BiggerPockets Real Estate Podcast

BiggerPockets Podcast 379: What the Numbers Reveal About Today’s Rents, Prices, and Top Cashflow Markets with Data Scientist Dave Meyer

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There are plenty of opinions out there about where the real estate market is headed next. But what are the numbers telling us?

Today we dig into the data with Dave Meyer, BiggerPockets’ VP of Growth and Analytics and a real estate investor himself.

Dave leads BiggerPockets Insights—a Pro/Premium benefit providing current local market data—and he’s been looking at data points in the weeks since shelter-in-place orders began to grind the economy to a halt.

So…

Why are rents down? Why haven’t prices dropped? And what data should investors be keeping an eye on? The guys tackle those questions and much more in today’s episode.

Plus, Dave discusses his list of the country’s best 11 cashflow markets adjusted for vacancy and explains what makes them so attractive right now.

Add in a topical “Fire Round” and a breakdown of Dave’s “ski for free” Airbnb scheme, and you’ve got an action-packed episode sure to bolster your confidence in these uncertain times.

Check out this episode of the BiggerPockets Real Estate Podcast, and be sure to subscribe to the show in your favorite podcast app so you won’t miss the next one!

Click here to listen on Apple Podcasts.

Listen to the Podcast Here

Read the Transcript Here

Brandon:
This is the BiggerPockets podcast show 379.

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Dave:
If you look at the data, you can see that the price of new listings to what landlords are putting their new listings on are about 3% or 4% lower than what they were a couple of months ago. So that’s why I think rents might decline in the very short term just because people are probably desperate to fill vacancies right now.

Speaker 3:
You’re listening to BiggerPockets Radio. Simplifying real estate for investors, large and small. If you’re here looking to learn about real estate investing, without all the hype, you’re in the right place. Stay tuned and be sure to join the millions of others who have benefited from biggerpockets.com. Your home for real estate investing online.

Brandon:
Hey, what's going on everyone? It's Brandon Turner, host of the BiggerPockets podcast here today with another episode with my friend, my mentor, my pal, my surf buddy, David Green. What's up David Greene, how are you doing?

David:
Nicely done, Brandon. We just spent an entire hour making fun of you and you turn it around [inaudible 00:01:05]and in doing so, cord burning coals on the top of my head. Very well [crosstalk 00:01:11].

Brandon:
That’s what they mean for. I want you to feel bad about how much you made fun of me on today’s episode. We just got done recording today’s episode and I may have gotten made fun of especially at the end, so almost at the end.

David:
It was all for the benefit of the listeners. That’s for you guys.

Brandon:
I’m sure it was.

David:
I just want you all to know that.

Brandon:
I’m sure it was. All right. Well, today’s episode, here’s the deal, guys. I mentioned this in the show, but I’ll say it again now. There’s a lot of fear in the market right now. There’s a lot of emotions riding high, and so we thought it would be a cool idea to bring in some data into the conversation like what actually is happening right now and how can you find out, how can you use data to make better more informed decisions and I know that sounds kind of boring, but trust me, we keep it light, we keep it fun.

Brandon:
And we talked with one of, I guess, the former co-host who has been a co-host several times here on the BiggerPockets podcast, Mr. Dave Meyer. We’ll bring him in in just a moment. Dave Meyer back when Josh originally kind of vacated the BiggerPockets podcast, when his daughter got sick, we had David graciously stepped in back then and hosted a number of episodes with me and we brought him back now, because Dave is actually a data scientist. That’s his actual thing, he went to school for it and he knows data better than anybody I’ve ever met.

Brandon:
And so we talk a lot about the real estate market, what’s happening, what’s going on right now, including some information that we’re publishing in our new magazine BiggerPockets Wealth magazine. So if you’re not subscribed to that, it’s actually a physical magazine, you can have it in your house. It’s beautiful and it’s got a lot of good data. So anyway, we talked about that a little bit in today’s show and a lot more, just really, really good, solid stuff and a lot of what’s going on in the market today. I mean, this is a very current episode and we’re talking about what’s going on with real estate and COVID and all that stuff. So with all that said, Now it’s time for today’s quick tip.

David:
Quick tip.

Brandon:
Today’s quick tip, I just mentioned it. I’m going to say it again now. BiggerPockets Wealth magazine. It’s an actual magazine shipped to your house six times a year, and it’s like not very much at all. It’s like under 30 bucks, I think, so you can get on to biggerpockets.com/magazine, use code magazine for 20% off, so it’s even cheaper, so definitely check that out. And that is today’s quick tip. All right. Well, I think that’s all I got. So, shall we get to today’s discussion?

David:
Yeah. Let’s jump into it and talk some real estate.

Brandon:
All right. Let’s get started with the discussion with Mr. Dave Meyer.

Brandon:
Mr. Dave Meyer, welcome back to the BiggerPockets podcast. It’s been a while. How are you doing, man?

Dave:
Good. It’s great to be back. Thanks for having me.

Brandon:
Yeah. So you are actually right now not in Denver, where you were for the last few times you’ve been on the podcast. You are not even in America right now. Tell us where you are in the world?

Dave:
That is correct. I am in Amsterdam in the Netherlands, which is where I live right now, so I think we’re probably as close to opposite ends of the world as you could possibly be.

Brandon:
I think that’s true. Why are you there?

Dave:
So my fiancé, the company that she works for was acquired by a company that’s based out of the Netherlands, so she got transferred over here for a while and we just got out here in December. So just in time to get locked down, which is a little bit anticlimactic, but we’re excited to be here.

Brandon:
Yeah, cool. And Dave still is the VP of Growth in Analytics at BiggerPockets?

Dave:
That’s correct. Yeah, so I’m still doing the same thing for BiggerPockets, still working on all sorts of different new projects, new products, and very grateful to still be part of the team.

Brandon:
So Dave, here again, working, running lots for BiggerPockets, for those who don’t know, [inaudible 00:04:44]Dave runs a ton of stuff at BP. I mean, Dave is responsible for almost every cool thing that comes out of BP, Dave is somehow responsible for it, which is interesting the fact that you’re doing that now from here.

Dave:
Well, thanks.

Brandon:
Yeah, I mean, you’re a rock star, but what’s also cool is that you also still invest in real estate, you own some properties that people want to listen to your episode. Do you remember what episode you were a guest on?

Dave:
I think it’s 186.

Brandon:
All right.

Dave:
186, I think.

Brandon:
186, all right. So, go listen to that episode if you want to know more, but besides that I wanted to spend some time today going through some of the work you’ve been doing in data because you are, what they call, a data scientist. Is that the official name, which is a cool name.

Dave:
It’s a very fancy name, but yes.

Brandon:
Yes. Okay. I kind of mentioned this a little bit in the intro today, but there’s a lot of fear and anxiety in the market today, a lot of people freaking out and a lot of emotional decisions being made, and a lot of Facebook decisions being made, meaning like you make your decisions based on how your Facebook friends are feeling, and that’s obviously dangerous. So that’s why we wanted to bring you on to talk data a little bit today on what actually is going on in the world right now, what’s actually happening. Before we get to it, though, I do want to know a little bit more about you personally and what you’ve been up to since the last time you were on the show and I know you bought something cool. Can we talk about that?

Dave:
Sure. Yeah. So it was last on in 2016, and so to be honest, I haven't been all that active. As you said, I'm pretty preoccupied with my job at BiggerPockets and maybe different than some of the people come on the show regularly. I want to keep working full time. I like that and I use real estate investing as something I'll fall back on in the future and something I do sort of out of convenience and as is convenient for my current lifestyle. So I have bought a couple of single families since then, but I actually sold the first property that I ever invested in, I bought in 2010 and I sold that in 2018, and did really well on that and had a bunch of cash to spend and I wanted to do a 1031 exchange.

Dave:
And so I was looking at a bunch of deals in Denver, which is where I primarily do my investing and a couple of them fell through it, pretty much the last minute, so I was at my 45-day limit. And for a couple of months or even years actually leading up to that, I'd always had this dream of buying an Airbnb in the mountains, so I could go use it and ski but also make some money off of it. And literally on the 45th day, I called my real estate agent and said, "We're driving up, we're going to go find a property." I think he booked every single, showing every single property that's on sale in the whole county, which is not that many. And we went and saw every single one and put it in an offer and they luckily accepted it in time for our deadline and closed a couple of weeks later.

Brandon:
That’s awesome. So, you bought, what is it, like a house? Do you call it a chalet? Is that a fancy term for a house in the mountains? [crosstalk 00:07:43].

Dave:
Yeah, it is kind of a chalet now that you say it. So again, going back to the data thing, I was really meticulous about this for years, so, it seemed like this spur of the moment, impromptu decision, but I’ve been doing research about this market for a really long time and had bought some data from a company called AirDNA. I don’t know if you guys have heard of it.

David:
Yeah.

Dave:
But they have all this short-term rental data and I did some math and just figured out that anything that had four or five bedrooms or above had an outsized ROI. You just get a much better return on the cash you have to invest, and there’s also just much less competition. You see tons of one and two bedroom places, especially in skier’s vacation homes, but if you can find a place that’s four or five bedrooms, you get much, much longer bookings which leads to less wear and tear and just really high occupancy rates. And luckily, I found a three bedroom, but it had just a silly amount of living space, so I made two extra bedrooms and one of them was a bunk room, so I added I think capacity for 10 more people to sleep in.

David:
Wow.

Dave:
So it’s definitely getting destroyed on a weekly basis because people are having bachelor parties and all sorts of parties there, but up until recently with the recent economic conditions it had been doing really, really well and do get the side benefit of being able to enjoy it a couple of days a year as well.

David:
Yeah, that's cool. I always love that idea of buying a vacation rentals somewhere cool that you want to go on vacation anyway relatively often, and then you buy it there, let the Airbnb paid off. Now, obviously right now with Airbnb permits shut down worldwide, you're not getting income. So, what's it like right now with that side of your business?

Dave:
It’s pretty tough. We’ve basically had a lot of cancellations over the next two months. Luckily, that’s coming during a time that in Colorado is known as the mud season, which is basically when all the snow melts and before it’s fun to do anything outside again, so it’s not a really high revenue season, but we’re rapidly approaching that June, July, August. There’s a lot of weddings and so that’s when I would normally be expecting to generate a healthy chunk of our revenue for the year. Luckily, those haven’t canceled yet, but the way things are trending, I’m not holding my breath.

Dave:
But luckily, I bought this because I have enough longer term rentals and a stable income stream from those long-term rentals in Denver that I knew this is a volatile business and I knew going into it, something like this could happen., not this exact situation, of course. But I prepared myself, so that if I had a long stretch of vacancy, that I would be okay. So luckily, I’m in a decent position.

David:
Yeah, that’s cool. So, Dave when you were looking for a property to buy, did your agent play a very big role in helping you decide what kind of property to get and maybe which specific property to buy or did you do most of that yourself and you just kind of directed your agent what you wanted done?

Dave:
So, my agent is a good friend of mine, and he’s mostly familiar with Denver, but we have a good working relationship and I trust him to handle a lot of the negotiation, so I had done a lot of the research. I had talked to a couple people in the area and then he did a great job helping me do all the inspections. There’s a lot of different things investing in, in rural communities that I really didn’t know about like water rights and mineral rights. So, he picked that all up really quickly, but I did most of the financial analysis because as Brandon said, I’m just a nerd and I like to do that myself.

David:
So I guess I’m asking because for people that are listening, and they say, “Hey, I want to do what Dave does.” There’s a lot of lack of clarity with what role the agent should play versus that person and it’s so hard to answer what should happen because every agent has a different skill set and different expectations and the same for the client. Can you share a little bit of what the houses you bought, how you use the agent and what you found out for you work the best?

Dave:
Yeah, absolutely. I think it’s the investor’s responsibility to set a budget and a strategy and I think with most investing you sort of need to have a hypothesis about what you think is going to happen. I think this market is going to appreciate or one I have in Denver is I think that single family homes are going to appreciate because everything’s getting converted into condos, but people still like to have a yard and liked to be close to downtown Denver. So I usually share that sort of hypothesis with my agent and say, “I want to look for single family homes within two miles of downtown Denver, and this is my price range.” And from there, that’s usually where he really can take off and do some investigation into the some of the best potential areas that I have around there.

Dave:
He's done a really great job for me looking at places that have good zoning opportunities in case I ever want to revamp them or add an additional dwelling unit, which is something I've been looking into. So I do think you're right, and that a lot of people who are first getting into it, assume that the agent is going to sort of set the strategy for them, which maybe some agents can do, but I think it's better in your long-term interest as an investor to learn how to formulate your own opinion and your own strategy about investing and then use your agent as a partner to help facilitate your own vision for your portfolio.

David:
And for you what that looked like was having your agent work on minutiae and details that you wouldn’t know like zoning regulations and maybe some ins and outs of specific neighborhoods as opposed to the overall wealth building strategy you put in place.

Dave:
Absolutely, yeah. He did a great job. I bought a couple of single family homes in an area where there’s this big public works project going on in Denver that’s going to add a tremendous amount of value to the neighborhood that I didn’t really know about. But he goes to all of these neighborhood meetings and association meetings, and he knew that all these businesses were going to be investing in the neighborhood that I was considering, and that sort of put it over the top for me.

Dave:
All these other neighborhoods being similar in terms of price point, but he did a ton of research and taught me a lot about a couple of specific neighborhoods that I wound up investing in. And that’s something I frankly just don’t have the time or skillset for, but since he, as an agent, is always trying to find a way to give his clients a leg up, goes to these meetings and learn something that they can’t really learn on their own.

Brandon:
Yeah, that makes sense. I like that you say that the investor’s job is to come with a strategy because I feel like a lot of investors go and rely on their agent to tell them what makes a good investment. Like, “Well, I want to buy rental property. What makes a good deal here?” And the sad truth is, as David you know for sure like David Greene here, you know because you’re an agent, you work with these people, most agents have no idea what a good deal is, like a good deal to them as a cute kitchen or a nice front porch.

Brandon:
And so if you're relying on your agent, there are rare agents out there. For example, a buddy of mine named Darren Stagger, he lives out in Jersey. He is an agent who specializes really in helping people buy like duplexes and triplexes in that exact market. The reason he is good at is because that's actually what he does. I think he was on episode 48 of the podcast back in the day. But that's a case where you might say, "Okay, agent, I'm going to rely a little bit more on your expertise," or "David Greene, you there, and if you're in the Bay Area, I'm going to rely on David to help me with the house hacking idea," because David, again, you do it and you know it really well. But those are rare, like that's a rare thing.

Brandon:
And so, again, so many people are waiting for someone else to do their push-ups for them and they tell them what to do and make them feel all comfy and secure and give them a hug, but that’s our job, as an investor, is to go out there and do our own work, which is why the data comes in so handy. And why this show is so important, it’s like listeners, it’s time to get your head out of Facebook and the news and let’s find out what’s really going on in the real estate market today. So that’s what I want to go to next unless you got anything else, Greene, you want to cover before we go on or [crosstalk 00:15:46]?

David:
No. That was really well said.

Brandon:
Well, thank you. Dave Meyer, what are you seeing? What does the data show where real estate is at and where it’s headed here in America?

Dave:
So, there's a lot to this question. So, I'll just start with a summary of what I'm seeing and we can dive into anything that you guys are really interested in here. I think it is too early to see any decline in home prices, so that is a benefit right now that we're not really seeing a big decline, but the volume of transaction does seem to be going down. Recently, Fannie Mae and a couple of the mortgage associations have reported that applications for new mortgages are actually going down by about a third year over year. So that is a bit concerning obviously, because if demand decreases, that is a sign that prices are likely to go down.

Dave:
I also do think that there is the possibility that supply is going to increase because when you see that these unemployment numbers where they are right now, if those stay high for any extended period of time, you’re probably going to see people being foreclosed on, unfortunately, and you’re also going to see people who choose to downsize or to get some liquidity by selling their home. So, that combination of a potential for increased supply and dropping demand is a bit concerning to me, but luckily, so far, we haven’t seen that.

Dave:
The second thing I'll say is that at BiggerPockets, we have licensed a good amount of data for a new product that we're working on and we are pulling rents in real time and the interesting thing to see there is that the average asking price for rent has not actually declined much at all. It's only gone down a few percentage points, but new listings are down almost 10, 12%. So we're seeing that landlords are adjusting their expectations for what rents might be in the future, even though the current listings that are out there have not dropped that much. So if you look at that and extrapolate that out sort of to a cap rate, you might think that prices are going to fall if rents are going to fall as well.

Brandon:
If you had to make a gamble right now and I know this is going to sound stupid in the future if you’re wrong, so it’s not like this is the forever podcast that’s up there.

Dave:
Yeah.

Brandon:
But what do you think prices are going to do based on that stuff? And a lot of it depends on when the social distancing ends, right? If it ends tomorrow, that’s very different than six months from now.

Dave:
Certainly.

Brandon:
But what will be your best guess or your bet on what this is going to do to the real estate market?

Dave:
Absolutely. I appreciate the caveat. I am not an economist, but I am a real estate investor and I look at a lot of data. But I would guess that there's going to be a temporary decline in housing prices over the summer, but that it won't be very significant and it won't be very long lasting. I don't think that there is a fundamental weakness in housing market like we saw in 2008. This crisis is obviously not brought on by cheap loans and cheap money propping up housing prices. This is a black swan event, as they call it. Something no one has ever, could ever really predict coming. But I do think the whole key to everything is really how quickly rehiring takes place in the U.S.

Dave:
I put out an article a couple of weeks ago in BP Insights that shows that April, rent was going to be challenging, because a lot of people had lost their jobs, but weren’t yet receiving government assistance. And I think for the next couple of months, it probably will stabilize a little bit as people are getting some government assistance and they do hopefully have some savings, but I think that if rehiring doesn’t take place until July, August, September, we’re in for a much more economic pain because the current government is assistance Program is going to expire. And people are going to be in much more perilous financial situations.

Brandon:
Greene, what do you think on that? Like where do you think we’re headed?

David:
Oh, okay. I’ll tell you what I think and I’m like the only one who has this opinion, that’s why I hesitate to say it because the more I listen, I’m always just standing alone. But I do think about this all the time, because as an agent, you’re a fiduciary to your clients, so just as a human being, I would never want to tell one of my buyers, “You should buy a house right now,” if I thought prices were going to drop. So I’m always thinking about this just, so I have a clear conscience.

David:
I think first off, it’s market by market. So if you live in an area and I can’t name a specific one, but let’s say where like everybody that lives there, they all work in a warehouse where they assemble widgets and that warehouse is shut down and now there’s less demand for those widgets because there’s something that are used on say an airplane and people are going to be flying less because now coronavirus has a scare or everyone in your city works at an airline. You’re going to see exactly what Dave just described. There’s going to be a drop in prices because there’s a drop in demand. If you’re in an area like mine in the Bay Area where it’s mostly tech driven or hospital healthcare, we’re seeing a slowdown, but it’s still not nearly enough to stop, like prices can’t go down because people are buying houses too fast. They’re just not getting 10 offers, they’re getting three, but you’re never going to see dropping home prices with three.

David:
So what I’ve realized after thinking about this is there is a single metric that determines when prices drop, there’s only one and that’s how long a house sits on the market. If I go to a seller, and I say, “Hey, your neighbor sold their house for 600,000,” which may sound expensive, but over here, that’s not at all. “We need to list yours for 500 or 480 because of COVID-19.” They’re going to say, “Yeah. No, we’re going to list at 610, and then we’re going to see.” That’s what every seller is going to say. And a week, two weeks, three weeks in, they’re not going to drop it to 580 or 500 because it’s been three weeks.

David:
What happens is, after a significant period of time, two months, three months, four months, five months, their house is not selling that emotionally beats them down and then they finally accept, “Okay, I have to drop my price.” And a good agent will get them to drop it to right where they should be, a not so good agent will go through this like staircase declining where you just chase the market down before you get there, but that’s what makes the seller decide to list their house for less. It’s one thing. It’s how long it’s on the market before they finally agreed to drop their price. They don’t care what Fox News or CNN tells them is going to happen to the housing market. They see that their neighbor’s house just sold in 25 days for 600, so that’s what they’re going to do.

David:
And what I would have to see is that unemployment lasted or this shutdown lasted for three to four months for sellers to actually realize no one’s buying houses before they are going to drop their price and my gut tells me it’s not going to go that long. We’re going to open up before we get to the point where a seller’s like, “Okay, like siege warfare. I got to leave the castle.” They’re parked, they’re not parked, but “They’re camped around my castle, we ran out of food, we have to give up.” But you don’t just give up the minute that the army gets there. It’s not until you start to get hungry and you’ve eaten all the food that you have.

Brandon:
And all the children.

David:
What’s that?

Brandon:
And eating all the children.

David:
And the children. Well, that’s very dark, Brandon. I don’t even know what to say about that. Brandon is the guy that likes that song I’d Rather Eat Brandy. You guys want to see a completely ridiculous video at YouTube I’d Rather Eat Randy and that’s my best friend.

Brandon:
That’s the best video ever right for you.

David:
But yeah, I know that was kind of long, but I don’t expect to see dropping prices in any market where people go back to work before you go three, four or five months of a house not selling. That’s what we saw on ’08. Prices kept dropping because no one was buying houses. They just sat there forever because there was just way too much supply.

Dave:
I think you’re right and I hope you’re right as well. I think it really depends on the length of time that we’re seeing a shutdown and the economics because people are obviously just frozen right now, but as soon as people will see their paychecks start coming in and have a relative sense that it’s going to continue for the next couple of months, I’m sure that economic activity is going to pick up and your point about the markets is spot on. It’s really going to behave very, very differently.

Dave:
I was doing some analysis today and you mentioned San Francisco, and I’m looking at my data right now. Prices for rent, at least in San Francisco over the last quarter, went up 1%. Well, so obviously, San Francisco is insulated in some way against this. Whereas, you see cities like New York, which are obviously really hard hit, rent prices have actually dropped 5% over the last quarter. So we are going to definitely see large variations depending on some of the economic drivers in every single market and obviously, you just have to really pay close attention to what’s happening where you’re investing.

Brandon:
Yeah, that makes a lot of sense, which is why it’s important to be able to get access to look at this kind of data, figure out what markets are doing better, which ones are doing worse, what’s your market looking like and a lot of people who are long distance investors like Greene here, like it’s really important to be able to pick a market using data, which is partially why we came up with this whole BP Insights thing, and also why we are talking a lot about it in BiggerPockets Wealth magazine, two things that I know you’ve been heavily involved in, Dave.

Brandon:
Do you mind before we go on, I do want to talk about some of the best cash flow markets? I’ve got that on my list to make sure we cover your list of 11 best cash flow markets. But before we get there, what is BP Insights compared to the magazine? How do they relate? What exactly is that?

Dave:
Sure, absolutely. So BP Insights is something we’ve been working on for a couple of months now and basically the idea is to help investors of any size and any strategy get the data to crunch their own numbers and to really invest with confidence, just know what’s been going on in their market, historically, what’s like to happen in the future. And this is actually something we weren’t going to launch until later in 2020, but with everything that was going on with coronavirus and the rapidly changing economic dynamics, we decided to just launch it.

Dave:
So right now, it’s a newsletter that goes just to pro and premium members, but it gives all sorts of data about what’s happening in your individual market. You can download spreadsheets that shows what rented inventory is going on for every city, town in the country and we’re going to be adding all sorts of different tools onto that in the near future where you can get rent assets and all sorts of cool things on biggerpockets.com that will be coming out over the course of the year. So, if you’re a pro or premium member, you should definitely go check that out.

Dave:
We also will be putting some of that data in the magazine, so that’s how they’re tied together. We will be putting bigger studies in the magazine and the first one that’s launching in a couple of weeks here, as you said, I did a study on some of the top 11 markets for cash flow, which seems particularly relevant right now given the economic climate that we’re in.

Brandon:
Can we talk about that then for a little bit about the best cash flow markets because it’s one of the biggest questions I get when I do webinars every week when we talk about real estate investing, people always ask how do I know what market to pick? So, how did you decide on what the 11 are and maybe you can give us a couple examples of a few of them. But yeah, how do you determine what a good cash flow market is?

Dave:
Yeah, absolutely. So I use something that I call a vacancy adjusted metric. So basically, the first thing I do is I discount the average rent by the vacancy rate. So there are some places that get fabulously high rents, but they have huge vacancy rates, and that’s often overlooked. So basically, what I did is I adjusted all of the rents by their vacancy rate, and then I use a rent to price ratio which is something that I think, we talked about on BiggerPockets all the time, and it’s a really helpful thing. It’s very similar to a cap rate, but all you have to do is divide your annual rent, by price.

Dave:
So basically, what you want to do is just figure out what portion of your purchase price is covered by your rent each year. It’s pretty simple and it works really well. Obviously, if you’re honing in on a market, you’re going to want to use a cap rate, you’re going to want to figure out expenses and some of those taxes and property insurance, but when you’re comparing across markets, it’s really difficult to sort of zero in on all those things at this really high level. So I think using just the rent to price ratio is really helpful to start and then you zoom in. So that is how I went about looking at these top 11 markets.

Brandon:
So just to clarify, we’re talking about examples. So you’re basically saying, “Hey, it rents for $1000 a month, the purchase price is $100,000.” So it’s kind of like 1% rule, 2% rule kind of stuff, that’s what you’re saying. Right?

Dave:
Exactly. Yeah.

Brandon:
So compared to rents for $1000 a month then it costs 500 grand, that’s a very different… like the one that costs 500 grand and only rents for $1000 is going to be a much worse cash flow deal likely than the one that rents for $100,000 and is $1000 a month.

Dave:
Right, absolutely. Yeah. And basically, it’s the same exact thing as the 1% rule, I just use an annualized version, so I multiply the monthly rent by 12, but that’s about it. And like you said, yeah. I mean, it is super helpful for just identifying different markets. Of course, this averages for an entire city, so there’s going to be huge differences, but if you’re really just starting out and trying to say, “I am interested in these five markets,” it’s a very helpful tool and then once you identify a couple of places that you’re interested, that’s when you should start drilling into individual neighborhoods, going block by block to try and figure out as much as you can about the micro neighborhood that you’re intending to invest.

David:
So what I love about what you’re saying is Dave and I had never talked, but this is exactly what I talk about in long distance investing.

Brandon:
I was just going to say I rereading long distance investing this last couple of days ago. Yeah and anyway, when I saw that, I was going ask you about that [crosstalk 00:30:02].

David:
Because you’re having trouble going to sleep, is that what you were about to say?

Brandon:
No, because I’m working on a new book for BPM specking out the table of contents.

David:
Oh, so you’re going to pick of the best of the 10.

Brandon:
I wanted to make sure I didn’t just copy what you did because we have similar minds. Anyway keep going.

David:
From the quote copier, this is really, really good. Yeah. His mind works now.

Brandon:
It’s not quote copier. I quoted myself. I didn’t even quote myself.

David:
Quoting someone else.

Brandon:
You thought I quoted myself and that’s how this whole thing started. Anyway, David Greene, anyway, you were saying.

David:
This is how you catch somebody in the air. Okay. It’s okay. Here’s what I wanted to say. What Dave’s describing is taking a general rule as a preliminary screening method and then chunking down from there. What you don’t do is say, “Oh, here’s a metric I can use. I’m going to pick a house based off of what they’ve just said.” So what I talked about in long distance investing is you want to find a target rich environment. You want to find an area that is very likely to have the kind of properties you’re looking for. If I’m looking for houses to flip, I want to find a market that has a very big discrepancy in price. That’s why the market I live in now is so good because you could buy a house for 500 grand that looks like trash and a block away, there’s a house for 900 grand. So the rehab you’re doing can add a lot of value to the property.

David:
I also want to find a very low day on market metric, houses turn really, really quick. It’s almost the opposite when I’m looking for rental properties, I don’t want low days on market. There’s too much competition, they’re going to bid the price too high. I want a market with less people trying to buy there and I want a market with a very strong price to rent ratio, meaning that the rents are very high in comparison to the price which is what Dave was describing. You would not buy a property because it meant just that metric, but that helps you pick a very overall general area. I’m going to look in this city or I’m going to look in this spot. Then you chunk it down another little bit. I want this kind of property.

David:
So Dave mentioned if it was Airbnb, he uses his metric to pick the right area, then he says, “Now I know that if I get a house with more than five bedrooms, my ROI goes up, there’s a sweet spot.” So that’s where I took it down the next level. I’m going to look for houses that have a lot of square footage. And a lot of bedrooms, even if they only have three bedrooms, but they’re 2800 square feet. I can add bedrooms to that. I can make it the house I want.” Then he brings in his agent, and he says, “Agent, here are my criteria.” That’s three steps that anyone can do to make progress buying a property. It’s simple when you understand it and you’re using the data like what Dave’s describing, but don’t try to shortcut it and say, “Oh, it has the right…” What was the name of the metric that you used, Dave? What’d you call it?

Dave:
I call it just a rental price ratio.

David:
And it was basically a vacancy adjusted upgrade kind of, right?

Dave:
Yeah.

David:
Like this is how much money.

Dave:
Yeah, exactly.

David:
Then you adjust for it. That’s why don’t just say it meets that metrics in buying this house. That’s just a step. So that’s all I wanted to comment on. This is very similar to how I found all the properties that I have now and you made it work for you based on the data that you have. That’s awesome.

Dave:
Absolutely. And if you’re using averages, like if I pick one of the top markets here, let me find one here, St. Petersburg, Florida, a 9%, pretty good. It’s one of the top. People say, “Oh, I’m going to invest in St. Petersburg, Florida.” [inaudible 00:33:16], that’s not the right mindset. By rule, because it’s an average, that means that there are properties that are much below nine and there are also properties a lot above 9%. So it’s your job as the investor and working with your agent to find the ones that are above that average. It’s just meant to be a benchmark.

Dave:
So, you know that 9% is achievable, but I don’t know about you guys, I certainly want to find a deal that’s above average, so I know to target a deal that I can find is at 11 or 12%. And that way, when I run my numbers and I find one that’s 11 or 12%, I’m ready to pull the trigger because I know that it’s in one of the top markets and it’s above average, even in one of those topper.

David:
It’s a funnel like Brandon likes to say.

Brandon:
It’s a funnel.

Dave:
It all comes back to funnel,

David:
And all you have is funnel, right? They start wide and they become narrow and what we’re talking about is where you use tools within that funnel. So the agent piece comes in near the very bottom of it. We’re almost at the bottom. This metric Dave’s talking about would come in at the top, I would think. If you’re a single, dude, you don’t ask me if I have girlfriend. It’s not a target rich environment, okay? It’s the same thing with real estate. If you’re trying to find a rental property, you don’t come to the San Francisco Bay Area, and try to find a house that has a really good rental price ratio, like they don’t exist. People are buying them to live in, not to be rented.

Brandon:
Yeah, that’s a good point.

Dave:
Absolutely. And one of the good things is when you're at the top of the funnel, the wide part, it's very easy. Like the math that we're talking about to calculate the 1% rule or even to do what I did here, takes a couple of seconds. It's really not very hard. So, you can really cast a wide net at first when you're getting that wide part of the funnel. And then sure when it gets harder at the end, that's when you have help from an agent, so it's not really this really time consuming process at every step of the funnel. At first, it's really easy and it gets a little bit harder as it goes down, but you should be doing more due diligence and working harder as you become closer to actually transacting.

David:
Yeah, that’s really good.

Brandon:
And hey, just to kind of summarize something that you guys just said, it's actually written in. I'm looking at an actual, well, digital copy right now. By the way, this magazine that we're coming out with is a physical magazine shipped to your house, but I'm looking at the digital version here. The end of this little segment on BP Insights inside the magazine said, "Remember, comparing markets is meant to help guide your investing. This analysis does not mean that every deal in these cities will provide strong returns nor does this analysis imply that other markets will fare poorly in a recession. Our goal with BP Insights is to provide you with knowledge about the math behind real estate investing, while giving you access to unique data sets. Our hope is that you'll use this information to focus your investing and that you'll use what you've learned here to conduct your own analysis."

Brandon:
I love that that’s put that. Let’s just summarized. This isn’t, like David Greene’s point. It’s not just like, “Okay, it passes this thing. It’s passed the 1% rule. It passes the 50% rule.” This is just one piece of the data, but this makes it so cool like, “Okay, well, great. Now we can focus in. I’m going to pick this market.” And I would bet of all top 10 markets, I mean, we have things like Cleveland, Ohio, Arlington, Virginia, Memphis, Kansas City, Missouri, like all of those markets, I can guarantee you, there are a bunch of investors, there are probably thousands that are making money off cash flow and rentals there.

Brandon:
So if you’re new, just looking to invest out of state that would not be a bad place to start. It doesn’t mean other markets don’t work, but just pick one of those and go with it and become an expert of that market. And now you can understand a little bit more about this data set. So again, that’s just another benefit of digging into this BP Insights thing and getting, of course, the BiggerPockets Wealth magazine. So just real quick on BP Wealth, and then we’re going to move on. If you want a copy of that actual magazine, we’re coming out with it every other month or six episodes or six episodes, what do you that? Six editions, is that what you call it?

Dave:
Editions, yeah.

Brandon:
Editions, six editions a year, so every other month, just go to biggerpockets.com/magazine. We’ll actually ship it to your house and you get six of them and it’s like the cost of a book. It’s really not that expensive at all.

Dave:
They look beautiful, too. They look awesome.

Brandon:
I know they do.

Dave:
Have you seen them?

Brandon:
Yeah, I know.

Dave:
Yeah. [crosstalk 00:37:17].

Brandon:
They’re the kind of stuff you want to leave out on your coffee table. So when people come over your house like, “Oh, what’s that?” And they look at it and you’re like, “Oh, actually, I invest in real estate.” And that’s how you get your private money. Anyway, use promo code magazine, if you guys are going to sign up anyway, you might as well get 20% off by using the code magazine, which is kind of cool. And of course, if you are not a pro member a premium member, pro and premium members get full access to the BP Insights, which is kind of cool as well, so make sure you guys do that. With that said, let’s move on a little bit. I want to maybe even move on by going back. I want to talk about declining rent for a second.

Dave:
Sure.

Brandon:
Because you said this earlier. There’s something that real estate investors are very guilty of doing and maybe myself as well, like I don’t think I’ve ever said rents don’t go down, but there is definitely a feeling that rents do not go down, that rents tend to go up. Everyone says like, “Hey, in the last recession, rents actually improved.”

Dave:
Yeah.

Brandon:
But you’re saying that a lot of markets are showing rents going down right now, which, in this kind of black swan event, do you think that’s going to be a long term issue or is this just a blip because of COVID?

Dave:
I don’t think it’s going to be a long term issue and I came onto this because I was analyzing some data for BP Insights and it was showing me that rents were going up during this time, and I was really confused by that, because it just didn’t seem to make any sense to me. So I wound up breaking out all the data that we have into three different types of listings. One, on a weekly basis, I would call new listings and listings that came online that week and we have active listings. Those are the ones that have been on the market for a while and then we have deactivated listings, so ones that have come off the market and are presumably being rented.

Dave:
So what’s going on is active listing numbers are actually trending upward a little bit, so things that are staying on average, things that are on the market are going up, but I believe, my hypothesis is that what’s going on is that cheaper units are actually coming off the market and getting signed, and so the more expensive ones are staying on the market and driving that national average upwards. If you look at the data, you can see that the price of new listings, so what landlords are putting their new listings on are about 3 or 4% lower than what they were a couple of months ago.

Dave:
So that’s why I think rents might decline in the very short-term, just because people are probably desperate to fill vacancies right now, but I think, as we were talking about earlier, as soon as things start to pick back up again, I think they’ll snap right back into place because I think the same principles that have driven rent upward for a long time are still there and are going to resume again quickly.

David:
That’s interesting that you mentioned the 3 to 4% because a lot of people look at things like, “Well, why are prices dropping and they’re going to find a logical question like, “Well, has unemployment dropped by 3 to 4% and that’s why rents have gone down that much?” When I hear that number I know what it is, is landlords know people are used to seeing $1000 a month for a three-bedroom home, so if they list theirs at $960 or $970, it’s just enough to look like a deal, the tenant to be like, “Oh, I should jump on it. That looks cheap.”

David:
It’s not a significant number, 3 to 4% is really changing a whole lot with how your portfolio performs, but it could have a good impact on your vacancy. When you see those numbers affected 20, 30, 40% now you can make a connection logically with like the shape of the economy. And so I think you’re spot on with what you’re saying that this is because it’s a psychological perk. “Oh, that looks cheap. I’m more likely to move on it at a time of uncertainty.” That’s a powerful move.

Dave:
Absolutely, yeah and the other thing that’s really been interesting in the data is to see that the number of properties that are coming off the market that is really dramatically changing, so it totally depends on the market, but in certain markets like in New York, we have seen that the average number of delisted properties, so presumably, they’re getting rented, has dropped 88% over the last quarter. So it just means that people are-

Brandon:
Oh.

Dave:
Yeah, it’s crazy. I mean, there’s huge, huge numbers here. New York was 85, C was 88, so we’re seeing just really massive changes there, but it’s not necessarily all a bad thing. It might mean that more tenants are just resigning their leases. A lot of people might not want to move right now, so we’re also seeing a decrease in the new listings that are going up. So, hopefully that means that landlords are reaching agreements with their tenants and are finding a mutually agreeable situation for them to stay in their units, because I don’t know about you, but the thought of moving right now would be pretty tough.

Brandon:
Yeah and I never thought about this before until right now, but there’s a lot of fear about, “Well, tenants are moving right now. It’s going to be hard to fill a vacant unit and all that.” I mean, that’s obviously a concern a little bit. Now that I said that. I listed a property for rent on Friday and I already have two showings this afternoon out here in Hawaii, and we’re on like more lockdown than most people in the world are. They have locked us down, but it’s still moving. But that said, that actually is a great thing. If people stop moving for the rest of my portfolio because the rest of my portfolio, they’re not moving either. And so actually, it might be bad in one regard, but there’s always a pro to every con here.

Brandon:
So, hopefully as long as they stay paying rent. Now, the downside is if they don’t pay rent and the government doesn’t give us any options of what to do in that case. If they cancel evictions long-term here, and just keep encouraging tenants. I’m not saying they’re encouraging tenants, but there definitely is a vibe of you don’t have to pay rent right now tenants. If that continues long-term, that’s going to be a problem.

Brandon:
And I want to know your thoughts on that Dave, on where do you think that's headed? Obviously, you don't know government policy, but I'm just curious, what is the government going to do in your opinion? What would be your guess, long-term, what is the government going to do and what should we as landlords owning rental properties in America do if we can't evict people and tenants don't pay rent? How long does this last for before every bank, every landlord is bankrupt?

Dave:
Yeah, my real feeling is that that won’t happen. I just think that it’s really unlikely that the government would single out basically landlords to absorb this entire economic situation because that’s what we’re fearful of that you would say that there’s no such thing as evictions, but not offer mortgage forgiveness or forbearance or something at the same time. So I think it’s either going to be all or nothing. Either, there’s going to be no assistance for renters and then no assistance for landlords or there will be help for renters and there will be also help for homeowners.

Dave:
I just don’t see how that could happen. There are so many small landlord, that’s just in really bad financial situations if that were to happen. So all they would be doing is just creating financial pain just in a different subsection of the population, which is hopefully not what the government is trying to do. Hopefully, they’re trying to equally absorb some of the economic hardship here.

Brandon:
Yeah, that makes sense. David, what do you think?

David:
No, this is another thing I’ve thought about quite a bit and you and I talked have about, just like the very interesting intricacies of what the human mind does when it’s faced with, “I don’t know what’s going to happen.” I agree with Dave, basically, like I don’t think that’s going to happen. I don’t think that a bunch of people getting a really bad flu that can spread very easily and people die from it, but people were dying from the normal flu, too. We just didn’t talk about it all the time because it wasn’t unique and novel. That’s not going to crash our economy. If that was going to crash our economy, it would have already been crashed from a lot of the other flus that are going around, so that isn’t ethical.

David:
But what I do see is people play this what if game once they get scared, but what if it goes rampant and it goes all over the place? What if it comes back? What if it mutates and we get other forms? What if there’s another shelter in place? When you turn into what happens is your mind starts to create these very unrealistic scenarios that are worst case propositions and at a certain point you find that you’ve gone so far down this what if the game that it now started off and it had nothing do with coronavirus. What if World War III starts? What if we find aliens and they attack us? There’s all kinds of what ifs that could happen that we never discussed because they’re so unrealistic, but when it’s tied to something like this and your mind naturally wants to travel that path? It will.

David:
So are we going to keep people at home so that they can never work at all for the next nine months or that would happen? That doesn’t seem realistic at all. In any world, that doesn’t make any sense. So, I don’t think it makes sense to start asking those questions now just because this is like all over the news and it’s all that we’re talking about it. Keeping it in context, it’s a really bad flu that’s going around, that’s getting a lot of people sick, but we can absorb it.

David:
I do think there will be a scenario that is not a black swan event, but a real systemic problem. We will go into a real recession at some point and when that happens, a lot of landlords are going to lose their properties just like they lost them in 2008. So what I’m telling people is consider this a warning shot. You just got shown how quickly everything can freeze and how fast people can stop paying their rent and how quickly everything that seemed stable can become unstable. It happens very fast. So don’t think that just because we’re in a good economy that you’re safe, you should be storing money, you should be keeping a healthy amount in reserves, you should be considering the economy of the area where you’re buying.

David:
If it’s completely dependent on one form of employment like Detroit, that’s a very risky place to invest and we’ve been saying this to people on every single episode. Every time people talk to me, I tell them that. This is just a wake-up call that yeah, it’s real, right? Just because it’s always been going up doesn’t mean it’s going to keep going up. So that’s my two cents on what I think is going to play out and if people are going to actually use their properties.

David:
Dave, as far as BP Insights go, someone like you loves that data. You’re good at that, that’s why you’re in the position you’re at. But someone who’s, “That sounds cool, but I’m not good at numbers, I’m not with math. I don’t really know what I’m supposed to do with this.” Can you give us some advice for maybe like someone who’s not as experienced in different and interpretation of data, and just give us some simple ways that that data can be used for your average blue-collar investor?

Dave:
Sure, absolutely. So, I will say first I try as hard as I can to explain the math that I’m doing and all the BS Insight stuff that we’re putting out. So if you take a read at that, hopefully you can follow along, because the math really isn’t that complicated. It’s really just a mindset of trying to gather as much information as you possibly can. From there, the data is not too complicated to analyze. But I will say I was thinking about this and I actually went on Facebook and talked about this a couple of days ago, just a couple of really simple calculations that people can do and some data that people can look at whether you’re experienced or new, especially in this economic environment that might be helpful to them.

Dave:
So, I was saying three different ways to sort of look at a market if it’s your market or something that you’re looking at. Three simple metrics that will be helpful to you and as Brandon and we’ve all talked about, no one metric trick is the right one, but if you look at these three different things, you’ll probably have a good sense of how a market is going to perform over the next couple of years. So the first one we already talked about, which was that they can see adjusted rent to price ratio. So basically, you want to know what percentage of your investment is covered by each year or a year’s worth of rent and that’s obviously helpful because it estimates. It’s a good sort of proxy for cash flow to figure out how much rent compared to what you’re paying for it.

Dave:
The second one that I’ve been particularly looking at recently is an income to price ratio. So, you hear a lot about this in the United States that the affordability of rent is going down very considerably and in some markets, it’s extremely dramatic. You mentioned Detroit. I think it’s upwards of 30, 40, 50% of your income is going to rent which is a concern, so I’ve been looking at different markets where they have the lowest income to rent ratio, so you want to a lower number. But if you basically want to figure out what percentage of your tenant’s perspective income is going to rent and so if that’s only 10% for them, that bodes really well in hard economic times. If it’s 50, or 60%, that’s people who probably have less in reserves, they probably have less saved up and are probably more susceptible to economic fluctuations.

Dave:
So those are two and then the third one you just hit on, David, is look at historical data, what happened in different markets during the last recession? I know you guys on the podcast love to pick on Detroit. I personally like to pick on Las Vegas. If you look at Las Vegas that you guys are familiar with the Case-Shiller index?

Brandon:
Mm-hmm (affirmative).

David:
Yes.

Dave:
Yeah. So if you’re not familiar, it basically estimates prices and shows how they trend over time, it’s a big national thing. If you Google the Case Shiller index for home prices in Las Vegas, you quite literally see a bubble. It’s a trend line that just shoots up and then shoots back down all around 2008. So if you want any sense of what’s going to happen to Las Vegas in the next recession, I think that tells you a lot about what’s going to happen as opposed to looking at Denver, where you see basically a long linear, steady increase. And so, as you just said, David, there’s all these what ifs. Go look at what actually happened in these markets and you’ll be able to have a much better idea of what’s going to happen in the future.

David:
I’m glad that you mentioned Las Vegas. Because if you think about which industries are going to be affected after we come out of the corona thing, it’s going to be anywhere that makes people think I’m likely to get sick back. That’s now like you’re not going to want to fly on planes. I think the airline industry is going to get hit because you’re being trapped in a circular tube with a bunch of people breathing the same air.

David:
You’re not going to want to go to areas where there’s a lot of people gathered at one time that. Does Vegas exist for any other reason than people to fly in there to be around a lot of other people at one time and possibly engage in activities that are very highly likely to be an exchange of bodily fluids and air borne, like that’s a very dangerous place to be when you’re in the middle of a possible pandemic. So yeah, I would expect-

Brandon:
There’s a million people in Vegas right now going, “There’s a few more things here than that.”

Dave:
Yeah. I mean, that’s absolutely right. And I think, unfortunately, I hope I’m wrong here, but you look at Vegas and places that have high proportions of people working in the service industry is another metric that I think you could point to and if you’re a conservative investor, you want to look for places that had a low percentage of population working in the service industry.

Dave:
So, like you said, David, you don’t have to be an expert in data analysis to understand these things, you basically just need to think about common sense ways that you can understand a market. This is not complicated math. You’re looking at how things performed in the past. Look up the average income in a market that you’re considering and compare that to the investment that you’re going to have to make. Look at how much rent is going to cost your tenants and whether they would be able to weather a few bad months. None of that is difficult math. It just takes a little bit of common sense and a little bit of research.

David:
Beautiful. Well, I love that and I love that now there’s finally an option for people who like this. I get a lot of people that reach out to me and that is how they think people like you Dave like they are hungry for data, just hungry, hungry Hippos that are just trying to eat it up. And they’re like, “What metrics do you use when you pick an area? What number should I be looking for?” And there’s a big percent of the populace that actually makes their living doing that. Their job for their company is to look at data and interpret it and help the company make a better decision or at least equip the person who has to make the decisions with that data and then maybe interpret it for them.

David:
So, a lot of those people are naturally drawn to real estate investing, because it’s so numbers based that you can use data to make better decisions. It’s not something, I can’t think of a good example right now, that is just it’s not all art. There’s a science to it as well and this will really help with the science part. So that’s awesome that BiggerPockets is offering something like that. I never thought I’d see the day, so thank you for actually making that happen. That’s really, really big.

Dave:
Absolutely. I’m really excited about it and just to your point, yeah. There really is no one size fits all to how you approach this kind of stuff. I just want everyone to know that you don’t have to be an expert in this or to be well-trained in it. There’s like this term in data science that’s called exploratory data analysis. Well, basically, first step in solving any problems is just use common sense and gather as much data and look at everything you can and I think if you’re concerned about your market or your investment, try and figure out what the government is doing, try and figure out what local businesses are doing around you. None of that takes training. It just takes some hard work and research.

David:
That’s awesome. That’s terrific. All right, we’re going to move on now the BiggerPockets forums had been En Fuego. This is one of the coolest times that I’ve ever seen, it’s just everybody’s all over them asking all kinds of really good questions and there’s a lot of people giving really good answers for stuff that doesn’t get to come up very often. So I’d like to move on to the next section where we’re going to have a few questions from the audience. Brandon, let’s move on to the world famous-

Brandon:
Fire round.

Speaker 5:
It’s time for the fire round.

David:
All right, Dave. These are questions that come straight from the BiggerPockets forums which you can find at biggerpockets.com/forums. Are you ready to do this?

Dave:
I think so.

David:
All right, we are going to fire them at you. The first one comes from Joseph Henderson from one of the markets invest in Jacksonville, Florida. Joseph says, “Assuming that we are headed into a down market, which class of apartment building do you think will thrive during these times A class, B class, C class, etc.?

Dave:
Good question. I my instinct says that it would probably be A class and I do have some data to support that, that I will publish in BP Insights in the next couple of days. But we are seeing that the biggest downturn in rents is coming in the middle market actually. Eventually, 1500 to 2500 in rents have seen the sharpest declines over the last couple of months.

Brandon:
Fascinating. All right, well, number two then. Matt Malarkey says, “I’m a new investor. I’m looking to potentially house hack my first deal. With all this COVID stuff going on, is now a good time to start buying for me or would it be better for me to wait a few months to see if prices go down?”

Dave:
I think trying to time the market with pretty much everything is somewhat foolish. I think that I’d say in stock investing volatility breeds opportunity, and I think that you should be prepared and understand what a good deal is sort of like we were talking about earlier. Knowing what the average is, knowing what a good rent to price ratio is, because I do think there’s going to be great deals over the next two or three months. So I think it’s still a great time to invest.

David:
That guy’s last name was Malarkey. Isn’t there a saying that’s a bunch of malarkey?

Brandon:
That’s a bunch of malarkey.

David:
Yeah. I wonder where that comes from? There’s a funny story. I went to the Police Academy with the guy whose last name was Mud. His name is Benjamin Mud and he told me, have you ever heard that saying your name is mud, like it’s a terrible?

Dave:
Yeah.

David:
That actually comes from the fact that one of his great, great, great grandfathers actually was a doctor that helped treat John Wilkes Booth after he shot Abraham Lincoln, but he didn’t know that the guy had just shot Abraham Lincoln. So he did the thing off, he thought he broke his leg or whatever, he ran away. And then this guy ends up helping him, nursing him back to health and sending him on his way. And then when they find out about it, he was like a horrible person for doing that. And that’s where your name is Mud comes from. Completely unrelated to anything real estate, but…

Dave:
Wow.

Brandon:
I think some of it is just life story.

David:
… good history lesson. Yes, and Malarkey tripped it, but it's funny. All right. The next question, "Is now a bad time to start a wholesaling business? I'm in a major metro area with a resilient housing market, but I'm wondering if I'll be able to find enough cash buyers even if I find great deals."

Dave:
I’ll [inaudible 00:58:48]this by saying I’m not an expert on wholesaling, but I don’t think that it’s necessarily a bad time at all. I think that there are probably a lot of well-prepared real estate investors who are going to see this as a buying opportunity and as long as you can find those investors who have been waiting for an opportunity like this, it could be a great time to start.

David:
Brandon, what are your thoughts though? Because you’re in a market that is being hit pretty severely but making things happen.

Brandon:
Yeah, I'll say kind of what I said on the video on BiggerPockets a few days ago, I published. It was called what a new investor should do and basically, I said this, is now a bad time to start a wholesaling business or a flipping business or just in general, define deals? It's hard. You can't really leave your house and a lot of cases and there's a lot of other reasons why this is a difficult time, but I think that's the best reason to get started wholesaling or flipping or buying rentals right now, because it's challenging. And when you learn anything when you're challenged, it's when you're playing baseball, if you step up to the plate and you're swinging like four or five bats at one time, then you go and drop the four or five bats and you just have one. That one feels really light.

Brandon:
And I’m sure, David, you come up with a better analogy than that, but the idea is like when you work hard at something then you like you’re at the gym, you’re benching, if you’re like me, you’re benching 99 and it’s like super heavy and then you drop it and you bench the bar. The bar feels really light, right? It’s the only way I can bench the bar. And so that idea is what works really well right here in real estate is you do it when it’s hard.

Brandon:
Most of the world I would say, I don’t even know 95% of Americans or the world, 90% of Americans or the world, when they see things that are hard, they say, “Okay, I’m not going to do it, therefore.” It’s like difficult means don’t do it, but I think like winners or whatever you want to call it, successful people, they say, “Oh, it’s hard. Okay, well, great. That means more opportunity there.” And so, I would just include it, yeah.

David:
We call that a barrier to entry.

Brandon:
Yeah.

David:
And good business people look for a barrier to entry because competition will be-

Brandon:
That’s exactly why I went into mobile home parks because I’m like, mobile home parks are the hardest real estate investment I’ve ever seen and I’ve ever done, just to analyze and understand and wrap your head around because of all the moving parts. I was like, “Hey, that’s hard. Most people won’t be competing with me then.” So if you’re competing with me right now, stop.

David:
Yeah. Well, that’s why it’s super hard to make money doing stuff like selling CDs out of the trunk of your car or they see what everyone was doing and they were trying to be an eBay seller where they would buy [crosstalk 01:01:11].

Brandon:
Yeah, drop shipping and Amazon businesses.

David:
Yeah, you could say.

Brandon:
Yeah, all that stuff works in the beginning when it’s hard.

David:
Yep.

Brandon:
And then [inaudible 01:01:18], now, it’s easy.

David:
Very, very good point there. I like it. All right, Brandon, why don’t you take the last question.

Brandon:
Number four, Scott Hasselbeck from North Bend, Washington. I love North Bend Washington. “Like everyone right now, I’m spending a lot of time at home thinking about the short-, mid- and long-term impacts of our new normal as a result of COVID-19. For example, will we see a movement?” I love this question. “Are we going to see a movement from our large urban centers like New York City or Chicago to cities that are more like Nashville or Austin or Boise? Is that a trend that you see coming because of this?” Dave, what do you think?

Dave:
I’ve read a lot about this. And I sort of anticipated this question coming up and try to use our data to figure out what I could, and there’s actually something really fascinating. The pricing for housing across the country has gone down a bit, but for homes, for houses, single family homes, they’ve stayed almost entirely flat over the last couple of months while apartments have dropped, I think like 6 or 8%. I need to look up the exact number, but most of the declines in rents have come from actually from apartment, so that’s not a perfect parallel for the question, but I do think it seems to indicate that people are more interested in finding a place with more space or maybe that’s a little bit less densely populated.

Dave:
I do think there’s that potential, but honestly, I think it’s overblown. I think we’ve heard for years and years that the San Francisco market, the New York market, they’re too hot and people can’t live there, but I just think that’s where a lot of jobs are, that’s where the highest paying jobs are and people are going to continue to move there and they’re going to continue to want to I live in those places, but I’m sort of just speculating.

Brandon:
Yeah. What do you think, David?

David:
I think much like Thanos says, “This will bring balance to the universe that we have.” Because what we’ve seen is this flight out of suburbs and into inner city. It’s been very unbalanced just as far as everything’s gone up, because the economy’s going good, but it’s gone up a lot faster in urban areas than in suburban areas. People aren’t having kids as early so they don’t need as much space. People don’t want to drive cars anymore, like younger generation, they want to live without one. They want to be within walking distance of stuff. They want to be around other people, and the jobs are in those cities. And so when you take all those factors out and you’ve seen the inner cities, the urban areas have just exploded.

David:
That's where all the buildings. If you've driven through Denver, Austin, San Francisco, Seattle, Houston, Texas, there are so many skyscrapers or the cranes building stuff. It's ridiculous how much of that is going on because there's such a huge demand to be there. I think that this has shifted that a little bit because one, there's certain people that aren't going to be want to be that close to someone. I think part of the reason you see Detroit and New York getting hit so hard by coronavirus is that they have all these people that live in apartment buildings, and they're sharing air. The HVAC systems are all connected, right? So there's going to be an adjustment where construction standards start to change and they try to isolate units from each other. So they're not all sharing the same air.

David:
Well, that stuff that’s already built in those inner cities, it’s too late. That’s the way that that’s going to be set up. So more people are going to want to be in a suburb because it will feel safer and you’re seeing now that a lot of people are working from home and companies are still profitable. I think a lot of companies are recognizing, “I don’t need this person in here all the time, especially if I alter their pay structure, so they get paid per project, as opposed to just per hour.” So that won’t happen right away. You’re not going to see this immediate shift.

David:
But I do think that over time, you’re going to see the balance will start to come back to where there’s a healthy amount of people that want to be in a suburb, that wants space from other people, that want their own property, and if they’re working from home, they don’t have to be in the area where the jobs are. But again, like we said earlier, it is completely unique to the area that you’re in. Some jobs can be transferred to work from home. Other jobs cannot be transferred to work from home. So I wouldn’t expect to see the same phenomena will sweep the country equally.

Brandon:
That makes sense. All right.

David:
That’s what it is.

Brandon:
Well, thank you, gentlemen, for your-

Dave:
David that makes sense Greene.

David:
David that makes sense Green. All right. With that, we’re going to start to wrap things up by going to our last segment of the show. It is time for our-

Speaker 6:
Famous Four.

Brandon:
All right. Before we get to the Famous Four though, let’s hear from our good buddy, Jay Scott, about who’s going to be on the BiggerPockets Business podcast on Tuesday.

Jay Scoot:
Hey there, Brandon and BiggerPockets real estate podcast listeners. This is Jay Scott, your co-host for the BiggerPockets Business podcast. This week on the business podcast, we have our first repeat guest. His name is Mike Michalowicz. He was our guest on episode 30, which was one of our most popular episodes ever. He is a business author, who just released his sixth book called Fix This Next, and it’s absolutely amazing. He talks all about how you can use this book to help fix the biggest problems in your business. So, check us out on the BiggerPockets Business podcast this week. Now, back to your Famous Four.

Brandon:
All right, Big thanks to Kevin, our producer, for arranging to have Jay Scott and everyone else come on the show and tell us about the other episodes. Make sure you guys are listening to those shows. They’re the cat’s meow. Is that still a phrase? Can we say that?

Dave:
Definitely, yeah. You brought it back.

Brandon:
I brought it back.

David:
As long as [crosstalk 01:06:38]came up with it. Yeah, go ahead.

Brandon:
That’s such [inaudible 01:06:42]. Number one, Dave, do you have a current favorite real estate related book?

Dave:
I’m going say David’s Long Distance investing book.

David:
I’m finally on the board. I’ve been waiting for years.

Dave:
I know. Well, I now live in Europe, so I need to do some long distance investing.

David:
Even if that was a pity drop, I’ll take it. Any kind of drop. All right. How about your favorite business book?

Dave:
I like the book, Start With Why. It’s a Simon Sinek book. It’s just about finding purpose in what you’re doing and that if you sort of align your personal purpose with what you’re working on, you’re more likely to find good results.

David:
Cool. That’s beautiful. I’m going throw in a wild card here. Do you have a favorite quote?

Dave:
I don’t. I really don’t.

David:
I’m not surprised.

Dave:
Maybe, it’s the cat’s meow now. There I said it.

David:
Brandon should write a book and the chapter should start with the ridiculous thing like the bee’s knees, the cat’s meow.

Dave:
David, did you know that back in 2016, Brandon gave a presentation at BiggerPockets to employees and he put up a slide that had a quote on it and then slid in under it, attributed the quote to himself and so, he at the presentation…

Brandon:
I may have-

Dave:
… began quoting himself. Yeah. It was very memorable.

David:
I was listening to Robert Greene on the way here to recording this today. And we had Robert Greene on this episode, a very, very smart man, and Robert Greene said that people do not change their behaviors. You have to trust that they said it in the past, they will continue to do it and so you shouldn’t be fooled. So, this is very insightful coming from the BP Insight guy that way back in 2013, the data showed that Brandon had been biting quotes and claiming them as his own.

Brandon:
And I wasn’t stealing. It was my quote.

Dave:
No, actually, it was attributed to himself.

Brandon:
It was my quote.

David:
This was when you get the Tyrion from Game of Thrones thing where you said quote like a wild thing one said and then you [inaudible 01:09:00].

Brandon:
No.

Dave:
Exactly. Yeah, that’s what happened.

Brandon:
All right.

David:
Like it’s me.

Brandon:
I believe the quote was, what was the quote? It was the thing I always. It’s 50% of a great deal is better than 100% or no deal. Well, who else am I going to attribute that to> I wanted to talk about it, so I wrote my name.

David:
Not everyone will. Like we don’t attribute everything we say to another person. That was David Green who said that by the way. Actually, you could have just said it. But that’s really funny. Okay, anyways.

Brandon:
All right. Enough picking on me. Let’s get on with this.

David:
Other than helping Dave pick on Brandon, do you have any other hobbies?

Dave:
Well, I usually say that I’m like a stereotypical Colorado guy, but now I live in Amsterdam, but I like to hike and to ski and I really like to cook. I do a lot of barbecuing.

David:
You can’t really say your stereotypical Amsterdam guy, that probably wouldn’t have worked.

Dave:
No, I don’t really know what that means yet. I’ve been in this apartment the entire time. [inaudible 01:10:01], so I don’t really know what that means.

David:
That’s hilarious that you went to the most wild place in the world and you’ve been cooped up in an apartment the entire time and unable to do anything there.

Dave:
Yeah, yeah. It’s like all the wildness is kind of concentrated in a very small area and the rest of the city is really nice, but I would like to be able to experience it, so hopefully soon.

Brandon:
All right. Well, with that, let me get to the end of the show. Dave Meyer, what do you think sets apart successful real estate investors from those who give up, fail or never get started?

Dave:
I know this is going to be stereotypical response, but I think it’s just perseverance. There are a lot of things that are going to get in your way of getting your first deal or your second deal. It’s just sticking with something and making sure that it’s a priority in your life. The current economic environment is probably a great example. You might have been ready to pull the trigger on a deal and this is causing a lot of uncertainty, but that shouldn’t derail your commitment to a goal that you have. You should continue to pursue the things that you think are going to make a difference in your life, whether there’s a challenge like this or not.

David:
That’s a good answer. That’s deep. All right, Dave, I have thoroughly enjoyed our time with you as well.

Dave:
Yeah, this is great. All right. Well, I’ll talk to you guys soon.

David:
Well, hang on a second now. For people that want to continue this dialogue with you or want to learn a little bit more about you, where can they find out more?

Dave:
Probably on BiggerPockets. I’m really lame and don’t really do social media, so hit me up on BiggerPockets.

Brandon:
And of course, they can read all your BP Insights by going to the biggerpockets.com/-

David:
Insights?

Dave:
/insights. Yeah, biggerpockets.com/insights. Oh, and I will I have an article in the magazine that’s coming out, so check that out, too.

Brandon:
Very cool. All right. Well, Dave Meyer, thanks so much for joining us. It’s always a pleasure to have you here even when you tell embarrassing stories about me.

Dave:
Sorry, I had to get that one out.

David:
I loved it. Man, you made your points. That’s awesome.

Dave:
All right, guys. Bye, guys. Thanks.

David:
This is David Greene for Brandon, a wise man once said, Turner, signing off.

David:
Speaker 3 You’re listening to BiggerPockets radio, simplifying real estate for investors large and small. If you’re here looking to learn about real estate investing without all the hype, you’re in the right place. Be sure to join the millions of others who have benefited from biggerpockets.com, your home for real estate investing online.

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In This Episode We Cover:

  • The top cashflow markets in the country for high value and low vacancy
  • 3 data points Dave looks at when analyzing a new market
  • Why housing prices haven’t fallen much yet
  • Dave’s (cautiously optimistic) forecast on real estate prices
  • What’s happening to rents nationwide
  • What “income-to-price” reveals about a market
  • What BiggerPockets Insights is
  • How new investors can take advantage of this downtime
  • The potential of a population shift away from urban centers
  • How Dave bought an Airbnb in Colorado to “ski for free
  • And SO much more!

Links from the Show

Books Mentioned in this Show:

Tweetable Topics:

  • “It’s better to formulate your opinion and your own strategy about investing and then use your agent as your partner.” (Tweet This!)
  • “Volatility breeds opportunity.” (Tweet This!)

Connect with Dave

Real strategies that work for real people seeking to build wealth through real estate investments. Co-hosted by Brandon Turner and David Greene, this podcast provides actionable advice from investo...
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    Jonathan Williams from Wilmington, NC
    Replied 3 months ago
    As someone who is just starting to learn property analysis, this show had a lot of awesome insights. Really excited about Wealth Magazine!
    Ramon E Alvarez New to Real Estate from Meridian, MS
    Replied 3 months ago
    When he said that he discounts the average rent by the vacancy rate, what equation is he doing for that? I'm trying to devide, multiply, subtract and the result doesnt make sense to me. Then is he taking that number an dividing it by the purchase price?? They talked about it but didn't explain it. Anybody, i would appreciate the help. I'm trying to figure this thing out.
    Ramon E Alvarez New to Real Estate from Meridian, MS
    Replied 3 months ago
    Never mind, just figured it out. You take 100% and subtract the Vacancy Rate = Adjusted percentage. Then take the annual GOI multiply it by the Adjusted percentage and you have your Vacancy Adjusted GOI. Then divide that by the Purchase Price and voila!
    Donald Price from Andover, MA
    Replied 3 months ago
    Great show! I know BP has other Podcast shows like >>> Money, Business & Rookie >>> all good, too. I would love to hear more frequent updates and insights from Dave Meyer.
    Mary Darcy Investor from Steamboat Springs, Colorado
    Replied 3 months ago
    What were the top 11 cash flowing markets? I don’t believe they ever said.
    Michael Tan Rental Property Investor from Seattle
    Replied 3 months ago
    One was St Petersburg FL but they did not mention the other 10. Feel like I got ripped off listening to this episode.
    Victor Zhu from Staten Island, NY
    Replied 3 months ago
    same question as well, just finished the podcast and there was no mention of it.
    Prasad J. Investor from Kenmore, Washington
    Replied 3 months ago
    I love most of the podcasts here. But This show was a little disappointing. Seemed too diluted and little more on promoting bpinsights rather than value
    Cameron Davis Investor from Austin, TX
    Replied 3 months ago
    "Quick Tip: Buy our magazine". Yep, BP is becoming one big advertisement... for themselves and their sponsors. There are more commercials than ever on the podcast, and more often than not the "Tip" is to buy their stuff, like the new magazine (I believe this is already the 2nd time they pushed it) or the Intention Journal.
    Katie Rogers from Santa Barbara, California
    Replied 3 months ago
    You may regret that whole "What if" segment. It was based on a major logical fallacy by comparing COVID-19 with space aliens, for pete's sake, and dismissing it as a kind of flu. It is not the flu. It is a disease that is stumping the medical world because it does not work the way the typical respiratory infection works. It has already become the third leading cause of death in the US. At least cancer and heart disease are not contagious. https://www.statnews.com/2020/04/30/coronavirus-death-projections-compare-causes-of-death/ Trump's internal projections expect the daily number of deaths to double to 3000 in a month. https://thehill.com/homenews/administration/496063-startling-new-covid-19-death-projections-point-to-difficult