest back into our property.

And every time we've done it, it's paid off in dividends. Even not long ago, for example, we put a sauna. It was only $3,000 to get this sauna. And people thought I was crazy to put a sauna at one of our properties in Houston, Texas. They were like, why would you do that? Like, you walk out into a sauna, just walking, you know, into the air there. Free. Just walk outside.

And I've made that joke, too. I didn't believe it, but I had somebody that's much smarter than me that's in this type business from Europe tell me they were like, hey, you may not think a sauna is a good idea, but if you're the only person with a sauna within three, four hundred miles, you're going to stand out. And I paid $3,000. And it's hard to judge, like, how much does that amenity actually bringing you back? But I could just tell from the amount of inquiries and bookings we were getting and from the people just saying, like, hey, we loved the sauna. We booked because of the sauna and like the social media marketing that came out of it, that $3,000 investment, me,

putting into that property, I'm sure we have doubled that in a few months from just what we put into it and the amount of social media clips that have went out because of this sauna that we put in. Yeah, I mean, if I was getting those kind of numbers, I would do the exact same thing. I think you have convinced me to add a sauna to my short-term rental. I think that's a great idea. Absolutely. James, what about you? Because you do a little bit of everything. And I know you're always sort of like trying to optimize your portfolio and use your money efficiently.

how do you think about, you know, in today's market, like, if you can't find a deal that you like, are you going to take that money and reinvest it into some of your existing properties? Yeah, and I think that's always something that's really important you do as an investor is to audit. You know, like as investors, what's our inventory? Well, inventors are assets, but it's also our cash. Like, what is our cash? That is what I inventory. I'm like, how much cash do I have?

Where can I put it? And, you know, I treat my real estate investing like, almost like a financial planner where I have like a pie chart. Yep. I go, okay, I have this much cash to invest. You know, there's a couple different asset classes I invest in. One's long-term holds. Like, can I buy a rental property that's going to hit my minimum returns

and create my minimum equity position expectations? Then there's flipping higher risk. I'm going for a higher return, 35% in six months, 70% annually. Then I do private money financing where I will lend out hard money and make 12%, 14% on my money, and it's very, very passive for me at that point. So, you know, each asset class has a different return for me and a different purpose. And they also have a much different risk. And so for me as an investor, my job every year is to audit, okay, well, how much time do I have to spend on these business? Where's the risk? What's my path to growth for my goals? And where do I want to

put this cash? But it also comes down to deal flow. If I can't find deal flow, how do I reallocate that? And so that's why I think it's just really important to always know that because flipping is really tight on the margins right now. And if I cannot hit my 35% return and my option is to either lower my return so I can get into the market and start playing and maybe that goes down to a 25% cash on cash return. That's starting to be more risky than maybe I want to take on. And then that's where I'll lend my money out at 14% because it's a lot less risky. so I can make half the return, but probably take one fifth the risk. Yeah. Because the thing that I never want to fall into is there's no deals in the market.

I can't transact. There's always a transaction, and I just have to go, how do I want to work that transaction? And whether I want to be passive or active is going to tell me how how that return is, but it's also going to tell me what I need to do for the next 12 months. Absolutely. That makes a lot of sense. And it sort of underscores this idea that I, talk about a lot of benchmarking for people because people are as like, oh, there's no deals or,

you know, I can't find a good deal. I don't know where to put my money. I always ask, like, how many deals have you analyzed in the last couple weeks, right? Because like, it's really easy to say, hey, there's no deals if you're just sort of like reading the media or just kind of eyeball testing things. But I really encourage you, everyone listening to this, whether you're ready to buy a deal right now or not, go actually do this. Go run five deals in your neighborhood. right now and just figure out what the average return is for whatever strategy. If you're flipping, if you're doing a long-term rental, if you're doing a short-term rental, just go see what a good deal is because that will make your portfolio management decisions, your cash allocation

decisions so much easier. Like James just said, if you see that, you know, you're only getting 10% in flips in your neighborhood and that's not acceptable to you, you got to go figure something else out. But maybe you'll find that you're getting 25% and that there's actually a simple deal right in front of your face. So actually go and run the numbers every month at least to figure out how deals are trending in your neighborhood. And it's going to make it so, so, so much easier for you to figure out where to put your money because you'll actually be comparing one or two things against each other rather than just like this hypothetical thing where you're like, oh, I don't know. Like, you know, I don't know if I should invest right now. It's not a good deal.

Well, what else are you going to do with your money? What other opportunities have you looked at? once you're comparing two actual tangible investments against one another, things get a lot easier to decide. All right. Well, that's what we got for you guys today. Garrett and James, thank you so much for sharing with us what you think good deals are today. And your process for figuring out how you're going to allocate money because at the end of the day, as investors, that's our job, is to figure out how to take our money and use it more efficiently,

give it our own personal preferences, our risk and reward appetite, our time allocation, all of that. And this has been a great conversation about how to do just that. So Garrett, thanks for joining us. Thank you for having me. James, it's a pleasure as always. I love talking deals. All right. Well, we'll have you both back on very soon to let you know what deals you do between now

and in a couple of months. Thank you all so much for listening to this episode of the Bigger Pockets podcast. We'll see you soon. 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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