Epic Real Estate Investing - Real Estate Rules That Worked in 2015… But Will Break You in 2025 | 1471

Episode Date: April 22, 2025

The episode discusses three commonly accepted real estate investment rules that no longer apply effectively in today's market. The 1% Rule, once a useful screening tool, fails to consider rising costs like taxes, insurance, and HOA fees. Location's importance is overemphasized compared to the critical role of property management. The traditional buy-and-hold strategy is questioned due to market volatility and changing personal circumstances. Matt explains why these rules are outdated and offers a modern approach for savvy investors to stay ahead. Additional resources and opportunities for tailored advice are mentioned. Here's the free information mentioned in the episode: https://docs.google.com/document/d/1cDeSFadMA7q-qn1dPH7iAlJ5oLMiLwiU_-0Cm_1i5Ts/edit?tab=t.0 Learn more about your ad choices. Visit megaphone.fm/adchoices

This is Terio Media. Hey, strap in. It's time for the epic real estate investing show. We'll be your guides as we navigate the housing market, the landscape of creative financing strategies, and everything you need to swap that office chair for a beach chair. If you're looking for some one-on-one help, meet us at rei-i-a's.com. Let's go, let's go, let's go, let's go, let's go, let's go.

Let's go. I've taught these rules to thousands of investors over the years. Back in 2015, they weren't. But if you're still using them in 2025, they could break you because the market has changed fast. And these old rules, they're not built for today's challenges. I know this might sound controversial, especially if you've heard these rules repeated endlessly, maybe even from me. But what I'm about to show you is the difference between being stuck and staying ahead. These are the three most commonly repeated rules in real estate and why they no longer work the way that you think they do. And stick around because rule

number three might just be the most dangerous one of the mall. You don't want to miss that part. Rule number one, the 1% rule. The 1% rule, it used to be a helpful back of the napkin screening tool. And in some markets with some properties, it still is. But here's the problem. Too many investors treat it like gospel instead of what it really is, a blunt instrument in a complicated game. The original idea was simple. If the rent you collect is at least 1% of the purchase price, it's probably going to cash flow. It's probably a good deal. But that was before taxes skyrocketed.

Insurance doubled. HOA's turned into many governments. And then there's interest rates. Let's break this down. Property taxes. They've gone up nearly 30% nationwide in the last five years. In places like Colorado and Georgia, they've jumped over 50%. That's not a rounding error.

That's thousands off your bottom line. every year, plenty enough to invalidate the 1% rule. Insurance costs are up 39% in just the past seven years and up to 60% in high risk zones. That means what used to be a $1,200 annual policy could now cost you $2,000 or more. And HOA fees up nearly 15% in just the past year. And Edwards, Colorado, average HOA fees hit $525 a month. That's over $6,000 a year right off your rental income, and PMI is back, and expensive. Even with great credit, expect to pay a half to 1% of that loan per year. On a $400,000 loan, that's $4,000 annually. And interest rates? Volatile and climbing. A deal that works at 5.5% might completely fall apart at 6 and 3 quarters. Yet, the 1%

rule doesn't even flinch. It gives you the same green light, no matter how expensive the money has become. So what happens? The next part might shock you. Let me show you a real example. Last month, I evaluated a property in Phoenix. On paper, it passed the 1% rule easily. $275,000 purchase price, projected $2,800 in monthly rent. But once I factored in the real costs, higher property taxes, rising insurance, $150 HOA fee, and PMI, the cash flow flipped. That property would actually lose over $200 per month. It looked like a great deal until I ran the real numbers. That's how investors win in today's market. So, yes, I taught the 1% rule, and I've worked with countless investors who used to follow

it blindly until they learned how to look deeper, evaluate smarter, and shift when the data said shift. I still teach it. I just teach it very differently now. Make it your starting point, not your strategy. And while many investors remain stuck on these outdated rules, understanding the shift gives you a crucial advantage. Rule number two, location, location, location.

You've heard this one so many times, it might as well be. be tattooed on a real estate agent's forehead. But here's the truth. Yes, location matters, but it's only half the story. And it's not even the most important half. You know what makes or breaks your income property? Your property manager. A great location with poor management, it's going to underperform. It might even bleed cash. It's going to keep you up at night. It's going to be a terrible experience. But take a mediocre location, not distress, not war zone, just average and pair it with excellent property management. Now you've got a solid investment. that you can depend on, one that can produce consistent cash flow, retain quality tenants,

and weather economic dips. Think of the property manager as the CEO and the property as the business. And you, you can be the founder. A great CEO can make a decent business highly profitable. A bad CEO can bankrupt one with prime assets. The location without management, it's like buying a Ferrari without hiring a mechanic. Impressive going down the street, but a disaster waiting to happen. Now, I know what some people are thinking. Location, it drives appreciation. Yes, location absolutely plays a key role in long-term value. But here's the pivot.

Appreciation is only a part of the picture. It's the cash flow that keeps the engine running day-to-day. And management is what controls cash flow, tenant quality, turnover, vacancy, and long-term stability. Others might say, but great property managers, they're hard to find. You're right. They're not very easy to spot. But that's the point. If they were easy to find, we wouldn't even be having this conversation.

A great manager isn't an expense. They're an asset. And when you find one, you want to hold on to them. They protect the investment. They preserve your time and reduce your risk. That's worth every penny. Real estate is not risky. People are.

And that applies to contractors, partners, and your property manager. So next time that you're evaluating a deal, don't just look at zip codes, schools, or walkability scores. Ask who's going to run this property day to day. Do they treat this like a business? Are they accountable? Are they proven? And I've seen this firsthand.

Investors that I've coached who struggled in hot markets, but turned things around the moment they got serious about property management. Great property managers are the unsung heroes of wealth building. And bad ones? They're portfolio killers. So instead of location, location, location, try this. People process, then place. Because mediocre real estate managed well,

outperforms great real estate, managed poorly every time. If this is hitting home and you're starting to realize these old rules might not serve you anymore, there's something that I've put together, some free information that might give you a fresh perspective. It's just a quick link to a document. I don't need your email or anything. You can find it down below in the description.

It's something that'll help you figure out where your next move with more clarity and confidence is going to come from. Check it out when you're done watching. Now, this next rule might be the most controversial of all, but also the one that could unlock the most freedom in your portfolio. Rule number three, buy and hold forever. And if it ruffles some feathers, I understand, especially because I've said this phrase more times than I can count. Hold forever.

It sounds wise. It sounds patient. It sounds like the Warren Buffett of real estate. But here's the problem. Forever is a long time. And the market doesn't care about your plans. Laws change, tax codes change, administrations change, neighborhoods change, your own life changes. I've seen investors hold on to properties that no longer served them simply because they believed they were supposed to.

Meanwhile, their equity is sitting idle. Their cash flow has dried up and their opportunities, those new opportunities, are passing them by. With mortgage rates sitting around 6.5% or so right now and market volatility happening in many Western states, flexibility is more valuable than ever. Here's what I teach now. Buy and hold until it no longer makes sense or dollars. Use the property, grow the equity, capture the appreciation, take the depreciation, then ask, does this asset still align with my goals? Can I reposition it, refinance it, or is it time to sell and upgrade? Now, some people hear this and say, isn't that just market timing?

No, this isn't about calling tops and bottoms. It's about looking at your plan. It's about stepping back every so often and asking, is my money working hard, or is it just sitting there? Others say, but what about transaction costs? Fair point. selling, refinancing, or exchanging, it's not free, but those costs are often the price of unlocking better returns, reducing risk, or repositioning into stronger performing markets.

And if you're holding a poorly performing asset out of inertia, that's costing you more than a commission ever could. Some also ask, doesn't this go against long-term wealth building? No, not at all. This is long-term wealth building, just with your eyes open. It's not about trading often. It's about being intentional. Reviewing your strategy. adjusting when needed. Wealth is built through movement, not in action. Jean-Baptiste, a famous French economist, he said it best.

Wealth is created by production, by shifting resources from lower productivity to higher productivity. And that's exactly what smart real estate investing is, moving your money into better uses again and again and again. Sometimes that means a 1031 exchange. Sometimes it's pulling equity to buy more. Sometimes it's selling and redeploying.

But don't let dogma tie you down. Forever is not a plan. It's a placeholder. Real estate is a vehicle, not a destination. Hold as long as it's helping you move forward. And when it stops, shift gears. Because the biggest mistake isn't selling too soon. It's holding too long out of fear or habit.

That's the difference between being a landlord and being an investor. And the ones who get it, they're already making while others are still waiting for permission. You might be thinking, hey, this sounds like more work. And you're right, it is. But if you want to build serious wealth in today's market, you can't rely on outdated shortcuts.

The old rules aren't broken. They're just not enough. If you're ready to stop guessing and start growing, this is your moment. If you're serious about putting this into action, I've created something special for you that breaks it all down step by step. And like I said before, it's linked below in the

description. Now, it's not for everyone, but if it's right for you, it could change everything. This is how my private clients build and maintain their trajectory. And now it's open to just 10 new people. So if you've got a 680 or better credit score and you're tired of sitting on the sidelines, click the link in the description, book a quick call. We'll hop on the phone and we'll see if we're a good fit for you. Share this with a friend if you can and I'll see you next time. Take care. wraps up the epic show. If you found this episode valuable,

who else do you know that might too? There's a really good chance you know someone else who would. And when their name comes to mind, please share it with them and ask them to click the subscribe button when they get here and I'll take great care of them. God loves you, and so do I.

Health, peace, blessings, and success to you. I'm Matt Terrio. Living the dream. Yeah, yeah, we got the cash flow. You didn't know home for us, we got the cash flow. This podcast is a part of the C-suite radio network. For more time,

business podcasts, visit c-sweetradio.com.