Single-Family vs. Multifamily Rentals: Which Is the Best First Rental?

Single-family vs. multifamily rental properties—which gets you to financial freedom faster? A rookie real estate investor is wondering what he should do for his first rental property. Multifamily rentals can help you scale faster and have more cash flow, but single-family rentals mean fewer tenants (and fewer headaches) with less management. Dave and Henry have invested in both and have a clear answer for which is the winner. We’re back answering your questions from the BiggerPockets Forums. First, single-family vs. multifamily—if you’re starting in real estate right now, there’s one clear choice. Next, a young landlord just inherited a tenant who’s paying 50% below-market rent. Should he raise the rent and risk losing a 12-year tenant, or follow a much more “reasonable” strategy to get them to stay and pay a fairer price? BRRRRing vs. house-flipping: let’s say you have $100,000 ready to invest, which option gives you a higher return? BRRRRing (buy, rehab, rent, refinance, repeat) means you’ll have a long-term rental after the rehab, but is a flip worth it for the instant payout? And finally, we do the thing you never expected BiggerPockets to do…we tell someone not to house hack (but here’s why). In This Episode We Cover Single-family vs. multifamily rentals, and which Dave and Henry would almost always prefer BRRRRing vs. flipping houses: which is lower risk in today’s housing market? Who should not house hack, and what you should do instead with your money Raising rents on inherited tenants: the “stair-step” strategy that Henry uses And So Much More! Check out more resources from this show on ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠BiggerPockets.com⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ and ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠https://www.biggerpockets.com/blog/real-estate-1241 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

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Henry Washington?

  Should your next investment be a single family home or a multifamily property? It's a critical question. You want to scale a portfolio and progress toward financial freedom as quickly as possible, but taking on the wrong type of property could leave you overwhelmed and slow down your progress in the long run. The good news, this choice does not need to leave you paralyzed. Today, we're sharing a simple framework to help you pick the right type of property for you. The answer isn't the same for everyone, but by the end of this episode, you'll know how to think through big decisions of whether single family or multifamily is right for your experience level, financial situation, or investing strategy. Plus, we'll tackle how to balance getting your rents close to fair market value without forcing

• 0:42Henry Washington?

  unnecessary tenant turnovers, where the new investors should take on burrs or flips, and so much more.

• 0:53Henry Washington?

  What's up, friends? I'm Henry Washington here, the co-host of the BiggerPockets Podcast, and I am here along with Dave Meyer. Dave, you're looking a little bundled.

• 1:04Dave Meyer?

  Are you wondering why I'm dressed like Macklemore?

• 1:09Henry Washington?

  Is there something going on at the thrift shop we need to know about?

• 1:12Dave Meyer?

  My heat went out two days ago. Over the weekend, on Saturday morning, I woke up and my house was 40 degrees, and they actually just left my house and fixed the furnace, but it's still freezing in here. It's like literally 42 degrees. But the show's got to go on, man, so I'm just here dressed in full winter gear.

• 1:29Henry Washington?

  Well, today, we're giving people what they want. We're answering questions you, the audience, asked us on the BiggerPockets forums. So let's jump into it. The first question is from an investor named Christopher, and he said, "I'm a new investor based in California, looking to start my portfolio out of state. My target is the $80,000 to $125,000 range in landlord-friendly markets with steady job growth. I'm most interested in BRRRR and buy-and-hold rentals, and I'm deciding between starting with a single family or a small multifamily." He goes on to say, "Here's where I'm stuck. Single family seems easier to manage, less intimidating, but the cash flow might be a little less, whereas multifamilies could bring stronger cash flow and efficiencies of scale, but I've heard they can be tougher to finance and tenant issues could hit harder if I don't have a

• 2:13Henry Washington?

  solid team yet. So which one should you start with, and what do you think the best path is for someone investing out of state for the first time?"

• 2:20Dave Meyer?

  All right, I'll take this one. First off, Christopher, good question and I think a great approach. If you're based in California, super expensive, you want buy and hold or BRRS, they're harder to find in California, so out of state is a great option for you. I'm going to start with actually the second question because basically what you said is, which is better, small multifamily or single family? All things being equal, I don't know how you feel about this, Henry, but I personally think small multifamily is just the best asset class and I don't actually think it's really all that different from a management perspective. Still got one roof, you got one tax bill, you know, you do have multiple tenants, but I think what you'll learn, as almost every investor does over the course of their career, is it's really not that

• 3:04Dave Meyer?

  hard. Once you place tenants, it's just reacting and trying to do some repairs proactively. But I personally just think small multifamilies are better. I would challenge you, Christopher, on your question, saying that you think that they're harder to finance, small multifamilies, and that tenant issues could hit harder. I think they're very similar to finance. Even if you are out of state, non-owner occupying, you can get very similar types of loans for small multifamily. Anything four units or fewer is considered a residential mortgage and so you're still going to have pretty favorable financing. Some you can put 5% or 10% down, so you still have that option. And the thing that I would challenge about, yeah, if all of your tenants decide to up and leave at once, that will be an issue, or if they all complain

• 3:49Dave Meyer?

  at once, that can be an issue. But I actually think that having a small multifamily mitigates risk because if you have a vacancy in one unit, it's not all of your income for that entire property. When you buy a single family home, if you can't find a tenant for two months, you're losing 1/6 of your entire revenue for the whole year, whereas if you have two months of vacancy in one of four units, maybe you're only losing 1.5% of your revenue for the whole year. So I actually think it helps you mitigate risk, which I really like. That's just on principle, but I will say, buying a multifamily for 80 to 125 is probably not Realistic in a decent market. I think if you're looking for a place with job growth,

• 4:33Dave Meyer?

  you're going to be really hard pressed to find a duplex. I invest in the Midwest, you know, maybe in Detroit, you could probably find a duplex for that range. But if I were you at that price point, I actually would focus on buying the best asset I could and not on whether it's single family home or multifamily. The advice I gave earlier was all things being equal, if you could afford both, I'd say small multifamily, but it sounds like you might want to focus on single family because you'll be able to get a high quality asset. That's not going to be a pain in your butt.

• 5:03Henry Washington?

  Very well said. When you were sitting there explaining why you liked multifamily as an answer to this question, I started thinking through like, what are my favorite properties? And some of my favorite properties are single families. But when I ask the question differently and say, what are my most profitable and or wealth building properties? I get the most cash flow and I've built the most equity in my small multifamilies. And it's not even close.

• 5:34Dave Meyer?

  Really?

• 5:35Henry Washington?

  So, yeah. And so I think you're right. Small multifamily in terms of financial benefit, cash flow and wealth building seem to be the best asset. But my favorite properties are some of my single families and that's the end. Who cares about what your favorite is, right?

• 5:49Dave Meyer?

  But why? Why are they your favorite then? Just because you're like proud of what you did to them and like the renovations?

• 5:54Henry Washington?

  Proud of what I did to them, the locations that some of them are in, just prime locations, just excellent properties.

• 6:01Dave Meyer?

  You get the warm and fuzzies with the, with the single families, you know, like you, you flip a house, it turns out great. A family moves in, they're happy with it, you know? That's nice. That's a good experience. Multifamily, you don't really get that as much. I, I agree with that. But I just think if you're trying to build that long-term portfolio, it's great. But I just think as a first time investor, the name of the game is don't lose. Like you don't need to win by a lot. You don't need to hit a home run. The, the game is to hit a single.

• 6:30Henry Washington?

  Yep.

• 6:30Dave Meyer?

  And my fear is that if you take my original advice and say, oh, I'm going to buy a, you know, a three unit or four unit. At 125, like, there's gonna be something wrong with that. Your tenants are gonna be sitting there like me with their hat and jacket on because their heat doesn't work or their toilets don't work or something like that. This is what you get when you buy assets that are not up to their highest to best use. So I would make it easy on yourself as an out of state investor and buy something that's in good shape. That would be my number one criteria.

• 7:00Henry Washington?

  The caveat here is Christopher, I would focus some of your time on learning more ways to finance deals. There are so many tools in the tool belt in terms of financing properties, small multifamilies. Like, I think you can get a small multifamily financed pretty easily, no sweat. And given the concerns that you've outlined here, I would say my answer to you would be definitely focus on small multifamily if you're gonna up that 80 to 125 K range. But if not, then I think Dave is right. Buying a quality, single family asset will save you so much headache over going and buying a trash multifamily.

• 7:36Dave Meyer?

  Great question, Christopher. Thank you and good luck to you. We have a new question asking about inherited tenants from Nick in upstate New York. But before we answer that, we gotta take a quick break. We'll be right back.

• 7:47Henry Washington?

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• 8:25Dave Meyer?

  Most investors only think about insurance when something goes wrong. A tenant injury, storm damage, loss of rent. Then suddenly, the cheapest policy doesn't feel like the best one anymore. That's why a lot of BiggerPockets investors use steadily for landlord insurance designed specifically for rental properties. Whether you own one property or a growing portfolio, they make it simple to get covered properly. And BiggerPockets Pro members get an extra 5% off their landlord insurance premiums. Visit biggerpockets.com/landlordinsurance to get a quote today.

• 8:59Henry Washington?

  Here's a strategy that most W2 employees have never heard of. Normally, if you want to write off a rental property against your regular income, you need real estate professional status. That means tracking hundreds of hours a year. Rent to Retirement just launched a program that skips all of that. It's called the STR loophole tenant placement program. Here's how it works. You buy one of Rent to Retirement's Class A new construction investment properties. You set up an Airbnb listing and self-manage it for the remainder of the year. Rent to Retirement then rents the home as a short-term rental to establish it as an STR for the year. No furnishing required, making this the easy button to save five or six figures in taxes this year.

• 9:41Henry Washington?

  And because you're the sole manager, there's no hourly minimum to meet. That lets you use a cost segregation study to accelerate the depreciation and potentially write off over $100,000 against your income, even on your first rental. Add in cash back up to 13% of the home price, which exceeds $60,000 on some properties. With this massive cash back incentives, investors are seeing total returns up to 126%. New construction, A-class properties, and inventory is limited. Learn more at biggerpockets.com/retirement or text REI to 33777. Again, text REI to 33777. Quick word about a new pro perk you'll want to know about. Aven.

• 10:26Henry Washington?

  If you're a homeowner, there's a good chance you're sitting on equity that you're not using. The problem is tapping into that usually means a cash-out refi, a traditional second mortgage, or weeks of paperwork just to get approved. Aven built something different. It's a credit card, but it's backed by your home equity. So you get a lot of the rate benefits of a HELOC with the flexibility of a card you can use anywhere. Rates are typically well below a standard credit card. Approval is fast and mostly online, and you can use it for anything. A renovation, paying down high-interest debt, or just have more breathing room in your budget. And if you're a BiggerPockets Pro member, there's an extra reason to check it out. Get approved for the Aven card and you'll get a $400 statement credit after spending $400 on your Aven card.

• 11:09Henry Washington?

  Enough to cover your entire annual Pro membership. Head over to aven.com/biggerpockets to see if you qualify. Aven Financial, NMLS #2042345. Cards issued per 2020 license from Visa USA, Inc. by Coastal Community Bank. NMLS #462289. Member FDIC. Equal housing lender. Subject to approval. Terms apply. Visit aven.com for details.

• 11:27Speaker 02

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• 11:55Dave Meyer?

  Welcome back to the BiggerPockets Podcast. Henry and I are here answering your questions. By the way, if you want your question to answer, go to BiggerPockets forums, ask those questions. We pick them there, or you can always send Henry or I a message, and we pick a lot of questions from there as well. Our next one, though, comes from Nick in upstate New York, who says, "I'm a 19-year-old real estate investor." Impressive, getting this done at 19 years old. "I just closed on my first duplex last week, and I'm house hacking. The tenant I'm inheriting has been here for 12 years and is on a month-to-month lease. She pays $635 a month, and comps show that the market rent is about $1,200." Wow. "She has been a fantastic tenant for the previous owners. Rent is always on time. She's quiet and takes care of her unit well.

• 12:39Dave Meyer?

  I have no problem with her paying slightly under market rent in hopes of retaining a great tenant, but I know it is irresponsible as a business owner to sell myself short. My other hesitation is that the previous owners are very good, quote, 'family friends.' They started renting to her 12 years ago for $605 and just last summer increased it to $635. How would you handle a rent increase?" Henry, what do you think?

• 13:01Henry Washington?

  I love this question, first of all. And second of all, 19 years old, investing in real estate, on the forums, asking these questions?

• 13:07Dave Meyer?

  Crushing.

• 13:08Henry Washington?

  Man, what a head start you had. I wish I was as smart as you were when I was 19. Unfortunately, I was not.

• 13:13Dave Meyer?

  I don't think I could have typed this sentence when I was 19.

• 13:17Henry Washington?

  So kudos to you, Nick. I have had this situation a few times, maybe not as nuanced as this where it's family, friends, and it's in a house hack, but I have inherited tenants paying very low rents and have had to work with them to figure out how to get the rents where they need to be. And so first and foremost is you need to realize that you're a human being dealing with human beings. And it sounds like based on the way you phrase this phrase this question, you're already in that mindset, right? And so what I have learned managing my own properties as a landlord and trying to do it in a way that both balances being human and being a business owner, most people will work with you if you give them the opportunity to, right? And so I've always tried to approach these situations where I'm just open and honest with people. Transparent.

• 14:02Henry Washington?

  Transparent. And I, and I let them know. And so if this was a situation I was dealing with, I would go to the tenant and I would try to work out a situation where I could get them to stair step their rent up to where you want them to be. And realizing that yes, I think you're also in the right mindset of saying, hey, I'm willing to take a little less than market rents because she's a great tenant. That is the absolute right mindset. Cause the first thing I tell people who ask me this question is, is the tenant a good tenant? Cause if they're not a good tenant, right? You need to focus on getting them out of there. Different question. Yeah. Completely different process. But if they're a good tenant, they take care of the place, they pay on time, they don't bother you. That's perfect. That's ideal. The second key is getting them involved in the decision-making process. So typically what I do is I pull comps

• 14:47Henry Washington?

  for market rents and I sit down with them and I say, hey, look, these are the comps that I have. These are, this is what's available for rent, close by, similar amenities, right? And I, and I let them see for themselves, like if you were to move and get something equal, this is the price point that it would be at. I understand that if you can't pay that amount yet, but I do need to get you somewhere closer to market rents. What would you feel comfortable paying as a rent for you to stay here and want to stay here? And a lot of the times they'll tell me, look, I, I can't do 12, but I could probably get to a thousand. Okay. Cool. Let's stay and then, and then you have to decide, can I I work with that number. And if the answer is yes, then you figure out, well, do I raise the rent next month?

• 15:31Henry Washington?

  Or do you stair step, right? You'll be able to tell through the course of the conversation and what they're saying and how they're saying it. If things are reasonable, because if you go to them and you and they say, look, I can't pay anything over six thirty five period. I'm done. That's it. That's all I can do. Well, then you you can't right. It's not reasonable. You can't reason with that person and you have to figure out, okay, what are my next steps now that I know they won't pay anything else? But when you're showing them the comps and you're trying to work with them and you're involving them in the decision making process. I've found that that typically always works well. And so then you can determine based on what they say. Do I need to stair step? Because you can do things where you say, okay, if we agree in a thousand, how soon do you think you could get to a thousand? I ask them that. If they say, hey, I could probably get there over the course of the next six months.

• 16:15Henry Washington?

  If that works for me, then we just work on stair stepping that every month until we get there, their rent goes up a little bit. Until they're at that thousand, you know, maybe they say a year, if you can work with that, then you stair step them a year. You get to determine what works for you and your tenant. But involving them in the decision making process and being transparent with them, because they understand if you bought a property, you have a new mortgage. You've got things to pay. They they all people know these things. But where I think landlords fail is they dictate things to their tenants versus including them in the decision making process. And so if you treat them like human beings, try to include them. And I'm not saying because you include them, you have to do what they ask. What I am saying is it makes an easier way for you to transition to something meaningful if you include them.

• 16:58Dave Meyer?

  I completely agree. I think that's the absolute right approach. I, when I was self managing, used to just give this speech to everyone who was one of my tenants. I would just be like, I want our entire basis of our relationship just to be reasonable. Just talk to me like you would ask a friend or a family member for a situation and I'll do what I can. And I'm going to be ask you to be reasonable about things, to let contractors in to, you know, like be reasonable. And that has worked for me a hundred percent of the time. I've really never had an issue with that approach. I love what you said about involving them in the decision. People just generally, it's just human psychology. They want agency. They want control. And even though you're not giving up actual control, giving people a say is really powerful

• 17:43Dave Meyer?

  and meaningful and will matter for your relationship going forward. If you've listened to any of the episodes with Dion McNeely, he like sort of patented the binder strategy. Have you heard that? What he calls the binder strategy? Yeah, it's the same idea, but he basically shows his tenants what rents are in the area. Like he pulls comps and prints them out and shows them to them. I think in a situation like this, you can even, if you wanted to, show what rent was 12 years ago and how rents have changed over the last 12 years recently. If you want to, you don't have to beat people over the head with data, but like if you could show how much taxes have gone up over the 12 years, like there are real reasons why rent goes up. There's been enormous inflation across this country in the last 12 years and not changing

• 18:27Dave Meyer?

  rents is not a tenable option for real estate investors. Now, you don't have to maximize and squeeze every drop out of a tenant. I highly recommend against doing that. I don't think that's the human thing to do, nor do I think it's good business. And I think that what Henry suggests is absolutely the right way to do it. I think the numbers you gave Henry are a perfect example. Would you personally take a thousand over 1,200?

• 18:52Henry Washington?

  Absolutely for the right tenant.

• 18:54Dave Meyer?

  100%. If they move out and you have two months of vacancy, that's pretty much a wash, right? So wouldn't you rather keep a great tenant for a wash? Like it's a no brainer. People get obsessed with their absolute, like people really, I think in general, get obsessed about their rent numbers when every experienced investors know it's your net cash flow that matters. Like the gross rent number doesn't matter. If you have vacancy, it's going to eat away at that and that crushes your deal. Every month of vacancy, just keep this in mind, that's 8% of revenue you lose. You lose, you know, two months, that's 16% of your revenue. That's enough to take almost any deal from cash flowing to negative. So just keep that stuff in mind.

• 19:35Henry Washington?

  This is why we harp so hard about underwriting conservatively. I think what happens when people get in this situation is they under oath buying that deal, assuming they're going to get the highest. Best rent number possible, and that's how the numbers worked. And then you get into a situation like this and you realize I'm not going to get that. Or if I do, it's going to take me a year before I can get there and I'm going to lose a lot of money in between then. So if you underwrite conservatively, where you underwrite based on a lower rent number, the mid tier of the rent price range, maybe even the low end of the rent range, and then you buy a deal that pencils,

• 20:12Dave Meyer?

  Yep.

• 20:12Henry Washington?

  You have room to be able to take care of people like this.

• 20:15Dave Meyer?

  This is playing out for me all the time right now. I don't know about you, but like I'm not getting top market rents.

• 20:20Henry Washington?

  Yeah.

• 20:20Dave Meyer?

  These days when I have renewals, I'm usually able to keep rent. Um, but there have been a couple of units where I've had to lower rent, especially in Denver. If you guys follow the news, Denver is not doing great on rent growth, which is fine because I underwrote them this way. You know, I have great property managers, I have great agents. They say, hey, you're going to get 1,500, 1,600 bucks. When I underwrite it, I say 1350. I'm like 10% below what they tell me.

• 20:46Henry Washington?

  Yep.

• 20:47Dave Meyer?

  Because I want that flexibility. I don't want to be strapped. I love being in a position where the property manager comes to me like, actually I can only get 1450. I'm like, great, I underwrote a 1350. This is excellent.

• 20:58Henry Washington?

  Right.

• 20:58Dave Meyer?

  You know, like I, I'm not worried about that, but when you set yourself up to only succeed if things go perfect, that is just a recipe for failure all the time. So to Nick, I think you know what to do. Hopefully this is a good answer and let us know what happens. Cause I actually, I bet if you follow Henry's advice, you're going to find a mutually beneficial situation, which is what Henry and I are always talking about. Find mutual benefit. It's the best thing for business. It's the best thing for you. All right, let's move on to question number three, which comes from Morgan in Houston, where we just were. By the way, we ate at this great barbecue place Pendleton's. I just saw it made top 10 barbecue in the country.

• 21:35Henry Washington?

  Best ribs I've had in a long time.

• 21:37Dave Meyer?

  Anyway, go to Pendleton's. Morgan in Houston wants to talk about real estate, not barbecue though. Morgan says, I want to get started with real estate in Texas and I'm going back and forth between the burr or a fix and flip. I have a good amount of cash, 100K or more to invest, and I want to take a risk, but not a huge loss. Don't we all? And I don't want to rent a property or deal with tenants, but I am open to the idea if it is advantageous. What are your thoughts for a rookie?

• 22:05Henry Washington?

  Yeah, this is an interesting one, based on what was said in the question, because it says, I don't want to rent a property or deal with tenants, but I'm open to the idea of it's advantageous. Well, first of all, being a landlord is very financially advantageous. I think that's why a lot of us are here. And so I think that that's the question you need to get comfortable with first, right? Because if you go into this not wanting to be a landlord and trying to get yourself sold on being a landlord by taking on your first property, I mean, you're going to get punched in the mouth.

• 22:40Henry Washington?

  Being a landlord is tough. There's a lot of problems that come with it.

• 22:43Dave Meyer?

  Yeah.

• 22:43Henry Washington?

  And the benefits are more long term than short term. Getting into this business and expecting to buy a property that's just going to go perfectly. You're going to be making all this cash flow from, you know, day one. It doesn't work like that. Like you have to have a long term mindset. So if you aren't mentally prepared to be a landlord, take on some short term pain and get the gain in the long term, then you probably shouldn't be looking into BRRRRS at all.

• 23:10Dave Meyer?

  Totally. I think you basically have, you have a choice to make, Morgan. One, you said, I want to take a risk, but not a huge loss. Those things aren't 100% compatible. Like risk and reward work in a continuum. The higher the risk you take, the bigger the potential reward. So if you're saying that you want to take a risk, you have to be open to the idea of loss. Like that is just investing in general. People who invest in Bitcoin have had amazing returns. People have also lost fortunes in Bitcoin. If you want to just safe investment, go buy bonds. You'll earn a 4% return and you'll be fine. But if you want to take a risk, you have to be comfortable with the loss. So I really think you need to figure out where you want to fall on this risk continuum.

• 23:53Dave Meyer?

  Because if you're comfortable with, with risk and loss, go flip houses. I think that's probably the right answer for you, because you seem to not want to deal with tenants. In my opinion, BRRRRS is a lower risk strategy. Then flipping. And so if you instead want to focus on not taking big losses and are can warm up to the idea of having tenants, then I would say BRRRR.

• 24:17Henry Washington?

  Yep.

• 24:17Dave Meyer?

  Because with a BRRRR, you don't have the same time pressure as a flip. You still want to do it as quickly as possible. But if you, you know, finish your renovation at a bad time to sell, you just keep it and rent it out. Like you, you lose that like pressure for disposition.

• 24:32Henry Washington?

  Yep.

• 24:32Dave Meyer?

  So I, I think you need to sort of make a decision here because you can't have it all.

• 24:36Henry Washington?

  Yeah, I agree. And you need to figure out, are you looking for short-term money or long-term money? Right? Because if you want to do a fix and flip, you'll get money faster. Right? You'll get paid hopefully in six to eight months. A BRRRR is probably going to take you longer. You'll pull out some of your cash, but the likelihood of you finding a deal that pencils as a BRRRR in a short-term timeframe, that's going to allow you to pull all of your cash back out and some additional profit. That's, that's a tough sell right now.

• 25:07Dave Meyer?

  Yeah.

• 25:07Henry Washington?

  Can it be done? Yeah. Yes, it can be done. But it takes work. Like, you're going to have to be searching for off-market deals or putting in a ton of extremely low offers on on-market deals. And it's just going to take a long time to find that. So it sounds like you need to A, figure out what kind of risk reward you want. And B, when is that timeframe that you're looking to get paid? Because a BRRRR is going to take a longer period of time. A flip can be a whole lot shorter, but a flip is going to be a bit riskier. So you've got some decisions to make, for sure.

• 25:37Dave Meyer?

  Honestly, once you figure out the goal, I know it sounds boring and like no one really wants to think about it, but I promise you, it sort of just makes every question after that easy. You're like, okay, should I buy this? You have this frame of reference that you can analyze any question through. It's like, should I buy this deal? No, it doesn't meet my goal. Should I buy this deal? Yes, of course. It gets you over analysis paralysis. It gets you over that overwhelmed feeling. So just take the time and think through what you really want to accomplish here.

• 26:02Henry Washington?

  All right. Well, we've got time for one more question. But before we get there, we've got to take a quick break.

• 26:09Dave Meyer?

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• 26:51Dave Meyer?

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• 27:36Dave Meyer?

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• 29:37Henry Washington?

  All right, we are back on the BiggerPockets Podcast, answering your questions from the forums, and we've got one more question, and it comes from an investor named James in Seattle. James says he's looking to buy his first house hack in the Seattle area and is finding it incredibly hard to find a property that will cash flow positive when he moves out. He says, "I've had agents and lenders tell me that's a pretty great deal when I would be getting negative $1,400 a month in cash flow. How am I supposed to continue buying a house hack every year or two if I'm racking up more and more payments? Am I supposed to buy the house and hope that I can eventually rent and refinance? Help me make a deal in this expensive market."

• 30:17Speaker 05

  Well, first of all, I love that this comes from someone named James in Seattle. I love the idea of this just being James Dayner submitting questions to us. What's this whole cash flow thing?

• 30:28Henry Washington?

  There's no juice in the cash flow, guys.

• 30:30Speaker 05

  There's no juice. But seriously, James, I live in the Seattle area and I sympathize. My short answer to this question is don't. This does not sound like a good deal. I wouldn't do it if I were you. I don't know what else to say. I, you know, Henry and I actually recorded a show last week talking about house hacking, popular topic.

• 30:54Dave Meyer?

  Five, 10 years ago, there was almost no situation or no market I would advise against house hacking. It was just a no brainer. Check the box, go do it. But in the expensive, the truly expensive markets in the country right now, these are Seattle, California, New York, Austin, Miami, like these kinds of markets, it does not make sense. I have literally done the math and it does not make sense to buy house hacks. I know BiggerPockets is partially responsible for this mindset where we've been telling people the house hack for 15 years and for still for 80% of the population, that is true. But if you're in one of these uber expensive markets, it doesn't make sense. You have two options,

• 31:36Dave Meyer?

  in my opinion. You either do heavy value add strategy, which is what I have resorted to since moving to Seattle. This is why I started flipping houses for the first time, because you absolutely can make money in Seattle doing that strategy, or you have to invest out of state. This is why I do both. I invest out of state for cash flow and for long-term rentals. I am trying my hand. I wouldn't say I'm a flipper yet, but I have, I'm dabbling in flipping a little bit because I do like, like I enjoy real estate. I want to be doing deals where I live. And so the only way that that makes sense for me right now is to do heavy value add in the form of flipping. I'm also starting to look at value add rental properties, like buying stuff that really needs a lot

• 32:18Dave Meyer?

  of work and doing that. But house hacking here, it just doesn't work. It doesn't make sense right now.

• 32:24Henry Washington?

  Here's the framework that I, that I kind of look at in terms of should you house hack or not? If you're looking at house hack deals, especially just consider a duplex. If you're living in a place where you're looking at a duplex, and if you buy it, live in it, rent out the other unit, and your remaining mortgage payment is still as much as it would cost you just to go rent a place by yourself, you should not house hack. It's not gonna work.

• 32:50Dave Meyer?

  Yeah. Well, I wish rent here for a single, for a single bedroom was only 1,400 bucks a month. It's probably more than that. But you can rent like a nice apartment in Seattle for two grand, 2,500 bucks a month, especially in the neighborhoods that this. That James is talking about. So it's just, it's a lot of risk and a lot of work and a lot of capital, frankly, that if you're gonna go even in, you know, listed some neighborhoods here, we won't read them to you, but you know, you're still gonna have to, if you're putting, you know, 20% down on these properties, over 100 grand for sure. Like if it were me, I would rent and I would go find a duplex in a growing city in the Midwest and just bite the bullet. It's not that bad. I do it and everyone can figure it out. We put out a lot of resources on BiggerPockets

• 33:34Dave Meyer?

  about how you can do this as well. I offer this freely on biggerpockets.com/resources. I made a free calculator. It's a house hack rent or buy calculator. Go play around with it. It will confirm what I've said and anyone else who's thinking about these different options, just go play around with it. You will see that you're putting 80, $90,000 into this deal. Even if you put that in a bond, you're going to be making more money than this house hack deal. Like you should just think about the opportunity costs that you're giving up with this. I know, we talk about house hacking all the time because it does make sense, but there are situations where it doesn't make sense. This is why, no matter what you do, you have to just run the numbers and see for yourself if the math pencils out. And for most people in Seattle, or LA, or New York, or Miami,

• 34:19Dave Meyer?

  it just doesn't pencil right now and it's frustrating, but there are other ways that you can win as an investor. So go focus on those.

• 34:26Henry Washington?

  Absolutely. You're right. It is our fault. We talk about house hacking all the time because it is amazing.

• 34:31Dave Meyer?

  Blame us.

• 34:32Henry Washington?

  But we're being honest with you about what situations it does work and what situations it doesn't work. So if you want to learn more about house hacking, you can check out a couple of previous episodes that Dave and I did, number 1236 from a couple of weeks ago. That was all about how to analyze these specific rent versus buy decisions that we talked about today. Or you can check out episode 1182 where I talked about several ways you can add value to your house hacks and your rental properties to help you be more profitable.

• 34:59Dave Meyer?

  And if you want to learn how to add value in Seattle specifically, we're literally doing a value add conference in Seattle because this is such an important question. This is a question, James, that we hear all the time. And that's why James Daynard, one of the best value add investors out there and who does it in Seattle, makes more money than Henry and I combined, Facts. is teaching us how to do this. So it's March 28th. You can get your ticket at biggerpockets.com/Seattle. Henry and I will both be there. Henry will be teaching. I'll be in attendance, learning and hope to see you guys there as well. I personally am going to go start enjoying the benefits of indoor heating and shed a couple layers.

• 35:41Dave Meyer?

  But thank you all so much for listening to this episode of the BiggerPockets Podcast. We'll see you next time.

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