What does Jay Scott recommend considering due to inflation?

Jay Scott suggests not factoring in appreciation and being conservative in income and expense assumptions due to high inflation.

Why might real estate values remain flat according to Jay Scott?

Real estate values might stay flat due to high valuations currently sitting above historic inflation trends.

What is the first rule for real estate investing in 2024?

The first rule is not to buy strictly for appreciation.

How does Jay Scott view interest rate changes affecting investors?

Jay Scott warns that high interest rates may slow transactions and advises against adjustable rate mortgages.

What should investors avoid, based on Jay Scott's advice?

Investors should avoid adjustable rate debt and ensure they can hold properties for 5-10 years.

Is flipping still a viable strategy according to Jay Scott?

Jay cautions that flipping requires being prepared for potential rapid changes in housing prices.

Real Estate Investing in 2024 (6 "Rules" You Can't Ignore)

00:40:19

https://www.youtube.com/watch?v=J5Fl9xxSbkc

Zusammenfassung

TLDRIn a discussion hosted by Dave Meyer with Jay Scott, real estate investment strategies for 2024 are explored, pinpointing six crucial rules. Key economic concerns driving these rules include inflation, high property valuations, and the current interest rate landscape. Jay suggests that rather than strategizing strictly for property appreciation, investors should focus on conservative underwriting and maintaining properties that can sustain 5-10 year investment horizons. Adjustable rate mortgages are deemed risky, with fixed-rate debt advocated to ensure stability. As the housing market faces potential volatility, staying informed on legislative changes and meticulously assessing investment strategies is essential. Despite market challenges, maintaining a long-term perspective and focusing on reliable cash flow can afford sound investment opportunities even in unpredictable conditions.

Mitbringsel

📈 Don't rely on appreciation solely when investing.
💼 Be conservative in financial assumptions, especially rents.
🏠 Consider sustainable strategy amidst market risks.
📉 Avoid adjustable rate loans; prefer fixed-rate options.
🔒 Ensure capability to hold properties long-term.
📝 Stay informed about legislative impacts on investments.
🌟 Focus on stable cash flow and fundamental property values.
🔍 Pay attention to economic indicators like interest rates.
📊 Understand risk implications of current market conditions.
🗣️ Engage with economic discussions and adapt strategies accordingly.

Zeitleiste

00:00:00 - 00:05:00
The video open by discussing the challenges of investing in real estate during the pandemic. Investors, even seasoned ones, must adapt to the continuously evolving market. The host introduces Jay Scott, a seasoned investor and co-author, who will present six rules for real estate investing in 2024.
00:05:00 - 00:10:00
Jay Scott begins by discussing the market conditions affecting investment strategies, focusing on inflation. While inflation generally raises rents beneficial for real estate, current inflation surpasses wage growth, limiting how much rents can increase. High inflation paired with high real estate values pose challenges similar to historical trends, where real estate appreciated in line with inflation.
00:10:00 - 00:15:00
Scott analyzes the current market compared to 2008's conditions, noting differences that suggest flat real estate prices rather than a major crash. Factors such as low supply, continued demand, and historical resilience to value drops are outlined. Inflation remains a concern, but housing prices may remain stable without significant depreciation.
00:15:00 - 00:20:00
The discussion shifts to interest rates and economic slowdown. Interest rates, currently high, inhibit transactions and cash flow, complicating investments. A slowing economy also poses risks of real estate value drops, compounded by foreclosures. Additionally, Scott talks about the yield curve inversion, affecting banks' lending practices, thus impacting real estate investors.
00:20:00 - 00:25:00
The host and Scott recap key economic conditions before moving to six investment rules. Emphasizing long-term strategies, Scott advises not buying based on appreciation expectations, highlighting the need for cash flow-focused investments. Market conditions should be evaluated critically, avoiding reliance on price growth or rent increases as primary decision factors.
00:25:00 - 00:30:00
Scott elaborates on conservative underwriting, suggesting investors should assume minimal rent growth and higher operating expenses due to inflation and increasing costs like insurance. Careful evaluation and realistic projections are crucial given current economic uncertainties, with emphasis on preparing for limited cash flow growth.
00:30:00 - 00:35:00
Transactional real estate strategies like flipping face higher risks in volatile markets. Scott warns against short-term investments without cash flow, acknowledging current profits but cautioning unpredictability. Long-term holding ability is crucial, recommending readiness to manage potential downturns without relying on market conditions for profits.
00:35:00 - 00:40:19
The video concludes with broad advice: avoid adjustable-rate debt given uncertain interest rate movements and ensure investment decisions align with long-term holding capacity. Understanding regulatory environments affecting real estate investments is pivotal. Despite cautious tones, Scott encourages a conservative, yet opportunity-seeking approach to real estate investment in 2024.

Mind Map

Häufig gestellte Fragen

What does Jay Scott recommend considering due to inflation?
Jay Scott suggests not factoring in appreciation and being conservative in income and expense assumptions due to high inflation.
Why might real estate values remain flat according to Jay Scott?
Real estate values might stay flat due to high valuations currently sitting above historic inflation trends.
What is the first rule for real estate investing in 2024?
The first rule is not to buy strictly for appreciation.
How does Jay Scott view interest rate changes affecting investors?
Jay Scott warns that high interest rates may slow transactions and advises against adjustable rate mortgages.
What should investors avoid, based on Jay Scott's advice?
Investors should avoid adjustable rate debt and ensure they can hold properties for 5-10 years.
Is flipping still a viable strategy according to Jay Scott?
Jay cautions that flipping requires being prepared for potential rapid changes in housing prices.

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Untertitel

Automatisches Blättern:

00:00:00
ever since the start of the pandemic it
00:00:02
seems like investors have to craft a
00:00:04
brand new playbook for investing in real
00:00:07
estate H and every year even for a
00:00:10
seasoned investor it's hard to determine
00:00:12
what the best guidelines are for
00:00:14
investing in this continually evolving
00:00:16
and changing Market So today we're going
00:00:19
to be bringing you six rules for real
00:00:22
estate investing in 2024
00:00:28
[Music]
00:00:30
hey everyone welcome to this week's
00:00:31
episode of bigger news I'm your host
00:00:34
Dave Meyer and today I've brought on my
00:00:36
friend a co-author of a book of mine and
00:00:39
a longtime friend of the Bigger Pockets
00:00:41
Community Jay Scott to talk through his
00:00:44
six rules for investing in the current
00:00:46
real estate market and if you guys don't
00:00:48
know Jay he is a renowned flipper he's
00:00:51
the co-author of a book I wrote called
00:00:53
real estate by the Numbers he's written
00:00:55
four other books he's also a seasoned
00:00:57
investor and keeps a super sharp eye on
00:01:00
the market and the economy and his rules
00:01:02
that he's going to go over today will
00:01:04
help you determine which deals you
00:01:05
should be going after and how you should
00:01:07
think about investing in this type of
00:01:09
Market cycle before we bring on Jay I
00:01:13
just wanted to thank our sponsor for our
00:01:15
bigger news episode today rent app rent
00:01:18
app is a free and easy way to collect
00:01:20
rent and if you want to learn more about
00:01:22
it you can go to rent. app SL landlord
00:01:25
and with that let's bring on Jay to talk
00:01:27
about his six rules for investing in
00:01:30
2024 Jay scottt welcome back to the
00:01:32
Bigger Pockets real estate podcast it's
00:01:35
always great to have you here I
00:01:37
appreciate it thanks it feels like it's
00:01:38
been a minute since I've been on the
00:01:39
show thrilled to be back I'm happy
00:01:41
you're back with us because I'm really
00:01:43
excited to dig into your rules that
00:01:45
you're going to give us on investing in
00:01:47
2024 but before we jump into those rules
00:01:50
maybe we should talk about what are some
00:01:52
of the conditions that you're monitoring
00:01:55
that have influenced the creation of
00:01:57
these rules what metrics economic
00:02:00
conditions are top of mind right now
00:02:03
yeah so there are a number of them and
00:02:04
and the economy is constantly changing
00:02:07
the the markets constantly changing but
00:02:09
there are a few big themes that we've
00:02:10
been seeing over the last couple months
00:02:12
even the last couple years that are kind
00:02:14
of driving how we as investors should be
00:02:16
thinking about investing moving forward
00:02:18
and the first one I don't think will
00:02:19
surprise anybody uh but that's inflation
00:02:22
and the fact that we have seen High
00:02:24
inflation and even persistent inflation
00:02:26
over the last couple years normally we
00:02:29
as Real Estate Investors we love
00:02:31
inflation inflation means that rents are
00:02:32
going up and so if we're Buy and Hold
00:02:34
investors normally speaking inflation is
00:02:37
really good for us the problem is when
00:02:39
we see really high inflation when we see
00:02:41
persistent inflation especially in this
00:02:43
case where we see inflation that is
00:02:45
higher than wage growth so people are
00:02:48
are literally losing money um because
00:02:51
the things that they're buying cost more
00:02:52
than than the money that they're making
00:02:54
um the cost of goods is going up faster
00:02:56
than our wages when that happens people
00:02:59
can't afford to pay higher rents and
00:03:01
with the super high inflation that we've
00:03:03
seen over the last couple years um in
00:03:06
many cases we've come to the point where
00:03:07
we we've come close to maxing out rents
00:03:10
people are paying close to 30% of their
00:03:12
income towards their housing cost
00:03:14
towards their rent and when you get
00:03:16
close to 30% you get to the point where
00:03:18
apartment owners aren't going to be
00:03:19
willing to rent to you because they want
00:03:21
to see three times income for for rent
00:03:24
um and so we're just getting to that
00:03:25
point where as investors we may not have
00:03:28
the ability to raise rent much further
00:03:30
thanks to inflation so so inflation is
00:03:33
the first one the second one simply the
00:03:35
fact that we have seen such high real
00:03:37
estate values over the last couple years
00:03:40
going back 100 120 years or so we can
00:03:43
see that real estate tends to track
00:03:45
inflation for values so from like 1900
00:03:48
to 2000 so for that 100 years basically
00:03:51
we saw the inflation line go up and the
00:03:52
real estate values line go up in lock
00:03:55
step real estate goes up at the the rate
00:03:57
of inflation now we know that before 200
00:03:59
8 prices kind of got wild uh real estate
00:04:02
values went up much higher than
00:04:03
inflation but between 2008 and
00:04:06
2013 those prices Came Crashing Down and
00:04:09
we were again right around that
00:04:10
inflation trend line so historically
00:04:13
speaking we can say that real estate
00:04:15
goes up at the rate of inflation and if
00:04:17
we're much higher than that rate of
00:04:18
inflation one of two things is going to
00:04:20
happen either we're going to see real
00:04:22
estate prices come crashing down back to
00:04:25
that that trend line or we're going to
00:04:27
see real estate uh prices stay flat for
00:04:29
a long period of time while inflation
00:04:31
catches up and so I think it's likely
00:04:34
that over the next couple years that
00:04:35
we're going to see one of those two
00:04:36
phenomenons and and I do have a thought
00:04:38
on which one it's going to be but I
00:04:40
think it's likely that we're either
00:04:41
going to see prices come down or prices
00:04:43
stay the same for the next few years I
00:04:44
think it's unlikely that we're going to
00:04:46
see uh much higher real estate values
00:04:48
over the next couple years just thanks
00:04:50
to the fact that that real estate values
00:04:52
right now are so far above that trend
00:04:54
line all right well Jay I'm curious what
00:04:57
you know just very briefly do you think
00:04:59
it was a pull forward and we'll just see
00:05:01
sort of flat appreciation or do you
00:05:03
think we're going to see a big uh leg
00:05:06
down in terms of housing prices I think
00:05:08
the Market's a lot different than it was
00:05:09
in 2008 when we did see that big crash
00:05:11
in prices um the fundamentals are
00:05:15
different back in 2008 basically we had
00:05:17
a recession that was driven by bad
00:05:21
decisions in the real estate industry by
00:05:23
lenders by Brokers uh by buyers we don't
00:05:27
see those same conditions now secondly
00:05:30
there's a lot of demand in the market
00:05:32
now whereas we didn't see a lot of
00:05:34
demand back in 2008 and there's not a
00:05:36
lot of Supply there about 80% of of
00:05:38
homeowners right now who have uh
00:05:41
mortgages with interest rates under 4%
00:05:43
those people don't want to sell why sell
00:05:46
a property with a mortgage under 4% just
00:05:48
have to go out and buy an overvalued
00:05:49
property with a mortgage now at 8% or
00:05:51
have to rent at extremely high rents so
00:05:54
people aren't selling people are sitting
00:05:55
on the houses that they own so given the
00:05:58
supply and demand given that the the
00:05:59
fundamentals are pretty strong and given
00:06:01
the fact that historically real estate
00:06:04
doesn't go down in value I think it's a
00:06:07
lot more likely that over the next
00:06:08
couple years we see flat prices flat
00:06:11
values while that inflation line kind of
00:06:13
catches up to the real estate values so
00:06:15
that that's my best guess at what's
00:06:17
going to happen I don't think we're
00:06:18
going to see a big drop we may see a
00:06:20
softening we may see a small drop in
00:06:22
values I wouldn't be surprised but I
00:06:23
don't think it's going to be anything
00:06:24
like 2008 that does tend to be the
00:06:26
general consensus around most
00:06:28
experienced investors an economist and
00:06:30
here's hoping you're right I do think
00:06:32
something needs to change for us to uh
00:06:34
experience more normal levels of
00:06:36
affordability again uh but obviously we
00:06:38
don't want a huge shock to the system so
00:06:41
far the two conditions you've listed are
00:06:42
inflation and high home prices what are
00:06:45
the other conditions Jay yeah so the
00:06:47
next one is simply interest rates we all
00:06:50
know interest rates are are high at
00:06:52
least compared to where they've been
00:06:53
over the last 20 years when interest
00:06:55
rates are high a couple things happen
00:06:57
one there's a Slowdown in in trans
00:06:59
actions um so we've seen that with
00:07:01
sellers sellers don't want to sell their
00:07:03
houses because they have low interest
00:07:05
rates from a couple years ago and they
00:07:06
don't want to have to trade those low
00:07:07
interest rates for high interest rates
00:07:09
and secondly it's a lot harder for us as
00:07:11
Real Estate Investors to get our numbers
00:07:13
to work it's hard to get cash flow when
00:07:17
interest rates are higher than than what
00:07:19
we call Cap rates basically the uh cash
00:07:21
flow we can expect from our properties
00:07:24
and so just given the situation I think
00:07:25
it's very unlikely that we're going to
00:07:27
see a lot of transactions over the next
00:07:28
couple years um which as Real Estate
00:07:31
Investors we want to see a lot of
00:07:32
transactions because at the end of the
00:07:34
day the more transactions the more
00:07:35
distress sellers we're going to have and
00:07:37
the better deals that we're going to get
00:07:39
yeah I don't think you're surprising
00:07:40
anyone there with uh interest rates that
00:07:42
is definitely a common topic what are
00:07:44
the last two you got yeah last two I
00:07:46
have uh number four is just a slowing
00:07:48
economy so um we've seen great economic
00:07:51
growth over the last couple years but
00:07:52
we're starting to see the economy slow
00:07:54
down uh GDP came in a lot lower than
00:07:57
expected don't know if this is going to
00:07:58
be a trend if this was just a blip on
00:08:01
the uh on the radar but assuming the
00:08:03
economy slows down that could impact
00:08:05
real estate values I talked before about
00:08:07
how I think values are going to stay
00:08:09
propped up for the next couple years but
00:08:11
if people start losing their jobs if
00:08:12
foreclosure foreclosures start to
00:08:14
increase then it's really it's possible
00:08:17
that we could see real estate value
00:08:18
soften and start to come down so a
00:08:19
slowing economy is the next one and then
00:08:22
finally this thing called the yield
00:08:23
curve and I know it's it's it's a
00:08:26
somewhat complicated topic I'm not going
00:08:27
to go into the details but let me leave
00:08:30
it at this Banks like to borrow money at
00:08:33
very low rates they like to borrow
00:08:35
What's called the short end of the curve
00:08:36
they like to borrow money um overnight
00:08:39
or for a couple days or a couple weeks
00:08:41
and then they want to lend it out for a
00:08:43
long period of time they want to lend it
00:08:45
at the long end of the curve they want
00:08:46
to lend it for 10 years 20 years 30
00:08:48
years and historically speaking
00:08:51
borrowing money at the short end of the
00:08:53
curve shortterm is a lot cheaper than it
00:08:56
is at the long end of the curve so banks
00:08:57
are used to being able to borrow money
00:08:59
short-term at very low prices and lend
00:09:01
it out longterm at very high prices
00:09:04
right now we're in a situation where
00:09:06
borrowing money shortterm is actually
00:09:08
more costly than borrowing money
00:09:10
longterm and so banks are kind of upside
00:09:13
down on this thing called the yield
00:09:15
curve where they're borrowing money at
00:09:16
higher costs and lending them out at
00:09:18
lower costs and when the banks are not
00:09:20
making as much money on the money that
00:09:22
they're lending when they're not making
00:09:24
as big a spread what they're going to do
00:09:26
is they're going to slow down they're
00:09:27
going to tighten up their lending
00:09:28
standard and they're going to lend less
00:09:30
money and anytime Banks lend less money
00:09:32
that's going to be bad for us as Real
00:09:33
Estate Investors yeah makes sense and I
00:09:35
know that this is something of a uh
00:09:38
complex topic for people but as J just
00:09:40
said this really makes sense if you
00:09:41
think about the way that a bank works if
00:09:44
they have to borrow money in the short
00:09:47
term at a higher rate it increases their
00:09:49
risk and they are not in a position to
00:09:50
be taking on extraordinary amounts of
00:09:52
risk everything that's going on with the
00:09:54
economy and credit markets right now so
00:09:57
thank you for sharing those conditions
00:09:59
with us J and just to recap we talked
00:10:01
about inflation we talked about record
00:10:04
high median home prices interest rates a
00:10:06
slowing economy and a yield curve
00:10:09
inversion let's move on now to your six
00:10:13
rules for how to navigate them because
00:10:15
frankly Jay those six conditions don't
00:10:17
sound great for Real Estate Investors
00:10:20
there's not a lot of happy or positive
00:10:23
conditions that you're tracking there so
00:10:25
how do you get around that so let's
00:10:28
start with the fact that that most real
00:10:30
estate strategies are long-term and most
00:10:33
economic and market conditions are
00:10:35
short-term so if we go back to 200 2008
00:10:37
and we think about the fact that yeah
00:10:39
2008 was a really bad time uh to be
00:10:42
buying certain types of properties same
00:10:44
with 2009 even 2010 but if in 2008 you
00:10:47
were buying properties for the long term
00:10:49
you're buying to hold for three five 7
00:10:52
10 years well in retrospect as we see
00:10:56
property values have gone up everything
00:10:58
has worked out
00:10:59
and I would suggest that if you look
00:11:02
back through uh real estate history
00:11:04
there's never been a 10-year time period
00:11:06
where real estate values didn't go up
00:11:09
and so while today it's really easy to
00:11:10
say yeah things are bad it's not a good
00:11:12
time to be buying consider that if you
00:11:15
buy something today and you're still
00:11:16
holding it 10 years from now you're
00:11:18
likely going to have made money so with
00:11:21
that said let let's jump into some some
00:11:23
rules that that I'm following today um
00:11:26
as a real estate investor and I would
00:11:28
consider I would suggest other people
00:11:29
probably consider following as well um
00:11:32
number one I wouldn't S Suggest anybody
00:11:35
thinks about buying strictly for
00:11:38
appreciation anymore um when you were
00:11:40
buying in 2008 9 10 11 12 with values as
00:11:43
low as they were it was really easy to
00:11:45
buy basically anything and say okay if I
00:11:48
hold this property for a few years it's
00:11:50
probably going to come back in value
00:11:51
it's probably going to make me money I'm
00:11:53
probably going to get more cash flow I'm
00:11:54
probably going to get uh all the
00:11:56
benefits of real estate but today we
00:11:58
have really real estate values that are
00:12:00
tremendously high and so buying with the
00:12:03
expectation that they're going to go
00:12:04
higher is a very risky proposition and
00:12:07
so the first thing I would suggest is
00:12:09
that people who are buying right now
00:12:11
don't Factor appreciation into your
00:12:14
deals don't assume that you're going to
00:12:16
get appreciation um from the deals that
00:12:18
you're doing maybe you will and if you
00:12:20
do consider it a bonus but right now you
00:12:22
should be buying for the fundamentals
00:12:24
you should be buying for the cash flow
00:12:26
you should be buying for the tax
00:12:27
benefits you should be buying for the
00:12:29
long-term principal pay down that you're
00:12:31
going to get by holding that property
00:12:32
longterm but don't necessarily factor in
00:12:35
the appreciation into your metrics again
00:12:37
hopefully you'll get it but you may not
00:12:39
Jay when you say don't factor in any
00:12:42
appreciation I think there are different
00:12:43
ways people approach this some people
00:12:45
treat quote unquote appreciation as
00:12:48
above and beyond the rate of inflation
00:12:51
or are you saying actually flat zero
00:12:54
price growth you know for the next few
00:12:56
years yes so histor Al I've always said
00:13:00
don't factor in inflation don't factor
00:13:03
in price appreciation um and that was
00:13:05
even before we're in the market that
00:13:07
we're in now um I've always been a big
00:13:09
believer that yes over the long term we
00:13:11
should see real estate values go up but
00:13:13
again historically we see them go up at
00:13:16
around the rate of inflation which means
00:13:18
we're not making money on real estate
00:13:19
values going up we're just not losing
00:13:21
money real estate holding real estate
00:13:23
long term is a wealth preservation
00:13:25
strategy if you're not getting any other
00:13:27
benefits and so from my pers perspective
00:13:30
I don't like to assume appreciation in
00:13:32
any forms um whether it's it's current
00:13:35
conditions or whether it was conditions
00:13:36
10 years ago or 10 years from now that
00:13:39
said there is one other type of
00:13:40
appreciation that that we can factor in
00:13:42
and that's called forced appreciation
00:13:44
and this is where a lot of us make our
00:13:45
money we buy properties that are
00:13:48
distressed in some way uh maybe they are
00:13:50
physically distressed meaning that they
00:13:52
need Renovations that they're in
00:13:53
disrepair maybe they're in management
00:13:55
distress maybe they're being managed
00:13:57
poorly the person that owns the property
00:13:59
is a tired landlord or just doesn't have
00:14:01
the time to to spend or the attention to
00:14:04
to spend on the property and it's just
00:14:06
not being managed well they're not uh
00:14:08
managing the expenses well they're not
00:14:09
managing the income well if you can go
00:14:11
into a property like that and you can
00:14:13
renovate it again either physically or
00:14:15
through management changes you can
00:14:17
increase the value tremendously well
00:14:18
above the rate of inflation well above
00:14:21
the long-term trend of increase in in
00:14:23
real estate values and so I'm a big
00:14:24
proponent of that I'm a big proponent of
00:14:26
force depreciation to make money but
00:14:28
again if you're just going to sit back
00:14:30
and wait for the market to help you make
00:14:32
money historically it doesn't happen the
00:14:34
market will help you preserve your
00:14:35
Capital it will help you kind of keep
00:14:38
the same spending power for the value of
00:14:39
the property that you own but it's not
00:14:41
going to make you money long term yeah
00:14:43
that makes sense and I you know
00:14:44
typically what I've done is underwritten
00:14:47
deals at the rate of inflation like you
00:14:50
said they it usually tracks inflation
00:14:52
and so I count on properties going up
00:14:55
you know 2% a year or something like
00:14:57
that to keep Pace with the rate of
00:14:59
inflation so I'm wondering Jay if you
00:15:01
were a investor listening to this and
00:15:04
you're intending to buy something for 15
00:15:07
years and you're saying you know maybe
00:15:08
the next few years we're going to have
00:15:10
flat would you just put 0% appreciation
00:15:13
for the next 15 years or how would you
00:15:15
like actually go about underwriting a
00:15:17
deal on that time frame I would
00:15:20
literally put 0% appreciation for the
00:15:22
next 15 years and uh to be honest this
00:15:24
is what I've done and this is what I've
00:15:26
been recommending people do um for as
00:15:28
long as I've in this business so it's
00:15:30
not just something I'm saying now I was
00:15:31
saying this back in 2008 9 10 11 12 um
00:15:35
My Philosophy is always been if we get
00:15:38
that appreciation that's fantastic um
00:15:41
but don't assume you're going to get it
00:15:43
and don't Factor it into your numbers
00:15:44
considered the cherry on top awesome
00:15:47
great advice for rule number one Jay
00:15:50
what's rule number two rule number two
00:15:52
is we need to be super conservative in
00:15:55
our underwriting assumptions these days
00:15:57
both on the income side of things and
00:15:59
the expense side of things I mentioned
00:16:02
earlier that inflation tends to be good
00:16:04
for us as Real Estate Investors and
00:16:06
that's true typically um during
00:16:07
inflationary times rents are going up
00:16:10
and what we saw in 2021
00:16:12
2022 uh rents went up really quickly
00:16:15
really high and that was because of
00:16:17
inflation unfortunately again because
00:16:20
inflation is higher than wage growth
00:16:21
right now there are a lot of people who
00:16:23
aren't making more money inflation isn't
00:16:26
helping them and when people are making
00:16:28
less money in real terms they're going
00:16:30
to have less money to spend on rents and
00:16:32
so we're unlikely to see the same
00:16:34
historic rent growth that we've seen
00:16:35
over the last 10 20 30 years
00:16:38
historically in most markets we've seen
00:16:40
rank grow somewhere in the 2 to 3% range
00:16:43
these days I'm assuming that for the
00:16:45
next year or two rank growth is going to
00:16:47
be closer to 1% maybe 2% in some markets
00:16:50
I'm I'm actually uh underwriting rank
00:16:52
growth is flat for the next year or two
00:16:54
it's hurting my numbers it's making it
00:16:56
more difficult to get deals to pencil
00:16:58
but again I like to go in conservatively
00:17:00
and then if everything works out and we
00:17:02
do see more rent growth than we expect
00:17:04
then again that's the cherry on top
00:17:06
that's the the bonus that we weren't
00:17:07
expecting but if things happen the way
00:17:10
we are expecting which is little rent
00:17:12
growth for the next couple years we're
00:17:13
not going to find ourselves in a bad
00:17:15
cash flow position or in a position
00:17:16
where uh we're at risk of losing a
00:17:18
property because we were over optimistic
00:17:21
or we were over aggressive in our
00:17:22
assumptions all right so similar idea
00:17:24
here to rule number one is obvious you
00:17:27
don't want to count on too much
00:17:28
appreciation
00:17:29
in price appreciation for home values
00:17:32
same thing in terms of rents as well and
00:17:36
I just want to call out not only are
00:17:38
rents growing slower than uh inflation
00:17:42
right now rents are also growing slower
00:17:44
than expenses right now and so that is
00:17:47
something I think that really
00:17:49
complicates underwriting a little bit in
00:17:51
a way that at least I'm not super
00:17:53
familiar with or used to in my investing
00:17:55
career where you might have to forecast
00:17:57
Lower cas flow at least in the next
00:18:00
couple of years yeah and you beat me to
00:18:03
it um the the rent the income is one
00:18:06
side of the equation that we as
00:18:07
investors are kind of getting getting
00:18:09
beaten up a little bit on these days but
00:18:11
the other side of the equation the
00:18:12
expenses we're getting beaten up on as
00:18:14
well um if you just look at normal
00:18:16
operating expenses things like
00:18:18
electricity and water and other
00:18:20
utilities um things like uh labor costs
00:18:23
and material costs all of those things
00:18:25
are going up at the rate of inflation
00:18:27
and as we already discussed dust
00:18:29
inflation is pretty high right now it's
00:18:30
not the typical 2 2 and a half% that
00:18:32
we've seen historically and so in our
00:18:34
underwriting we can't assume that those
00:18:37
expenses are going to go up at the
00:18:38
Historical rate of 2 or 2 and a half%
00:18:41
like we always have these days inflation
00:18:43
is closer to three 3 and a half maybe
00:18:45
even 4% and so we need to be
00:18:47
underwriting future uh expense growth at
00:18:50
these 3 or 4% numbers now unfortunately
00:18:53
it's even worse than that those are our
00:18:55
regular operating expenses we're seeing
00:18:57
certain operating expenses I'll use the
00:18:59
example of insurance as the big one in
00:19:02
some markets we're seeing insurance go
00:19:03
up at many many times the rate of
00:19:05
inflation I'm in the I'm in the Florida
00:19:07
market and I've seen INF uh Insurance on
00:19:10
not only my rental properties but my
00:19:12
personal residence go up literally two
00:19:14
to three times over the last couple
00:19:16
years and so do I expect that to
00:19:18
continue no I don't expect that we're
00:19:20
going to see 50 or 100% uh rate
00:19:22
increases on insurance over the next
00:19:24
couple years but I certainly think it's
00:19:26
likely that we're going to see rate
00:19:27
increases above inflation so personally
00:19:30
when I'm underwriting Insurance
00:19:31
increases on deals I'm assuming that
00:19:34
we're going to see four five six even 7%
00:19:36
Insurance increases year-over-year for
00:19:38
the next couple years and so it's really
00:19:40
important that on the expense side of
00:19:42
things that were uh that were
00:19:43
conservative as well and we recognize
00:19:46
that uh that the numbers that we've been
00:19:48
using for the last 10 or 20 or 30 years
00:19:50
aren't necessarily going to be
00:19:51
applicable this time around yeah that's
00:19:54
great advice and I just want to add one
00:19:56
thing on top of just insurance I read an
00:19:58
article recently that was talking about
00:20:00
how property taxes across the country
00:20:03
have gone up 23% since the beginning of
00:20:05
the pandemic but in the same period home
00:20:09
values went up 40% indicating that even
00:20:12
though taxes have already gone up
00:20:14
they're likely to go up even more
00:20:16
because property taxes are tied to the
00:20:18
value of homes and so it shows that
00:20:20
taxes are probably still lagging all the
00:20:23
appreciation that we've seen over the
00:20:25
last couple of years so you definitely
00:20:26
want to underwrite and understand what
00:20:29
any properties that you're looking at
00:20:31
what they're assessed at right now and
00:20:32
if that's a reasonable assessment rate
00:20:34
or if they're likely to go up in the
00:20:36
future as well all right we've covered
00:20:38
two rules so far which are similar one
00:20:41
is don't assume appreciation and
00:20:43
property values the other is don't
00:20:45
assume you're going to get rent growth
00:20:48
uh in excess of inflation right now
00:20:51
let's move on to our third rule J what
00:20:53
is it it's basically be very cognizant
00:20:56
about the strategy that you're using to
00:20:58
invest and at the end of the day there
00:21:00
are essentially two investment
00:21:01
strategies that that every real estate
00:21:04
uh investment falls into it's either a
00:21:06
Buy and Hold investment you're buying
00:21:08
something um to hold for some period of
00:21:10
time where you're going to generate
00:21:12
appreciation or cash flow or tax
00:21:14
benefits or loan principal pay down or
00:21:17
or some other benefit from the property
00:21:19
or you're buying something for the the
00:21:21
purpose of of of just doing a a quick
00:21:23
transaction you're buying it to uh Flip
00:21:26
or or raise the value quickly and res
00:21:28
sell it and so basically we have Buy and
00:21:30
Hold versus the the transactional flip
00:21:33
models and historically both of those
00:21:36
models work pretty well but in a market
00:21:38
where it's possible that we're going to
00:21:41
see a reduction in in home values and
00:21:44
potentially even a significant reduction
00:21:46
in home values if we see a slowing in
00:21:48
the economy and a lot of people lose
00:21:50
lose their jobs and we see a lot of
00:21:51
foreclosures we could see a decent drop
00:21:54
in the housing market I don't expect it
00:21:55
but it could happen um when that's case
00:21:59
you don't want to be in a situation
00:22:00
where you're buying properties with the
00:22:02
expectation of being able to sell them
00:22:04
for a profit in the short term
00:22:06
especially when you're buying those
00:22:07
properties without the expectation of
00:22:09
cash flow so if I buy a property today
00:22:12
and I expect to sell it in 6 months and
00:22:14
I'm not going to have any opportunity to
00:22:16
make cash flow from that property what
00:22:17
happens when the property or when the
00:22:19
market drops and the property value
00:22:20
drops 5 or 10% over the next few months
00:22:23
I'm going to be in a situation where I
00:22:25
either have to sell for a loss or I need
00:22:26
to hold on to the property normally hold
00:22:28
holding on to a property isn't bad but
00:22:30
if I'm not generating any cash flow and
00:22:32
I'm paying my mortgage every month and
00:22:33
I'm paying my utility costs every month
00:22:35
and my property taxes and everything
00:22:37
else I need to upkeep that property what
00:22:39
I'm going to find is I'm losing money
00:22:41
long term and so what I recommend to
00:22:43
people right now is I'm not saying don't
00:22:45
flip I'm not saying don't do anything
00:22:47
transactional but recognize that there's
00:22:50
a much higher risk for flips and
00:22:52
transactional Deals right now than there
00:22:54
has been in the past and make sure that
00:22:56
you are ready to deal with a situation
00:22:59
where values drop quickly if that
00:23:01
happens uh do you have the Reserves um
00:23:04
to to to handle holding the property a
00:23:06
little bit longer or are you willing to
00:23:07
sell the property quickly fire sale the
00:23:09
property and uh Break Even or even take
00:23:12
a loss on the property be prepared for
00:23:14
those situations and know what you're
00:23:15
going to do all right so that's the
00:23:17
third Rule and Jay I I have some
00:23:18
follow-ups for you there because I think
00:23:20
this is a bit of a change from how
00:23:22
things have gone recently uh first and
00:23:25
foremost I just speaking to a lot of
00:23:26
people flipping has been pretty
00:23:28
profitable over the last couple of
00:23:30
months and I I'm curious if you think if
00:23:35
you're just cautioning against you know
00:23:39
what could happen and just want everyone
00:23:41
to be conservative or you actually think
00:23:44
that there's some risk that prices will
00:23:46
decline 3 5% in a relatively short order
00:23:50
certainly there's that risk do I think
00:23:52
it's a high risk no but we as investors
00:23:55
it's our job to assess all the risks and
00:23:58
to determine is this something that if
00:24:00
it happens even if it's a a 1% or 5% or
00:24:03
10% chance um for us to assess that risk
00:24:06
and determine what we would do if it
00:24:08
should play out so I don't think it's a
00:24:11
high risk but I do think it's a risk
00:24:13
that we should be looking at another
00:24:14
thing to consider is that for much of
00:24:16
the last 15 years up until well even
00:24:19
including today for much of the last 15
00:24:22
years real estate's gone up in value so
00:24:24
we didn't need to be good house flippers
00:24:26
to make money flipping houses um we
00:24:28
could take a house and we could do a
00:24:30
poor job flipping it we could do not the
00:24:32
best renovation we could overspend on
00:24:33
the property we could overspend on the
00:24:35
renovation costs and even with all of
00:24:37
those things conspiring against us we
00:24:39
probably made made money because the
00:24:41
market was just going up so quickly and
00:24:44
so over the last 15 years a lot of us as
00:24:47
flippers have gotten into some bad
00:24:48
habits and we've gotten the attitude
00:24:50
that no matter what we do good or bad is
00:24:52
going to result in profit and so I think
00:24:55
we need to recognize that even if price
00:24:58
don't go down in the near term they
00:25:00
probably aren't going up very much
00:25:02
higher and if prices stay flat then we
00:25:05
as house flippers or we as transactional
00:25:07
investors need to get really good at
00:25:10
what we're doing to ensure that we're
00:25:11
making money based on our efforts and
00:25:14
doing the right things with with our
00:25:15
Renovations and with our management
00:25:17
improvements as opposed to just hoping
00:25:19
that the Market's going to bail us out
00:25:20
because prices keep going up and what
00:25:22
would you say Jay then to this narrative
00:25:24
that seems to be everywhere that if and
00:25:26
when rates drop that we're going to see
00:25:28
this massive increase in property values
00:25:31
again it's possible um I I think if and
00:25:35
well not if and when we see rates drop
00:25:36
we are going to see rates drop um but
00:25:38
the the big question is when are we
00:25:40
going to see rates drop and I know a lot
00:25:43
of people were expecting that it was
00:25:44
going to happen early this year and then
00:25:46
people were expecting it was going to
00:25:47
happen in the summer of 2024 and now
00:25:49
people are talking about it happening at
00:25:51
the end of 2024 but the reality is we
00:25:54
don't know and it could be a year away
00:25:57
it could be two years away for all we
00:25:58
know we could see rates actually
00:26:00
increase before they eventually drop I
00:26:02
mean uh the the FED chairman Jerome pal
00:26:05
came out last week and said um it's
00:26:07
there's not a high chance of it but for
00:26:09
the first time in many months he's
00:26:12
acknowledged the fact that we may have
00:26:13
to raise rates or they may have to raise
00:26:15
rates again before they lower rates
00:26:17
again I don't think it's a high chance
00:26:19
and I don't think that rates are going
00:26:20
to be this high for the next five or 10
00:26:23
years but it is possible that we're
00:26:26
going to have high rates for the next
00:26:28
several months or for the next year or
00:26:29
two and we may even have a spiking rates
00:26:31
between now and when they start coming
00:26:33
down and so we need to factor that in
00:26:35
especially if we're going to be flipping
00:26:37
houses because remember flipping houses
00:26:39
we don't want to hold properties for
00:26:40
longer than three or six months and I
00:26:42
think it's unlikely that we're going to
00:26:44
see rates drop in the next three to six
00:26:45
months all right let's move on to rule
00:26:48
number four what do you got Jay rule
00:26:50
number four um and I'm going to be
00:26:53
channeling my 2008 invest yourself when
00:26:55
I say avoid adjustable rate debt so we
00:26:59
saw a lot of this back in 2004 2005 2006
00:27:03
where investors were assuming um that
00:27:06
interest rates were going to stay low
00:27:08
long term um and I know right now we're
00:27:10
we're thinking interest rates are going
00:27:11
to go down a good bit long term um but
00:27:14
we were surprised back then and I think
00:27:16
there's a risk of being surprised right
00:27:17
now so uh adjustable rate debt basically
00:27:21
puts you in a situation where when that
00:27:23
debt expires whether it's a year from
00:27:25
now two years from now 5 years from now
00:27:27
um you're going to be at the whims of
00:27:29
the market to see what your new rate is
00:27:31
and I'm hopeful that rates are coming
00:27:33
down over the next 5 or seven years but
00:27:36
I'm not positive it's going to happen
00:27:38
not to mention a lot of adjustable rate
00:27:40
debt is 5 to seven years out a lot can
00:27:43
happen in 5 to 7 years maybe we see
00:27:45
rates drop over the next year or two and
00:27:47
then three or four or five years from
00:27:49
now we find ourselves in in another
00:27:51
recession or or or I'm sorry in another
00:27:53
expansion Market booming and the FED has
00:27:56
to raise rates again and so we could be
00:27:57
in the next cycle by the time adjustable
00:28:00
rate debt um uh adjusts if you bought it
00:28:03
today and so uh I highly recommend that
00:28:06
anybody that's that's getting mortgages
00:28:08
today take that hit I know it costs a
00:28:10
little bit more you're going to get a
00:28:11
little bit higher interest rate on fixed
00:28:13
rate debt but personally I sleep better
00:28:15
at night knowing that I don't need to
00:28:17
worry about what's going to happen three
00:28:18
or five or seven years from now and
00:28:20
knowing that even if I get fixed rate
00:28:22
debt if uh rates do drop a good bit in
00:28:25
the next couple years I can refinance
00:28:27
and I can take advantage of of it but I
00:28:28
want to I want to know that the deal is
00:28:30
going to work today at today's rates and
00:28:32
again if I get that that benefit of
00:28:34
being able to refinance at a lower rate
00:28:36
again just another cherry on top I'm
00:28:38
definitely with you on that one and
00:28:40
honestly right now the spread between
00:28:41
adjustable rate mortgage rates and fixed
00:28:44
isn't even that big so it just doesn't
00:28:46
even feel worth it given everything
00:28:48
you're talking about all right rule
00:28:50
number five what do we got rule number
00:28:52
five don't buy anything or hold anything
00:28:55
right now that you're not willing to
00:28:56
hold for the next 5 or 10 years I I kind
00:28:58
of like this this rule regardless of
00:29:00
what Market we're in but especially when
00:29:02
we're in a market where we don't know
00:29:04
that where values are headed only
00:29:06
holding things that you're willing to
00:29:07
hold or able to hold and there's two
00:29:09
they're two very different things
00:29:10
willing and able to hold for the next
00:29:12
five or 10 years on the willing to hold
00:29:14
side you want to make sure that that you
00:29:15
have properties right now that are cash
00:29:17
flowing to the point that that you can
00:29:19
you can continue to survive if they cash
00:29:22
flow a little bit less or your return on
00:29:24
Equity is high enough that you don't
00:29:25
have much better options um but also
00:29:28
your ability to hold so um are you going
00:29:31
to need that cash are you 5 years from
00:29:33
retirement where you're going to need
00:29:35
cash flow from something else because
00:29:37
you're not going to get it from your
00:29:38
from your job well what happens if we
00:29:40
find ourselves in a recession in the
00:29:41
next couple years values drop and it
00:29:43
takes s or 10 years for those values to
00:29:45
come back like we saw in some markets
00:29:47
after 2008 um you could be in a tough
00:29:49
position so right now um assume that
00:29:54
you're going to need to hold for 5 or 10
00:29:55
years hopefully that won't be the case
00:29:58
but if you make all decisions with the
00:29:59
expectation that your horizon is 5 to 10
00:30:02
years out you're probably not going to
00:30:03
be disappointed because again if you
00:30:05
look historically speaking uh real
00:30:07
estate tends to only go up over any
00:30:09
10-year period I totally agree with you
00:30:11
on this one and also agree that this is
00:30:13
just a good principle when you're buying
00:30:14
Buy and Hold investments in general
00:30:17
there's just usually even in Good Times
00:30:20
it takes several years for Buy and Hold
00:30:22
properties to earn enough equity and
00:30:25
money to overcome just some of the
00:30:27
selling costs there also as you hold on
00:30:30
to debt longer you pay down more
00:30:32
principal relative to the interest
00:30:34
you're paying and so there are a lot of
00:30:35
benefits to holding on for a long time
00:30:38
and in this type of Uncertain economy I
00:30:40
often tell people if you're uncertain
00:30:42
about the next year if you're uncertain
00:30:44
about two years from now sort of look
00:30:46
past it and think about where the
00:30:48
housing market might be at your time
00:30:50
Horizon 5 years 10 years from now 12
00:30:52
years from now at least for me that
00:30:54
makes it easier to make decisions but
00:30:56
that sort of brings up the question if
00:30:59
you're someone who's retiring in 5 years
00:31:02
Jay you've said you don't think flipping
00:31:04
is particularly safe right now and you
00:31:06
got to be extra careful if you're a Buy
00:31:08
and Hold investor you got to be thinking
00:31:09
on a five-year time Horizon are are
00:31:12
people who have that short time Horizon
00:31:15
you know out of luck in this type of
00:31:16
housing market I'm going to be honest
00:31:18
it's it's a it's a bad time to have a
00:31:21
short-term time Horizon for Real Estate
00:31:23
Investors that said um if you have a
00:31:26
short-term time Horizon what what are
00:31:28
your Alternatives your alternatives are
00:31:30
the equities markets the stock market
00:31:32
also at Hall time highs exactly um I
00:31:35
think there could be a lot more
00:31:36
volatility in the stock market over the
00:31:37
next 5 years than there could be in real
00:31:39
estate uh the bond market well maybe
00:31:41
there's some opportunities with bonds
00:31:43
but most of us don't invest in bonds um
00:31:46
what else are you going to invest in
00:31:47
where you're going to get the consistent
00:31:50
returns even if you don't get those
00:31:52
outsize returns that we've become
00:31:53
accustomed to over the last 15 years I
00:31:56
can't think of any other asset class
00:31:57
where we're going to get the consistent
00:31:59
Returns the cash flow again the tax
00:32:01
benefits the principal pay down having
00:32:03
our tenants pay down our mortgage month
00:32:05
after month I can't think of any other
00:32:07
asset class where we're going to get
00:32:09
that so yes it is going to be a tougher
00:32:10
time for Real Estate Investors over the
00:32:12
next few years to make as much money to
00:32:14
make as much cash flow or as
00:32:16
appreciation as they made the last 15
00:32:18
years but I would still rather be in
00:32:21
real estate right now than any other
00:32:22
asset class yeah it makes sense to me
00:32:25
and I appreciate your honesty I don't
00:32:26
want people who have that short Horizon
00:32:30
making bad decisions and so if that is
00:32:32
you take this advice carefully and think
00:32:35
about where you want to allocate your
00:32:36
resources because although there are
00:32:39
risks in every investment every asset
00:32:42
class there are more risks in real
00:32:43
estate as Jay's been talking about right
00:32:45
now than there has been for most of the
00:32:48
last 10 or even 15 years just to put a
00:32:51
finer point on it I think we're going to
00:32:52
see a whole lot fewer people over the
00:32:54
next 10 years quitting their jobs to
00:32:56
become full-time real real estate
00:32:58
landlords um than we've seen over the
00:33:00
last 10 years but what I would tell
00:33:02
anybody out there is that doesn't mean
00:33:03
you should sit around and wait for times
00:33:05
to get better those 10 years are going
00:33:07
to go by whether you're buying real
00:33:08
estate or not and you're going to be
00:33:10
much happier if you bought real estate
00:33:11
now than than waiting 10 years for the
00:33:13
next Bull Run or the next good Market
00:33:15
all right let's get to our last rule Jay
00:33:18
yeah last rule is an interesting one um
00:33:21
and one that I've hadn't really talked
00:33:23
about uh until the last few months but
00:33:26
that's we really need to start paying
00:33:27
attention to some of the legislation
00:33:29
that's governing us as Real Estate
00:33:31
Investors these days and there are a
00:33:32
couple categories of that legislation
00:33:34
number one and a big one that
00:33:36
everybody's talking about is short-term
00:33:37
rentals short-term rentals have been a
00:33:40
super popular asset class over the last
00:33:42
couple years a lot of people have bought
00:33:44
a lot of property made a lot of money uh
00:33:46
but what we're seeing in some markets
00:33:47
and again I'm in Florida I'm I'm in a
00:33:50
Beach town in Florida um cesta key and
00:33:54
even here where you would expect that
00:33:55
the government should be very friendly
00:33:57
towards short-term rentals uh because we
00:33:59
love tourists here that's where our
00:34:00
income comes from that's where our
00:34:02
Revenue comes from what we're finding is
00:34:04
that a lot of citizens and therefore a
00:34:07
lot of government officials are now
00:34:09
taking kind of a a negative stance
00:34:12
against short-term rental owners and so
00:34:15
we've seen again in my area we've seen
00:34:17
short-term rental legislation the tides
00:34:19
turned and we're now seeing longer
00:34:21
periods that landlords are required to
00:34:23
rent for we're seeing um tighter
00:34:25
restrictions on rental on short-term
00:34:27
rentals in which areas they can be uh
00:34:29
employed and so if you're a short-term
00:34:32
rental owner definitely be cognizant of
00:34:34
the fact that where you invest your
00:34:36
local government may or may not be
00:34:38
friendly towards you as as a short-term
00:34:40
rental owner and that could impact your
00:34:42
ability to make money longterm what I
00:34:44
say to anybody who's still thinking
00:34:46
about buying short-term rentals and what
00:34:47
I've been saying for the last couple
00:34:48
years is your plan B should always be to
00:34:51
be able to hold that property as a
00:34:53
long-term rental and anytime I look at a
00:34:55
short-term rental I underwrite a
00:34:56
short-term rental if the numbers work
00:34:59
the very next thing I do is I I
00:35:00
underwrite it as a long-term rental and
00:35:02
I say do the numbers still work if the
00:35:04
laws were to change in my area where I
00:35:06
can no longer rent this thing short term
00:35:08
could I rent it for a year at a time and
00:35:10
still make money and if the answer is
00:35:12
yes well then you've got a good backup
00:35:13
plan if the answer is no then you need
00:35:15
to figure out what your backup plan
00:35:17
might be well definitely agree with you
00:35:18
there Jay in terms of short-term rentals
00:35:21
but I do want to just underscore Jay's
00:35:24
Point here which is that you need to
00:35:26
understand regulations and legislation
00:35:28
because they can be both detrimental to
00:35:30
your investing strategy just like
00:35:32
short-term rental regulations and
00:35:34
there's some other ones that we'll talk
00:35:36
about in a minute but also they can be
00:35:38
positive too there are now things on the
00:35:40
west coast where there's up zoning you
00:35:42
can build adus or there's more
00:35:44
municipalities state governments
00:35:46
enacting things that can help you afford
00:35:49
a down payment especially if you're a
00:35:50
first-time home buyer and looking to
00:35:52
house hack so I think the point really
00:35:54
here is to understand the
00:35:56
particularities and details of what's
00:35:58
going on in any Market that you are
00:36:01
considering investing in absolutely um
00:36:04
and and like you said there are good
00:36:06
things going on we've seen affordable
00:36:08
housing grants and affordable housing
00:36:10
laws popping up in a lot of States
00:36:12
federal government starting to spend
00:36:14
more money on affordable housing um
00:36:16
local state governments again are
00:36:18
spending more money there but then
00:36:19
there's other negative regulations that
00:36:21
we need to consider as well a lot of
00:36:23
states and a lot of cities are starting
00:36:24
to implement rent control and basically
00:36:27
impacting the the ability to raise rents
00:36:30
which might be good for tenants but
00:36:32
isn't good for us as landlords
00:36:33
especially when we see operating
00:36:35
expenses and insurance and property
00:36:36
taxes going up as quickly as they are if
00:36:38
we don't have control over our ability
00:36:40
to raise rents and allow the uh the
00:36:42
supply and demand the market forces uh
00:36:45
to determine what our our rental
00:36:47
increases are going to be we could be at
00:36:48
a disadvantage there are a number of
00:36:50
other pieces of legislation that that
00:36:52
have been proposed in a number of states
00:36:54
again as you said some good for for us
00:36:56
as real estate investor some bad for us
00:36:58
as Real Estate Investors but it is
00:37:00
important that we know what legislation
00:37:02
is likely on the table and how that
00:37:04
legislation is going to affect us not
00:37:06
only shortterm but long-term yeah that's
00:37:08
that's very good advice and I think
00:37:10
people there's good ways to do that and
00:37:13
you should be looking not just on a
00:37:15
national level but on a state level and
00:37:18
really on a municipality level I think a
00:37:20
lot of the very specific things like
00:37:22
short-term rentals rent controls are
00:37:24
often handled by States and local
00:37:26
governments and I know it's boring in
00:37:27
but going to those types of meetings or
00:37:30
subscribing to a local newspaper
00:37:32
something like that so that you're
00:37:34
constantly informed is really going to
00:37:36
help your investing strategy and let me
00:37:38
just summarize here the six rules we
00:37:39
discussed number one was don't assume
00:37:41
that you're going to get appreciation in
00:37:43
terms of property values number two was
00:37:46
don't assume rent growth for the next
00:37:48
couple of years number three was be very
00:37:51
cognizant of what strategies you're
00:37:52
using particularly if you're considering
00:37:55
buying non-cash flowing properties so
00:37:57
that's properties just for appreciation
00:37:58
but also strategies like flipping four
00:38:01
was avoid adjustable rate debt five was
00:38:05
consider your time Horizon and don't buy
00:38:07
anything you aren't able to and willing
00:38:09
to hold for 5 to 10 years and lastly we
00:38:13
talked about understanding potential
00:38:15
legislation and how it can affect your
00:38:17
Investments Jay thank you so much for
00:38:20
sharing your thought process and your
00:38:22
rules with us today we appreciate your
00:38:24
time absolutely and let me just end by
00:38:27
saying that I know a lot of that sounded
00:38:29
uh overly negative and maybe uh a bit
00:38:32
alarming to a lot of people but my
00:38:34
attitude has always been be conservative
00:38:37
assume the worst that's going to happen
00:38:39
and I I'll say it again when the worst
00:38:41
doesn't happen just consider that to be
00:38:43
uh an additional bonus or or the extra
00:38:45
cherry on top so if we go in with with
00:38:47
that negative attitude and the
00:38:48
skepticism and then everything works out
00:38:51
everybody's going to be happy it's much
00:38:52
better than going in with an optimistic
00:38:54
attitude and then finding something bad
00:38:56
that kind of throws us off I totally
00:38:58
agree I always I always say I love
00:39:01
putting myself in a position where it's
00:39:03
great when I'm wrong and it's uh that's
00:39:05
exactly what you're talking about just
00:39:07
be conservative and if you're wrong it's
00:39:09
only a good thing for you and if you
00:39:12
think underwriting with these types of
00:39:14
strict criteria is not possible I'll
00:39:17
just tell you from my own personal
00:39:18
experience it is still possible I
00:39:20
underwrite very similar to what Jay is
00:39:22
talking about here and I've still been
00:39:25
able to find deals this year you do have
00:39:27
to be patient you do have to work hard
00:39:29
to find good deals but it is absolutely
00:39:31
still possible to stick to these
00:39:34
conservative underwriting tactics to
00:39:36
stick to the fundamentals and still
00:39:38
invest here in 2024 for anyone who wants
00:39:41
to connect with Jay he of course has
00:39:44
five books with Bigger Pockets you can
00:39:46
check those out we'll put all of his
00:39:47
contact information in the show notes
00:39:49
below thanks again Jay and thank you all
00:39:52
for listening to this episode of bigger
00:39:54
news we'll see you again soon for
00:39:56
another episode episode of the Bigger
00:39:58
Pockets real estate podcast
00:40:00
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