Epic Real Estate Investing - Want Real Estate Cash Flow? DON'T Buy In These 7 States Anymore | 1334

Episode Date: August 22, 2024

Are you a real estate investor feeling the squeeze in states like California, New York, or Hawaii? If you're grappling with high property prices, stringent tenant protections, and ever-increasing taxes and insurance premiums, you're not alone. In this eye-opening episode, we explore the unique challenges faced by investors in seven of the toughest markets for cash flow: California, New York, New Jersey, Hawaii, Illinois, Oregon, and Washington. Join us as we dissect the intricacies of each state's real estate landscape, from the complexities of rent control laws to the impact of skyrocketing property taxes. We’ll break down why these factors can significantly hinder your profitability and what you can do to navigate these treacherous waters. But it’s not all doom and gloom! We'll also shed light on why it might be time to pivot your investment strategy and explore other, more promising locations. Whether you’re a seasoned pro or just starting out, this episode offers crucial insights and practical advice to help you optimize your investments and discover more lucrative opportunities. Don’t miss out on this essential guide to overcoming the cash flow challenges of high-stakes real estate markets. Tune in and start planning your path to better returns today! BUT BEFORE THAT, learn how to negotiate when your offer is low but your strategy is genius! 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-aise.com. Let's go, let's go, let's go, let's go, let's go, let's go.

Let's go. If you've ever gotten stuck over the price with the real estate agent, here's how we got an $80,000 price reduction without a fight. Hi, is this, this, this is Matt. I'm Hilda's partner. Hey, Matt, how are you? I'm doing well, thanks. What's the weather like in Austin?

Oh, it's hot. I'm in Vegas right now, about the same. Oh, nice. Yeah. I'm too. Totally. Hey, we got our appraisal in. This deal, it belongs to one of my clients, by the,

the way. And she was just a few days away from having to remove her contingencies. And she asked me to double check her numbers. And after we ran through the math of the ARV, the after repair value, the purchase price, the rehab estimate, and her hard money costs, she was about $75,000 away from this being a good deal for her. So I hopped on the phone as her partner and made the call to the listing agent on her behalf. We got our appraisal in and it seems fair. And I think it's okay. and then we got our numbers in from our contractor, which were a little more than we were thinking, but it's fair.

And we're just kind of crunching these final numbers and looking at the latest market conditions. So right here, I'm introducing my good cop, bad cop strategy, where I position the market as the bad cop and myself as the good cop. We team up against the market. Because at the end of the day, a property is only worth what the market is willing to pay for it. The market always gets in the way. It never pleases the buyer.

It never pleases the seller. And now I'm going to acknowledge the comps that the agent gave to my client to show him, I am on his side and I want to get the deal done. But we have this common enemy that we got to overcome. The market. And I can see the comps that you gave Hilda, which definitely support the price as well. I mean, they're pretty much in perfect alignment with the appraiser. But there's a couple properties that are comparable that have been on the market for a long time that are really nice rehabs. And one of them is priced significantly cheaper and it's a little bit bigger.

And that's causing us to pause a little bit because if we go back on the market, we're going to be competing against that. And I was just wondering if you knew anything about that property over there. So I'm not going to tell him what I know about the property. I'm not going to give him the story. I want him to tell me the story because if I tell the story, he'll doubt it. If he tells the story, he'll believe it. Yeah, I think perhaps you're talking about, I think he started off really high on the highest originally. And because of that, they're now chasing the market downwards.

You know, you're doing real estate, you cross you around the first day, kind of all down to get from there. Yeah, totally. All right. Well, we do differently than other agents. And now he's going to try and sell himself, which has no impact on the value. But I'm the good cop.

I'm a teammate, so I'm willing to hear him out and let him toot his own horn because that's what you do for a good teammate. I run on the top teams in the country. I'm currently top five in Austin, Texas, number one for Lakewood. a number one for Spicewood, normal falls, and more OCDs 2 in their vibe. And we got our clients at high $150,000 for vaccine price. All average, though, it's like 72 to $0.000 for backing price,

so on normal, like, track reference before. And so we do marketing and be processed correctly from day one super competitively. That one can kind of make the price higher for being more. Got it. So do you guys have, like, a secret list? buyers. I ask this question because this could be a difference maker, but I doubt that he has a secret buyers list, but I'm not going to call BS because you wouldn't do that to a teammate.

You just ask about it and let them clarify. Yeah, we have lists of buyers. We also have a proven people process, like the best price of your house, you know, 16-step process list properties. So we do PR, video, advertising, or database. I have it. You know, I address of every single agent in the mail sale, that I've lost a hop stop ticket. All right. Well, I mean, that sounds like a good plan. And nice to know you have that in place. But the problem is we can't do, I mean, we're investors and we're doing this to make a profit, right?

We're not going to live in it. We're going to flip it. Yeah. And based on the numbers and what the market is saying, there just is no profit. Over the years, you know, I've come to learn that the best of negotiating games, is to avoid games altogether and just be straight with people. I mean, I'm an investor. I need to make a profit.

If I can't, then it's not a deal for me, no big deal. So here I'm letting him know that I'm willing to walk away. And if you're afraid of walking away, you lose almost every time. And it's always better to walk away from a good deal than is to buy a bad one. On my side, I think what is that we have cost you have to real property right now? We're right around 100, 109, with just some minor incidentals. 109. Okay. Yeah, that's been stuck a little bit. I think my, like, so the number I had for ARV was 450.

I'm a super type, but my ARV produced the rehab was 50K. So that 40K would definitely get a lot of the profit for you guys. We can, uh, go ahead. Well, I was just saying, do you, well, there's a couple ways. I mean, we can kind of burn this candle from both ends to see if we can find a happy meeting ground there. If you had 450 ARV, can you help me out and give me some addresses recently that have sold that support that? So this is key. My goal is to always have the seller or the agent in this instance come up with the offer.

Rather than me haggling over the price, I introduced the market again to do the haggling for me, letting him know that we're happy to move forward if he can get the market to validate the value. Yeah, definitely that for you. Okay. So you can send that to Hilda. So that's first thing is I need some help there. So if I can find those, because I can't see them. So if you can show them to me, that'd be great.

Next part is the contractor that you have for 60. I mean, that's like almost half of what we have. Does your contractor have a special deal on supplies or stuff? She does have a lot of promise that they use. And he also, like, really creative by making sure he can't keep expenses as low as possible. I'll flip by now and do you know of them in East Austin. He did a total rehab job Like 50K

And more work in this house needs And it looks amazing so far He's not done yet though But he's Really good at having good Connocept of cheaper materials And better labor costs Say that at the last part again

He's really what? It's really good at having Keeper materials And good labor costs Got it Okay Because I'm looking at the house of that sold and whoever did the work on those did a really good job, at least per the pictures.

And then that one that is still on the market, and it's on the market for 20 grand less than what we would be. I mean, it's on the market, what, 409 or something like that? And what is it? It's, yeah, 405. And it's really pretty house. So I don't know if cutting corners is going to be a good idea if that's what we're competing against. Now, I'm questioning his contractor's ability to get our job, done at a price that leaves us with profit. And I'm doing it in a way where he has to defend his

contractor because, you know, for him to do it at half price, does he get the supplies at half price? Does he get the labor really cheap? I mean, how creative can he be to cut the price in half? I mean, he'd have to cut corners, I think, right? No, that's not that. Cunning corners never work, especially here in Austin, such a lot of... Oh, I thought that's what you said your guy specialized in. That's, I don't understand it. Yeah, but not cutting corners, it's only good at having the material costs. Okay. work with a good partnership with them for better deals on the carriers.

All right. I mean, that's going to be like he'd have to get like half price. So would he be willing to talk to us about possibly doing the work? Yeah, I think I don't connect with you guys and see what he thinks he can do for you. We can look at his portfolio as well, make sure it's a good fit for you what you guys want. That way, you have more options there too. I get a quote from him. It has to be an easy way to kind of seeing what other options we have on that side.

All right. So we would need to see some comps to make us comfortable at the $450 price, and we'd need to see something comfortable from the contractor that he could do it at $60, because that's about the exact gap we're apart. So if we can't make up the gap there, then we're going to have to make the gap up in the purchase price. Or we just move on because the only person that's going to be making any money here is the lending. or in the agent. Yeah.

As the numbers sit now, and that's not the business we're in. That doesn't keep the lights on, right? Yep, we'll follow it out. Now, what I've done is I've put the burden of keeping this deal together solely on the agent to find me comps that validate the price and a contractor that can match the work quality of what's on the market right now at the right price for us. And again, I let him know that I'm willing to walk away. But now I'll let him know that's not what I want to do because we're on the same team.

and we want to get this done. And I'll even create a little urgency here. But overall, it's just that the market and the contractor are in the way of this deal getting done. Not the seller, not me, the buyer. Okay, so I know we got a few days before we have to close. And we do want to move forward. We does need some help to get some sort of confidence that this is going to work out. So can you help us with that stuff?

Yeah, I will send over a list of trumps for heroders to look at me as well. And then we'll also send you my contract that I use for other sorts of different clients. For the options for you, too. What type of contract? My contractor. Oh, your contractor,

got it. Okay. Yep. Very good. All right, Jordan. Well, thank you very much.

I just wanted to be straight with you and let you know where we stand right now. Because as it stands, like we're kind of a no-go. But if we can work some numbers, then maybe we can still push forward. Okay. Well, then let's do what we can do. I will tell you.

I talked two times after a certain times and go from there, and then that's being the client's using different options too. Okay, super. Thanks for your time. Yep, you as well. I'll talk to you soon. Bye-bye. Okay, so my client and I, we agreed to call back the agent

if we haven't heard from him in the next couple of days, but the agent called my client back the very next day early in the morning, offering an $80,000 price reduction because he didn't have any recent comps to support the price, and his contractor's quote, ended up being very similar to my client's quote. strategies made the agent feel that a price reduction was the only way to keep the deal alive, leading to the $80,000 decrease in price. We'll be back with more right after this.

When you go to work for your money, does it return the favor? If not, no worries. You do not have a money problem. You merely have an idea problem. We're cash flow savvy.com, and we'd like to share a new idea with you around income real estate that can transform your financial future and accelerate its arrival. Go to cashflow savvy.com and download a free investors package. Cashflow savvy.com.

You do not have a money problem, merely an idea problem. Cashflow savvy.com. More ideas, less worries. Cashflow savvy.com. Hope is not a financial strategy. Let's get back to work. Just because a state is popular doesn't mean it's profitable. When you're a cash flow real estate investor, here's the truth about these seven nightmare

states that you need to hear. particular order because they all pretty much suck for landlords. Number one, California, one of the most beautiful states in the country, no doubt. But if you're in the real estate game for cash flow, it's probably not where you want to be putting your money. First off, the anti-landlord laws are a big red flag. California is notorious for its strong tenant protections. We're talking about some serious rent control measures in many cities, places like Los Angeles and San Francisco. They've got strict limits on how much you can increase your rent each year. And if you think that's bad, Wait until we get to number six on the list where they've got statewide rent control.

But if you ever need to evict a tenant in California, the state has some of the most extensive eviction protections in the country. This means that even if your tenant isn't paying, getting them out of the property is going to be a long and expensive process. Then there's the issue of home prices versus rent. California has some of the highest home prices in the nation. The disparity between what you'll pay to buy and what you'll get back in rent is huge, making it essentially impossible to achieve positive cash flow. But are the income levels in California higher on average? Well, yes, but don't let that fool you into thinking it translates into higher rents. The high cost of living eats up a lot of that income for people, and tenants are already

stretched thin. That makes it risky to try and push rents higher to cover your costs. And let's not forget about squatters rights. In California, if someone squats on your property for just five years without you doing anything about it, they can actually claim legal ownership. It's become a game these days where squatters start claiming ownership after just 30 days of occupying your property. It's not right, but they do it. And the cops, they just pass it onto the court system as a civil matter, which takes months through that process to evict. It's a nightmare scenario for any landlord, and it's more common than you might think, especially in areas where housing is in short supply. And then there's property taxes. The rate may seem moderate, but when you combine

California's property tax rate with the sky high values, you're looking at one of the biggest annual tax bills in the country. And we're not done. Don't forget insurance. Earthquakes, wildfires, California's got it all. And that means insurance premiums are through the roof. And it's another necessary expense that cuts into your cash flow. Finally, let's talk about unemployment. Even though the state has a reputation for economic opportunity, it also has pockets of very high unemployment, particularly in many of its urban areas. And that typically translates to missed rent payment, and higher turnover, which equals more work and less cash flow for you. California may sound glamorous, but if you're serious about cash flow, it's anything but.

State number two, New York, particularly New York City. It's iconic, it's busy, it's full of life, but for real estate investors, focused on cash flow, it'll be years before you see any. First off, their anti-landlord laws. New York City is infamous for its strict rent control laws and extensive tenant protections. If you're thinking of raising rents or evicting a non-paying tenant, be prepared. for a long, complicated, and expensive process. The city, it prioritizes tenant rights heavily,

which can seriously limit your ability to manage your property the way that you'd like. Then, like California, there's the issue of home purchase prices compared to rent. Property prices in New York City are among the highest in the country, but the rental income you can expect, it doesn't match up. The average income in New York is higher than the national average, which sounds like a plus, but there's a massive income disparity in the city. I mean, you've got some of the wealthiest people in the country living next to people barely getting by, and that makes for a risky environment for landlords. Now, let's talk about their

squatters rights. They're here too. Property taxes, they're high, particularly in the suburbs and upstate New York. Even if you avoid, though, New York City's sky high property prices, you'll still be hit with significant property taxes that gobble up most of your cash flow. So while New York might seem like the place to be, the reality for cash flow investors, it's not worth the headache. Download a free investor packet at cashflowsavvy.com for some turnkey options in landlord-friendly states. All right next door to New York, New Jersey. And while Jersey might seem like a good alternative to the city for real estate investors that are focused on cash flow, the downsides, they are clear. First off, New Jersey has tight rent control and eviction laws.

The state's laws are heavily tilted in favor of tenants, which can make it really challenging to manage your property profitably. Then there's the issue of home purchase prices versus rent here, too. The disparity can make it difficult to achieve any kind of cash flow at all. But here's what makes Jersey a no-landlord zone. The state has the highest property taxes in the country. So even if you find a reasonably priced property, the tax bill alone, it's a deal killer. So while New Jersey might seem like a good bet because of its proximity to New York, the reality is it's high property taxes, strict laws, and high costs make it a state that you want to avoid if cash flow is your goal. Number four, Hawaii. Sure, it's a dream destination

for vacationers, but for real estate investors looking for cash flow, Hawaii comes with its own set of challenges that might make you think twice. In fact, they will make you think twice. First off, Hawaii has strong tenant rights. The state has put in place solid protections against unjust eviction, which means that once you have a tenant in your property, it's not easy to get them out, even if they're not paying rent or if they're causing problems. Then there's the huge disparity between home purchase prices and rent. Hawaii is one of the most expensive places to buy property in the U.S., but you can't push the rents high enough for it to make sense because the average income in Hawaii.

is among the lowest in the nation, and the unemployment is higher than the national average. And when you've got low income and high unemployment, you've also got tenant and management struggles. Squatters rights, they're on your side here, though, and property taxes in Hawaii aren't among the highest, but just when you are feeling a bit of relief here, you've got sky high insurance premiums to deal with thanks to the constant risk of hurricanes and floods. This is an unavoidable cost, and it's another factor that cuts into your cash flow. So while Hawaii might be a great place to visit, when it comes to real estate investing for cash flow, it's a very different story.

Number five, Illinois, specifically Chicago. It's a major hub with a lot going on, but for real estate investors focused on cash flow, there are some challenges that you need to be aware of. Illinois has strong tenant protections. If you ever have the misfortune of dealing with an eviction, you can expect a long, drawn-out process that can be a expensive and stressful. Then there's the issue of home purchase price versus rent, just like all the other states that I mentioned, squatters rights are an issue to consider here, too, where squatters know the game

and can cause problems for landlords and they do frequently. Property taxes in Illinois are among the highest in the country, often being a deal killer all by themselves, which means even if you find a good deal, the tax bill will almost certainly get in the way. So while Illinois might seem like a good market, the reality is that it's a tough place to generate cash flow. Now let's take a look at a real nightmare state. Number six, Oregon, which has some of the most robust antithms landlord laws in the country. And the state has implemented statewide rent control, which means that even if market conditions would allow you to raise rent significantly, you're legally capped on how much you can increase them each year. On top of that, the state has strong tenant protections

making it difficult to evict tenants, even if they're not holding up their end of the lease. Then there's the disparity between home purchase prices and rent. In cities like Portland, home prices have soared, but rents haven't kept pace. This means you'll be paying a premium to buy a property, but the rental income won't be enough to justify the investment. Squatters rights are very much a concern in Oregon. The system is empathetic to them, squatters, that is, and it doesn't care about the landlords seemingly at all. But on the bright side, property taxes and insurance premiums are manageable,

but the statewide rent control has Oregon as a no-fly zone on my list. As pretty as most of the state is, it's a tough market for cash flow real estate investors. All right, the number seven state on the list. It's a beautiful place with the booming tech industry, But for real estate investors focused on cash flow, Washington has some serious drawbacks. First off, Washington, especially Seattle, has strong tenant rights. The laws here are definitely more tenant-friendly. Even if they're not paying rent, evicting a tenant can be a lengthy and costly process.

Home prices in the Seattle area have skyrocketed over the past few years, and rents they haven't kept up. This is the number one issue for anyone focused on cash flow. Those two got a match. Generally, with tenant-friendly laws come squatter-friendly laws. So you've got that here, too. On the bright side, both property taxes and insurance premiums in Washington are average for the country. California, New York, New Jersey, Illinois, Hawaii, Oregon, and Washington,

these states all have some varying combination of high property prices, strict tenant laws, high property taxes, high insurance premiums, and various other factors that make them less favorable for landlords aiming for positive cash flow. I'll see you next time. Take care. And that 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.

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