Identifying Your Best Market, Neighborhood, and Property in 8 Steps with Brandon and David

Brandon:
This is the BiggerPockets podcast, show 402.

David:
Work, and that’s where a lot of people get bogged down. Okay, I want to invest, how do I pick a market? I’m going to pour through all the data and I’m going to meticulously analyze all of this. They do all of this work, and then by the time they finally pick their market, they’re exhausted and they’re like, I don’t even know if I want to keep going.

Intro:
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:
What is going on everyone? It’s Brandon Turner, host of the BiggerPockets podcast here with my co host, Mr. David Greene. David Greene, how you doing, man?

David:
I’m doing really, really good. Finally got a little bit of fresh air. The wildfires have calmed down a little bit, and I’m ready to talk about some real estate.

Brandon:
Real estate. All right, well, let’s talk about some real estate. So today’s show is about the market that you buy in, or specifically we’re going to talk about … Go from how to define your market, how to choose your market, how to research that market, how to find people in that market, how to find the neighborhood in that market where you’re actually going to invest, and then how do you find that right property within that neighborhood. So in other words, by the end of today’s show, it’s going to be a very how-to show.

We want you to be fully ready to go out and buy a property. This is actually the reason I’m doing this show is because I am gearing up to buy a property, a small deal. Now normally, you guys know I buy a lot of big deals, and I buy the big mobile home parks and stuff with my fund, but in this case, I need to buy Wilder, my little boy who is 10 months old, I need to buy him his property. If you’re not familiar with the whole what I do for Rosie, what I did for Rosie, what I’m going to do for Wilder is, every one of my kids, I buy them my property, put it on a 15 year mortgage, pay it off and then I can use that paid off property when they’re ready to go to college and it’ll fund their whole college education.

So rather than buying Wilder a piece of a mobile home park, I decided I’m going to actually go buy an out of state rental property. I’m going to document the entire journey, and this is kind of the first step of that as we do this research phase here today. So you guys can learn along with me. So if you’re investing in an expensive market or a competitive market, or even in a local market, you want to invest locally, this stuff will help you pick that right market, the neighborhood and property. Of course, I am super lucky to have the man who wrote the book on long-distance investing. What’s it called? Long-Distance Real Estate Investing?

David:
That’s exactly right. I would have written it sooner, but I couldn’t think of a name.

Brandon:
Okay, good. I’m glad to have you today because I’m going to be almost interviewing you in a way today, David. We’ll have a conversation here, but you’re the smart one here on this stuff and you’ve done a lot more long-distance investing than I have. So with that said, let’s get into that in just a moment but first, today’s qui…

David:
Ick tip.

Brandon:
I actually have two quick tips for you today. Number one, if you didn’t notice, we have just recently announced that the BiggerPockets podcast is now twice a week, not just once. People love the show. So we thought why don’t we do it … Give them more of what they love. So now you can listen to other show, comes out on Sunday. So you can listen on Sunday or on your Monday morning commute, if you’re driving to work on Monday. That show’s going to be geared a little bit more towards the entrepreneurship, the personal development, the success principles that help real estate investors less like story, how’d you buy your first duplex and a lot more of like how did you get up every morning and run a marathon for a week straight, and how does that apply to real estate? Investors? So like it’s the idea of success, in general applied to real estate. Anything you want to add on that, David?

David:
I would say this is half the battle. If you just listen to Brandon say that and you thought, I don’t know, I just want to know how do I analyze a property. You can be really good at analyzing properties, but if you don’t know how to take those techniques and actually put them into practice, it doesn’t help you. So it’s a two-pronged attack here, where half of it is knowing what to do. And the other half is knowing how to do it.

Brandon:
Yeah. I would even say it’s more than half the battle. Everybody here can know exactly how to do everything we’re talking about, how to. The real question is, why didn’t you wake up early when you said you were going to. The real question is why didn’t you go to the gym when you said you were going to. The real question is why didn’t you do that marathon you signed up for. Whatever those things in life are. Why didn’t you go to that open house? Why the fear stop you? All those things, they are not talked about enough. So we wanted to spend a little more time on that.
So that’s the first quick tip today. The second quick tip, today we are talking on the show a lot about markets. So inevitably, we’re going to talk about the new BiggerPockets Insights, which is a new feature that we have on BiggerPockets where we actually just pay an ungodly amount of money for big data. We license big data from these huge companies and then we take all this massive amounts of data about property values across the entire country of the United States and rent prices and all this stuff, and we made it into a easy-to-use platform essentially for investors be able to learn ideally about like where the best markets are, where the trends happening, what certain properties will rent for and all that.
So that’s BiggerPockets Insights. Again, we’ll mention it today on the show. I just wanted you to be aware of what we’re talking about when I mentioned it and in case you’re not already a BiggerPockets Pro member, which you do need a pro membership to access Insights, we are currently, because of the launch of this, to celebrate the launch of this, we are offering a sale. We’re having a sale on BiggerPockets Pro. So if you use the code, BPdata, BPdata, like one word. If you can call it a word, BPdata, you can get 20% off a pro annual membership.
So instead of like 3.90, it’s like 3.12. So anyway, do that. That expires midnight on September 30. Now, today’s show, again, talking about the market, talking about the property. Let’s just jump right into this thing. David, we’ve got eight steps to choosing a market, neighborhood and property, all combined together here. We’re going to go through each one and I want to start with number one. I want to ask you, we wrote down before show, number one is start with the end in mind. Can you explain what does that mean? Why is it important to start with the end in mind?

David:
Well, this is really good, and I think we even kind of glossed over another good point when we said market neighborhood property. If you look at the order of that, you are starting with a very general idea and you are whittling it down into specifics. That is the best way to come up with a plan to move forward. You start with a big picture, and you scale it down until you get it so minute that you actually know, now I know what to do. I know where to start. It ties into starting with the end in mind.
What I’ve noticed that what I did when I was new at business, and a lot of other people do is they say, I’m ready to go, someone tell me where to go, what’s step one? Then they go to step one. They say, now, what’s step two and then what’s step three? Eventually they decide, show me steps one through 10 all at the same time. I just want to know everything I’m supposed to do.
Once you’ve been successful at a couple endeavors, you start to realize that it doesn’t work that way. Like let’s say someone wants to be a real estate agent. They say, “David, how do I make a bunch of money as a real estate agent? What do I do?” Well, there’s all kinds of people that are going to come out, they’re going to say, “Well, you got to go knock on doors, you got to go say this thing, you got to go learn that.”
I typically say no, no, start with the end in mind. If you are going to buy a house, and you had to pick the person that you are going to help you find it or you wanted to sell a house, what would you be looking for in that person? Well, I’d want him to be confident, I’d want him to know the market, I’d want him to be pretty successful, I’d want to know they were honest. How would you know that? Well, they probably talk this way to act this way. This is the stuff they’d say.
Now you know what you need to go turn yourself into. Do you struggle with communication, so you don’t convey that you’re an honest person very easily? Boom, now you’ve got a plan. This principle applies to whatever it is you want to do. You have to start with what you want it to look like, and work backwards. So that’s basically this idea of you start with the end in mind and then you ask yourself, what would I need to do to have this? What would I need to do to have that? In order to have that, what would I have to have and you work all the way back to where you are right now.

Brandon:
Give me an example of that. How does that look like tangibly?

David:
You talk about with real estate investing?

Brandon:
Sure.

David:
Okay. The first thing you’d ask is, why am I investing in real estate? Am I doing this for my retirement? I don’t have a great retirement and I need cash flow in retirement. Is this purely investing? I have a chunk of money and I want to turn this into more and I think real estate is the best way to do it. Is it financial freedom? I want to get out of my job specifically, I don’t like this job, or I don’t like the requirements that I have to be in this place at this time.
All of those are different goals. Fitness is an overall goal. That’s like choosing the market, but how fit do you want to look? Do you just want to be skinny? Do you want to be muscular? Do you want to be strong? Do you want to be fit? Do you want to have low body fat? Do you want to able to run forever? Is it for a sport? Is there specific movements you want to do? That’s like choosing the neighborhood. What kind of fitness do you want, and then picking the property would be like, what actual machines are you going to train with?
Which movements are you going to go practice? Because once you’ve got that now you say, I know I’m doing these exercises on these machines. You can start tracking your lead measures. I’m going to do this many bench press things, I should be going up this much. This is what I want to squat, whatever the case would be. So with real estate specifically, you want to start and ask yourself first, what is my goal? How do I want this to look when I am done? What is the benefit I want?
Because you find that different properties work for different purposes, just like different exercises work for different fitness goals. If you’re looking for, I just want to get out of my job, I want to get out of this thing right away, I want to replace this income so I don’t have to go to work. Small multifamily will likely probably be what makes the most sense to you. You want to buy 2, 3, 4 unit properties.
They may not appreciate as much, but you know, you’ve got consistent income coming in, and you can now regroup and decide where do you want to go? Another example would be, is this something you’re like, I don’t really need money right now. I’m doing pretty good. I like my career, but I want something that’s going to be worth a whole lot more 30 years from now. You’re going to focus on different neighborhoods, maybe they even don’t cash flow right away.
That’s okay for some people. If you make good income, you manage your money wisely. It’s okay to lose money when you first buy a property every month. I know you’ve heard many people say never, never, never. I wouldn’t say never. For certain human beings that live paycheck to paycheck, I’d say never, but if you’re saving five, 10 grand a month, you have a really good paying job, it’s okay to go buy in the best neighborhoods and not make money right away when you know that that dollar property that you buy in San Francisco is going to be worth 5 million in 30 years. So these are some examples.

Brandon:
Exactly. If the goal is not to get out of your job next week or next month or next year, and I love to use the analogy of the fitness. If you want to be a bodybuilder, you’re going to do a certain type of workout. So the same thing, if you want to invest in a certain type of real estate, you’re going to find a certain location that supports that. What do you call that? A target rich? Is that your-

David:
A target rich environment. That’s exactly right. When I’m picking which market I want to go to, every market is known for a certain dynamic. Which markets are rich and the targets that I want for my goals.

Brandon:
Yeah, that’s really good. So give me an example. So when I was writing the book, The Multifamily Millionaire, which comes out next spring, so I’ve still got a while before that, but I just pulled up some of the research I did here, and I wrote this. I’m just going to read this. It says, it’s important to recognize that in some real estate markets, the cash flow maybe high and appreciation low, but in other markets, the opposite may be true. For example, many coastal markets like Seattle, LA, New York, experience tremendous growth through appreciation.
When we say appreciation, we’re talking about just the value goes up over time, much faster. So here’s the data. Seattle has seen, for example, Seattle has seen an increase of 6.5% per year on median home prices from 1998 to 2018. So over those 20 years, they saw six and a half percent every single year in increase but Cleveland take Cleveland. Cleveland saw .4% per year over that same time period.
So Cleveland went up as well, just like they both went up in value, but Cleveland went up at a much smaller rate than Seattle went up on. Now, the thing is, though, trying to find cash flow in Seattle is incredibly difficult. So, again, goes back to the same thing, what do you want? If you’re trying to get out of a job as quickly as possible, maybe you get a bunch of good cash flow in Cleveland, but it probably is not going to be worth five times more 20 years from now.
It might be worth 50% more 20 years from now, and that’s why we start with the end in mind. What do you want? What are you looking for? So for me, like to go back to the Wilder example, I want a property for Wilder that can be fully paid off in 20 years. I don’t care necessarily about cash flow. I don’t want to lose money on it. I’d like to make a little bit if I can, but I really just want a property that’s going to be worth a lot of money 18 years from now, or 17 years from now when he’s ready to go off to college.
So I’m going to be looking at a market that’s a little more geared towards appreciation. Let me fire this at you, David. How do you know a market is geared towards appreciation? Does past performance like … Is that the number one indicator of future for performance, is like how it’s been?

David:
Oh, man. That’s a whole podcast episode we can do. This is really, really good and I’ll tell you … I’ll go, before I answer it, I’ll go one step further. You don’t get this information hardly anywhere. You can ask that question of 10 real estate expert gurus, they never want to answer because nobody ever wants to be held accountable if they tell you well, this is the way I do it and then it doesn’t work out. The reality of what affects real estate prices, I can simplify this [inaudible 00:12:32]. There’s, on one hand, supply and demand. On the other hand, ability to pay.
So if there is a ton of supply and not much demand, it doesn’t matter how much money you make. Prices aren’t going to go up. There’s more inventory than is needed. On the other hand, let’s say it’s the opposite. Like where I live in my market, there’s not much inventory and there’s a ton of demand. That will push prices high, but there’s a ceiling as far as how much people can afford to pay. Because most people that buy real estate get loans that are conventional loans, and they’re created based on debt to income ratios.
In fact, almost every underwriting uses debt to income ratios. So if you’re not making more money, it doesn’t matter how much you would pay for the house, you can’t afford it. So I look for, in appreciation markets, a market that has a limited supply, some form of barrier. Now sometimes this is a political barrier. Like Grant Cardone has mentioned he only buys in liberal areas because they issue less housing permits. So he knows they’re never going to have a ton of supply. That would be an example of a political barrier.
You’ve got geographic barriers, like Austin, Texas. You can only build so many houses within city limits and then you got to get on the other side of the river and then you can build suburbs out there, but you have to basically sit in line to get across the bridge when you’re trying to go into Austin. So if you bought inside that area, there’s a geographic barrier that limits supply. So the first thing that if you want appreciations, you look for that.
Kansas is probably never going to have a really big supply-demand area because they could just build a bazillion houses in Kansas, there’s plenty of space. The next thing you look for are where are wages increasing? Because people, if they make more, they can afford to pay more, and if they have to pay more, because there’s a lack of inventory, then they will. So I look for what kind of jobs are moving to an area. I don’t just want to know jobs are moving there. I don’t know what kind of jobs are moving there.
Is this where the tech industry is going? Is this where research type jobs are going, where you’re a highly specialized person that’s going to do something? Or is this like Detroit, where they had a really good economy for a while based on the auto industry, but people weren’t making a ton of money working in these auto plants. So those are the two things that I look for when I’m determining an appreciation market.

Brandon:
That’s really, really good. I was going to add one more thing is like the income growing there but also I look at population trends a little bit, like where’s population headed? Because again, supply and demand. The more people that are moving into a city. So if I think like population where it’s growing, Nashville is growing like a weed, Austin’s growing like a weed. Denver’s growing like a weed like. What’s not?
I don’t know the date on this, I haven’t actually looked physically but I get the feeling. San Francisco maybe is not growing like a weed right now, and maybe that’ll come back. What do you know about that, David? Is it still or does it feel like it’s dropping-

David:
The single-family rental market in San Francisco is exploding, it’s not slowing down. The condo market has softened a lot. So you’re just seeing a shift within that market from condos into single-family homes.

Brandon:
Makes sense. Makes sense. Again, we’re starting with the end in mind. We’re saying what do we want and then what market is going to apply that? Now before we move on to number two, and I know we’re spending a lot of time in this one, because it’s so important. Two quick points. First of all, where do you get this data? Again, you can search 100 different websites online, it’s all out there, you can find it. Or we make it easier by … We have all this kind of put down for you. If you go to biggerpockets.com/insights, you’ll find a whole bunch of stuff.
We have a team of data scientists that kind of go through the data and write articles and figure out what’s going on and where the trends are. So make sure you check out. It’s called Expert Analysis on BiggerPockets. If you go to the Insights page, and then go to expert analysis, they’ll write multiple blog posts every week just about like the data that they’re receiving, and what it means for investors. So definitely check that out. The second point I’ll make is this.
Sometimes we say, well, for example, I used earlier. Seattle versus Cleveland. So Cleveland may have better cash flow, and Seattle may not have very good cash flow and you made this point about losing money earlier, David, but I did some other … Remember the data I read a minute ago that said that Cleveland only grew .4% per year over those 20 years while Seattle grew 6%. Well, here’s the next piece of data super interesting here.
It says between those same years, Seattle saw rent growth of an average of 3.6% per year. So in other words, if you had $1,000 rent in 1998, your rent would have climbed to 2,048 in 2018. On the other hand, Cleveland saw rent growth on an average of 1.6. So a 3.6% rent growth per year in Seattle, 1.6 in Cleveland. So what does that mean? It means that even if you buy in a market that is primarily more of an appreciation type market, that means you’re not for sure, but there’s a good chance your rent will also climb faster, which means you may not be getting a lot of cash flow in year one, or year two, but what about 5, 6, 7, 8, 9, 10? Long term, you may actually find that you get better cash flow in an appreciating market because of rent growth, than you would you ever get in a cashflow market.

David:
That’s exactly right.

Brandon:
Isn’t that fascinating?

David:
I’m so glad you’re bringing this up? Because there’s this assumption that when you rent a deal, you look at it from year one and that’s as far as it goes. You say, what’s my cash on cash return year one? Oh, I don’t like it, you just move on, but I know from my experience, the properties I bought in California in 2009, 2010, up to 2000 … Like I bought a fourplex in 2013. When I bought it, the rents were $700 a unit.
I just had a vacancy last month, and we put it up for 1650. From 2013 to now seven years, it has more than doubled with what the rents were coming in. When I bought it my cash flow was like $800 a unit. Take whatever I just described, how much it’s gone up. What is that? 700 to 1650. So like around another eight or $900 a unit times four, add that to my original cash flow. That is destroying the property that I could have been bragging, I’m getting an 18% return in this market that doesn’t see appreciation.
So don’t bet on appreciation, but look at reasonably speaking, what will this market do. If the properties are going up in value wages are likely going up in value, which means people can afford more for rent, and it’s going to be harder for them to buy the house because it’s getting more expensive. So rent should go up too.

Brandon:
Yeah, that’s really good. One final note there on that whole idea of buying a property in another market, appreciating versus the cash flow market. Again, I don’t want to say there’s anything wrong with buying in a cash flow market, especially if your goal is right now to get out of your job or to get financial freedom as fast as possible, then you may want to just do that and then shift later, and that’s what I did.
I started in Grays Harbor county, Washington. Average purchase price was under 100 grand. I got really good cash flow, but it was hard. I had to manage my properties and had to deal with crappy contractors and I had … All the problems that come with cash flow areas, you get a lot of problems with them, but it got me out of my job. When I was 27 I was able to quit my job because of this cash flow. Now today, I buy in nicer areas and I buy in Maui and I buy in … I mean all over mobile home parks now all over the Midwest, mostly. It changed, my ability to change over time.
So you don’t have to be stuck with one forever. If you want one to get out of your job and one to go later, or, again, start with the end in mind. Move backwards that way.

David:
That … See I just love you pointed out because that’s how life works. You start off, I want to do more with my life, but I’m stuck in this job. It pays the bills. I can’t focus on anything. So you buy a couple of these cash flow properties, replace your income. It frees you up. Now you use that time maybe not to focus on real estate investing. You went and got a better job, you became an entrepreneur, you did something different. You listened to Jay and Carol Scott’s Business podcast. You got a great idea.
You went and did good you made a bunch of money. Now your goal is different. Where do I park this money so that it will give me a better return? You do that for a while. Okay. Now I’m actually doing fine financially. I want to think of where I can go for long term appreciation so I can, fill in the blank. It’s totally fine to switch your approach based on what your goals as they switch are. That’s why you have to know all the different ways you can make money through real estate investing.
It’s not different than fitness when if you’re super overweight, and you first start you’re probably just going to get in the pool and do like the pool exercises, but you wouldn’t do that forever. At a certain point, you’d be like, now I need to work on my cardio, then you get your cardio up. Now I can actually hit the weights and you progress in that way.

Brandon:
That’s really good. So number one, start with the end in mind. That helps you determine your market. Now, you might have started to zone in on a market, or maybe there’s a few markets that you’re thinking. You’re like, I want a somewhat casual. Like, oh, you go back to my example, because I think this applies to a lot of people. They want something that has a good potential for appreciation, but they also would like to not lose money. I don’t want to lose money, I want to get something. So I’m going to be looking at markets like, for example, Dallas. I’m going to be looking at Dallas, I’m going to looking at Orlando. I’m going to be looking at, did I say Nashville?

David:
Nashville and Memphis would both be good.

Brandon:
Yeah, exactly. I might look at that. I might look … Honestly, I might look a little bit here in Maui, but only because I know where you can buy cheaper properties. The other thing is, I don’t want to spend 200 grand down to buy this property for Wilder. I want to spend 20 grand down, 30 grand down. So that puts me in a certain type of market. I’m not going to go buy 2 or $300,000 property, because the amount of money you have will dictate the market you go in as well.
So if I want to put down let’s say 30 grand, and I’m going to need 20% down, that means I can buy roughly, roughly what 150,000, 140,000? Somewhere in there. Maybe, and there’s some closing costs I’ll add in there. So where can I buy a house that will cash flow, but also maybe have some chance of appreciation for around $150,000 or less? Where does that happen? Now I’ve got a specific goal to go look at and I can start asking on the BiggerPockets forums, I can come asking other investors like, hey, is Kansas City … I bet Kansas City’s probably similar to that.
Now, I don’t know where the high growth areas of Kansas City are, but I bet you I could find them and I bet I could focus on that. That’s actually a point we should make as well is when we say market, we don’t necessarily mean only Kansas City. It could be West Kansas City is completely different than East Kansas City. I don’t know. I don’t know Kansas City, but West Kansas City might be just like Seattle, where East Kansas City is just like Cleveland.
So we go from broad market, now we can start looking at a bunch of markets and we can start focusing in a little bit. That actually brings us to number two on our list here, it is you want to start looking at the market data, the data behind the market. In other words, things like rent-to-price ratio, which is we often say the famed 1% rule or the 2% rule, which I don’t like the word rule. I’d rather call it a test, a 1% test and here’s how that works.
If you guys are … It’s really simple math. What is the current monthly rent? Call it $1,000. What is the property worth? Call it $100,000. That means the monthly rent is 1% of the purchase price. Now, does that mean it’s a good deal? No, people need to stop thinking that just because it meets the 1% rule or the 2% rule, it means it’s going to be a good deal. All it is, is just a way for us to go is … For example, a property in LA, let’s say that costs a million dollars to buy and the monthly rent is only $1,000, that’s a .1%.
There’s almost no way that would ever cashflow ever, yet a property that was $50,000 and rents for 10 grand a month, that’s some stupid … I mean, that doesn’t exist, but it did, you pay back in five months the entire investment. So in other words, there’s this … Somewhere in there, there’s a ratio. The higher the rent to price ratio, oftentimes, the better cash flow you get.
Again, it’s not a hard and fast rule. It’s simply a quick and dirty test, we can run. I really like looking at that, at least to see at a general level, and again, BP Insights can help with this, but what is the rent to price ratio across the entire country. You can look at that through BiggerPockets Insights.

David:
That’s huge. Guys, just remember this, as Brandon says it, this rule or test was originally created that we would ask ourselves this question before we put it in the spreadsheet to actually analyze it. Am I even going to put it in there? Because if I know that I’m buying the place for 200,000, and it rents for 1,000 a month, it’s probably not going to cash flow. So I won’t even run my analysis. I see a lot of people that say, oh, I would never buy that. It doesn’t meet the 1% rule. You’re thinking the wrong way.
A few caveats to that. The higher you get in price range, the less strict you have to be with that rule. A $50,000 property is probably going to have to rent for at least 500 a month just to cash flow. By the way, that doesn’t mean buy it just because it cash flows, but that’s what you’re using this to determine. Whereas a $500,000 property could rent for much, much less than five grand a month and still cash flow.
It also is sensitive towards interest rates, interest rates are getting lower and lower. This may surprise you, I was walking a house that we were doing one of our buyers for in San Francisco. He’s buying it for 1.47 5 million. The bottom unit is going to rent for 3,800, the top for around 45 to 4,800. It’s not anywhere close to the 1% rule. They’re going to cash flow really strong and with a low down payment, because when you’re getting a 2.6 interest rate or whatever we’re getting them, you can borrow a lot of money.
It’s not as expensive plus the property’s priced higher. So those are some things to remember when it comes to how to apply the price to rent ratio, but if I’m picking a market, and I know I’m going to buy a rental, it’s not a flip. I want to ask myself exactly what you said, Brandon, where are price to rent ratios close to 1%?

Brandon:
Yeah, that’s really good. Now, I’m looking right now, actually, when pulled up BiggerPockets Insights, there’s an article that Dave, one of our data scientists wrote. It says, the top five markets to invest $50,000 in. So I scroll through here, and he basically narrowed down a lot of different markets and he found five markets that he’s got the list here of what the rent to price ratio is to what how close to 1% is it getting in 2017 18 and 19, and 20. Then what that growth rate has looked like, and then also how much rent is grown over the past three, four or five years.
So I can look and say, for example, Joliet, Illinois, has a .7% rent to price ratio in ’07, a .9 in 2020. So we’re almost at 1% in 2020, and it’s seen a … Let’s see 11% annual growth rate in rent over the past few years, which is pretty awesome. So why don’t I go look at Joliet and see if Joliet is an area that I might want to buy. Now, the one that we didn’t talk about earlier is the politics of rental properties.
There are certain cities that I am generally not in favor of buying, and I’m going to get a lot of flack from people because there are people who love these states and cities, but one of them for me is Illinois. I don’t like to buy an Illinois, necessarily, because they have pretty strict landlord tenant laws, which don’t favor the landlord at all. They favor the tenant. Now again, those people who normally say, well, you just don’t understand our market, but I would definitely look at that and consider it.
Same thing with California. I don’t love California for rentals, because they don’t have a very friendly landlord tenant rules and laws. Now there’s another one on this list would be Palm Bay, Florida. I like Florida, could be good. Trenton, New Jersey. I know New Jersey has crazy high property taxes. So again, now we go to the data. Once we know what we want, which was step one, step two, was we dig into the data to kind of get more detail on which is this ideal market? Anything you want to add on that?

David:
Yeah, the caveat I would add before people right off a market completely, you make a very good point. It’s one of the things you should look at is, is this landlord friendly, or tenant friendly.

Brandon:
It’s just one thing. It’s not a make or break, necessarily.

David:
In the entire time I’ve invested in California real estate, which is where I started for almost my whole career, the only issue I ever had was the first house I ever bought, when I had no idea what I’m doing, and I ran into the wrong tenant. The reason I never have issues is because I’m in B or A class neighborhoods in California.

Brandon:
So good a point.

David:
Those people have so much to lose, it’s never going to get to an eviction. They’re never going to make me evict them from the property. Because they care about their credit score, they care about their rental history, they have something to lose. So if you’re owning real estate in areas where the person who is renting it would never want an eviction, it almost doesn’t matter what the laws are, because it’s never going to come up.
Those issues come up when you’re renting in an area where you’re going to find tenants that have less to lose, and maybe they just don’t care. If their credit is already bad, they don’t care if it’s bad. So I ask myself that question when I’m choosing the tenant. Would this person force me to evict them? Would they have any skin in the game? Would they have something to lose here, and if you’re buying in areas where that’s not the case, it almost will never even come up what the laws are.

Brandon:
That’s actually … I love that point. That’s really good. It actually makes me think … Makes me second guess my choice there. So again, there are ways to buy in those markets, like where things might be hard but it’s the quality of tenants that’s going to dictate, again. I hope you guys aren’t getting overwhelmed here by all this, but I want you to see that this is not necessarily an exact science. It’s kind of a paint and an artwork, where like we’re taking a little of this and trying this and this one pulls, this one pushes. All together, we end up getting a picture of a market and an area that we maybe want to invest in and again, the data helps with that a lot and that’s what we’re trying to do at BiggerPockets is provide more and more data that will help you.
So dig in there, just start playing around, start talking to other investors on where they’re investing, and then once you find a market you’re like, I think that sounds like a good mix between appreciation and cash flow. Great. Well, then let’s go the next thing and let’s look at building our team there. That’s actually one of the other points we’re going to bring up here in just a moment.
In fact, I guess we can just go there right now. Number three, it says, where is your unfair advantage, or what we call boots on the ground maybe, or what David calls in his book, your core four. In other words, what are the areas that I’m going to look really … Actually, two places I’m going to look really carefully to buy property at.
Now, I haven’t even looked at the data on these cities yet. I’m working on that right now, but Minneapolis, Minnesota or St. Paul, Minneapolis, the Twin Cities in Minnesota, and Bangor, Maine. Now, why would I choose those two cities? It’s not because I’ve looked at the data yet. I’m going to make the data, make sure it validates what I’m trying to do, but I’m going to look at those markets very carefully because I have an unfair advantage there because I have people there. Because I grew up in Minnesota. I know the Twin Cities really, really well.
I know good cities, bad cities. I know good neighborhoods, bad neighborhoods and I have family there that could go check out a property for me, that could go do stuff for me, that can help me out if needed. So I have an unfair advantage there. I know some really good real estate agents in the Minnesota area and I have an unfair advantage. Bangor, Maine, I have a killer, good property manager there.
Jesse, he’s been on the podcast before. Jesse McHugh. He’s awesome, amazing property manager and we all know that management is the key to a long-term successful real estate portfolio because you could buy the best deal in the world but bad management will kill it. So I have an unfair advantage in Bangor, Maine because of Jesse McHugh and he’s an amazing manager. So I’m looking at those two markets, because that’s my thing. Anything you want to add to the core … Maybe actually explain David, if you would, what is the core four, and why is that so important?

David:
This concept comes right out of long-distance real estate investing. This is literally advice that I’m giving is this is a question to ask yourself. Where do I have an unfair advantage? So just, Brandon knowing the Twin Cities has saved himself many, many hours of research to try to figure out would this even work and that’s where a lot of people get bogged down. I want to invest, how do I pick a market? I’m going to pour through all the data, and I’m going to meticulously analyze all of this.
They do all of this work and then by the time they finally pick their market, they’re exhausted and they’re like, I don’t know, if I want to keep going. You’ve skipped all that, or you’re putting all your energy directly into probably getting your core four, and then looking at deals right off the bat. So the core four is, when I started investing in different markets around the country, what I realized is, man, I’m doing the same thing every single time. I’m getting a new market, and I’m going through the same pattern.
I’m finding an agent to get me deals, I’m finding a property manager to advise me on the markets and what rents for what, where I want to avoid. I’m finding a contractor to get the place ready to go or a handyman to fix up the stuff in the inspection report and I’m asking who knows a lender so that I can get financing. I literally just started repeating that every single time I went to a new market. So I realized, man, anybody could do this. You just got to have these four different people, and they can connect you with everything else.
So it’s the contractor, the property manager, the deal finder, which is usually an agent, but it could be a wholesaler, or someone else, or just a friend that you have. That could be your unfair advantage is you know somebody there who can find you deals, or the property manager.

Brandon:
What do you think you should to start with? What’s most important of the core four that people should build?

David:
So for David, the lender, because financing is the hardest thing for me. I have so many properties, it’s very difficult for me to get loans. So I start with who will give me a loan. In fact, if you’re listening and you live in a market right now that you think has really good deals, and you have a portfolio lender or a commercial or somebody that could do things other people don’t do that’s good, you should be reaching out to me, because I’ll probably buy there.
It’s this big of a deal if I get the lender. After I get financing lined up, but for everyone else that’s probably the last thing because everybody knows a lender. It’s not a hard to find a good lender. They’re not going to hide their referrals of lenders, they’re going to connect you. The next thing I would look for would be the deal finder, because I have nothing to analyze and there’s no reason to have people to help me analyze it.
I don’t need a property manager if I don’t have a property that I need to be looking into. So then I start looking for either an agent or a deal finder, or sometimes a property manager is the deal finder in certain cases. They can get stuff in front of you. Then I would look for the property manager because I need them once the deal gets brought to me. Hey, David, 123 Main Street, I think you should buy it. Here’s your ARV. Here’s your purchase price. I’m going to go to the property manager and say, “Is this an area that I want to rent in? Is this area that you want to manage? Is there anything I need to know about this part of town versus that part of town? What’s the vacancy rate like around there?”
If it passes that sniff test, then I move on to getting the contractor. I’m going to need a person who’s going to fix this up. Now, finding a good contractor is very hard. So I start off just finding a mediocre contractor. Is it good enough? I’d rather find the deal than make the deal work with the contractor because it’s very hard. Once I get my foot in the door with a mediocre contractor, on the next deal I’ll be looking for how do I improve this.
I’ll just ask everyone, hey, I need a guy who’s really good with this and this. Do you know anybody who does that kind of work? With each deal or each iteration of building in a market, the people you work with slowly start to improve until it becomes really easy to invest there.

Brandon:
That’s really good. That’s really, really good. So do you think … So we talked about having your unfair advantage. If you have a location where you have an unfair advantage for example, I have Bangor, Maine, let’s say or I have Minneapolis, let’s say or I chose Roseville. I went to college in Roseville for a year. So I chose … If I went to BiggerPockets Insights, I typed in the zip code for Roseville, I’d see that the median rent in Roseville is $1,600 a month. Then I can go down and I can scroll the page of this thing called Property Insights, basically you type in any zip code or any address of any property and it pulls up the area.
The median rent, the median rent by bedroom count, sales data. So I can see that since 2018 in Roseville, prices have risen from about 250 over the last three years up to 300,000. So it means that there’s properties around $300,000 in Roseville that will rent for, on average, between, it says between 1,200 on the 25th percentile and 1,900 on the 75th percentile. So I can see that we’re not 1% necessarily. We’re probably more like .6%, I’m guessing.
I’m just doing that math in my head, but it might be worth. Now I’m going to go digging a little bit deeper and see other areas around Roseville, maybe I’m just missing out on. Is it Coon Rapids, is it Minneapolis itself, is it St Paul? Now I’m going to dig in deeper. Because again, now I need to find that agent. I know a couple agents in the area. So boom, I got my agent done. Now my agent’s going to know some great property managers, and if they don’t, they can at least point me in the right direction.
Connecting with people on BiggerPockets who invest in that area as well, they’ll know some good property managers. So you see, you can approach it from, I have a core four already, and I’m going to choose an area and then build my core four better. Or if you just don’t have boots on the ground anywhere and you don’t know, then you can just start with the data, find the location based on data, and then find your core four from within there.
One good spot to go look for agents, by the way, if you don’t have one, I’ve said this on recent shows. If you’re looking for a drunk, go to the bar, if you’re looking for an athlete, go to the ball field, if you’re looking for a real estate friendly agent, try biggerpockets.com. Go up to networking, and then go to real estate agents. You can find agents that are active on BiggerPockets, which means they probably have an interest and excitement to help real estate investors, which is a good type of agent to work with.
So there’s just a little bit more on building your core four and again, make sure you guys check out this whole Property Insights part of BiggerPockets Insights where you specifically go into rental rates, by bedroom in an area and where things are moving in that zip code or in that area, which is kind of cool. You can also see comps of other rentals, like what they have rented for.
Like I can see here that on June 19, there’s this property here, right near the one that I’m looking at rented for 2,175. So 2,175 for a three bedroom, two bath. Here’s another one, it went for 2,020 and one went for 1,500. Then this one right here only rented for 1,049. So why did that rent for so much lower? Now I can dig in and find out like, is that area just a lot lower? Probably.
So what’s the cost to buy a home in there? Now, I might even jump over to the BiggerPockets marketplace to look at what different properties are for sale in that area, or like a realtor Zillow, trulia.com, one of those sites, and I could find it as well. So again, that is kind of how we use the unfair advantage and the market data and our starting with the end in mind to all really focus in on a specific area that we want to invest in. Does that make sense?
I hope that made sense to everybody out there. That again, it’s not a necessarily step one, step two, step three, like this is how you find the perfect property for you. It’s just a matter of like, what feels right with the data, with the core four, with your goal in mind. It all comes together into a nice spot that you can say that is my market. With that said, let’s get into this. Let’s go to number four, which is finding a neighborhood because now let’s say you’ve got your idea of a market.
You feel pretty good about it, you’ve got the data from BiggerPockets Insights or wherever you got your data from. You got your team that you’re starting to reach out, you’re networking now. Now, let’s talk about the actual neighborhood you’re going to buy in because if I just said I wanted to buy in the Twin Cities of Minnesota, that’s a big area. That’s a huge area.
So I want to focus in on the third area, like I said Roseville or I want to focus it on Coon Rapids, I want to do Minneapolis or downtown Minneapolis. I want to go, whatever. So a few things that we look at there and, David, I’m curious of your thoughts on this stuff, too. I look at crime data and school districts are kind of the two primary things that I care a lot about.
Schools, it’s just because if a area has a really good school district, they likely attract better tenants that pay more money, because people are competitive for schools. They want their kids in the best schools and crime, obviously, I want to stay away from where there’s lots of crime. Crime tends to slow the growth of property values. Again, one of my goals is to have this property go up in value a lot over the next 18 years. So what about you, David? What else do you look for in terms of the neighborhood? Like the area you’re going to invest in within a city.

David:
Yeah, that’s really good. I like to look for what the occupations of the people who live there are doing. So I will frequently ask my agent when they pitch me on a deal and say, hey, this is a deal I think you should buy. Tell me about the jobs that the people who live here work. Oftentimes, you’re going to get like, if you’re looking at the areas with a better price to income ratio, or price to rent ratio, you’re going to see that they were blue collar jobs.
There’s nothing wrong with that at all, but if that’s the case, I’m not going to see as much long term price appreciation on the property. If they say, oh, no, this is a neighborhood where, like in my market right now, if you look at a city like Walnut Creek, Danville, it’s very expensive properties and the people who live there commute about 30 minutes into San Francisco. They’re like, executives that work within big companies that are inside of San Francisco, that’s who’s living there.
Probably not going to be a great market to find rental properties in, probably is going to be a good market for long term appreciation. So on top of crime data and school districts, I like to get a feel for what are these people doing? Are they on a career path? Every year, they’re going to make a little bit more than they did the year before. They’re accountants or engineers, they have a pretty steady job, they’re not going to lose that job and they’re going to make a little bit more money so they can keep up with rent increases, or are these people that are kind of like seasonal.
They’re in, they’re out, they have jobs all over the place. There’s really no identity of that neighborhood, in which case, they may always be struggling to keep up with increasing rents if that’s what I was going for.

Brandon:
That’s really good. You said rent to income and then you corrected and said rent to price ratio, but there is actually a rent to income ratio. That is a number that we talk a lot about on BiggerPockets Insights. If you’re kind of behind the scenes on that as a pro member. In fact, there’s an article Dave wrote called Five Markets With Promising Rent to Income Ratios. [inaudible 00:40:06] tell you what they are … What he kind of determined. Montgomery, Alabama, median home price of 92,340.
Their appreciation has actually gone down the last few years. So if appreciation is your goal there, they historically, the last few years have not seen a lot of appreciation, but their rent appreciation has gone up by 2%, and their median income is $50,000, which means that’s like your rent-to-income ratio, what’s the rent to your income is 21%, which is interesting. Then there’s 19% for Springfield, Illinois. There’s Akron, Ohio. Is it Akron, Akron? Akron, Ohio? Somebody in Akron hates me right now, which was 20%.
Independence, Missouri, which was up to 20%. In Cedar Rapids, Iowa 16%. So those have higher rent-to-income ratios, which means that tenants can afford to make good incomes compared to the rent. Now, I like higher rent properties simply because higher rent typically is an indication of, it’s more of an appreciation type market. So I’m looking at the highest one on this list was Independence, Missouri.
Price of average house there is $154,000, or the median price, but the average, or the median income is 55,000. A little bit higher there. Then, of course, the rent appreciation is going up by 9% in that area. So the rent’s growing there, property values are growing there by 16% is their appreciation over this time. Really, again, those are just five markets that based on rent to income are justifying what you’re saying there, is those people are making more money based on their rent, which is kind of cool. So that’s another neat market.
So Independence, another one I probably look into here and dig in a little bit deeper. Independence, Missouri. Sounds kind of cool. With that said, so again, school districts, crime data, sales trends for zip codes is another thing. I like to see where property values are increasing. I said earlier, Cleveland saw a what? .6% property value increase over the past 20 years? So if my goal is appreciation, this is not guaranteed. Maybe Cleveland had nothing for 20 years, and then they’re going to see an explosion the next 20 years. We don’t know.
We can maybe make some guesses if we see a lot of tech industry and a lot of movement in a certain area. I don’t expect that necessarily. You’re getting cash flow. My cash flow might be awesome and very consistent in Cleveland. I’m not saying don’t go there, but it’s just what we look at, but I’m also looking at areas where are sales going up faster and faster and faster all the time. Where is appreciation happening and coupled with job growth, coupled with the right kind of industries going in, that might be another market that I want to look at if my goal is again, appreciation. So you can look at sales trends as well.

David:
I’ll tell you something that I think smart people are paying attention to. California has typically been known as really good for appreciation, really good long term growth, but politically unfavorable towards landlords, and very difficult to get cash flow. A lot of the reason that California has seen increase in prices is the wages, it’s directly tied to it.
You make a lot more money doing the same job here that you would somewhere else. Well, there’s a trend right now of a lot of these companies leaving California and going towards more tax friendly states. A lot of them are going to Tennessee, they’re going to Nevada to Arizona, to Texas. That’s exactly right. So if you want to play that appreciation game, find a market that these companies are moving to, that already cash flows. Get in get your cash flow, then watch as appreciation comes. As the companies move there the wages that they pay increases to the people who live there, and you can get the best of both worlds.

Brandon:
I mentioned earlier about having my unfair advantage, these boots on the ground. Another market that I have a lot of unfair advantage in is Nashville. I have a lot of friends that live in Nashville. For example, an agent named Michael Gomez, I’ll give him a shout out. He’s a great agent out there in Nashville. There’s also Seth Mosley, my buddy, he’s been on the podcast. He’s an investor there in Nashville.
So I’m going to be looking heavily at that market as well, because I know that’s where a lot of the California tech companies and a lot of the movement in the world is moving towards, again, Nashville, Austin, Denver, these cities. So if I can find cash flow enough to at least make a little something in Nashville, or in the area around Nashville, I can find out again, we’re going from broad, we’re focusing more on what neighborhood of Nashville, what suburb of Nashville happens to be … Where’s the trends moving? Where are things going.
Again, between talking with our core four, talking with property managers, and agents, we can really narrow into that a little bit. Talking with, or just looking at the data we can get a lot of details too. So within a few hours of work, I can nail down what city I’m going to start looking in, start building the core four, know the exact neighborhood I’m going to go buy in and now we move on to step number five on our list today, which is we’ve now narrowed from region to basically market to city.
We decided Midwest versus coast, we decided what city, we decided what neighborhood. Now we need to find the property and the property within that market, that’s it. That’s the game, is we got to find a very good property because most properties will never cashflow. Regardless, they’re just not good deals. You really have to sift and find the best one. So a couple ways to do that, of course, you guys know this. You can find a real estate agent, and the great part of that is an agent is typically paid by the seller.
So there’s no excuse. For every single person listen to this show right now, you should have an agent. If you don’t have one, go find one. Find a real estate … A friendly one, hopefully. A real estate investor, friendly one. You shouldn’t just naturally grab your brother in law, because he’s got a license. Just because someone has a license doesn’t mean they know what they’re doing. David, you want to speak on that for a second, because this is a point that I think a lot of people miss. It’s like, you got a license, you must be a successful real estate agent.

David:
It comes from the belief that all agents are the same, they do the same thing, which is definitely a fallacy. I think most things in life that doesn’t apply. You could say, oh, they’re licensed mechanic, all mechanics are the same. Not true. You can get a mechanic, they can diagnose your problem, work on the car, and in 45 minutes, have you up and running and charge you 150 bucks, or you could take it to a different mechanic, that’s not as good.
They’re going to spend 15 hours on it, and you’re going to be getting a bill for $1,000 to get you the same result. So first off, just check that way of thinking that everyone is the same at anything. Property management, contractors, agents. That’s not true. Licensing is a minimum standard, and anyone who has gone through any licensing, at least in my experience, largely unrelated to success in that industry. I don’t think anything that you learned getting a real estate agent license will have any impact on how good you are as an agent.
The license itself from a practical standpoint is not helpful. It just shows that now the state could get the agent in trouble if they do something illegal. So I look at a real estate license, like even a real estate agent. They’re just a person that has a license that has a right to earn a commission. It’s not having a job. Just because you have a license doesn’t mean you have a job as a real estate agent. You just have the right to collect a commission representing a client.
It’s up to you if you want to go find people to do that for and how good you want to get at it. So when you’re looking for agents that are going to work with you, ask yourself what you need help with the most? Do you need help with someone analyzing the deal? Do you need help with a super connector? They got all the pieces that you need to make this happen. Do you just need access to the MLS and someone who’s responsive? Do you need someone that’s going to write 50 offers a week for you? What is your strategy, and what do you need from the agent and be upfront in telling them?
I can tell you right now, if you come to me and say, “Hey, David, I want you to write 50 offers a week for me,” I’m the wrong agent to be talking to that’s not the way we work. We work where you come in, we give you a free consultation, we talk about what your goals are, I lay out a strategy to help you get there, then you sign up to work with my team and then we commit to finding you those properties. It’s very purposeful with me.
Other agents are much more kind of like willy-nilly. Hey, I’ll send you some properties. You tell me what you think. It’s more casual. So not every investor is looking for the same thing from their agent, and not every agent is the same, which means you have to get very honest with yourself about what you want, and how you want it to look.

Brandon:
Yeah, that’s good. Yeah, that’s good. So again, you have no excuse not to have an agent. Go get an agent. Find one that’s awesome and they’re going to help you find deals. What I like to do is I like to, obviously I want an agent to hook me up with emails and automatic emails that have listings, but I also spent a good amount of time just on realtor.com or Zillow, just digging around. Now certain areas are good for Zillow and certain areas or not. Some areas don’t license their data to Zillow.
[inaudible 00:48:13]. It’s give me a starting place. I can pull up realtor.com, I can type in Independence, Missouri. I can look at their map and see where the property value is higher, where they’re lower. I can then compare that to another map of school districts. I can then look at crime rates, and I can kind of find these areas, these zones, that might be a really good spot to start looking at.
Then I start looking at individual properties there. Again, we’re on step number five here, which is finding the property. I’m going to start digging into property saying, hey, what is this property like? Here’s a three bedroom, two bath, it’s mostly fixed up, it looks like all it really needs is just a good cleaning, and maybe some new carpet. Now I’m going to go run the numbers. Of course, you can run the numbers, if you have a super fancy spreadsheet, you can do it that way.
I don’t like spreadsheets personally, because of three reasons. Number one, spreadsheets are really easy to make a mistake on. You add a comma, somewhere inside of one of the cells that you never remember and you don’t notice it. You add a period in somewhere, you change your formula study, it’s really easy to make a mistake. So number one.
Number two, it’s hard to stay organized. As an investor you have to make a lot of analysis. [inaudible 00:49:18]. It’s so hard to say organized, you’re not organized, you’re not offering and number three, it’s hard to present a deal to somebody with a spreadsheet. I used to show my wife a spreadsheet. [Like 00:49:30] look, honey, this deals going to be awesome and she’d be like, her eyes would gloss over. She used to be like, that’s just a lot of numbers on a page. She doesn’t know … She didn’t go through every one of my formulas to find out if I screwed up one of them.
When people give me a spreadsheet today, I don’t look at it because I don’t want to go through every formula to find out where they screwed up. So again, you can use a spreadsheet if you have a really good one and you’re confident in it. We also built tools at BiggerPockets to help with that. Again, I don’t want today’s show just be hey, sign up for pro, but just FYI, there are tools, there are calculators. A bird calculator, a flipping calculator, a rental calculator.
What am I missing? The whole selling calculator, that are designed to help you analyze deals and not … The formulas aren’t messed up because they’re hard coded under our site and creates nice little PDF reports you can show to your wife or husband or partner, whatever. So point being, I want to start looking at the property, then running the numbers. I want to put them into the calculator, I’m going to run the numbers, I’m going to see what how close am I to where this thing could cash flow that it makes sense for me, because now I got a market, I got a neighborhood.
Now I find these properties. That’s the next step, which I want to get to here in just second, which number six we’re going to get to is how do you know what the rental rate is going to be for that property. I don’t want to gloss over some of the other ways to find deals in a market. Now, we could do a whole show just, and I’m sure we have, on just how to find deals in a competitive market and right now everything’s pretty competitive.
Specifically, we talked about the real estate agent way to find deals. I’m going to talk about three other ways to find deals. So the first one was the agent. The second one is through a wholesaler. So a wholesaler are individuals in a market who do all the deal-finding things that they should do to find deals. They’re doing direct mail marketing, they’re doing driving for dollars, they’re doing all that stuff. They’re out there just hustling to find deals.
When they find it, they basically give it to you, for lack of a better word, a finder’s fee. Now there’s legal ways to do wholesaling, there’s illegal ways to do it, but a wholesaler might make five or 10 grand, maybe more, maybe less off flipping a deal to you and now it’s your deal. So wholesalers can be a good way to find deal. There’s a lot of wholesalers on BiggerPockets, there’s a lot of wannabe wholesalers on BiggerPockets and everywhere. So find a good wholesaler by just networking and connecting with people, and maybe they’ll find a deal for you.
Again, wholesalers are kind of notorious for being newbies, and when I say that, I don’t think is anything wrong with being a newbie, everyone has to start somewhere. Because of that they might not understand everything we’re talking about today. They might not understand what rents are or what crime rates are in an area and they’re incentivized to not lie to you, but to only show you the best parts of the deal, because they want you to buy it so they can make their $5,000 or 10,000 or 20 and move on to the next deal. So always trust your own numbers, not the wholesaler’s numbers. That actually leads to … Anything you want to add on that, David, before I move to the third one?

David:
I think it’s a really good point. Trust your numbers, not the wholesaler’s numbers. Maybe once you have a good relationship with that wholesaler, and you know them as a person, but again, it’s like, if you can’t trust a licensed person, you have even less trust for someone who doesn’t even have to be licensed.

Brandon:
Yeah, who just went to either weekend boot camp or listened to a podcast and like, I’m going to be a wholesaler-

David:
Wholesaler is a title. It’s not anything more than just a name that you call yourself.

Brandon:
Yes. So be careful with wholesalers, but if you find a good one, they can be goals for giving you deals, but closely related to wholesalers would be I would call turnkey. So turnkey are companies out there that will find the property because they’re really good at finding deals. They’ll find the property, they’ll fix the property up for you. They’ll put a tenant in it, and then they’ll manage it for you. So they do everything. All you have to do is like get the loan. You go and buy the property and they take care of everything.
Now if that sounds too good to be true, many times it is. For the same reason that wholesalers can be difficult to work with because turnkey companies are incentivized to make their properties look good in the best light possible. So they may fudge their numbers or just be less conservative than maybe you are. So I love turnkey companies when they work. In fact, I’m going to look into turnkey for Wilder’s property, I’m definitely am, but I’m not going to trust their numbers as much I’m going to trust my own numbers. So definitely dig in. David, I know you have some even more harsh thoughts on turnkey than I do. I like it when the numbers work out and I think there’s a lot of good legitimate turnkey companies out there. You just got to find them.

David:
It’s not that I have harsh thoughts on turnkey companies, it’s that I have harsh thoughts on people thinking that they’re going to avoid the hard work by just jumping into turnkey. If you know your goal, like we said earlier, and you just need a place to park your money that’s going to get you a better return than somewhere else, then that’s what turnkey is great for. You’re not going to build a ton of wealth right off the bat. It’s going to put you a little bit further behind the eight ball when it comes to building equity because you’re usually paying market price or higher.
The goal is, if you need a place to put your money, you don’t have a ton of time, they make a ton of sense. There will probably be a point in my career where either I will use turnkey, or I will have staff that goes and looks for deals for me. It’s not going to be the best use of my time forever to literally analyze these properties myself. So I do know, there is a role for turnkey.
Most of my negative opinions of them came from the turnkey providers that were marketing themselves as if to say, you don’t have to learn anything. Just come to us. We’ll take care of everything, and then when everyone complains about the deal not working out the way they liked, or their buddy got a better deal. They say, “Well, that’s not fair. The turnkey provider lied.” No, they told you what they do. You believe that you could use that strategy for a different goal.
If you were trying to get stronger and you got sold on just eat better, you’re going to get fit in a way but you’re not going to get stronger if that was what your goal. So know what a turnkey provider’s value is and what role they play in your overall wealth building strategy.

Brandon:
That’s really good. It’s really good. So then the last one, so talk about agent wholesalers, turnkey properties. By the way, on the Real Estate Rookie podcast with BiggerPockets, we have another show called Real Estate Rookie podcast. Biggerpockets.com/rookie29. It’s actually a guide to turnkey investing from the perspective of an investor, like what questions to ask, et cetera. So, if you want to know more about turnkey, definitely check that out. Again, there are good turnkey companies out there and there are not necessarily great ones out there.
Do your research, make sure you get referrals, get recommendations, call up those referrals. What’s the word I’m looking for? Not referrals, but…

David:
References.

Brandon:
References. References. Call the references, and make sure that the turnkey company are going to support the goal in which you’re trying to do here. Again, appreciation, cash flow. So choose your market, then find a turnkey. I think what most people make the mistake of is they find a turnkey company, before they find their goal, before they’ve identified what their goal is.
So now they’re buying a property in, again, Cleveland, Ohio, even though their goal is to have that property grow in value a bunch over the next 20 years. It’s like, well, why don’t you start with a property, or an area that’s going to grow in value, and then find a turnkey company there that you can trust that has good references, where the numbers actually work and now you can find a good deal with not as much work.
The reason I’m looking for turnkey myself that I might do it is because it’s just, my time is best spent buying $10 million mobile home parks, and raising tens of millions of dollars. That’s what I do. We’re just about to launch fund three in my company, and we’re going to raise $20 million in this fund. That’s my best use right now is making myself, my company and all of our investors money. Not trying to find the very best deal on a property in Independence, Missouri or Roseville, Minnesota or Bangor, Maine or Nashville.
So like, David, you have a great point is based on where you are, I could either go turnkey, or I could have my team. I have a new intern named Drew, who’s out here, he’s helping with our flipping business in Maui. I might just be like, hey, Drew, go find me a property for Wilder. Go find this property, here’s how you do it. Let me walk you through it and have him do all the hard steps of making the phone calls and that’s another way to get around too if you’re busy and your time is best spent elsewhere. Again, turnkey or having an assistant or an employee do it, that would be another way to do it.

David:
Maybe your best use of your time is to get to the point where you get to be a Drew. You’re like, oh, I’m going to go work for Brandon, I’m going to learn a ton. So your goal is, how do I get as many cash flowing properties. I don’t need them to appreciate. I just need enough money to feed myself and pay rent, so that I could quit my job, go work for this other person and prepare for the next phase of my life.
It doesn’t have to be one and done. I bought five properties. I dropped the mic, and I retired at 27 years old, and now I don’t work. That’s not always … In fact, that’s probably rarely the best use of anybody’s time, but you can’t know what strategy you want if you don’t know what your goal is or where you’re trying to go. So keep that stuff in mind when you’re making those decisions.

Brandon:
Yeah, really good. All right. So next, I want to talk about how to know what the rental rates are going to be. Because when you’re running your numbers, you do your math on a property, you’re doing a bunch of sample properties. Honestly, I would recommend analyzing at least, at least 50 properties in a market. I know that sounds excessive, but like I said, with BiggerPockets you can analyze them in under five minutes. So get in there, start analyzing deals, run the numbers quickly, just do a couple every day for a few weeks, and you’re going to get the hang of it.
You’re going to understand what areas are a little better. Talk to your agent, be having a constant conversation with your agent in that area, on what areas are up and coming. Analyze a bunch, then you’re comfortable making offers, but before you make an offer, you got to verify what the rent … You got to know what the rental rate is going to be. Now I mentioned this earlier, but we have a rent estimator as part of BiggerPockets Insights.
We call it property Insights and includes what the current rent is. It includes what rental rates have done recently, it includes what the area is for different bedroom types. So you can look there for rental rights. You can also, and I would even say in addition, before making an offer, I always talk with a local property manager or a landlord, because even though data is amazing, and data can give you really good information, it doesn’t give you the subjective stuff like, that street, they have a power plant nearby smells really bad.
So it actually lowered the rent there quite a bit. Your rent’s going to be way less there, and only somebody local, boots on the ground, that’s a rockstar property manager or landlord is going to know that information. So you always want to double check your data with somebody who understands the subjective side of real estate.

David:
I would add to it, look for someone whose interests are aligned with yours. If I own a property management company, and I have a good reputation and I’m pretty big, I don’t want to take on properties that might pay me a little bit of money but ruin my whole flow. I’m going to say no, I don’t want to manage that property because it’s going to be in an area that’s going to cause way too many headaches. You got to understand property management companies run at razor thin profit margins. They do not make hardly any money from the rent they collect.
In fact, most of them do this as a way to generate leads for another business. They want to get your listing when it’s time to sell the house. So they want to buy that house for themselves. The property management component is like a lost leader sometimes. So they don’t want to manage a property that’s going to take a ton of their time and require their staff to come in and fix the problem. So I like to get really good ones because they’re going to tell me no. I want a property manager that says, “Nope, I don’t want to work there.” If they don’t tell me no, I probably don’t trust them as much.

Brandon:
That’s good. On that note then, you can talk to your property manager about locations as well in a city, like where do you have a lot of luck with? Where are the tenants always paying rent? Where do you have no problem renting a unit? Then they tell you a bunch of areas. Now go find out where the cheaper prices are, where the higher price-to-rent ratio is in that area. Work with your property manager to find a property that they can manage, that they want to manage and now it’s a win-win for everybody.
You have a better property and again, you’re aligning all these things together to be able to identify the perfect property for your investment strategy. So those are three ways to find deals. One last way I’ll say this, even though number six was verify rent with a property manager, by the way. I don’t know if I actually labeled that as number six, but that is number 6 out of our 8.
Going back, I know we’re jumping a little bit, the last way to find deals in a market you can do is do what’s called off-market funnels. In other words, you’re doing the work that a wholesaler would do. You’re sending direct mail marketing, you’re driving around looking at properties, if you want to fly into a market, which we’ll talk about in just a second. You’re doing all the hustle, the Craigslist ads, you’re going to the courthouse steps, you’re doing all that off market work yourself.
Now, if you’re going long distance, if you’re trying to invest at a distance, that is much harder to do. Not impossible. I can send direct mail letters to Independence, Missouri right now if I wanted to from Maui, but without being there, without knowing the market, I’m going to be at a slight disadvantage to those who are already there. So just consider that you can do those off-market strategies if you want to, but I guess I would highly recommend find an agent as well.
Find an agent, look at the turnkey options before you maybe go down the trying to find amazing killer deals by yourself, just because it’s a little bit harder. In the beginning, it’s more important to just get a deal and get momentum than it is to land a home run. Off-market funnels will give you a home run but turnkey and agents, they can give you a base hit and there’s nothing wrong with that.

David:
Yep, absolutely.

Brandon:
All right, moving on. Next we talked about number five was find a property, number six was to verify rent with the property manager. All right, now let’s talk about when flying out to an area. If you’re going to invest long distance. Now many people you might find that after listening to this whole podcast now, you’re like, you know what? I live in Seattle and I thought for sure I had to go invest in Cleveland but actually, maybe I can invest in Olympia, Washington or Seattle or Tacoma. Maybe I’ll just stay local, because you realize that your goals are better suited locally. That’s fine. Still listen to this. I want to talk specifically to those who are going at a distance. Should you fly out or should you not fly out to the market? David, what do you think, and I’ll share my opinion.

David:
You fly out primarily to meet people, is my opinion. To develop relationships with the people and maybe to get an overall feel for the market itself. If you don’t have … Like for you, you know St. Paul, you don’t need to fly out there. Maybe you have a really trusted agent who you trust and they say, “No, this is good,” I wouldn’t fly out there. If I’m just not sure, and I want to get a feel for an overall perspective, that’s where I fly out. I do not fly out to look at every single property themselves and we’ll get into more about why I don’t later.

Brandon:
I guess I’m the same way. I think it’s not a bad idea. If you’re just getting started, flying out I think gives you some sense of like oomph or like, not purpose, but momentum. You’re taking a big action step that people don’t do. So I think from a personal mindset win, I think flying out is good-

David:
It keeps you committed.

Brandon:
Yes, that’s it.

David:
You’re [putting 01:03:35] something in the pot.

Brandon:
Yes, yes. I love that. You’re in it. So if you’re like, okay, I’ve really decided that Nashville is going to be my market, I want to go there, go take a week vacation in Nashville. Go do something fun while you’re there, go to the Grand Ole Opry or something like that. Then really spend a lot of time driving around, checking the streets out, just get a feel for it. Just get comfortable with it and talk with agents, talk with lenders, meet with a bunch of BiggerPockets people.
If there’s a local meetup happening, great. If not, maybe host one when you’re there, just to get to know who are the big players in town. Of course, you can host events, if you’re a BiggerPockets pro member, another benefit of being pro or you can attend one if you’re just anybody. Go to biggerpockets.com/events for more on the meetups that are happening around the country all the time, especially as this COVID thing hopefully starts to dissipate over the coming months and year, there’ll be more and more of those happening out and about. So again, you don’t have to fly out to look at every single property and specifically David, why don’t you fly out to look at every single property you buy?

David:
Because frankly, I would not be doing that for a practical purpose because I’m not a home inspector. Me and many other people, we don’t know what we’re looking for. I definitely am not going to catch as much as a professional home inspector would. It’s something that we do because we think we’re supposed to. We don’t have a plan. We don’t know what we’re doing. So when that happens, you rely on your gut instinct. I’ve seen this time and time again. When we work with buyers and we take them to go look at homes and they don’t know … If I didn’t put enough time in the front end saying what exactly do you want? What are your goals? Why is that important to you?
If I have not invested the time in walking this person through what they really want, what they do is they walk a home and they wait for their guts to say this is it. Sometimes you can’t understand your gut, you’re not used to listening to those feelings that come out of it. So you sit in the home for 45 minutes, trying to figure out do I like it, or do I not like it.
Investors should not be taking that approach. It’s bad enough when a primary residence homeowner is doing it. If you’re running a business, you should know what you’re looking for before you get there. Walking the house and the emotional comfort that you get from it is not how you want to be making business decisions.

Brandon:
That’s really good. That’s really good. I know me personally, I’ve liked the feel of like, okay, this is the house I’m buying. I like this thing, but then when I really think about it, it’s mostly just for my own comfort than it is anything, and if that’s what you need, great. Do it. Who cares? It’s 500 bucks for a flight.

David:
That’s the great point. Yes. If you need that for comfort, that’s more important. You’re spending money in the fight, you’re spending time but you got to deal. Ultimately, that’s all that matters. My advice would be figure out a way to get that comfort that’s more objectively or empirically based, as opposed to just, I walked in, I feel good about it.

Brandon:
Yeah, that’s really good. All right. So that’s maybe when you want to fly in or fly out. Next, number eight. Let’s move on to the last tip today. Systems for managing rentals. So in other words, we talked about this earlier. The management of the investment matters more than almost anything else, because, again, a good management can make a bad deal okay, potentially, but bad management can make any deal bad. A bad management will just destroy you no matter how good … You can get the best home run deal in the world and bad management and bad systems later will just destroy it.
So sorry, I don’t want to go too in depth on this, because I know we’re already like, what? Well over an hour into the show. I bought two properties. I did a 1031 exchange a few years ago, you guys might remember from the podcast. I sold my apartment in Washington State and I bought two other out of state properties. One I bought in Cincinnati, Ohio, another 24 unit apartment there. The other I bought in Bangor, Maine.
Now I told you about Bangor and I have a really great property manager there. I have boots on the ground because Ryan Murdoch was there and he knows the market, he connected me with the property manager. That property has almost doubled in value in the past year and a half, two years. I’ve almost gained a million dollars of equity in that property in a year and a half, two years. Because we bought this property, we improve it dramatically.
The property manager cleaned it all up. It’s been amazing. It’s been just a home run deal. A Grand Slam deal. The other property in Cincinnati, I broke even every single month, then I got hit with a flood in the area, which was just unfortunate and I got hit by a big like, I don’t know, it was 30 grand or something like that I lost. Then I broke even, I made a little bit then I broke even and I had so much stress and drama. I went through three different property managers, before I finally ended up selling it for what I … Basically what I bought it for.
I sold it to a guy who, actually he was the agent who brought it to me, [Slocum 01:08:07] who’s awesome. Shout out to [Slocum 01:08:08]. He has like single handedly today turn that property around and he’s making a killing off of it today. So what went wrong? What’s the difference between my two properties here is, I did not have a system for management in Cincinnati in place. I did have one in Bangor, Maine.
Then I took the money I made by getting back the money I put into the Cincinnati one, I bought a property in Maui and that one’s crushing it because here I have a system of management. The bottom line is, you have to have a system of management going forward, you have to have a property manager you can trust or you better be doing it yourself and be really good at it if you want to do it yourself, but management matters so much. All right. I’ve been talking for 20 minutes. Dave, what do you think?

David:
I think this should be its own podcast episode too because the more I grow in business, the more I start to realize … I thought systems were important. They’re even more important than I thought. I had an epiphany about this a week ago, when we had a client that said, “Hey, I want to find a house in this specific neighborhood of Oakland, but I also want to do an off market campaign where I go find a property through direct mail, and I can get a better deal. If I find it, I want your help with representing me negotiating it, writing up the contracts, but I don’t want to have to pay for that. So how can we do it?”
I had that feeling in my gut that was like this does not feel right. I’m going to disappoint this person, it’s not going to go well. I recognize after I thought about it for long enough, I don’t have a system in place to represent someone on off market deals. I don’t have a compensation structure in place. I don’t have scripts in place to even explain to this person, no, I’m not going to go put all this time into a deal that may or may not work out and I’m not going to get paid to be doing.
The systems I have in place are for this. As I thought about it more I realized I help people with certain goals. I want to refinance a house, I want to sell a house, I want to buy a house and I have these paved highways that run to those goals. Those are my systems. Processes, team members, experience. I know what to expect when it comes to those three places that this business helps people with specifically.
When I get outside of that highway, it turns into this dirt road. It’s really bumpy, you can break your suspension, you get flat tires. So what happens is when an opportunity comes to me and I don’t have systems in place, I subconsciously just say, no, I don’t want to deal with. It doesn’t feel light, it doesn’t feel easy, I get anxiety. When something comes to me, that will work in that system, I am insanely aggressive about going out and grabbing what I want and putting it there.
So if I work this way, other people do too even if they don’t realize that they’re doing that. So when you have systems in place, you will naturally put way more effort into accomplishing the goal that you want, right Brandon? If I say, hey, I want you to tell me, do you want to buy this condo in Maui with me? You’ll be like, yep, I’ll put it right down my system. I’ll get Greg involved, I’ll get Drew involved. Boom, they’re going to do everything. That’s not a ton of work for you. I can get an answer quick.
Mobile home park. If it matches certain criteria, boom, you will go. If I said, hey, I’m thinking about buying this commercial space where we’re going to have a strip mall, and it’s got a twist, let me tell you about my vision. Immediately, your eyes are going to gloss over and you’re like, no, I don’t know what I’m doing when it comes to that and I don’t want to learn.

Brandon:
I’m going to rebuild that whole system [crosstalk 01:11:16]-

David:
There you go, and that’s how everyone is. We’re like that ourselves. If I bring an opportunity to myself, that does not work within the system I’ve created, I will not take it as serious. I’ve disappointed people in friendships, including you, Brandon, by committing to something that I did not have systems in place, and I was not 100% engaged in hoping that it would just work out and I’ve learned that lesson. I don’t do that anymore.

Brandon:
I’ve done the same thing. I’ve done the same thing.

David:
So now if you know how important those systems are, those paved highways that you could just put eight semi trucks up and down if you need to, you’re going to get massive help. Work on paving that highway. Don’t spread out amongst all these different dirt roads and hope that you end up hitting the destination you want.

Brandon:
Mic drop. That’s awesome, man. Matters so much the management, the systems that you have in place. So how do we find a great property manager? Again, it comes down to how people have been is how they’re likely going to be. So we want to get referrals from other investors, we want to know who are other investors using. We want to contact a few of them, we want to interview some. I like to start small, it’s also why I like to choose one market. If I’m going to invest at a distance, and I know David, you kind of do this too, you have a market or two or three that you kind of focus on when you buy out of state.
You’re not buying one in Kansas City, one in Memphis, one in Dallas, one in here, here because every time you have to start your system over again. You got to find that new [inaudible 01:12:32]. That’s why, of all the places that could buy, my top choice is honestly probably Bangor, because I already have a management in place. So I can buy and just trust that it’s going to be taken care of there. Bangor might not support my goals for appreciation, because it’s not an appreciating market, which is why I might not go there, but you can see like the way that we think about these things and I hope you guys can apply this to your own life as well. Anything you want to close on that with this, David?

David:
Yeah, we touched on a lot of practical advice combined with mindset advice, which is funny because that was … We started the show talking about that’s what we’re trying to do here is we’re trying to … I have that analogy, I’ll use it again of if you want to get better if you’re sick, you need two things. You need medicine, and you need a delivery system. If you’ve got a vial full of medicine, but you can’t get in your body, it doesn’t help. If you’ve got a drip set up, but you have no medicine to put in it, that doesn’t help you either.
So always be thinking with every one of the goals you have., do I have both of those things there? Do I have the knowledge and the skills that I need to succeed here, and do I have a delivery system to put it into place. It could work with our paved highway thing. The paved highway is the delivery system, the semi trucks that go back and forth that deliver the actual stuff would be the knowledge. You got to have both.
So this is probably one I would listen to a second time because I know that you and I we can go really quick when we get excited. We have a lot of information here, but this is how it works. You start with a very broad, what’s my goal? What do I want to accomplish? How do I want to get there? Then you nail it down? I’ve got a market. What neighborhood do I want to be in that market? You ask all the questions related to neighborhood. I know my neighborhood. Where do I go to find the property? These people can help me find deals. I can look for them with this way. I can look for this type of a property, and then once you’ve got that you aggressively go after what your goals are.

Brandon:
Yeah, really good, man. Really good. I second that. You should definitely … I’m going to listen to this episode again, and take some notes on here just because it was great to kind of hear your thoughts on all this because you’re the long distance guy. Now we’re going to get out of here in just a moment. I do want to ask a couple of quick favors. If you are listening to this show and you have not yet left a rating or a review, please do so. It helps us reach more people, and if you’re not following us, BiggerPockets on Instagram and YouTube and Facebook.
Follow @biggerpockets everywhere you can go. You can also follow David Greene personally, davidgreene24 at all those places and I’m @beardybrandon, most active on Instagram. David’s got a new TikTok set up. He was doing some dances earlier today. You guys got to check that. I’m just kidding.

David:
Felt cute. Might delete later.

Brandon:
All right, man. Well, let’s get out of here. Again, I want to recommend one more time, go check out BiggerPockets Insights. It’s a new program that helps you really dig in to the data to make smart decisions on what market to go to, what neighborhood to invest in, and what property to end up ultimately buying. Our whole goal at BiggerPockets is to help you achieve your goals. Everything we do at BiggerPockets is designed to help that. This podcast, the webinars we do weekly, the books that we put out, everything’s designed to help you and specifically BiggerPockets Pro is designed to help you do that faster, better, and with less risk.
Everything we do with Pro is designed to help you get that financial freedom, that level, whatever your goal is, faster with less risk. So definitely check out that. Again, BiggerPockets Insights, you get all the stuff we talked about today is included with a pro membership in addition to the calculators and webinar replays and a bunch of other cool goodies. As a reminder, there is that discount code, a 20% one. Expires on September 30, and that’s BPdata. So it takes your 390 annual membership down to 312. Again, code is BPdata, one word. With that said, David, I’ll let you take us out of here.

David:
Thanks, B. Great time today. This is David Greene for Brandon. Finally got a haircut, Turner. Check him out on YouTube. He’s looking handsome as ever. Signing off.

Brandon:
David, I didn’t get a haircut. I got them all cut. Dad jokes.

Speaker 3:
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