How Much Should You Put Down on Your First Rental?

You’ve saved up some money and are ready to buy your first rental property. Now comes the question: How much do you put down? Do you buy multiple cheaper properties or splurge and put the entire down payment into one bigger, arguably more stable rental? Should you start to scale from the jump or test the real estate investing waters before committing more money? After buying dozens of rental units, Dave and Henry have a clear opinion. We’re back with your questions from the BiggerPockets Forums! A real estate rookie is wondering whether they should spend $100K on one down payment or split it up into multiple, cheaper rental properties. Another is planning on putting very little money down on his first house hack, but do the numbers add up in this not-so-stable housing market? If you’re ready for your first deal, both of these answers could give you peace of mind. You’re about to sell a house flip for some serious profit—can you move that money (tax-free) into rental properties via a 1031 exchange? And if so, is the 1031 exchange worth the headache that comes with the timeline? Finally, a landlord is fed up with their rental and wants to sell. She has two choices: sell for cash and break even, or fix it up and potentially realize a five-figure profit. Would Henry, the renovation expert, make that bet? Ask Your Question on the BiggerPockets Forums! In This Episode We Cover How much you should put down on each rental property you buy What a solid first house hack actually looks like (mortgage, rent, etc.) Why we don’t factor in rent growth (most of the time) when analyzing rental properties Can you use a 1031 exchange to turn a house flip into a rental portfolio? When to cut your losses on a bad rental vs. fix it up and try to turn a profit And So Much More! Check out more resources from this show on ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠BiggerPockets.com⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ and ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠h⁠⁠t⁠t⁠ps://www⁠.biggerpockets.com/blog/real-estate-1322. 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.

• 0:00Dave Meyer?

  What's the point of your first real estate deal? Some investors would say, you saved the down payment, you did the homework. Now shoot your shot, maximize returns and start the wealth building snowball. The flip side, though, is that you don't know what you don't know on your first deal. So you could play it safe, just get on base and then push the envelope after you've gained experience. One of these approaches does build well faster on a spreadsheet, but not always in real life.

• 0:34Dave Meyer?

  What's up everyone? I'm Dave Meyer here with Henry Washington. And today we're dipping into the BiggerPockets forums to answer your questions. Henry, how you doing, man?

• 0:44Henry Washington?

  I'm doing great, man. I love answering forum questions because there are other people's problems that I get to help with, but it's dealing with my own.

• 0:52Dave Meyer?

  So much easier to give advice when it's not your problem. I totally agree with that. Well, we got some great questions today. We're covering a lot like the house hacking math most people get wrong. The moment it's tied to 1031 out of a property and when to cut your losses on an entire market. But Henry, you got our first question queued up. What do we got?

• 1:15Henry Washington?

  All right, our first question comes from a BiggerPockets forum user named Justin, and he asks, I live in California and I've been looking at multifamily units in Ohio, Michigan, and Wisconsin for my first investment. I will have approximately $100,000 within a few months. Would it be better to buy multiple multifamily units that are between 120,000 and 150,000 and put as little down as possible? Or should I buy multifamily or single family homes, but put 20% down?

• 1:45Dave Meyer?

  Okay, well, first up, Justin, love the strategy here. If you live in California and it's expensive, invest in the Midwest. It's a great way to do it. Ohio, Wisconsin, Michigan, all have great places to invest. I do it. I live in the Pacific Northwest, expensive here, hard to find cash flow. So I love the approach here. So then he's asking, do you buy multiple units and put less down or buy fewer units, but put 20% down? Justin, I got some hard news for you. You gotta put 25% down, just so you know, if you're getting an investor loan out of state, maybe if you're getting a DSCR loan, you might be able to put down less. But at least in my experience, I put 25% down. What about you?

• 2:29Henry Washington?

  Yeah, I've seen some 20%. I've seen some 25%. It just depends. I like the thought process here. My default answer is you've got to lean back on your goals, right? So if I have smaller goals, then I'm willing to put more down to get the cash flow upfront. If I'm trying to grow and scale quickly, then putting less cash in allows you to scale more quickly. But I don't know if that's the best move in this market unless you've got a good level of comfortability and a good team in place to execute that. Cause saying you want to buy two or three multifamilies and actually executing them

• 3:11Henry Washington?

  so that they produce the return that you hope they would in this market is it's, it could be challenging. So there's some, I think there's some other information you need in between there. What are your goals? Have you done deals in this area before? Do you have a team in place? Cause if you're going to go and buy two or three multifamily deals in a year's time span, there's a lot that can go on in there that you've got to be responsible for in order for you to get that return.

• 3:35Dave Meyer?

  The title of this post that you read was first investment. So the answer is he has not done these kinds of deals before. So I like this question because I feel like so many times when we get these, we have to answer them by saying, oh, it depends. You know, if you could do this, like this one is easy for me. Buy one better condition multifamily property. Put 25% down. It's your first deal. Your number one goal in your first deal is do not lose. Just don't lose your shirt. And the best way to lose your shirt is to buy what he's listing as multifamilies for 120, 150 grand a unit. That's a cheap property for a reason. There is going to be problems. You don't know how to manage it. You're across the country. You're going to invest out of state.

• 4:20Dave Meyer?

  I genuinely like the approach. Buy something easy for yourself, learn what you like, build your team, gain some confidence. And then maybe in the future, you can buy cheaper properties. Maybe you just keep doing that, but you don't need to take that swing on the first one.

• 4:34Henry Washington?

  Yes, cheaper properties can be more of a headache, but also just the benefit of being able to build a team you can depend on around that first deal. So if you buy something better quality in a decent neighborhood, but build that Rolodex of contractors, you know, your investor friendly agents and lenders. And after you've done a deal and you have some of those things in place, it'll be a whole lot easier to execute a larger project. But starting off, you could be in a world of hurt if you buy, cause if you hit the combo and buy not a great deal and a ton of disrepair and you don't have a team in place, I mean, you can, you'll, you can lose money fast.

• 5:18Dave Meyer?

  The longer I do real estate, the more I prioritize making it sustainable for myself. And I actually started writing my BPCon presentation the other day. So I won't give it all away. You have to come to the event in Orlando, October 2nd through 4th to hear the whole thing. But a lot of what I am talking about, and I'll just share with you a little bit, is like you, in order to be good at real estate, you need to stay in the game. And you just can't take risks like this when you don't have enough capital to weather it. You can take risks in real estate. There's plenty of times to do that. First investment out of state, now time to take a big swing, in my opinion. You go up there, you try and hit a single or a double, you learn, you get better and

• 6:02Dave Meyer?

  you find a way to get to the next one. Get up again, get up to bat again. You know, I just don't see the reason to swing for the fences here.

• 6:10Henry Washington?

  Start small, build your team, learn the market, because until you actually do a deal in that market, it's all guesswork.

• 6:17Dave Meyer?

  Just think about limiting your risk. Learning is more important than maximizing your ROI on the first deal. All right, great question, Justin. Appreciate it. Good luck to you. We have another question from Trent in St. Petersburg. We're going to get to that right after this quick break. Stick with us.

• 6:36Henry 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.

• 7:18Henry 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.

• 8:00Dave 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.

• 8:33Henry Washington?

  Quick word about a new pro perk you'll want to know about. Aven, 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

• 9:17Henry Washington?

  $400 on your Aven card. Enough to cover your entire annual Pro membership. Head over to aven.com/biggerpockets to see if you qualify. Aven Financial, NMLS number 2042345. Cards issued for 2020 license from Visa USA, Inc. by Coastal Community Bank, NMLS number 462289. Member FDIC, equal housing lender, subject to approval, terms apply. Visit aven.com for details.

• 9:38Speaker 02

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• 10:09Dave Meyer?

  Welcome back to the BiggerPockets Podcast. Henry and I are here answering the questions of the BiggerPockets community. Our next question comes from Trent in St. Petersburg, Florida, who says, "Hi, everyone. I want to move to Florida and house hack using an FHA loan with 3.5% down. The duplexes I've been looking at typically rent for around $1,200 per unit, while the estimated mortgage payments, taxes, and insurance would be about $2,200 per month. Am I looking in the wrong area, or is this fairly normal in today's market? Should I be factoring in future rent increases? Or is it better to base my numbers only on current rents?" Henry, what do you think?

• 10:48Henry Washington?

  I think this sounds like a solid house hack.

• 10:51Dave Meyer?

  Yeah, I would buy this deal right now.

• 10:54Henry Washington?

  $2,400 total coming in rent, but mortgage payment about $2,200 a month, which means you're going to live in one of the units, so you'll bring in 12. So you're cutting your living expenses down and you're gonna be able to move out at some point. Now, depending on when you move out, you may be breaking even depending on rent raises, and you may be cash flowing depending on how long you stay there. But that's the beauty of a house hack. You can stay there longer if you're not ready to move out or you're not in the financial position to move out yet. But this is solid numbers.

• 11:28Dave Meyer?

  Yeah, like St. Petersburg is a good market. I don't know exactly where the neighborhood is, but that's a good market in Florida. Florida is in a correction, so Trent, my advice would be to try and buy under-market comps and make sure you're getting a good deal here. But the cash flow numbers work on this. Like, it's easy to estimate this. Next week, we're coming out with an episode of the podcast, so tune into this, it's fun. I created a new rule of thumb to replace the 1% rule because rent-to-price does not work anymore, and we came up with rent-to-payment ratio. And I think this is a better predictor of cash flow right now, for all the reasons you can hear about in next week's episode. But if you compare the rents, which is $2,400 a month, to the payment of $2,200 a month, that's above 1%.

• 12:13Dave Meyer?

  That is a good opportunity for cash flow. I like this deal because regardless of what you're paying when you live there, you could move out and this will cash flow, especially because you're putting 3.5% down and it will cash flow at that number. So if you move out and refinance it up to a 20%, your cash flow is going to be good.

• 12:31Henry Washington?

  Yeah.

• 12:32Dave Meyer?

  I guess the only other thing I would ask here is, is there an HOA? Because I know in Florida, sometimes there are HOAs that might be a monthly fee that you're not factoring in here. But assuming there's not an HOA, I think it's looking pretty good. I would still, you know, I would still look around and compare other duplexes to make sure I'm not like missing out on an even better opportunity. But just comparing this to the national average, Trent, you're looking pretty good.

• 12:59Henry Washington?

  Yeah, I agree. And also, we're assuming some things. If this is like turnkey, you can just buy it and you don't have to do renovations to it, and you can get these numbers, that's great. But if you gotta go and spend $50,000, $100,000 to get to these numbers, you know, that lessens the profitability of the deal because you gotta factor in the money you spend getting it up to speed. But this is, this is a solid deal, seems like a good market. And, you know, you said buy under-market comps. I always want to buy under-market comps, whether I'm buying on the market or off the market, just because

• 13:29Dave Meyer?

  You should.

• 13:30Henry Washington?

  I just always want to get a deal.

• 13:31Dave Meyer?

  Especially in Florida right now, you have negotiating leverage. Like, go get yourself a deal. Obviously, do the full analysis. Like, Henry and I are using really high-level numbers here. Go run it through the BiggerPockets calculator, go biggerpockets.com/cal calculator, do the analysis, figure out if it's actually going to cash flow. But I think your prospects are strong. Now, there was another question in here, Henry, where Trent asked, "Should I factor in future rent increases, or is it better to base my numbers only on current rents?" You and I actually talked about this recently, but I think where we both came out to in this market right now is unless you're going to do renovation to push up rents and do something you control, I personally wouldn't. What do you think?

• 14:13Henry Washington?

  This is the market to be extremely conservative. So run it based on what you know now. Florida, like you said, is in a correction. A lot of people weren't expecting that. So if they didn't factor those things into their numbers when they bought those deals, they're hurting right now. So don't overestimate what you think rents are going to go up to. Underwrite it where it is today, and if it's working right now, I feel a lot better about doing that deal than if it doesn't work great now, but it works great in three years if rent goes up. I don't like that. I don't like that thought process. All right, let's move on to our third question, and it comes from a BiggerPockets member named Angela. And she asks, "If I'm going to sell a flip for $500,000

• 14:55Henry Washington?

  and make $80,000 to $100,000 profit, is it worth putting the money into a 1031 exchange? I don't want to buy another property of that value. I would like to buy two to three long-term rentals next."

• 15:08Dave Meyer?

  All right, well, Angela, I guess I'm the bearer of bad news today with people, but I gotta tell you, Angela, I don't think you can do a 1031 on a flip. I am almost sure, I'm not a tax advisor, but I do think it is sort of carved out that properties that are sold and uses 1031 have to be held as an investment, not for immediate resale. Flips are like classified differently as a dealer property. The only way to flip and get that kind of tax advantage is to do a live-in flip, which is even better than a 1031 because you get the tax-free gains, but you don't even need to immediately put it into a property

• 15:51Dave Meyer?

  and go through the whole rig and roll of a 1031. So Angela, I'm sorry to burst your bubble, but you do ask a good question around reinvesting and using a 1031 and whether it's worthwhile. I'm gonna say hard yes on this, a 1031. Like, I have used it many times and I love it. It's stressful as all hell, but it's, it is worth it. For anyone who doesn't know, the 1031 is basically when you sell an investment property, you can take all of the profit that you make and reinvest it into another property without the intermediary step of paying taxes. Like, for example, if you went out and sold stock,

• 16:36Dave Meyer?

  you would have to pay tax on it, and then you could go buy more stock, but at 80% of what your profit was because you just paid 20% in capital gains tax. One of the magical things about real estate is that you could just take 100% of your profit, reinvest it into a new property, and it's incredible because that compounds over time. You can just keep trading up and buying more and more and more. You can die without ever paying that tax and give your heirs a beneficial real estate situation. There's all sorts of benefits to it. The stressful part of it is that you have to identify the property you're going to buy within 45 days and close on it within 180.

• 17:13Henry Washington?

  Yep.

• 17:13Dave Meyer?

  The closing on it, in my opinion, is really not a big deal. But you have to find properties, which can be a little stressful, especially in a market like now where deal flow is a little bit harder to come by. That said, why not try it, in my opinion? Because the worst-case scenario is you don't find a good property in 45 days, and then you just pay the tax, which is what you would have done anyway. Like, you do have some fees to pay a 1031 intermediary. Like, that might cost $1,000, $2,000, but I would risk the $1,000, $2,000 in fees for the potential benefit of that all day. Personally, I don't know what you think.

• 17:52Henry Washington?

  I think that that's the approach. I think, and I have seen what happens with investors, is they want a 1031, and they're so scared of paying the tax that they buy a bad deal because they need the 1031. But remember, you've got to buy something of like value or higher. And so they're paying more for a bad deal, and they end up bleeding out more money because of that bad deal than they would have if they just paid the taxes. So make sure, you don't just do it because you have to 1031. It's gotta be a deal that pencils and makes sense, and you gotta, you gotta be willing to say, nope, I'm not going to buy that. I'd rather just eat the taxes than risk it on a deal that I'm not so sure about.

• 18:35Dave Meyer?

  I totally agree. Like, it doesn't give you that much cushion. Like, you're saving some equity, but I wouldn't justify buying a bad deal because I had 1031 money. What I have done in the past is bought a deal at a lower LTV to make it cash flow, where I'll put money into a deal that might not cash flow at 20%. I'll put 30% into it because I like the asset, not because I'm like, oh, I just need to put my money elsewhere. But I'm like, okay, I can make this cash flow by just putting 30% down or 35% down, and it's a really good asset that's safe and is going to do well for me.

• 19:20Dave Meyer?

  I have done that successfully multiple times, and I like that. I like that approach. I think, you know, I'm probably going to do another one this year, and I might do another one next year I've been thinking about. And based on what you just said, I'm starting to think maybe what I should do, and maybe this is good advice for people, is like come up with my criteria of what I will buy before I sell the house. Because it does get tempting. You're like, I don't want to pay the tax. Like, I could look at a thin deal. Like, maybe set your buy box and criteria

• 19:50Henry Washington?

  Yes.

• 19:50Dave Meyer?

  before you sell, and then just have a easy go-no-go on these kinds of decisions because it can't be stressful.

• 19:58Henry Washington?

  Yeah, I think you gotta just come to terms with the idea that you may have to pay taxes. Like, you just need to be okay with that, and then go shopping.

• 20:07Dave Meyer?

  Hot take, people are going to disagree with me on this. People spend way too much time thinking about how to optimize their taxes and not in a hot time about just like.

• 20:19Henry Washington?

  Bad. I get so annoyed when people, all the time, if I tell somebody, oh, I just flipped this and we made that, or I had a student flip this and they made that and they're like, what about the taxes? You gotta pay the, yeah, it's called a capital gain. A gain means I made money. Making money is awesome.

• 20:40Dave Meyer?

  Unbelievable.

• 20:41Henry Washington?

  That's what I want to do.

• 20:43Dave Meyer?

  I, I remember, I, I was talking to someone, wealthy, successful person who was complaining to me that he had to write a seven-figure check to the IRS. So over a million dollars. And I was like, cool. Give me all your income for the year and I'll, I'll write that check. No problem. No problem. Right? It's just like, I think real estate investors also get very spoiled because we have the best tax, it's the best tax advantages of any asset class. Like just the fact that you can make all this money and only pay 20% tax at worst, that's still pretty good. Now, I, I still try and optimize for my taxes too, of course.

• 21:21Henry Washington?

  As you should.

• 21:22Dave Meyer?

  But like, don't make a bad business, that's the difference. Don't make a bad business decision because it has a good tax outcome. That is dumb. If you can get both, great, but do not make a bad business decision to get a good tax outcome.

• 21:38Henry Washington?

  I've literally heard people say, yeah, you made a hundred thousand dollars, but you had to pay forty thousand dollars in taxes.

• 21:44Dave Meyer?

  Still 60 grand more than you.

• 21:46Henry Washington?

  Yeah, I want, I want that problem. Yeah. So you're saying you wouldn't have done the deal? So you wouldn't have to pay 40 grand in taxes and put 60 in your pocket? Out of here. Capital gains taxes are a tax on a gain. A gain is what you're trying to shoot for. Look for ways to offset your taxes as you should, but don't be scared of them. It takes some planning. Yes. Is it annoying? Yes. Especially annoying if you blow all your profits before you cut that tax check. But conceptually, it's a good thing.

• 22:17Dave Meyer?

  Yeah. And there was one other thing I wanted to mention here because she did ask, she said, I would like to buy two to three long-term rentals. That's an underrated part of a 1031 is you can split it into multiple properties. That's, it's a really good option. And you can actually, what I've done in the past, I think this is a really good way to do it, is you have to identify your properties and you could do up to four. It's either three or four, depending on certain criteria and price points. But you can identify three or four. Identify the maximum that you can. And that gives you 180 days to close. So that gives you time to work with multiple sellers. Maybe you don't buy all three of them. Maybe you buy two of them. Maybe you buy one of them. Maybe you buy none of them.

• 22:58Dave Meyer?

  But I really recommend thinking about it that way and trying to spread into multiple properties. If you can, that's a great way to level up and it gives you more optionality and more leverage when you go negotiate with sellers during your closing process. So I like that approach, Angela. All right. That's our third question, but we have one more for you that I think we might disagree on, but I'm curious to hear your opinion on this. We'll get to that right after this quick break. Stick with us. You know, when I first started sharing my real estate journeys online, I didn't have a website. I had a spreadsheet, an Instagram account, and no idea how they'd ever connect. I remember thinking a real website was going to cost me thousands of dollars and take a

• 23:41Dave Meyer?

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• 24:26Dave Meyer?

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• 25:39Dave Meyer?

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• 26:21Dave Meyer?

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• 28:20Dave Meyer?

  Welcome back to the BiggerPockets Podcast. Henry and I are here answering your questions, questions of the BiggerPockets community. We got a good one for our last question of the day. This question comes from Tammy in Fontana, California, posted on the BiggerPockets forum. She says, I have a rental in Kansas City that's gone into serious disrepair. I'd like to sell because it's my only property in this market. One option is to take a cash offer that will almost certainly be break even. The other option is to make some repairs for around 45K that would likely yield 20 to 30K after the sale. What are your thoughts? I know my answer. What's yours?

• 28:57Henry Washington?

  Okay. So with the information that I have, and I'm considering the market that we're currently in, I am probably not going to risk the 45 grand to make 20 or 30. I'm probably going to sell it and be done and take the cash offer and it's a break even. And I'm assuming that's a true break even, meaning if you've made money to this point via cash flow, you, you get to keep all that. That's awesome. You don't have to give it back. You just don't get a check at the end of the day. You get to walk away and be done and go invest in another market where you maybe have other properties. My concern with spending the $45,000 is that there's no guarantee that it's actually going to yield

• 29:42Henry Washington?

  you 20 to 30,000. You could spend $45,000 and you could totally break even on that $45,000. You'll get more money, but you'll probably only get $45,000 more with days on market, depending on the condition of the property, where it's located. There's so many factors that are going to go into, is that actually going to make you money? Just based on this limited information, I'm probably going to take the break even and move on.

• 30:04Dave Meyer?

  Take the cash, Tammy. Just take that cash. I, I, this is a no-brainer for me. I'm with you on everything here. First and foremost, I think if, sorry that you're in a bad situation in serious disrepair. You can get out of a bad situation at break even.

• 30:24Henry Washington?

  That's

• 30:25Dave Meyer?

  We call that a win.

• 30:25Henry Washington?

  That's a win, baby.

• 30:27Dave Meyer?

  Right? Like, obviously you shouldn't be doing this a lot, but these things happen, right?

• 30:32Henry Washington?

  Yep.

• 30:32Dave Meyer?

  You get out of a situation you don't want to be in, you get to walk away, you call that a win. Personally, I say, hey, I got out of it. I learned something and I'm going to spend the next three months instead of managing a renovation in a market I don't even want to be in and a property I don't like. I'm going to figure out what my next move is and, and what a better use of my time and capital is going to be in my next investment.

• 30:53Henry Washington?

  Yeah.

• 30:54Dave Meyer?

  And I actually just made this decision. I was talking before about getting out of a market. I had this exact decision. Numbers are kind of close, actually, about whether I wanted to do a renovation or not. And I just, I put it on the market and I got exactly what I wanted. I think I did a little better than break even because I bought it well. And so the equity I walked into more than covered my transaction costs, which is exactly what I needed to break even. And I made really good cash flow on that property for several years. So like, all in all, still did well. I don't need to spend the next several months worrying about this. I, I think this one's a, an easy one.

• 31:31Henry Washington?

  Trust me, Tammy, when you get to the closing table at that cash offer and you break even and that property is gone, it's going to feel like you made a bunch of money.

• 31:41Dave Meyer?

  It's going to feel like you won the lottery.

• 31:43Henry Washington?

  You're going to feel so good.

• 31:47Dave Meyer?

  It's so true. You probably will feel better than if you even walk away with 25 grand. And you'll, your hair will be less gray and you'll, you'll be, you'll be pretty happy about it.

• 31:58Henry Washington?

  Get out, get out, get out clean. That's good.

• 32:01Dave Meyer?

  Yep. All right. Well, this was fun. I, I love answering these questions. By the way, if you want your question answered, go on the BiggerPockets forum and ask the hundreds of thousands, millions of members there who are helping each other succeed in real estate investing by just asking questions and sharing knowledge. This type of community is what makes successful real estate investors and it's completely free at biggerpockets.com. So go check that out. And then Henry and I might pick your question to answer on the next time we do a forum Q and A question. All right, Henry, we're out of here. Thanks for being, he's dancing. He's, he's ready to go. You look as happy as you would if you just sold the

• 32:44Henry Washington?

  Sold, if I just sold a bad deal. Sold a bad deal and broke even. Look, every time I've been in this situation, because I've been in it more than once, where I had to get rid of something and I didn't make any money, it felt awesome.

• 33:00Dave Meyer?

  I love it. That's great. All right. Well, this was a fun episode. Thank you all so much for watching this episode of the BiggerPockets Podcast. He's Henry. I'm Dave. We'll see you next time.

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