BiggerPockets Podcast 450: How Your First Time Home Buying Decision Affects Long-Term Wealth with Scott and Mindy

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First-time home buyer? At some point, all of us were. How do you make sure you’re getting a great deal, how should you pay for it, and what can you do to make sure it’s a purchase that will help you grow your wealth. In today’s episode, you’ll hear from Scott Trench and Mindy Jensen, hosts of the BiggerPockets Money Show. Their new book, First-Time Home Buyer, shows how to buy your first property in a way that sets you up for long-term success.

Most people see their primary home as an investment, but that isn’t usually the truth. Housing is a cost, and like many costs in life, we should try to minimize it when we can. Having a lower housing cost can allow you to invest more of your money, build up safety reserves for repairs, and have the financial bandwidth to live with less stress.

Scott and Mindy debate cash flow vs appreciation, how much you should put down on your home, and what kind of liquidity position you need to be in to find success in your purchase and future endeavors. Even if you’re not looking to build a rental empire, this is a fantastic book for anyone who is looking into buying for the first time. Don’t know about equity, title insurance, or other real estate terms? No problem! First-Time Home Buyer has you covered.

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Listen to the Podcast Here

Read the Transcript Here

Brandon:
This is the BiggerPockets Podcast show 450.

Scott:
Making this one decision intelligently can either set you up to make investing and growing your portfolio an automatic item that occurs years after year, or it can be an immense anchor that makes it almost impossible to get started, five, six years of savings. That’s the first part. If you haven’t bought your first home and you’re doing that, that’s number one.

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

Brandon:
What’s going on, everyone? It’s Brandon Turner, host of the Bigger Pockets Podcast, here with my co-host, Mr. David, definitely not a first-time home buyer, Green. What’s up, man? How are you doing?

David:
That’s a nice name. I like it. You’re picking up on my game here and you’re not half bad.

Brandon:
I am. I’m working at it. You know? I like the way you end every show, so I’m going to start the show that way as much as I can think about it. But the reason I brought that up today-

David:
Yep, that’ll happen for one episode.

Brandon:
Yeah, I know.

David:
There’s too much pressure.

Brandon:
I [crosstalk 00:01:08] with that. It is a lot of pressure to come up with the nicknames. What I need is I need the world who’s listening to this show to give me some nickname ideas for David Green. You can put those on my Instagram DMs. Slide into my DMs and give me some nicknames for David Green. My Instagram is beardybrandon, so beard with a y. Let me know what nicknames you’ve got for David. But that said, today’s show is not about nicknames. Today’s show is about first-time home buying, but not in the way you might think.
Here’s the deal. BiggerPockets has released a new book. It’s called First-Time Home Buyer. But it’s not just geared towards people who are first-time home buyers. The idea is really, what’s a beginner’s guide to buying real estate? What are all the things? What is title insurance? How does that work? Then even more importantly is how should real estate figure into a person’s overall life? Now, this book is written by two people you probably know, Scott Trench, Mindy Jensen. They’re both hosts of the BiggerPockets Money Podcast. They’ve been on the show before. They’ve even been guest hosts after Josh departed from the show and we were looking for David. So, they’re very familiar with BiggerPockets in the world.
This interview was just phenomenal. We sat down with them, and they’re so smart. Scott and Mindy are so smart. Today’s show, we cover a ton of stuff, but specifically, make sure you listen for Scott’s short term, mid term, and long term outlook for real estate in general, the American real estate. Really, really powerful stuff there. We talk a lot about how going for more expensive properties may or may not set you up for a strong financial position for life. You’ll hear about our kind of, not debate there, but our discussion over that. Scott goes into five tips for finding a good deal. That is probably one of the most important things you’re going to hear this year. This is what you need to do to find good deals in today’s market, whatever you’re a first-time home buyer or you’re trying to buy a 5 million unit apartment complex. I don’t care. Anything in between. His idea of calmly acting aggressively is really good.
Then there’s just so much in this interview. You guys are going to love it. Without giving away the whole interview, let’s get to today’s quick tip. Very simple quick tip today, is go pick up a copy of First-Time Home Buyer, whether you want to read it for yourself or you want to but it as a gift for somebody else. You can get it at biggerpockets.com/homebuyerbook. That’s home buyer book, and the book launches on March 8th. It’ll be every else, like Audible, Amazon, later in the month, towards the end of the month. But right now, it’s only available on BiggerPockets again, biggerpockets.com/homebuyerbook. That’s it. So, that’s all I got.

David:
This episode is really good because people get a lot of different perspectives on real estate. I think all four of us really have a unique flavor on the way that we view it, and everyone kind of pitched their flavor in and we had a little bit of a real estate casserole.

Brandon:
Yeah. I love it. Real estate casserole with Scott, Mindy, and David, and Brandon. Now without further adieu, let’s just jump into this interview with Scott Trench, CEO of BiggerPockets, and, of course, the wonderful Mindy Jensen, agent, host of the Money Podcast, and all-round awesome gal. Let’s get to it.
Scott Trench, Mindy Jensen, welcome back to the BiggerPockets Podcast, each of you former guest hosts here on the show. Now you’re guests, which is pretty exciting. What’s up, guys?

Scott:
How’s it going? Thanks for having us.

Mindy:
I’m super excited to be back. I haven’t seen you in 100 years.

Brandon:
I know. It actually has been awhile. COVID put a delay to my regular trips to Denver, but didn’t stop David Green here from traveling the world and hanging out in Mexico. What’s up, David?

David:
What’s going on, guys? Yeah, I mean, Cabo, San Lucas, it’s my first time here and it’s pretty awesome.

Brandon:
Yeah. Sometimes you got to take a vacation from Maui, I guess, right?

David:
I don’t like to pat myself on the back. It’s been very hard.

Brandon:
I think I just realized for the first time in my life that when people say they’re going to Cabo, and Cabo, San Lucas, is that how you say it? They’re the same thing. Is that true?

David:
I think it is.

Mindy:
Yes.

Brandon:
I’ve never realized that was the same thing.

Mindy:
Yes.

Brandon:
I thought that was two different cities, but I just put that two and two together that that was the same thing. It’s like, “I’m going to New York,” versus New York City. That’s apparently a shortened nickname. Anyway, other than talking about my intelligence or lack thereof, let’s get into the Scott and Mindy, your guys’ last few years. For those who do not know you, I want to start with this one. Scott, obviously, everyone knows Scott Trench, everyone knows Mindy Jensen, but for those who don’t, who are you, and what’s your real estate strategy been? Then I want to move into talking about the market a little bit. But let’s start with that. We’ll start with Mindy. Ladies first. Mindy, who are you, and what do you do in real estate?

Mindy:
My name is Mindy Jensen. I do a lot in real estate. I am primarily a live in flipper, which means I buy a house that is very unattractive, I move into it, I live in it as my primary residence while fixing it up. So, I live in a construction zone for two years, and then I sell it and make massive tax free cash when I sell it. I am also a real estate agent in Colorado, and I am the community manager for BiggerPockets, and the co-host of the BiggerPockets Money Podcast. With me, as always, is my illustrious co-host, Scott Trench.

Scott:
Thanks, Mindy, for the illuminating intro there. I’m Scott Trench. I’m the CEO of BiggerPockets. I’m an investor here in Denver, Colorado. I’ve got eight units, about 1.6, 1.7 million in assets within that portfolio. The last couple years have been a little quiet for me on the acquisition front in my personal portfolio. I have been spending more of that time investing in syndications. Last year, I really set up property management, rehabbed and tackled a bit of maintenance that I had been deferring. Yes, I’m a CEO and I’ve been deferring maintenance on a couple of my properties. But I finally took care of that this year, and so I was able to reset them, so a big refinance, take a lot of cash out, and now I’m back into acquisition mode looking for that next deal.

Brandon:
That’s awesome, guys. Well, speaking of next deal, it’s been a crazy last year, obviously, with the real estate market, COVID doing some crazy things, and things that I don’t think any of us really necessarily expected. I sure didn’t. I was worried that we were going to see a crash or something happen, and all of a sudden, instead, it’s just like somebody shot a bunch of steroids into the real estate market the last six months. Why do you think real estate has gotten so competitive, and I don’t even know, hot, I guess, is the best word I can use for it. The real estate market’s gotten hot almost everywhere in the country. With is that? Then I’ll ask where do you think it’s headed, but let’s start with that one. Mindy, why do you think it’s gotten so crazy lately?

Mindy:
I think there are a bunch of factors. Of course, COVID. I think a lot of people who were considering selling but maybe didn’t have to sell has decided that, “I’m not going to have random people traipsing through my house bringing their COVID into my house, and then I catch it and maybe die.” So, I think there’s a shortage of sales just based on the market or the pandemic itself. I think there are ridiculously low interest rates. Well, I know there are ridiculously low interest rates that are fueling people. “Ooh, I can upgrade to a better house.” We didn’t have anybody building houses from 2008 to, what, 2012, ’13, ’14. I mean, in my area, they’re just starting to do these massive builds again, and it takes time, and there’s people that are still moving here, but there’s nothing to buy, so prices just keep going up. I just sold a house on Friday for more money than I thought was ever possible.

Brandon:
I keep hearing that story over and over. Scott, what do you think?

Scott:
Yeah, I would agree. I think just the first, biggest lever is going to be interest rates. The payment matters more than the price to most home buyers, and, frankly, most landlords. All that 50% rule, your expenses are not magically changing and those types of things based on interest rates. So, if your payment goes down, you can pay more for the same property and achieve the same or greater cashflow. So, I think that interest rates are the number one biggest lever. Then the second one is going to be the stimulus and just the injection of cash and liquidity into the economy in general. I think that last year, a lot of people weren’t spending as much money as they typically would, at least those who would be potential competitors at yours when buying homes and rental properties, and so people are now in a position to buy with liquidity and low interest rates. So, I think fundamentally that that’s what’s driving it.
Then I also think, to Mindy’s great point, the other factors, many of them are also fueling this. There’s been an exodus from apartments to single family homes, single family rents have gone up, apartment rents have fallen over the last year. Single family housing prices have exploded by significantly more. I think it was single family rents went up by three, four percent, and prices went up eight, nine percent over the year. I think that’s showing a fuel in demand from apartments to single family homes as rentals, but an even greater preference to buy, I think fueled by that interest rate shift. Other things, lack of housing starts, continued population growth, and then expectation of inflation in general are all fueling real estate right now. Who knows how long that will continue? But hasn’t been a bad year for those who held real estate going into 2020.

Brandon:
Well, I was hoping you would know. You don’t know? I mean, come on, CEO of BiggerPockets doesn’t know what the future holds for real estate? I don’t know, man. I think we’re all screwed. No, but reality, if you had to guess, what do you see 2021 looking like for real estate?

Scott:
I guess there’s three buckets. Long term, I believe fundamentally that if I hold real estate and invest consistently but not aggressively over the long run, that I’m going to build meaningful wealth in real estate. That’s my fundamental approach. In the short run, my guess in 2021 is that we’re going to see another year of big growth. I looked at this dataset a while back that suggested that many markets around the country are way overpriced at a five percent interest rate, but way under priced at a 2.8% interest rate. Again, the payment matters more than the price for many home buyers.
For me, that suggests that given the… I don’t think the Biden administration is going to not inject money into the economy and create liquidity for lots of ordinary Americans, so I think that there’s a good chance that we see significant price appreciation in 2021. What will happen over three to five to seven years? Will there be a correction? If interest rates rise, that’s certainly a huge threat to real estate investors at some point, but the fed seems to be signaling two, three years of low interest rates. Then you always wonder if and when those interest rates ever rise, if inflation, the real estate investor’s friend, does not kick into a certain degree and keep property prices and rents afloat there. I think there’s a lot of things to worry about there. Know your source. I’m the CEO of BiggerPockets, so I have a bias towards real estate investing. But that’s kind of my take on the current situation.

Mindy:
Well, I do think that the market is going to continue to go insane. I had three real estate closings on Friday, which is pretty crazy for me. I’m showing no signs of stopping. Every property that comes on the market is instantly under contract in a bidding war, and the people that are losing out now are continuing to make offers down the road. All these people that need a house in February, they can’t get it in February, are offering in March, in April, in May, in June, and it’s just going to keep pushing out. You can’t build a house in a day, unless you’re on whatever that TV show is where they come and fix all your houses for free. But you can’t build a house in a day, so all of these houses are going to take time, and the existing houses aren’t being sold unless the people have to move.
I mean, that’s another thing. They’re not able to find a house, I’m not going to sell a house, because I have no place to go. I don’t see 2021 slowing down very much. Maybe at the end of the year, like December 31st, we might have a bit of a slowdown, but then January comes, and like Scott said, there’s all these people that have all this money that they were supposed to spend in 2020 and they couldn’t go anywhere or do anything, so they didn’t spend it, and it’s just burning a hole in their pockets, so they’re buying something. I think there’s going to be a lot of pent up demand for at least the rest of the year.

Brandon:
I’m going to throw this to you, David, here in just second, because I know you’ve got a lot of insight on the market, but I’ve said this from the beginning, that I think that real estate is very heavily geared by fear, and do people feel confident in owning real estate or not? Right? If everyone’s suddenly afraid of owning real estate because they thought it was going to collapse, I think we’re going to have a massive problem. So, as long as consumer confidence in our housing and real estate in general is moving up into the right, I think we’ll probably continue this.
What happened in 2008 largely was, I mean, besides obviously there was a lot of foundational things that were wrong, but all of a sudden, everyone got afraid of real estate. That’s with everyone bailed. I mean, everyone said real estate was a horrible investment back in ’08, and it really was. I mean, they weren’t wrong. Everything was completely overpriced. But right now, I think a lot of our fundamentals are still pretty strong. Crazy. All right, David, what do you think?

David:
As far as what the market’s going to do, I think there’s more variables right now than there ever has been in my lifetime and maybe in the history of real estate. Like Scott was saying, interest rates affect home affordability a ton. If rates go from 2.8 to 5.8, what a home would sell for is going to be drastically changed. Then we don’t know, is the fed going to print more money or are they going to stop printing money? I think that you will actually drive yourself crazy trying to figure this out, because I ask myself, “Well, with is there so much demand?” People have to be moving from somewhere to go somewhere else, so wouldn’t it always be the same?
But Mindy made a great point, they’re not building more houses. We haven’t built houses in a very long time. It’s getting difficult to do that. So, I tend to say rather than go crazy trying to anticipate what’s going to happen, focus on the things you can control, like defense. If you have yourself in a strong financial position personally, you don’t have to worry about what the market’s going to do. You can give yourself that really long timeline to make sure that you are safe and the market performs like it does over time. I think that’d be a great way to kind of throw that back to Scott and Mindy and ask them what’s some advice that they have for people protecting themselves so that they can play the real estate game the long way.

Scott:
You just said it. The financial foundation that you’re investing from is the key piece. Like I said, my strategy is invest consistently but not aggressively in real estate over a long period of time.

David:
What do you mean by that?

Scott:
That means that I’m not leveraging to the point where I can’t sustain the payments. I’m not using up all of my liquid position at any one moment in time where I’m at the mercy of a bad month or a major rehab or those types of things. I’m investing in what is a very sustainable approach for me, with a property or major investment every year or two that I can then sustain over a 20, 30 year period. I believe that that is going to achieve a really strong compound annual growth rate for me over time, and allow me to weather the inevitable dips. I’m going to experience a problem or a bad market over the course of a 30 to 50 year investing career, so I am at all times prepared for that downturn with my financial position. What is that financial position? I save a ton of money every month. It’s a fly wheel.
At first you save a few hundred, then you save 800, 900, then 1,000, then 1,500, then 2,000. That’s a slow compounding of time, is you buy a property, add it to your cashflow, keep your expenses low, earn more income from your job, and then slowly compound that. I keep a large reserve that I add to with each additional property purchase, I put down a reasonable down payment and finance with a conservative fixed 30 year mortgage on each one of my properties, and, again, just kind of keep the ball rolling. Each deal has the capacity and is intended to accelerate my financial position, but no one deal can ruin me either. I think that’s the strength position for me. I think, David, you have a very similar approach with what you do.

David:
As far as my investing strategy?

Scott:
Yeah, well, as far as your capitalization, I believe you always make sure you have great equity in your property and it’s really well stabilized before pulling out the cash and burring again and build the next thing. You make sure you have strong cash flows from your other business lines to support that, and you have a diversified strong portfolio that you intend to keep for the very long run.

David:
That’s exactly right. That’s because I got tired of trying to anticipate all these variables that I never could control, when I realized there’s two things that cause you to lose money in real estate. You didn’t have enough in reserves, so you couldn’t weather a storm or a mistake you didn’t see coming, or you didn’t have enough cashflow. More money was going out than was coming in. So, if you put a lot of money aside and you make sure more is going out than is coming in, all of the fears and the worry that stop people from taking action sort of just go away. It’s also empowering because we control that. We control what we spend, and to a large degree, we control what we make by the job that we go take or the risks that we go take, or the way that we perform.
Now, there’s a lot of psychology behind all that, but still, that’s within our power. So, yeah, Scott, that’s exactly right. Part of what I’m really excited to hear is what advice you guys have for someone who wants to get in this game who agrees with what we’re saying, but they’re just afraid of taking that first step where they don’t want to take it wrong.

Mindy:
Don’t take it wrong. I mean, make a-

David:
Good answer. But, yeah, no.

Mindy:
But, yeah, you know what? I think a lot of people, and David, I greatly respect you, but I have to disagree, this is not a game. If you are investing in real estate, it isn’t a game, because a game you can lose, and you don’t want to lose this game. This is an investment, and you need to approach it as a large amount of your money that you’re putting into a property. Even if it isn’t your money, it’s somebody’s money, and you need to be able to protect that money. I could own a whole lot more real estate than I currently do, because nothing currently makes sense.
It doesn’t make financial sense to buy a property that then doesn’t cashflow. I can’t find anything right now that is cash flowing, so I’m choosing not to jump into this game. I’m sorry, that’s a sore subject for me, because so many people say that, “I want to get into the real estate game.” I’m like, “You are going to lose money because you aren’t doing it right.” I know you do it right, David, so I’m not saying you, but…

David:
Let’s talk about that. What are some of the things that you see people doing wrong when they’re trying to get into real estate that we can remedy now?

Mindy:
Number one, eraser math. “The numbers don’t work. Let me just fudge this little number here. Let me change this number there. It doesn’t quite work, but I know there’s going to be appreciation.” How do you know? Scott is talking about appreciation, and he’s making a very intelligent assumption based on things that he’s read. He’s not just guessing that there might be appreciation. I mean, it’s kind of a safe bet to think that there’s going to be appreciation in the Denver market because everybody and their mother is moving here, but that doesn’t mean that you can guarantee 10% appreciation if you buy a property in Denver. So, look at what you think you can get. Oh, it’s six to eight percent, or what did you say? Is that what you said, Scott? Six to eight percent in Denver?

Scott:
Well, that’s what it’s been historically for the last 20 years, is five, six, seven percent. But, yeah, with appreciation, you have to make a number of assertions. We can get into that kind of stuff. There’s two ways, right? There’s whatever the market delivers to you, the buy and pray portion of real estate investing, and then there’s the portion that you deliver to the market, which is the forced appreciation component of that. The more you can benefit from both I think is important. I think it’s foolish to buy and pray, but it’s also foolish to ignore the fact that, hey, the expectation in Denver for a good reason is that prices will appreciate, and so will rents, and that will have an impact on your P&L that you can’t depend on.
You can’t have make or break your portfolio, but you also can’t ignore, otherwise you’re going to get squeezed out and potentially miss out on a chance to build wealth. So, there’s lots of components with that, but I think the fundamental thing is not having a long term approach, understanding your exit options when you go into any deal, and buying from a position of financial strength every time you invest in real estate.

Mindy:
What I was getting at here was Scott said five to seven. Okay, great. If you are counting on seven but it’s only five, your numbers are going to be screwed up. If historically it has been between five and seven, count on five. If you come back with seven, you just won the game. But you are making a conservative assumption, and I think there’s a lot of people out there making very aggressive assumptions. “Oh, well, the market went up five percent last month, it’ll continue to do that forever.” 2008 says no, it won’t.

Brandon:
100% agree. I would also encourage people, as they’re thinking about things like appreciation, and you guys know this as well, it’s very easy, and this goes to Mindy’s eraser math thing, it’s very easy to choose appreciation periods. I would even say this about a lot of areas of life, but to pick a timeline that makes it look very favorable and be like, “Wow, this market’s really heating up,” if, for example, you were like, “Wow, from 2012 to 2020, the real estate market has done blah, blah, blah.” Like, yeah, of course it has, because that was the bottom of the market to the top of the market.
So, you’ll start noticing this with a lot of, for example, investment companies, syndications, whatever, is when people are going to sell you something, they are choosing timelines of which to talk about whatever that thing is, so it’s just something to be aware of, is that you’re picking more objective data when you’re making decisions on where are rents going up, where is the market improving. So, I would look at it like, Scott said 20 years, I think 20 years is probably pretty long enough to encompass a couple recessions, maybe, 20, 30 years. But even that doesn’t say anything about the future. Denver could have had a big bump and then it just stops. I don’t think it will. Obviously, there’s a lot of other things pointing to that, but just in general, just banking on appreciation could be dangerous anyway.
Speaking of appreciation, I’m curious, we’re going to talk here in a minute about buying your first house or buying a primary residence, because I know you guys just wrote a book on that. Who should rely more on appreciation versus cashflow? I’m curious of your guys’ opinions on that, and I’m going to fire that at you as well, David. Why don’t I start with Mindy? Mindy, appreciation versus cashflow in real estate investors, what’s important?

Mindy:
Don’t diminish one over the other. However, I think, and this is a personal opinion, but I’m right about a lot of things, so I think it’s a good one, I think you should invest for cashflow, because you can’t predict appreciation. In the Colorado area, in the Denver area, I’ve lived here since 2012, I have seen it go up. But it could flatten out. I just sold a house, I got a lot of appreciation, but I forced that appreciation. I would not have realized so much appreciation if I hadn’t forced it. Yes, there would be still appreciation, but nobody could have predicted this ridiculous appreciation that we’ve had in the past eight years, or even in the past eight weeks. I mean, houses are going up ridiculously right now because there’s no demand. Sorry, there’s no supply. There’s plenty of demand. There’s no supply.
So, I think that if you don’t invest for cashflow, you are buying yourself a problem. You’re buying yourself a job, and there are people in the BiggerPockets forums who talk about, “Oh, well, I bought this house and it doesn’t cashflow, but the appreciation is going to be great.” You can’t know that. You can guess. You can make an intelligent assumption, but you can’t guess. I think a lot of people who do that are also aggressively instead of conservatively guessing their appreciation amount.

Scott:
Yeah. I think it depends on your goals, right? My goal is to sustainably invest consistently but not aggressively over a very long period of time. Within the context of that goal, it makes sense to go after the best average longterm appreciation in both rents and property values that I can find, and then to find as much cashflow as I possibly can to alleviate my risk over that period. I believe that will generate more wealth and more freedom over time than approach. If my goal were to race towards a spreadsheet model of financial freedom as aggressively as possible, I would completely have a different approach, and I’d begin investing for cashflow in likely a completely different market and different set of circumstances.

Brandon:
Yeah. I had a buddy one time ask me, and I’m going to fire this at you too, David, in a second, but I had a buddy once ask me, and I think I said this years ago on the podcast, but he said, “Should I invest in this property in San Diego?” I looked at the numbers, and I’m like, “Dude, you’re going to lose money on this every month.” He’s like, “Yeah, I know, but should I invest in this?” It was, I don’t know, a $600,000 single family house that would guarantee to lose money. The mortgage didn’t even get covered by the rent.

Scott:
And now he’s a millionaire?

Brandon:
He was already earning over a million, several million dollars a year in revenue from a very stable business that he owned that was very stable. So, I was like, “Yeah, honestly, I don’t think that’s a bad choice.” I bet today that property is probably worth… this is probably three years ago he asked me, that’s probably worth over a million at this point. So, I told him, “Yeah, you’re one of the few people I would say that. Yeah, you could take that gamble.” It is a complete gamble. He’s making no cashflow. But 10, 20 years down the road, if he bought a property for 600K in a market like that and had no problem holding onto it, all I’m saying is it’s one of those few cases in life where it illustrates that your position dictates the game that you play, the way that you play this, to use a phrase that Mindy hates.
I shouldn’t have done that at a point in my life. I needed the cashflow. Scott, you might not have been there, David may not have been there, or maybe you are. So, listening to people, myself included, David, our books don’t matter. You have to look at this thing with some self-awareness and say, “Look, where am I at right now in life? Am I eraser mathing my way into getting a deal, or legitimately can I afford the extra risk of a deal that doesn’t cashflow or doesn’t cashflow much?” David, what do you think? Cashflow, appreciation, how should an investor consider those two in the play between them?

David:
I think you made the point that I would make as well. It depends on the person, it depends on, like Scott mentioned, the goals. But also, Mindy’s advice was really good here too, because many people listen to this and hear, “Well, Brandon and David buy $600,000 San Diego properties that don’t cashflow, so that’s a strategy that works,” but they don’t have the capital coming in or the reserves that we would have to be in a position to do that. That’s what I really want to stress. It’s not the same formula for everybody. Not every football team plays the same way. There’s teams that can take shots down the field that are really big, but they know, “If we don’t get this, we have a really good chance of still picking up a first down through the running game or whatever else that we’re doing.
I tend to think that bigger wealth is created through appreciation, however, if you don’t last to get that appreciation, it doesn’t do anything for you. It’s kind of the big shot down the field. So, it’s not a one size fits all situation. I think that in general for most people’s paths, you start off with cashflow, because you are not going to lose anything that way, and it is going to get you momentum going. You will know when it’s the right time to go for some of those bigger plays, or maybe, for some people, you actually are losing money every month, but it’s okay because over the longterm.
Here’s the thing about appreciation that we’re not mentioning, though. It’s not like if your house goes up $100,000 in three years, you just made $100,000. You have to sell it if you want to receive that, and then there’s closing costs that are also associated with that. So, it’s easy to fool yourself into thinking you made big wealth, and that becomes a game. “Look at all my equity that I created.” It can go away in a second. We all saw that happen in 2010. So, when you’re doing this, you actually have to understand what you’ve got. You’ve got equity, that’s not the same as cash. If you want to turn it into cash, there’s going to be some costs associated. Those costs are really significant. Scott and Mindy, I want to throw this back to you and ask you guys, where have you found is the sweet spot where it makes sense to sell a property and move onto the next one?

Scott:
Well, I don’t think you have to sell the property. I think what you’re talking about is return on equity, right? That’s what we’re fundamentally getting to here. To put it in the simplest terms, I have a $100,000 house. If I paid cash for the house, I have no debt on it, and the house goes up by three percent, I have made a three percent return. If I have $20,000 in equity on the house and the house goes up by three percent, I have made a 15%, three times five, return on my equity. You’re absolutely right, that will be diminished by closing costs at a reasonably percentage based ratio over time as the property appreciates. When does it begin to decline? I mean, it’s a bell curve, right? I get more leverage when I have more leverage. Right? I’m going to have more debt on the property.
As I pay down that debt and my appreciation boosts the value of the property, my debt to equity declines. So, as I’m riding that curve down, my return on equity is falling each year on average if things are going well, and I have got a good problem. I’ve got a lot of wealth and I’m earning a lousy return. So, again, I can either sell the property and 1031 exchange it, or I can refinance the property. Right? Refinancing the property will allow me to do the same thing, and I can deploy that to buy more property. That’s exactly what I did. I had this problem. I remodeled my properties, I made them as valuable as I possibly could this last year and got them appraised, and then pulled out as much cash as I could with which to make my next investments.
If I’d owned the properties for a longer period of time, I might have opted differently or 1031 exchanged them. Reason being is because you begin to lose some of the advantages of depreciation and accelerated depreciation on certain components of the property, which makes it more advantageous if you own the property for 10, 20, 25 years to just sell and start over again rather than cash out re-fi.

Brandon:
You know, one way to quickly illustrate this is a real life property I have right now. I have a property with $200,000 of equity in it just sitting there. That’s after selling, realtor fees and everything. If I were to sell this property, I would clear about $200,000 that I could put into another investment. I’m making about $1,000 a month in cashflow on this property, which is $12,000 a year. So, if you were to look at that and say, “Okay, I’m making 12,000 a year on a $200,000 of equity or $200,000 investment, it’s a six percent return,” because it goes 12,000 divided by 200,000 equals six percent. I’m basically making six percent of my money right now.
Now, if I were to find another… and it’s in a market that I do not believe is going to appreciate, at least not to a great degree. So, there’s no hold out for, “Hey, it might go way up in the future.” It’s just some Western Washington/Aberdeen Washington market. So, what I’m going to do is I’m going to sell this property, because I’m like, “I can do better than six percent.” I mean, I could deal my money to Open Door Capital, my own company, and get higher than six percent, so I’m going to take that, and we call it recapitalization or redeploy, and I’m going to sell that property, and then I’m going to put that money somewhere where I can get maybe an eight percent return, or a nine percent, or a ten percent return, whatever that return is. I’m going to take that money elsewhere because my return on equity is really low.
I’ve got other properties probably making a two percent, three percent return on equity right now, which is a good time to know to sell it. With that said, I want to pivot this slightly, because this is something that we wanted to make sure that we cover it on today’s show, you guys wrote a book. Right? This does relate. I’m going to bring this right back to this topic here in a moment, this idea of the equity that we build and appreciation, because a lot of people here that are listening to the show, I guess half the people here, own a house already. They already own their primary residence. So, they might be thinking, “Well, I don’t really want to talk about buying your first house, because I’ve already gotten past that.” The first thing I want to get out of the way is why should somebody keep listening to this episode? As we talk about single family houses and furthering your position because of that, why should they listen? Why is this important?

Scott:
Well, I think that the housing decision is the largest financial decision made in middle class America today. It makes or breaks your ability to build wealth in asset classes like real estate or other after tax vehicles in a general sense. The typical American first-time home purchase is putting all or most of their lifetime accumulated liquidity down into the property in the form of a down payment, and assuming a high fixed monthly cash outlay in the form of their mortgage, and assuming the maintenance and capex that’s associated with maintaining the home. So, making this one decision intelligently can either set you up to make investing and growing your portfolio an automatic item that reoccurs year after year, or it can be an immense anchor that makes it almost impossible to get started, five, six years of savings. That’s the first part. If you haven’t bought your first home and you’re doing that, that’s number one.
Number two is in many relationships, one spouse is the eager listener of the BiggerPockets real estate podcast, and the other rolls their eyes and is not very interested. So, perhaps the conversation we’re about to have could save you as the spouse that is particularly interested in investing several hundred thousand dollars with which you could redeploy real estate over a few years by making a smarter home purchase decision, and third, if none of that applies to you, maybe it’ll help you with your next home purchase, or you can deliver this to somebody who is about to make this decision for themselves and may be able to save them a big chunk of money as well.

Brandon:
What’s funny is I get this all the time. You’ve been to Maui, people vacation here a lot, and then they see me out in the street or whatever, I’m at Starbucks, and they’ll come up, and there will always be a couple, right? Because Maui’s a couple destination, and the one couple will be like, “Hey, Brandon, nice to meet you,” we talk for a second, and then they’ll always turn to their spouse or their other and they say, “This is that guy that I was telling you about that lives here in Maui that wrote that book,” and every time, the reaction is the same. “Wow, honey. Great. Good for you.” It’s just a complete, “I don’t care.”

Scott:
This guy’s not that interesting. Yeah.

Brandon:
“He just looks homeless and you’re trying to talk to him about real estate. We’re on vacation. Stop talking about real estate.” So, anyway, totally, totally a thing. All right, so let’s start here. I 100% agree, by the way, yeah. Even if you already own a home, this stuff is important because it may change what the next purchase you’re going to make, it may change how you view money in general. So, I want to start with that question, is what are some ways that the primary resident, so somebody lives in, will longterm affect their wealth in life? Like 20, 30, 40 years down the road. Why does the house, this is the point you guys make over and over is the book, but why does the house make such an impact longterm? Let’s start with you, Mindy. I know, Scott, you just said a little bit of that answer, but I’m going to go deeper here.

Mindy:
It goes back to the things that you harp on over and over on this podcast, is-

Brandon:
Ju-jitsu?

Mindy:
You have to buy right. Yeah, ju-jitsu, and you have to buy right. That applies to your primary residence as well as any investment you make. If you pay too much for your primary residence, if your mortgage payment is at the very tippy top of what you can afford, how are you going to save? Where does your extra money go? Nowhere, because you don’t have any extra money, because every dime you have is going to your mortgage payment. I think that when people are first starting out, “I’m going to buy a house. How much can I afford? What is the most amount of money I can part with?” That’s not the right question to ask, especially when you’re a first-time home buyer, but when you’re a home buyer of any type. If you want to be able to grow your wealth, you don’t want to put all your money in one basket where all it can do is sit there and do nothing for you.

Scott:
To sustainably invest in real estate, you are either going to need to generate a large amount of monthly savings with which you can use to put the down payment and finance the properties, or you are going to have to run a real estate business where you are creating value in the form of managing rehabs and those types of things. Right? The typical real estate investor in this country does not own more than 10 units. 90% of single family homes, duplexes, triplexes, and quadplexes, are owned by investors with 10 or fewer properties, casual investors like myself buying properties over the period of a decade.
The folks you hear doing more than that are the exception in this market, not the rule. When you buy, let’s use this example, I’m a typical American, I’m earning $80,000 a year, and over the last three, four years, I’ve saved up $40,000. My lender qualifies me for $400,000 in a mortgage. Right? What is my typical purchase? Well, my lease is expiring in two months, therefore I better buy real quick. I fall in love with this property, I put down 40 grand, I get an additional five grand from dad to cover the closing costs, and I move into the property and live there happily ever after. My payment has gone from 1,700 a month in rent to 2,000 a month in mortgage, and I also have, oops, another 300 a month to set aside in housing expenses, but I don’t do that.
I actually just live kind of paycheck to paycheck with a $3,000 cushion, and so when those emergencies come up, it’s always a big financing issue, and I have to reopen my revolving credit line with mom and dad in order to finance those. Right? That’s not a position from which to sustain a real estate investment. Even if I want to, I’m making very slow progress in a very fixed cost there just by… it’ll take me 5, 10, 15 years to build up meaningful home equity with which to use and those other types of things. Compare and contrast that to somebody, same exact position, who puts down $15,000 on a $250,000 property. Well, now I’ve still got $150,000 in access to credit with which to invest, I’ve still got $25,000 with which to invest, and I’ve made a huge change there.
Or compare that all the way in the extreme end of the spectrum, and by the way, our book is not about house hacking. It is mentioned. But when I did it, I bought a duplex, put down $12,000, and began collecting rent immediately, which increased my income, immediately increased my ability to borrow within a year from that because I have rent on my tax returns, and a year from then, I’m making that $80,000 a year, but I’m qualifying for $1 million in financing to buy more property, and I’m able to accumulate more cash. The first home purchase makes a huge difference in terms of the amount of liquidity you’re going to have available following it and the amount of liquidity you can accumulate on a go forward basis. I think it’s a central fork in the road for folks to think about and consider when they’re going about their wealth building journey. You can always buy the house in the hill, the fantastic, beautiful home in Maui after you have assets to pay for it, but you shouldn’t do it with your first home purchase.

Brandon:
All right, so here’s how I want to relate this back. I think that’s an important point. People, they max out what they can spend, like Mindy said, they’re asking the wrong question, how much can I afford? Rather than what’s smart. What’s comfortable I think is what you said, Mindy. But let me relate this back to appreciation. Let’s say an average market is going to appreciate, let’s just say five percent for easy math. A property that’s $100,000 is going to now be worth $105,000 next year, maybe 110 the year after, maybe 115. Obviously, there’s compounding there, so it’ll be a little bit more.
But you buy $100,000 house because that’s the lowest price that you can get your spouse on board with, right? It’s the cheapest property you can find that you’re comfortable living in. It keeps your payments good so you can invest your money elsewhere. Five years go by, your $100,000 property is now worth, let’s say, $130,000. Good job. Versus you buy the house for $1 million instead, and that million dollars goes up at five percent appreciation. Now you made $50,000 the first year, 50 the next, 50 the next. Now you’ve made a quarter of a million dollars because you bought a more expensive house, because appreciation percentage wise gives a way higher amount to the higher dollar.
I guess where I’m getting at with this is how would you balance that? I mean, I’m trying to tie this back to the appreciation conversation, is a lot of wealth is built by appreciation, and appreciation goes faster with a higher end, so how do you balance those two things? Being smart with your money but making more.

Scott:
Housing is an expense, and the more you buy, the less wealth you become. So, when you buy the million dollar house, sure, you’re getting proportionally that same amount of appreciation compared to the $100,000 house, but you’re also assuming a much higher fixed monthly mortgage payment, you’re paying a lot more, and you’re wrapping up any equity you have in that three percent, five percent compounding asset. Right? If you buy the $100,000 house in the exact same circumstance, you have the option to invest the remaining 900,000 into other real estate assets which will generate significantly more wealth than the equity that is in your fancy schmancy home with that.
Again, housing is an expense, and you are paying for it in the form of your house. The more you buy it, the less wealthy you are with that, even though you’re benefiting from that. The reason people call it an investment is because most people only allocate money into their 401K and then pay down their mortgage. It’s by far, by hundreds of thousands of dollars, the largest investment of any kind that they’re even conceivably making, is the money that’s going into their home equity. It’s not an investment, it’s a cost, and it’s less expensive over a long period of time than renting, but the more you buy, the less wealthy you are when it comes to housing.

Mindy:
Well, and I think the point isn’t, should I buy $100,000 or a million dollars? The point is, should I spend every dollar that I have and buy the absolute most that I can, or should I look at the market and make a more intelligent decision that will allow me more room in my current budget, in my present day budget, and also allow me to invest for the future?

Brandon:
$100,000 and a million dollar property, it depends. Do you make $100,000 a year, or are you making $500,000 a year? Right? Those questions, again, go back to know yourself, know your position. Don’t strap yourself up, because the typical American problem is as their income goes up, a lot of Set For Life is about this, right? Scott, that you wrote in Set For Life. It’s a fantastic book. As the typical American or typical person, it’s not even just Americans here, they make more money throughout their life, they just spend more money and they get trapped in this cycle of debt which they never get out of, so they never have the extra disposable income to jump into investments.
So, yeah, the million dollar property does go up the same percentage wise, let’s say, as a non million dollar property. Great. Doesn’t mean your primary residence has to be that one. I think that’s a really solid point. Now, speaking, you mentioned the word, you can get a much better investment. I want to talk about better investments or just good deals in general. I know a lot of the book is about buying these good deals. How do you find a good deal on your primary residence? I’m assuming this applies to just all real estate in general, right? How do you guys recommend finding good deals?

Scott:
I have this five step process, which I’ll ramble on for about two minutes thirty seconds here. You can just shut me up if I… yeah, all right. I think there’s five things. One is creating that position of strength. Right? We’ve already talked about that, we don’t have to go into more detail for that. The second is a timeline perspective. This is the first blindingly obvious mistake that I see a lot of first-time home buyers make, peers, friends, family. Where it is is it’s, “Hey, my lease is expiring on July 31st,” and it’s May 1st right now. “Therefore, I need to buy a property ASAP because I’m thinking about buying.” Great, so you’re going to rush.
Again, let’s use this example of 40,000 in savings, $80,000 in income. You’re going to rush a 400 or a 3 or 250, 3, $400,000 decision in order to beat the artificial constraints of your lease timeline? Call your landlord, go month to month. Right? And pay the extra 100 bucks. Because that will give you so much more power, freedom, flexibility in making that decision purchase. You don’t have to create an artificial timeline. Same thing with the 90 day challenge, Brandon. I know that’s a great thing to get motivated with that stuff, but you don’t construct the artificial timeline, you simply put yourself in a position to buy by the end of that 90 days where you’ve got your deal flow and those types of things moving, right?

Brandon:
I would add two quick points and I’ll let you continue on. Number one, this reminds me of the 1031 exchange, right? The 1031 exchange says when you sell a property, you have 45 days, and you guys, for those that have been listening to the show for a long time have remembered two years ago or three years ago when I went through that 45 day thing, it was hell. I ended up buying a property that I should not have bought. It was a real timeline. I had 45 days to identify a property, and I bought something that ended up being a terrible investment for me because I didn’t have the core four, as David teaches, in the market.
Now I’m going through another 1031 right now, and it’s super easy because I have the core four and I’m just buying a condo here in Maui for a vacation rental. But the same thing applies, is when you’re on a timeline, it’s hard to make a good decision sometimes. You end up making an emotional decision. At the same time, though, and I’m curious your thoughts on this, Parkinson’s Law says that work expands to fill the time allotted for it. We’ve all seen this too, right? If you had a month to finish a research paper in high school, it would take you a month to finish that paper. If you had two days, you’d finish it in two days. This applies to almost every area of life.
The reason I love putting constraints on things is because constraints lead you towards a bias towards action. So, how do we reconcile that, of I can buy a house any time I want to, now I may never buy a house because there’s no reason to buy a house because there’s no timeline, versus I have to do it before my lease ends. Now it’s going to force me to actually take action. How do you reconcile those things, Scott?

Scott:
I don’t think it’s the right framework for approaching it. I’m not as good as David, so maybe he can help me out here with this, but this is going fishing. You’re going fishing when you’re buying a house. What are you going to do? Say, “I’ve got two hours to catch a fish.” Right? That’s an impossible starting position, at least if you buy into the framework I’m about to describe. What’s the opposite of buying a fish, David? What’s the opposite of fishing from a framework analogy, David?

David:
You mean something that you actually have control over, because you don’t have control over catching a fish? Is that what you’re getting into?

Scott:
Yes.

David:
Going to the market to buy a fish.

Scott:
Yeah. That’s a goal I can set down for my day, and if I take two hours to do that, I’m doing something wrong. Yeah. Maybe we’ll get a better one as time goes on. That was still weak. Oh, well.

Mindy:
Yeah, those aren’t very good.

Brandon:
I liked it, I liked it.

David:
I think what you guys are getting at is Scott’s trying to protect people from making a bad decision, and Brandon’s trying to protect people from not making a decision, and if we can reconcile those two desires and motives that you guys are working with, we can have a perfect way to describe this.

Scott:
There we go. Yes. Yes. Thank you, David. You just saved us. That was wonderful. Okay.

David:
Continue on.

Scott:
So, we’ve got, again, five steps, starting from a position of strength. Second is creating a patient timeline where you can go fishing instead of going to the market to buy a fish. Then the third is knowing exactly what you want. Right? Again, very simple, basic things, but a lot of investors are like, “I don’t really know. I want something that cash flows. I want to get rich.” Whatever it is. No. I’m buying my first home, what do I want? I want a three bed two bath, 1950s build or later in this part of town, this part of town, or that part of town. I’m looking for a two car garage, again, at least those two bathrooms, because my marriage will dissolve if we only have one bathroom. I’m looking for a yard for the pets and this type of school district and that type of stuff. You should be able to write out a paragraph or two that outlines in crystal clear detail exactly what it is that you want, and have you and your spouse on the same page for that. That’s step three.

Brandon:
Can I refund that just for one second? I think this applies perfectly to real estate investors buying investment properties as well, is the more clear your criteria is, the more likely you will find that deal, the more specific you’ll be, the more likely you’ll take action. I talk about all the crystal clear criteria, and that is really knowing what location you’re truing to buy in, define what neighborhood you’re going to buy in, what condition are you willing to accept, what property type do you want, single family house, multi, duplex, whatever, what price range you’re going to buy in, and then what would make it a good deal. I call it profitability. For anybody, real estate investors or even buying your first house, having that crystal clear criteria just helps you make way more informed decisions, so I’m super glad you said that, Scott.

Scott:
Absolutely. That’s knowing what you want, right? But then that comes down to defining what a good deal is in your market. This I think is where people get tripped up, because a good deal is the property with the attributes that you want selling at a low price relative to other similar properties or comparables, right? For this, what most people do when they’re buying their first home is they’ll look at Zillow or Redfin or call up their agent and look at the listings, and they’ll look at all the active listings. They’ll be like, “This is terrible. There are four active listings, they all stink, they’re all either way overpriced or they’ve got something weird like an obelisk in the front yard,” or something. That’s not good.
No. Instead, what you do is you’re going to look at the active listings. You look at the sold properties and you say, “What has actually transacted in the last 90 to 180 days that fits my vision?” One of a couple of possibilities are likely when you first conduct this exercise. The first is that no properties have sold that meet your criteria. That tells you that you are living in fantasy land, and what you’re looking for does not exist. Right? I want the quadplex in Denver that is $200,000, each unit rents for $200,000 a piece, beats the four percent rule and cashflow, but it doesn’t exist, right? And is in perfect condition. So, that will give you a grounding in reality, or there’s going to be a million properties, which means you need to refine and refine your search.
What I recommend is refining that search until you have five to ten properties in the last 90 days, maybe stretching that out to the last 180 days, that you can say, yeah, borrowing a crazy problem and inspection, like a foundation or like finding out that there’s a seedy establishment right next door or things like that, I would have bought those five deals or ten deals as my home. Now I know what a good deal looks like, right? I can say, “Okay, great. I can get to my fifth step here.” I have defined what I want and what a good deal is, and now I can go fishing. If ten properties have come on the market in the last 180 days, that means one property on average is coming on the market that’s a good deal in line with what I want every 18 days.
That means once every two-and-a-half weeks on average, sometimes it’ll be four weeks, sometimes two will come on all at once, I need to be ready to pounce. I need to be able to calmly react aggressively to that deal, right? That’s where you say, “I got my pre-approval in line. My agent and I are on the same page and we’re ready to write an offer.” When that deal comes on the market at 230, maybe I’m not leaving work right away, but I’m making plans for that. I’m canceling all my evening plans and getting ready to offer on that property in real time. That, I think, is how the first-time home buyer, the first time investor stands the best chance at getting a good deal.
Again, you’ve got to have a number of reasonable deals in the market to have a chance in this, because right now in many parts of the country, it’s such a seller’s market that you’re getting multiple offers, you’re getting outbid. People are bidding on things without waiving inspection deadlines and those types of things. You can’t afford to do that as a first-time investor or first-time home buyer I think, so you need to be able to know what a good deal is, act on it, and be willing to lose a few in order to do that. If you only have one property in the last 180 days that was a good deal, you might be fishing for a very long time. If you’ve got five to ten, you’ve got a reasonable chance.

Brandon:
I love this. I think this is some of the best advice we’ve heard on the podcast ever, because it applies to everybody, whether you’re buying that first-time home, or you’re just trying to buy a 500 unit apartment complex. Are you at a position of strength? Right? Do you have a good patient timeline for making sure you make a good, logical decision, not an emotional one? Do you have a clearly defined criteria? Do you know what a good deal is? Does it exist in your market? Can you point to examples where that has sold recently and there was a number of them, and then can you go and pounce at… I love how you said calmly act aggressive. Is that what you said? I love that. Right? Those steps apply to every single person trying to find good deals today. If you’re like, “I can’t find any good deals in my market,” ask yourself which of those five things are you failing at right now? Have you actually done those things? Nope.

Scott:
The answer might be, hey, there really are no good deals in your market that make any sense, but conduct the exercise and then find out there’s zero. Then you’re like, “Okay, great, I can stop wasting my time now and flailing about. I can go pick another market or do something that’s more constructive than whining about the lack of deals in my market, because I’ve already answered the question. It’s done. There are none that make sense that I would buy.”

Mindy:
I’m going to just correct Scott really quickly, because he isn’t an active agent as I am. You have to be prepared to lose a lot of deals. The reason is right now in this market, it’s insane. This market, I’ve never seen a market like this in all of my decades of real estate investing. It’s very difficult to be representing buyers right now. Right now might not be the best time for you to start buying a house, but it’s always a good time to know your market and know what the good deals are and see what’s out there. But Scott said that you need to be prepared to lose a few. I think you need to be prepared to lose, because who you’re competing against is not you. It’s not the person who’s making a decision. We just interviewed a guy who lives in Japan, and even though he lives in Japan and pays taxes in Japan, his real estate in America that is more than 20 years old is depreciated at 25% a year or something like that. So, he’s essentially paying, what? Zero taxes because he owns real estate in another country.

Scott:
That’s your competition in Hawaii, Brandon.

Mindy:
They don’t care that it makes no money. They don’t care that they can’t rent it out. They don’t care anything. They’re taking 25% of that million dollars and writing that off on they’re taxes, so they’re paying no income tax. It’s worth it to them. Then in four years, they’ll sell it and go buy something else. They’re supposed to be closing up this loophole, but I’m not suggesting you move to Japan, I’m suggesitng that your competition isn’t always somebody who si thinking rationally or working under the same stipulations and guidelines that you are. So, make the decisions, make the offers that are intelligent for your circumstances, because your only competition is you.

Scott:
Depending on how big your pool is, right? If your pool is five properties in the last 180 days, that’s not very many. That’s one property every 36 days that’s coming on the market. Right? You need to up your offer price and offer a firm, competitive offer each time. If your pool is there’s 50 properties in the last 90 days that you would have bought, you can afford to lose 20, because you’re eventually going to get a winner on that. Right? So, it’s just kind of understanding that dynamic in your market and reacting rationally to the current circumstances.

Mindy:
I just want to say, one other thing, if you listen to all the words that are coming out of Scott’s mouth, he is not saying, “I woke up and I decided to buy a house and I got into the game.” He’s making a lot of smart decisions based on a lot of research that he is choosing to do. He wants to make an informed decision. This is one of the reasons why I hate that comment, “I want to get into the game.” It’s not a game. If you play it as a game, you’re going to lose a lot of money.

Brandon:
It’s all one gigantic game to me.

Scott:
It’s not 50 or 500 hours of research going into buying your first-home, but it’s 15.

Mindy:
Yeah. It’s more than just waking up.

Brandon:
Some people way overanalyze and spend 100 hours because they don’t want to take action, but the majority of people don’t spend any time and they just buy because, like you said, Scott and Mindy, “My lease is coming up soon, I better go buy something.” I think there is an appropriate level, and I think those tips you laid out here, Scott, especially those five things that we kind of dug through.

Scott:
So, you spend those 15 by reading our book for five of those hours and then doing the research for the other 10, and you’re good to go.

Brandon:
Speaking of the book, tell us about the book. What’s it called? Where can people get it?

Mindy:
Do you mean this book, First-Time Home Buyer, the complete playbook to avoiding rookie mistakes? It is available wherever books are sold, but on March 8th, you can get it from the BiggerPockets bookstore.

Brandon:
No, I wasn’t talking about that book. I was talking about David Green’s book Sold. No, I’m just kidding.

Mindy:
Oh, Sold.

Brandon:
Oh, you have that too. Wow, look at that.

Mindy:
Of course I have that too. That’s a good book.

David:
Thank you, Mindy.

Mindy:
David knows a thing or two about real estate.

Scott:
Yeah, that was an amazing book.

Brandon:
It is a good book. Actually, my brother text me the other day, now all of a sudden we’re talking about David’s book, I love it, but my brother texted me because he was talking about getting his real estate license, he’s got it now, he’s trying to get started. I was just like, “Read David’s book.” He text me like two days later, he’s like, “Oh my gosh. This was the best thing I have ever read. This changed by life,” blah, blah, blah. So, anyway, good job, David. I know I’m going to get those texts as well from my brother when I tell him to read Scott and Mindy’s book as well. You guys, should people read this book who are not trying to buy their first house?

Scott:
Yeah, I would say you can. I would certainly say if you’re going to try to buy rental properties, read the book on rental property investing. If you’re trying to house hack specifically, read the house hacking book. But this, I believe, perhaps somewhat arrogantly, that this is the best book ever constructed on buying your first-home in a more traditional sense around that, and if you’re thinking about doing that or want to do that, that would be a good place to start. But, no, it is not an investing book, per se, and probably not the place to start when it comes to investing, unless you have not yet made your decision about whether you’re going to rent or buy, in which case, you should start with this book, because it’ll make a huge difference in your ability to sustain investing over the long run.

Brandon:
Yeah. It’s also one of those books that I would recommend as one of the most important gifts you can ever give anybody who’s young, or even anybody who does not yet buy a house, you should grab that book and give it to somebody, because it’s like now you’re benefiting them hundreds of thousands of dollars, maybe millions of dollars over the course of their life because of one book, which is awesome. Again, where do they get it? At biggerpockets.com/…

Mindy:
FTHB, First-Time Home Buyer.

Scott:
Biggerpockets.com/homebuyerbook. Both of those will take you to the same spot.

Brandon:
All right, with that said, I know, David-

David:
Yeah, I just want to ask this one last question. Should agents buy this book to give to people that are considering buying a house?

Mindy:
Yes. Okay, thank you so much for that question that I didn’t even ask you to ask me, but part of the reason that I wrote the third section of this book, it’s the step by step process of buying a house. What is title insurance? Well, I don’t know, I’ve never bought a house before. I guess I’ll just do it. Well, you should know why. Do I need a home inspection?

Brandon:
Nope.

Mindy:
Right now in this market, there’s a lot of… oh, shut up, Brandon. Right now in this market, there’s a lot of agents who are saying you should waive the home inspection and cover the appraisal gap if you want to buy the house. No, I am not advising any of my clients to waive the home inspection or cover the appraisal gap, and I still have a 100% success rate right now finding houses for my clients. There’s reasons behind it, and one of them is making a smart financial decision. You don’t want to go into a house and not know that there’s meth in the basement and mold in the attic because you didn’t get a home inspection. So, yes, if you are a real estate agent and you want your clients to know everything, have them read this book.

Scott:
I think that this book will demonstrate a lot of trust, will build a lot of trust with your clients if you’re an agent, because you’re talking about how to make a smart first-time home purchase. It’s not necessarily rushing into the biggest, most expensive property right away. While that might mean a slightly different commission or might take if you’re going fishing rather than going to buy a fish, that might delay the commission, to a certain extent, but it also means that you’re much more likely to get repeat business if this person is been able to buy investor properties and those other types of things. So, I think there’s a ton of trust to be built with this book. And like Mindy said, a lot of answers to the nuts and bolts of the transaction process.
As well, we kind of recommend, hey, before you go and talk to an agent, you should be able to answer a lot of these basic questions. You should be getting a client after reading this book who’s coming back to you saying, “I know exactly what I want. I know what a good deal looks like. Can you validate those assumptions, and let’s go fishing.” Rather than somebody who’s kind of just wandering, figuring out what they want to buy or not. You’re getting someone who’s ready, willing and able, but on that potentially patient timeline is what we’re trying to teach people with the book.

Brandon:
I love it, guys. Well, check it out, everyone. Biggerpockets.com/iwanttobuythebookthatscottandmindywrote.

Scott:
Biggerpockets.com/homebuyerbook or FTHB, yeah. Or, I want to buy the book that Scott and Mindy wrote.

Brandon:
Yeah, I want to buy the book that Scott and Mindy wrote. I love it. Well, last segment of the show, let’s get to my favorite part. It’s time for the…

Speaker 6:
Famous four.

Brandon:
The famous four is the part of the show where we ask every guest every week the same questions. I know each of you have answered these before, but they may have changed, so let’s go ahead and fire my two again. In fact, I’m going to shift this first question. Normally on the Thursday episodes of this show, we ask favorite real estate related book, but we all know your favorite real estate book is one of David’s, so we’re going to just skip that one, and I’m going to ask the question that I ask our Sunday guests, which is, is there a habit or trait you are currently trying to develop in your own life, and what is it?

Mindy:
Inbox zero. I’m currently failing miserably, but I’m trying really hard.

Scott:
I just read Atomic Habits recently, which I thought was a great book. I’m trying to adopt, not the habit, but build the system of maintaining my body like an athlete and that kind of thing. That’s what I’m working on right now, is the workout regimen and diet.

Brandon:
Number two.

David:
What is your favorite business book?

Scott:
Non BiggerPockets book that I will reference is going to be The Psychology of Money, by Morgan Housel, which I read recently. It was fantastic. Quick, easy read, very relatable but very powerful.

Mindy:
My favorite book is Superfans by Pat Flyyn. It’s called Superfans, The Easy Way to Stand Out, Grow Your Tribe, and Build a Successful Business. Pat has quite a few tips on how to build a big audience.

Brandon:
I would not be here today if it weren’t for Pat Flynn. I’ll just say that. We would not have a podcast today. We wouldn’t have any of this. Thanks, Pat.

David:
Scott and Mindy, what are some of your hobbies?

Mindy:
I love to road cycle in the summer, snowboard in the winter, and I like to knit all year round.

Brandon:
Why have I never received a knitted item from you, Mindy? I’m actually kind of offended right now. I don’t have a hat.

Mindy:
Do you or do you not live in an area of the world where it’s 85 degrees every single day? I’ll send you a sweater. I expect you to wear it.

Brandon:
82 in the winter, 88 in the summer.

Mindy:
I expect you to wear that sweater.

Brandon:
I’ll wear it every day. Scott?

Scott:
I’m a reader. I enjoy video gaming from time to time, and I play rugby.

Brandon:
What’s your game? What’s your video game right now?

Scott:
I’m back into Halo, actually. Reliving the middle school days.

Brandon:
Yeah. I was going to say, “What is this? 2003?” I’ve been into Star Crash lately.

Scott:
There you go.

Brandon:
All right. Last question from me. What do you think separates successful real estate investors from those who give up, fail, or never get started? Mindy?

Mindy:
People who make a plan instead of jumping in with both feet, people who intelligently plan out their business instead of treating their investments like a game.

Scott:
I’ll say a system of you’re building your vision, creating goals, backing into them on a monthly or five year, three year, one year, quarterly, monthly, weekly, daily cadence, and updating them every single day. I think that’s the most powerful thing you can do. Not everyone has to do that, but I think that’s one very, very powerful tool that I’ve used to create effect over the years.

Brandon:
All right, guys, that was amazing. Thank you so much. Everyone go check out their book. What’s it called again? First-Time Home Buyer, or is it the?

Scott:
First-Time Home Buyer.

Brandon:
I kept saying the.

Mindy:
The complete playbook.

Brandon:
No the, just First-Time Home Buyer. Check it out. Thank you guys for joining us today. It’s been fun. Everyone go listen to Scott and Mindy over on the BiggerPockets Podcast as well. It is a phenomenally good show, and you guys do a good job getting some amazing guests to help people get their financial position better. Thanks, guys.

Mindy:
Aw, thanks, Brandon.

Scott:
Awesome to be on the OG show and share all this, so we appreciate it.

David:
Thank you, guys. This is David Green for Brandon, don’t hate the player, but hate that he calls it a game, Turner. Signing off.

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

 

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In This Episode We Cover:

  • What will 2021 hold for real estate investors and first-time home buyers
  • Is appreciation or cash flow a better metric to measure
  • How to have a primary residence that sets you up for long term wealth 
  • The 5 steps to finding a great deal on a primary residence 
  • Looking at the market even when you’re not ready to buy
  • What people get wrong when they buy a home
  • And SO much more!

Links from the Show

Books Mentioned in this Show:

Connect with Scott and Mindy