Pod Insights BiggerPockets Real Estate Podcast This Is the Best Rental Property to Buy in 2025 About this episode You want to invest in real estate, but don’t know which property to buy. We’re about to make it much easier. These are the two best investment properties to buy in 2025, whether you’re a beginner with little to no real estate investing experience or a veteran investor ready for something with a bit more meat on the bone. We’ll share exactly how much they cost, where to find them, and how much they could make. Let’s start with the beginners/part-time real estate investors. If you’ve got limited time in the day to dedicate to real estate, we’ve got the property for you. Dave is investing in these types of properties right now, even with his packed schedule and full-time job. These rental properties give you long-term returns with the added upside of tens, if not hundreds, of thousands in equity growth. Next, for those who are a bit more dedicated, Henry will share the investment property “formula” you can rinse and repeat to build your real estate wealth. This works even better in today’s buyer's market and, when done right, can replace a six-figure salary, if you’re willing to put in the work. These are the investment properties working in today’s market! In This Episode We Cover The “slow” BRRRR method that makes you equity rich without the stress of a quick renovation How much money you’ll need to invest in either of these solid real estate deals Where to find properties like this (cheaper than the average home price!) How to replace a six-figure salary with Henry’s house flipping “formula” Funding a home renovation when you don’t have the cash (best options) And So Much More! Check out more resources from this show on BiggerPockets.com and https://www.biggerpockets.com/blog/real-estate-1167 Interested in learning more about today’s sponsors or becoming a BiggerPockets partner yourself? Email [email protected] . Learn more about your ad choices. Visit megaphone.fm/adchoices
Transcript Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.
0:00 Dave Meyer? This is the best rental property to buy in 2025. Today, we're going to give you our real picks and our actual numbers for the deal that will work even with prices and interest rates where they are today. If you're too stressed about all the different ways to get started investing in real estate, we're making it easy for you. Just buy this type of property we're going to share with you today.
0:28 Dave Meyer? Hey, everyone. I'm Dave Meyer, a housing analyst, a rental property investor, and the head of real estate investing at BiggerPockets. We've also got Henry Washington with me on the show today. Henry, good to see you, man.
0:40 Henry Washington? Hey, thanks for having me, man.
0:41 Dave Meyer? Excited to be here with you. This is going to be a really fun show because real estate has this sort of trade-off, right? Like, one of the best things about it, to me at least, is how customizable it can be. You could do so many different things in the world of real estate investing. Most of them can produce good returns if you're good at them and it fits your lifestyle. But sometimes, that can also be sort of overwhelming, like the amount of choice that you have. So today, what I'm hoping to do with you, Henry, is simplify it for our audience. Given everything that you and I both know about the market, our experience investing in different types of properties, which are the right deals to buy today that are going to be low-risk, high-upside?
1:25 Henry Washington? I'm excited to see how this episode does because this is like the question people ask. It's always like, hey, what exactly should I go do? And I'm like, I don't know you. Where are you? I don't know anything about you. And they're like, how should I invest? So here, we're going to tell you exactly what you should go buy.
1:41 Dave Meyer? Exactly. We've sort of avoided doing this show because, to Henry's point, there is no one-size-fits-all answer. It's so customizable. But at least the way I approached preparing for this episode, and maybe you did this differently, but the way I prepared was like, For the most people, 75% of people or something like, what is the best way to buy a rental property? That's what I'm thinking about. It's not going to work for everyone and where you live and what market you live in are going to depend a little bit. But I tried to just like the, the best things that you can think about for the most people is what I'm going to be sharing.
2:16 Henry Washington? I think what I would want to hear, and I think what's probably more beneficial for everybody is to hear like what your ideal rental property scenario would be for people. Because if I do it, like everybody knows I find off-market deals.
2:30 Dave Meyer? You're better at it than me. Is that what you're saying?
2:32 Henry Washington? I just mean the amount of work that someone would have to casual investor would have to put in to find what I would deem worthy as a good rental property, like most investors, most casual investors aren't going to do. So why don't you share with people like, what does the, the part-timer investor look for, for a rental property?
2:51 Dave Meyer? My ideal rental property, I'm going to try and be as specific as possible for both myself and what I would recommend for people trying to get started is what I have been calling the slow BRRRR on the show for most of the year. BRRRR, if you are not familiar, is an acronym. It stands for buy, renovate, rent, refinance, and repeat. So your goal of the BRRRR is to buy something that needs a little bit of work. You're going to build equity in that property by renovating it. Then you are going to hopefully create a cash flowing property. Once it's renovated, ideally you are generating positive cash flow. That's part of my criteria. Then you refinance and pull some of the money out because you're going to put a decent chunk of change into these properties.
3:36 Dave Meyer? If you're going out and buying it, you're renovating, you're going to put some money into it. So you refinance to get some of that money out and then you do that over and over again as many times as you can, presuming you can find more profitable deals. So that's a great way to make money, BRRRR. And if you can do that in the traditional way, you should absolutely do that. But the traditional way sort of had a specific dimension to it that I don't think works as well as it used to, which is you were looking to buy something typically that was vacant. So there was no people. In the property, those are getting harder to find and you need to renovate it really quickly. So you're usually buying this on high interest debt. So either a hard money loan or a bridge loan or private lending.
4:20 Dave Meyer? So it's a more expensive debt and there's this pressure to renovate the property in three, six, nine months and get it rented so you could refinance out of that high interest debt into something more sustainable. And that's where this concept of the slow BRRRR comes in. So my ideal rental property is a BRRRR. But rather than finding something that's vacant and renovating it as quickly as possible, I look for places that are cash flowing with tenants already in them. I'm looking for something that has at least break even cash flow, ideally somewhere between two, four, maybe up to 5% cash flow as is. I buy it and it's already making money. That's what I want to find.
5:01 Dave Meyer? Then when my tenants go and move out from this property, which might be in three months, it might be six months, it might be a year or two. Then I go in and do the renovation. I build equity in the home then I get rents up to market rate and that will get my cash on cash return at to a minimum of 8% ideally higher. And I think in the deals that I'm looking at, you could probably get them to 10 or maybe 12% once these things are stabilized. But to Henry's point, like for me as a part time investor, this allows me to take advantage of the BRRRR but take some of the time pressure that I don't like out of the equation. And I'll share some more about my buy box in just a minute. But Henry, how do you react to this framework in general of like what people should be looking for for a rental property?
5:46 Henry Washington? No, I think this is a very smart approach because it limits your risk on the front side because you're walking into something that's already making money or at least breaking even. So it allows you to be safe in a market where things can go bad quickly. If the smallest thing changes, right? And I think previously, and when I say previously, I mean when the market was outstanding 2021, 22, you could buy a deal. And then if something didn't go well, time was on your side and the property value was going to go up and the market would save you. And in this market, that doesn't necessarily happen.
6:29 Henry Washington? So this saves people from the perspective of what if you buy something and then life happens and you don't get around to doing what you want to do in terms of renovating it. Like you can just still operate the property, put another tenant back in at the same rents without renovating it.
6:43 Dave Meyer? Yep.
6:44 Henry Washington? And you can stay comfortable versus if you buy it and you know you have to renovate it to get to where you need to be because you're on short-term debt, then you don't have a choice. Like it doesn't matter if life lives. Like you've got to do something to get this property where it needs to be, or it's going to be a detriment to you financially. So I like the safety of it. One question I would have, and maybe you'll touch on this later, is this scenario sounds like you're going to need to have some cash on hand to not just buy the property, but to also renovate it. So what kind of cash on hand would someone need to have in order to execute a deal like this?
7:19 Dave Meyer? That's a great question because this is one of the challenges. Because a lot of times, I think this is probably what you're getting at, is if you do the traditional BRRRR, what you do is you go out and get a hard money loan for both the acquisition cost and the renovation cost. But what I'm proposing and the way I structure these types of deals for myself is that I go out and get a conventional loan on the acquisition price. And that's one of the key differences here that I think is really beneficial for people who are thinking about this. So one of the keys is having an occupied property, like something that is safe and livable, then you're going to be able to get a conventional loan. The thing I like about this is then you can put 20% down, you're going to get good fixed rate
7:59 Dave Meyer? debt that you can hold on to for as long as you need to. I think if I were new, I would probably target something that's like a duplex that's $250,000 to $300,000. Like if you could find something for $100,000 to $125,000 a door, I think that that's a pretty good rate. So even if you go up to three-plex, you can increase that budget to 300, 375, something like that. So you're going to need 25% probably down on that. So let's just say that you are buying something 300 grand. You're going to need $75,000 to put down on that. So that is a significant amount of money. If you don't have that amount of money, you can do a couple
8:42 Dave Meyer? of different things. You could do a house hack where you live in one of the units and rent out the other ones. That could probably mean you put 5% or 10% down. Or the second thing that I would consider doing is partnering. And I know a lot of new people don't want to do this, but like everyone partners on deals. Like I actually, I don't know how much you do, but a lot of real estate investors partner on a lot of deals, right?
9:01 Henry Washington? Yeah, I've got partners in some of my deals for sure.
9:03 Dave Meyer? That's how I got started. I did my first deal with three different partners because I didn't have the money to do this. So that's one way to think about the acquisition costs is if you have 75 grand, go do that. If not, consider a partnership or an owner occupied strategy. Then you have to finance the renovation. So if you're at, you know, this $300,000 property that we're talking about, for me, per unit, I'd be looking to invest like 15 to 20 grand in the Midwest where I would be looking to do this. I think that's pretty realistic. It's like you're buying these for 100 to 125 a unit. You're putting 15 to 20 grand a unit. That means it's going to be mostly cosmetic. You're not moving a ton of walls. You're maybe fixing up the kitchen, the bathrooms, paint, maybe a little bit of floors, making
9:45 Dave Meyer? it nice. So you need to find that kind of property, but that's what I would be looking for. Obviously, that means you need more money in there. And so I think there's a couple of different ways that you could go about financing this. Maybe you have some more ideas, but I'll just throw out a couple of ideas. Number one is if you are a homeowner using a home equity line of credit to go out and use your home equity to finance something. Remember, this is ideally going to be short term. So if you're going to put 50 grand into this property, you get a home equity line of credit, you use that to renovate, and then you're going to refinance your rental property. Once the renovations are done, ideally you get that 50 grand back or part of it back. You pay off your home equity line of credit, so you're not paying it. You could go get a hard money loan. That's
10:29 Dave Meyer? going to be the most expensive option, but it's definitely possible. Other options are, again, partnering, trying to find someone who Has that capital. Or the fourth option that I think is interesting and not a lot of people do. And one of the reasons I love the slow burr is just saving your own money and waiting and doing it when you have money to do it. What? One of the benefits, I know that's crazy to like not go out and get into debt to do everything and debt can be used, you know, applicably, but like the cool thing about this kind of debt structure and this kind of deal is like, maybe you buy it and your tenants stay for a year and you just save up money. Maybe you save a thousand bucks a month. Let's just use that as a nice round number. You save up 12 grand, that's your renovation budget when they move out.
11:14 Dave Meyer? Go spend 12 grand and renovate it. Then maybe you have a tenant turnover and you don't renovate the other one while you save up another 12 grand. And then just as you have time and as you have the money, you actually go and renovate that. I know that's not something we talk about in the real estate world that you could just save money and use that instead of debt, but I actually think that's one of the benefits of this sloper approach.
11:35 Henry Washington? Well, yeah, saving up some money to actually invest it in your property. Sounds
11:39 Dave Meyer? Crazy.
11:39 Henry Washington? Crazy, but is legitimately a good thing to do. I think one option, one option you could consider, now I have to give some caveats with this option. This option is not for everybody. This option will require you to be extremely disciplined and meticulous with making sure that you are paying back this money in the appropriate schedule. But one thing you could do is get a 0% interest credit card for
12:07 Dave Meyer? Yep.
12:07 Henry Washington? 15 months, for 12 months, 15 months or 24 months. Sometimes you can even find them. Right? And then you can, you can finance the renovation on this credit card. And then if you're going from a property, let's say that's cash flowing a hundred dollars a month, but now after you renovate it, it's going to cash flow three or $400 a month. You take the additional cash flow and you use that to pay back the credit card and you just need to do the math, right? So if it's 15 months and you borrowed, you know, $25,000, then you figure out what your payment is because you're paying all principal balance down.
12:43 Dave Meyer? Yep.
12:44 Henry Washington? And you have to do it in that 15 month timeframe. I would Actually urge you to get that paid off one month prior to when that hits because if you're one day late on that payment, then you get smacked with like 22 to 25% interest and it backdates to all of the money you spent.
13:01 Dave Meyer? Yeah, you get smoked.
13:03 Henry Washington? Right. You get smoked. So I would, I would urge you to say, whatever it is, just take a month prior. And that's when you want to aim to have it paid off and you can let your new cash flow pay that off. And one of the benefits of this strategy is you get all the benefits and perks of that credit card. So if it's a high air miles credit card, or if it's a, you know, hotels credit card, like you can get free flights. Like I know people who do this religiously for their renovations on their flips and they are traveling for free wherever they want to go because they flip a few houses a year. They use credit card points and they rack up miles and hotels and cash back. But the people who I know who are doing this successfully are so meticulous
13:45 Henry Washington? about their credit and so meticulous about paying this back that it works for them. This strategy is not for everyone.
13:54 Dave Meyer? You have to like the game of this. I am one of those people. I love the like credit card hacking thing. I, I don't want to brag. Well, I do want to brag. I'm actually purposely bragging right now. I am about to become a million point air, which is like the biggest red flag of the world. Like you should be spending these points when you get them, but I hoard them for no reason. I don't know why. I just like, I love the game of it. And like, for some reason, it works that could because the reason I can possibly have a million points is because I do this with every rental property. Start an LLC, I get a business credit card with it. They give you a introductory bonus if you're going to spend five grand or whatever. Like I just go and get the bonus and
14:38 Dave Meyer? then I use that credit card for that property for my expenses, my operating account on these things. You just do that over and over again. I am always hesitant, like publicly to give advice to go get a credit card, but it does work if you are good at this. Like a million caveats, like Henry said, you have to be this kind of. Person who's gonna look at it every day, or you can get absolutely, you can get burned bad, like real bad, like, like forever bad.
15:04 Henry Washington? If you have ever in your life, ever had a collections call on a credit card, this probably isn't for you.
15:09 Dave Meyer? Yes, absolutely not. Like, the way you use credit cards is if you know you can pay them back and you're just gonna take advantage of some of this arbitrage. Like, that's the way to do it. Do not take out credit card debt if you do not have the money to pay it back immediately at any point, almost. Like, that's, that's the key. But I like that approach to this. All right, I got a couple more things to share, though, here about my buy box and the things that I would be looking for. But we got to take a quick break. We'll be right back. This week's bigger news is brought to you by the Fundrise flagship fund. Invest in private market real estate with the Fundrise flagship fund. Check out fundrise.com/pockets to learn more.
15:51 Dave Meyer? There's a point where basically every investor realizes traditional financing stops scaling with you. At first, it works. You qualify with your income, your job, your tax returns. But as you grow, that model starts to break. Now, it's not really about your personal income. It's about the income from your properties. That's where DSCR lending comes in. And it's why a lot of investors end up working with lenders like Host Financial. Host Financial qualifies deals based on property income, not personal income. So you're not dealing with W2s, or tax returns, or DTI constraints. And with 80 to 85% LTV, you can stay more flexible as you scale. It's just a different framework, one that tends to align better
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19:13 Dave Meyer? Welcome back to the BiggerPockets Podcast. I'm here with Henry Washington talking about what deals we are buying today and what we would recommend you go out and look for in today's market. Before the break, I was talking about the slow burr that I really like because it is very low risk in this kind of environments, but still has upside. It is very low time intensity or low time pressure, I should say, which is really ideal for people like me who work full-time and do a lot of investing out of state. And it has a really good potential for debt structure that makes it low risk and has a lot of advantages. I do want to share just like some other thoughts, though, on my buy box because I got real specific when I was thinking about these things of like stuff that I would look for too. So, right now, I am really
19:58 Dave Meyer? pleased, my favorite asset class in real estate is small multifamilies. I love two to four units, but they've been hard to buy the last couple of years. I see that changing. We were talking about this the other day, you and I, like, I see more of this inventory coming on the market right now. And so, I'm looking at that. Personally, I don't care about the maximum number of units. I'm like, if it's two, it's three, it's four, I don't care. It's like the numbers for me. But, I would adjust that if I were you, based on your budget. If you can buy four units at a good price per unit, go do that. If you can only afford two units right now, and it is a good price per unit, do the same thing. Second thing I would really look for in this market, especially if you're new, is low maintenance. This is something I missed when I was getting
20:41 Dave Meyer? started. I'll tell you that. I bought a lot of houses that were built in between 1880 and 1920. It's pretty much all I bought for a while. And it comes with some pros and cons. I'll just say it that way. So, now, in my buy box, I would look for something that is ideally in the 80s or newer. If you go in the 70s or 60s, that's okay, depending on the specific situation. But, like, if you're just blanket looking for things, if there's housing stock in your neighborhood, where you can get two bucks and built in the 80s at a good price per unit, I would look at that. You want electrical to be in the net last 30 or 40 years, like ideally in the last 20 years. But, like, If you can get in the last couple of years, you don't want galvanized plumbing. That's going to be a pain in your butt.
21:26 Dave Meyer? And you want a solid HVAC system that you're not going to have to replace. These are all the things that are going to sort of like reduce your huge capital expense needs. A couple more things here, just before we move on to your deal, Henry. One is, you know, I gave numbers out there of 250, 300. I look for these deals in the Midwest. I think if you're willing to invest out of state, you can find these kinds of deals on market in the Midwest, which is really beneficial. So I would look for that. But if you are in a different area, the price point thing is going to vary, obviously, a lot. If you're in a high expensive market. So I would also just think about this relatively where just try and buy under the median home price. Like right now, the thing that's messing with the market is affordability.
22:09 Dave Meyer? And so if you're buying stuff that is above the median home price is going to rent for well above the median rent, it could work. It totally could, but it is a little bit riskier, in my opinion. I like to just like be buying below the median home price, having the ARV close to the median home price, because that's just where the demand for rentals is going to be. If I have to go sell it, that's where the demand is going to be. I just think it makes your life easier.
22:34 Henry Washington? You know, it's interesting because I can hear the naysayers already in the YouTube comments that are going to be like, well, these deals don't exist. And I was literally just on biggerpockets.com/listening. So this is the bigger deals.
22:46 Dave Meyer? Yeah.
22:46 Henry Washington? And in the Midwest, there are literally tons of deals on the market right now with positive cash flow. Like you can get on bigger deals right now and you can see deals that fit this criteria in multiple markets in the country.
23:01 Dave Meyer? I mean, we just drove around the Midwest and saw these deals firsthand. Like they absolutely do exist.
23:07 Henry Washington? Now, yes, you're going to need some cash to execute this strategy. But in terms of finding deals like this that exist, they're out there. And you don't have to do a ton of work to find them.
23:18 Dave Meyer? Absolutely. All right. Last two criteria and then we'll move on to Henry's deal. One thing gotta do market kind of in a decline right now in broad sense. I would try and buy 5% under market comps. This is kind of like Henry's whole thing about buying deep makes a lot of sense. And every and again, YouTube is gonna be like, yeah, okay, just go buy under market rents. Like actually you can do that right now. You can buy under market rate. And for me, I think we're going to see in a lot of markets, a correction of 2%, 3%. So I'm targeting 5% under current market comps. Not every seller is going to be willing to do that, but there are sellers who are willing to do that. A hundred percent right now, like there definitely are. And so you need to find those deals like that's what I would be looking for.
23:59 Dave Meyer? And then the last thing is I said that for me, I'm pretty comfortable with 2%, 3% cash on cash return. When I first buy it, but I am not buying a rental property for 2% or 3% cash on cash return. That's what I'm doing while I stabilize my property. And so the last thing I would say is look for at least an eight, ideally a 10% stabilized cash on cash return. And what that means is basically analyze your deal two ways. Go and analyze it for what it's going to get you when you buy it. That's gotta be at least break even cash flow. Then, once you're done with the renovations, whether it takes you six months, a year or two years, what's your cash on cash return going to be after you refinance it? And after you get rents up, to me, that's gotta be about 10% for me to hold on to the deal. And so that's, that's what I would look for.
24:43 Dave Meyer? And again, the only difference between what I'm saying in a long burr is I don't need to do this whole process in six months. I'm willing to take probably up to ideally like a year and a half, but I'd take two years to do this too.
24:54 Henry Washington? And also you gotta look at your pro forma past year two or three.
24:59 Dave Meyer? Yes, yes.
25:00 Henry Washington? We say this is a long-term game and we know real estate is a long-term game. Yet, when we're analyzing deals, we're only looking at like year one and year two on the pro forma.
25:10 Dave Meyer? I know.
25:11 Henry Washington? Determining that a deal is not a good deal. The other considerations are rent growth year over year in the market you're looking to buy this. Because the more your rent grows, the more your cash on cash return is going to grow. Over the top. So when you analyze it in your calculator, it's you can on the even on the bigger pockets calculators. When you scroll down, you can see multiple years out and you can assume your rent growth and you can assume your appreciation over that time. And you can see that your cash on cash return is not static. It doesn't stay the same. It grows the longer you own that property and the more that property goes up and rents go up in value.
25:51 Dave Meyer? I I completely agree. I think it's so silly looking at year one. I I just think year one and year two about about low risk to me like it's like just don't lose the property. Right. And then get it up to its highest and best use. And that's why I love BRRRR in general, and this specific one is like, it has the best of both worlds, right? Like you flip houses, you you know how much wealth, value add strategies, renovations can create. And the BRRRR gives you that opportunity in a smaller sense. It's not going to make you the same amount of equity as flipping a house. But like it gives you some opportunity to build equity and the opportunity for cash flow. And you can recycle at least some of your capital. To me, that's really important.
26:33 Dave Meyer? That just reminded me I had to say one thing. When I do the refinance, I do not expect to take a hundred percent of my money out of this deal. I I think I should have mentioned that earlier. If I could take like 50% plus out, I'm pretty happy. I just think we got in this era where people are like, oh, I could just acquire assets with zero money into them. And that's just not realistic in the new day and age. That's just the reality of investing in 2025. And that's okay. You could still build a great portfolio doing it this way. That's not something I really even consider. I just consider the total return on investment.
27:04 Henry Washington? It's a trade off, right? Like the method that you're talking about is maybe easier to find the deal. Barrier to entry is a little higher because you got to have the cash, right? But you're able to almost eliminate risk on the front side based on what you're buying and the capital that you're putting into the deal. Because at any point, you know, especially if you're buying it with a slight discount, if you need to get out, you can get out. You can sell that property and you can get your money back and start over again, live to fight another day. The trade off is. When you operate like me, which like is a full time investor, my trade off is I'm doing so much work on the front side and spending a lot of time and capital on
27:45 Henry Washington? the front side to find the amazing deals that yeah, I can get into a deal with very little of my own capital because I'm going to buy such an amazing deal.
27:53 Dave Meyer? That's right.
27:53 Henry Washington? But I had to spend two, three, four, $5,000 a month on marketing to get there. Right? Like so.
27:59 Dave Meyer? Exactly.
27:59 Henry Washington? It's a trade off. If you're going to put in the work on the front side, you can get the better deals and invest with less money out of your pocket. Or you put less work in on the front side, you're probably going to have to spend some money, but you can have limited risk and you can get into the game now if you've got the capital. So it's just, it's, it's absolutely going to be a trade off.
28:17 Dave Meyer? We got more coming up about what deals we recommend buying in today's market, but we do have to take a quick break. We'll be right back. For my wife's birthday, I wanted to make her a new website for her landscape design business. So I researched a lot of different options. I tried out a couple, but honestly, it was really overwhelming. It was pretty time consuming and still the site wasn't coming out the way I wanted it to. Then I tried Hostinger and everything was super simple. I asked Hostinger's AI to build a clean site for her business and it had a working version up in minutes. No coding or designer needed. Plus, its AI agent helps with SEO, website copy and email marketing after launch.
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32:03 Dave Meyer? Welcome back to the BiggerPockets Podcast. Henry and I are here breaking down what deals we think you should look at in 2025. Let's move on to your deal, Henry. What would you recommend?
32:13 Henry Washington? All right, so I am going to talk about a flip. Since we did a rental, everybody wants to know where to go or how to go find a flip that makes sense. And I'm going to be pretty specific in terms of numbers. Like, I want you to go look for this deal with these numbers. Yes, it exists. You can probably find a deal like this on the market. You can definitely find it off-market. But the big caveats are, this is not going to be in every market in the country.
32:41 Dave Meyer? Yep.
32:41 Henry Washington? It's just like Dave's strategy. You're going to have to go looking for a market where these conditions exist.
32:47 Dave Meyer? Let me guess, they're not going to exist in Seattle.
32:50 Henry Washington? No, they do not exist in Seattle, or Los Angeles, or New York City. Okay? But deals like this do exist in multiple markets across the country. And so here is the market conditions you want to look for. So you want to find a market where the median home price is somewhere between 350,000 to 450,000.
33:14 Dave Meyer? Oh, that's great. So just for context, everyone, that's the median home price in the United States. So that means a minimum 50% of the markets in the country hit that number, if not more. It's probably like 60, 65%.
33:26 Henry Washington? And then you want to also be looking for markets where the median rent price is at the national average or within 10% of it. And I know I talked about flips, so people are like, well, why do you care about rent?
33:41 Dave Meyer? Yeah, yeah, why?
33:42 Henry Washington? You care about rent because what I'm trying to help you do is to find a flip that makes sense. But in the event something goes wrong and you have to pivot, we could put a tenant in this property and you could hold on to it until market conditions change and then you can sell it later. So I'm trying to help you protect yourself in the event things don't go 100% smoothly. So you also want to look for a market where the rents are fairly strong. Because if you've got a median And home price at the national average or below and you've got rent prices at the national average or slightly above, then that's a good formula for you to be able to protect yourself by taking your flip and making it a rental.
34:22 Dave Meyer? I like that. I'm tracking so far because there must be tons of markets in this country that meet that criteria.
34:27 Henry Washington? Exactly. So those are your caveats. All right. So what does the deal look like? So let's start with the most important number for a flip. What's the most important number for a flip, Dave?
34:38 Dave Meyer? The ARV?
34:40 Henry Washington? The after repair value. This is the value of that property. After you've done your renovation, you're going to sell that property. This is the number you need to be looking for for your deal. You want your after repair value for this market to be somewhere around $300,000. And what that does is it allows you to put a product on the market at less than the average home price for that market, which means you've opened up your buyer's pool to lots of first time home buyers, right? You've got, you want the most buyers looking for your type of property. You also want to put a desirable property on the market and everybody wants to buy a house for less than the normal home price in that market.
35:25 Dave Meyer? So your thought process here is like, when I go to sell my flip, which is the liquidation, that's where you make the money.
35:32 Henry Washington? That's where you make the money. Yep.
35:33 Dave Meyer? Who's going to buy it? That's what you're thinking about. You're trying to say like, how do I find something where all said and done, there's going to be a lot of people coming to my showings and I'm going to hopefully get a lot of interest in this property. That's what you're thinking about before you even think about renovation budget or anything like that.
35:48 Henry Washington? Absolutely. Because you said it earlier, we're in a slightly air quotes down market, which means there's less eyeballs. And so as an investor, as a flipper, as a good flipper, what you want to be thinking is how can I take advantage of the most eyeballs possible?
36:06 Dave Meyer? Yep.
36:07 Henry Washington? And if you're selling a house under the average home price in that market, you're going to come up on a lot of people's home searches on Zillow and Realtor.com when they start looking for homes. And that's exactly what you want.
36:19 Dave Meyer? So you were. Saying, just so I can recap here, I'm writing down notes because I'm interested in flipping. Is you're basically looking for the median home price to be, like you said, 350 to 450. You're looking for something with the ARV that's going to come below that. But you haven't even talked about acquisition price yet.
36:37 Henry Washington? Right. Nope, not yet. We're working backwards.
36:39 Dave Meyer? Okay, so where do we go from here?
36:41 Henry Washington? Now, what you want to be doing is you want your renovation costs to be on the low to medium renovation. So we're not looking for a gut rehab here. We're looking for something where you're going to be doing a cosmetic rehab, paint floors. Maybe you take out a wall or two, but you're not moving a kitchen from one side of the house to the other. You're not tearing up the slab foundation to rearrange the property. We're not, this isn't a down to the studs renovation. This is something where you can spend somewhere between 30 and 70,000 dollars. You know, let's call it 50 grand on your renovation. This is cosmetic, maybe a little more than cosmetic by maybe you got to put a new roof on it.
37:25 Henry Washington? Maybe you got to replace the HVAC. Maybe you got to update the plumbing, right? It's a cosmetic rehab with some additional big ticket items in there. And that's important because if it was just a lipstick renovation, it's going to be gone. Somebody's going to buy that, right? Like you got to buy some sort of a problem that's going to be too big for the current homeowner to want to deal with it, right? You got to look for that motivation. Why would somebody be willing to sell this property at a discount? Well, because it's got a couple of big ticket items, but most everything else is going to be cosmetic. So your sweet spot for renovation is between 30 and 70,000 dollars.
38:00 Dave Meyer? Okay, I like that. And that's a pretty big range, though. So does it, is that just depend on the property or your budget?
38:07 Henry Washington? Depends on the property, depends on the budget, right? What I'm trying to do is give you a profitability range here. So if you know your ARV is going to be around 300,000 and that your renovation costs are going to be between 30 and 70, let's call it 50. Those are the two numbers you need in order to figure out what your max allowable offer needs to be for this type of property. Okay, so now that we have those two numbers, let's figure the rest out. So we know we need a $300,000 after repair value. It's going to need about $50,000 worth of work. So what is the offer price you need to make to have a profitable flip here?
38:48 Henry Washington? So the way I calculate this is max allowable offer equals after repair value minus renovation costs minus holding costs. And so holding costs are going to be, what are you paying for the mortgage while you have it? We're going to assume that the person doing this is going to have to get a loan. Typically, you're going to get some sort of a hard money loan.
39:10 Dave Meyer? 12%.
39:10 Henry Washington? Yeah, pay 12% interest. So I'm assuming holding costs of about $2,000 a month for five or six months, right? So 10 to 12 grand just to put you in the ballpark of where your offer needs to be. So let's call it 10 grand on holding costs. So we got MAO, max allowable offer equals ARV minus renovation costs minus holding costs minus closing costs.
39:34 Dave Meyer? Yep.
39:34 Henry Washington? And when you think of your closing costs, you're going to pay your closing costs twice. You're going to pay it when you buy and then you're going to pay it when you sell. And so for a property of this price point, I would probably assume somewhere around $10,000 ish in closing costs. Could be a little higher, could be a little lower. And then your commissions. So 6% of your ARV is going to be your Realtor commissions. That's going to be about 18 grand. Okay?
40:00 Dave Meyer? All right.
40:00 Henry Washington? So we've got 300,000 minus a $50,000 renovation. That's going to put you down to 250,000. Minus $10,000 in holding costs, that's going to put you down to 240,000. Minus $10,000 in closing costs, that's going to put you down to 230,000. Then minus 6% of the 300,000 for commissions, that's 18 grand. That's going to put you down to 212,000.
40:30 Henry Washington? And then the most important number you need to be thinking about is how much money do you want to make?
40:37 Dave Meyer? Yeah, profit. That's the one thing we're missing here. Yeah.
40:39 Henry Washington? So we need to subtract our profit. My rule of general rule of thumb is I want to make about what I spend. $50,000 renovation, I want to make somewhere between 30 and $60,000 on the flip. We'll call this one 40. So subtract 40. That puts your max allowable offer at $172,000 for this property. And I think that that is a very reasonable thing to find.
41:06 Dave Meyer? It is.
41:06 Henry Washington? In the parts of the country where these deals exist. And I think these are things that you can potentially find on the market because there are more sellers right now who need to sell and are having trouble. Now, you're probably going to have to make a lot of offers. You're probably going to have to run the numbers on a lot of deals. And a lot of these offers are going to be uncomfortable because you may find a deal that works like this, but the list price on the MLS is going to be 250.
41:29 Dave Meyer? Yeah.
41:30 Henry Washington? Right? And so now you've got to come in and offer 172. And that's okay. Now, obviously, these numbers will fluctuate. If you pay more in closing costs, then your max allowable offer will need to be a little lower. Or maybe you're willing to make a little less profit. So your max allowable offer can be a little higher. Or, you know, maybe you're an agent yourself and so you don't have to worry about the commissions. And so your max allowable offer can be a little higher.
41:51 Dave Meyer? But the equation stays the same.
41:53 Henry Washington? The equation stays the same. This is the general. What you're looking for is an ARV of 300,000 in a market where the median home price is higher than that, where your rent price is about the national average or more. So that, let's say this doesn't sell and you need to pivot. You can stick a tenant in it, maybe paying somewhere between, you know, 1,800 to $2,000 a month, and you just hold on to it until the market shifts. But this is going to get you a solid 40 to $50,000 net profit. And then that gives you enough cushion for if you screw up on your renovation budget. And you go, instead of spending 50, you spend 70. Well, you still make 20 grand.
42:30 Dave Meyer? Yeah, you're still making like a 40% ROI in half a year. That's insane.
42:35 Henry Washington? This is a fairly safe flip calculation.
42:38 Dave Meyer? Yeah, I love this so much. And if you could just make anything into a math equation for me, I'm pretty happy.
42:45 Dave Meyer? But this is, this is the reason why honestly, I'm thinking about trying to flip a house or two, even just a year. Like I'm not, I'm not trying to do this full time, but we're in these market conditions where a sideways market or even a modestly declining market may not make sense to a lot of people. They might say, oh, that's a bad condition to flip. And if you do it wrong, it definitely does come with additional risk.
43:08 Henry Washington? Right.
43:09 Dave Meyer? But the reason I love the way Henry is doing this is because it's adding in a lot of buffer and it's backing into what you can actually acquire things for. It's not based on, oh my God, I'm going to get maximize my ARV or like, I'm going to really figure out the way to squeeze my, my subs to make sure that my renovation budget is, is perfectly optimized. You're like, no, just like this is the equation. I'm going to give myself cushion on all of this. And the thing I'm going to be super disciplined about is what I am willing to pay. And that means you are eliminating a lot of the risk that goes into flipping. Like everything, there's a trade off and the trade off is probably a lot of your offers are going to get rejected.
43:52 Dave Meyer? So that, but like, that's fine because you're eliminating the risk for yourself. So you gotta ask yourself, do you want to get more offers accepted and take more risk? I don't. I would rather just have people tell me no and take less risk. That's much more, much more appealing.
44:06 Henry Washington? You may have to submit 50 to 100 offers on the market.
44:11 Dave Meyer? Yeah.
44:11 Henry Washington? Before you get a deal like this accepted. But I'd, I'd argue if you're looking in the right markets, there are places where you can pull something like this off. It's just, you gotta pick the right market.
44:23 Dave Meyer? Yeah. I mean, honestly, like the reason I'm, I'm looking in a very expensive market and obviously I'm not following your rules of median home price and that kind of stuff. But like these margins exist in expensive markets too. If you have the, the capital and ability to pull this off, like these types of margins exist. And that actually brings me to the second thing I wanted to mention about these sideways markets. Not everything is going sideways. This is like a data analyst's dream, this kind of market, because certain Price points, certain neighborhoods, things are absolutely moving. And one of the things that you see when you enter a buyer's market like we're in right now is that the price of properties that are distressed or not renovated go down the most.
45:05 Dave Meyer? And the ones that are really nice, don't go down at all, or go down the least, or might even still be growing. Right. And so that actually increases the profit potential, right? Because if you're, even if your top line number, your ARV is flat for the next even year or two, or maybe if it's going down a one or 2%, the acquisition price you can buy these deals at is probably going down 3% or 5% or 8%. And yes, that does mean you need to be really disciplined and good at finding those deals, but it does mean that the potential is there and it might actually be getting better in the next couple of years, if you are willing to sort of be disciplined about what you pay. That profit margin is available.
45:44 Henry Washington? Yeah. And let's put some perspective around this because again, I can hear the naysayers in the comments. Like you can't find a deal like this. Okay. Realistically, let's say you had to make 100 on-market offers to land one deal with these ratios. And that made you 50 grand in a net profit and it took you about six months. So if you submit 200 offers, you get two deals that make you 50 grand each. And you do one every six months, that's a hundred thousand dollars. That's more than some people's salaries.
46:19 Dave Meyer? You're making more than the median income in the United States, 70,000, significantly more.
46:24 Henry Washington? Absolutely.
46:25 Dave Meyer? I mean, when you put it that way, it sounds pretty good. That's why I'm thinking about doing one or two a year. It's like, dude, why not just, I mean, that's a ton of money.
46:31 Henry Washington? It's a ton of money.
46:33 Dave Meyer? Well, this was a lot of fun. Henry, thank you for bringing this deal. I appreciate your unique perspective. I was learning a lot and might be doing something just like this in the next few weeks.
46:41 Henry Washington? This investing in real estate is possible even in the climate that we're in. But I think what we want to do here at BiggerPockets is be realistic with people about what it actually takes to be successful, given the environment. And so I know what we said doesn't sound as cool or as easy as things sound. In 2020 and 2022, but that's not the way the market is.
47:04 Dave Meyer? That's just the way reality like, yeah, it can't be easy and profitable right now. Like, I mean, some there's spectrums, like some things are relatively easy and relatively profitable. That's what I look for, right? But the idea that you're going to hit these home runs without doing some of the effort and work that we were talking about. I'm sorry, you might get one of those every once in a while, but that is not the norm anymore. And what we're trying to give you is a repeatable formula because the whole goal here, right? Is to long term, it's a long game over 10, 15 years. Replace your income, achieve a level of financial independence. And for that, you can't just look for home runs. Those are unusual. You need a repeatable system that you can do for the next five, 10, 12 years. And these are both examples of things that fit that bill.
47:48 Henry Washington? Boom.
47:49 Dave Meyer? All right. Thanks, man. Appreciate you being here as always.
47:51 Henry Washington? Thank you for having me, man. It was a great time.
47:53 Dave Meyer? And thank you all so much for listening. I'm Dave Meyer. He's Henry Washington for BiggerPockets. We'll see you next time.
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