Home Real Estate Rehab Costs, Renting vs. Owning, and The END of Real Estate?
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Rehab Costs, Renting vs. Owning, and The END of Real Estate?


Could the end of real estate investing already be upon us? How do you know how much to spend on a renovation before buying a house? And is a negative cash flow rental EVER worth investing in? On this Seeing Greene, we’re answering the tough questions you’ll be forced to ask in a hard housing market so you can build wealth while the masses run for the hills. Thankfully, David has his co-pilot on this episode!

David and Rob are back to answer YOUR real estate questions, EVEN if you’re too scared to hear the answers. On today’s show, a live caller asks, “How do I get a renovation estimate BEFORE bidding on a BRRRR?” If you’ve stressed over which comes first, the bid or the buy, stick around. We’ll also touch on negative cash flow and when it makes sense to buy a rental that’s losing money every month (there’s a science to this). Then, for all you doomsayers, David and Rob give their take on what happens when the population declines, and no one is left to rent houses. Finally, we answer the age-old question, “should I rent or buy in today’s market?”

Want to ask David a question? If so, submit your question here so David can answer it on the next episode of Seeing Greene. Hop on the BiggerPockets forums and ask other investors their take, or follow David on Instagram to see when he’s going live so you can jump on a live Q&A and get your question answered on the spot!

David:
This is the BiggerPockets Podcast show, 840. What’s going on everyone? It is me, David Greene, your host of the BiggerPockets Real Estate Podcast, the biggest, the best, the baddest real estate podcast on the planet for a long time, bringing you what you need to know about real estate to stay up to speed, current, and in the know of what’s going on in this market, which is changing now, more than ever.
In today’s episode, Rob Abasolo and I will be handling it, Seeing Greene style. Now, normally there’s a green light behind me. That’s not the case right now because I am traveling to promote Pillars of Wealth, but that doesn’t stop us from bringing you educational, powerful and free real estate content.
In today’s show, ooh, you’re going to love it. We get into sequencing the work for rehab projects. What is the order that you should do when it comes to getting pre-approved, to getting bids on construction, ratting offers, moving forward with the escrow and strategies you can use to put that in your favor. When cashflow is or isn’t appropriate, this is a really good discussion about the complicated question of, is it okay to cashflow negatively if I’m making a lot of money, and what needs to go into that question?
With the aging population, is real estate a risk long-term? I thought that was a really good discussion that we had as well. Rob, what are the factors that make real estate go up or down in value, and what will that be like in the future if the population of America stops increasing like other first world countries have? And can I own real estate while still renting where I live?
All that and more on today’s show. But before we get to our first question, today’s quick tip is simple. Get your team together, build your core four, and start your journey and BiggerPockets can help. We’ve got an agent finder, which you can find at biggerpockets.com/agents. I’m one of the people on there, so go look for me as well. You can find an agent in your area and ask them if they can help you put your core four together. If they know what that means, it means they probably read my book and you’re off to a good start. Rob, anything you want to say before we get to our first question?

Rob:
This is very fun. This is a very fun format. I can’t believe I’ve been missing out on this for two years. Thank you for allowing me to come on this. I want to do this more. Have me on.

David:
First time you’ve ever put me and fun in the same sentence.

Rob:
Hey, there’s a first time for everything and there’s a second time for everything, too. So if you hold out, maybe I’ll say it again.

David:
The only time people really talk about me being fun is when I’m talking about fundamentals, which people think are fundamentally boring.

Rob:
That’s the name of your 11th book that you’re currently writing for 2027, right? All right, let’s get into the show.

David:
Sean, welcome to the show. What’s on your mind today?

Sean:
Thanks, David. First of all, I’d like to say thank you for taking the time to have me on and answering my question. You and Rob have been instrumental in my decision to get into real estate, so it’s really quite surreal being here and talking to you both live, so thank you.

Rob:
Oh, hey, happy to do it.

Sean:
A bit of relevant background. My cousin and I have teamed up as partners. He is an investment banker living in New York City and I’m a corporate lawyer living in Boston. We have leaned into the concept of long distance real estate investing, given our expensive local markets. We own a couple of properties and want to continue building our portfolio. And we’re looking to enhance our returns on future investments by employing the BRRRR strategy and we are working with an investor focused realtor in an out-of-state market we have selected.
Our skill sets are great on the transactional and analytical sides, but we have little to no experience in renovation and construction, and any BRRRR investment would be made from afar. So we do not have the ability to see properties firsthand, which leads me to my question. Could you explain the sequencing of arriving at a renovation estimate for a BRRRR? Do we try to get contractors to the property and provide bids before we submit our offer? This would provide surety for our offer, but I can see it being hard to send contractors out for every property we want to offer on, particularly if you want to get bids from multiple contractors.
Alternatively, if we cannot get contractors to the property before making an offer, what should we do as inexperienced rehabbers to inform our renovation estimate without a bid from a contractor? We found that given the increasingly slim margins in the current market, picking the wrong end of estimate range could mean the difference between a good deal and a bad one. Any help is appreciated. Thank you.

Rob:
Sure, yeah, yeah. So David, I’m going to let you jump in on this one first. You actually answered this not too long ago because I had this question, if you recall, where I was like, “Well, do we get the offer accepted first and then get the contractor? Or are we trying to get the contractor first and then get the offer accepted?” So you provided some pretty good insight. Can you let us know what your process is?

David:
I love these questions. Why can’t everyone ask me a question that’s simple as, what’s the system or the sequencing? It’s always like, “What do I do because I don’t know what the market’s going to do?” And you’re like, “Well, great. Now I have to try to dive into that ocean of confusion.” This is really easy. Let me ask you before I answer that, Sean. Did you have chat GPT help you formulate that question?

Sean:
No, I did not. I’ve listened to your takes on AI and I agree with you. I wrote that myself.

David:
So you are AI. Dude, that was really good. Anytime someone has to ask you if AI helped you write it, that’s saying that you sound too good as a human to be believed. Are you married?

Sean:
I’m married. I think it’s the corporate lawyer in me coming out.

David:
Yeah, that’s not surprising either. Tell your wife that she married the pinnacle of masculine perfection, at least when it comes to the written word. She’s a very lucky woman. All right. So to simplify this, you’re asking here, do I get a bid from a contractor before I write my offer or do I do it after? Correct?

Sean:
Yes.

David:
Okay. You want to get a range from your contractor before you write the offer, but you’re not going to get it locked until after. And the reason being is if you try to do it what feels like perfect, which is what most people do. I want the bid before I write the offer because I got to get everything lined up before I squeeze the trigger. Someone else will buy it.
I mean, I’ve broken a lot of hearts in the real estate space by moving in and buying that thing right before somebody else had their offer written because they were taking too long. And then when you’re in contract, you get the information and if it doesn’t work out, you just back out of the contract. Really, I forget sometimes that people don’t realize how a real estate transaction works because I’m a real estate agent and so I do this all the time.
Writing an offer is an incredibly low commitment. I just want to say this again. It is like getting on a first date. It doesn’t really mean a whole lot. If the person smells like fettuccine Alfredo, if they’ve got a lot of nose hair, if there’s something weird going on, you just don’t go back for a second date and you’re out the price of an Applebee’s dinner or whatever it is, right?
People look at it like asking for a date is asking for someone’s hand in marriage and you’re going to have to pay a lot of money to reserve a wedding venue. That’s more like when you wave the contingencies. Two things to keep in mind that on execution, will make this strategy easier.
One, include a contingency so you can back out of the deal. If you can’t put a very, very low earnest money deposit in there, right? As low as you can get, because worst case scenario, if there’s no contingencies and it was a hot deal and it all falls apart, you’re [inaudible 00:07:12] out whatever your earnest money was. You’re not out the potential tens of thousands of dollars or more than it could be if the deal goes wrong and you feel like you’re compelled to close on it.
So my formula is to have a home, to get the property that I see, have someone go out there and make a video. If I like it, get my contractor to go walk it and the contractor shouldn’t need you to tell them every tiny little detail that’s done. They should look at it and say, “Yeah, it’s going to need paint. We’re going to need to frame up a bedroom right here.” What’s your plan for this thing? And I give them an overall vision and they will say, “Hey, it’s going to be somewhere between 25 and 50 grand, depending what you want done.” Okay.
That should be enough for you to make the decision on where to write the offer. You write the offer now during your inspection period, you have a home inspector go out there and a contractor go out there at the same time. This is probably the part that Rob was liking when I was talking about it before. The inspector talks to the contractor and is like, “Did you see that outlet right there is not working? Make sure you put that in your scope of work that you’re going to need to replace that electrical outlet or the panel over here isn’t working or that window is completely done. It’s going to need to be replaced.” And so that goes into the scope of work of the contractor.
At the same time that the contractor can say to the home inspector, “That’s weird. Why isn’t this faucet working?” And he can kind of look at the plumbing. The two of them work together to figure this out. Then they come back with a menu, right? This isn’t long distance real estate investing. Here’s all the work that needs to get done and here’s how much each of these things cost. Not, do the work equals 50 grand.
It needs to be itemized, which I’m sure you as a corporate lawyer, can understand because you guys are always trying to get us to just give you a retainer and waste all of our money and we’re trying to keep… I’m just kidding. It’s not really that bad. So once you’ve got that, now you can decide if you need to drop the price of the home, move forward with closing, or back out of the deal completely. What do you think?

Sean:
Yeah, that works. And so you answered one of my follow-up questions was, if you’ve estimated incorrectly, how do you fix that after the fact, where you say, “Okay. It looks like I just replaced a couple outlets,” but you get in there and you realize you need to totally rewire the place or “Hey, the floor’s going to be five grand.” “No, it’s actually going to be 20 because it’s rotted underneath and you need to rip it up.” You’re saying you’re going to use the inspection contingency that you have to say, “Hey, look. This isn’t what I thought it was. I need to pay you 20,000 less because these cost a lot more.”

David:
Here’s the magic words. Yes, you got the right idea. The execution of it, don’t say, “This isn’t what I thought it was.” Say, “Hey, this wasn’t disclosed.” That’s my favorite thing to say when I’m an agent, “Hey seller. Unfortunately, this part wasn’t disclosed when we made the offer. You didn’t tell us that the electrical’s not working and the roof is leaking and the walls are bad and it’s got rodents. You didn’t tell us. So in order for us to fix these things, we have to make these changes.”
And the listing agent will come back with a, “But why did you write the offer if you weren’t going to close?” “Well, we write the offer assuming that the only stuff wrong with the house is what you told me. You didn’t tell me about all the baggage that it’s coming with. So now, here’s what is going to be worth to us.” And it puts you in a position where they can’t question your motives, if you’re a bad person.
They can’t look at it and say, “Oh, you were never intending to pay that price in the first place.” And also, as a side note, when I’m listing a house, that’s one of the reasons that you disclose everything that you know is wrong with it ahead of time, so that the buyers can’t come back and ask for a discount because I can always, as a listing agent go back and say, “No, you knew about this. The disclosures were given to you. We even did an inspection report before you wrote your offer. You saw all of this. My seller is not going to grant any of those credits.”

Sean:
That’s very helpful. And the other follow-up question I had is, do you have any advice for getting to a sufficiently specific range of an estimate for purposes of submitting an offer? Right, so that’s an estimate that I’ll be creating and I need to go in and say, “Okay, floor is between five and 10 grand and doing the kitchen will be between 10 and 15.”
A lot of times I’ve spoken with people and they say, “Well, every job’s different. And I can’t really give you a good [inaudible 00:11:14], right? I need to see it.” Or even worse. I know you like the places that have five photographs and the [inaudible 00:11:23] MLS that look like they’re taken on a potato and those are the ones that you like to go after because they’re the value add.
Well, that’s really tough for me to estimate a rehab on those five potato pictures and I only see half of the house and I don’t see a floor plan. So can you give some advice on that as well?

David:
Have you read Long-Distance Real Estate Investing? I feel like you haven’t read it yet.

Sean:
Yeah. It’s right over my shoulder, as is BRRRR.

David:
It’s in the queue? Okay.

Sean:
No, no, I have read it and that’s the basis. So I’m trying to [inaudible 00:11:53] Long-Distance Real Estate Investing and BRRRR.

David:
You’re right. It’s impossible to judge by the pictures. The pictures are just like, we’re going to go back to online dating. Okay? I can’t get a good feel for what this person’s like based on their pictures, but I can get enough of a feel… By the way, I don’t do online dating. So if you guys out there see a profile that looks like me, it’s a catfish, don’t fall for it. It’s happened before.

Rob:
Yeah, they got me pretty good with that one.

David:
That’s how Rob and I met, actually. Funny story about that on the next episode of BiggerRomance. You can know enough from the pictures to know if you want to go on a date, but the date’s going to tell you what you need to know. Okay? Those pictures will tell you if you want to look into it deeper. You still need to send someone to the property with a phone to take a video of the house.
Now, if your contractor won’t do it, have the person get really good video and then send that to the contractor. And if they’re like, “Well, every job’s different, I need to look at it.” I’ll say, “Okay. Assume that we have to replace all of these cabinets and all of these appliances, and put a new floor in here. Give me a range from here to here of what you think it’ll cost.”
Now that helps because they’re worried you’re going to blame them if their number’s too high, but they’re also worried that if they go too low, they could have made more money off of you. That’s why they don’t want to give you the hard and fast answer, but if you could give them the video and say, “Give me a range,” they’re much more likely to say, “Okay, well, it could be anywhere from here to here.”
I’m not afraid of telling him something that I can’t actually back up. And then you still have negotiating power to go to the contractor and say, “Well, it needs to be on the lower end because you’re talking to other people.” So they got to still respect you a little bit. Does that make sense?

Sean:
Yes, that’s very helpful. Thank you.

David:
And ideally, you want your real estate agent to be the one that takes these videos for you. One of the reasons that you can use a buyer’s agent. If you just can’t find a way to do that, the listing agent usually doesn’t want to go and take video because that’s going to be helping you in the negotiations over them. So I’ve used people that are in the area from the BiggerPockets forums, if I needed a video taken. You just have to figure out some way to get in the door.

Sean:
Makes sense. Thank you.

David:
All right. Anything you want to add, Rob?

Rob:
No. I mean, there’s no room for someone like me at the top. You answered it perfectly.

David:
Rob, keeping his dollars per word really, really high right now. This is expert work.

Rob:
Awesome, Sean. Thanks for the question. If people want to connect with you on the internet, where can they do that?

Sean:
Yeah, sure. I’m on BiggerPockets. Sean Linnehan, S-E-A-N-L-I-N-N-E-H-A-N, and also on Instagram. Same name. Sean Linnehan, @seanlinnehan.

Rob:
Awesome, man. Thank you.

Sean:
Thank you.

David:
Thank you, Sean GPT.

Sean:
Thanks, David.

David:
All right. Thank you Sean for that incredibly accurate and well-worded statement [inaudible 00:14:27] that you gave there. Thanks for being on Seeing Greene. I thought that was pretty good. Rob, what’d you think about that?

Rob:
It was good, man. Honestly, I think it’s the first time we’ve ever heard sequencing on the show. So there’s a first for everything and now, the sequence of events that we move on to.

David:
That’s right.

Rob:
Favorite… Comments?

David:
Yes. We’re getting into the section of the show where we are going to share comments that you all have left on previous episodes on YouTube. If you would like to be featured on Seeing Greene, we’d love to have you. Head over to biggerpockets.com/david, where you can submit your question.
And remember, if you’re listening to this on YouTube, in addition to leaving a comment, please like the video, subscribe to the channel, and share the video with someone you love.
All right, our first comment comes from Jevon Music Group. I have grown to love my half hour drive to church every Sunday. Thanks to your videos, I learn so much each week. That’s right. Seeing Greene, making even church fun. Glad to hear that. Next one comes from a Davidovich. I love saying names like that.

Rob:
I think it’s a David Ovich.

David:
You’re probably right. I’m doing it completely wrong.

Rob:
Is it possible that you’ve read so many of these over the years that you’ve mispronounced their handle so much that they actually never knew that it was their own comment that they left?

David:
Oh, and so they were thinking that someone else left something brilliant, but it turns out it was them?

Rob:
They have no idea their question was answered. They’re like, “Oh, that guy has a name that sounds kind of like mine. That’s cool.”

David:
Yeah, because it’s much more likely that his name is David Ovich than it is Davidovich. All right, moving on here.

Rob:
[inaudible 00:15:55].

David:
Mr. David Ovich. Thanks for regularly creating great free content. I found a lot of useful information just by listening to you guys. Also, I love the tools that are made available with the pro membership. Yep, that pro membership is probably the best deal in real estate. Couple hundred bucks a year and you get unlimited use of calculators, discounts on all kinds of stuff-

Rob:
Like leases-

David:
Yep.

Rob:
To every state or something.

David:
My team uses the rent estimator tool constantly for our clients that are considering buying houses all across the country and want to know what the rent would be. So if you’re not already a pro member, definitely keep listening to the show and occasionally, you’ll get a discount. Next up from [inaudible 00:16:33]. Thank you David, for all that you do. Your podcast share immense knowledge and provide courage to take the steps necessary. I wish I knew about BiggerPockets during COVID time. I could have started early, but better than not buying ever. Thank you for your guidance. Oh, that’s sweet. That’s so sweet.

Rob:
That is really nice, isn’t it?

David:
Yeah, and look at all the exclamation points that are in there and smiley faces.

Rob:
That’s how you know that they meant it because they didn’t even do the emoticon version. They did the actual… Or they didn’t do the emoji version. They did the emoticon version. Yeah, exactly.

David:
Emoticon.

Rob:
They’re OG.

David:
Is that what happens when a transformer becomes an emoji?

Rob:
Yeah. I think an emoticon is the original emoji before it was like the yellow circles.

David:
Look at Rob with the history lesson for all of us.

Rob:
All right. That’s right.

David:
Moving on to our last comment from BigMike8981. David knows how to tell you the truth and give you the tough conversation that nobody wants to have with you. Bravo, my man. That is probably my favorite comment that we had today because that’s exactly what I strive to do.
And let me tell you, it is not fun to be the person that says, it is going to be difficult. You could get hurt and this is very tough right now when all of the competition is like, “Nah, just go in and buy it and you’ll figure it out later. Jump out of the plane and build your parachute on the way down.”
Rob, do you have any insight you want to add on any conversations we’ve had that you’re like, “That’s not what I wanted to hear?” Or any advice for me of how I can make the medicine go down a little smoother?

Rob:
Well, I invested a lot of money recently into bell bottoms, thinking that they were going to come back in and I was committed to them and you’re like, “Hey, can I sit down with you for a second? You can’t wear those to be BP Con. They’re not working. Stop trying to make them work.” And it hurt and I’ve since, donated them to Goodwill, but I’m honestly, in retrospect, I’m really happy. Thank you.

David:
I’m glad to hear that. That’s what real friends do. They tell each other what they need to hear, not what they want to hear. I recently reached out to you because you’re doing so good with your fitness and your diet and I was like, “Hey, I need to hear what diet you’re on” and your reply was, “You already know what to do. Eat more meat and workout. Leave me alone. I’m working.” So it’s not just me that gives helpful advice. Thank you, Rob, for absolutely nothing.

Rob:
It was a little nicer than that. It was a little, but see, I said that because you’ve done it before. I was like, “Look, you know, we all know. Wake up early, work out, eat healthy, repeat.” That’s the book that I’m going to write. Wake up early. It’s like-

David:
Make an acronym out of that, yeah. I’ll let you do the words while I’m reading the next part here and then you can come back and call it the [inaudible 00:19:02] method or whatever it’s going to be.

Rob:
Yeah.

David:
All right. Let’s get back to the questions from you, our audience and see what we can do to help you build wealth in your journey. Rob, I hear we have an update from you live on scene with the new method. What is it going to be?

Rob:
[inaudible 00:19:19]. Wake up early, eat healthy, and repeat. [inaudible 00:19:24].

David:
The [inaudible 00:19:24] Method. Whoop, there it is. All right. Our next question comes from Idan in LA.

Idan:
Hi, David. My name is Idan from Los Angeles and my question for you is, if I’m purchasing a rental property in a good growing area, area that should appreciate very well… For example, in North Carolina, I have a few neighborhoods that I know that they’re very good. If I’m purchasing a property that after all the expenses, I’m running the calculations through the BiggerPocket’s tools, after all the repair, CapEx, vacancies, mortgage, insurance, taxes, after everything, I’m negative cashflow 300, 400, 500 because of the interest today and the high prices. This is a very good area and I’m buying it in market prices not below too much.
Obviously, I’m trying to find a creative way to add value, but if I’m negative cashflow $300, $400 and I can afford it. I’m okay with it. I don’t need the cashflow right now and I’m counting on appreciation in the future. Does that make sense to do something like that, if I can afford it? And it’s important to me to be in a very good location. Any help about it will help. Thank you so much for everything you do for us. Thank you.

David:
All right. Idan bringing the most controversial question in all of real estate investing right to our doorstep. This is probably going to go viral as half of the country will love us and half will hate us. Welcome to the controversial firing, Rob. What do you have to say?

Rob:
Let me rephrase the question. Should I buy a property and lose money on it, if I believe that it will appreciate like crazy over the next few years? My answer is no. Because the thing is, when you are accepting of a loss… Listen, and again, I’m not going to fault anyone who does this, but given the current economic climate, I would say this. Losing two or 300 or 400 or 500, I don’t know what he said, dollars every single month, feels okay when you’re making a lot of money and that you feel like you can absorb it.
But it doesn’t feel so good when your other income sources deplete or whenever you lose your job or whatever happens in the next couple of years affects your financial situation. That two or $300 a month starts burning a hole in your pocket. I would not bet on appreciation in 2023 as your savior in this situation. Had you told me that in 2019, 2020, 2021, absolutely. But I think we got to be a little bit more conservative with that. I’m fine with breaking even, I will say that. Losing money, I’m out. What about you?

David:
All right. This is a little more nuanced than it sounds because it’s not as simple as, can I lose two or 300 a month if I might make more money somewhere else? I have lost money in real estate, especially lately with how things have gone, but it has never been from the cashflow not being enough to two or $300 a month. It’s been from city regulations, construction projects going wrong, permits not being given, work being done incorrectly that needs to be redone. There’s lots of ways you can lose money in real estate outside of just the cashflow not being there. But that doesn’t get discussed.
We typically only talk about, well, the calculator said that my cashflow would be this much and it was less than that. I’m losing money. The reason that I am not as worried about this particular gentleman losing two to $300 a month is because in general, that is the amount of money that somebody can make picking up an extra shift at a restaurant once a month or picking up a coffee shop shift twice a month. It’s not something that’s going to cause you to actually lose a property.
I’m more worried about a tenant destroying it, things going wrong with the property that you don’t have the money to fix. Getting into the short-term rental game without reserves to where you can’t keep up with what your competition is doing and slowly falling further and further behind and not having the option to rent it out, in a traditional sense. Those big things are much scarier to me than the possibility that he might lose a little bit of money.
I’d also say that if he’s banking on appreciation and there’s no reason to buy it, that’s speculation, okay? But if he’s buying it in an incredibly good area with constricted supply, increasing demand, where it is reasonable to think that rents are going to go up and you’re going to get a very good tenant, that actually makes the investment safer, even though it’s losing a little bit of money.
So we didn’t get quite enough information to give this particular gentleman a take on if he should buy the property or not. I would’ve needed to know the actual city, the ability that he could create revenue in other ways. Is there a value add to this property where he could add an [inaudible 00:23:45] to it?

Rob:
He said that there wasn’t really a value add and he said that he believed in the city itself. So I think it’s like… Assuming that those two things are correct, it’s a great appreciating city, he can’t add value, I think that’s sort of the particular situation here.

David:
Well, my take would be the X factor is, the money you’re making now isn’t necessarily the money you’re going to make in the future. Okay? So he says in the note here that he is a contractor making very good money in Los Angeles. Now, if that was going to continue, yeah, it’s okay to lose two or $300 a month for the short term because you’re going to make money later. The difficulty becomes if you lose your job and you can’t make that money. But then again, is two or $300 a month going to actually kill you, right?
You could probably cancel a couple cable subscriptions or eat out a little bit less. You could probably take that money out of the budget you have. That’s not the most dangerous thing. The most dangerous thing would be if your tenant doesn’t pay rent at all. We get focused on the numbers aren’t working in the calculator. We don’t think about what if the tenant just stops paying and it takes four or five months to evict them. That is so much more significant than $200 a month as far as how much money you’ll actually lose. Rob, does that weigh into your advice on the location of the property and the quality of the tenant?

Rob:
Kind of. I guess, what you’re saying is absolutely true. If the tenant doesn’t pay, they’re not only losing the two or 300 bucks, they’re losing the actual rent, too.

David:
Like 2000 or $3,000 a month and that, over three or four months-

Rob:
That’s significant.

David:
Yeah, that’s way more money than a couple hundred bucks.

Rob:
But I think that extra $300 on top of the payment… Sorry, the tenant not paying, is a lot more painful in that moment than the 300. And that’s why I’m like… Listen, I’m an aggressive investor, all right? I’m not the kind of person that makes very conservative purchases or investments, but I don’t… No matter how aggressive I am, rule number one is to never lose money. There are some situations where I have and there are some situations where the tax benefits make it to where I actually save a lot of money, but in general, if I could break even, that’s at least requirement number one. I think that’s always a fair way to approach it, no matter what, especially in 2023. But I could be swayed.

David:
It’s a hot topic, right? I don’t know if there isn’t a right or wrong answer here. It really does depend on the person and their financial position, right?

Rob:
No, no. There’s a right. It’s what I said. No, I’m just kidding. What if I just came in like guns blazing? Listen to me. I agree. There’s no wrong or right. There’s just what’s right for you.

David:
Yeah, because you could always just put more money down and the property cashflow is [inaudible 00:26:12], but the question becomes like, “Okay, now it’s cash flowing a hundred dollars a month instead of losing $200 a month,” but you had to put a hundred thousand dollars into the property. Is that a better use of your money than putting that same a hundred thousand dollars in reserves and you can get by if it doesn’t cash as much, right?

Rob:
Totally. Someone asked me yesterday if they were like, “Hey, can I just ask. Is it stupid for me to put half down on this house?” And I was like, “Look, maybe a year or two ago I would’ve been like, Hey, don’t do that. And right now, I’m kind of like, I mean, that’s fine. Honestly.” Could you make more money somewhere else? Yes. But could you be a lot happier if your mortgage payment was a lot lower and you didn’t have to worry about a high mortgage payment every month during whatever’s coming in 2023, 2024? I’m good with it. Honestly.

David:
So would you rather have the theoretical a hundred dollars a month of cashflow instead of $200 a month of losing money, but you had to put $75,000 down to get it? Is that 75 grand in reserve safer or is the cash flowing element safer? That’s the question that I think people need to be asking. And if you had to put 75 grand down to make it cashflow, most people would say, “Well, then I don’t want to do it.” Now you’re not buying real estate at all, and that’s kind of the circles that we’re going back and forth in right now, right?
So let us know in the comments. What do you think about this negative cashflow? What’s the right perspective to take? What would you have told Idan in this question and let us know. Should we do an entire show on the cashflow conundrum to cashflow or not to cashflow? That is the question.

Rob:
Thy question.

David:
Thank you.

Rob:
I believe.

David:
Or the question, as you would often say. Rob wants me to change my Instagram name to thedavidgreene24.

Rob:
Yeah. T-H-E-E.

David:
Yes. The dork game is strong with this one.

Rob:
Our next question comes from Josh in Baton Rouge.

David:
I always think of Gambit from X-Men whenever I hear Baton Rouge. Let me know in the comments, if any of you think of Gambit from X-Men every time you hear of Baton Rouge.

Rob:
What is that? X-men? I don’t remember that from my childhood.

David:
Oh, really? A dork like you, doesn’t remember [inaudible 00:28:01] X-Men. Not likely. The comments are going to be exploding right now with Cap. No way. All right. Josh here has a couple of short-term rentals in vacation markets in Arkansas and Florida, as well as a long-term rental in Louisiana. What are your thoughts on how the supply and demand for real estate will change in the coming decades as the baby boomer generation ages?
Some fear that this will result in a drastic enough change in population, that there’ll be an oversupply of many goods, including real estate, causing prices to fall rather than the fairly steady increase we’re all used to. I strongly believe that real estate will ultimately survive economic cycles, but I fear the effects of this on the medium term outlook for investors like myself in our 30s and 40s.
Do you think this is a legitimate concern or are the other forces at place strong enough to counter this effect? Thank you for all you do and thank you for all your resources. Wonderful question. I love this, Rob.

Rob:
Yeah, it’s good.

David:
What goes through your head? What’s your perspective here?

Rob:
Yeah, I was nervous you’d asked me first. I guess I would say that ultimately, real estate has existed since the beginning of time. People build houses and they sold them, lived in them, rented them. I don’t know when real estate truly became prevalent, but I mean, it’s been around for, in its current form, I would say at least a hundred years, right?
So it has survived many things. It has survived the Great Depression. It has survived World Wars, it has survived recessions. It has survived big booms in the economy. I would say yes, there’s a legitimate concern in some capacity, but I don’t think it’s anything that would really destroy the real estate market in any significant way.

David:
Well done. That’s a great answer for being unprepared for how you were going to… Did [inaudible 00:29:43] got that? Did you just start talking and then figure out where you wanted to go when you were halfway through it?

Rob:
Exactly. Well, I have a list of answers that are always kind of laminated by me that have just been waiting to use over the last year and a half since being on the show. So, that was it.

David:
In case of emergency, break glass and pull out laminated-

Rob:
Exactly.

David:
That was pretty good.

Rob:
Exactly.

David:
Yeah. I’ve actually thought a very similar thought, maybe six, seven years ago where I was like, you overthink things, right? I was buying in Phoenix. Are they going to run out of water? Should I not be buying in Phoenix? And then you start Googling Phoenix water supply and you get all these crazy conspiracy things about what the government’s doing to stop the water. It’s really hard to get information that you can rely on.
This is another one because while everything you said is true, Rob, it is also true. I don’t know in the last a hundred years… Please don’t quote me on this, I’m not sure. I don’t believe that population growth has ever been a concern. It’s now starting to become a concern in many developed countries, population growth is not only slowing, it’s going the wrong way. Okay?

Rob:
Definitely.

David:
So it’s one thing to consider here. If we don’t have as many babies, we’re not going to need as many houses. And I think I love his last point. Is this a legitimate concern or are other forces at play strong enough to counter this effect? Because that is the question. Okay, there’s opposing forces here, pros and cons, and you’re trying to weigh which one of them is stronger. So I think population decreasing is a legit concern and threat to real estate wealth.
Now let’s talk about the other side of that. First off, if we just stopped having babies completely right now, no babies were born. It would be like 25 years before that would act, that lag would hit us because you’ve got all the one and two year olds that still need to grow. They’re still going to need a place to live. So it’s not like if babies stop being born immediately, we’re in trouble. It’s going to be a long time before it catches up with us.
So if the population does slow, this doesn’t change tomorrow. In that much time, your property’s probably almost paid off, which is going to reduce some of the threat right there. Another thing would be, when I was looking at this, I assumed that what a dollar was worth is what a dollar would always be worth, but that is a shifting target, too. As inflation continually makes money worth less, you need more of it to buy the same thing.
So in 30 years, if we do have population problems, well, how much have properties appreciated and how much has rent appreciated? And is that threat as significant, if your property is worth five times as much? So if you had to sell it for half of what it should be worth, it’s still two and a half times more than what it is right now. It gets tricky when you start trying to work all of these things into the algorithm here. So with that information, Rob, does that change your perspective on this?

Rob:
Well, first of all, I know that the population decreasing is a real problem in other countries. I don’t know if that’s the case in the United States. I don’t know. So it is hard to really say. I think we have some time to figure that one out.

David:
Good point.

Rob:
I don’t know if that’s really a problem yet or I don’t know if it’ll really be a problem for, like you said, the next 10 to 15 years.

David:
And then there’s immigration, right? Are people going to keep coming to America from other countries, which would keep our population higher or is that going to change in 10 years and 20 years? Is America not a desirable place to come to? It is impossible to factor for all of those variables when you’re trying to make this question. So I love the question itself, because this is something that I think about all the time, coming from Josh. Overall, I think that there are enough tailwinds making real estate desirable to combat the headwinds of possible population growth or less people needing homes in the future.
I think a more realistic threat would be like 3D housing. What if they figure out a way to just build houses for $20,000 or something like that? And now we’ve got these homes that used to cost $500,000 to build or $200,000 to build, and you had to go through all this red tape and the city and the local municipalities made building incredibly hard and now people can just throw something up real quick, right? Assuming that this is something that’s actually safe. It’ll probably be a while before the technology goes there, but I’ve thought about that. That could just saturate the market with rental supply.

Rob:
That’s interesting. Man, you know what would be a really good show, is if we researched theories for real estate like 50 years from now, like what some of the thought leaders in this space think? What would be the case?

David:
Were worried about?

Rob:
Yeah, like ownership of real estate on Mars or things like this or whatever. If you own homes on a beach or whatever, and just talk about some of the bigger, [inaudible 00:33:53], I don’t know, questions that arise over, what does real estate look like in 50 to a hundred years?

David:
That would be very interesting because we get to hear why they thought green shag carpet was a good idea. Maybe that was meant to combat a threat at the time, or they’re like, one of the biggest threats to the real estate space is the open concept and we have to do everything we can to defeat that. So we’re just going to put walls everywhere inside of our houses. And to their dismay, they found out that we just tore all those homes down and blasted it on House Hunters talking about how these closed concepts are terrible?

Rob:
Yeah, well, I’ve always talked about, I would love to have Elon Musk on the show. I think that would be the perfect person for it. So hey Elon, I know you’re listening out there. Hit us up. Davidgreene24 on Instagram.

David:
Oh, I’m sure he is already following. I’m sure. Probably from one of his burner accounts.

Rob:
Probably.

David:
Yeah. All right. Our last question here comes from Alyssa Horn in Alaska. By the way, I forgot to say on our previous question, are you screaming at your computer or your car right now saying, “What are you guys talking about? You missed something.” Let us know in the comments if on this whole, will real estate become a problem in the future because of population growth? Let us know if you think we missed something and what should be brought into the conversation here.

Rob:
I love it. It’s very interesting.

David:
It’s a fun thought process.

Rob:
I’ll ask ChatGPT tonight and I’ll let you know. I’ll text you the answer.

David:
Rob knows how much I love that. All right, Alyssa says, “Hi, David. Thanks for taking the time to read this. My sister and I are looking at combined funds of the house hack a duplex in Anchorage, Alaska. However, we realize that the amount we could potentially charge for rent is greater than the amount we currently pay for rent in the place we currently live. Does it make more sense to continue renting and rent out the two sides of the property we buy? Mathematically, this seems like a no-brainer, but it also doesn’t seem normal. Are we missing something? First, for more context, we’re happy living in the place we rent, but want to work our way to financial freedom by building a real estate portfolio and obviously, people who rent don’t have a portfolio. Thanks so much for helping two Alaskan sisters find their way to vacations and warmer climates.”
All right. So here is how I understand Alyssa’s question. So she wants to buy real estate and buying real estate, if she moved into it, would increase her housing expense because her rent is low. But if she keeps paying the low rent, she never owns a property. Her alternative to this dilemma is to buy an investment property, rent out all of the units, which it looks like this is a duplex that they’re talking about. They’ll make more money that way. But now, they’re still renting out the property that they live in. They don’t live in the house they’re in. Now the downside to that is, they’re going to put 20 or 25% down if it’s an investment property versus 5% if it’s a house hack. So we factor all of these questions together. Welcome to Seeing Greene. This is what we get to do every single week. What advice do you have for Alyssa and her sister?

Rob:
I think you have to… It’s rare. Okay, it’s not rare, but it is common where rent is cheaper than mortgages. And so I had to do this, when I lived in LA, my rent was $1,850 for a 600 square foot home. I then was so tired of paying that much money to a landlord that I was like, “I’m going to buy a house. I don’t care if that makes me a little bit more house poor, at least I own it. I’m building equity.”
So I bought a house and my mortgage was $4,400, which was more than double. Now with that house, there were some house hacking opportunities. I had a studio underneath. I ended up building that tiny house. We all know the story there, but I went into that understanding I was going to pay more for the homeownership. Fast forward to today, that house has doubled in value due to the beautiful thing called appreciation and I’m very happy that I was house poor.

David:
[inaudible 00:37:31]. Rent’s gone up as well.

Rob:
Rent has gone up. Yeah. So I’m happy that I was house poor for all those years.

David:
Yes.

Rob:
It paid off in the end. It hurts now more because you’re like, “Dang, I’m not saving as much. I’m spending more every month. It hurts more.” But you are also getting principal pay down. Inversely, the landlord is getting the principal pay down in the other scenarios. So…

David:
I love how you brought this up so far. In the book I’m working on right now, it’s about all the ways you make money in real estate instead of just the cashflow. Okay? So there’s this principle, when you look at something two dimensionally, certain things make sense. Why would I buy a house when renting is cheaper? I frequently get this when I go on other people’s podcasts that are not real estate experts, right? So I’m getting ready to go on Valuetainment. We’re going to be talking with Patrick Bet-David’s crew. They say this all the time, “Renting is cheaper than owning. Why would anyone buy a house?” It makes sense when you’re looking at a snapshot, not a whole movie.
When you look at everything that real estate does to make money, it starts to change things. So her rent is less right now, but she doesn’t control the rent. The landlord does. Maybe she has a really nice landlord. What happens if they sell the house, they pass away, someone else takes it over? They realize that they could be charging more. That changes very quickly. And during that period of time, housing might’ve become more expensive. Also, in most markets, rent goes up every single year.
So though renting may be cheaper than owning right now, if you do five years of rent increases, it’s often not cheaper than owning because when you buy a house, your mortgage gets locked in place. Now, consider house hacking. Not only are you not having your rent increased on you every year, but you are charging more to your tenants every year and now becomes twice as valuable, that rent increases are working in your favor to build your wealth. And you extend this over five years, 10 years, 15 years, it starts to become way cheaper to own than rent, especially when you’re house [inaudible 00:39:18].
Now, we haven’t thrown in principal reduction. We haven’t thrown in potential tax advantages. We haven’t thrown in what you just said, Rob, which was appreciation. All of these other things end up being even more impactful than just the rent, and it becomes a no-brainer that you should own. The thing I want to highlight here is that it rarely looks wise when you’re just looking at right now. When you’re looking at 10 years down the road, 15 years down the road, I don’t know that I’ve ever seen a scenario where renting is actually cheaper, unless it’s like you’re living with your mom and she’s going to let you live for free or something like that. Does that change your take on this question?

Rob:
Yeah, definitely. I would say ultimately, almost everyone looks like a genius, like a real estate genius if they hold onto property for 30 years.

David:
Yeah.

Rob:
Like I said, it might hurt now, but if you hold onto it for 30 years, people are going to be like, “Oh, my gosh. You bought a house in Los Angeles when it was $600,000. That’s so cheap. I cannot believe that.” And people will be mad at you, that you got into real estate 30 years earlier. You know what I mean?

David:
But when you bought it at 600,000, did it feel cheap?

Rob:
No. God no. I was scared to tell everybody.

David:
And everyone was telling you that you were stupid, right?

Rob:
Yeah. I was scared to tell my parents. I was scared to tell my coworkers because my coworkers knew kind of how much I made. They were my peers and they were like, “You can’t afford that.” And they just didn’t know that I was like, “Well, I’m thinking about it. How can I afford it?”

David:
Yeah. You say, “Well, I’m going to rent out part of my house.” Oh, I don’t want to do that. That sounds like [inaudible 00:40:38]. I like my space.

Rob:
No, I don’t want that. I don’t want to know my tenant. Yeah, it’s all that whole thing.

David:
You like your space. You also like being poor forever. If you can’t afford to put money into a property, you got to put your comfortability and your convenience away, right? It’s going to cost you something. So might as well cost comfort instead, if you don’t have the money at the time. I remember you and I were heading to a real estate meetup when we were hanging out in LA to record at the Spotify Studios.
And we drove by a property that you pointed out in LA and you were like, “That house right there was… Hit the market, had been renovated.” My wife and I looked at it and it was $1.1 million. And we said, “That is insane that those people think they will ever get that much money for that property, right?” Fast forward with four or five years, is that about how long it’s been? Okay, and what do you think it’s worth now?

Rob:
Oh, like 1.8, 1.9, maybe two, somewhere in there.

David:
It was insane, but you were overpaying and then you go five years in the future and all of a sudden, if you could buy it for 1.1 right now, you’d be walking into $700,000 of equity and tons of cashflow.

Rob:
Yeah. And it was a little bit more like, “It’s so expensive. I wish I could afford that someday.” And then now, it’s like, in retrospect, it was a good deal. Everything is a good deal in the past, right?

David:
That’s a great point and that’s all we’re trying to say, is try to exist outside of just this moment. Think about your whole life and where you’re going to be in five or 10 years and factor it, that into your decision-making process. And if you got to sacrifice comfort or you got to have a little bit more housing than you wanted in order to own, but you’re in a good area where rents are going to be increasing and you’ve now taken control of your financial future and your housing expense, where you know the worst case scenario is, this is my mortgage and it can only get better from that?
I would rather see people do that than not have control and be at the mercy of a landlord or somebody else. Taking this long-term approach makes the most sense, which is why we are talking more and more about financial responsibility, playing defense, and making money in other ways outside of real estate, which is playing offense in business. Because when you have those two things going for you, you can use the delayed gratification approach with real estate and build a portfolio we’re talking about.

Rob:
Oh, one thing she said that people who rent, obviously don’t have a portfolio. False. I’m sure we’ve said this already, but honestly, the people that I’m proudest most in life of, are people who sacrifice short-term gain and continue renting and use the money they have to get into a rental property. And they sacrifice owning a house so that they can rent longer and build equity. I’m always like, “Hey, that’s actually pretty cool of you, that you did that.” So don’t feel bad if that’s where you end up netting out, Alyssa.

David:
All right. We hope you enjoyed today’s show. We sure enjoyed having it with you all. If you did, please do me a favor. Leave us a review on wherever you listen to your favorite podcast and let us know what you like about the podcast so other people can find it, and leave us a comment on YouTube, telling us what you thought of today’s show.
Hopefully we read your comment on a future episode and you will be supporting the show. Also, if you like to be featured here, we would love to have you. Head over to biggerpockets.com/david, where you can leave your question for us to answer on a future episode. Rob, for people that were absolutely blown away by your insight, intelligence, sense of humor, and dashing good looks, where can they get more Rob?

Rob:
You can find me on YouTube at Robuilt, R-O-B-U-I-L-T and Instagram @robuilt, if you want, short form real estate funnies. If you want long form real estate wackiness, go to YouTube. Up to you or do both.

David:
There you go. I’m there as well. You can find me @davidgreene24 on social media, David Greene Real Estate on YouTube or davidgreene24.com on the internet to find my webpage. Thanks again, everyone for joining us today. It’s been our pleasure to be teaching you and instructing you and encouraging you in your real estate journey. I really hope that we were able to help some of you brain souls who took action to ask us questions and I look forward to answering more of your questions this year. This is David Greene for handsome Rob Abasolo. Signing off.

 

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