BiggerPockets Real Estate Podcast - How Much Do You Need to Invest to Replace Your Income with Rentals?

Episode Date: October 15, 2025

How much money do you need to invest to retire with real estate? We did the math, and it’s not as much as you’d think. In fact, in some markets, even with a small amount of disposable income, you could become financially free in just five years. We’re asked about retiring with rentals so often that we’re providing an in-depth answer in today’s show. You asked, Dave and Henry are answering. Today, we’re grabbing questions directly from the BiggerPockets Forums and shooting them straight at two of the most trusted real estate investors in the industry. One beginner wants to know how he can achieve financial independence in just five to ten years with rental properties. He has $3,000/month to invest, but will that be enough? Another rookie investor is considering the ultimate real estate portfolio to build: do you start with a single-family home and then move on to multifamily, or do something completely different? Dave and Henry both give a take that you might not expect.  To end, we have a double debate: cash flow vs. appreciation (and which makes you richer) and existing vs. new-build rental properties (is a higher price worth fewer headaches?). Want to build wealth with real estate? Today’s answers might surprise you.  In This Episode We Cover How much do you need to invest to reach financial freedom with rentals? What are the best rental properties for beginners? How to find the perfect fit for your situation Why, if you want to build wealth, you need to stop caring so much about cash flow  The low-headache rental property: are new construction rentals really worth the cost?  Why Dave is upset he hasn’t won the Pulitzer Prize yet  And So Much More! Check out more resources from this show on ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠BiggerPockets.com⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ and ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠https://www.biggerpockets.com/blog/real-estate-1187 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

Can you really reach financial freedom in five to 10 years with real estate investing? Even if you're starting from scratch without making a million dollars every year, how much do you need to invest? And how can you get the biggest return on the money you have to invest? We're answering all of that today. Plus, we'll talk about whether you should focus on cash flow or equity when you're buying your first rental. Hey, everyone.

I'm Dave Meyer, head of real estate investing at Bigger Pockets. And today on the show, I'm joined by my friend Henry Washington. Today, we're going to answer a few questions from real investors on the Bigger Pockets forums. First up, we have one from an investor who wants to start working towards a financial freedom goal, but isn't sure exactly where to start. And I think we can help them out. That's right.

Our first question comes from Brad Hills. Brad says, I find myself in a situation where I have a bit of extra income and I want to start leveraging it. My admittedly lofty goal is to become financially free in five to 10 years. I don't want to stop working. I just want to pivot my time to other ventures that can make some income that I enjoy. I can afford to put $3,000 a month, maybe a little more if I get aggressive towards this end. My monthly overhead is very modest.

It costs me about $2,500 a month to cover my living expenses, and I'm happy with the quality of life that affords me. So if you were in my shoes and wanted to quit the 9 to 5 in 5 to 10 years to pursue other passion projects, how would you go about it? Consider you're starting from scratch with no real savings or assets to speak of. Love this question. There's so much to unpack here. I think what this investor is probably saying is that they're ready to start and then they can continuously put an extra $3,000 a month into their portfolio, which to me is a huge amount.

That's like a really significant advantage that this investor is going to have. If I were him and I was owning a home already, I would probably go buy a duplex, live in one of the units, rent the other unit, and rent. rent out the unit that I'm living in. So that gives you essentially three rental units off the bat that you can have within the next, you know, 90 days if you start shopping for a place right now. And it helps you by eliminating some of that $2,500 a month that you're spending on living expenses. You'll be able to eliminate some of that by house hacking. And so now you bump your $3,000 a month up even more because you now have lowered your living expenses. If you want to retire in five to 10 years,

and you're not going to flip houses, then you're probably going to have to start buying assets sooner than later. Yeah. Because they're probably not going to cash flow very well in the first year or two. And so being able to get a couple of units by house hacking and eliminating your expenses gives you more money to play with. If you're making $100 to $200 a month and net cash flow in the first couple of years, then with rent growth and with appreciation and debt paydown, five to 10 years, that could

look really, really good, especially 10 years. years, five years, maybe not as well. Yeah, I was going to ask you that. Do you think this is a reasonable timeline and goal? Because as Brad said, it's a lofty, ambitious goal. Do you think five to 10 years with this person's lifestyle is reasonable? I wouldn't say unreasonable. It's definitely doable, but you're going to have to be pretty aggressive. Ten years is very reasonable, I think. Yeah, I agree. Five years is pretty lofty unless, like you said, you're going to flip houses, unless you're starting with a lot of capital. It just takes a little bit longer than that. I've talked about it on the show that I think the average, just buying on-market deals,

so not even doing what I would consider aggressive approach. Henry's talking about with off-market deals. Yeah, I think 10 years is a little bit more realistic. It could even take 12. But I actually built this financial independence calculator. It's on BiggerPockets.com for free. You can check it out. And I'm putting in Brad's numbers right now.

I'm just showing that he can contribute $36,000 per year in his savings. and I'm assuming I'm making a big assumption here that he is initial savings of $40,000. So basically he can start with a property right now. And then I put the average property price at $120,000. He lives in Akron where the median home price is 140. But as an investor, I'm assuming you're going to go in and do $1.10, $120,000, put a little bit of money into it to rehab this kind of property. With appreciation at 3%, so really nothing crazy. an average return on equity, similar to cash on cash return of 7%.

Just doing that with pretty on market deals, we get exactly 10 years. Exactly 10 years is a realistic number. Yeah, and you think if you truly are going to wait 10 years, I mean, you could honestly do more than one house hack. You should probably be buying a new house hack every couple of years, right? If that's your goal is to get there in five to 10 years, if you bought one house hack and you lived in it that gives you a couple of units that offset your living expenses. You're renting out the house you're currently living, assuming you own your house.

So now you've got three rental properties, right, that are all producing income besides the one that you're living in, but you're not paying to live there, which gives you more cash. Within a year to a year and a half, you start looking and get your next one and do it again. You move out of the one you're living in. Now you've got two more units, assuming we're just doing duplexes. And then within another two years, you do it again. and that's just the house hacking portion. He can still do your method of buying decently cash flowing deals off the MLS because he lives

in a market where that's actually possible. I mean, if you put those two strategies together, I bet he can get there in less than 10 years. He lives off of $30,000 a year in post-tax income. And for real estate, that's not that hard. Now that I'm thinking about this, and if you were willing to house hack, I bet you could get, reduce your housing expenses to zero, like pretty quick, right? Because that's probably a thousand or $1,200 of that $2,500 a month that Brad is spending. I think, what, two, three house hacks, and you could probably do that? I think it's five years. I think you could probably do this

in five years because Brad lives a really frugal lifestyle. And he lives in an affordable market. And he lives in an affordable market. That's right. So this is not going to be a strategy or an approach that is available to everyone. But if you are in a situation like this and you are willing to live frugally, go do this. Like that is, that is, you know,

house hack three times. I would keep working past that point if I were Brad, because you never know your lifestyle is going to creep eventually. You want to have some cushion. And so do that. You'll be basically financially free in five years. And then work another five years. Get to 10 years.

You'll probably buy four or five more rental. properties. And by 10 years, then you'll probably be not just replacing your current income, you'll probably be one and a half to two times your current income, which is still a modest, you know, that's still 60 grand a year. Like maybe that works in Akron. Certainly doesn't work in Seattle. But like if that works for you, that's great. And then you're, you're five plus in 10 years, which is amazing. Yeah. I mean, I think this guy needs to take advantage of his superpowers when two of his superpowers are one that he's frugal and two that he lives in a market where you can buy cash flow on the market, like put that to work now. Absolutely. And I love, I love just the framing of this

question because I think it approaches financial independence and real estate in a very realistic way. He's saving a lot of money, a foundational thing to do. I know a lot of people say they want to get into it with no money. It's possible, but it's way easier if you're saving tons of money like Brad is doing. Not everyone can do that, but like he's doing that. He's looking to become financially free in five to ten years. As we've established, that is possible for most people, if you're willing to go, you know, the routes that we talked about. But for Brad, that might be possible even sooner. And he's saying that he doesn't want to quit his job immediately. So all three of those things together are going to put Brad in a really good position to be able to pursue financial independence

somewhat aggressively. So I love it. I think it's definitely possible. So one thing we talk about, Henry, is like, I often counsel people who are in different kinds of markets. to pursue equity building strategies first, whether that's burr or flipping or just doing, you know, cosmetic rehabs on a traditional rental property. Because as we talk about a lot, building equity is the pathway to cash flow later in life. But I kind of think differently. Like you're in this market that offers cash flow that's cheap and you have a frugal lifestyle. I'd probably just go after the best cash flowing deals right away, right? Yeah. I mean, the goal with real estate is to get wealthy over time so that you have income coming in when you're not having to work for it.

And most investors get into flipping because they need to generate cash now so that they can go buy assets that they can live off of in the future. This guy technically doesn't need to do that step because he's saving money and he lives in a place where you can get the cash flow sooner than later. So for this investor, what I'd focus on is go try to make sure that you're buying assets that are going to last you so that you're not having to recycle them after five years into better assets. I think that's a really good point. I invest in the Midwest too, and it's hard to find them, but trying to find properties built in the 60s, ideally or later, I bought a lot in 1910s, 1920s. I bought some 1890s before, and they were pain in the butt.

Man, did you buy Paul Revere's house? What was it? Yes, exactly. No, I mean, unless they're completely renovated, which is rare and they're going to be more expensive than the price point we're talking about. But, yeah, Brad, it seems like you're an awesome situation. So go out and get it. We have another question coming up about portfolio goals, a topic I love to talk about. But we've got to take a quick break. We'll be right back.

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who says, I'm a rookie investor based in California looking to start building a portfolio in the area. What do you guys think, an ideal portfolio composition that prioritizes modest growth in the next three to five years? Long-term rental in the single-family category seem to be a good base to start cash flow. But what are your suggestions based on experience? Examples, start off with two single families that move to multi or then focus on short-term rentals. I think sort of the question here might be setting Jared up for the wrong answer because he said, what is an ideal portfolio composition? If you wanted me to run the math and tell you the precise best possible portfolio composition,

I could probably do that for you, but you're not going to find the deals. Like that's not, there's like an ideal portfolio composition and then there's a realistic portfolio composition. And I think that's what you need to be thinking about as a real estate and investor in 2025. And that's just always true. Like, you need to be thinking about what's your next best step. Like, what is the best deals that you can do to get to your long-term goal? I actually, I don't know about you. I don't really think about this question that much. Like, what's the optimal thing? Do I want single families or multifamilies? When do I pivot from one to another?

I honestly think a lot of investors spend way too much time thinking about that. I'm just an investor, I look for opportunistic deals that fit my long-term goal. And my long-term goal is 10 years from now, I want to not have to work and I want to replace more than just my regular income, but have some on top of that. And so any deal that I find that fits that criteria, I'm going to go for. I don't care if it's a single family or multifamily. I'm just trying to do whatever I can opportunistically and move on to the next deal. I would say your focus just needs to be on figuring out how you're going to generate leads for properties that are actually going to make you money. And then as you start to buy some of those properties and you start to figure out what is it

that you're good at, what is it that's your superpower? Then you can adjust your portfolio based on what you know now. I just don't know that you know enough to know that your portfolio is going to look exactly like what you're planning it to look like in the beginning. I just don't know that it works like that. No, I think it's worth as a rookie investor spending time figuring out what your financial goals are. Like, why are you doing this? Where are you trying to go? Because that will really help you home in on the right kinds of deals. But I honestly think this is an example. I mean, no offense, Jared. A lot of rookie investors do this. Spend a lot of time planning what they want to do and not executing. And this is just, this happens in every business.

I've started a lot of business. I have definitely done this myself where I dropped this like business plan and what I'm going to do three years from now. And literally none of it has ever matter. Not once in my whole life. Has that ever been a useful exercise? Long-term goals, figure out where you want to go and then just focus on short-term execution. Like those are really the only two things that have ever mattered to me in my own entrepreneurial career. And I know it's like sort of ingrained in this entrepreneurial philosophy that you hear all over the place in the media and the news, whatever, is like, you got to have your business plan, you got to plan this all out. No, you don't. You have to have goals and you need to execute on

short-term things. And the plan will become clear to you, I promise. And the plan can change. The plan will change. It's like, a hundred percent it will change. Like, for example, I, like, set a goal at the beginning of this year. It's like, I'm looking for purpose-built four units. It's not because I have some ideal portfolio in my mind that I'm trying to get to. It's just Like, I've just been looking at a lot of deals, and those are the ones I like the best right now. If I saw a single family that worked, I would just buy that instead. Like, I have to create some buy box and limitations about what I'm trying to buy. Otherwise, it's too overwhelming.

But I also just want to find good deals. And when they come across my desk, I'm going to take them seriously. So I just think as a rookie, execute your first deal. I think for Jared, you're going to need to think hard about whether or not you want to invest in California. Like that's just a hard thing to do as Henry alluded to. And you could invest out of state or you're going to have to get good at construction. Like those are probably the two routes for you. And that's just the way it is. And you just kind of have to choose. You can build cash flow in California with the ADU strategy. For sure. That's pretty niche.

And you're going to have to go figure that out. And you're right. Like go do a deal and then reevaluate because I still have my original goals from before I did it. deal when my wife and I were planning out what we wanted our real estate portfolio to look like. We wanted to buy one house a year for the next five years. Yep. That's what we started out as our goals because we wanted to go slow. Based on what we knew at the time, that seemed aggressive. Yeah.

We did five deals in our first two months once we got going. Right? Yeah, exactly. You're like, I can do this. Yes, absolutely. So don't focus on the exit, focus on how are you going to find deals that make sense for the numbers you're trying to hit in the market you're trying to be in? And if you can't figure that out, if that doesn't exist where you are, then maybe you'll need to pivot markets or maybe you'll need to pivot strategies. But I think there's more you need to figure out.

All right. Great question, though. We have a couple more questions to answer for you guys, but we have to take another quick break. We'll be right back. The rise of the tech savvy investors here. You don't need a huge team or tons of overhead to manage rental properties. Just the right tools. So, I want to tell you about how I use rent-ready to get ahead.

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book your free demo at bill.com slash bigger pockets and get a $100-dollar Amazon gift card. That's bill.com slash bigger pockets. Welcome back to the Bigger Pockets podcast. I'm here with Henry answering your questions. We've answered one about how to invest with 3K a month, another one about portfolio goals for rookie investors. Next, we're going to talk about advice on building equity or cash flow.

Classic question. I love it. Jessica Wan asks, hi, everyone. I'm looking to buy my first rental property. And when I was reading Dave Myers, start with strategy book. Oh, my. My God, I'm getting a call out. She didn't spell my name right, but I'll forgive her.

He mentioned a very interesting point. Now I'm just reading my own quote. All right. I'm going to read something I wrote in my book. It says, quote, one approach that I personally subscribe to is focus on equity growth early in your career and then shift the balance of your portfolio towards cash flow later. The idea is not to completely ignore cash flow, but rather to seek deals for their potential for equity gains, even if that means a modest cash on cash return.

Due to the combined forces of value add, market appreciation, amortization, and leverage, seeking deals that build equity can generate large amounts of capital with which you can reinvest. If you spend the early days amassing equity, getting cash flow later in your career is relatively easy. You can do it through rebalancing and de-leveraging. Just to go that one and to ask, is this the strategy that you guys are using? Any advice on focusing on equity or focusing on cash flow for my first rental property?

this will really help with the deals I should look into. I'm currently considering long-distance investing since California is not affordable to me. I already gave my opinion because I just read it to you. So, Henry, what's your opinion on this? I have said this before on the podcast. Cash flow is the least important way that real estate pays me, especially early on. Now, later on, once properties are paid off, it'll be a much more profitable endeavor. But, like, Like cash flow now to me is more of just a measure telling me that I bought a deal that makes sense. In other words, what I learned after I started accumulating properties is that cash flow is cool, but it's equity and appreciation that really builds wealth and allows you to be able to become wealthy and build and grow your portfolio by allowing you to live.

leverage that equity that you have in your properties to go and build a bigger nest egg of more properties. And so that is a very long-winded way of saying that, like, I agree. But I always say this and then I get, you know, comments that like, oh, you're saying don't buy cash flow. No, I think you should absolutely buy deals at cash flow. I'm just saying it's not the most important factor when you're evaluating a deal. I am okay buying a deal that breaks even in. if it's in an appreciating market, if it's not gonna give me maintenance headaches. Like if a deal doesn't cash flow a ton,

that doesn't mean I won't buy it. There are other factors that are more important to me. And so I think people should absolutely look for deals that cash flow, but it shouldn't be the only thing that you're evaluating properties on. And so if you're in a position where you can invest for building equity,

and those properties pay for themselves, meaning the mortgage and all the expenses are covered by the rent, and you still get to put a little bit of money in your pocket afterwards. That's going to require you to have some savings or have some money because, yes, the property may cover itself, but it doesn't always all flow at the same time. It's not like you got your rent and then the AC went out and now you have the rent money to be able to pay for the AC. You may have to pay for the AC out of your pocket and then recoup it with rents over time, right? Like you need to have some cash. Like not every investor is in that boat where they can say, okay, I'm going to focus

on deals that have a great equity return as long as they cover themselves and put a little bit of cash flow in my pocket because they may not have the cash backing to be able to float a portfolio like that. Yeah. But if you're in that kind of a position, if you're in that good of a financial position, then I absolutely think this is what you should be focused on because it's going to help you become wealthier faster. The cash flow will come later.

Yep, exactly. My whole strategy has always been like, how do I get to the point when I want to live off my real estate? So let's just call it 10 years from now and have enough money that I could just go buy properties for cash and live off of that. I know that sounds like stupidly simplistic, but it's true. Like if you wanted $100,000 a year to live off of and you, let's just assume in 10 years, cap rates are at 5%. So that means like if you bought a property for cash, you're making a 5% cash on cash return. How much money do you need to pull that off? Two million dollars, right? That's the answer. So my whole strategy in thinking of that is how do I get two million dollars 10 years from now? And it's not through cash flow 50 bucks a month or 100 bucks a month. It's through building equity through the things that we talk about on the show, whether it's value ad, buying deep, being in the path of progress, zoning upsides where you can add additional

units, doing the burr, flipping. Like, you can pick a ton of different ways to do it. But for me, that's ultimately the goal because if I can own enough properties totally debt-free when I want to retire, that's a dream. And if I choose to use leverage, which I probably would, then I can probably scale even more. But that's like, to me, true financial independence is like, I want to own all this without debt eventually.

And that's how, that's the simple formula. like to get there. How much money do you want annually? Divide that by what you think cap rates might be five or six percent. That's the equity goal you need to go after. Go pursue that as aggressively as you can. Yeah, I agree. And I think people ask this question sometimes are still thinking of getting cash flow the way you used to be able to get cash flow five years ago. Right. When I got started in 2017, yes, you could go buy a rental property. You could walk into equity of 50 to $100,000 of equity and that thing would cash flow $300, $400 a door, right? Like it was a different game. The properties were cheaper. The rents were allowing you to do that. The interest rates were lower. The insurance wasn't

as high. So focusing on equity, if you can, is obviously going to get you there faster than just, you know, 50 to 100 bucks a door. That's a great point. It's almost like a false dichotomy, right? People are like cash flow or appreciation. Well, cash flow is not that good right now. So building equity makes sense. And really, cash flow is fine if you have a ton of money, right? If you have $2 million to invest, I could find you cash flow all day, put 50% down, buy it for cash, right? So, like, that's what gives you the flexibility. I'm kind of joking, but I'm being serious. Like, if you have so much cap equity that you could just go out and put 50% down, 75% down,

you're going to have no problems. You will have no problems. So go figure out the way to accumulate that equity. And I know it's not simple. I'm not saying that you could just go do this with no effort. You're going to have to work for it for sure. But that, to me, is the fastest path to achieving financial freedom, even though it puts a step in your way, right? It's not, I'm going after cash flow and I'm going to see more and more of my living expenses covered every month with every deal I buy.

That might not be true for a while. But know that having that equity makes cash flow easy to get. And so you're just waiting. You're taking one strategy and equity building strategy to start. And then you de-leverage, which means you use less debt. And in the future, when you de-leverage, you're just going to be able to find a lot easier cash-low. And on top of that, you'll probably be able to buy nicer properties with less headache and get cash-law at the same time if you pursue that equity first. Boom.

Done. Answered. All right. Last question of the day comes from Kelly, who's wondering about new construction rentals versus older properties. She says, for property managers and landlords, have you noticed a big difference between managing new builds versus older inventory? Some investors I know are shifting towards new construction because of fewer maintenance headaches and stronger tenants demand. Would love to hear what you're seeing. This is perfect.

I just did a whole on the market episode about this, but I'll ask you first, Henry. In my portfolio right now, I have two new construction homes that I've owned for going on three years now. and I have other assets that I've bought since I bought those new construction homes that are not pre-new construction. And I can tell you that I have never once gotten a work order for anything repair or maintenance-wise on my new construction homes. But I have gotten requests on properties I bought after I bought those new construction homes that are older than those new construction homes.

For sure. So, yeah, managing new construction is easier. To me, this is a no-brainer. The newer the property, generally speaking, or the more recently it's been renovated, not only are you going to get fewer repairs and maintenance. Kelly also hit on the fact that you're going to have higher tenant demand. People are going to want to live there more. They like living in renovated places.

And there is a big good reason why more investors are shifting towards new construction. It is cheaper than existing homes right now. It is on average in the United States. It's $18,000 cheaper to buy new construction than it is an existing home. Now, there's all sorts of stuff. If you want to hear about this in detail, check out the on-the-market feed. I did a whole deep dive into this because there's different markets, all the markets where there's a lot of this inventory or the markets that are seeing correction.

So there's all sorts of things to consider. But all things being equal, get the newer property. Absolutely get the newer property. Sometimes they have warranty. They're going to have newer systems. They might have newer appliances, which will probably break faster than the older ones. That is the one exception to the rule. But I think this is kind of a no-brainer.

I've bought mostly old properties in my investing career. You get better deals on them for sure, but they're a pain in the butt. And I think it just depends on where you are. Kelly specifically asking about management, management is always easier with a new construction. New homes that are built well up to modern code, like, man, it's so much easier. Yeah, I think the trade-off people deal with is, so like if you underwrite an older home as a rental property, you typically might see more cash flow than if you're underwriting a newer home as a rental property because the newer home is probably going to cost more and rent might not be that much different

between those two houses let's say for all intents and purposes they're the same square footage right the older home newer home same square footage they're probably going to rent for the same and so what people are seeing is well if I take the older home I get more cash flow if I take the newer home I get less cash flow. But that's when you're underwriting it. When you're underwriting it wrong. When you look at the performance of the property, right, that older property, if it has a maintenance issue that goes beyond what you budgeted for maintenance, then that cash flow gets whittled down too much less. And your newer property is probably not going to have the maintenance issue.

And so I think when you're underwriting the two deals, you might see a bigger cash flow number on the older property. but we don't know if that's a cash flow number you're going to get to. I think the underwriting on a new construction deal is more dependable because the maintenance shouldn't be a big surprise. You shouldn't have the surprise things that you have on the older home. I couldn't agree more. And the reason I was saying that underwriting it wrong is if you're buying an old property and you are not underwriting for a new roof or replumbing or putting a new electrical

or a new hot water heater, you're underwriting it wrong. I gotta be honest with you, for the first five or six years I worked at bigger pockets. I like, cut being like, man, am I just buying the worst deals? These people are out here buying like 15, 20% cash on cash returns. Like, what am I doing wrong? And eventually just I realized that people are just doing the math wrong on cash flow. Like everyone does. It's like 90% of the people I meet do cash flow.

They're like, well, I have a 20% cash on cash return, but that doesn't include maintenance and vacancy and cap and turnover. I'm like, well, that's not cash flow. What are you talking about? That is not cash flow. And they're like, yeah, what do you, when I, when I factor that all in, it's like break-even. I'm like, so you have break-even cash flow. That is break-even cash flow. I'm sorry. And so like when Henry and I say, we'll take break-even cash flow, that's what we're talking about. I'm not talking about break-even cash flow before I factor in 70% of the expenses I have as a business operator. Like, you have to do it right. Sorry, this makes me so bad. But I think your point is right that, like, if you underwrite it correctly, the numbers on new construction are much more competitive because you're not going to have the same amount.

Yeah, I'll budget for a new roof, but I'm going to budget for 20 years from now, 25 years from now, because I'll probably have a warranty for at least 10 of those years. Right. Like, that's why you have to get good at underwriting, because these sound like subtle differences, but they're not. This is like the difference between buying the right deal and buying the wrong deal. That means you're not going to like as many deals. That's okay. You're going to need to underwrite more deals. That's okay.

But please, just do it right. Please. Okay, now I'm tired from all that yelling. Well, it's hard to breathe up there on your soapbox. The altitude. There's not as much oxygen up here, man. All right. Well, this was a lot of fun.

Thanks for coming, man. We appreciate it. Thank you so much for listening. We'll see you next time. 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.

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