Where to Find Deals in 2023 and How to Spend $100K

David:
This is the BiggerPockets Podcast Show 789. You mentioned that you’re at a disadvantage in some ways and that’s true, but you’re at a huge advantage in some other ways. There’s a lot of other people that are under that belief that they think, “I’m just going to go to college for four years. I’m going to get a great job with great benefits and I’m not going to have to push myself very hard.” And they end up racking up a lot of student debt, getting out of college, not getting a great job they love, they do have to work hard. Life is not what they thought. And they become very bitter and unhappy.
What’s going on, everyone? This is David Greene, your host of the BiggerPockets Real Estate Podcast. As you already know, we are the biggest, the best, and the baddest real estate podcast in the world here today with a Seeing Greene edition for you. In these Seeing Greene editions, I take questions from you, our listener base, and answer them for everyone to hear so we can all share the knowledge, the wealth, and hopefully the success of successful real estate investing.
And today’s show is awesome. We get into, what to do when you can’t find any good deals. Anybody have that resonate with them? Does that sound familiar? Someone needs out of Florida, and where should they buy? This is a really good question where we get into how to identify the next emerging market. If a hard money loan or a private money loan should be extended, and if so, how the deal should be structured. What to do when your hard money loan is coming due. Plus, a story from a 17-year-old that recently lost his parents, is living with his grandparents, has 100 grand coming and wants to know what the best way to set his life up for future success would be. All that and more in today’s Seeing Greene.
All right, before we get to our first question, everybody, I’ve got a quick tip just for you. Remember, there are lots of ways that you can get information from real estate and lots of BiggerPockets episodes you can listen to, but only the most recent ones have data that is relevant to today’s changing market conditions. Rates are bouncing up and now coming back down. Every time rates go down, the markets get hot. Every time they go up, they slow down a little bit. People are moving from state to state and different laws are changing all the time.
What does that mean for you? The market that you’re investing in now is very different than it was even a month ago, and if you’re listening to out-of-date information that isn’t relevant, it won’t be as helpful to you. So, make sure you catch all of the new and recent episodes that we’re putting out, so you can stay up to date with the current, most relevant information to help you build wealth through real estate. All right, thanks for being here. Let’s get to our first question.

Tomerra:
Hi, David. My name is Tomerra Johnson and my husband and I are looking to purchase our first property. We live in Frederick, Maryland, which is about one hour outside of DC and we’ve been working with the realtor now for about six months. We found some really nice properties, potential rental properties, but the problem is the earning potential monthly really hasn’t been too great. The most we’ve seen it’s about 100 to a little less than 300 per month.
And we have about $50,000 that we’ve set aside in cash, assets, and we were intending to use that to put down 20%. We have some other resources if we need to put down more than the 50,000 to reach that 20% marker, but we’re just wondering, should we be putting so much of our cash assets into a property that we may not have the potential of earning much monthly?
We also know that we can get greater return if we purchase a foreclosure or at an auction, but as first-time investors, is it really realistic for us to consider those venues, understanding that those are generally dominated by experienced investors with much larger portfolios?
So, we’re just trying to understand what’s realistic. Is our standard too high? And should we just wait to invest? I know it’s hard to nail down when the best property comes along, but we’re just wondering one to $200, is that realistic right now for the interest rates in the housing market? Any advice that you have would be greatly appreciated. Thank you.

David:
Hey, thank you for this, Tomerra. You articulated your position and your challenges very well. So, let’s get down to answering this question. Unfortunately, the position you and your husband are in is somewhat par for the course right now. We have too much demand, not enough supply. A lot of people want to be investing in real estate right now. Same reasons that you do.
Investors are going hard after assets. People that have seen their rent go up are going hard after assets. Hedge funds and private equity are going hard after real estate assets. There’s a lot of competition. So, even though rates have gone up, all the people that are calling for the crash have been wrong so far. We haven’t seen a crash because there’s still more demand than supply. What that means is it’s harder for investors to make a deal work.
Now, if you’re finding something that’s cash-flowing 100 to $300 a month, that’s actually pretty good. I mean, a lot of the clients that I’m seeing, they aren’t finding cash flow at all. Everybody’s looking really hard to find anything that comes out positive and when they do, it’s usually not the numbers that we saw four or five years ago. When interest rates were really low, you were able to find more cash flow.
Now, you also said something I thought was very insightful. You said, “Should we adjust our expectations or are our expectations too high?” This is a wise way of looking at this situation, because when we are deciding if we want to move on a deal, we’re usually comparing it to the other deals that we’ve seen and we’re gauging, “Is this better or worse than the average that I come across or that the majority of the deals I see?”
Well, if you’re used to seeing five or $600 a month in cash flow and now you’re seeing two or $300 a month in cash flow, it can feel like it’s not a good deal, you shouldn’t buy the property. But if you’re comparing that to no cash flow or even losing money, two or $300 a month starts to look pretty good. It all comes down to what other options you have to put that money into.
So, my question to you is, are there other assets outside of real estate that you can get a better cash on cash return for that 50 grand? And if so, do those other alternatives still look better when you include long-term paydown of the loan, long-term appreciation, potential for rising rates, tax benefits of real estate? Really, instead of comparing deals to what you could get yesterday, you have to compare deals to what you could get today.
Now, you also mentioned, “Should you wait for a foreclosure? Should you buy at auction?” If you’re buying an auction, you usually need to have cash, so you’re not going to be able to buy properties in the DC area with $50,000. Even if you have more, you’d have to have enough money to pay cash for those. Then you’re not going to get an inspection contingency. You’re not going to get clean title. You’re just going to have to hope that there’s no problems with the property. Definitely not a thing that you want to get into as a beginner.
When you add all this information together, it’s why I’ve been telling so many people, “Now’s a great market. It’s a house hack.” If you can get rid of your housing expense, you can get into better properties with less money down and you’re not really giving up a lot of cash flow because you weren’t going to find it anyway. So, if you can reduce your housing expense that’s better than cash flow. And just buy something they can turn into rental property in a year when you move out, when rents have gone up.
That’s a strategy that’s solid. I don’t know if you and your husband are willing to do that, but if you are, I would strongly look into it. And if you’re not, I would advise you to look for properties that are going to appreciate over the long-term more than alternatives.
Look, we all want cash flow and if we can get it, go for it, but if you can’t get it, try to hedge that bet by getting a property that doesn’t cash flow great, but rents are likely to go up every year more than other properties, or the value is likely to go up more every year than other properties. Put more emphasis on the location when you can’t find cash flow, to make up for the cash flow that you’re missing out in the future.
Sorry that you’re in this position, but hey, it doesn’t sound so bad if you’re still able to find something that cash-flows between a hundred and $300 a month. A lot of people can’t even find that.
All right. Our next question comes from Jeff in Denver. “Hey, David. I’ve spent the past four months reading several real estate investing books like Set for Life by Scott Trench, and BRRR, by you, David Greene. Now that I have some knowledge under my belt, I’m looking to take action upon the things I’ve learned to get some hands-on experience. I’m looking for some advice on where to get started and what you would recommend for my situation and the thought process on how to get started.
I’ve got a pretty good and reliable job in cybersecurity that I’ve been successful at. I’ve had one promotion every year in the past three years, and now I’m looking to pivot that momentum I have going in my career into real estate investing. Got about $100,000 in reserves and I’m ready to hit the ground running to build long-term, sustainable wealth.
What I would like to do is purchase distressed properties and BRRRR them to start off with a strong equity position, recover my invested capital to improve the velocity of my money. Also, instead of long-term rent as the second R in BRRRR, I want to implement short-term rentals with a property manager once I’ve rehab to increase cash flow.”
Yeah, that’s still a BRRR. It’s just a BRRRR of a short-term rental. What you’re describing sometimes we call a BRRRR-stir or a Airb and BRRRR. There’s a couple cute ways that people refer to this, but it’s still the BRRRR method. You’re just renting it out as a short-term rental instead of a long-term rental.
“Am I thinking about things the right way? Would you be taking a different approach if you were in my position? And you have any tips or tricks for how I can start to find good BRRRR deals? I’ve had a tough time meeting wholesalers and finding good deals, so at this point I’m considering starting a direct mail campaign so that I can control my own deals in a competitive market. I appreciate everything you’ve done and continue to do for the community. Thanks very much, David.”
All right, thank you for the question, Jeff. I’m going to start with the bad news and then we’re going to move into the good. As you guys are listening to this, BiggerPockets members, are you noticing similar patterns are coming up with every question? You’re not alone. Everyone’s, “I’m having a hard time finding deals. I’m having a hard time finding things that pencil out. I want financial freedom. I want to build long-term wealth from real estate, but, but, but I’m having a hard time finding deals.” Okay? There’s a lot of buts around this problem, and if you’re having a hard time finding deals, you’re not alone.
Our last question came from Tomerra, who’s having a hard time finding deals. It’s hard to find deals, and that’s why I’ve been explaining it’s because there’s more buyers than there are sellers right now. We can get into that in a different episode or a different question, perhaps, on why that’s the case, but that’s the case. So, don’t feel alone if you’re in this position, the best thing we can all do is just adjust our expectations.
If you thought you were going to buy three houses and retire, stop thinking that. If you thought you’re not supposed to have a W2 job and work is for the dumb, stop thinking that. Be grateful that we have jobs. Okay? It’s good to have work right now. If you want to add massive amounts of equity to every deal, you may not be able to do that like you once could when there was less competition for these properties.
The reason you’re having a hard time finding a wholesaler or finding easy access to these kinds of deals is because other investors have jumped your spot and they’re getting access to that wholesaler before you do. Starting a direct mail campaign is a thing that can be done, but if you haven’t done this before, Jeff, I just want to let you know those wholesalers that you’re having a hard time getting in touch with, are already doing that. There are a lot of people that are already doing that. It’s not a guarantee that you’re going to control your own deal flow just by sending out letters.
This was a very popular thing seven years ago, eight years ago, when hardly anybody was doing it. Tons of people are doing it. There are franchises like We Buy Ugly Houses, that are out there teaching people how to send letters. In fact, there’s so many people sending letters that there are now companies that will write your letters for you and have made profit themselves by selling their services to people like you that want to write letters. That’s how many people are sending direct mail to these properties.
Now, I don’t want to discourage you, because I think you’re doing the right thing. I do want to adjust expectations. We are routinely going to see the same questions popping up, the same problems. “I’m having a hard time finding deals.” It’s probably not going to change anytime soon. The word is out, real estate investing is awesome. Everybody knows now. That’s great for us that are listening to this. It’s also not great for us that are listening to this, because now everybody else is listening to this too.
So, what can you do when you’re looking for a BRRRR? First off, let’s talk about some expectations that can be reduced. You do not need to get 100% of your capital out of a deal in order to do it. That is a home run BRRRR. It’s okay to get singles, doubles, and triples. Those are still better than striking out. So, if you’re one of those people that thinks you have to get 100% of your capital out of a deal, don’t. You don’t have to think that way. As long as you leave less money in the deal than you would have if you put 20% down and did your rehab, you’re still coming out on top if you BRRRR.
Second, everybody focuses on buying equity. In my 10 ways that you make money in real estate framework, buying equity is getting the property at a really good price. And people forget about forcing equity, which is value add. You’re going to have to see an angle in homes that other people miss. You’re going to have to find square footage that other people aren’t seeing. You’re going to have to have a vision for that property that other investors are missing.
So, when you’re looking at properties, look for ways to add square footage or what I call forcing cash flow, which is adding additional units that can then be rented out. Many deals don’t work in their current form, but if you converted square footage into a second unit and added another $1,800 a month in rent, the deal would pencil out really good. So, learn to look at real estate through different goggles, like seeing green, for lack of a better phrase. You got to see the potential in real estate and how it could be used as an investment property rather than looking at it in its current condition and just trying to get it at a great price.
Now, once you’ve looked at ways to force equity, now you can look into buying equity and getting it at a better price. You combine all those together and those deals that look like they’re not that great, start to look good if you’ve won in several different areas. I hope that helps, but just remember, if it’s hard, it’s normal. It should be hard right now. It’s going to be hard right now. That doesn’t mean you shouldn’t do it. All right, our next video comes from Simon Garcia in Florida.

Simon:
Hey, David. My name’s Simon Garcia. I’m 17 and I’m in high school right now. I live with my grandparents. And my parents passed away when I was 13. And I live with my little brother and my little sister. Ever since then and pretty much the beginning of COVID, I’ve been trying to find ways on how I could make a lot of money. I want to be super rich, man, super freaking rich, but I feel like my path would be harder than most because I’m in a difficult situation.
However, me, my brother and my sister, each of us received $100,000 as a donation from an organization that my parents used to work for, and we have some leftover money from my dad’s farm that he sold and whatnot. And I just, I’m asking for some guidance, man. I really want to get started on real estate.
I’ve been starting to build some credit. I became an authorized user on my grandparents’ cards. I opened this little bank account on this app called Step. And I really want to get started into real estate, man. I was thinking about once I get out of high school, I could pick up a salesperson job and make some good money working at a dealership, off of commission and whatnot, but I don’t really want to work that my whole life. That being said, the $100,000, I have access to once I turn 18.
I live in this city called Weston, Weston, Florida, and these houses are expensive, man. I lived here before when my parents were still around, but we’re fortunate to still be living here because live off of social security with my grandparents. Right? Both of them are retired, are pretty old. And I’m going to get a job soon, you know what I’m saying? But it’s pretty hard to balance all of that because I have to take care of my siblings, my grandparents, and I have to focus on myself as well at school.
But I really want to do real estate, man. Picked up your BRRRR book and all that, and I’ve been reading up on it. I just got it like a week or two ago. And I was just curious on what do you think I could do with those $100,000 once I get out of high school?
I know as of right now, the real estate market is going down quite a bit and I think by the time I’m 18 it’ll be a very good time to get in. Very, very, very good time to get in. But in this city that I live in, I don’t really think I can do much. However, I’m very willing to move forever. Honestly, I had some thoughts about going to Tennessee or whatnot, a very cheap real estate market. Maybe going up north in Northern Florida, and see if I could start there and start a new life and start making money there and whatnot. I just want some guidance and some consolation on how I can make some money. Yeah, man, that’s it. Thank you for your time if you watch this video, man.

David:
All right, Simon, thank you very much for that. First off, condolences about your parents. I’m very sorry to hear that happened. Sounded like it was probably something sudden. You’re now living with your grandparents and you’re not in an incredibly strong financial position. It sounds like they don’t have a lot of money. It sounds like you don’t have people in your family around you, at least, that were very good with money. So, your heart’s in the right place, you want to do the right thing, but your head is lacking direction, so you’re reaching out. I think that was the right call. So, it’s very good to meet you and thank you for doing that.
Let me describe a few of the concerns I have and then I’m going to tell you about some of the advantages you have in your situation. The first is, I can tell there’s some urgency in your voice about this $100,000 you’re going to get when you turn 18, and you got to make something happen with it right now. That is a very normal thing to be thinking when you’re a teenager. You’ve got 17 years of experience to look back on, which is a very compressed timeframe, but to you that doesn’t feel compressed at all. This is your entire life. When you become 50, 60 years old, you start to realize that 10, 15 years is actually not that much time, whereas for you, 15 years is almost your entire lifespan. So, you’re going to have a sense of urgency that isn’t necessarily real or something you have to have.
You don’t have to invest that $100,000 right away. You don’t have to try to time the market to get in and get really, really, really rich right off the bat. In fact, you might not even want to be really rich. You probably want something else. You probably want security so you can take care of your siblings. You probably want some significance, because you feel like it’s on you to make an entire life for your whole family. That’s got to be a very painful and pressure-filled place to be stuck in, especially at your age.
It’s great you got some money coming in. I’m going to strongly advise you to not go try to spend that money right away. To not jump into real estate investing at this age and just hope that you can make it happen. It’s okay to sit on that money for a long time. It’s okay to put it in an account and pretend like you don’t even have it. In fact, I’d rather you did that. I’d rather you pretend like you don’t have 100 grand, that you’re broke, and you go work a job and learn some skills as if you’re broke.
Now, let me tell you why I think that’s the best move for you to do, because I told you you got some good things working for you. You mentioned that you’re at a disadvantage in some ways and that’s true, but you’re at a huge advantage in some other ways, and it’s that you don’t have a safety net. You’re not comfortable. You don’t have mom and dad or other people planning a path for you, that you think you just got to follow along fat, dumb and happy, and you’re going to end up in Richville. There’s a lot of other people that are under that belief, that they think, “I’m just going to go to college for four years. I’m going to get a degree. I’m going to get a great job with great benefits that’s fulfilling, and I’m not going to have to push myself very hard.”
And they end up racking up a lot of student debt, getting out of college, not getting a great job they love, they do have to work hard. Life is not what they thought, and they become very bitter and unhappy. And sometimes they go try to have kids to make themselves feel better or get in a relationship that’s not right for them, to make themselves feel better. And it leads to even more bitterness and then that can lead to drug abuse and alcohol abuse and other problems that just compound when we have the wrong expectations for our life.
It is much healthier, in my opinion, to look at life like a competition between you and all the other people that also want to be rich. Between you and all the other people that also want that job that you want. Between you and all your coworkers. And your goal every day is to go outwork every coworker you have and to learn as much as you can about that industry, as you can in that day.
I got this mentality from playing sports. So, when I would go to basketball practice, every practice was an opportunity to get better and I was only going to get one shot at that day. I had to learn everything I could from my coach, or the scrimmage, or my teammates, or my competition, whatever life had to teach me. I had to learn everything I could in that one day, because tomorrow was going to be a different day and it was not going to have the same lessons for me that that day had. And I went after it with a sense of urgency. I went after it like I don’t want to waste anything, I want to get all of it, and then I built on that from one day to the next.
Now, I took that attitude into the jobs that I would work. I got a job as a waiter and I worked my tail off and I learned everything I could every single day. And I slowly built more knowledge, more skill, more competency, built more trust with my employer, started to get raises, started to get promotions, started to get better sections. Eventually worked that into going in a better restaurant, started the process over. I was making four or five times as much money as the other kids that were my age, because of the approach I took to work.
You have that same advantage because like me, I didn’t have anyone showing me the way. I didn’t have anyone laying a path out for me. I had to go figure that path out on my own and I had a sense of urgency. I was hungry. You have that same hunger. I want to see you using it. Don’t fall for, “I want to make a bunch of money day trading. I want to make a bunch of money trading in crypto. I want to be smarter than the market.” Everyone’s trying to outsmart the market at your age. Take the path less traveled, say, “I want to outwork the market. I want to outwork my competition. I want to be more humble than the other people that are trying to get the same job I’m trying to get.”
Bust your butt every day, doing the best job you can in the opportunities that you get, and then look for new ways to do the same thing. You need to become addicted to hard work. In the book I wrote that’s going to be coming out later this year called Pillars of Wealth, I talk about falling in love with the process of becoming great. There is an actual method to that. There is a rhythm to that. Learning skills and becoming great is a pattern that can be predicted and then executed, and you got to fall in love with that.
And so many people don’t, because they don’t like hard work. They think if you’re working hard, you’re doing something wrong. They listen to podcasts like this because they think, “Oh, I want to work in real estate so that I don’t have to work hard.” Then they lose to the people going after the same assets who are working hard to get them.
So, the most important thing for you, Simon, right now, is to decide what kind of a man do you want to be? Do you want to be a kind of man that works harder than other people? That is more humble than other people? That stays more focused than other people? That when he doesn’t want to get up at 5:30 when his alarm clock goes on, you think about your little brother, your little sister, how they need you and they can’t do it, and the example you’re setting for them. And do you want to take that uphill climb or do you want to sleep in until 10 o’clock, act like nobody’s watching and try to look for shortcuts?
This is a pivotal moment in your life, my man, and the decisions you make right now are going to have a big impact on the quality of life that you have for the rest of your time, as well as your siblings. And you’re vulnerable. You just lost your parents. You don’t have people looking out for you the same way as you normally would, so you got to be extra, extra careful.
Now, I know you asked for real estate investing advice, but I don’t think that’s the most important thing. What I want you to focus on is character advice. What type of a man do you want to be? Now, if you build up a work ethic, if you get a good job, if you consistently show up, you build skills, you will continue to make more and more money working like you’re broke. Save that money. And when the time comes that you can actually buy a house and you make enough money to afford it, you have a debt-to-income ratio that can support it. Then we’re going to talk about house hacking. We’re going to talk about buying a house and renting out the room to the coworkers that you have, so that you can avoid having a mortgage expense or a housing expense, because other people are paying off your mortgage while you continue to work.
But the most important thing is that it does not matter what you buy, it does not matter where you invest, it does not matter how well those properties perform or don’t perform. The one thing that never changes is your commitment to doing your best every single day. All right? So, take a listen to this, do some journaling, do some soul-searching. Talk to anybody in your family that you can trust about how you can start right now, being focused, and then send me another video if you have any additional questions. Thank you for your submission.
All right, everybody, thank you for submitting your questions so far. I have loved them. At this time of the show, we normally go over comments from YouTube videos of previous editions, but today I’m going to switch it up a little bit and I’m going to read some fan reviews from Apple Podcasts.
Our first one comes from Coach Kaylee and she writes that, “This podcast is life-changing. I recently decided to put real estate investing on my goals list a few months ago after selling a commercial property that I owned. I started listening to the podcast and I’m blown away by the depth of information provided. I listen to a podcast nearly every morning while working out. I love, love, love Rob and David as hosts, what a dynamite duo. Fun and entertaining while still being massively educational. I’ve made so much progress just in the last month and recently joined the Pro membership. So thankful to have founded the podcast and excited to see what this year brings. Thank you for being raw, authentic, and transparent. What a breath of fresh air in the online space.”
Wow. Thank you, Coach Kaylee. Although, you did say, “Rob and David.” You should have said, “David and Rob.” Other than that, awesome review. Thank you very much. The next one comes from Enapoklvr, “David, ‘The King of Simplification.’ Best podcast ever. Dave and Rob are amazing at educating us on real estate investing. They interview the best of the best real estate investors, who tell us their story and how they started out and what they’re doing to be successful.” Well, thank you for that. That was a very simple review, but still a powerful one, so I appreciate it.
And from Jennifertherealtor, “Tons of strategy here, five stars. This is not an exaggeration, BiggerPockets is one of the best podcasts you can listen to as an entrepreneur. The amount of wisdom and strategy I have gained from David and Rob is incredible. Stop what you’re doing and listen.” That was awesome. Thank you so much, Jennifertherealtor.
If you don’t mind, if you’re listening to this, if you could head over to Apple Podcasts or wherever you listen to your podcasts, Spotify, Stitcher, whatever it may be, please leave us a review as well, they help a ton. And for those of you that did leave reviews, those are incredible. Thank you very much for doing it. Send me a DM. I’d like to thank you personally.
All right, a couple YouTube comments from episode 762 that if you go back and listen to this on YouTube, you can read them for yourself. “Hi, David, have you read Peter Zeihan’s The End of the World is Just the Beginning? I, and many others I bet, would love your thoughts on the future of American real estate over the next decade or two. What do the experts see happening with real estate if the global economic position of the US changes in ways that Zeihan has predicted they will?”
Well, you definitely created some intrigue there because I have not read that book and now I want to know about it and you didn’t say anything in the comments about what it was. So, I can’t give any further information, but curious, if you guys have read that book, why don’t you go to the comments in today’s show and let us know what you think about it or what you’d like answered, and we will monitor that and possibly answer that in a future Seeing Greene.
From Charlie Reese 95. “Hey, David, we can’t decide if we should turn our first property into a duplex or rent it as a single-family home. We bought our first house in Knoxville, Tennessee two years ago, and we’ll soon be searching for our next primary residence, focusing on the PRR method for now. Our first property, which we currently live in, has an unfinished basement where we can add two bedrooms, a bathroom, a living room, and even a kitchen. If we converted the home into a duplex, the top unit would be a 3/1 and the bottom would be a 2/1. Would it be worth the extra effort to convert the home or would it serve better as a five bed, two bath, single-family home? Thanks.”
All right, that’s a good question, Charlie, and lucky for you, there’s a quick way we can figure this out. What’s the rent on a five bedroom, two bathroom home? Go to biggerpockets.com, hover over tools and then click on Rent Estimator. And put the address of the property. Look up five bed, two baths, and see what the rent is. Then look up three bed, one bathrooms, and add it to what you find for two bed, one bathrooms, and see which one is more.
If it’s significantly more to rent it out as two separate units, then just ask yourself if the extra money is worth the investment to fix up the property. It usually is if you’re in an area with high-priced homes. If it’s a super low-priced area, sometimes that isn’t a better move. But that’s all you got to do is compare a 3/1 and a 2/1, and add the rents and then compare that to a 5/2, and see which one’s higher and if it’s significantly enough higher to justify the extra expense.
All right, guys, we love and we appreciate your engagement, so please continue to do so. Just like, comment, and subscribe on this YouTube channel, and if you’re listening on a podcast app, take some time to give us a rating and an honest review. We want to get better and stay relevant, so drop us a line and take that poll if you’re listening to it on Spotify. Our next question comes from Tod Mason in Boise.

Tod:
Hey, David, my name’s Tod. I’m out here in Boise, Idaho. My question for you is about private money, hard money loan that I have about coming due. So, a year ago, bought a property with private money. It was a year term for seven-and-a-half percent interest and two points. And it was the year term, but I didn’t have any payments due for that year and then at the one year we were going to refi and cash out the private money and move in. But since things are pretty expensive right now and it costs a couple points just to get the loan, my lender has agreed to continue the terms and I could structure it the way that still benefits myself.
I’m wondering, so I still have a year’s worth of interest at seven-and-a-half percent and two points, which is about four grand, so roughly the payoff is about 25 grand. I can afford to pay it off and restructure for another year term going forward. I could either do interest only or I could amortize it for 30 years and then have another payoff date at a year from now.
I could either wrap the points and the interest into the total mortgage and amortize that, if I’d like, and not pay any money out of my pocket, and I would still cash flow. I use the property as a short-term rental here in Boise. It would still cash flow with that payment, but it’s a little tighter than I would like to have.
My question to you is, I know that it’s better to pay off a loan with tomorrow’s dollars than today with inflation, and so forth. If you were in this situation, my gut would tell me and my conservative that tells me to just pay off the past year with the points and structure interest-only going forward, I would still be able to bank up a bunch of cash flow for the year and then continue to figure it out. Then at the next year we’ll see where we’re at. Obviously, we won’t really know.
But that would be my question to you. What would be the best way to structure this deal going forward? Wrap it and reduce the cash flow? Or, just pay off the debt, go interest-only, or interest-only and amortize it, so it would be principal and interest for the next year. Any thoughts would be greatly appreciated and help me to just get the [inaudible 00:31:21] of how to move forward. Again, appreciate your help so much. Thank you.

David:
All right. Thank you, Tod. Let’s go over a couple principles here. So, in general, as the borrower, it is better to make interest-only payments than interest and principal, because it just keeps a little bit more in your pocket. However, if you’re not great at saving money, I tell people they should amortize the loan, which means a portion of your payment will go towards the principal, not just the interest. And the payment will be higher, but you will be paying off the loan as you do it. So, if you’re good at saving money, you can go with interest-only. If you’re not, you probably want to be more conservative and include principal payments.
Another thing to look at, when it comes to if you should pay it off with the money you have and save interest, or if you should keep the money that you have, not pay it off, that only makes sense to continue paying interest if you have something else to buy. Are you finding deals out there? Are you finding stuff that gets you excited, you’re like, “Oh, man, I really want to go buy this and I really want to go buy that and the numbers look great.”? If so, keep your money and put it into more real estate. You’re going to get a better than 7% return over owning it for 30 years. That’s a no-brainer.
But, if you’re not finding a lot of deals or if this would light a fire under your butt to go make more money and save more money, I would pay it down. Today’s market is tough. We’ve got higher rates and we’ve got not a lot of inventory, so there’s not a ton to buy. This is not a time to be playing fast and loose. Really, everything is just slowed down. Right? Getting any real estate is a win right now. Where it used to be people like, “I want to buy nine properties in one year.” Man, if you could just get one property a year, you’re doing good, because there’s a lot of competition.
So, don’t feel pressure to keep all this capital when there’s nowhere to go deploy it, because it costs money to keep capital. You’re paying interest on that money. You know you’re going to get some kind of a return by paying it down. So, if your gut is telling you to pay that thing down and there’s not a lot of real estate to buy, I think you should follow your gut.
I think three years ago, when there was tons of opportunity and rents were going up every year, we were printing all this money, values of real estate was going up, tax benefits were really, really favorable to people buying real estate. Sure, it made more sense to buy and my advice tended to skew that way, but we’re at a little bit different of an environment, so I would not feel pressure to borrow money that you have no way to use. Hope that helps. Thanks for the question.
All right. From Kendrick in Albuquerque, New Mexico. “Hi, David. I’m currently in a fortunate situation after an unfortunate life event. In the last year I was able to pay off my 3/2 home and I was left an additional, albeit smaller, three bed, two bath home, which I’m renting out long-term. I’m house hacking with a friend to cover the bills for my personal home. Overall, I’m cash-flowing $1,100 on the home I was left and I want to expand with some funds that were also left to me, but I’m unsure of the best way to do so.
I’m interested in acquiring more single-family homes, but through my listening to BiggerPockets and a few other real estate content creators, a multi-family seems to be the preferred way to upscale. Could you give me your thoughts on my situation? Is there a glaring benefit to a small, multi-family, like four units, that I may not be seeing? Thank you.”
All right, Kendrick, let’s break down the differences between multi-family and single-family. Multi-family will usually cash flow more for obvious reasons. You have more units to rent out and even though each unit tends to rent for less than a single-family home, there are more of them, so the total rent is higher, but they tend to appreciate less because there’s less people to buy them. They don’t go up as much as single-family homes do.
Multi-family homes are harder to increase the value of. It’s harder to value add to a multi-family home. It is what it is. You can fix up the kitchens, you can fix up the bathrooms, but there’s usually not a ton to do and the people that are renting them are usually not expecting to get a really nice kitchen or really nice bathroom. So, you don’t add a ton of value when you fix them up.
Single-family homes, on the other end, can have more value added by fixing them up, because you’re not selling to an investor, you’re selling when you exit to a person who just wants a house to live in, who will pay more for a pretty house.
Down payment options. When you’re buying a fourplex, you’re usually going to have to put down 20%. Sometimes you can do 15% depending on the loan product. Same for triplexes. With a single-family home, you can put down 5% on a conventional loan. Now, I believe there are FHA loans that you can still use to buy multi-family properties with three-and-a-half percent down, but there’s a self-sustainability rule that says that several of the units have to make enough rent to cover your mortgage, and usually the price of multi-family is higher than the self-sustainability rule will allow. Making it very hard to use these FHA loans on those properties, which brings you back to the conventional loan, where you’re going to have to put three times or four times as much down to buy a small, multi-family than single-family.
So, what a lot of people are doing, a lot of my clients are doing, a lot of the advice that I’m giving, is to buy a single-family home and convert it into something like a multi-family home by adding ADUs. Take a house, fix it up, change it, put up some walls, add some kitchenettes. Turn it into two or three units that can be rented out. And now you get all the benefits of small, multi-family, and you get all the benefits of single-family, so you win twice.
The downside is, it’s more work. It doesn’t come right out the box, ready. It’s kind of like IKEA. You got to put it together yourself. So, my guess is the people that are telling you to buy the fourplexes aren’t looking at all the information I just gave you. They’re just saying, “Four units right now is better than one.” So, you’re going to cash flow better with the one. Take into consideration what I said there, look at all the different angles, and then let me know what questions you have after hearing this. Thank you very much for reaching out though. I’m excited to see how things go.
Our next question, “I am from the DC area and have a Florida single-family property that’s paid off. It cash-flows about $300 a month and is currently valued at 450,000. Last year, my tenants broke their lease early and after spending a huge sum to get it back on the market and rent it again, Hurricane Ian has put it out of commission for the last six months. This made me realize two things. I need more than just one door and two, I am no longer a fan of Florida real estate because of the hurricanes. My house has been wrecked twice in 15 years, and I need to start looking at other states.
I’m currently doing upgrades as I plan to use a 1031 exchange into a multi-family. I have looked at the market in my area and the multi units are very pricey. Ideally, I would like to get something that’s reasonably priced, can still cash flow, and appreciate over the long-term. Which cities or states would you recommend to look into, where this down payment would go far?”
Oh, boy. I love these questions. Thank you very much for that. All right. I have no doubt that you would like to find something that is reasonably priced, can still cash flow and appreciate over the long term. This is like when a single person says, “I just want to find a girl that’s smoking hot, already rich, super nice, never been married, very low expectations, and thinks I’m wonderful.” We all would love that, right? Everybody would like that, but that person’s probably already married, and that’s the problem.
Those deals that are reasonably priced, cash flow, and appreciated over the long-term are so in demand that people buy them and then they become unreasonably priced, because sellers can sell them for more. So, you got to give something up, and that’s a part of understanding business and understanding real estate is what are you willing to give up? If you want more long-term appreciation, are you willing to give up a higher down payment to get into a better area? Are you willing to give up the immediate gratification of cash flow?
If you want more cash flow, are you willing to give up having someone else manage it, because you’re going to have to manage it yourself? Are you willing to give up appreciation, because you might have to buy into a lower priced area where they don’t go up as much? The question should be, “What am I willing to give up?” And I look at all the deals that I buy, that same way. “All right, I don’t need this right now. I really want that. What am I willing to give up to get it?”
Now, the other part of this is there used to be cities that I could say, “Yeah, this city has what you’re looking for. They don’t have this, but they have that. You should go there.” This is the only time in my career where I just don’t have a city that I could say is reasonably priced, cash flows, and will appreciate. There was a time that Nashville fit that. There was a time that Atlanta fit that. Heck, there was a time that Austin fit that. When I first wrote Long-Distance Real Estate Investing, there was a lot of options. Phoenix fit that mold. Unfortunately, those areas that are still appreciating over the long-term are no longer reasonably priced, and they also usually no longer cash flow.
Now, when you’re trying to figure out what markets you want to be in, I can give you some advice for where to look into that in the future could work out for you. And I would concentrate my efforts, if I was you, in the South. States like Alabama, Northern Florida, Southern Georgia. I think that there’s quite a bit of the population moving that way, and though they’re cash-flowing, but they usually don’t have a ton of appreciation. I do think appreciation is likely to be experienced later because of the increasing population that’s moving there. People are figuring out that they don’t have to live in expensive cities like New York or New Jersey, and they’re moving to where weather is warmer and prices are lower.
Now, these are not traditionally appreciating markets, but I do think that is the next wave that we’re going to see appreciating as people move there. I would not expect it to explode like Nashville did, like Austin did, like Birmingham did for a period of time. Bentonville, Arkansas had a little mini explosion compared to what it used to be, but I do think you will get a steadily increasing appreciation in those markets.
So, look in the South, look to where people are moving, look to where jobs are moving, and be patient knowing that rents will continue to increase year-over-year, as long as people keep moving there and eventually they will cash flow very solid and appreciate for ya. Just probably won’t happen in the first year. Thank you very much for the question. Glad I could help you out with that, and good luck.
All right, that is our show for today. Let’s recap a lot of this. First off, everybody’s having the same problems, aren’t we? We are all having a hard time finding good deals, but what is a good deal? Well, it’s relevant, just like we said, when you’re looking for someone to date, you’re single, you’re trying to find the best option available for you. What you’re really doing is you’re trying to find the best partner compared to all of your other options.
That’s something to remember with real estate. While it may seem like there are no deals out there, oftentimes what that means is there are no deals as good as what I saw two years ago, three years ago, four years ago, five years ago. That doesn’t mean there are no good deals. If you compare real estate to other investment vehicles like stocks, like bonds, like treasury notes, like putting your money in the bank, like certificates of deposits, like cryptocurrencies, like NFTs, it’s still looking really good. I still think real estate’s better than everything, which is why I think all the money is flooding to it.
Heck, can you tell me a time where buying a bond was ever a bad idea, where you’d be criticized for owning too many bonds? Well, that’s been happening to banks all over the country as they’ve been literally going bankrupt from buying too many bonds, right? This is how solid real estate is still. So, keep that in mind. Don’t get discouraged by the fact you’re not finding the cash flow that you used to. Adjust your expectations.
So, much of people’s programming when it comes to real estate investing came from gurus selling courses. It came from people saying, “If you just buy a couple investment properties, you can quit your job. You can stop working hard. You can buy a Ferrari. You could do anything that you want with just a couple houses.” And when we find out that isn’t happening, it’s easy to get to discouraged.
Well, let go of that dream. Investment properties are not meant to buy you the Ferrari. They are not meant to help you quit your job. They can get you there, of course, and if you wait long enough, yes, that will happen, but it’s not going to be immediate. I think it is wiser to look at them as a way to grow your wealth, help your children’s futures, and plan for your retirement. They are still amazing for that. It is still an excellent investment to buy real estate in growing markets if you’re planning for the future. It is a exercise in futility, in many cases, if you’re planning for right now.
So, just keep this in mind as you’re struggling and remember, here’s something else that’s important. If you’re getting discouraged and you want to quit, so does your competition. My jiu-jitsu coach mentioned this the other day. He said, “Hey, when you’re rolling and you’re really, really tired, don’t make noises that let your partner know that you’re tired.” He told me he was in a competition one time and he was exhausted and he was getting ready to quit because he didn’t think he could keep going, and he heard the guy that he was competing against making exhausted sounds, and he knew, “Oh, I just got to outlast him.” He kept going and he tapped the guy out 10 seconds later, because the guy was really tired.
And it was a good lesson in life. When you’re feeling tired, the other person might be also. You’re having a hard time finding deals, so are other people. You’re getting discouraged, so are they. People are going to start dropping out of real estate investing because it’s hard, and that’s good for those of us that stick with it. So, play the long game, not the short game. Make it a marathon, not a sprint. Broaden your expectation and your timeline for when you need to get the return, and you will come out on top.
Thank you guys very much for joining me with Seeing Greene here today and staying the course. If you’d like to be featured on the show, head over to biggerpockets.com/david, and submit your question there. If you’d like to communicate with me directly or see what I got going on, follow me on Instagram or your favorite social media @davidgreene24, and check out my new website, davidgreene24.com, to see all the things that I got going on. Thank you guys very much. I will see you next week.