How to Set Your Children Up For LIFE by Buying Rental Properties

this is the Bigger Pockets podcast show 897 what's going on everyone this is David Green your host of the Bigger Pockets real estate podcast and if you're listening to this podcast you are a part of the growing and thriving Bigger Pockets community and a part of the show in today's show we have a scene Green episode this is where we get to connect with community members like you directly by answering listener questions that everyone can learn from and I've brought back up I've got Rob abas solo here with me to start how are you rob hello uh I'm excited man I'm excited cuz you and I were just uh discussing our our trick out into the snow Into the Wilderness to do some snowshoeing in a couple of weeks that's going to be fun yeah we can't wait to go snowshoeing it was pitched to us and I was like does that just mean walking in snow and they're like yes and I was like I think I'd rather just sit by a fire but yeah you know if it's it's if it's by your side my friend that I'm excited it's kind of like when you as a parent try to sneak vegetables into kids food they're like do you want to do leg day for 4 hours but call it fun that's exactly not falling for that one well in today's show we are going to get into some fun stuff our first guest has a great question about how to build generational wealth for children through real estate as well as how to get them involved in the business and we've got some really good advice for everybody there we're also going to be talking about markets that Rob and I think are some of the safest places to invest in as well as when Investing For appreciation can be smart versus when it can be foolish all that plus the affordable housing dilemma what to do when it's tough getting started and what to do when you're doing well in life but you want to go full-time into real estate investing all that and more in today's seam green yeah it's going to be a good one and uh the first question we're actually going to let James in on this I'm going to share the mic with him hand The Paton but I'll be back a little later and up next we have Felicia Rexford out of Las Vegas who I like to refer to as the Air Force Angel Felicia thank you for joining us today thank you for having me what's on your mind okay so I've got an again Felicia Rex for from Las Vegas Nevada realtor investor um Air Force veteran wife all the things but my question is going to circle around being a mommy so here it goes and we're going to incorporate real estate so a lot of people slre Estate Investors want to talk the market right now or the deal that they're working on right now or their next move but as a mother with a real estate investment mindset I'd like to change the perspective for a quick moment what should parents and soon Tobe parents be thinking in terms of not only real estate investing but pure ownership of real estate for their kids 20 years from now good question James you have kids what's your thoughts on this I do have kids and I love bringing my kids to job sites and and keeping them around the product you know I I think this is a great question because you know I've definitely done some things over the last couple years to kind of get my kids in a better spot right because as things get more expensive you know it's like what is housing going to cost by the time they are ready to buy so things that I have done actually you know everyone does those 529 plans and I have one of those for them to get them going down in life but one thing I have done is I actually invested 20 grand each into a hard money fund that compounds at like 133% and the the goal of this is to just let it compound through their 18 years and I put it both in when they were uh one years old and then by the time they're uh graduating college they're going to have enough for a down payment on a house and so I'm trying to get prepared to give them the money and the help to get in without also bleeding out my own cash it's just investing and letting it sit I think one big thing that people should think about when they're talking about their kids right now is there is a gifting tax exemption that is changing very soon if your kids are going to inherit property from you once that property's changed they're going to owe an estate tax and the thing is what you can do is right now you can gift 12.92% to your kids up to but in 2026 it's decreasing to 5 million and so right now I've been rapidly trying to figure out my portfolio the properties I want to uh keep and that's what I'm looking at gifting to my kids now so they don't owe a big estate tax later and it's about kind of getting in front of that bill and planning that way because by the time they're ready to buy the market is going to be a lot more expensive but if I can get them something and they and I don't have to they don't have to pay a tax it's a huge benefit all right I've got two thoughts on this whole how to bring kids in the first one is practical and the next one is more of an overall philosophy people don't realize it but when especially when you are a small business owner you can actually pay your children a certain amount of money I don't know do you know how much it is how much you can pay them per year it's like 13,000 I think it's also dependent on Age and what they're actually capable of doing but like right now I have an 11 and a 13-year-old and I can pay them like about $2,400 a year it's not that much right now because you have to make it equal to what they're physically able to assist with there you go but as they get older you can pay them more right yes so so one thing you could do is to pay your children put it in an account to the side use that as a tax write off and let that become the money that they are saving up every single year for the first down payment of their property and you can use them in your real estate business so that they earn that money which gets them exposed to what's going on like James said bringing them to the job site you can have them helping with various elements learning just I mean just as a kid to get a head start on how an Excel spreadsheet works is really really valuable much more important than learning calligraphy or cursive in school right getting exposed to some of those trends that are going to help them when they get older bookkeeping can you imagine if we've been exposed to bookkeeping When We Were Young how less scary and frustrating that would have been when it happened later uh so I'd recommend everybody with a a child who is in real estate investing or some form of entrepreneurialship definitely talk to their CPA about taking advantage of that the other is just the the overall philosophical approach too many people get scared like you said Felicia because they're looking at real estate right now like what is it going to cash flow today what is it going to be worth in this moment how much below the apprais value did I get now but real estate changes the values go up and they go down you could get a property that praed for more than you paid for and think you won and then when the market crashes nobody cares what It a praise four or six months ago it's what it's worth right now and the same when it goes up rents tend to go up over time so I don't know why we got into this terrible approach of just analyzing a property for day one cash flow when you're not going to own it for one day you're going to own it for a long period of time buying in areas where you're going to have restricted Supply but increasing demand is going to lead to a much higher level of rent increases and property value increases and if you're turning it over to your kid this looks obvious I need to have a house ready for them in 20 years where should I buy it are you super concerned with cash flow in that case probably not but your wealth is going to grow significantly more if you're like James buying in somewhere like Seattle or you Felicia buying in somewhere like a growing market in Las Vegas then if you go buy the cheapest property that you can somewhere in the midwest where you're not going to see very much improvement when what I'm getting at is when you invest for your child it forces you to take the big picture approach and real estate becomes simple you lose that fear of right now right and I don't know why we do it we don't analyze a person that we're going to marry for right now in this moment you don't just say well how do they make me feel right now on this date you think about for the next 50 years is this the person that I'm going to want by my side is this the person that I'm going to want to choose and I think it would be better off to to look at real estate from a similar perspective I think the reason why I brought this question up for myself um watching how fast the market has been moving and knowing even myself my first home I bought for my personal residence was like $33,000 and then 2018 um when I bought my first investment property it was 75,000 85,000 now those same homes are worth you know 375 again in Las Vegas I'm just trying to think 20 years from now what is the first home that a our kids are going to purchase what does that look like that could be a $800,000 property you know and we're not necessarily seeing income you know move at the rate that we're seeing these home prices so I'm just trying to change my mindset my perspective I'm trying to talk to my friends and say Hey you know do your daughters need the $75,000 wedding I don't think that that needs to be like the mindset that we have anymore we really should be thinking about the now and maybe buying them a condo now you know attaching their name to it renting it out and letting that be the asset that they get down the line to become the down payment for their house versus the $75,000 wedding right so it's just I'm really trying to change my mindset and I feel like I'm kind of talking into a a echoey chamber sometimes because the Americanized mindset is so like you should do this you should do that you should go to college you should have this beautiful wedding and I I just don't I think if we don't change our mindset now there's a lot of people 20 years from now they're going to to be caught and there's going to be a lot of kids that aren't going to be homeowners and it's just it's just kind of sad what we're seeing right now right so I was just very interested in your guys's perspective on that you know James you're someone that doesn't I don't think you deny yourself of some of life's Pleasures you always dress really nice your hair is impeccable you spend a lot of money on really expensive Mose you've got yourself a nice boat you live in Newport Beach but you're also incredibly financially Savvy and you're still prudent like I think you're a great example of the person that really handles both sides sides of wealth well your bookkeeping is tight your businesses are run very well you pay attention to all the details you're not just at the club making it rain what's your thoughts on Felicia's idea here that you could actually buy a property for your child let it appreciate for 20 years and let them walk into a lot of equity you know I think you could definitely do that the issue will be is you know you can add them to the title but you're still going to need to get the financing and you really can't buy anything for 20 grand and so for me what I'm trying to do I'm ident identifying the properties that I want to make sure that they have an option on um like even recently I bought a duplex in a nice area that doesn't usually hit my normal buy box but this is kind of like my backup plan for my kids because they could have one unit each we can also condo the building so they could have one unit each and the plan is more to get it inside uh where I can set up in a trust so I can gift it to them later and they can avoid the nasty taxes because it's I'm trying to set it up more for them to work smart because you know if I pass away and I give it to them they're going to ow that a state tax and you know and just by setting it UPR right today they're not going to owe the the state tax and it really depends on also where you are and as you plan for your kids in Washington it's one of the worst states to die in as far as state tax goes and so as I'm looking at giving assets to my kids and trying to get them set up right because I think Felicia is right the the wealth Gap is widening right now and it and the co really helped widen it and it's going to continue to go and if you don't set them up up right they could be way behind and so I'm trying to set up my portfolio to where I can keep trading around and gift it to them and then they can avoid the tax and they can get that but also it's about relo assets out of Washington because I don't really it's it's a it's a gnarly place for taxes so it's about looking at the big picture and sometimes you can just do your business the way you normally do it and then earmark the ones you want to give them and then what you want to do now though because this is expiring soon is get it set up in that trust get it and then gift it to them now so then you can actually avoid those taxes and there's other ways you can leverage those properties too so you can gift it to them and still set it up to where you can actually borrow against it to continue to acquire real estate and set them up better down the road I was going to throw something in really fast just because James was talking about a trust and I have a client that I was trying to sell his house to and it's going to probate because it was invested correctly and that made me and my husband spark the thought of man we did our trust it felt like we did did our trust last year we did our trust we re-up our trust like three years ago and since then we have all these new properties that need to be put back into the trust I just think that's a great topic to just throw out to anybody and everybody listening that if you haven't touched your trust and you have kids as well kind of along the same lines as we're talking it's probably time to do that make sure it's all up to date because probate and all that stuff it's sad it's so sad all that hard work and then just to lose it all so um I feel like that's been in my world this week so I thought I'd highlight it well thanks for that I got one last question for each of you if you could briefly answer handing $250,000 $300,000 of equity to an 18-year-old might not be the wisest thing to do so what steps are each of you taking to prepare your children for how they're going to manage that wealth and be a good Steward of it so it's a blessing not a curse I'll start with you Felicia well in our trust just cuz we're talking about it I don't actually allocate anything to my children until they're 31 so I definitely took time to think through the age Gap uh my kids don't have have to go to college I'm not a huge proponent of people having to go to college they don't have to go to college but they do have to be productive humans in society they do have to take a drug test um and I did want to wait till an age that I felt like they would be reasonable reasonably capable of handling a portfolio and a substantial size of money so for me it's not an 18-year-old um and I did some self- evaluation with my own self and how much I've grown within my age range right so for us it's 31 if we were to die um but from from my from the time that my kids were little they've been in our Airbnb business they've been helping with communication they've been going to listing appointments I feel like my kids will be a little bit further along than most because we've immersed them in this business so I I I hope that they'll be a little bit well-versed to handle this if and when the time comes so I don't see myself handing $300,000 over to an 18-year-old but if they want um guidance on how to invest it and how to grow their wealth I would absolutely be there for that but I don't think I would be relinquishing that kind of money to an 18-year-old James what about you oh yeah they're not getting that 18 there's no way uh I would not have wanted that money 18 it would not be still my account um I didn't mature till 19 um but uh you can put anything in this trust and and have certain benchmarks whether it's they get this when they get married or um they have kids and you can change it as you get to see your kids grow right they're going to change over time and I think what Felicia said is really important exposing your kids and I think that is fundamental we do that at our house they're active with what we do at work but then we make them work like our kids they don't really get present they can work for an allowance and earn money and then go buy their own present so we make our kids buy their own stuff uh they have to earn the the cash and I think that is really important I know I got put to work when I was like eight when I was a kid was that when you started at Red Robin was that like why you were the top waiter in the whole country because you got to start at eight years old I think it it contributed I was packing paper in a warehouse but uh you know that that work at the glass right and get your kids to like they have to you know they can't live in a bubble we put our kids to work because it's just good for them and my son really thinks about what he spends his money on and that's the the beautiful thing my daughter blows it son he he saves but it's just a good thing to be dealing with your kids all right Bigger Pockets what do you think let us know in the YouTube comments what your plans are to teach your children about wealth and what you're doing to set them up for success and as a second question I'm curious how many of you think that the job of a parent is to make their child happy and how many of you think that the job of a parent is to prepare their child for the world that they are going to be entering into as an adult and Felicia thanks for being here today please keep us up to speed with how things shake out with what you end up deciding to do with setting up your children and how these thoughts progress through your beautiful mind thank you guys bye Felicia good meeting you all right thanks everyone for submitting your questions to make it work in today's market get those questions in at biggerpockets.com David and you too can be featured on a episode of seeing green I hope you're enjoying the shared conversation we're having so far and thank you for spending your time with us make sure to comment like And subscribe to this video helps us out a ton and James had to leave he was late for his hair and teeth whitening appointment but no fear I have a man who never needs help with his hair or whiter teeth Rob AB solo welcome thanks for stepping in aoy yes I love it when you show up you're like an Avenger you arrive just like Iron Man you hit the ground and you are ready to help me tackle these problems when I sense trouble I'm I'm there I'm just I'm just a a heart Tap Away my friend just a heart Tap Away that's right now I'm glad you're here because you and I both have experience in this very topic in fact you lived in this area and I vacation there all the time we are talking about none other than the Smoky Mountains and how to decide if a property is worth buying even if it's only breaking even in cash flow this question comes right out of the Bigger Pockets forums which if you haven't been in there I don't know what to tell you you're missing out it's like never eating at Chipotle that will give Rob a heart attack and we want him heart tapping not heart attacking so check out Chipotle and check out our answer to this question Colin is addressing someone who was having a hard time finding cash flow and they were looking in the Smokies which has been a solid short-term rental market for a very long time but the question is how do you beat inflation through investing in real estate I think the Smokies are probably the safest Market that I'm familiar with in the market today so this is a great background to explore this question through uh what do you think Rob should you buy a property for the purpose of beating inflation if it's in a solid defensive strong likely to never have problems with vacancy what's your thoughts here I mean the Smoky Mountains all in all is a very safe place to invest but I mean I I think that some people are still you know I think there might be taken a little bit of a haircut there I don't I don't think that the prices are really holding as strong with the interest rates I am not a fan of going all in on one single lever in real estate when we talk about real estate we talk about the four levers right tax writeoffs debt pay down appreciation and cash flow I think there are certain levers that are more important at whatever Journey that you might be be in respective to your uh your experience for example you get into the real estate game cash flow that's a really important lever for you and appreciation is not as important for most people because they don't understand how powerful it is but as you scale your portfolio and as you have time for your properties to actually appreciate then you kind of realize that real wealth is built in the actual appreciation side of things but I don't ever really pull one lever one way or another I try to have a pretty equal spread so I'm not sure that I'm really going into a market thinking that my play is only appreciation I try to have a little bit of everything and I don't know maybe that's just a little conservative but do you typically go into these things kind of all in on on one specific lever or do you like to spread it out too no well especially in the beginning of your journey you want to spread it out more and you want to be more heavily weighted towards cash flow and then later in your journey you can actually spread it out amongst your portfolio instead of amongst the property so you may have a whole a foundation of cash flowing properties and then you get into stuff that you can buy for the purpose of depreciation to save money and then you get into stuff that you buy for the purpose of appreciation and the cash flow that you bought in the beginning shelters maybe cash flow you're not making on the stuff that you bought in areas they going to appreciate and the appreciation shelters the fact that the cashing properties are never going to make you wealthy and you get a nice well-balanced diet that turns you into someone who is just as wealthy as you Rob are fit yeah so let's get into like some of the actual fodder that was happening in the forums here because I think people raise pretty good points Mike said I think too many investors justify a poorly performing investment with appreciation and then John said I strongly disagree with this it's not rocket science to pay attention to demographic Trends economic signals and basic human behavior to figure out what areas are a safer bet for investing I agree with that I think there are certain Trends and so if you want to secure an investment a little bit more then I do I I am a big believer in National Park or vacation or destination vacation type of area simply because we know people are always going to spend a lot of money to travel to those areas meaning people will make a lot of money in the rents in those areas meaning people will always be willing to pay competitive prices for those homes there you go the point here was if you bought a property for 500,000 put 20% down so you're all in for 100k here 10 years later let's say that property is now worth a million you've made yourself $500,000 in equity for $100,000 investment that's a really really good return that's a 20% return year-over-year and that doesn't count the depreciation ation you might have gotten the loan pay down that you might have gotten and the fact that it may be cash flowing pretty strong 10 years later so the point here is there are ways to do this that are safe the smokies in my opinion are one of the safest short-term rental markets probably the safest one in the entire country but they may not be the sexiest right but if you're playing the long game you're looking 10 years down the road this is as close to a turnkey thing as you can get still buying in an appreciation Market that you don't have to worry about the uh the local municipality shutting down short-term rental so I like the nuanced approach here like hey let's look at 10 years down the road how your investment's going to do a 20% return on your investment only from the appreciation here hypothetically is going to strongly outperform inflation yes yes I agree with that just keep in mind for anyone listening though breaking even for most people is like not great right like it if you think about it the way you think about your 401k or your Roth IRA and you say hey I'm gonna Max that out every year and I know that I'm never going to get a dime from that until I'm 65 and that's how that's your mindset buying property hey I'm going to buy this break even property in the Smoky Mountains I'm never going to take a dime from it no problem no harm no foul but I would say the vast majority of people breaking into the short-term rental space do it for one reason and one reason alone and it's because they want to cash flow or they might be a little bit savier and want to take advantage of the short-term rental loophole get bonus depreciation and all that good stuff so there's some valid reasons why one might break even but I think the Smoky Mountains is like you that's one market you should be making money you should not be breaking even in that market of all markets in the country that's that's my opinion ideally yeah but but sometimes things go wrong you mismanage things you miscalculated things uh it took longer to get it turned around than what you thought you had to take some time to build your skills up so if a failure is breaking even there is light at the end of the tunnel that you still could be getting a I what other asset can you say I screwed it all up and ended up with a 20% return yeah I ended up with half a million dollars in 10 years uh not a lot yeah it's what I love about real estate right there all right thanks for that Rob before we move on I just want to prompt everybody look these are good discussions that are being had every single day in the Bigger Pockets Forum so go expand your brain go get into the conversation jump in give your insights and I promise you'll become a stronger investor for it so head on over to biggerpockets.com forums to get connected and today's Apple review comes from DAV venis who says this podcast is lifechanging longtime listener and I can't express how much this show has changed the game for me I'm now up to six units in my investing Journey thank you for that review and if you're listening to this on a podcast app we need your review apple is always changing their algorithm so is Spotify so is stitcher wherever you're listening so if you could go on there and leave us a review to keep us near the top we would love you as much as Rob loves guac and a burrito B hey I just want to point out that you called it the Apple that's a very uh Boomer way to word it if you're listening to this on the information Super Highway please do me a favor and leave us a review on the worldwide web it's hard to read and talk and think and also make up a joke about guac and a breedable at the same time I know I know I was going say it cuz you were so nice but it was you said the apple and I had to say something you're you're a millennial which is very funny to me I'm the most grouchy Millennial that you're ever going to meet but that's true technically I am a millennial all right we love and we appreciate your engagement so please continue to do so leave us a comment if you're listening to this on YouTube and let us know what you think about the Smoky Mountains as a market as well well as the cash flow vers appreciation approaches we're going to be getting into how to move past being overwhelmed and an affordable housing dilemma for your first property hi David my name is Mike Fortune I'm 48 years old from jarville Maryland I'm married with three children 14 18 and 20 years old 20 years ago my wife and I started a residential design build construction company and two years ago we decided that the juice just wasn't worth the squeeze when it came to construction so we've gotten out of that and now now I do architectural design work and she's gotten a job outside of the home with good pay great benefits it's really much better back in 2013 we had the opportunity to start a real estate partnership that we're 5050 partners with um that has now grown to have six properties about a little over a million dollars in net worth and zero debt in addition to our primary residence we also own a four bedroom single family the rental as well as the four bedroom Airbnb um we manage all of these properties ourselves um and together they net us around 6K a month so currently I find myself at an intersection professionally where I'm able to lean into real estate investing more seriously and I'm working very hard to clarify what is the best path or course of action to get to a point where I can build a legacy level portfolio David I know you always give it your best I'm so thankful for what you do I'm really interested to hear what you have to say thank you okay thank you Mike for the question if I understand you correctly you had some success with various real estate Ventures you've got several different opportunities or paths to take and you're just trying to figure out what is the best one for you I typically like to answer this question by looking at the skill set of the individual paired with their long-term goals paired with the opportunities that they have that are unique to them Rob what do you thinking well it seems like he has pretty decent cash flow I'm not sure if his idea here is to go full-time in the real estate world but ultimately I would say what makes your cup full what are you happy doing are you happy doing long-term rentals which he has a few of those I'm not sure he is is he Happy from the Airbnb side of things I would really try to look at the spread in his entire portfolio and say all right well what side of this portfolio is making me the most money every single month and am I happy doing that and if the answer is yes then I would divert 80% of my time to the thing that makes me 80% of my money does that make sense yeah it does so based on what he said is there anything jumping out at you that we could give him some concrete advice well one thing that was interesting is that he does architectural design work which leads me to believe that he's a little bit more in sort of the creative side of things um if that's what he's good at if that's his skill set I think that's what he should be chasing like I think he should be leveraging his strengths he has obviously formulated a career and his experience around architectural design work so why would you go and I don't know open up a sober living facility not that you can't but and not that he's suggesting that but obviously there's it's a little desperate right so I would probably try to hone in on his creative skills and his design skills to say all right how can I use the current skills that I'm very very good at to make me more money in my portfolio maybe that's more Airbnb if that's what he's doing right now maybe he likes the creativity side of things so ultimately either push them in that direction or something in the world of like utilizing skills like maybe designing and building his own properties that he can convert into an Airbnb I like that you know those like Roar Shack uh ink blot things where they put like a blot of ink and they ask you what do you see and it's supposed to you yours would always be an Airbnb or burrito right everything you look at is going to go that way well doc I've been having these dreams it's the same burrito every night all right you ready for a hot take here hungry I don't know that we share this information very often especially on a podcast like this is going to be hotter than a green chili I think that in today's market real estate investing is more challenging than ever and at the same time it is more crucial than ever we have seen interest rates go up to the point that cash flow in year one is incredibly hard to find like it's so hard to find that the return on your time that you get if you go full-time into real estate investing almost is less than what you'd make working at a job so the whole thing of hey I don't like my job I don't like hard work I want to become a real estate investor so I can get easy money and just quit we kind of had a window where that was available maybe it'll come back we don't know but I wouldn't say that overall it's here right now it doesn't mean you can't find that deal but you're not just going to step out there and find that deal it might actually make you more money to keep working now in order to get cash flow you got to put more money down than you had to put before because rates are higher so it puts us in this dilemma where having Capital having wealth is actually a prerequisite to being able to be a full-time real estate investor or even a successful real estate investor you just have to have money to put down on these properties all these creative things like hey throw a helck on this property to buy your next one and then that one will go up in value and then you can refinance that one and do the next one and you can borrow money from somebody that all worked really good when we had this eight-year window where properties were going up in value everywhere and rents were going up I'm actually getting back to a perspective of fundamentals that I think people like Mike should continue working you should actually think how do I grow a business I know how to do design work I know how to do architectural work that itself Rob is an asset in a sense set that he took a long time to build just like if you have a property that you've taken a long time to let appreciate it's going to be worth more I don't want to see people throwing this stuff out the window to chase this dream of real estate investing just to find that it can go sour sometimes and if you don't have money coming in when Real Estate goes bad you can get really really hurt so I'd like to see it might continue working in this architectural design firm but maybe expanding your skills there can you hire a couple new promising Architects and teach them and leverage them to do some of the work and you can focus on taking on new clients can you get into doing more design work for clients that need more money can you do what Rob said can you get into helping improve people's designs on their properties to make them worth more money that's something that I started doing people with struggling short-term rentals come to me I have a design team we help them improve the performance of the properties and they pay us to be able to do that that's money that you make that can then go into your next deal to increase your down payment so I know that everybody wants to be the full-time real estate investor it's just harder to do than it used to be and I don't want to see people make the jump prematurely so don't worry about I don't have the time to commit to real estate investing hey money is money you make it how you can make it and when you got enough of it almost all the deals are going to work you can invest in the better areas if you have more money to put down not a popular opinion it is a hot take but I think it's Sound Advice hey hot tea and hot coffee is a very tasty thing to drink so I like it hot coffee hot coffee all right we're getting to our last question of the show Rob I'm going to read this one I'm let you take it away this comes from Bay in Minnesota hey BP thanks for all that you guys do I've been consuming your content via podcast and YouTube the past year and a half I'm 26 years old and trying to start my real estate Journey using a VA loan but most properties in Minnesota within affordable ranges that are near me will still need some rehab before I can live in it the multif family properties that I've seen I'm afraid won't cover the mortgage payments alone Loan in case of vacancies I've recently decided that I need to buy something that I can afford and pull out a HELOC later for some multif family Investments or just rent it out and repeat what do you think also most of the nice homes around me or tow houses is investing in tow houses a good idea so baay here has got himself in a bind where the properties that he can afford with a VA loan aren't going to cash flow the stuff that may cash flow is not in good condition he's in a tough market and he doesn't have a lot of capital don't you love these ones Rob I'm going to let you take it yeah I know well first and foremost I don't think that the I mean generally speaking when you're getting into this world of real estate the first deal isn't necessarily going to be the sexiest deal it's not necessarily going to be the easiest deal most of us come into this not being able to afford our first investment and we've got to get really creative with how to make that investment worth it and so I think first thing that comes to mine here is a live and Flip or something where you can live understand that hey you know need some TLC right we need to work on it and it's something that you can make a compromise to your comfort for just a year or two years while you fix it up and force equity in you know Force appreciation into that property build up some equity and unfortunately as much as I want to come in here and say yeah you know when you get into real estate you can scale to 50 units in your first year that's not always the case you know we have those stories often on Bigger Pockets but the real story is it's a slow start and sometimes you really have to just work hard wait it out fix up a property maybe not have a kitchen sink for like a month in your kitchen while your kitchen remodel goes horribly wrong cuz you're doing it all yourself but that's how we learn the game and so you might just have to make the sacrifice I think for a year or two while your property appreciates a little bit yeah and I I was reading in the Forum somewhere that someone said it was like a joke but they were mentioned yeah David Green's advice for everything is house hack and I was thinking well in situations like this what can you really do you're putting zero down you're hoping that something cash flows it's it's in a solid Market in Minnesota where you're going to have some competition it's not going to be easy you're you're talking about the best asset class to invest in available to anybody in the country it's going to be hard you're not going toble to just step in there and crush it right away most things in life you don't step out and crush it right away you're not going to become a cage fighter and be good at it right away you're not going to get in super good shape right away you're going to have to put some time in to develop the skills well real estate needs its own time you have to let it appreciate you have to let rents go up so I would thinking just like you said Rob buy something that's going to be uncomfortable you're going to rent out the rooms in a house with the most rooms that you can find uh guys like Craig kop were literally sleeping on a couch when they were 26 years old so that they could rent out the bedrooms for more money now not everyone has to go that drastic but you see Craig's career really took off because he was willing to do that when you find yourself in ba position here and that doesn't seem like there's any good options you got to play the long game you got to do what you got to buy a house that you can rent out the room save as much money as you can let what you used to pay in rent become money that you save that's the down payment for the next property and just let that snowball build very slowly yeah and I do want to give a little bit of insight into his last question which is also most nice homes around me are Town Homes a good idea I think if there are a lot of town homes around you that means that there are comps and there are properties that there are town homes that are being purchased I think if you're like the only town home in the area then it's probably something I'd shy away from but the fact that there is a decent amount of that in your area wouldn't really shy I wouldn't shy away from it per se you know I don't love town homes for an investment I don't love condos as much as I did before and the reason is inflation has gotten so bad those costs are getting passed on to the associations that manage them and people are finding that their HOA fees are doubling or tripling just like Insurance fees are just like the assessments are like it used to be annoying that you had those fees now they can be like backbreaking they can be really bad as they're going up especially for a new investor what he's saying here is most nice houses around around me your town homes by you have to decide if you want to be wealthy or you want to be comfortable especially when you're young and you don't have a lot of money if you want to live in a nice house you're not going to be able to make it a great investment when you start if you want to become wealthy you're going to have to sacrifice the niceness to find something that makes work on the numbers and at minimum you can move out of it in a year and you could get another house once you've saved up some money but for everybody who's finding themselves in a bind I want to make money in real estate investing and I want to do it in a great area and I don't have any cash you've stacked everything up against you it's going to be harder you're just going to have to sacrifice on the Comfort level but it's okay it builds character you'll get there you'll get there little buddy actually I don't know maybe he's older than oh no he's 26 you'll get there little buddy listen when I was 26 back in my day uh yeah you know my wife and I we bought a really you know kind of dinky home in a neighborhood that we thought had a lot of potential and we remodeled that house three times to the point where nothing in that house is original and it was really hard and it was often times created a lot of frustration because like I you know jokingly said we wouldn't have a kitchen sink and then we were like always remod we're like let's try to wash our dishes in the bathtub and that was we did that one time and we're like let's never do that again and it's a really tough road but we stuck with it and it was so worth it that house is worth double what we paid for it so I think you just got to yeah you got to be willing to put the pride aside a little bit and it's a long game yeah remember when we were in La we were driving through your old neighborhood you pointed out that house and you were like at one point that house was listed for so much money we could how much was it listed for it was listed for 1.2 million and you just thought that was insane that anyone would ever and what was it worth when we drove past uh probably like two or 2.2 something like that and I was like oh my gosh that was such a deal that was like four years ago yeah that I mean that's not always going to go up a million but the principle does remain it feels expensive when you do it you have to tighten your belt and then over time the belt slowly becomes looser and looser and if you find yourself in Bay's position check out our podcast episode number 896 where we interview Jesse Rodriguez and get some ideas for what to do to increase the value of your home to build that Equity to put into future projects with that said David bye to our audience all right thanks everyone for joining us remember you can be featured on an episode of seeing green yourself head over to bigger poo.com David where you can submit your question today we covered several topics including how to keep the youth in mind as you invest evaluating appreciation markets and when it make sense to not cash flow or if it will never make sense being overwhelmed and how to move past it as well as getting that snowball started in your real estate Journey that will hopefully someday become a juggernaut don't forget to check the show notes because you can get connected to Rob or I there if you'd like to reach out this is David Green for Rob by ABA solo signing [Music] off [Music]

Channel: BiggerPockets

Views: 17,122

Keywords: rental properties, buying rental properties, investing for kids, housing market, rental property, generational wealth, how to build generational wealth, how to create generational wealth, how to build wealth, investing for children, best investment for kids, investment accounts for kids, quit your job, real estate investing, invest in real estate, real estate investor, cash flow vs appreciation, appreciation vs cash flow, real estate, biggerpockets, biggerpockets podcast

Id: 92CWHG9BfVo

Length: 39min 9sec (2349 seconds)

Published: Wed Feb 21 2024