BiggerPockets Real Estate Podcast - How to Invest in Real Estate in 2025 (with NO Experience)

Episode Date: November 8, 2024

So you want to start investing in real estate but have ZERO experience. What should you do? The good news is that even if you don’t know how to invest in real estate, you can get started relatively quickly, especially if you avoid the common rookie mistakes. To help you jump over the investing hurdles, instead of running right into them, Dave brought on Tony Robinson, top short-term rental investor, and Henry Washington, repeat co-host and long-term rental investor, to share exactly what they’d do if they were starting from scratch in 2025. Both Henry and Tony have scaled very fast. They own seven-figure real estate portfolios producing hundreds of thousands in rent yearly. But neither of them has been investing for more than ten years. How did they scale their real estate portfolios so quickly? They learned from their mistakes FAST and are teaching you the same lessons on today’s show. In this episode, we’re going through the beginner steps you should take to build a real estate portfolio starting in 2025. We’ll discuss whether you should buy long-term or short-term rentals, how to choose a market to invest in, knowing how much you can afford, the many ways to find real estate deals, and the one thing Henry and Tony WISHED they had done earlier. Ready to start investing in 2025? This is your quick guide! In This Episode We Cover: Best beginner real estate investments and whether you should buy or build your first rental What to do when you don’t have tons of money to invest and how to calculate your buying power How to find real estate deals even if you’re low on time or money The one thing Henry and Tony advise every rookie real estate investor to start doing NOW Emergency reserves and why you must keep cash on you when you start investing And So Much More! Links from the Show Join BiggerPockets for FREE Let Us Know What You Thought of the Show! Real Estate Rookie Podcast On the Market Podcast  Get a Quote on Your Next Short-Term Rental Loan with Host Financial Start from Scratch with “The Book on Rental Property Investing” Find an Investor-Friendly Agent in Your Area Real Estate Investing For Beginners: How To Get Started Connect with Henry Connect with Tony Connect with Dave (00:00) Intro (01:01) Best Starter Investments (03:08) Short-Term Rentals (08:42) 1. Choose a Market (10:04) Long-Term Rentals (14:42) 2. Know Your Buying Power (18:39) 3. Finding Real Estate Deals (24:21) 4. Document EVERYTHING (28:39) 5. Start a “Reinvestment” Fund Check out more resources from this show on BiggerPockets.com and https://www.biggerpockets.com/blog/real-estate-1041 Interested in learning more about today’s sponsors or becoming a BiggerPockets partner yourself? Email [e-mail]. Learn more about your ad choices. Visit megaphone.fm/adchoices

If I had to delete my entire real estate portfolio and start fresh in 2025, this is what I would do and how I would do it. Hey, everyone, it's Dave. Today on the show, we have two guests joining us today. We have Henry Washington. Henry, thanks for being here. What's up, bud? Glad to be here. It's good to have you, but you're here often.

I'm actually just way more excited to have Tony Robinson here, to be honest. He's just cooler than you. And he has perfect expertise for this show being the host of our sister podcast, the Real Estate Rookie Podcast. Tony, thanks for joining us. I appreciate you having me, brother, man. Super excited to jump in with you guys. Well, of course, between the two of you and myself and our real estate experience, we've made a lot of good decisions, maybe made many of mistakes since our first deal.

So today we're going to talk about, given everything that we've learned over our investing careers, how we would start over if we were doing it in 2025. So let's get into it. Tony, let's start with you. You're known for, you know, specializing in a specific niche of short-term rental investing. If you were starting again today, would you choose the same niche? I would, right, because I think for me, and I still believe this, that if you want long-term appreciation, if you want cash flow, if you want the tax benefits, short-term rentals still offer the best mix of that. And those are my goals, right? And I still feel like that is the asset class that most closely aligns with that strategy for me. and the barrier to entry isn't as big as something that's like commercial, right? It's not apartment complex as it's not, you know, I don't need to syndicate a bunch of money, but I can typically earn more cashful than a traditional long-term rental. So for me, that's what I'm going all in on.

All right, sticking with it. Henry, what about you? I actually don't know. Did you buy a rental? I know you do both. You do rentals and flips. What did you do first? My first deal was a rental.

Smart. Flipping as your first deal would be terrifying. Yeah. No, my first deal was a rental. Similar to what Tony said, flips and rentals. will help me get to my financial goals, but that's not the only factor that I put into it. I really enjoy the people aspect of single family real estate and small multifamily real estate because you're so tied into your community. You're dealing with sellers and fixing problems.

I'm able to be much more flexible with my community. And I can make decisions because they're smaller, less risky assets that maybe don't make financial sense, but make the most sense for the people that are involved. And that just really makes me feel good. I never want to make money off of a community without being of service to that community. And I say it allows me to meet my financial goals, but also meet my warm fuzzy goals. So I would stick with the same strategy. How do you quantify your warm fuzzy goals? It's just a feeling in the gut, man. How fuzzy do you feel today? Yes. How warm and fuzzy do you feel? Well, I don't know if this show is going to be very boring or if this is just the right answer because I would do the same thing. I started in long-term rentals, small multifamily. It's still

what I mostly buy. So I just feel like maybe we've all gotten so comfortable with what we do that we don't see a need to deviate. Tony, tell me a little bit about how you started when you were just getting into your first short-term rental. Like, what were the first few steps that you took? And would you do any of those more tactical sides of building your portfolio any differently? Yeah. We just kind of blindly jumped into that first one. I did zero analysis. I bought sight unseen in a city I'd never heard of before. So you do it all the same again. It was 2020. Oh, he says, ah, you've nailed it. Yeah, right? We at the time, before we started buying short-term rentals, we actually wanted to do apartment syndication, but this was during COVID. Deal started drying up, you know, as a first time, someone trying to syndicate, like,

it just was not the right time to try and become an apartment syndicator. So we had some money sitting on the sidelines at a buddy of mine who said, hey, Tony, have you ever heard of Pigeon Forge, Tennessee? And I'm in California. Like no one vacations really to Pigeon Forge in the West Coast. And I was like, what are you talking like? What is that a real place?

Is that an amusement park? Like, what are you talking about? And he's like, yeah, man, I just bought a cabin out here. And he kind of walked me through the numbers. And again, just we saw what he was doing with his. ended up talking to some other folks in that market and kind of saw what was going on. And this was before prices, it kind of skyrocketed there. And yeah, dude, we found a cabin literally without even going out there, without doing any sort of analysis.

We put our some, put some money down in. And that was one that kind of tipped everything off for us. So not even nothing about how much money you could be bringing in. So we just saw, we saw what other people's numbers were. Okay. And the kind of revenue they were doing. And that was valid. Because, dude, like at the time, I had, I think, four lines.

long-term rentals, they were cashed on like, you know, $200 a month. Oh, okay. So to go from that and seeing someone who was making, I don't know, four, five, six-x that every single month, I was like, dude, this is what we need to do. Oh, so I didn't realize that. You had long-term rentals before you did your first short-term rental. Yeah. We've done a few long-distance burs before we got into the short-term rental space.

Oh, okay. So I guess that reframes the question because I assumed wrongfully that when you started, you were in short-term rental. So given that, would you, you know, if you're starting over today, would you, again, it sounds like you'd show short-term rentals instead of doing those long-distance burs? Yeah, 100%, man. I mean, and again, like Henry said earlier, I think it really does kind of come back to your personal goals, your skill set, and what brings you joy as a real estate investor. And for me, like I said, I wanted the tax benefits because at the time I was working a W-2 job. So the short-term rental tax loophole was a big thing back then. I wanted the increased

cash flow because I was doing the math at 200 bucks a door for these long-term rentals. I'm going to need like a million units, you know, to try and retire from my job. Not a million. Not a million. I would need a whole lot more, right? And maybe a small but mighty short-term rental portfolio could give me there faster. That's great. I totally agree with the philosophy of just like finding something that you like and that

you're comfortable with. I got to admit, I don't agree with the no analysis approach to buying that first. to Russia. You lost me there. I would also not encourage anyone to do that. Now, we have a much, much more robust process for projecting things like average daily rates and occupancy. And there's a much more scientific method to it now. But that first one, call it dumb luck, but it was what kind of pulled this in. Would you say that looking back now that you truly did buy a good deal in terms of a short-term rental or was it more that the market and the appreciation that happened from 2020 to 2020 really kind of helped save you in that deal? No, it was literally a rock-solid deal.

And it like we obviously the price point back then, I think helped a ton. But like the location of that cabin again, that's not even knowing what Pigeon Forge was. We just happened to buy in a fantastic location. It was a larger cabin. It's a five-bedroom, sleep 16 people. There's not a ton of that in that market. So I think there's always a lot of demand for those larger cabins. So there are just some things within that market that unknowingly we kind of stepped into a property that people in that market really wanted, you know, but it was totally by accident. So what you're saying is, I mean, you can blindly throw a dart at a dartboard. Sometimes you might hit a bullseye. Sometimes, but other times you can end up buying something that's absolutely terrible. And I want to

caution everyone that's listening, do not do that, right? Because also the market, the market has shifted, Right? Yeah. Because say that we did buy a bad deal, our interest rate on that is 3%. So we got a lot of room there for error. But today, you know, if you're buying at a 7% interest rate, your margin there is probably a lot less than what we have. So even if we were off by 50% on our revenue projections, we still would have been solid.

So yeah, I think today you've got to be a little bit more dialed in with the analysis there. Henry, that dartboard approach is definitely how I've picked stocks in the past. It doesn't work that well. But I think it's important to bring this back to what we're talking about here, which is how we'd start over. And honestly, in 2020, it wasn't the worst idea to just like throw a dart at a dart at a dartboard. Everything was going up so quickly that you would have to really mess up to have missed back then. And now, starting over, I think it's really, as Tony said, important to be much more diligent about that.

So, you know, as a rookie, Tony, what would your first step be? Because you said that you actually started with a partner, which is super interesting. Like, do you recommend that to people or do you recommend finding properties first, looking at a market? Yeah. If I'm starting over in the short-term mental space today, the first thing that I want to do is find the right market. And I see so many people who choose a market based on proximity or familiarity and not because

it's the best market that actually supports their investment goals. Like I talk to a lot of people who want to buy their first short-term rental. And if they're on the East Coast, every single person says, I want to buy a short-term rental in Disney. Everyone just says Florida, right? And it's not because they've done any in-depth research to understand is Florida actually support a profitable short-term rental, just because they know that they like to vacation there.

And they know that a lot of people come for the theme parks. And so I think the first thing you need to focus on, especially today, is understanding the underlying economic data within these different markets. How is revenue changing? Is it going up? Is it going down? How is supply changing? Is it going up? Is it going down? How is the relationship between supply and demand? Is that healthy? So now there are a lot of other things we look at to really gauge, does this market make sense? But for me, that would be my first step as finding a market that's up and coming, still has some room for growth that I can go in there and compete at a high level. What about you, Henry? I know that you, well, let me ask you, I don't know this,

But did you take a similar approach when you started or were you a little more analytical on your first deal? There was definitely some ready fire aim in my approach as well. A little different. So my first rental, I found through word of mouth. And so the analysis that I did to determine that if it was a good deal was that I knew I was buying it for about $116,000. And a real estate agent told me it was worth about $100,000. So to me, that seemed like a good enough discount. I didn't know enough to know how to run the numbers in detail.

I think I put it through a couple of calculators. And I saw I could rent it for about 16 or 1,700 bucks a month. And so to me, that was good enough. I knew I was getting a fairly decent deal. I think where the ready fire aim happened for me was I just put it under contract and I didn't have any money or decent enough credit score to Garner getting a alone. Well, at least I didn't think, but I didn't let that stop me from saying yes and sign the contract. I mean, some part of that makes sense to me when you're first starting because you can be

overly analytical and sort of just like going with the flow and doing enough to make sure that you're not doing something really crazy, but not getting so in the weeds that you talk yourself out of something. So like, do you think that in retrospect was the right approach? Absolutely, I do. I do. I do. I think that's the approach that people should have. It's, again, not to be reckless and not do due diligence. You need to do your due diligence. But once you know that you're dealing with a good deal, you kind of have to get out of your own way. I think we as investors or people in general will make generalized decisions for other people.

You'll hear investors say, I think I found this good deal, but I don't have enough money to buy it. Well, how do you know? You haven't tried to get a loan yet. You don't know how much down payment. you need. I mean, you think you do based on the limited research you've done, but you haven't turned over every rock in terms of financing options. You haven't applied for loans yet. You haven't talked to, you know, multiple bankers. Like, you just, we make these generalized decisions and we'll talk ourselves out of building wealth all the time. So you kind of do have to have this,

okay, I know I have a good deal. Now I need to try my best to get this thing closed and kind of get out my own way and let the people who can truly stop me, stop me. Like if you can't get financed, they'll tell you. They'll tell you I'm not financing your deal. Yeah, that is probably the number one step I would recommend to people that I don't understand why no one does it, just talking to a lender right away. So many people are like, oh, I found this deal, but I don't know if I qualify. It's completely free. Just call a lender. They will tell you, like Henry just said. I think it's such a good, important thing to do to just ground yourself in what you can afford. And from there, you can start to look at, you know, different markets, different types of

deals based on what is reasonable for you. Or go find a partner if you can't afford the kind of deal that your market you're looking at. Yeah, but Henry touched on something super important, right? Because like the whole theme of this episode is like, if I were starting over. And for most people that are starting, like you said, it's not necessarily the deal that's holding them back, but it's like their own psyche. And I think so many people who are looking to get started, they try and only make decisions that make them feel comfortable. But if you're doing something that you've never done before, it is physically impossible to feel comfortable and grow at the same time. Like, you can't do both of those things. So it's like you have to put the comfort aside and lean into the fact that it would be

a little uncomfortable, but then just let the data support that decision and lean on that to give you the confidence and move forward. I love that. Just nothing makes me feel more. My warm and fuzzy is a spreadsheet filled with high quality assumptions. It's so lame, but it's so true. You're telling 100% the truth right now. Yeah, I have.

Whenever I get anxious about it deal, I just, like, go beat myself up in a spreadsheet and just, like, look at every possible angle, and it makes me feel a lot better. There you go. All right. Time for a quick ad break, and then we'll be back for more of this week's deep dish. You ever head out on a trip, lock your door, and think, cool, my most valuable asset is now doing absolutely nothing. Because while you're off traveling, your home is just sitting there.

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Like, what would you do in that kind of scenario? You found a great area that you want to invest in, but perhaps it's not something that you have cash on hand to pull the trigger on. I always believe that, and you kind of mentioned this before, Dave, like one of the first things that you should do as someone who wants to invest in real estate is understand what your purchasing power is. And your purchasing power is a combination of the cash. that you have access to for down payment closing costs, furniture design, et cetera, and the amount of debt that you can get. Now, it doesn't have to be you getting the debt or you bringing that capital, but you have to have access to both of those things. And once you understand what those limits are, then you go out and find markets to match that mold. Because everyone wants a, you know,

a beachfront property in Maui, you know, and it'll probably do really well, but can you afford that? You know, do you actually have the cash to make that happen? Why even waste your time digging into those numbers, right? So for me, it's always starting with access to cash on hand, access to debt, those two things give you an idea of what markets you should be focusing on. I think that's a, it's a really great advice. And Henry, correct me if I'm wrong, but I think it's applicable to not just short-term rentals, right? Like we're talking about if we were starting over, figuring out what you can afford, number one thing, then sort of moving on to markets and identifying if, you know, the markets that you're thinking in your head or

considering are actually feasible for you. Is that? what you would do for flipping or long-term rentals as well? I think in long-term rentals and single and small multifamily, yes, I think that is an approach you can take. You need to understand, can I afford it or will I need to bring on a partner, right? Just because your market is expensive doesn't mean you can't do profitable deals in your market. So I don't want people to think that you can't do a deal in an expensive market. You can't.

You'll have less monetization options in a more expensive market in terms if you're going to buy single, a small multifamily real estate. Like in my market, I can buy a single family. And if I buy it at the right price, I can long term rent it, I can short term rent it, I can fix and flip it. I can midterm rent it. And all of those things could end up being profitable. But in a more expensive market, you might take three of those exit strategies off the table, right? You might only be able to flip it or short term rent it. Right. And so you do need to understand based on your strategy and the price point of your market, can you afford to do a deal there? And if you can on your own, that's great. If not, you also can consider bringing in a partner. But yeah, understanding if your

market makes sense in terms of, will it help you meet your financial goals? And can you afford the property? It's absolutely something you need to know on the front side. Yeah, that's great advice. I think about, I think about this a lot with my own investing is like I invested in Denver, which was a lot cheaper when I first started. And I didn't even consider out of state investing, but because I couldn't afford it, I just went out and found partners. But I, I, I, I, went and got qualified first and was like, oh, this is a stark reality. I have $80 and I'm not going to be able to buy a fourplex, unfortunately. But, you know, at that point, I was able to get three other partners. But I don't, if I think realistically about if I were starting over and was living in

Denver today, I don't think I could have raised the money to invest in Denver, even with bringing on three partners. It's just so expensive relative to incomes now. And so I think, I would probably look for a cheaper market. Like if it were me starting over and I had followed these steps, gotten qualified, I don't think I could have realistically said to myself that even house hacking in Denver made as much sense as either moving to another market or potentially moving out of state. But I would have only known that if we had followed the steps that we were just talking about here.

All right. So let's move on to what, you know, once you've gotten qualified, you've identified a market, Henry, you know, you're the deal finding guy. So given all you've learned, if you were looking for your first deal, how would you approach it? Yeah, I think if you're starting out and you are going to look for your first deal, especially if you're going to do single, small multis, long-term rentals, and or flips, you really have to put your blinders on. What I would want, if I was starting over, was to make the rest of the process after I find the deal as easy as possible, right? And the best way for the rest of that process to be as easy as possible is for your deal to be amazing.

Right. And so if you can focus and put the blinders on because you're going to want when you're new, you're going to want to get your ducks in a row. So you're going to want to know, get your lenders already, get your contractors already, get your team built. Who's your realtor? Who's your title company? Like all these things, you're going to be trying to focus on all those things.

But at the end of the day, none of those things matter if you don't have a deal to buy anyway. Like, none of those people can work with you unless you have something for them to work with you on. And so if you focus your time and attention on figuring out what a good deal looks like in the market you want to buy, right? So what's that mean? For me, it's pretty simple. I want to buy at between 40 and 70 cents on the dollar, depending on the neighborhood, right? Like, just having that filter alone helps me know that, hey, I'm walking into a good deal. And so learn what a good deal looks like in the market you want to buy and then figure out what's the one strategy that you can afford to fund like so the one deal finding strategy that you can afford to fund

with the resource that you have because finding a deal is going to cost you something it's either going to cost you time because you can find deals for free you don't have to spend any money but if you want them to actually produce results you're going to have to put the time into them for them to produce results or it's going to cost you money right so if you don't have money, but you have time, take an inventory of the time that you have. Like, truly think about how much time do I have day in and day out to spend on finding deals? And then think about money. How much money do I have?

Extra money do I have to be able to help me find deals? You need to have that inventory. And then you can literally research deal finding strategies. And there is so much data on all these strategies because they've been around forever. Like direct mail is not new, right? cold calling's not new, door knocking is not new, on market MLS offers aren't new. Like, these things have been around. You can do enough research to figure out, okay, it's typically going to take me this much

time to find a deal in 30, 60, 90 days. It's typically going to cost me this much money to find a deal with this strategy in 30, 60, 90 days. And then pick the strategy that you feel like you can afford to fund with the resource that you have and that you feel like you can stick to because a lot of these strategies are going to be uncomfortable, right? And you have to, you have to figure out at what level of uncomfortability you're the most comfortable with. Right.

So like for me, I don't matter how much time or money I have. Like, I'm not knocking doors. It's not my thing. I'm not going to go do it. I'm not to beat the streets guy. I'm just not. Like, I'll hate it. I'll hate it and I won't do it.

And I know that about myself. So what strategy could I do, right? That's how I ended up on direct mail and then hiring third party cold calling services because I knew I could afford to fund them appropriately. And I know that I'll stick to them for the long haul. because all these strategies, no matter if it's a free strategy or a paid strategy, it's going to take consistency to work. So do you think that makes sense, though, for a new person? Because I wish, that's another band-aid. I wish I'd ripped off earlier. I say earlier, I've only done one. But so I've never really ripped off that band-aid. But I wonder if that slows people down. Like this idea that you need to, you don't need to, but like, do you think it becomes overwhelming with all? all these different deal finding strategies?

Or should a new person just try and find something on market or a pocket listing that might be a little bit more achievable? Well, that's the thing. That's the thing. I think of finding something on market is one of these strategies. And I think that that's a fairly reasonable strategy to pick when you knew.

Arguably, I think that's one of the first things you should do. You have access to it through a realtor, unless you're a realtor yourself, then you have direct access. The first thing you should do is identify what's my buying criteria and then have your realtor sends you a list all the properties on the market that meet that and then go through that list, analyze those deals and start making offers. The catch is that that strategy to truly work takes more time than people give it credit

for. Like people just think I can just look at a few houses and then make an offer here or there. That's not going to get you a deal anytime soon. You have to make the offers in volume if you truly want to get a deal. And making offers in volume takes time. You have to analyze all those deals. You have to figure out what your price point needs to be. You have to get an agent to make these offers for you.

under market value, which means you've got to convince the agent of why you need to be doing. All these things are going to take time and effort. And so there's no like easy button for finding a really good deal. Sometimes you can get lucky and get it through networking, but you have to really figure out, okay, if I'm going to do this free strategy, if I'm going to make offers on on-market deals, like how much time is it really going to take me? And then are you really going to do that? But I think that's a great place to start.

That's low-hanging fruit. Everybody should be looking there. Yeah, okay, good. That's a great way to frame it. is it fair to say that when we're talking about how we'd start over, at least in terms of process, we're talking about, we've talked about identifying your financial position and, you know, using that as sort of a cornerstone of your buy box, then moving on to market, then picking a deal finding strategy from the different methods that Henry and Tony have shared.

Henry, what do you do next? After you get the deal? Yeah. Like, once you find it, like, you know, we're talking about how you'd start over. like, let's see you find your first deal. How do you then, like, you know, what have you learned about setting up your operations or sort of going from identifying your first deal to then setting yourself up to be an investor, like, you know, and sustain this? That's why finding the good deal is the most important because once you get a good deal,

like the rest of the steps are a whole lot easier. It's going to be easier to find a contractor who can get the job done within your budget because you should have a good margin between what you're buying it for and what it's worth, finding somebody who wants to finance it. So if you're making offers on the market, you're going to have to get prequalified first. So you should have already had conversations with lenders to get prequalified. But if you're making offers off market, you might not necessarily have the financing lined up. But getting financing for a great deal is a whole lot easier than getting financing for a bad deal. Right.

So your financing options have opened up for you. You've also opened up your options to protect yourself in the event. you don't find the financing because if you have a great deal, but for some reason you can't get financing, you can always sell that deal to somebody else because it's a good deal and they will want it. And so you can still monetize your deal in some way. So the next step is if your financing is already secure great, then if not, then you need to secure your financing. And then the one thing I wish I would have known or done better is to document at a high level the steps that I'm taking. when I'm going through the process because if you're going to do this at any level of scale in the

future, you're going to have to have your processes documented. And going back and trying to document them later on is a nightmare and you're going to be too busy. But also documenting your steps that you're taking will just help you be better on the next deal. And I'm not talking about like something super in depth, but you can just knowing these are the steps I took when I was looking for financing. These are the steps I took when I was looking for a contractor. One, two, three, four, five, right? These are the steps I took when I was post-closing, right? I had to turn on utilities.

And then you've got these checklists throughout the life cycle of your deal that you can then go back and review and be better prepared for your next deal. Or you can go back and review and tighten up your processes because maybe there are things that you spent a lot of time on that didn't matter, right, as you were going about it. And so I think anybody that's new doing this, like just having high level documentation of each step in the process. So I would break it down to like the steps you took to find the deal, the steps you took to finance the deal, the steps you took to renovate the deal, the steps you took to disposition the deal. If you just break it up into those four buckets and have literally just a list of steps, you will learn so much and become such a better investor faster than I did. It's very, very sound advice.

I know everyone's saying like, oh, that's so boring, but it's so true. Like, it's not fun to document all this stuff. It's the least fun part of being an investor, in my opinion, but it's super important. Do you know how much money I've spent on utilities for properties I don't own anymore because I don't, didn't have a checklist of just going back and saying, oh, yeah, cancel the utilities at that house. Oh, yeah, cancel the insurance at that house. Totally. I thought you were going to say, do you know how much money I spent on contractors?

And I was going to say, no, because I didn't document any of those. So I have no idea. Or at least in the first few years, like, did not, you know, not just process the one thing I wanted to add, but just like expenses. And where you paid the, you know, what account you paid those things out of, where the money's going into. You can't document enough. Like, just having anything. Yeah. I mean, I can.

After like two or three minutes of documentation, I'm pretty dumb. but you should be doing a better job of that. We do have to take a quick break for some ads, and then Tony and Henry will have more about how they'd start over in real estate. People love to call real estate passive income, which is interesting because most of the investors I know are very busy. Busy finding deals, busy managing teams, busy worrying they pick the wrong market.

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Thanks for sticking with us. Let's jump back into our deep dish. What about you, Tony? you know, that was some stuff Henry would do differently if you were starting over today. Do you have any things that you would suggest to new investors starting in 2025 that's different from how you approached it? Yeah. I mean, yeah, I totally agree with Henry on the documentation piece. We scaled our portfolio pretty quickly and a lot of things broke as our portfolio scaled and we had to kind of go back. And yeah, it's much more difficult. So echo what Henry said there. I think a couple of things come to

mind for me specifically on like the short-term rental side. One is we always talk about money and reserves, which obviously we all know as important as a real estate investor. But one of the things that my wife and I have realized we need is short-term rental hosts is just like a reinvestment fund. I'll give you guys a quick anecdote. There's a, there's this really cool all-inclusive resort that we like to go to in Cancun. And we go down there a couple times a year. And every time we go, as you're walking the grounds, you'll see employees fixing and improving. And, proving and working on something. You know, it could be something big like they're doing an entire new wing of the resort, or it could be something small, like they're repainting the handrails or

replanting pots. They're, you know, whatever it may be. And one day we're walking and we noticed that, we're like, man, they're always doing something to make this place look better. And it was kind of a light bulb moment for us to say, well, man, we should be reinvesting back into our portfolios as well. So, you know, 2023, 24 is as it's kind of, uh, it's kind of, uh, crept up and it got more difficult to buy deals, we didn't just leave our money sitting in the bank. We reinvested it back into our properties. And it was so crazy because we were able to get a better return by reinvesting into our existing properties and we would have had we maybe even put it into another deal.

There was a property in our portfolio that wasn't performed the way that we wanted to, right? And we reinvested, I think it was like $12,000 to convert a garage that we had into a game room. And we did a phenomenal job of the team to agree with him. My wife did the design. and $12,000 investment into this garage. In the first two months that we launched it, so we looked at the two months of the, right after we launched it versus a two months year previous,

it was an $8,000 revenue difference. Wow. In just two months. So even if nothing else happened, we just got, what is that, a 75% return on that 12,000. Yeah. And you take it over the course of year, it's even more. Yeah.

Some that took on water recently? No, no, not that way. It was one of our other game rooms. Yeah, yeah. Yeah. But the reason why is because we did it once and we saw that it works. We started adding it to all of our other properties. So reinvesting back into your properties and seeing if you can squeeze more juice out of what you already have.

Yeah, it's such a mindset shift. I feel like it takes over the course of investing because I actually was going to say something a little similar that one of the things I learned was to not treat income and revenue from. a rental property or an investment, like, as your money necessarily. That was like, it's, it's the business's money, you know, and I, I don't, it's a weird shift that you have to make, but it's similar to what you were saying, Tony. It's like, you could have taken that 12 grand, put it in a savings account, gone out, gone to Cancun and stayed at a nice, all-inclusive resort. But, you know, it's the business is money and the business needs that money at a certain point. And just that mindset shift, it's a long-term mindset.

But it really not just help me become a better investor and generate better returns, like Tony was talking about it, but also have a bit less anxiety about the performance of your deals. Like when something breaks, you're like, it's not my money. That's, you know, that I was just holding on to it until, you know, that house needed a new HVAC system. And now it needs a new HVAC system. So the business is getting the money back. Along that same train of thought, the one thing I would get my mindset shift focused

around early on is that not living off of the cash flow. Because I think when I first got started, I had the same mentality that I think a lot of new people, new investors have, which is I want to build a portfolio, build up enough cash flow and leave my job. And after doing a few deals, I quickly realized that like cash flow is good. And it's what you want. It's really just a measure to let you know if you bought a good deal. But the cash flow is always going to need to be spent, like you said, on the business at some point. And so like if you start living off your cash flow and start living off of it too soon, you'll just find yourself feeding your business out of your personal account. And that defeats the purpose. And it can help you feel discouraged and make you

feel like maybe this wasn't such a good idea investing in real estate. But what I quickly realized after doing a few deals was it really started to make sense what people said about real estate in that it's a long-term game and you build long-term wealth. And the true benefit of investing in real estate, especially in the long-term rental space, comes from holding your properties for a long period of time and getting the equity and the debt paydown and the appreciation. Like, those are the things that build the true wealth. The cash flow is great and you should absolutely shoot for it. But I quickly shifted to saying, okay, I don't want to live off my money. my cash flow. So that's really why I started flipping houses because I was like, I still need to

generate income and I still love the real estate aspect of it. So flipping houses started to make sense. So now I flip to generate the income I need to do the things that I want to do with my life or my family. And the rental portfolio money just stays there and it's not something that we're looking to live off of. I'm not saying you can't build a portfolio that you can live off of your cash flow, especially if you're going to do something like short-term rentals, which is a much more cash flow heavy exit strategy. But if you're going to do long-term rentals, I wouldn't be focused on trying to quit your job

from your cash flow in the next year or two. Like, it's just, it's not that kind of a game. And people think it is. Unless you got like 10 million to invest in. Right, unless you've got a big starting spot. But even in the short-term runs industry, I couldn't agree with you more. I think for people who have this desire to walk

away from their day job, like whatever number of cash flow you think you need, just double that. Like you need twice as much. Yeah, double that number, right? Because like you said, the portfolio is always going to need something. And like you said, if you pull that trigger too soon, you could put yourself in the bad spots. Yeah, I couldn't agree with you more. And the bigger your portfolio, the bigger your portfolio problems. It can, like, until you see your P&L at the end of the year, it's hard to see the forest through the trees, like on a day-to-day basis. Like, I have 100-something units, bro. Like when the weather shifts and it goes from winter to summer, I don't just have one HVAC that goes out.

I have like 10 at $6,000 to pop, bro. Like, go to Costco and buy it. That's just how it goes. Yeah. It's like you feel on top of the world one day like we got all the cash flow and then it gets wiped out real fast. Yeah, man. But you bring up a good point there too, right?

It's like, you know, hey, I've got this big portfolio and that means problems at scale as well. And I think that's one of the things that my wife and I, we've kind of realized in our own portfolio that we want to shift is like, how can we get more efficient with each property and not have to have, you know, a thousand short-term rentals, but still achieve the same cash flow. And what does that look like? And that's part of the reason why we bought our first boutique hotel earlier this year because we saw an opportunity there to get some efficiencies of scale. There's on-site management. Like the management workload is a little bit less, but the cash flow is honestly probably better than a single-failing home would be. So we're looking for opportunities to maximize the cash flow

while reducing the number of properties we need to bring on. Same. Totally. Yeah. I mean, now we're getting away from how we'd start over, but my 10-year plan is like, how do I own 420 units? Like, paid off that's it. That's all you need. It's super efficient if you just have a couple buildings. Right. All right. Well, thank you both so much for being here. This has been a lot of fun hanging out with you guys and talking about how we'd start over. Tony, any last thoughts before we get out of here? No, just I appreciate you both. Always get to talk shot with two rock stars like you guys. So I appreciate you both for having me on. If you want to learn more from Henry, of course, you can find him on this show very frequently. We're on our sister podcasts on the market. And if you want to learn more about

getting started in investing, head over to learn more from Tony and his co-host Ashley Care on the real estate rookie podcast, which airs what days of the week? Tony? Three times a week. I want to say Monday, Wednesday, Friday. Perfect. There you go. Well, thank you all so much for listening. We'll see you soon for another episode of the Bigger Pockets Real Estate Podcast. See you. 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. On the host and executive producer of the show, Dave Meyer, the show is produced by Ian K, copywriting is by Calico content, and editing.

is by Exodus Media. If you'd like to learn more about real estate investing or to sign up for our free newsletter, please visit www.biggerpockets.com. The content of this podcast is for informational purposes only. All host and participant opinions are their own. Investment in any asset, real estate included involves risk. So use your best judgment and consult with qualified advisors before investing. You should only risk capital you can afford to lose. And remember, past performance is not indicative of future results. Bigger Pocket's LLC disclaims all liability for direct, indirect, consequential, or other damages arising from a reliance on information presented in this podcast.