Category: Real Estate

In This Article

Foreclosure activity doesn’t end quietly—and December 2025 proved that point emphatically.

After a relatively mixed fall, Foreclosure Starts jumped sharply nationwide, rising nearly 19% month over month and more than 44% year over year. 

That acceleration at the very front of the foreclosure pipeline matters because Starts represent the earliest public signal of homeowner distress—well before properties reach auction or become bank-owned. 

For real estate investors, Foreclosure Starts are often the first place where opportunity begins to form. They highlight where financial pressure is building, where motivated sellers may soon emerge, and where future auction and REO inventory is likely to materialize in the months ahead.

December’s data tells a clear story: Distress reaccelerated heading into year-end, with especially sharp increases in several key states and counties that investors should be watching closely as we go deeper into 2026.

National Foreclosure Starts Rebound Strongly

In December 2025, the U.S. recorded 27,640 Foreclosure Starts, representing:

• +18.94% month over month
• +44.66% year over year

This was one of the strongest monthly increases in early-stage filings we’ve seen in 2025. While foreclosure activity often slows toward the end of the year, December broke that seasonal pattern decisively.

The year-over-year growth is especially notable. Compared to December 2024, Foreclosure Starts are nearly 45% higher nationwide, reinforcing that financial strain remains elevated for a growing number of households despite a resilient labor market.

State-Level Breakdown: Five Markets Driving the Increase

Florida

Florida continues to be one of the most active foreclosure states in the country. December’s increase followed November’s pullback, signaling that early-stage distress remains persistent rather than temporary.

• 3,274 Starts
• +16.14% MoM
• +81.39% YoY

California

California saw a meaningful monthly rebound but remains essentially flat year over year. This suggests short-term volatility rather than a structural acceleration—at least for now.

• 2,389 Starts
• +14.31% MoM
• -0.21% YoY

Ohio

Ohio posted one of the strongest month-over-month increases among major states, reinforcing its role as a steady but growing foreclosure market.

• 1,060 Starts
• +24.12% MoM
• +14.10% YoY

North Carolina

North Carolina was the notable exception. Starts fell sharply in December, suggesting that much of the state’s distress has already moved further down the pipeline into auctions.

• 337 Starts
• -35.81% MoM
• -3.44% YoY

Texas

Texas delivered the most dramatic increase of any state in December. Starts surged more than 57% month over month and nearly 60% year over year—an unmistakable signal that early-stage distress is accelerating rapidly.

• 4,104 Starts
• +57.12% MoM
• +58.09% YoY

County-Level Insights: Where New Distress Is Emerging

State-level averages only tell part of the story. When we drill down to the county level, we can see where Foreclosure Starts are meaningfully rising—and where future opportunities may develop.

Florida: Central and Gulf Coast pressure builds

Despite Florida’s statewide growth in Foreclosure Starts, the increases were not evenly distributed.

• Lee County recorded a meaningful jump in Starts, continuing its pattern of elevated distress along the Gulf Coast.
• Orange County (Orlando) also saw a noticeable increase, reflecting growing pressure in investor-heavy neighborhoods.
• Miami-Dade and Broward Counties remained elevated but showed less acceleration than earlier in the year.

Investor takeaway

Florida’s distress is broadening geographically, not contracting. Central Florida and Gulf Coast markets are likely to feed auction activity in early 2026.

California: Inland Empire reawakens

California’s December rebound was driven primarily by inland markets.

• Riverside County posted a clear month-over-month increase in Starts.
• San Bernardino County followed a similar pattern, particularly in areas dominated by investor-owned rentals.
• Los Angeles County showed modest growth but remained relatively stable.

Investor takeaway

The Inland Empire continues to act as California’s foreclosure pressure valve. Investors focused on early outreach should monitor Riverside and San Bernardino closely.

Ohio: Columbus emerges as a standout

Ohio’s December increase was heavily influenced by:

• Franklin County (Columbus), which saw one of the strongest MoM increases in the state.
• Cuyahoga County (Cleveland) rebounded after a softer November.
• Hamilton County (Cincinnati) remained steady.

Investor takeaway

Columbus continues to outperform other Ohio metros in early-stage distress, making it a key market to watch in 2026.

North Carolina: Starts cool as auctions take over

North Carolina’s drop in starts was driven by:

• Mecklenburg County (Charlotte) and Wake County (Raleigh) both showed reduced early-stage filings.
• This aligns with the sharp rise in Notice of Sale activity seen elsewhere in the state.

Investor takeaway

North Carolina’s foreclosure pressure has not disappeared—it has simply moved downstream into auctions.

Texas: A surge that demands attention

Texas’ spike was widespread and powerful.

• Harris County (Houston) accounted for a large share of the increase.
• Dallas and Tarrant Counties also posted sharp gains.
• Bexar County (San Antonio) continued its steady upward trend.

Investor takeaway

Texas’ fast, nonjudicial foreclosure process means today’s Starts can become auctions in a matter of weeks. December’s surge is likely to translate quickly into a visible opportunity.

How Investors May Use Foreclosure Start Data

Foreclosure Starts are not just statistics—they are signals. Investors may use this data to:

1. Identify pre-foreclosure outreach opportunities before auctions are scheduled.
2. Anticipate future Notice of Sale and REO inventory months in advance.
3. Focus marketing and acquisition efforts on counties where Starts are accelerating.
4. Plan retirement-account investments using a Self-Directed IRA or Solo 401(k), where early-stage timelines allow for proper structuring, financing, and due diligence.

By tracking Starts alongside later-stage filings, investors can build a more complete, forward-looking strategy rather than reacting after inventory hits the open market.

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In This Article

New York City has always been known as a tough town for landlords. It’s about to get tougher. The city’s new mayor, Zohran Momdani, is putting “bad landlords” with outstanding violations, or those who owe the city money for stepping in to do emergency repairs, on notice and, in some cases, threatening to take away their buildings and freeze rents, raising fears throughout the real estate community.

“New York has the most tenant protections of any state,” Ann Korchak of the Small Property Owners of New York told the right-leaning American Enterprise Institute.  

While there’s no question that living conditions in some New York apartment buildings are atrocious and slumlords have long been associated with the Big Apple, equally, New York City is a very tough place to be a rental property owner.

In a city where over 70% of residents are tenants, laws skew heavily in tenants’ favor, making evictions—which can take up to a year—time-consuming and expensive. Now, as the housing crisis tightens its grip on renters, other states are following suit with enhanced tenant protection laws. As taxes, insurance, and repair costs rise, landlords, both big and small, are feeling the pressure.

The Effect of Increasing Tenant Protections on Small Landlords

As expenses rise, smaller landlords, who own about 90% of single-family rentals in the U.S., many of whom own only a few rentals, don’t have the deep pockets of corporate landlords to withstand a prolonged eviction. The Urban Institute found that one-size-fits-all landlord-tenant laws are disproportionately tough on smaller landlords who lack the experience and resources to fight increased regulations.

A December 2025 analysis on TurboTenant’s education platform highlighted these states as among the toughest to be a rental property owner:

• Connecticut
• Massachusetts
• Minnesota
• Maryland
• Illinois
• Washington
• Oregon

Factors considered include high carrying costs plus slow, tenant-friendly legal systems, making it especially challenging for mom-and-pop investors.

Here’s a deeper dive into some of these states.

Connecticut

In Connecticut, where the majority of evictions occur in five cities—Hartford, Bridgeport, Waterbury, New Haven, and New Britain—an effective property tax rate of 1.92% (well above the national average of 0.98%) and the expansion of “just cause” evictions make it especially challenging for smaller landlords.

“It takes away the control of my building, and I do protect my building to protect my good tenants more than anything, but occasionally you have to do other things. You have to remodel the units, and I can’t do it when somebody’s in there cause it’s too much, you know, you have too much work, especially half the housing in Connecticut’s over 100 years old,” John Souza, of the Connecticut Coalition of Property Owners, told WVIT/NBC Connecticut.

Illinois

Illinois is another state that is increasingly tough to be a landlord in, due to high property tax rates and increased tenant protection. As of Jan. 1, 2025, under the Landlord Retaliation Act—Public Act 103-0831, landlords “can’t raise rent, cut utilities, refuse to renew a lease, evict, or take other retaliatory actions if a renter does a protected activity or action like reporting unsafe conditions, requesting repairs, joining a tenants’ group, or taking legal action,” Apartments.com wrote about the statute.

 

Complicating issues in the state are the “crime-free housing laws.” The laws were promoted as a way to remove nuisance tenants from buildings, but their implementation has been mishandled, with the wrong people getting punished. As a result, city officials ordered landlords to evict tenants in 500 of 2,000 cases from 2019 to 2024, an investigation by The New York Times and The Illinois Answers Project found, causing a loss of income for property owners.

Infractions cited for evictions included accusations that tenants neglected their pets or eavesdropped on a neighbor, with a single violation enough to trigger an eviction. In families, the misdeeds of one member can result in the entire family being evicted. It has caused multiple complaints from landlords and tenants alike, the Times reported.

Oregon and Washington

On the West Coast, Oregon and Washington are known for their stringent tenant-protection laws. The TurboTenant report notes that Oregon’s statewide rent control, relocation fees tied to certain rent hikes, sealed eviction records, and certain rules that punish long-term ownership all contribute to what it calls “tough sledding”—making it difficult to find or build a home.

In Washington, the same issues occur, along with caps on rent increases in certain areas and the potential for multiyear legal disputes over contested cases. TurboTenant describes the state as a “financial and legal burden” for many rental owners.

Maryland

Maryland is another state named in the TurboTenant list. The Renter’s Rights and Stabilization Act of 2024 was one of two bills recently introduced. It gives tenants residing in a rental property the right of first refusal if the landowner wants to sell the property. It also increases court fees for landlords to file an eviction.

House Minority Leader Jason C. Buckel (R-Allegany) said during the court hearing:

“This bill is disincentivizing. How do I know this? Because they all come here and tell us that. Every group that represents people who invest in these types of property into this sector of the economy—multifamily housing, building associations, all of them. They all come here and say, ‘this doesn’t work. This is a bad compromise.’” 

Final Thoughts: Strategies for Small Landlords in a Tougher Landscape

The housing crisis has seen cities and municipalities across the nation undertake measures to keep tenants in their homes to stave off homelessness, making it tough for landlords, especially those with only a handful of rentals, to run their businesses efficiently. 

The lesson here is less about panic and more about planning. Investors need to assume that tenant protections will continue to increase in many markets. The key is to do your homework before investing. Being a landlord in any state is tough. Don’t make it tougher by not being prepared.

Key issues include:

Consider eviction rules

For landlords involved in government rental assistance programs or with HUD mortgages, the federal 30-day eviction-notice requirement, similar to the CARES Act requirement, is likely to remain in place, and landlords should plan for long eviction lag times.

Increase your slush fund

Landlords need to boost their reserves to cover compliance costs and capital expenditures. City-cited violations must be corrected promptly to avoid additional fines and legal action.

Research rent control laws

Small landlords need to research how local and state policies treat different types of housing within the same region. Are two-to-four-unit properties exempt from rent control? What about higher unit counts?  Can you add an ADU or convert a basement to livable space?

Dave:
Trump’s terrorists just got canceled. Congress just actually passed a bipartisan housing bill. We’ve got updates on regional housing markets, the crypto markets, and more. This is on the market. Hey everyone. Welcome to On the Market. I’m Dave Meyer, joined by Kathy Fettke, Henry Washington and James Dainard. Thank you all so much for being here. I feel like James wore his football uniform today, so we have to give him a minute to gloat about the Seahawks.

James:
See what this is. This is Super Bowl champions.

Dave:
It was already like two weeks ago, but we have it recorded together. So good for you, James. As a new resident of Seattle, I’m jumping on the bandwagon. I’m excited about it.

James:
It’s just been a great week. I think it’s going to be a great 2026

Kathy:
And it’s the year of the fire horse. So what does that

James:
Mean? What? I have no idea what

Dave:
That means.

Kathy:
You

Dave:
Guys don’t know. You can’t just casually drop. Oh, it’s the year of the fire horse.

Kathy:
What’s that mean? Okay, well, it’s Chinese New Year, just on a couple days ago, and last year was this year of the snake, so it was shedding, letting go of things that are heavy that you don’t need anymore, and this year it’s the fire horse. So the energy is like, go get it. You kind of shed all this stuff from last year and now it’s just going to be a fiery action packed year.

Henry:
Does that mean Venus is in microwave or whatever?

Kathy:
Oh yeah. I think that’s exactly it. Yes. You’ve been doing your homework. Yeah. All

Dave:
Right.

Kathy:
Well with that,

Dave:
I think that we need to take action and actually get to the podcast.

Kathy:
We should probably do that too.

Dave:
Alright, well we are doing a headline episode here today. Each of us brought one headline related to the housing market. I was going to do a total deep dive into the regional housing analysis, but I woke up this morning and found out that the Supreme Court struck down President Trump’s global tariffs in a ruling six to three today. Basically saying that the Emergency Powers Act, which is the legal justification Trump has been using to implement tariffs sort of all across the globe, is unconstitutional. It’s basically not in the president’s power to do. The Supreme Court has said Congress reserves the right to be able to implement these kinds of tariffs because as we’ve discussed, tariffs are taxes and Congress has the responsibility of implementing taxes. So that is really big news. I do think Trump, frankly, is probably going to look for more ways to justify tariffs and we might not see the end of this legal battle, but I think we’ve hit peak tariff because all the other ways that he can implement tariffs are not as sort of robust as this option. And I have some thoughts about what that means. But before I get into that, I’m just curious what you guys make of this. Are you happy to see tariffs gone, Kathy?

Kathy:
Yeah, I just did a report recently on how those tariffs actually ended up really being quite a tax consumers. There’s mixed reviews on that, but I think at the end of the day, of course

Dave:
The studies I saw said 90 to 96% of the costs are being borne by American consumers and companies,

Kathy:
So that’s bs. So it’s great for me in the construction industry and for all our projects we’re stoked. I still have 10 homes I got to build in Park City and we’ve got these developments all over the country and this is just great news for us.

James:
I think the question is will the pricing actually come down though?

Dave:
I actually think in commodities, yes, like timber, lumber, aluminum, anything that’s commodity will probably, but consumer goods are not going down.

James:
This is what happens to construction all the time. It was even after the COVID pricing increase, materials came back available, but their pricing stayed the same.

Dave:
Yeah, exactly.

James:
It wasn’t inflation, it was like, oh, limited supply, limited supply, and now I can, everything costs more, so the damage might’ve already been done. Hopefully we see some relief, but I don’t think we’re going to on at least that. At least we know it might not keep going up, but

Dave:
Yeah, that’s where the relief will come. It won’t go up as fast.

Henry:
I think it’s just going to be a bit of a delay. I think companies are going to need to get through the fiscal year and see what actually happened in terms of profitability. If they were able to raise prices and not lose profitability, I don’t think they’re going to drop their prices now that the tariffs are gone, but if they actually ended up in the red or they lost money because prices were high, then I think you might see some of those companies shift pricing. But other than that, and you won’t see that right away.

Dave:
Yeah, I agree. I do think overall, I think this is a positive thing for the housing market. If this reduces overall inflationary pressure, that is really good for mortgage rates, that is the thing that is keeping mortgage rates up is fear of inflation. Now, I’m not saying it’s going to go away altogether. Inflation has already started to come down. That’s good, but this is just another thing that could help move inflation down, which will hopefully take mortgage rates down with it. It can help bring down bond yields. That will take time. It’s not going to happen overnight, but I do think overall if the market in general becomes a little less concerned about inflation because of this, that is good news

Kathy:
And it’s interesting. I read something about a lot of that has to be paid back, so ouch.

Dave:
Yeah, that’s

James:
Interesting. Wait, they got to give the money back.

Dave:
They didn’t decide. Yeah, they didn’t decide, but there are going to be a lot of lawsuits about this.

Kathy:
Oh, there already are. They’re launched, and again, I’m here in California. Our attorney general has had like 30 plus lawsuits against Trump and has won a lot of ’em over 20. So attorneys are going to do very well.

Dave:
Yeah, well, I think it was Brett Kavanaugh, the Supreme Court Justice who wrote the dissenting opinion about this and he basically said that the treasury shouldn’t have to pay it back because it would be too complicated, which doesn’t

Kathy:
Exactly sound like a legal argument to me. Yeah, I feel like companies are like, I’m going to uncomplicate this for you. Yeah,

Dave:
He said it could be a mess with significant consequences to the US Treasury, so we’ll see. Yeah. Let’s move on to another government issue, Henry, I think you have something to talk about.

Henry:
So I wanted to talk about this new bipartisan housing bill that passed Congress. So on February 9th, 2026, the housing for the 21st Century Act passed the US House of Representatives by a vote of 390 to nine. So extreme bipartisan support, which is amazing, especially right now when we don’t seem to be bipartisan on anything. But this housing policy is aimed at boosting supply and affordability, so it’s got legislation in there to help modernize some of the federal housing programs, essentially making it easier for people to get different developments through federal programs, cutting timelines, cutting some of the red tape, streamlining approvals, increasing financing flexibility, so allowing for increased loan limits for multifamily projects and improving access to other financing tools for both developers and lenders support for local zoning changes. So in other words, the zoning regulations are typically local, but this has federal support to help ease some of those zoning regulations. Also allowing for FHA loans at lower loan amounts and then also allowing people to get FHA loans for things like modular homes or mobile homes. Love that one. That would be awesome. Which I mean that’s aimed directly at housing affordability, which
Is
A huge impact on our housing market. So I know Dave did a whole episode on this, but I wanted to hear everyone’s thoughts on this legislation. If you think it’ll pass, if you think it’s actually going to move the needle,

Kathy:
I say bring it on fire horse, bring it on. I’ve been trying to build a manufactured housing here on own a lot in Malibu, so it’s got houses next to it. There’s no reason there should be any difficulty getting a house on this lot where it’s a residential neighborhood. We’re not talking like the top of a hill in the middle of the Santa Monica mountains or something like that. And it’s still, I talked to builders who said, forget about it. It’s going to take you 10 years to try to get that built. And when looking at manufactured housing, it turned out it was really not much cheaper, and we talked about this before, so it’s like, ah, you just feel so stuck and this is one of the worst places for affordability, and yet it’s just impossible. There’s actually an affordable apartment going in just over the hill and there is just so much backlash around that.

Henry:
NIMBYs.

Kathy:
Yeah. Yep, NIMBYs. So anyway, I love the manufactured housing. That’s the solution and maybe the firehouse is AI in secret. That’s what it really is. It’s going to try to make this go faster,

James:
But doesn’t it come down to specific counties? I get the, it’s going to be releasing, but it just doesn’t. I actually love manufactured home investing if it didn’t take so dang long. It’s a simple process. You buy a piece of land, you get the utilities there, usually it’s going to be a septic, you get the power brought in, but getting approval for that septic system or the onsite is like some of these counties, it’s like four years, two to four years.

Kathy:
It’s hard.

James:
If I could do this in an efficient time, I would probably do a hundred year. You can easily buy these things for 150 grand and deliver ’em, and they’re great places to live. They’re actually laid out really, really well. It’s just honestly, I think the financing piece and those parts of this are going to be beneficial, but I don’t know if this does anything because at the end of the day it’s just so state regulated and there’s not enough people working at these departments. That’s really what it comes down to. If they go, Hey, we’re going to start funding these cities more to get ’em, be more efficient in these counties, I actually would have more hope than even this right here.

Dave:
I agree with you, James. I feel two ways about it. I am encouraged. I think this is a step in the right direction. Is it going to change housing supply fundamentally? Probably not. But as we’ve talked a lot about on the show, I personally just think all the demand side fixes where it’s like we just give more money to home buyers is never going to be the long-term solution and this is a step in the right direction. There are actually some good ideas here, but I think you’re right, James, that ultimately probably 90% of this comes down to state and local regulation, not federal regulation, and they stopped short of doing anything like zoning. They’re publishing, part of it is publishing zoning best practices, but they don’t know states have to do anything. It’s not going to stop. It’s not going to stop all these town hall meetings that people debate. So it really does come down, I think, to local people talking to their own governments and insisting that this stuff happens. But we know that that gets countered by Nimbyism at the same time. But

Henry:
I think support at the federal level is the first step. I mean, hopefully down the road we start to see some of those things loosen. Maybe there’s some sort of incentives they can give local communities to open up the zoning regulations for housing. I know we have about four cities smashed on top of each other here, and each city has its own different perspective in own different zoning regulations on infill housing and some cities and one city’s very progressive about it and some of the other cities are absolutely not. And I think it’s going to take something at the federal level to start getting people on the same page about what we’re trying to accomplish in the housing market as a country.

Dave:
Well said. Just so everyone knows, this hasn’t actually passed the Senate yet. I think it’s pretty likely that it is going to, but we will let you know if anything changes in that process. With that, we’re going to take a quick break. We’ll be right back with more stories from James and Kathy. Welcome back to On the Market. I’m Dave Meyer here with James Henry and Kathy talking about the latest headlines we talked about Trump’s tariffs being struck down by the Supreme Court, a new bipartisan bill making its way through Congress. James, what do you got for us? My news

James:
Article today is the Seahawks. Were crowned Super Bowl 50 champions dominant performance. The article that I brought in, this is always interesting to me. I don’t get the whole crypto world. I would say I’m very behind in that. I don’t understand it, but there’s an article from Business Insider and it’s a crypto firm, which ties to Trump will tokenize some of the president’s real estate empire. And I don’t think this is the reason I felt like this article was interesting, not just because it was Trump doing it. Is this going to be a sort of way that companies are going to start fundraising and trying to do, and is this really the big test? And what it talks about is tokenizing means converting loan revenue into blockchain based crypto tokens that can be bought and traded. As I was kind of reading through this, I was like, I’m not a hundred percent understanding this, but basically it doesn’t make a whole lot of sense. It’s like, okay, so you can get a token based on future earnings, but then it seems like there’s unlimited tokens that can be purchased.

Kathy:
It’s very confusing and it just sounds like there’s so many SEC laws about investing in real estate and this seems to bypass all of it. It’s like, yeah, I don’t get it either.

Dave:
That just does not sound good to me. Can you underwrite the deal or what are you buying?

James:
You do know what you can buy. I mean, because buying into specific real estate assets or the token is backed by those assets, but I think for most consumers, they’re just buying the token. They’re not going to actually go in and look at, it’s almost like a way to hide your PM. It’s like, hey, we got this token is tied to this real estate and this real estate is tied to this guy named Trump who’s good at real estate supposedly. And then you kind of put the money there instead of looking at it logically like, Hey, I’m going to buy this asset even if this is syndication, and then get, here’s the performance and projections. And I feel like this is just a terrible idea in general because I mean, at one point, how much were some of these, what were those things called? They weren’t tokens. They were the NFTs. NFTs.

Dave:
Remember those? I was NFTs. Remember crypto in the Metasphere or whatever. What was it called? Oh, the Metasphere land.

James:
The Metaverse.

Dave:
The Metaverse. Oh my God.

James:
What happened to the Metaverse? Did it go into receivership? It’s on a

Dave:
Thumb drive somewhere.

Kathy:
The one thing on the positive people are buying crypto with nothing backing it, so at least something’s backing it. That’s a little better. But then if you’re paying more, you’re selling it and someone’s paying more for it, how do you determine if the underlying asset has gone up? So I don’t understand it enough to even really speak on it, but it’s interesting.

James:
Yeah, this is a plan to tokenize loan revenue from the Trump branded Maldives Resort project. So this is for a specific, every

Dave:
Word in that sentence, resort makes me not want to buy

James:
This. I mean, the Maldives does sound interesting. I would love

Dave:
To go to the maldive. I’m going to take the money. I would invest in this and invest it in a massage and some scuba diving in the Maldives.

Kathy:
Yeah, there you go.

James:
And so basically it’s like investors are able to buy tokens representing pieces of the loan to fund the hotel’s construction. So that’s what I don’t really understand. So if it’s on a construction loan and then you’re buying pieces of the loan,

Dave:
What? It’s not like there’s upside on the loan. If you’re buying a loan or you’re lending, you should get a fixed return, right? Yeah.

James:
Yeah. This is why I was reading this article and I was like, I hope Dave can explain this to me. I did. This is weird, but all I know is it sounds just like a terrible idea. It was like that art or what was the monkey thing with the headphones where they were selling for a million bucks or whatever that was, and I don’t even think it’s worth it anymore. So it’s like, is this the next way that people are going to try to package up crap syndication deals, spin it on some sort of Bitcoin with funding and people get excited and it comes down to really about marketing your product than it does the actual performance of the asset.

Kathy:
Oh, there’d be so much of that. There’d be so much. But on the other side, let’s say you’ve got, let’s just take Trump out of it and just say, you found a great deal and you need investors. And the way we would normally do that is you’d open a fund and you would probably have to have accredited investors unless you filed a Reg A or some other way that you could have non-accredited investors in it. That’s the part, I don’t get how they’re getting around it, but there must be something. And now you’ve got a thousand investors in this fund and they have all contributed to the loan to be able to buy it. Now once you’re in that fund, you can sell your share to somebody else. It has to just depending on the operating agreement, how you do that. So it’s not that out of the realm of possibilities. It just sounds like the process of selling your stake would be easier.

Dave:
That’s true

Kathy:
Because in stake, no pun intended, talking Trump member of Trump stakes, but you can sell your stake either way and just have to go by the rules of the operating agreement. And sometimes it has to be approved by the manager or the manager has to have for se, or the investors have for se of who gets to buy that. So I guess it’s not that weird. It’s just tokenized and maybe an easier process for the sale.

Dave:
Yeah. I actually reading into this a little more. It’s not as bad as it sounds like, as I thought as first it said you can finance up to 70%, so it’s not unlimited, James. That to me changes the thing. It is a limited amount and the tokens are only available to accredited investors. So it is similar to a syndication.

James:
It is accredited, but so what I don’t receive is that they get 75% of the revenue for the token sales after cost. But then you’re buying into,

Dave:
Yeah, it’s super confusing. I still don’t understand why you would do this now instead of a syndication, there’s something that seems a little off about this.

Kathy:
It might be the same as a syndication, just a different way of trading the money,

Dave:
But it’s very unclear how you get paid back or what the token is backed by.

James:
I read this article twice and I was so confused by the end of it, and that’s why I brought it in. I had no insights. I was more confused. I was just like, this is weird. And I don’t know. I feel like these things go, if this goes through, we’re going to see a lot more of it and then we’ll never see it again and there’s going to be a bunch of nightmare stories. That’s just my read on it.

Henry:
Well, it’s already been happening. There’s already a company that I won’t say the name of that actually does on chain real estate transactions. And so basically it converts all the documentation into the blockchain so everything’s captured and stored forever. The transactions are signed in DocuSign, but then they’re converted and tokenized and saved on blockchain.

Dave:
I’m sorry if I’m dumb, but what does that do?

Henry:
Yeah, I don’t get it. Essentially, it allows people to use cryptocurrency to buy real estate, and it allows the process to move a whole lot faster. It is really their sales pitch in this.

James:
So is the deed recorded on the blockchain or is it and the county or just the blockchain? Yes,

Dave:
And the county. It has to be

James:
Recorded by the

Dave:
County, so it’s just saving it somewhere else. I don’t know. I got iCloud. I’m pretty cool at that,

Henry:
But I was reading about this company when I was talking about this. Apparently they’ve done like 40 million in transactions, so somebody’s using it. I just don’t see the pitch

Dave:
Sales pitch. That’s like 80 houses. That’s like four

Henry:
Houses, right?

Dave:
That’s not that much. I’m really not a crypto hater. Just so many of the applications of blockchain are like, okay, that’s maybe incrementally changed. At least someone come up with a good reason for me to use it and I will use it. That is not a good enough reason for me to use it. You’re like, oh, it’s in DocuSign and on the blockchain. Well, I was fine with it just being in DocuSign. That was okay for me. It isn’t DocuSign store it forever, basically. You would think. So

Kathy:
The one thing I heard, and again, don’t understand this very well, maybe 10 years from now we’ll look back at this episode and laugh at ourselves for not knowing.

Dave:
Yes. We’ll,

Kathy:
But if you think about title in America and how easy it’s for someone to steal your title.

Dave:
That’s true.

Kathy:
And it’s going to be much more difficult once it’s on the blockchain as I understand it.

Dave:
I like that. All right, Kathy, thank you. Pulling in some good stats. I like it. All right, we got to take one more quick break, but Kathy’s going to share with us story when we get back. Welcome back to On the Market. I am Dave Meyer here with Kathy Henry and James talking about the latest news. Kathy, what do you got for us?

Kathy:
All right, so I thought this article was interesting from visual capitalist. It’s called Charted the US Cities gaining and losing corporate headquarters, and not surprising at all. What do you guys think is at the top?

Dave:
Okay, can I have three guesses?

Kathy:
Yes.

Dave:
Okay. Austin, Tampa, and Charlotte

Kathy:
Where headquarters are moving to.

Dave:
Yes. Yes, the winners.

Kathy:
Okay. James.

James:
I thought Dallas was a big one, and then I feel like it’s by Tampa, but it’s not Tampa. It’s not big enough. Yeah, Tampas probably not big enough where I was just reading in Florida. Florida has two of ’em.

Henry:
It’s got to be places with no state tech, so I’m guessing it’s going to be Texas and Florida. So I would also pick Dallas and then Tampa and Orlando maybe.

Kathy:
So you guys almost unilaterally got, well, Dallas at the top a hundred new headquarters moved there from 2018 to 24. Austin was second with 81.

Dave:
Nice.

Kathy:
Nashville. Nobody mentioned that. Oh, wow. It was 35.

Dave:
I’m surprised by that. Okay.

Kathy:
And then Phoenix 31. And Houston 31.

Dave:
Okay.

Kathy:
What do you think was the worst?

Dave:
Oh, it’s got to be in California, la, San Francisco, San Diego, all of the above.

Kathy:
San Francisco Bay area had 156 headquarters move out with most of them going to Texas.

Dave:
All right. Henry’s going to make fun of me for being a nerd, but I’d like to see this done per capita because obviously the biggest cities have the most moving in and out because they’re just relatively bigger. That’s why Nashville surprised me, which is impressive. It’s a smaller city.

Kathy:
Yeah. The second worst was the greater Los Angeles area, losing 106. There you

Dave:
Go.

Kathy:
And then third New York City, which probably next year will be even higher. I think.

Dave:
I would just like to keep this all on scale though. New York City lost 27 total headquarters in six years. That’s four year. It’s not that crazy. I think the San Francisco and Dallas hundreds seems like a marginal one, but it really falls off quickly after the California ones.

James:
I think we could see this in Seattle next. We have a big income tax possibly getting passed. It’s going to be on higher earners. People that make over a million dollars a year, it’s going to be a 9.9% tax on your personal income. But there’s going to be a second tier to this too, though, that really will, I think it’s going to be in the fives or 6% where is going to hit the tech sector. And then the b and o tax threshold is increased from a hundred thousand to 2 million in taxable revenue. And so there’s a lot of different tax changes happening in Washington state, and I think these are things that you really got to pay attention to
Because I can tell you my goal was to go get 10 burr properties over the next 12 to 24 months in Seattle. And now I’m looking at other states to get those because these are things that I think can slow markets down dramatically. We see it in California. I mean, the real estate market has slowed down since all these businesses have left. And as you’re looking at investing, you really do got to pay attention to these things because I think these are going to have some serious impacts in Seattle. We’ve had quite a bit of tenant law changes over the last 12 months, and now this income tax could really affect what we see in house values here. I think these are big, big changes that people really need to pay attention to in the states that you’re in, because I think this could be detrimental for Seattle’s real estate for a short amount of time. We could see a pretty big pullback.

Kathy:
Oh, absolutely. You’re

Dave:
Probably

James:
Right.

Dave:
Yeah, I think you’re right.

Kathy:
I think that the issue is that people don’t understand that money is fluid. And so if you are in an area where people are making a lot of money, then they are spending it in all kinds of ways. And so if you want to have a small business, let’s say you want to have a massage parlor or nail salon or just any business at all, do you want one where there’s people who have money or people who don’t have money? So if you want to have a business, you need to be around people who can afford what you have. And guess who pays income tax? All the companies that rich people are working with. So there’s lots of revenue that’s collected when money is circulating, and the faster the money is circulating, the more tax revenue is collected. But you need money. So if you’re just going to tax the people who have it and they leave, it is very detrimental to the areas. I mean, if you look at back in time, Detroit was a New York City at one time, what happened there?

James:
That was all the union pushing. That’s just what it was, right? Companies were trying to grow and the unions were getting in the way of their growth. And at some point, businesses, you decide to leave. It becomes unenjoyable.

Kathy:
Yeah. If you can’t do business, you leave. Yeah, I

Dave:
Don’t know. I think corporate profits are at an all time high right now. American workers are getting the lowest share of corporate revenue since 1945. I don’t really think that’s necessarily a good thing. Business climate overall in the United States is pretty darn good. It’s pretty good for corporations these days. I think regular people are having a much harder time than corporations. If you want to just look at the numbers. The other thing is, I agree that these things do have impacts, and people love hating on California. California, fourth biggest economy in the world. It’s bigger than every other economy other than Japan, the United States and China. So clearly something’s going right for the business economy in California.

Kathy:
Yeah, that’s a good point. Still for investing, it is going to be very difficult to invest in California because the prices are high. So if you’re looking for cash flowing market, it’s good to look at where these businesses are moving, and that’s a clue for you. Dallas, Austin, Nashville, Phoenix, Houston, it’s where a lot of businesses are moving,

Henry:
And especially if you look at some of those markets where businesses are moving, where real estate is down right now, that’s an opportunity for people to get in, get a discount. Obviously companies see something in those markets, which means they’re going to bring people to work there, boost the economy. So it’s a good time to get property in some of those markets where their pricing like Phoenix, where pricing is down.

Dave:
Alright, any last thoughts before we get out of here? James, you want to shill the Seahawks one more time?

James:
It’s going to be a great year for the Seahawks. We got the fifth most cap space in the league. We can lock down some talent and I look forward to Super Bowl 51. Okay.

Dave:
Alright, well thank you all so much for joining us on this episode of On The Market. We’ll see you next time.

In This Article

This article is presented by Figure.

One of the most asked questions by rookie investors is, “How do I grow my portfolio if my income is low or unstable?” 

Obviously, if your real estate investing is a side gig and you have substantial regular income, this isn’t for you. You already know that you have the option to go down the traditional mortgage route to buy your next investment property.

But if you are self-employed and your income is variable, you likely won’t qualify for a traditional mortgage loan. Assuming that you also, at this point, don’t have access to equity in your own home to take out a loan, your options are beginning to look very limited. 

But that’s because you likely have never explored the DSCR loan route. Its eligibility criteria are fundamentally different from ordinary mortgage products. All you need is one investment property that is generating rental income. If your property can pay for itself, you may qualify for a loan—even if your personal finances say otherwise. 

Here’s what every serious investor should know about DSCR financing.

What Is a DSCR Loan?

A DSCR (debt service coverage ratio) loan is a type of mortgage specifically angled at real estate investors because it allows the applicant to borrow against a rental property’s cash flow as opposed to the borrower’s income.

This can be especially useful for investors whose income documentation may not meet traditional mortgage requirements, such as self-employed individuals or those with variable income.

Rather than relying solely on traditional income documentation, the lender will zoom in on your rental property’s ability to meet its debt obligations. How? By comparing the property’s income to its debt burden. 

Basically, they will want to see if the total net operating income per annum exceeds the total loan repayments. This is the basis for the simple formula lenders will use as a factor in deciding whether to approve the DSCR loan: annual net income, divided by annual debt service payments (principal and interest payments, property taxes, and homeownership association fees). This is the DSCR ratio.

The Importance of a Good DSCR Ratio

A good ratio is crucial for getting approved for a DSCR loan. 

What is considered a good debt service coverage ratio? Most lenders prefer a DSCR of 1.25 or higher, as it indicates stronger cash flow. However, some lenders—including Figure—may accept DSCRs as low as 1.0, depending on other factors like credit score and property type.

Let’s imagine you have a property with an annual debt obligation of $100,000, an annual rental income of $150,000, and annual expenses of $40,000. That leaves you with a net operating income (NOI) of $110,000, which, when divided by the annual debt obligation, gives you a ratio of 1.1—might be too low to qualify for a loan with most lenders. 

Once you understand your DSCR and are considering a loan, remember that the loan is taken out against the property’s rental income. If, for whatever reason, you experience a dip in rental income, you will need those cash reserves to cover the payments, while still meeting all your existing debt obligations.

It is essential to do your calculations right when figuring out if you’ll qualify for a DSCR loan: Always subtract all relevant expenses, including repairs and maintenance/management fees, from your NOI before you get to working out the ratio. 

If you’re getting a low ratio, you may want to look into ways of increasing the rental income or reducing your expenses before applying for a DSCR loan.

Common DSCR Loan Misconceptions 

There is one piece of fundamentally good news for investors who have a property or properties generating a steady rental income. Chances are you can utilize this underused loan strategy to expand your portfolio. And, for investors whose personal finance history works against them on mortgage applications, DSCR loans can be a valuable solution. 

However, there are a few details to be mindful of to maximize your chances of success:

Less paperwork doesn’t mean no paperwork.

It’s true you likely won’t need to fetch tax returns and pay stubs. However, proof of rental income isn’t the only thing you’ll need. Lenders will want to know the current market value of the property, so you’ll need to get an appraisal done. To lessen this burden, consider lenders that use automated valuation models (AVM) and can do this digitally.

Give it time. 

You will typically need at least 12 months of rental income to prove the property can be borrowed against.

Ensure you have a downpayment.

For purchase transactions, DSCR loans typically require a down payment of approximately 20% to 30%, depending on credit profile, property type, and underwriting criteria. Because these loans are designed for investment properties, minimum equity contributions are often higher than for owner-occupied traditional mortgages.

Borrowers should ensure they have sufficient capital to meet down payment and reserve requirements before applying. While some investors explore additional financing options, such as a home equity loan or line of credit (HELOC), to access liquidity, taking on additional debt can increase overall financial risk and reduce cash flow. Any such decision should be carefully evaluated in light of total debt obligations and long-term investment strategy.

Final Thoughts

A DSCR loan is an underused financing strategy every real estate investor should be aware of. If you have even a single property that’s generating healthy, stable rental income, you have a potential lifeline for your portfolio expansion. 

DSCR loans are typically easy to apply for, can take less time to get approved than traditional loans, and take your personal income out of the equation—crucial for the self-employed investor. Do your calculations diligently, and you could get the financing you need to grow your portfolio at your pace.

If you’re ready, Figure has loans to suit many investor needs. With their DSCR loan, you could get approved for up to $1,000,000 (1) in days, not months. Their HELOC is even faster—you can get approved in five minutes, and funding in as few as five days (2).

 

©2026 Figure Lending LLC

Figure Lending LLC dba Figure 650 S. Tryon Street, 8th Floor, Charlotte, NC 28202. (888) 819-6388. NMLS ID 1717824. For licensing information go to www.nmlsconsumeraccess.org. Equal Opportunity Lender.

For general customer support, call (888) 819-6388 Monday – Friday, 6am – 9pm PT, Saturday – Sunday, 6am – 5pm PT (excluding holidays).

Figure DSCR is available in AK, AL, AR, AZ, CA, CO, CT, DE, FL, GA, ID, IN, KS, KY, LA, MA, MD, ME, MO, MS, MT, NC, ND, NE, NH, NJ, NM, NV, OH, OK, PA, SC, SD, TN, TX, VA, WA, WI, WV and WY with more states to come.

Figure Home Equity Line is available in AK, AL, AR, AZ, CA, CO, CT, DC, DE, FL, GA, IA, ID, IL, IN, KS, KY, LA, MA, MD, ME, MI, MN, MO, MS, MT, NC, ND, NE, NH, NJ, NM, NV, OH, OK, OR, PA, RI, SC, SD, TN, TX, UT, VA, VT, WA, WI, WV, WY.

Equal Housing Opportunity

1. Figure’s DSCR loan amounts range from a minimum of $75,000 to a maximum of $1,000,000. Your maximum loan amount may be lower than $1,000,000, and will ultimately depend on home value, lien position, credit profile, verified rental income amount, and equity available at the time of application. We determine home value and resulting equity through a full field appraisal.
2. Figure’s HELOC approval may be granted in five minutes but is ultimately subject to verification of income and employment, as well as verification that your property is in at least average condition with a property condition report. Five business day funding timeline assumes closing the loan with our remote online notary, and where loan amounts are under $400,000 which would not require an appraisal. Funding timelines may be longer for loans secured by properties located in counties that do not permit recording of e-signatures or that otherwise require an in-person closing, or that require a waiting period prior to closing, or where loan amounts exceed $400,000.

Ashley:
What if I told you that someone bought their first rental property with about $10,000 in Chicago while still in grad school because today’s guest did exactly that. And what I love about this story is how simple it started. No fancy strategy, no real estate background, just asking one question, how do I stop paying rent?

Tony:
Yeah. And this episode is such a good reminder that you don’t need to wait until everything is perfect to get started. Kadeem didn’t come from money, didn’t have a massive income, and didn’t know the term house hacking at the time. He just saw an opportunity and took action.

Ashley:
This is the Real Estate Rookie podcast. I’m Ashley Kehr.

Tony:
And I’m Tony j Robinson. And with that, let’s give a big warm welcome to Kadeem Kadeem. Thanks for joining us today, brother. Thank you guys so much for having me. Excited.

Ashley:
Kadeem, take us back to the very beginning. What was your life like before real estate and what originally made you start thinking about housing differently?

Kadeem:
So it really started in undergraduate school. The first two years we lived on campus, so you had not a care in the world. Things just kind of flew past you. And then junior year we had to live off campus and I can remember me and two buddies, we were paying 14, 14, 75, some crazy number that we’ll just round to 1500 a piece for a 1000 square foot apartment. Now this is my very first apartment, so those numbers sounded okay to me. There was pretty much monopoly around Illinois State University where you just pay what they said, you didn’t have an option. And then my senior year, me and my fraternity brothers, we rented a house and it ended up being like $400 a person. And so immediately like, okay, I’m never having a traditional apartment, I’ll just get a house and either rent it with friends or buy it and they pay me directly. And then again, that idea of house hacking was born there. I was telling people I made something up. You’ll never forget. This is this new concept. I’m going to coin this phrase, I don’t even remember what I called it, but it for sure wasn’t house hacking and I for sure hadn’t heard it before. I just knew living with friends, living with a group of people to combine to cover the bills made so much more sense.

Ashley:
So you didn’t even know that the term was house hacking. So how did the idea of buying a property instead of renting actually come to you because of the situation you were in?

Kadeem:
Well, I knew that the house that we were renting was significantly bigger than that thousand square foot apartment that I shared with two other people. It was three floors. It was massive compared to the $400 out of pocket it cost me. And so I thought, Ooh, I can just recreate this. I’ll take a room, I’ll find some friends to take some rooms and we’ll buy a big house. And if it’s in my name or we renting it, it doesn’t matter. Everyone’s a little bit better off than going the $1,500 for a small apartment route.

Tony:
1500 bucks per person for an apartment. That’s wild, crazy.

Kadeem:
$4,500 for a thousand square this. And what

Tony:
Year is this Kadeem?

Kadeem:
This was 20 16, 20 17.

Tony:
Wow, man, that’s crazy. High rent. Okay, so you go through this experience and that kind of opens your eyes to say, and there’s got to be a better way to do this. And it’s funny kadeem, because we hear that so often. It could be the moment that someone’s just writing the rent check or submitting their rent payment online and they kind of look around and they’re like, man, there’s like four units in here and if all four of us are all paying the same amount, like this landlord’s making a killing, I can do this too. So it’s a very common backstory that we hear about what folks think about that kind of motivates them into getting started. So you didn’t know that it was house hacking, but you have this idea, so once that seed is planted, what is your next move? How do you actually turn that into something that’s worthwhile?

Kadeem:
Yep. So we’ll skip back to undergraduate. I remember watching people blow refund checks and I don’t know if all the listeners know, but if you get, whether it be scholarship or any financial aid above the cost of school, they cut that in half and they give you half in the fall, half in the spring. So they would get those refund checks and say, here, rental provider, here’s the rent for the year. So when I went off to graduate school, I remember being in the financial aid office and the lady was like, how much do you want? And I thought maybe she misspoke. That’s not really how it goes. I’m an expert on borrowing money. I know how to borrow money for school. I’m like, well, what exactly? Give me the exact number for tuition for the cost and then I’ll do my own math of adding in housing expenses.
And she sat me down. There was a much older woman and she said, sir, that’s just not how this works. A lot of your classmates are, I know you are a traditional student, but a lot of your classmates are full-fledged adults. I wasn’t quite the adult yet. And they have kids and they have mortgages and they have cars and they are in this program that did not allow us to work. It was full-time. We had a full-time in school, internship, practicum, it didn’t work. They’re supplementing their lives off of this loan. If you give me a number, I’ll put that number in way too much pressure. I think I was 21 and you’re telling me I’ll write you a blank check. That’s just way too much pressure. And normally when I tell the story, I say I hung up on her and I called her back the next day. It was about a week later and I didn’t hang up. I was polite. I don’t have an answer for you today, but I can come back and in a week’s time again without BiggerPockets as what ended up being my biggest information source. But before BiggerPockets I was like, I just created a new thing.

Tony:
Kadeem. I just want to understand that it sounds like there was maybe some fear and some shock in that moment, but why was that? Was it because you were worried about having that much money and not spending it the right way? Or why were you nervous? Why couldn’t you give her a number in that moment?

Kadeem:
So the goal was just to take enough money for school and then I’ll scrape by whatever everything else looks like. But when she said no, basically you have an opportunity to cover your housing expense. I wasn’t going into that conversation thinking that that was the math I needed to do. So not only was she in my mind saying, how much money do you want me to give you? Plain and simple. It was also that I just wasn’t prepared for anything above to agreeing for the exact tuition amount.

Tony:
Now, Kadeem, I got to give you some credit because my first year in college, like many students, I got a refund above and beyond my tuition for financial aid. And I was 18 years old. I had never seen, I don’t even think a four figure check in my life at that point. So the very first refund that I got for financial aid, I went straight to at t and I bought not one but two iPhones, one for me and one for my girlfriend who later became my wife. So I guess it worked out well, but that was the most irresponsible thing that an 18-year-old could have done.

Kadeem:
There was a lot of PlayStation fours floating around ISU campus around disbursement time. Everyone was buying their game systems, buying shoes, whatever.

Tony:
And luckily as I got older, I started to realize that this isn’t free money. I had grants, but I also had loans associated with that as well. So then it was my rent money and that’s what I use it for.

Kadeem:
So thank God in undergrad they actually have a cap. They won’t let you just do whatever you want there. But in graduate school, that cap was lifted and when I called her back a week later, I hit in my mind, okay, 3.5% down. I know roughly with Google how much things are selling for. We had went beyond the idea of buying a house because I was with my girlfriend at the time. Now my wife, does she want a roommate? Probably not. So how about we buy an apartment building where all of the apartments are super small and that’s the same as a roommate. We just have our own separate kitchens. That’s really the only big difference. And that ended up being 10,500. That’s 3.5% down on the 300,000 building. So I went called her, Hey, I need a 10,500 refund check disbursement. And because they split it into two, the fall and the spring, I had to ask for double that. And then when I got the second one, I just gave her right back. Nope, didn’t eat that one. Just needed the first one.

Ashley:
Interesting. Okay, so you’re planning ahead, you’re getting that 10,000 upfront, but you asked for 20 and then in the spring you’re just paying 10 of that back. So in this week period of her telling you you can get whatever until you call her back, is that where you’re actually going and looking up deals and analyzing?

Kadeem:
That’s the first time any of this really went beyond just like, oh, I shouldn’t pay rent no more. Right? This is when we’re looking it up and I can remember my wife again, my girlfriend at the time found the property and this week we had a realtor, we had a lender, we had all of this and explaining the situation, they’re like, okay, this is how we got to do it. We had a lawyer, everyone’s kind of pro bono because they know the money’s coming on the end, so everyone’s like, I’ll give you whatever you need. It sounds like you guys are truly dedicated. You’re doing your research. We got the disbursement and we had to let it, what’s it called, season because I didn’t have a job. I didn’t have a job. They weren’t loaning to me regardless of how, unless I had enough money to buy the building outright, it couldn’t be in my name.
So we had to let the building the money season, we bought it FHA in my wife’s name again, girlfriend at the time. I keep making that distinction because then we got married in the second bill we bought in my name, we kind of flip flopped there. It was 290,000 I think all in. We had to pay 12,000 out of pocket, and that was with the closing costs and all that good stuff. That’s roughly 4% altogether, and we have never paid a housing expense out of pocket 2018. That’s the last time we’ve come out of pocket for a housing expense.

Ashley:
I want to clarify the seasoning piece because that is a very important rule regulation with getting a loan. A lot of people know you’re going to get a loan, don’t go out and buy furniture and finance it while you’re waiting for your house to close. Don’t go out and buy a car, but also when you’re going to get pre-approved for the loan, especially when it’s your primary residence, they’re going to want to know where the funds came from. So if you’re buying it in your wife’s names, the funds need to come from her. So what was that process like getting the funds actually seasoned? So they showed into her account. What was the timeframe they had to sit in her account for?

Kadeem:
So I don’t remember off the top of my head, but I think it’s like three months or so. It ended up being a lot longer than that, but I think the minimum was because they only asked for three months check stubs and they was like, we don’t care what happened prior to the check stubs that you provide for us with the bank statements. Luckily enough, me and my wife had a shared bank account at the time, so all my money was her money on paper. It was really easy there. We just had to wait enough times to where when we submitted documentation, they didn’t have to ask the question of where this money came from.

Ashley:
And then was there any questioning about that? It was where I guess you didn’t have this because you waited the seasoning period, but do you think if you wouldn’t have waited and you would’ve gone ahead, do you think they would’ve denied you because technically that was borrowing funds from the loan, from the student loans?

Kadeem:
I think so. In my mind, if I’m a bank, knowing what I know about banks now, I would say I’m loaning to you on the fact that clearly you’re a good steward with money and you’ve saved this, but if you just got it all in one lump sum, maybe you aren’t a good, you haven’t proven yourself to be someone worthy of me loaning to. So I think that that question would’ve come up.

Ashley:
Okay. So tell us about that first property that you found and you’re looking at properties, you get your 10 K secured while you’re waiting for the funds to season. Are the same properties still available or are you pulling up other properties and putting offers in?

Kadeem:
They’re not, we hadn’t started looking until things were seasoned. The bank wanted to, there was no point in looking without an actual pre-approval. So we had to wait a little bit. I think we saw maybe five properties. And the one that we happened to pick was one that my wife found and what sold her and what sold to us is the fact that the unit that we moved into was so well upgraded that even by today’s standards you’d say, oh, they recently upgraded this unit. It still looks really, really, really nice. So my wife was like, Hey, this is the one we’re moving into. All of the other properties with all of the meat on the bones that you kept talking about, no, I don’t want to live there. I don’t want to live in that situation. But this one at the very least, looks nice enough. It’s comfortable enough mind. It was a five bedroom, two bath apartment. It’s two of us. We didn’t have children. It’s just I’m like, what do we even need five bedrooms? It was massive, but it was also upgraded to the point where she felt comfortable. So pretty much sold us there.

Tony:
And just from an underwriting and analyzing perspective, kadeem, what did that part look like? Or was it really just, Hey, we first want to prioritize us having a clean, safe space to live?

Kadeem:
Right. So because it took a long time from refund check to purchase, I learned all I need to know. The learning is exponential. Once you hit about 80% understanding, you’ll gain a little bit over time, but you have the bulk of it. So I’m like, okay, rents not just minus mortgage, but I’ll pay utilities. My mom’s a homeowner, so it was like, mom, what are you paying for? Tell me everything you pay for so that I can start roping that into my math. The rents were the first floor. We lived on the second floor. The first floor was 1100. The basement was, it was a legal basement. Apartment was 700, the mortgage was 1550. I had no idea what the water bill would go for. My mom’s like I know with my house’s water bill, but I have no idea with a multi-unit water bill.
Well, it couldn’t be. $700 we’re good. All of the wiring was set to where everyone paid their own utilities, excluding the water bill. So I’m like, as long as the water bill isn’t $700 a month, we don’t have rent anymore. We don’t come out of pocket. And it ended up being like $125 a month. We paid every other month cashflow from the beginning. We made every mistake known to man, but because the deal was so good on paper 18 coming in, 14 going out, all those mistakes just kind of got wrapped into it. We were perfectly fine.

Ashley:
Well, I want to hear more about this deal and your next deal, but let’s take a short break and when we come back we’ll get into more of the numbers on this deal. We’ll be right back. Okay. Welcome back. So to recap, you had told us you used an FHA loan on this three and a half percent down. You had 10,000 for a down payment during the loan process. Were there any other fees or expenses or maybe even during the due diligence and inspection of this property that came up that might’ve surprised you?

Kadeem:
Not surprised me because again, BiggerPockets had me by then, so I pretty much knew the costs. I didn’t know, I think it was a thousand dollars or roughly that for the actual, not the appraisal, but the guy who’s on our team, I figured the appraiser is on the team of the bank inspector,

Tony:
Like your property inspector.

Kadeem:
Okay. Yeah, the inspector came. He was a nice old man. He said, I’m not doing this twice, so come with me, come to every room with me and I’ll talk out loud. So you should be able to do this next time. Can I do it now? No. But he walked us through exactly what was wrong and he was like, look, it’s a lot wrong on paper, but it’s perfectly fit for what it is you’re trying to do. There’s some concrete knot level, but as long as no one trips, you’re fine. It’s not that bad. That was a cost. I think we had to pay a few times, whatever the fee is to keep the loan rolling because of how long this process took, I think it took maybe six or seven months to close. It was ridiculous. And we had our own apartments, so we were still paying rents and we’re like, Hey, we need to move in. We’ll never pay rent again. But we’re kind of on a timeline of not just ourselves, but the deal of itself.

Ashley:
What’s one thing we have not mentioned in probably a year on this podcast is PMI. So did you pay PMI with this loan and can you explain what it is?

Kadeem:
Yep. So private mortgage insurance, because we didn’t have 20% equity, we didn’t put 20% down. It’s almost like insurance on the loan itself. I think it ended up being like $50 extra. Again, that’s in that 1450 total PIT, I guess PMI add that in there as well. That doesn’t roll off the tongue as well as PITI. But that additional property Property, oh shoot, I just lost it. Loan insurance essentially, right? It was about $50. So yeah, we paid that. We still pay that oddly enough, because we have not refinanced out of the FHA loan. It’s a 4.2. I mean, let’s keep it there. No need to disturb the interest rate, but yeah, so we still pay it. We’ll address that down the line.

Tony:
Two quick things. Kadeem on the PMI. Well, first, I actually just learned this past year that you can get denied PMI. So PMI is a form of insurance and there are only so many companies in the United States that offer PMI and there are certain properties that they’ll underwrite themselves and they won’t approve for private mortgage insurance. So that was something new to me. So just know as you’re shopping for PMI, there’s an opportunity that someone could say No.

Ashley:
Tony, I have a question on that. Does that mean the lender wouldn’t lend to you Them?

Tony:
Yeah, the lender wouldn’t close.

Ashley:
No. Yeah, or

Tony:
Unless you went up to at least 20% down. But without the PMI, they wouldn’t close on it. And it was actually, it was an investor that I knew that was working with the lender that I knew, and that’s kind of how I got wrapped into it. But the second part of PMI, and even this is more so for you, is that even if you don’t refinance, if the appraised value of the home has increased, where when you compare that to your current loan balance, you’ve got at least that 20% margin. Now a lot of lenders will still remove that PMI even without refinancing. So it could be in your best interest to go call. It’s been a while since you guys purchased that.

Kadeem:
Yeah, we recently went to go sell. So we have on the books and official appraisal where they should have taken it off, if that’s the case.

Tony:
Yeah, so go back and show that to ’em. That could be a way to maybe get the PMI removed. But you mentioned FHA, and I’ve got two questions around that. A lot of folks are worried about FHA because of the kind of hoops you have to jump through during the purchase process and more specifically around the inspection, like the FHA inspection, and you mentioned you were there for it. Were there any hurdles specifically related to the fact that this was an FHA loan that you can call out for Ricky listeners so they know what to look out for as they go through this process?

Kadeem:
So not on the buying end. Again, we tried to sell the property and we were selling it to someone within FHA loan. And so I saw it firsthand the other side. But if I was to look, it’s a whole bunch of little stuff. The paint on the brick outside, can’t have any, chipping a whole bunch of little things that as a buyer, if I’m advising the buyer, you should be happy because these are safeguards for you. Yes, it’s a lot of hoops, but it’s a lot of hoops to make sure that you are buying something that has good bones, that’s going to work for you. The bank is on your side. If you get messed up, they get messed up. So they’re putting these extra hurdles for your advancement for you to make sure that you are purchasing something that’s really good.

Tony:
And I think that’s where a lot of folks also have hesitation is when they are the seller and if they’ve got two offers, one’s FHA one’s conventional or cash, the FHA usually gets bumped down a few rungs, another loan product that’s really common, but then also has its hurdles. Is the VA loan ash. Have you ever worked with the VA loan in that way?

Ashley:
Yeah, so Daryl’s a veteran and he’s doing his first VA loan right now. And from what came back from the inspection, it’s more like safety issues I guess. Instead of actual repairs, there’s two sump pumps in the basement and they needed covers on ’em. Some electrical outlets didn’t have outlet covers on it. There is two stairwells that lead into the basement and one didn’t have a handrail, so it needs a handrail. So those are pretty easy things to do. And then the other thing is there’s an exterior shed that has some rotting wood and paint chipping and they want the rotting wood replaced and the chipping paint it repainted. The problem is is it’s zero degrees right now. Paint is not going to stick. So Saturday is our day to actually go there. The seller already took care of the sump pumps, the outlet covers, so we just have to do the handrail and then we’re like, we have to figure out what to do with this shed.
And so I think we’re either going to take some metal siding from a Morton building and just tack it on there. Oh, it’s got brand new siding, or we’re going to just have to rip out pieces of the wood and just put it up and maybe paint it inside and let it dry, then put it up. I don’t know. We’re going to assess more, but that’s what at least our list was. And I’ve only sold a house to maybe one person that used an FHA loan, and it was kind of a similar thing, more like they’re wanting it to comply with code enforcement laws and stuff,

Tony:
Which in the grand scheme of things isn’t all that terrible. But for a seller who wants convenience during the sales transaction, a lot of times they’ll just want the person who’s going to overlook those things or maybe take care of it themselves.

Ashley:
And this is holding up the loan too, because you have the appraiser come and then they tell you the things and then they have to come back and inspect. I have to schedule with the seller. When can we go and do this stuff or if they’re going to do it. So it’s a lot of back and forth also. And one thing too that delayed the loan was we’ve got the appraisal, but we want to make sure that we have loan commitment, so don’t go and do the repairs. So we could have started a couple weeks ago, but then we had to wait for commitment and then it’s like, okay, now go, but everybody else is ready to close.

Tony:
Yeah, and then in New York, everything takes long anyway, so you add this on top. And actually my closing two years, it’ll be 2030 by the time she close. Don’t say that because

Ashley:
That did happen to be on the property I’m sitting in right now in two years. Two years

Tony:
To close. Well, Kade, I think one last question from you on the first house hack, and I think this is the question that a lot of people ask is even if you have your own separate space, you’re still somewhat living close to your own tenants. And how was the experience for you self-managing for the first time, and what guardrails or kind of boundaries were you able to set with your tenants to make sure that even though they were your neighbors, you still had some level of privacy?

Kadeem:
It was terrible. Just to sum it up, that first round of tenants, I can remember calling my tenant and I can hear her talking not only through the phone but through the floor. He was right under us and she had been there for 10 years. So from her perspective, and this was her argument, you’re the new guy, what do you mean? How are you going to come here? I’m like, but I own the building. I get to set some rules. And she knew we owned the building, and so it wasn’t as professional as we would want it to have been. When we finally turned over our units and had new people come in, then we can put some guardrails up. Right now it’s a little bit more professional, but those first tenants for whom they saw us walk through the property, so I’m like, I know you’re the owner. You were here seven months ago. You were here and now you’re upstairs. I know you’re the owner. And now I can pull on heartstrings and I’m not bargaining at the Walmart checkout line for prices because I know that the person who I’m talking to don’t set them. And when you’re talking to the person who has full control over setting some of the parameters of your agreement, you try for that. So it was definitely difficult until we got new tenants in

Tony:
Kadeem. One follow-up to that is what tactics, or I guess what experiences did you have where they were trying to maybe negotiate with you and how did you navigate that? Did you find yourself not falling victim? I think that’s the wrong phrase, but did you find yourself having empathy for them in that situation and maybe bending the rules or was it you were able to kind of stick to the guns of what the lease said?

Kadeem:
So let’s paint the picture. I was a full-time graduate student. I had a full-time internship. I had a full-time job and was a full-time landlord all rolling. And these were section eight tenants. And I asked my wife, what were the rents back then? And she told me, she was like, but remember we never got their portion. I think it was like 700. And then she was supposed to pay a hundred, not in the year she lived there. Did she pay her 100? And it was like, I can fight this lady over a hundred dollars, but I got school or I got to go to work or a lot of things we ended up budging on because the deal still worked to where if it keeps the piece of the building, keep it and then we’ll just make sure that things are in place whenever you’re no longer our tenant.

Ashley:
Did you guys end up evicting her or terminating the lease or how did she ended up moving out?

Kadeem:
Oddly enough, and this is our discomfort with section eight, is that it works perfect for normal moral people, but if you are immoral, you can take full advantage of it. And we failed an inspection because they were like mouse droppings. And then we had someone come back, sprayed, do all this stuff. We had all the receipts for the company who came and did all of the abatement, but the lady never swept the mouse drop. And I’m like, I’m not going in your apartment to sweep this up. But she knew if they were still there, we would fail again. So even though we paid for the exterminator, we failed again. We went like three months without getting rent from section eight, which everyone considers like, oh, it’s guaranteed if everyone’s moral, it’s guaranteed. But there are definitely people who know the system enough to where they can use that against you. And eventually it was like, Hey lady, if you don’t want to be here, we’ll cut it. We’ll give you a great review, the section eight, and then you can just go somewhere else. And that’s what ended up happening.

Ashley:
So a blessing in disguise, I guess

Kadeem:
Minus the three months we missed out on, but yeah.

Ashley:
Yeah, yeah. But an eviction probably would’ve been just as costly and more of a headache and more time consuming for you to be able to do that. So once the tenant left, did you go and renovate this unit at all or was it already pretty turnkey Besides cleaning up the mouse dropping?

Kadeem:
It was pretty turnkey. It was super minor. One thing that we have across all of our units is it’s all the exact color paint, all the exact cabinets. So with that unit we established the like this is what every single unit moving forward will look like. The next turnover, we just repainted everything to that. So it wasn’t a lot for that particular unit, but that unit was super important because it set the standard for what we would use for every other unit moving forward. And I lived there, so I was doing all the work.

Ashley:
One thing before we go to break I want to touch on is you had mentioned that you and your wife kind of put a strategy together where this first property was in her name and then you went on to get the second property in your name. Can you explain why you decided on this strategy?

Kadeem:
We had to, right, but I know you can only have one FHA loan in your name at a time. And with that assistance with the down payment, that 3.5% down, that was the only way we were able to do it. So we asked ourselves, okay, well I can’t do it in your name. We can refi out. It didn’t really make sense for us at that time. So the second one would be in my name. And then I know we talk about a third deal, the third building we bought mentally with our daughter in mind, and so it’s not in her name, but it’s her building. So we put it on a 15 year mortgage thinking that, oh, this is your first birthday present. By the time you’re old enough to need a car, your building will buy your car. And then when you go to college, your building will pay for your college and then that’ll be the seed money. And so that’s why after the third building, my wife was like, I’m done. We’re getting a house. We’re not moving around anymore. It’s only three of us. We have three buildings. That’s enough.

Tony:
Kadima. I guess we’re kind of going through this quickly, but you went from one to two to three in what sounds like a relatively short period of time. The first one, FHA, the second one was FHA in your name. And what about the third one? How did you finance that one?

Kadeem:
The third one was conventional, so we had to put 25% down.

Tony:
That was just you being able to save all that money from not having living expenses.

Kadeem:
Yep. So we say one bought two, one and two bought three, and then one, two, and three brought our primary house, what we were able to build from the ground up two years ago.

Tony:
That is fantastic. Let me ask one last question across the portfolio right now. Just like ballpark, what’s your cashflow across all those units?

Kadeem:
So we do not have to ballpark, I took notes. We collect a little over $10,000 a month in rent. We bring in, we save about 25% for maintenance CapEx vacancy because I do the management, there’s a little bit of savings there. So profit for the month is about $2,500, and that’s the mortgage on our primary house. So we kind of say we’re still not paying out of pocket any housing related expenses.

Tony:
Kade, congratulations man, because thank you. To go from sitting in the financial aid office all

Kadeem:
Started

Tony:
Right to now being at a point where you’ve got three different investment properties, a new primary that you love, and all of this has been funded by your ability to execute as a real estate investor is I think such an inspiration to everyone that’s listening. Because a lot of times we think about the end goal of real estate investing and different people have different goals, but for a lot of people it’s like, oh, I want to quit my job, or I want to do this, or I want to do that. But there are so many other ways that real estate can change your life for the better. And something as simple as, I don’t have to worry about paying my mortgage every month because I’ve got three other properties that are paying it for me. There is a peace of mind that comes with that that would be hard to get elsewhere.
So man, I love your story. Congratulations brother. So we’re going to take a short break, but when we come back, we’re going to dig into how Kadeem story has evolved and how has investing strategy evolved. We’ll be right back after this. Alright, welcome back. So Kadeem, we just heard before the break about how you scaled at the portfolio and again, congratulations on that. Now, you briefly mentioned that the first bought second, the first and second bought the third, the first, second and third helped you pay for the fourth. I want to talk a little bit more about the third property. I know that one required a little bit more money down. What was slightly different? Because you said that one wasn’t FHA. So just walk us through how that deal was different than the first two.

Kadeem:
It was a lot less expensive as far as the purchase price of the building because we had to come up with 25% down. So it wasn’t a three flat like the others, it was a two flat, which is a two unit building. I know it’s flats being different things, different places, but it really wasn’t that far off. It was a lot quicker. We didn’t have to jump through the hoops of FHA, but we also didn’t have the guide rails of FHA. So all of that due diligence of making sure that it would make sense, that it was safe foundation, all that good stuff was on me and my wife to make sure that this was the deal that we wanted. But I tell everybody, it’s just math. The math makes sense. We got a nice little spreadsheet that we use and here’s what the expenses will be, include all of them, don’t cheat yourself, include all of those expenses. Here’s what you’d likely get, which is just like as a renter, if you know how to find out what an apartment would rent for, then you can just do that backwards and find out what you would rent an apartment for. So this is how much they would rent for, this is how much it would cost. This is what the mortgage would be. There’s a million mortgage calculators out there. It was really easy to say this makes sense on paper. And then we pulled the trigger.

Ashley:
So this property was a two flat tune it, and so you were going to move into one or this was purely investment.

Kadeem:
Purely investment. So it was 160,000 and we put $40,000 down, which still blows my mind to say to even think that we had $40,000 cash. Even though we talk about the portfolio paying our mortgage, we actually do not contribute to the portfolio all. And we never have since the initial $12,000, which you can argue is also not us personally contributing to it, it has been fully self-sustained. And once we realize, Ooh, we shouldn’t pay ourselves rent, pretend we should literally make a second bank account and pay ourselves rent and have the rent once we cut ties with the business altogether, we’ve not intermingled our money at all. And we looked up and said, oh, we have enough for another purchase.

Ashley:
I think that is a really hard portion of being that diligent to just let that money grow and to not touch it and to say, oh, let’s go on a vacation. We’ve got 10 grand extra, we don’t need it. And being able to, when you have that income creep and not having that lifestyle creep with it actually does take a lot of diligence to stay motivated as to why you invested in real estate in the first place. And not only real estate. If you got a big bonus or you got a pay raise or something like that, it’s very, very easy for somebody to have that lifestyle creep that goes up with your increase in income. So congratulations on being strict with yourself to not touch that. And when you did touch it, you continue to invest.

Kadeem:
We still fall a victim to that within our personal lives, but our income creep, our lifestyle creep is strictly based on our nine to fives. My wife’s a nurse practitioner, I’m a child psychologist, so it’s like if you want more, you got to do more in your primary job, but this is just separate.

Ashley:
Let’s look at the numbers on this real quick. So how many years since the purchase of that first property did it take you to accumulate that $40,000 in there?

Kadeem:
So we bought it in 2018. We bought the second property in 2020. I know that you only have to live in the unit for one year. It took us two years management issues, learning curves, and then one year after that, so in a three year span we bought two buildings.

Ashley:
And then how much equity has accumulated in those properties since you bought the first one?

Kadeem:
So we include our primary residence, given that it was bought by the real estate as well. We have about $970,000 in outstanding mortgages, but $1.8 million in total value. So $800,000 in equity.

Ashley:
That’s incredible.

Kadeem:
It’s hard to say

Ashley:
How else they’re going to find $800,000 that you can tap in over that many years.

Kadeem:
We tried to last year sell the first property. We bought it for two 90. We have about two 40 left on it. We started at 3.5%. So it’s taken a very long time to start paying down that mortgage. But it’s value that 600. So just eight years of waiting with it being a hundred percent self-sufficient is roughly $350,000 in equity. And if we could have sold it, we would’ve 10 31 exchanged it into a larger building. And then I would maybe taken up that whole, maybe I’ll be a property manager to benefit from the real estate professional and then just do this full time that’s still on the books if that ends up happening. If not, I have a four month old daughter who’s in need of a building by her first birthday. So either we’re ten thirty one exchanging or we’re just going to buy another two three flat for her first birthday as well.

Tony:
I love this theory of compounding because I think people don’t realize just how, and I’m not talking about compounding in the sense of the stock market and interest and all that stuff. I mean the compounding of your portfolio, because it took you all this time to get that first deal together, but then the first deal fed into the second deal and the first and second fed into the third, the first, second and third fed into the fourth. The first through fourth will feed into the fifth. And the time between each deal starts to get shorter and shorter because this machine that you’ve built gets stronger and stronger. And we talk about it all the time, but it’s like if someone were just to invest in a very boring fashion for the better part of a decade, for most people, they could probably put themselves in a position to at least be somewhat job optional and maybe have options around working less or maybe taking a lower paying job that they enjoy more if they really just focused in for 10 years. And we’ve seen this story over and over and over from so many amazing guests and kadeem. I mean, your story is one that I hope really, really resonates with people because you didn’t do anything sexy. You didn’t do anything earth shattering. You just showed up, put one foot in front of the other and it compounded over time. So man, I love your story.

Ashley:
So I guess before we wrap up here, one thing that you talked about was buying a property for your daughter, but how has real estate really changed the outlook on your kids’ future compared to how you grew up?

Kadeem:
So single parent household, that’s not necessarily real estate related, but just looking at the what’s to come for my daughter, we bring her to the properties all the time. She’s five years old, but she does understand that, oh, this is my, and she’ll say, no, no, no, that’s my property. You did all that work. Yes, but you did that for my property. And she kind of understands the idea of ownership that we rented out or we loan it to people and they pay us. And she was like, oh, well, once it’s paid off, and mind you, this is a five-year-old talking. Once it’s paid off, I won’t need a job. I could just live there for free. And I’m like, you got the right mindset, right? That’s not how it’s going to pan out. But that’s the thought process. You have something that you own that you can live in yourself, you can sell whatever it looks like.
We’ll guide her through that. But I know if I started with that much seed money, oh, it would’ve been over, it would’ve been retired by now. It would’ve been, would’ve an entirely different story. And we’ve been able to, not just for my daughter setting her future up, but when this made sense on paper, we told everybody, we knew everybody with an earshot. I’m yelling like, this makes sense, this makes sense. When it made sense to my mom, she said, oh, okay, cool. Went to her 401k. My mom owns so much more real estate than we do. And started after we started because she had more capital to employ. But I have friends who bought it and used me as resources like, Hey, you have a plumber. I don’t because they’re transient, but I can help you find one. The community that we’ve built within my immediate family, my immediate friend group, everyone’s kind of planning out for their futures, and this is not what I grew up with. This is not the community I grew up in. Yeah,

Tony:
Kadeem, all the more reason. I love your story even more, man. Aside from all the success though, you mentioned some challenges along the way. We’ve hit some of them, but I guess if you could zoom out 30,000 foot view, are there any maybe larger mistakes, strategic kind of mistakes maybe that you feel that you’ve made that Ricky should think about as they get ready to jump into their first deal?

Kadeem:
I didn’t start soon. I didn’t start in college. If I was really smart, I would’ve come up with this and instead of renting a house, I would’ve bought that house that my friends and I’d still have a property in a college town. I think this just worked so well. I didn’t make this up. You guys didn’t make this up. Math has one, plus one has always equal two. Before we knew it was it did. Real estate has always worked so well that even when you overpaid, because I’ve overpaid for so many things in the grand scheme of things, just do it. Even the mistakes that you can come up with are so small at that 30,000 foot view that once I look up from that vantage point, I don’t even see mistakes. They’re just little blips,

Ashley:
Kadeem. I have to ask that college house, have you ever gone back and looked at what it’s valued at now or what people are paying for rent now?

Kadeem:
I looked at what the mortgage was when we lived there and we were paying maybe like $2,000 combined with the five people paying $400. And I think the mortgage should have been like a thousand dollars. And again, resonated with this idea that don’t tell anyone. And I guess we can’t do this on the podcast, but my plan is still to go back and buy a house in my college town where I still know people from my fraternity and say, you guys can live here. Don’t mess it up. But knowing that you have a constant recycling potential tenants, all of whom are paying with refund checks who don’t have a grasp of money yet, and they’re like, here it is the whole year in one, that’s still a plan.

Ashley:
Well, anyone listening that knows the best flooring that makes beer spills less sticky, reach out to Kadeem, whoever is frat Alice who’s going to purchase there. Well, thank you so much for coming on the podcast today. We really appreciated you taking the time to share your story and also all of the knowledge that you’ve obtained since you bought that first property. Where can people reach out to you and find out more information?

Kadeem:
Because I’m not a realtor or anything like that. You can follow me on Instagram. I document almost everything we do. I’m really bad at it, so don’t be surprised. But I’m trying to get a little bit better on Instagram. I’m Kadeem Ali, so K-A-D-E-E-M-A-L-I, which is just my middle name. And then TikTok is Kadeem the Ali, because I started the TikTok a long time ago, forgot about the password and couldn’t keep my original name. So Kadeem Ali on Instagram and Kadeem the Ali on TikTok.

Ashley:
Well, thank you guys so much for listening today. I’m Ashley. He’s Tony, and we’ll see you guys on the next episode.

 

Henry:
From a $35,000 a year salary to owning three investment properties in just two years. That’s investor flow, Jacques’s story, and it started with a simple decision at age 22 to buy a home instead of renting. Most people wait for the perfect time flow. Did not wait at all. Fresh out of college, working as a college admissions counselor, Flo had saved $15,000 and instead of letting it sit in the bank, she used it to buy her first home in North Carolina. That purchase wasn’t her end game, it was just the beginning. Over the next few years, Flo educated herself about investing and networked relentlessly. When she finally felt ready, she jumped in with a full gut rehab on a roach infested property in a flood zone. That first deal tested everything. Almost everything that could go wrong did go wrong, but Flo didn’t quit. She didn’t even slow down. She adapted, problem solved, and a month later she bought a duplex, then another property shortly after that. Today Flo is building a portfolio focused on multifamily properties and has her sites set on real estate development. This episode isn’t about waiting for the perfect moment or having a six figure income. It’s about taking action with what you have, learning fast, and refusing to settle for 40 years of a typical nine to five career.
What’s going on everybody? Welcome back to the BiggerPockets podcast. I’m Henry Washington. I’ve been investing in real estate in Arkansas and Missouri since 2017, and my co-host Dave Meyer, is here with me. It’s still weird saying that my co-host Dave Meyer, is here with me. What’s up, Dave? I love it. You have to do all the reading. I just get to see here. This is the best. Today’s guest is Flo Jacques, an investor from North Carolina who went from a $35,000 a year job to managing and growing a rental property portfolio in just a few years. Flo story is all about taking action fast, so let’s jump right in. Flo, welcome to the show.

Flo:
I’m so psyched to be here.

Henry:
That’s awesome. I’m glad you were here. Sounds like you’ve got a pretty interesting story. So why don’t you start and tell us about your background and what you were doing just before you got into real estate?

Flo:
Just before I got into real estate, I was actually a college admissions counselor, so I was blessed and fortunate to purchase my first home at 22 years old.

Henry:
Oh, wow.

Flo:
I remember being in my senior semester, my last semester of college, and I had a good bit of money that I had saved from working multiple jobs and something clicked and it was like I wonder if I could buy instead of rent, and I remember at that period in time, I was also considering renovating homes. I wanted to flip homes, build wealth through real estate.

Henry:
What year was this?

Flo:
This was actually 2021.

Henry:
Okay, so you were curious about investing, curious about doing renovations, so how long was it between when you purchased home to live in to when you actually decided to buy a investment property?

Flo:
It was another three years.

Henry:
Oh wow. Oh

Flo:
Wow. Yeah, and honestly during that time period I was figuring it out,

Henry:
You were 22.

Flo:
Fair enough. You don’t need an excuse

Dave:
To take three years to buy a property.

Flo:
Well, somebody told me you should probably get your real estate license, start there, and so I said, okay, sure. I’ll start with my getting that, learn the ropes of the business and stuff and then build the funds to be able to buy because college admissions education just doesn’t really pay. We know

Henry:
That you weren’t making $700,000 a year in college admission.

Flo:
Actually, I purchased my first home on a $35,000 annual salary. Wow, good for you. Yeah. During that period, after I became licensed, I joined organizations, started building relationships with other professionals in the real estate industry, and through that I also was attending some sessions that were investor focused and I knew I wanted to build a portfolio and not work till the day I die

Speaker 4:
Like that.

Flo:
It was like some spaces I was in was giving me the information, but 2024 was really when I was having some dreams that I was buying investment properties.

Henry:
Oh man. When you start having real estate dreams, that’s how you know you’re in

Dave:
My real estate. Dreams are never happy dreams.

Henry:
No, mine aren’t either. Mine aren’t either.

Dave:
Mine are always scary dreams. I have this recurring dream that I forgot about a property

Henry:
All the time. I have it.

Dave:
Someone calls me and they’re like, oh, there’s a rental that you haven’t been to in three years. I have that recurring dream and I wake up terrified every time.

Flo:
Oh my God.

Dave:
It sounds like yours were more positive flow at least.

Flo:
Yeah, at that time. They were at that time. At that time, it became very clear to me that I was being called to make a move and a month later I purchased my first rehab.

Henry:
That’s super cool. I feel like a lot of people are probably resonating with this story where it’s like education, education. When do I jump off the cliff and what does that look like? So you bought your first deal. How did you find this deal?

Flo:
It was on the MLS. I mean, I’m a realtor, so I’m not opposed to the MLS. I know people here, off market, off market, but the thing is just like off market, you can negotiate

Henry:
Too. You can just make offers.

Flo:
Make offers. Exactly.

Henry:
You can just do stuff. It’s pretty cool.

Flo:
Yeah, I mean, yes, the sellers are off delusional and yes, you are dealing with a realtor in the way of that, but yeah, so the funny thing is I had an investor client at that time who I was helping her purchase some investment properties and she targeted cheap rehabs and the outer skirts of the Raleigh Durham area, like Rocky Mountain, North Carolina, Henderson, those areas. She was interested about this property and another, so I called the listing agent and the listing agent said, yeah, we just listed 19 of them. So he had an investor who was in his seventies letting go of his portfolio, and so I said, oh, where can I find the list of these properties so I can send it to my client? At that time, I wasn’t even thinking for myself. I was just like, yeah, I want to send these to her. She wants to browse through and make a decision on maybe a package deal, and so I sent her the options and I thought flow make an offer on one or two of these too, and I was like, oh, okay. I like

Henry:
How you have a whole conversation with yourself in your head,

Flo:
Literally, and so when I sent her the list, I said, okay, whatever she doesn’t offer on, I will offer on one or two of these. I had already selected. So I submitted her package for three properties and then I submitted on two. That’s how I found that first deal on the MLS package deal. Same thing with another client I jumped into.

Dave:
And what did you like about these deals? What was different about these than everything else out there on the MLS?

Flo:
Well, number one it was 90,000, 60,000, the price, so you can afford it

Henry:
The price. Got it. Yeah,

Flo:
Exactly. So if you’ve ever heard of Rocky Mountain, North Carolina, people call that area murder city. I don’t want to say it’s a dead town, but it’s a very large renter population, but a lot of investors targeted because real estate is cheap there. What really stood out to me was getting a single family home for under a hundred thousand

Dave:
And what was the rehab budget for this?

Flo:
Yeah, so the rehab budget for this, we originally had it for 75,000.

Henry:
So you paid 90, is that what you said or

Flo:
So we went under contract for 90, but we actually ended up closing it at 70,000 because I found out that it was in a flood zone, which the listing agent did not disclose, and I was ballsy enough to still move forward with it. So my first property was in a flood zone. I didn’t do my due diligence, nor was it disclosed, and that’s a material fact that was supposed to be for sure disclosed.

Henry:
So you bought the single family home, you’re working on the renovation. You said you did go a little bit over budget. This was a fix and flip, or were you planning to keep this one as a rental

Flo:
Keep because my whole goal was to build a portfolio, so my mindset was buy and hold burr method.

Henry:
So you’re working on this project and a renovation, and then I’d like to know what happens next, but we’ll talk about that when we come back As a real estate investor, the last thing I want to do or have time for is to play accountant, banker and debt collector, but that’s what I was doing every weekend, flipping between a bunch of banking apps, bank statements and receipts, trying to sort it all out by property and figure who’s late on rent. Then I found baseline and it takes all that off my plate. It’s BiggerPockets official banking platform that automatically sorts my transactions, matches receipts, and collects rent for every property. My tax prep is done, my weekends are mine again, plus I’m saving a ton of money on banking fees and apps that I don’t need anymore. Get a $100 bonus when you sign up [email protected] slash bp BiggerPockets Pro members also get a free upgrade to Baseline Smart that’s packed with advanced automations and features to save even more time. Alright, we’re back on the BiggerPockets podcast with Flo Jacques and we’re talking about her first investment property and transitioning to her second. So what was next?

Flo:
So I closed on that. I knew that the rehab budget was assigned that was being worked on, and then I had another burst of this duplex downtown Durham. I’d love to have it, and so I’m like, I have the funds I can take on another project

Henry:
That couldn’t have been $90,000 that downtown Durham Duplex.

Flo:
No, not at all. I saw it, prayed about it and I took a minute. I took a couple days and then everything started feeling right and so I went and put it offer on it. That one was, I closed it at 287,000.

Dave:
Oh, whoa. That’s way cheaper than I thought you were going to say. Where were you getting the money from at this point? Were you working in admissions or were you making money as an agent?

Flo:
I was doing both. I was a college admissions counselor up until early 2025 as well as I did real estate. I wasn’t the top producer agent killing it with deals really, but my mortgage on my first home was like $700 a month, so I saved, I mean just like at 21 I decided to buy a house. It’s because I had 15 K saved. I’ve just been a saver.

Henry:
I think that that’s just a good habit to have. The fact that you’re a saver, it helps you to be prepared when opportunities arise and it sounds like you have no problem capitalizing on opportunities when they arise, but still you had a job, you had to scrounge up the money in order to save up. So what did the financing look like both on the first one and then on the duplex? Was these conventional loans? Were they

Flo:
Construction loans? What I did was hard money. All of my deals actually so far have been hard money, and so from a lot of communication asking who people know, who do you recommend? I landed with this lender, this hard money lender, and their terms were great, a hundred percent financing of the purchase and rehab

Speaker 4:
Up

Flo:
To 75% of the a rv, and so I was like, oh, so you’ll fund the rehab and the purchase a hundred percent so long as it meets the 75% or 70% formula. Perfect. So once I found that lender, all I had to do was pay origination fees, closing costs, that sort of stuff. So that’s really what empowered me to do that multifamily a month after closing on the first one because so long as you have liquid cash, you’re like, I could do two at the same time. They’re taking care of the purchase and rehab.

Dave:
Well, I love the way that you’re approaching this. I am sure there are people listening to this who want to do the exact same thing, get a hundred percent financing on a duplex or reno. How did you approach lenders with, no offense, you didn’t have any either, so how did you get people to lend to you for these deals?

Flo:
I think this lender is a gem, to be honest, because they don’t have a experience requirement actually. Interesting, but most other lenders did in order to lend to you at a hundred percent they need you to show five deals or something like that. They have a loyalty program though. Your first three deals you pay, it’s like 12.99%, 2.99% origination fee or something like that after your first three deals with them, then it goes down to 10.99% interest rate and 1.99 origination fee.

Dave:
Good for you for finding that. Honestly, just doing that little bit of legwork sounds like enabled you to really start your portfolio quickly.

Flo:
Exactly. Yeah. I just needed the financing and then I was ready to go.

Henry:
Yeah, I have a very similar situation. I found a lender when I first got started that was basically telling me how they could fund all my deals without me having to spend a ton of money, and so the goal became to figure out how to go bring in more deals so that I could get them financed. And so I understand going shopping like, Hey, I got a checkbook. I’m going to go shopping. But with hard money, it’s a short-term loan. And you said these were rental properties, so I’m assuming you had to refinance out of this short-term loan at some point?

Flo:
Correct. The duplex finished first, which was funny, even though I bought it second, it finished first. That was also a six figure rehab too. That was supposed to be 65. I think it came out to like 130,000 or something. Oh wow. I mean, that’s

Dave:
A mess. That one’s a miss. That’s okay. It happens.

Flo:
Yeah, maybe it was slightly under granted. I did account for, I had to furnish it because that one, I made it into an Airbnb midterm

Dave:
Rental. How are you managing this? You were working, you said you didn’t even have that much time necessarily to be an agent. Then you’re managing two construction projects at the same time. How were you going about that?

Flo:
So I actually had contractors doing the work, and so I will be honest, I was not visiting those properties, which was a mistake I made when I look back weeks going by, not paying attention, just trusting ’em, like just send me pictures, that sort of stuff. So whenever I could, I would, but I really wasn’t. So yeah, I mean I went forward with just having them pay for materials and labor and so all I’m doing is wiring or whatever the costs.

Henry:
So this, I assume it was a general contractor, they brought in all their own subs?

Flo:
Correct.

Henry:
They were sending you pictures communicating each week, and you were just wiring money saying, oh yeah, that’s great.

Flo:
Yeah, pretty much.

Henry:
So when, okay, on the first one, went slightly over budget on the second one, but with the overages, were you able to go ahead and pull off the refinance?

Flo:
Yes, I was able to pull off both refinances. I will say that these stories are, this is a little wonky for the first property. I had a contractor, he was licensed and everything, really sweet guy. He didn’t have the crew to handle that scope. We had to rehab the entire foundation. That was literally full gut. We tore down the foundation, rebuilt it, that was rebuilt. Every single thing in that house, like roach infested and everything, he didn’t have the scope to do that level of work. I ended up firing him and having the guy that was doing my duplex to kind of step in. Then things went off with him where he was a greedy and was insane with his prices. So I got rid of him. And then the third contractors who really finished that job, they weren’t licensed, but they worked under licensed people, had their subs and whatnot. So that’s for that first house in the flood zone.

Henry:
Before we move on to talking about what came next for you, given the situation with these contractors and given the situation with how you found these properties and the size of renovations you took on, what advice do you have for people who are maybe considering buying a property in that same price point that have a heavy renovation? I think people often forget that yes, you can buy cheap houses, but a lot of the times they’re tied to large renovations and it’s not necessarily a bad thing, but it sounds like you learned a lot of lessons. So what did you learn or what would you do different if you were brand new? Again, looking at properties like this,

Flo:
I would definitely structure the deal a lot more conservatively than I did because I structured it initially at 75% and in a market where homes are dirt cheap, a highly renter market, which meant there were a lack of sales and comps to justify this new completely renovated home to be 230,000, which is what it appraised to be. But because there were some challenges with comps, when I went to refinance, the underwriter asked, Hey, can you tell me why you use these comps instead of this? Even though the appraiser was like, well, this is pretty much new construction. You didn’t have to replace the roof or the exterior, but you did everything brand new inside new electrical, new everything. And so that question ended up bringing the appraisal price down 26,000. So that’s the lesson that I learned there. Structure deals more conservatively, especially if you’re targeting those cheaper housing markets.

Dave:
Those are great lessons. Thank you. Flow and lessons we unfortunately all sometimes have to figure out. But now that you’re now a year and a half or so into this, where did these two rental properties net you at the end of the day after you refinancing? Are they cash flowing for you? How are they performing?

Flo:
Yes, they’re doing pretty good. So for that first one, we had that one rented out to a group home tenant. There’s a lot of interest for some reason in that market for group homes. I had that rented out for 1595. So yeah, I was cash flowing very, I’m telling you that that flood zone insurance is really eating into it, but I was just happy that the mortgage was being covered and sometimes that’s all you can be happy with. As far as the duplex, both are Airbnb on VRBO, furnish finder, that sort of stuff. So yeah, they’ve been, that one’s cash flowing between 800 to a thousand per month.

Dave:
Wow. On a $200,000 purchase, right?

Flo:
Yeah. 202 80 seven’s. Yes. That one appraised for 4 62 5. Oh, nice. That one turned out pretty well that that’s a lesson I learned for targeting slightly more expensive markets because then they have more crops.

Dave:
When you did the refi, just for that example on the duplex, you built a ton of equity. That’s awesome. When you did the refi, did you pull cash out to use for your next deal like a burr or did you keep cash in to preserve your cashflow?

Flo:
So I actually did pull cash out of that one. I actually pulled cash out of the other one too. Like 2000 was like 2000, to be honest. I was like, I mean, I know this is something very real out there. I was also drowning in the losses of these going over budget, so I needed cash out to recover a little bit. Yeah,

Dave:
There’s no right answer. I’m just curious because I think people say you can’t do a burr, but clearly you created a deal that you could pull substantial amounts of cash out of. It’s up to you whether you want to keep money in that improves your cashflow because you’re borrowing less money, but then you have to save up to buy your next deal. So I think it sounds like you’re only at the beginning of your career here, so pulling money out and focusing on a next acquisition, doing more per kind of deals where you can build equity, makes sense to me that you would prioritize that over cashflow right now.

Flo:
Right, exactly. So yeah, that one turned out well.

Henry:
Flow. It sounds like you became a real life real estate investor. You went through the ropes of buying cheap property, you went through the ropes of a hundred thousand dollars renovation. You went through the ropes of contractors not doing what you wanted them to do, spending too much of your money. I mean, you got put through the wringer, but at the end of the day you have a couple of properties. So I’d love to transition and talk to you about what you did next, but I’d like to do that right after this break. Alright, we are back again with Flo Jacques talking about how she has been through the real estate investment ringer, but has come out clean on the other side. So Flo, after these two deals, so you’ve bought a single family and now a duplex first, do you still own the single family?

Flo:
I still own both, yes.

Henry:
Okay. Okay. So you still own the properties and have you purchased anything else since then?

Flo:
Yes. So right before the year ended, December 1st, 2025, I closed on a single family half acre lot in Raleigh, North Carolina.

Henry:
I love Raleigh. Okay, and is this a home you’re going to live in? Is this a rental? Is it a flip? Tell us about it.

Flo:
So actually I decided I wanted this one to be a flip, although in my mind initially when I started this journey, I thought I would just bur the rest of my life, bur my life literally. But I’m like, you know what? I could use some extra capital right now, especially after those two rehabs, honestly. So this one I actually found off market. That’s my first off market deal.

Henry:
Off market. So tell us about that. How did it come to pass?

Flo:
I attended a private money lending conference back in October after BP Con, so I was at BP Con and I flew back from Vegas on a red eye and literally headed to Atlantic Beach, North Carolina for this private money lending conference. And that kind of reignited this like, okay flow, get back on the saddle. And so I think a month after that conference I landed this deal, I found investor lift that off market platform wholesalers are on there, and so I was just browsing and working out the deals. You still got to do your own calculations because those people are liars. Yes. That one, it seems like a lot of investors were passing on it because the ceiling doesn’t meet code, it’s under seven feet and Raleigh requires a minimum of seven feet. And so to me the strategy is when others are not buying it, that’s your opportunity to negotiate and win it.

Henry:
That’s absolutely true. I think everybody should have a buy box and should have some sort of deal breaker and it’s different for every person and it’s different in every market. I’ve heard people like Laika who’s on this show frequently who said she will never buy a property to flip that’s on a double yellow line road because the houses on busy roads don’t sell. I flip those houses all the time. It’s different in different markets, but I pay a lot less for them because I underwrite them extremely conservatively. So everything that you need to fix on a house, no matter how catastrophic is just a dollar amount,

Speaker 4:
And

Henry:
So it tells you how much you needed to pay in order to fix the problem. So I’m assuming that’s the lens you were looking through. Can I fix this problem if I get it cheap enough?

Flo:
Correct. Exactly.

Henry:
So how’d you do it?

Flo:
Yeah, so this time I was much better. At this point, I’m a full-time real estate professional. I no

Henry:
Longer work You as well get your contractor’s license now.

Flo:
Exactly. Well, I’ve thought about that or I have really thought about that, but yeah, now that I’m a fully full-time real estate professional, I don’t work that job anymore and so I have more time to take my time and do my due diligence. So I invited the contractor, walked it through with him, he gave me a budget and so hopefully he doesn’t listen to this episode, but the budget I tell the contractor is very different than what I actually borrow from the lender.

Henry:
That’s just called being a smart investor dear.

Flo:
Especially after the lessons I learned right, going over budget and stuff. So once I was clear on how much he was going to do it for, I budgeted for contingencies a very good bit, also paying myself. I also started budgeting to pay myself for my time and energy for these projects, and so I worked backwards from there. If this is the rehab budget, I actually structured it at 65% a RV for this one. So I purchased it for one 20 and the R VNA is 3 37 and that is actually a conservative appraisal.

Henry:
That’s a stellar deal. That’s almost a six figure net profit.

Flo:
Yes, that’s correct.

Henry:
That’s a stellar deal. So did you have to pop the top and raise the roof?

Flo:
You’re doing that? We’re literally doing that right now. I’ve been back and forth on the phone with the power company, turn the meter off, install a temporary meter pole. We are actively working on this right now. We are actually a little two months behind the ball thanks to that contractor who I really wanted to fire, but I’m like, you know what? I’ve worked with him.

Henry:
So just to be clear, it had lower than seven foot ceilings, and so for you to be able to sell this property, you’ve got to get to at least seven foot ceilings on your renovation. So you’re raising the ceiling height but all the same level. You’re not adding a second story to the living

Dave:
Space, literally raising the roof.

Henry:
Literally

Dave:
Raising your roof. I love it. Yes. All right. So Flo, we’re 18 months into your investing career flow. Can you just summarize what your portfolio looks like today?

Flo:
Yeah, so currently I do include my primary home because I bought it to be an investment property three months after, but that didn’t work out. I’m still here, but I am very proud of it because it’s hard to find a home in North Carolina. It’s one of the more expensive places to live in North Carolina. So I consider this condo as well as the single family in Rocky Mount, the duplex in Durham and this single family half acre lot in Raleigh. So that is my portfolio, two years from 2024 to date.

Dave:
Nice. Good for you. I mean it’s a really well diversified first couple of deals, right? You’ve done a little bit of everything, but it sounds like the goal is still long-term cashflow. Maybe you do some flips opportunistically, but still want to be a buy and hold kind of investor.

Flo:
Yes. My goal is to continue to build the portfolio. I haven’t exactly figured out my freedom number. I think maybe when I figure that out, I’ll know exactly how many properties I want to have. But I will tell you this though, my life as a licensed real estate broker investor, the goal is to eventually develop.

Dave:
I love that goal. That’s awesome. What about development appeals to you? Because I’m terrified of it,

Flo:
So I want to be a developer because I want to build communities. I spoke to somebody this morning about her son is special needs. She wants to build a community for special needs families, just thinking about providing solutions to communities and things like that. So I don’t have it all figured out, but I do know I want to build.

Henry:
Alright, flow. Well, this is an incredible story. Before we get out of here, is there anything you want to share with us? Maybe something that real estate allows you to be able to do now?

Flo:
Yeah, I think my life is full circle, right? I got my background, my education, social studies, teaching license, my master’s in school counseling. So this kind of education thing that I thought I did just to not ever actually do is now fully present in my real estate investing career where I help other people get the information I was desperately seeking when I wanted this information. So I’ve been teaching real estate investing classes just free, just inviting people and that sort of stuff. So it’s been phenomenal just bringing that to the community.

Henry:
I love that. I love that you’re now able to provide help to your community through your experiences and that’s something that real estate allows us to do because when we have something that we know is going to bring us income, then it allows us to be able to focus on things. Especially like people who want to start businesses first couple of years in business is hard. You may not make money, and so being able to lean on your real estate and start a business or start a passion project or a nonprofit is super cool. So I’m glad you’re able to give back to your community.

Dave:
Totally. And I just love that it’s kind of like an intersection marrying two different parts of your life for you teaching and real estate. You found a way to incorporate both of those. I’ve done that. I know Henry’s done that as well. It’s really cool that you don’t just have to be a real estate investor. There are ways that you can use this industry to pursue things that you really like as well. It’s awesome to hear that you’re doing that flow so early in your real estate investing career. Congratulations.

Flo:
Thank you. Thank you.

Henry:
Alright, well we’ll have to have you back so you can tell us all about the flow estates after you get finished developing those, and then I’m sure you’ll be teaching people how to be a real estate developer.

Flo:
Yeah, well, we’ll see. Never know, right?

Henry:
Alright, I think that was fun. That was a cool story to listen to. I think we often hear the opposite from people where it’s, I just researched for years and then

Dave:
I

Henry:
Finally took some action and flow was like, I’m just going to go buy

Dave:
Something. No, I’m dive it in

Henry:
Right down. I’m just going to buy something.

Dave:
I love it. It’s a great approach and I think it shows that creativity and just determination still net good deals. In 2024, she started in a difficult time, 2024 is maybe the hardest market in the last seven or eight years, and she just went for it, found great deals, educated herself and pulled it off.

Henry:
And think about the confidence she now has because if you were able to successfully invest in 2024 and 2025, whether you got beat up along the way or not, she’s still here now talking about deals that are positive. In a lot of ways, that breeds a lot of confidence as the market shifts to a more favorable real estate market. You got to be feeling good.

Dave:
I hope everyone listening listens to flow story and realize that deals still can be done. This is someone who started with very little experience, very little capital in a super expensive market and pulled off three deals in 18 months. If Flo can do it, everyone out there, if you educate yourself, you can do it as well.

Henry:
I mean, she did several things that people say you can’t do. She went and she got a hundred percent financing on her first deal. That’s true. Yes. And yeah, yeah. She went over budget on her renovation. She had to fire three contractors, but who hasn’t had to go through some of those things. I think we’re all going to go through some of those things. What I think is a good part about this story is single family real estate. Yes, you can have challenges, but no one’s going to die if it doesn’t go perfectly right. You’re not going to go bankrupt if you feel like you have enough of a financial backing to take a couple of lumps along the way. Like taking the action and learning the lessons can be far more valuable than trying to learn all the lessons upfront and then getting into a deal where you’re still going to take some lumps. Alright, folks, we’re going to get out of here, but if you enjoyed Flow Story, I recommend that you check out the BiggerPockets podcast, episode 1105 with Deandre McDonald. It’s another investor story and one of our most popular episodes from the last few years. That’s episode 1105 from last April, and we’ll link it right here on YouTube as well. Thank you so much for watching. We’ll see you on the next episode of the BiggerPockets podcast.

 

In This Article

The combination of foreclosures and falling housing prices is like throwing chum into the water for a group of hungry sharks eager for deals. In some states, as mortgages slip into negative equity and banks seize possession of homes, the fins have started to circle.

Underwater Homes Are Clustered in Specific States

It’s not a feeding frenzy yet, however. According to a fourth-quarter 2025 home equity study by real estate data specialists ATTOM, the percentage of homes that are at least 25% underwater—meaning that mortgage balances are at least 25% above market value—has increased to 3% of all mortgages, up from 2.5% a year earlier. 

That’s not astounding news in itself, but what is interesting is that the underwater homes are clustered in specific states, each with between about 5% and 11% of mortgaged homes in deep negative equity:

• Louisiana
• Mississippi
• Kentucky
• Iowa
• Arkansas

Should these homeowners be forced to sell and cannot find a buyer because their debt exceeds the home’s value, they could find themselves handing the keys back to the bank, which would then list the home for sale as an REO. In a declining market, that’s a golden opportunity for investors.

Analyzing the ATTOM data, Homes.com chief economist Brad Case said:

“When homes get into negative equity, there are three typical reasons. One, they used a very low down payment; two, they used a long amortization schedule, meaning that the period during which most of their mortgage payment was interest rather than principal lasted for a long time; and three, the value of the house went down, either because they bought at the top of the market or because they paid more than it was worth even at the time they bought it.”

Case added, “The bigger problem is that some buyers are likely to have assumed that the $100,000 increase they saw over the previous year will continue indefinitely, and they will have been willing to overpay to get in on (not quite) the ground floor.”

That kind of thinking led to the 2008 financial crash. However, we are a long way from that, with only some markets showing increased homes underwater while others, particularly in the Midwest, are in good health. 

The same ATTOM data showed that equity-rich properties, where the total secured debt is half of the home’s value, dropped from 46.1% in the third quarter of 2025 to 44.6% in the fourth quarter. However, Case categorizes this as “normalization” rather than a market in free fall.

Stress, Foreclosures, and the Landlord Exodus Narrative

When the decline in home equity and the increase in homes underwater are analyzed alongside the growing issues with household credit, a narrative begins to emerge: The population—especially those with moderate incomes—is under increasing financial strain.

“In lower-income areas and in areas experiencing worsening labor markets or housing market conditions, we are seeing mortgage delinquencies grow at a fast pace,” economists at the Federal Reserve Bank of New York said in a recent report. The states with higher underwater properties and an increase in foreclosures—including default notices, scheduled auctions, and bank repossessions—up 32% from a year ago, according to ATTOM data, hint at a pipeline of motivated sellers and lenders.

A “Landlord Exodus”

Layered on top of these trends is an increasingly worrying one for investors: A “landlord exodus” shows that in certain metros—most prevalently in Florida and Texas—landlords are heading for the hills due to a combination of pricing, rent burden, regulatory friction, and poor landlord-friendliness metrics. 

The analysis, a January 2026 report, “Landlord Exodus & Housing Stress Index,” which was published by GigHz and combines Zillow housing and rent indices and state regulatory datasets, shows that low-income households in rent-controlled markets apportion roughly 42% of their income to rent, compared to about 29% in more landlord-friendly states, which shows how tight regulation can coincide with higher rent burdens.

The U.S. housing market has split into four capital zones, according to Dr. Pouyan Golshani, founder of GigHz Capital and developer of RadReport AI. “Investors and landlords aren’t villains or heroes; they’re actors responding rationally to regulation, supply, and affordability,” he added.

Why the Midwest Keeps Coming Out Ahead

Conversely, certain Midwest and Northeast markets remained resilient, according to the landlord exodus report:

• Rockford, Illinois
• Erie, Pennsylvania
• Utica, New York
• St. Joseph, Missouri
• Janesville, Wisconsin
• Canton, Ohio
• Syracuse, New York
• Cleveland, Ohio

In these markets, affordability and job stability have created a favorable environment for homebuyers and landlords alike, in stark contrast to speculative spikes seen in the Sunbelt and coastal markets. 

This was echoed by the Neighbors Bank’s Best Cities for First-Time Homebuyers in 2026, which was dominated by Midwestern cities. 

The Play for Landlords

Landlords looking for a deal have a few options. The trend line in certain Southern and Sunbelt states is of homeowners under increasing financial strain. If a house has negative equity, a “We Buy Houses—are you facing foreclosure or underwater?” mailer, online ad, or bandit sign will be of little use—if you wish to get a home at a discount—unless you can work out a deal with the lender.

Many lenders are sitting on the sidelines, waiting to see what happens with interest rates and hoping for a rush of buyers. However, when owners have credit card debt, are behind on payments, or landlords are burned out from bad tenants and restrictive municipalities, it might be possible to strike a deal, ask the owner to hold the note, or assume a mortgage if the interest rate is low. Or if there is equity, simply buy it outright.

Final Thoughts

For landlords unable to make a move now, there is plenty to keep an eye on. If the trend for underwater or near-underwater homes in specific markets continues, with declining values and interest rates remaining where they are, motivated sellers and lenders might be open to creative deal structures, including seller financing, rent-to-own arrangements, or purchasing discounted portfolios, especially if the houses are in need of repair. 

Pair this information with the fundamentals—jobs, population trends, regulatory climate, and realistic rent projections—and the map of underwater mortgages can double as an early indicator of next investment hot spots.