3 Steps to Start Investing in Real Estate + 2024 Mortgage Rate Predictions

Ashley:
This is Real Estate Rookie, episode 356.

Tony:
Today, we have the data deli himself, Dave Meyer. You guys might know Dave. He is the host of the BiggerPockets on the Market podcast. He’s the VP of Digita at Bigger Pockets, and just an all around really awesome and intelligent guy, and I love talking to him. Today, he’s got a new book out. It’s called Start with Strategy. We’re going to talk a little bit about how strategies should be played into your journey as a rookie real estate investor. Guys, this is probably one of the most overlooked things I’ve seen rookies do, so make sure to pay attention in all of today’s episode, because you’re going to get some good stuff.

Ashley:
As always, I’m Ashley Kehr, joined by my co-host, Tony J. Robinson.

Tony:
You’re listening to the Real Estate Rookie podcast where every week, twice a week, we bring you the inspiration, motivation, and stories you need to hear to kickstart your investing journey.

Ashley:
Today, we’re going to learn that investing is more than just running analysis. Today, we’ll get into three of the five things you need to evaluate when you are starting in real estate, or maybe you need to even re-evaluate to hone in your real estate strategy. So, this will include personal values, transactional income plan, and a resource audit. Have you guys done any of those before? We may even have a little bit of time to get into some market predictions from our favorite data wrangler to see what he has in sight for 2024.
Dave, welcome back to the show, and Happy New Year.

Dave:
Thank you, Ashley, Tony. Happy New Year. It’s great to be here.

Ashley:
Is this maybe your third time on the show with us? Maybe even more. I think you’re one of the few that has been on several times with us.

Dave:
Yeah, I think I have. It’s been a long time though. I feel like it’s been a year or two since we’ve done this, so I’m glad to be back and talking about this topic, which I think is particularly useful for rookies. So, I think this will be a great discussion.

Ashley:
Dave, part of the reason you are here today is because you have a new book out too. So before we get any further, I’d love to just hear a little bit about your book.

Dave:
The book is called Start with Strategy. The basic idea is to help real estate investors develop a business plan for the real estate investing business. We call it investing, but as everyone who’s getting into this knows real estate is really entrepreneurship. Just like any business person, anyone who’s starting a company, you need to have a strategy and a plan that you’re going to follow not just for your first year, but figure out what goals you’re aiming for in the long run, and work backwards to decide how you’re going to get there. The book is a framework. It’s super interactive, but also provides a lot of background context on how every individual, no matter what experience level you have, can come up with a strategy that’s personalized to you and your preferences, goals and all that.

Ashley:
Dave, do you have maybe a story that you can share with us as to a reason as to maybe why you decided to write this book, or why it’s important to start with strategy? Why did you even think of this?

Dave:
I think we all experience this in real estate, where you get overwhelmed by how many amazing choices there are. There are so many good ways to invest, and it’s hard to pick. I think I see this all the time, both I’ve experienced and see with other investors, that you don’t really know what to do first because you don’t necessarily know where you want to end up. I have experienced this quite a lot in my life. When I was right out of college, I wanted to do so many different things with my life. I wanted to travel and be a backpacker. I thought about going into finance. I wanted to be a ski bum, and I was really struggling to figure out what to do next, because I didn’t really have an idea of what I wanted my life to be in the long run.
Actually, I went out to breakfast with my grandfather, and I was explaining him my young angst about not knowing what I wanted to do with my life. He asked me a really simple question. He was like, “Well, where do you want to end up?” I was like, “I don’t know. I’m just trying to figure out what to do tomorrow. I don’t know. I don’t want to think about a year from now or 10 years from now.” He is like, “Well, you’ve actually quoted this thing from Alice in Wonderland,” but he basically said, “If you don’t know where you want to go, then your next step doesn’t even matter, because you don’t have a destination in mind, so what route you take is irrelevant.”
I’ve thought about that a lot over the last few years, and really worked on figuring out what my long-term goals are, and then working backwards into the strategies specifically in real estate that work for me. So, I asked him, “What should I do next?” He pulled out some old Alice in Wonderland quote, and basically said… I’m going to butcher this, but paraphrasing it, basically said, “If you don’t know where you want to end up in your life, it doesn’t really matter what you do next, because any path will lead you to somewhere. Unless you have a destination in mind, it’s really irrelevant.” I’ve thought about that a lot throughout my life, and it’s guided a lot in my decisions, but I think it’s true in real estate as well where people want to figure out, “Do you want to flip houses? Do you want to be a rental property investor? Do you want to quit your job?”
When really all of those answers, you can’t really come up with answers to them unless you have an idea of where you want to be at the end of your investing career. That’s what inspired me to write this book was helping people figure out what they want, and then plan backwards.

Tony:
Dave, I think you bring up a really good point, and I want to comment on that. First, I just want to clarify the quote, because I think it’s such a good quote. I actually looked it up right now. Alice says… She’s talking to the Cheshire cat. She says, “Would you please tell me which way I should go from here?” The cat says, “Well, that depends on where you want to go.” Alice says, “I don’t really care where I go.” The cat says, “Then it doesn’t matter which way you go.”

Dave:
Thank you. Thank you. My grandfather would be very proud. Happy that you actually got the quote.

Tony:
I think it’s such an important thing, Dave, for rookies to understand, because you are inundated with all these different options when you first start. There’s different asset classes. There’s single family. There’s small multifamily. There’s large multifamily. There’s storage parks. There’s everything else you can think of. Then within those, you can flip. You can wholesale. You can hold long-term. You can do turnkey. There are so many different strategies, and I think what most people get caught up on is that they want to try a little bit of everything, which maybe isn’t bad to begin with just to see which makes the most sense for you. But I think after a time, you’ve really got to dig deep into one strategy to get good at that thing.
The goal is that it does align with your long-term goals of where it is you want to be. I always tell people, “When you’re investing in real estate, you’ve got to look at what your motivations are. Is it cashflow? Is it tax benefits? Is it appreciation? Is it you want to just have a vacation home, and someone subsidizes the cost for?” All those things tie into what strategy makes the most sense for you. So I guess for you, Dave, after you had that conversation with your grandfather, what was the realization you had about what does Dave want out of real estate investing?

Dave:
It took me a while, and ultimately, when I was maybe 22 at the time, I felt very conflicted about two different paths in life. Part of me really just wanted to be a heated nest. I’d like to ski, and I just like to hang out with my friends, so I wanted to do that. The other part of me has a lot of frankly just financial anxiety, and so I really wanted to make a lot of money to have more stable income. I felt very torn, and ultimately just decided that my goal for my career in life was to find a way to do both. I really was dead set on having fun, having great relationships with my friends and family, but still making money and not making a trade-off, because it’s easy to make a trade-off.
If you want to make a lot of money, you can work a lot of hours, or you can just have fun, but that comes with financial consequences. So, I set out to find a way to do this, and then I discovered real estate investing, and I was like, “This is the way that I’m going to do it. It’s a perfect way to strike the balance between living a life that you actually enjoy, and providing yourself and your family with financial security.” That’s what got me into real estate in the first place.

Ashley:
You just mentioned having some anxiety. How does that actually play into making that decision?

Dave:
I mean, I think I just ultimately… Realistically, my upbringing, my parents were fine financially for a while, and then it all exploded and melted down very quickly for my family, and put us in a difficult situation for a couple of years. That just stuck with me, and I always had this feeling that your career could go away. My dad lost his job for a while, and I just didn’t want to be in that position. It always sort of stuck with me, and I was always hustling and trying to make side businesses, and working two jobs in college and after school even. That was great, because it made me feel better about my financial situation, but I also was in my early 20s, and wanted to do stuff.
So, I felt like I really needed to find a better balance, and not just only focus on this financial anxiety that I have, and find a healthier way to deal with it than overworking.

Ashley:
We have to go into break here, but real quick, where do we actually start with this? What is the starting point? You had mentioned you need to know where your destination is. What would you call that starting piece? If we’re on the game board of we’re playing some Alice in Wonderland board game here, and we’re trying to pick, I’m envisioning Candy Land in my head. Which way do we want to go? What is that first step, that goal, that destination, the big Candy Land castle? What do you call that, and how should everybody be looking at that as their first step?
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Okay, welcome back from our short break. Dave is going to get into your first step. We had mentioned playing the game Candy Land. You’re trying to figure out your path. There’s the Candy Land castle at the end. What is that? What is the game piece? What is the first thing that you need to decide and build out and plan before you can actually build out your whole strategy? Dave, what would you call that piece?

Dave:
For me, the whole place, the destination you’re trying to achieve is what I call a vision. I try and re-craft this every single year, try and make sure that I’m still pointing in the right direction, but there are subcomponents of vision. You have financial goals. You might have what your job is going to be, some professional goals, but for me, the first thing I always reevaluate is what I call my personal values. I know this doesn’t necessarily sound like real estate investing, but I think it’s super important to figure out why you’re investing, and why you’re doing this in the first place, and what you actually value in your life.
This is common in businesses, right? We don’t talk about it as much in real estate investing, but every Fortune 500 company has values. They have a mission statement, and so I encourage people to do that for themselves. It’s something I do for myself by creating or tweaking my own personal values each year to make sure that everything I do in real estate or really in my whole professional life is aligned with the life that I want to live.

Tony:
Ash, I know for me, I probably haven’t done a good enough job of creating a value statement, I think, for my real estate business. Have you put any thought into that, Ash?

Ashley:
I actually had a consulting company that I was working with last year that helped me with doing a little bit of planning and writing out my mission statement and the vision for the company, because we were hiring for a couple of virtual assistants. It was the thing that I procrastinated on the most.

Dave:
It’s really hard.

Ashley:
Out of all of the stuff that I had to get to them, that was the thing. They’re like, “You know what? We’re going to send you this form. Just fill out this form, and we’ll help you do that, and even fill them.” They pieced it all together by doing a really good job of asking me certain questions that could help them understand, “Okay, we think this is what you would want your mission statement to be.” Then I would read it, and tweak it, and change it a little bit, but that helped me. But as far as sitting down and drawing a blank board, or Googling other companies’ core mission statements, their values, what are their five pillars? Always been very difficult for me to do that, because I’m just like, “Just sit down and do the work.”
I don’t care, whatever company culture, things like that, but I know that it is really important, and things that you should do. I definitely learned a lot last year doing it with that consultant.

Tony:
I guess, Dave, what’s your guidance for that rookie investor who’s maybe never taken the time to sit down and think about values? How does one even come up with that list? Is it 50 values? Is it five values? Just walk us through maybe some tactical secs and actually putting that together.

Dave:
Sure. Well, first, I’ll say I definitely identify with this. I came across this idea of personal values from an executive coach that I worked with for a few years, and she was like, “You have to do these values.” I was like, “Man, I’ve got so many other problems to deal with. This is the last thing I’m going to do.” Finally, after maybe six months of nagging me, I sat down and did it. It’s honestly changed my life maybe more than any other professional thing I’ve done. I know that sounds strange if you’ve never done the exercise, but the way my coach, Lauren, had put it to me was, “Your values are the things that you can’t live without in your life.”
So, she encouraged me to come up with no more than five personal values, and you really… It’s hard. You really have to think about it, but she gave me a list of basically words. It was 50 words. This is in the book. We have a template for it, but circle any words that resonate with you that are important to you. Then you basically go through this pruning process of narrowing down what things are really important to you. It’s hard, because everyone wants to… Most people aspire to have a lot of these things. They’re words like honesty, integrity, trust, adventure. Those all sound pretty good. But as we all know, as human beings, you have to make trade-offs.
You can’t be everything, and so you need to narrow down what you want. Ultimately, I was able to get it down to five things that are super important to me. I use that, yes, in real estate investing all the time, and I’ll explain that in a minute, but I just use it in my job. I use it in my friendships and how I choose to spend my time every day. I can just share them with you. For me, the five are growth, just like personal growth, adventure, freedom, mental and physical health, and meaningful relationships. I look back at those all the time. If I think about, “Do I want to write another book?” I have to decide like, “Is that going to impede on any of my values, or is it going to support my values?”
If I decide, “Do I want to flip a house,” is that working in alignment with the things that matter to me in my life or not? It really just has helped me improve my decision-making skills a lot, and that applies to real estate for sure.

Tony:
Dave, I appreciate you sharing that. One question that it makes me think of is do you always feel that those values are an equilibrium where they’re always perfectly balanced, or do you find yourself going through seasons where maybe you prioritize one value over the other? Because that’s something that I’ve found as I’ve progressed in life and in entrepreneurship and in business is that sometimes you have these seasons where you can really focus in on one piece of your life, and there’s other seasons where you got to shift that focus towards something else. So, is your goal to always keep those perfectly balanced or just to be within range, but sometimes you got to shift resources and priorities?

Dave:
That’s a great question. I wish it was easy to do all of them, and keep them all in balance, but I think it’s unrealistic. I think the key is to… If you’re going to live outside of some of your values, that it’s a conscious decision. Sometimes I’ll prioritize work, and that means I’ll have less adventures, or maybe I’ll spend a little bit less time with my friends for a couple of months, but that’s a decision I’m making to pursue another one of my values, or something else that’s really important to me. I’m not just letting this happen to me, and just making decisions willy-nilly based on whatever opportunity comes up. Because like you said, it’s impossible, but I think it’s important to know, “Okay, I’m going to take a step back from this,” but knowing that to live the life you want, you have to get back closer to equilibrium at some point.

Ashley:
Dave, you had also mentioned that one of those beliefs that were important to you was personal relationships. So, how does this impact your investing, your personal core values per se?

Dave:
The way it mostly impacts me is that I actually pretty significantly limit the amount of time I’m willing to spend investing in real estate. I know it sounds silly for someone who does this for a living, but I work full time, and so my real estate investing portfolio is above and beyond my job at BiggerPockets. I find that if I were flipping houses, or doing BRRRRs, or really trying to grow my portfolio as quickly as humanly possible, I would run out of time for the meaningful relationships that I want to prioritize. So, actually, we can talk about this later, but for me, my goal is 20 hours a month on my portfolio or less on average. That, for me, gives me enough time to pursue the meaningful relationships that I have outside of real estate.
Now for some people, that could mean being close with the people you work with. I live in Europe, and so I almost exclusively invest passively. I don’t have a lot of opportunity to build meaningful relationships with the people I invest in real estate with. So, I need to limit and compartmentalize my real estate investing so that I can find those meaningful relationships elsewhere in my life.

Tony:
All right, guys. Dave, so much good information that you’ve shared already as expected, but coming up, we’re going to cover how to audit your personal resources. But before we go there, Dave, can you tell me what exactly is a transactional income plan, and how does that add to this vision that you’ve talked about so far?

Dave:
Transactional income is just a source of making money that’s outside of investing. So, a job is basically transactional income, but there are types of real estate that are transactional as well, like flipping a house, or being a real estate agent for an example. I think one of the things that I struggled with early in my career, and I see a lot of rookies struggle with is trying to figure out what they’re going to do and if they should make real estate investing a full-time job. To me, it’s super important in your vision to figure out whether or not you want to make real estate a full-time job, or it’s going to be something you do on the side, because that will really help you narrow down the options that you have as a real estate investor to just the ones that make sense.
Some are easy, whether you work full-time or not. Others really only make sense for people who are full-time into real estate. I think making that distinction is very important and helpful for setting your strategy.

Tony:
Dave, one thing that makes me think about, so many people in our rookie audience are focused on walking away from their day jobs, and understandably so, but I think some people almost get too excited about that idea sometimes. They lose sight of how important that transactional income is to their goals of building their real estate portfolio. It makes me think. Someone shared this analogy with me before, but have you guys heard the term escape velocity? It’s like you have to travel at a certain speed to break Earth’s gravitational pool, and if you don’t travel fast enough, you’ll get to a certain height, and then earth is just going to pull you back down.
It’s a similar concept for real estate investing. If you step away from your W-II job too soon, you haven’t yet reached the speed to reach escape velocity. You’re just going to pull back down to reality. I’ve seen people, I’ve met people who have maybe pulled the trigger too soon, and then they have to go back out into the workforce again, because they weren’t quite ready to step aside on their own. So, there’s a lot of benefit to keeping your day job. I think the goal is to get to a point where you’ve 1.5x or 2X what you need to survive on before you pull that trigger.

Ashley:
Even then if you have hit that 2X, that 3X, whatever that amount is if you’re able to do both things too, and you enjoy your job, and you enjoy being a passive investor, then that’s something you can do too. I think there is that big misconception of, “I haven’t reached financial freedom until I’ve quit my job.” Well, no, that’s not true. You can still make it as a real estate investor, and still carry on a W-II. That’s even more impressive if you’re able to balance out both than just, “You know what? I have to quit my job, because my properties are so overwhelming. I need to manage them, and take care of them.”
So yeah, I agree. I think that’s a common misconception is that you need to build your real estate, and then quit your job, and then you’re free, and everything’s wonderful and great. But in the U.S., one thing is health insurance. That’s actually an incredible difficulty once you become an entrepreneur, and you don’t have that anymore. So, it’s not always just the pay. It’s the benefits too.

Dave:
I think you both hit on really important topics here. I think it’s really just comes down to what you want out of life, because I think most people say, “Oh, I want to quit, so I can work on real estate full time.” That might make sense for you, but you have to recognize in 90% of those cases, you’re just trading one job for another job. So, you’re trading your W-II job for working at real estate full time. I am making presumption, but both of you work in real estate full time. I’m sure it still feels like you have a job, right? So, it’s really up to what provides you… To me, it’s just two questions. What provides you with more resources, and what provides you with the most fulfillment?
Because if you have a job that you don’t like, but it gives you a lot of money to invest, or a lot of time to invest, or skills that you can bring to your portfolio, you may want to stay in your job, or even if you just really like your job, and you’re fulfilled by it, that’s a trade-off that you might be willing to take. So for me, I only recommend people quit their job and go into real estate full time if it will move them up on one of those spectrums. Is it going to improve the amount of money you’re going to make, or the time that you have to invest, or is it going to make you feel more personally fulfilled? Then you might want to consider it, but don’t just do it, because people on Instagram are doing it, and make it seem like that’s the ultimate goal of real estate.

Tony:
Last thing I’ll say about the personal income piece is that what I’ve found, what I’ve seen from other folks is that the fastest way to grow your real estate portfolio, unless you’re doing creative finance, or you’ve got capital partners, but if you want to use your own money from your own W-II job is to grow the amount of money you make in your day job. Oftentimes, the fastest way to do that is to leave to another company. I know for myself, I got, I don’t know, like a 45% pay increase by going from one company to the next. It’s crazy to think that someone who’s never seen you work before is willing to pay you 45% more than a company you’ve been at for years, but that’s typically the case.
There was this study. I can’t remember. I wish I knew the exact numbers, but it looked at people who job hopped every 24 to 36 months versus someone who stayed at the same job. They lined those people up after 15 years, and the people who job hopped made exponentially more than the people who stayed at the same company. So if you’re looking for a way to shovel, then focus on maybe looking at a new position with a new company.

Ashley:
Didn’t they say that’s the problem with the-

Dave:
Yeah. Can we tell that to BiggerPockets? It’s like they always reward the new customers. They’re like, “Come to Verizon, and we’ll give you a new cell phone.” You’re like, “I’ve been here for years. Give me the new cell phone. I’ve been coming here forever.” It’s like the same idea with jobs. They need to incentivize people to leave something that’s comfortable a lot of the time. So, it makes sense. I think the other thing in addition to making more money too is if you want to grow your portfolio, but you’re working 70 hours a week, can you find a job that maybe you make even the same amount of money but you work 40 hours a week? That opens up a whole lot of time where you can be looking for deals, or networking, or doing all this other stuff that could help grow your portfolio.
I just think thinking critically about your job and how it supports your investing is really important. It’s not just how quickly can I leave it? It’s, “Is this helping me get to ultimately where I want to go” For some people, the answer might be, “Yes, you should quit your job.” If your vision is, “Hey, I want to leave my job in five years,” you can make that happen sometimes. Some people can make that happen, but if you know that, “Hey, I want to keep working for 20 more years,” that’s going to open up so many more real estate investing strategies to you. You can take on more risk. You can think more long-term. More markets are going to be available to you. So, knowing where you stand on that spectrum will be super helpful.

Ashley:
We’re going to take a short break real quick, and then we’re going to be back and just follow up talking about a resource audit and what you can do today. Then we’re going to go into a little bit of 2024 predictions.
Welcome back to the show. Dave, the third thing that we wanted to finish up here and talk about is doing a resource audit. So, what is this that something somebody can implement today? Maybe is this something you’re going to continuously do throughout the year or maybe once a year?

Dave:
Resource audit is basically looking at the various resources that you have today to contribute to your portfolio. This is really just helpful in figuring out what you should do next. As we were talking about earlier about, money or capital is obviously a very important resource for real estate investors. It is a capital intensive business, and so knowing how much capital you have is super important, but one of the things I personally love about real estate investing is that you can get by or get started. Even if you don’t have capital, there are other resources like time and skills that you can contribute to a portfolio to help you get started. As long as you have one of those three things, you’re able to build a portfolio.
Just a small example, when I got started, I had no money. I had no skills, but I had a lot of time, and so I used that time to go find deals. I used it to self-manage a property that I basically only earn sweat equity in and that was able to get me started. So, even if you’re new and thinking, “I want to get into real estate in 2024, but I don’t have a lot of money,” figure out what you do have, because there are things that you can contribute. If you have time or skill, like I said, you can find ways to use those resources to get into real estate, but for me, the first step is just figuring out what you got.
You got time. You got skills. You got money. If you don’t have any of them, it’s going to be hard, but if you have at least one of those three, there is a path forward for you.

Tony:
Ash and I talk about this in our book, Real Estate Partnerships, where every real estate deal, it’s like a puzzle, and certain people have certain puzzle pieces, and they’re missing other puzzle pieces. So if you have time, if you have the ability to analyze deals, maybe you’re lacking capital, or maybe you’re lacking the ability to get approved for a mortgage, go find someone else that can plug those pieces in for you, and then the two of you work together to take that deal down. If the inverse is true, where maybe you have the capital, you have the ability to get the debt, but you’re a physician who works 90 hours a week or something crazy like that, and you know you don’t have the time, go find some young college kid who just graduated, or something like that who’s got an abundance of time that can do that legwork for you.
So, it’s all about finding that puzzle piece that matches with what it is you’re missing as a real estate investor.

Dave:
That’s such a good analogy. It’s so true, and it changes over time. If you start without capital, that’s okay. You just hustle and learn some skills, use your time. For most investors, I find that that’s how almost everyone I know started is they didn’t have a lot of money, but they just hustled their way into it. Then over time, as you have more capital, usually, you buy other people’s time, or you buy their skillset to help you grow. So, that’s why I think it’s useful to do this once a year. Just be like, “All right, now I have less time than I used to have, but I have more capital. So, given that reality, I need to change my portfolio in X, Y, Z ways.” So, it just helps you figure out what to do next.

Ashley:
Dave, how do you evaluate those skills for yourself? When you’re looking at yourself, what skillsets do I have? Is there a way to do an evaluation on yourself?

Tony:
Just to preface that, I think it’s such an important question, Ash, because a lot of rookies, they’re not self-aware as to what value they bring. So, I think this is going to be super practical advice, Dave.

Dave:
Oh, good. I think this is… Again, I agree with you Tony. This is one of the things that most people overlook, because there are a lot of skills, and I think… Basically, in the shortest example, I have a list of skills. I have one in the book, but you can really look on BiggerPockets. I’m sure there’s other places of lists of skills that you need. I think the two important things to think about are, one, how good am I at it today? Two, how hard would it be for me to learn this skill? I think that’s the one that people really overlook, because it’s easy to start and be like, “I’m bad at all of these, and I’m going to try and learn all of them.”
That is where so many people go wrong. I went deeply wrong here. I was like, “I’m going to be super handy. I’m going to start building staircases, and drew in drywall.” I’m so bad at it. I am just awful. There’s no reason I should spend any time doing that, and so I go through these lists, and just say to myself just as an example, finding deals, that’s something I’m okay at. I’m not great at it. I know people who work full-time in real estate who are much better at that than I am. I have a network, so I’m not going to probably do that much time like learning how to do outreach to off-market deals. I’m going to rely on other people to do that.
For deal analysis, that’s something I’m good at, and that’s something I’m going to contribute to my portfolio. When I talk about finance and tax, that’s actually something I have professional experience with, but I hate it, so I’m going to pay someone to do it. I don’t want to learn how to do it. I think it’s just really important for people to be realistic about, one, there’s a lot of things you need to do that need to get done, let me say. You don’t need to do them, but that need to get done for a real estate portfolio to be successful. You do not have to nor should you do all of those things.
So, I think it’s really important to just focus on the ones that you like and that come easily to you, and to outsource the other things. It will save you a lot of time in the long run. Honestly, it might seem like it’ll save you money to try and do everything yourself, but take it from thousands of investors who have tried to do everything themselves. It does not save you money.

Ashley:
I can definitely relate to that too. Dave, I do have a question though as far as when you’re picking your skillset and the things you actually are going to do for your first property, your first business, whatever it may be, is there a preference you have, or a way to differentiate choosing between something you want to do but maybe know nothing about, and have to take the time to learn or something that you do know but you don’t want to do it? You had mentioned finance and taxes. You know that stuff. You could do it but you hate it, but maybe compared to doing drywall, whatever, you’re actually super passionate about it.
You want to learn it. It would be fun to get your hands dirty, but it’s going to take you longer. You’re not going to do as good of a job of doing it as someone. So, is there any kind of balance where maybe you should do something you hate doing, because you do know it? I guess, just what are your thoughts on that as far as putting a value add to what your skillset is?

Dave:
That’s a great question. I think it comes down to what other resources you have, because if you don’t have a lot of capital or time, and you’re really relying on your skillset to grow your portfolio, you may have to contribute something you’re not good at. I can imagine or know people who are contractors who don’t really like it, but they want to get into real estate. It might be a good way for you to get in to use your skills as a contractor at the beginning while you build up those other resources. So, I think there are things like that. I also think there are certain skills that every real estate investor just needs to have at least a baseline of.
To me, I call it portfolio strategy, but that’s just what we’re talking about here is, one, just understanding where you want to be and how real estate can get you there, I think, is super important. Deal analysis, everyone needs to be able to do at least a basic level of deal analysis. You can’t really outsource that. I do think networking is also another skill that people overlook that you can’t outsource. You can’t have someone make relationships on your behalf. So, I think there’s certain things like whether you like it or not, you probably should learn those skills. Whereas things like taxes or property management, those things are easily outsourced.
I guess that’s another way you could look at it is taxes, property managers, lawyers. Those are all things, contractors. You can hire those people easily. Could you hire someone easily to analyze single family rental properties for you? Probably not. I think that it’s probably just worth learning for yourself. So, I would think about it that way.

Ashley:
That’s great advice. The one thing that I would add to it too is your own time and the value on your time. If you’re considering,,, you say you have your W-two. You have a side hustle, maybe a remodeling business, so you could go and you could stop remodeling for other clients. You could go and you could work on the house that you’re flipping yourself. Well, what is actually the time value trade-off on that? As a contractor doing luxury remodels, are you making $100 per an hour? But if you go into your own flip, and you do the math, and after three months of flipping this house, you only ended up making $50 an hour, so would it been more cost-effective to actually just hire somebody else out to do it, and then you go and maintain doing your flips, and then you ended up netting the same amount, $50 or whatever it may be, because they were able to work all day, and then ended up selling the property in a month instead of the three months, because you had to do it at night?
Things like that too, I think, are important to take into consideration as to your time value. That even goes back to quitting your job. Are you going to be working more hours but actually making less being a real estate investor, because you’re spending more time on it than what you would if you would actually go to a W-2, and you could hire out?

Tony:
A lot of times, Ash, I think, does come down to the numbers and what makes more sense as you lay everything out. I think the mistake that a lot of rookies make is that they just go with their gut, and they don’t really back it up with a deeper analysis here. One thing I just wanted to comment on, Dave, you mentioned being able to outsource the networking. I actually read in this book, and it was called… I think it was called Book Yourself Solid. It was an old marketing book that I read years ago, but he actually did have this process for outsourcing some of his networking, where he had someone on his team that every month, they would just send out emails to people in his database or whatever it was. It’d be something simple like, “Hey, Dave, see you got a birthday coming up this month. Hope all is well.”
Then when they replied, he would reply himself, but he had his team going through and send an emails through his inbox for these different little things, and he would just reply when those came in. So, super ninja trick and probably beyond what our rookies are working on right now, but it could be an easy way to build that out. All right, what I really want to talk to you about, Dave, and what I’m most excited to hear your thoughts on are your predictions for this year. Obviously, 2023 was a crazy year for real estate. We came off this high that we saw in 2021 and early 2022 where interest rates peaked to their highest in decades.
I know I lost money on a flip, I have friends who lost money on flips. We have commercial real estate is going through this crazy cycle. What are you seeing for 2024? I guess first what I’ll ask you is where do you think interest rates are going to go? Are they going to hold steady? Are they going to go up? Are they going to come down?

Dave:
Oh boy, my favorite topic. Let me just tell you, I actually did very well in interest rate predictions in 2023, and very poorly in 2022. So, let’s take that with a grain of salt just so everyone knows. My general feeling is that interest rates are not going to move as much as people think. They’re in the high sixes as of this recording. I’m going to give you a broad guess and say I think they will end with the first number still being a six at the end of this year is my guess. I’m hopeful that they might come down into the low sixes, but I just want to explain that a little bit. We hit about a high of 8% average 30-year fixed mortgage rate in October of 2023.
They’ve come down a little bit. As bond yields have fallen, the Fed has signaled that they’re going to cut rates next year, and that’s encouraging. All of that is very encouraging. The thing is the market, mortgage companies and bond investors who really set mortgage rates are already pricing those things in. So, a lot of the declines that we are expecting or that the Fed is signaling are now priced into mortgage rates, and so we’ve already experienced some of the benefit of what is planning to happen next year. If the Fed stays on course and does exactly what they said they’re going to do, which let’s talk about their track record over the last three years, never happens. So if they do that somehow, then we will probably have mortgage rates right where they are right now, but the Fed…
This signaling is exactly that. They’re not saying they’re going to do three. They’re very data reliant, and so they’re going to change things as they need to, and as inflation and the labor market change. My guess is they will cut rates a little bit, but we just don’t know. So, I think it’s a little early to say that rates are going to get down as the fives. Hopefully they do, but I think that’s a little early to say. My guess is that they’re going to be more stubbornly high than, I think, a lot of people are hoping for.

Ashley:
So, we should buy a house right now, or we shouldn’t?

Tony:
That’s what I was going to hit on too, Ash, because I think what a lot of people are doing right now is that they’re waiting to buy that first real estate investment, because they want to see rates come down to whatever rate. But my thought is that once rates dip, it’s going to be a bloodbath, because you’re going to have so many people that are sitting on the sidelines jumping back into the market, and we could get to a point where people are going 10K, 100K over asking again like it was a few years ago. You can always refinance your rate, but you can’t refinance your purchase price. I can’t go back to the bank, and say, “Hey, I know I bought this for 300,000, but can I actually rebuy this today for 250,” and the bank’s like, “Okay cool.”
So, Dave, what’s your advice to the rookies? Should we be waiting for rates to fall? Should we be pulling the trigger today? What’s your thoughts on that?

Dave:
I generally just don’t believe in timing the market. That’s just like I study this full time, and I don’t know what’s going to happen. I just want to make that very clear. So, I believe more in just buying when you have the time and the financial resources to do it, because at least if you’re like me and investing on a 10 or 20-year time horizon, then you’re probably going to be fine whenever you do it. I do think, Tony, there is some wisdom to what you’re saying that prices… I think there is a good chance that if we rates fall, we’re going to see a very significant increase in competition. I think that is one of the more likely outcomes for 2024.
Not necessarily will happen, but I think there is a good chance that happens. So, buying now when rates are they have come down is wise. I also just think when people talk about “rates coming down,” I find that people have wildly different expectations of what that means. I’ll just say this, I think if we ever see mortgage rates in the three percents in our lifetime again, that I would be surprised, and something will have gone terribly wrong with the economy. I just don’t think that’s going to happen. So, could they come down to the fives? Yes, but realistically, they’re going to come down slowly. So, you have to think about what’s your strike price? Okay, they’re at six and three quarters now. You’re waiting for six a quarter. You’re waiting for five and a half. You could be waiting two years for that.
During that time, who knows what could happen to the housing market. So, I just think ultimately, rates, they do matter. It is important, but they’re on, I would say, a positive trajectory now where we’re probably not going to get back up above maybe in the low sevens. So, if you find deals that make sense, you should go for them. Then if rates happen to go down, you can refinance. I think the two things I always say to people is, one, don’t count on rates to go down. If your deal doesn’t make sense, and you’re like, “I’m going to buy it, and then when rates go down in six months, I’ll refinance. Then my deal will pencil.”
I don’t generally recommend that, because no one knows if rates are going to go down. It’s something that’s outside of our control. The other thing is if a deal makes sense with high rates, then it’s going to make even more sense in low rates. So if you can find a deal right now, you might as well buy it, and then it can only go up from there.

Ashley:
I think where some people got into trouble and could get into dribble is where they’re over leveraging themselves, and then they’re at the point where they have to refinance somehow, or they have to put financing on the property, and when they ran their numbers at the property having a 4% interest rate, and now all of a sudden they have to actually get an 8% interest rate. That has caused a lot of trouble the last couple of years, especially now if somebody went and they were rehabbing a property for a year, and now they’re trying to go and refinance, and the rate is very different from when they bought it. In New York state, here, it can take you three months to actually close on a property, and that’s normal window of time.
So, those three months, if you were buying a property the end of 2021, and then didn’t close until 2022, even right then was starting to make a difference, then you have to rehab your property, and then the rate increased. So, the best thing you can do is make sure you have multiple exit strategies on a property that you’re not over leveraging yourself. You have some kind of backup plan if you are going and needing to refinance. Like Dave mentioned, he’s long term buy and hold most of his investments, where he’s not worried about having to go and refinance and get a rate. If the deal works, the numbers pencil, the day that he’s buying it, what it’s at and what his interest rate is, great. That’s awesome.
You could always go and refinance for that lower rate, but you’re not at risk of having to be told, “Sorry, you’re going to have to pay this higher interest rate.” There’s also five-year arm loans or even seven-year arm loans where your mortgage is fixed for a certain amount of years and then it becomes adjustable. That’s where other people will get into trouble too is that they got this lower interest rate for the first five years, and then when those five years are up, it’s going to adjust. So, we actually did that on one property, where it’s a seven-year arm, and for seven years, it’s like 5.12%, which is a great rate. We got this a year ago, great rate at that time. In seven years, that interest rate could go up to 13%. It has a max of 13%, and then I think a floor of 6%.
That would make just a tremendous difference in someone’s mortgage payment if all of a sudden they haven’t planned for that year seven, and they have to go and refinance, or it goes to that adjustable rate. But even if you’re going to refinance, you’re most likely going to be that high rate too, so having some way to get private money or have the cash to pay that off, things like that. So, you want to look at as to, “Should I invest now because of the interest rate, or shouldn’t I?” It’s based upon what your strategy is, and that’s all basis of today’s episode is start with strategy. So if you’re holding onto that property, who cares?
Like Tony said, you’re going to buy it for cheaper right now with the higher interest rate so that when you go and sell it in 20 years, because you’re ready to go move to the beach, and sell everything, you’re going to have paid less for it than somebody who waited and wanted that lower interest rate, but yet they had purchased their property for more.

Dave:
I think, Ashley, you made a lot of great points. One thing I wanted to second is that people focus a lot on what rates are and if they’re up or down. I think there’s benefits to both, right? It’s more affordable when rates are low. There’s less competition when rates are high. So if you’re a real estate investor, there’s pros and cons of each. For me, the thing I root for, I obviously have no control over things, but if I had my druthers, I’d root for just stability or predictability. I think we’re getting to that point where rates are going to be more stable. That is just what you need to make a decision, because as you said, Ashley, that makes it so that if a deal pencils, and you have to still wait two or three months to close, you have a reasonably high confidence that you’re not going to be looking at a totally different monthly payment than you were a couple of months ago.
Unfortunately for the last two years, year and a half, it’s been really volatile and hard to make decisions. So, even though I’m not sure which way rates are going to go, if they’re going to trend up a little bit, trend lower, I think they’re going to be a lot more stable, and the band of that rates is going to narrow. So, that just makes it easier for people to make decisions. To me, that’s one of the most important things in getting back to a healthy housing market, more than rates going down to 5% or 4%. I think, predictability really matters a lot in the psychology of home sellers and home buyers.

Ashley:
Well, Dave, thank you so much for such incredible insight. We really appreciate having you on the show. Can you let everyone know where they can find your new book, Start with strategy?

Dave:
Absolutely. Go to biggerpockets.com/strategybook. That is where you can find the book, and it comes with all sorts of bonuses. If you actually order it now, but it’s still pre-order, you get a free planner. So, it’s like a journal that goes along with the book, where you can actually develop your own investing strategy and business plan. If you buy that, if you go to biggerpockets.com/strategybook now, you can get that completely for free, which is a great deal. If you use the code strategy 356, you’ll also get 10% off.

Ashley:
Oh, we always love a good discount here on the Rookie podcast. You can use that 10% towards your first investment property.

Tony:
All right, guys, before we wrap here, I just want to give a quick shout out to someone that loves to say five star review on Apple podcast. This person says, “Best real estate investing podcast of all time.” They say, “I listen to this show every chance I get. I can’t wait for the new episodes to air. I always find value in some way, shape, or form. I’m fairly new to real estate investing, and I love when you guys talk about partnerships. You guys always seem to have something I need to hear on a regular basis. I love the podcast. Keep on giving back. I can’t wait to be on your show one day.”
So guys, if you haven’t yet, please do leave us an honest rating review on whatever platform you’re listening to. We’d love to read your review here on the show for the rest of the listeners as well. The user who left that podcast review was Nick@rei216. Nick, we appreciate you.

Ashley:
Thank you so much, Nick. Dave, thank you so much. Another great podcast to listen to is On the Market podcast, so make sure you go check out Dave and his crew as they talk about current and up-to-date information that you need to know as a real estate investor. Today’s episode was amazing, and we learned all about starting with strategy. We went over three of the five things that you need to start. The first thing was personal values. Second was transactional income plan and how to present that, and then also completing a resource audit on yourself.
Well, I hope you guys are an amazing new year so far. I’m Ashley, and he is Tony, and we’ll see you guys in the next episode.