All I Want For Christmas is a Deal

[Andreas Mueller]

Welcome to the Skeptical Investor weekly article, right here on BP! A frank, hopefully insightful, dive into real estate and financial markets. From one real estate investor to another.

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This week, we’re talkin’ just a simple holiday message for fellow investors, with a sprinkle of real estate and a House Hack project I just finished up.

It was my best investment this year.

Let’s get into it.

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Today’s Interest Rate: 6.25%

(👇.07% from this time last week, 30-yr mortgage)

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The Weekly 3 in News:

• - Bye Bye Zillow? Google is testing new features in mobile search results, showing detailed home sale listings with photos, prices, and tour requests directly within search, without users needing to leave the search page for portals like Zillow. I think this will be game changing, if they can execute (CNBC).
• - Emergency Housing Declaration! - The President is considering issuing an emergency declaration on housing. What exactly? We will find out soon enough (FoxNews).
• - Nashville News: We have new designs for the new Tennessee Performing Arts Center. And it’s looking very avant-garde (CityNextNow).

--------- A Message To Investors

It’s holiday time and my fingers need a break after last week’s tirade on Affordability.

If you missed that article, here link: here.

So today I thought I would just give a quick look at the deal I just finished.

It was just my primary residence.

But was my best deal this year.

Should be insightful.

Project Update: West Meade Nashville Primary

My favorite real estate strategy is the House Hack + Section 121 Exemption.

It’s simple, tried and true real estate. Buy a primary residence. Improve it. Rent part of it out. Then sell it for a full profit, no tax.

Nothing fancy.

As I wrote about at length in my book, I absolutely love this strategy.

In fact, it may be the best and most tax-advantaged way to start investing in real estate.

And I still do it.

I’m a bit of a barbarian.

IRS US Code Section 121

What is Section 121?

It’s simple.

If you have owned your primary residence (where you live 6+ months of the year) for 2 of the last 5 years you can sell your home and not pay any tax.

This is what makes house hacking so powerful.

Now, there are caps. If you are single the first $250k in profit is exempt and it’s $500k if married.

So what did I do?

Let me tell you a (short) story.

Project 2025: The Granny House

In August of 2023, I bought this 1960s granny house in Nashville’s West Meade neighborhood.

An A- class area with homes selling 2-3x+ what I paid for mine.

It was the “ugliest” (not that ugly) house in a fantastic area. An old/established residential area about 20 minutes from downtown.

Just look at that granny kitchen!

And bath.

The Market was Fearful

It’s hard to remember, but at the time, many investors were anxious. Rates were on the incline, and politics was sucking the air out of everything, including the stock and real estate markets.

My loan for this property was 8%.

But I did’t care.

Why?

I bought it right.

House Hacking: What I Looked For.

Here are the top things I look for in my 121 House Hacks:

• - Location. Location. Location. This has been true since the beginning of time, when the hot property was the cave near the river where the salmon were spawning. Always buy your House Hack “In the path of growth,” as I like to say. As Warren Buffett says, you want to buy a great asset at a fair price.
• -Exit Price. Make sure other homes have sold/are selling for significantly higher than what you are buying your property for. What does that mean? Pay 50% or less than other sold comparable renovated homes, aka ARV (After Repair Value).
• -Buy Right. I paid significantly below list price (it was overpriced and sitting on the market stale, my favorite) and just below the median comparable 1-yr sales.
• -Macro Fear. The market was fearful. Rates were ticking up. Stock market was wobbling. Consumer sentiment surveys all showed negative MoM results. We were entering the slower Fall season. Politics was affecting people’s brains. I love this setup for dealmaking.
• -I negotiated my own deal, and a lovely 3% sales commission, repping myself as the agent. I know not all of you want to be an agent so, think of this as a bonus or a type of seller credit. Speaking of which…👇
• - Seller credits. I negotiated a $25k credit at closing, and was happy to pay a little more on purchase, to negate much of my cash out of pocket at closing. This is really important. Getting cash money in your pocket today is far more valuable than getting a similar amount off the total purchase price. Fun fact, for a primary residence conventional loan, there are caps on the credit the seller can give at closing by Fannie/Freddie, but they are generous (investment properties are 1%-2% FYI, much lower. Check with your lender).

Closing credit caps from Freddie Mac

Oh and there was another reason this was such a great deal….

Hidden Gems Below Your Home

Now, normally I would be renovating my House Hack, adding value, generating free equity wealth for doing the work and targeting a sale in 2 years once I had it all buttoned up. As a younger man I would do much of the reno myself, but today, I hire for the big stuff (major electrical, plumbing, exterior paint, structural anything etc…). So if you can, utilize YouTube University and get your sweat on.

But here, I knew my target buyer wasn’t a family.

It was another investor.

It was someone with deep pockets.

It was someone more….sinister.

It was a… Developer!

Spoooooooooky.

Someone who wanted to take my lovely 1960s granny ranch home and turn it from this.

Into this.

And this is exactly the home they are constructing now, on the adjacent lot! The developer who bought mine will do something similar to my old granny house.

House Hack: The Math

The math is super simple, dinner napkin stuff.

I bought this beauty for $650k (plus the extras I mentioned).

Sold for $825k.

825-650 = $175,000.

$175k is less than the $250k cap so, you pay zero tax on the earnings.

Right into the bank account, ready to redeploy on the next deal.

(Plus returning the additional 20% downpayment equity I had in the home).

Not a bad deal.

Any burning thoughts? Let me know in the comments!

Ok, that was fun. Now, some final thoughts.

My Skeptical Take:

I’ll do a 2026 prediction post in the coming weeks, but for now, I’ll just say that all signs are pointing in the ☝️ direction.

I’m bullish going into 2026.

But my skeptical spider senses are starting to flash.

In the next 100 days, I do think we take a little breather (we arelreayd are seeing a bit of one as market exuberance over AI investment is hitting the tech sector, or as the finance folks like to say, a correction.

We have been on such a tear, that it is appropriate that we see a bit of a pullback. This is starting with the stock market and is filtering down into sentiment in real estate. Folks feel less rich and pull back when stocks and their 401k’s are flashing a bit of red.

For investors, this makes this winter a great time to acquire your next deal.

To be clear, any correction, in my opinion, will not be related to an economic slowdown, but rather the opposite. Because there have been such significant gains in the markets this year (unless you are a bond investor😬) fund/asset managers and stock traders will likely do some portfolio rebalancing in January, selling winners, and locking in tremendous 2025 gains. I bet they wait until January or February so they don’t have to pay the tax on those gains for another year (which is why we may be seeing less selling this month than in a normal cycle).

For us real estate investors, I think the setup for the Spring will be there. Aptly timed when another rate cut likely in the offing.

“But, what if inflation does rear its ugly head Andreas…?”

Good for real estate owners. Property values up.

“Ok, well, what if these economic signals are not a sign of a normalizing economy, but of one that may be approaching recession….?”

Good for real estate seekers. Interest rates will plummet and you can refinance that property, lock in 30 years of low interest rates, pull out equity, and buy another! (aka the BRRR method).

But, if you stay on the sidelines, acting fearful and not greedy, you will reap the benefits of neither.

Medium to long term, I can’t hope to be a little giddy, always with a skeptical eye toward the horizon, of course.

So what do I want for Christmas?

A piece of overlooked real estate. An ugly sculpture that others have passed on, but that I can turn into a ruby.

It’s like a tattoo of your ex that you have to get “renovated” into something slightly less traumatizing (Did that analogy work? I feel like it did :).

In 2026 I’m stacking capital, bringing out the elephant gun and going big game hunting.

I’m venturing into the larger multifamily space all by myself. No investors. No crutches.

I know I can do it.

And if you believe it, you owe it to yourself to pursue it.

Until next time. Stay Curious. Stay Skeptical.

Herzliche Grüße,

-The Skeptical Investor