Category: Real Estate

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Everyone hears “five Airbnbs in five years” and immediately pictures some kind of motivational speaker montage. You know the one:

• Scrolling Zillow at midnight with one eye open.
• Signing five mortgages while pretending you understand what “debt service coverage ratio” means. 
• Buying 37 throw pillows from HomeGoods because apparently that’s what makes a house “Instagrammable.” 
• Chugging cold brew like it’s a performance-enhancing drug. 
• Yelling “CASH FLOW” into the void and hoping the universe manifests a check.

And then year two hits:

• The hot tub breaks and costs more to fix than your first car. 
• Your cleaner quits via text at 9 p.m. on a Friday before a check-in. 
• The city changes the STR rules, and suddenly, you need a permit that requires a blood sample and your firstborn child. 
• You’re on your third “emergency” Home Depot trip this week, wearing the same hoodie you slept in, and you’re pretty sure the cashier recognizes you now.

So, no. Getting to five short-term rentals is absolutely not “buy five houses as quickly as humanly possible and figure it out later.”

That’s how people burn out, overleverage themselves into oblivion, and start posting desperate questions in Facebook groups at 2 a.m., asking if anyone has a “miracle pricing spreadsheet” that also fixes existential dread and poor life choices.

The real path to five short-term rentals in five years is calmer, smarter, and honestly way more repeatable than the Instagram version. It’s a mix of ownership, co-hosting, and economies of scale that don’t require you to sell a kidney or develop a caffeine dependency.

Here’s the step-by-step plan that actually works—without destroying your mental health in the process.

Why Your First Airbnb Should Feel Like Tuition (Not Your Retirement Plan)

Your first short-term rental is not your forever property, your brand, or the thing you’re going to feature in a glossy magazine article about your “real estate empire.”

It’s tuition. Expensive, sometimes painful, absolutely necessary tuition.

You’re paying to learn how guest expectations really work, which is to say they’re both completely reasonable and wildly unhinged at the same time. You’ll learn what breaks the most (spoiler alert: It’s always the thing you thought was “nice to have” but “probably fine”). 

You’ll figure out how pricing actually moves, and why your gut feeling is usually wrong by at least 20%. And you’ll discover what a good cleaner is worth, which is more than your ego wants to admit but less than therapy would cost if you tried doing it yourself.

Most importantly, you’re learning how to build systems you can actually reuse later without wanting to throw your laptop out a window.

Most people fail their first STR because they treat it like a retirement plan instead of a learning experience. They stretch to buy the prettiest property with the biggest mortgage payment, then try to operate it like a legitimate business with the budget of a kid’s lemonade stand. It’s a recipe for disaster—or at least a recipe for spending every Saturday at Home Depot looking for the right lightbulb while questioning every decision that led you to this moment.

The goal of the first STR isn’t to maximize profit and retire to Bali. It’s to build a playbook that works. A boring, repeatable, “I’ve done this before, and I know it works” playbook.

Because once you have a playbook, scaling becomes boring. And boring is massively underrated in business. Boring means you’re not constantly improvising. It means you can sleep at night. Boring means you might actually take a vacation without checking your phone every 11 minutes.

Year 1: Build Something Simple That Prints Money—Without Printing Stress

In year one, your job is not to create the Taj Mahal of short-term rentals or some boutique hotel experience that requires a staff of 12. It’s to build the simplest possible machine that prints money, without printing ulcers.

Here’s the actual recipe: Pick a market in demand, even when your listing isn’t perfect. You want a place where people are actively traveling, not one where you’re the only thing keeping the local economy alive.

Buy a property that’s easy to clean and maintain. This is not the time to buy the historic Victorian with original hardwood floors that need to be refinished every six months. You want the boring house that doesn’t fall apart when someone uses the shower.

Keep your design simple, memorable, and durable. You’re not designing it for Instagram. It’s for real humans who will spill wine on your couch and not tell you about it.

Set up your systems from day one: messaging templates, pricing rules, cleaning schedules, and maintenance checklists. Build these now or hate yourself later.

Learn the guest journey obsessively. What do they actually care about? Where do they get confused? What questions do they ask 47 times that you should just put in the listing?

If you do this right, you’ll end up with consistent reviews, occupancy, and confidence that you’re not completely winging it, as well as a repeatable setup you can literally copy and paste when you’re ready to scale.

And you’ll also have the one thing most investors never get: proof that you can run this business without being physically present for every single decision, which is the whole point unless you enjoy never sleeping or taking a day off.

The “tuition mindset” makes everything else possible. Skip this part, and you’re just collecting houses, not building a business.

Year 2: Co-Hosting Is the Cheat Code Nobody Wants to Admit Actually Works

Here’s where we take a hard left turn from the “normal” advice you’ll find in every other real estate blog, written by someone who read three books and bought one rental.

If you want five short-term rentals in five years, you need cash flow that doesn’t require buying more houses immediately and taking on more debt that makes your accountant nervous.

That’s where co-hosting comes in. Co-hosting is hands down the easiest way to scale your income in this space without taking on more debt, risking more capital, or convincing a bank that yes, you really do need another mortgage.

And I know exactly what you’re thinking right now: “I’m not trying to be a property manager. That sounds terrible, and I already have enough problems.”

Totally fair. I get it.

But co-hosting (when done right) is not traditional property management, where you’re fielding calls about broken garbage disposals at 11 p.m. and mediating neighbor disputes about parking.

If you do it right, it’s more like running an operating system. You build the messaging system, pricing system, cleaner and maintenance network, guest experience standards, and reporting cadence. And then you apply that exact system to other people’s properties.

You get paid to practice scaling, refine your systems, and figure out what works and what doesn’t before you risk your own money on property No. 2.

Most people skip this step because they think it’s beneath them, or they’re obsessed with “owning doors” like it’s some kind of status symbol. Those same people are also the ones posting in Facebook groups six months later asking how to afford their second down payment while their first property is bleeding cash.

Co-hosting can fund your growth in a way that buying another house simply can’t. And it teaches you the single most valuable skill in this entire game: how to run short-term rentals that you don’t physically babysit 24/7, like they’re a toddler who just learned how to open the fridge.

What co-hosting actually does for your five-year plan (besides make you money)

Here’s the real point most people miss: If you can co-host three to 10 properties while owning one, you start stacking benefits that compound way faster than just buying another property:

• Extra income that doesn’t require a down payment or a mortgage 
• Operational reps that make you better at this faster 
• Vendor leverage, because now you’re worth their time and attention 
• System refinements, because you’re seeing what works across multiple properties, not just your one special snowflake 
• Confidence in your numbers, because you’re not guessing anymore

Your first Airbnb taught you how the game works. Co-hosting teaches you how to run the game at scale without losing your mind or your savings account.

Also, your cleaners start actually liking you because you feed them more consistent work. Your handyman starts answering your texts faster because you’re not just “that one guy with one property.” And your pricing decisions get dramatically better because you’re seeing patterns across multiple listings in real time, instead of just staring at your own calendar wondering why nobody’s booking.

Economies of scale show up way earlier than most people realize. And they make everything easier, cheaper, and less stressful.

Year 3: Buy Your Second Property Later, Not Sooner (Yes, Really)

Most people rush their second purchase because they’re completely addicted to the idea of “owning doors,” and they want to tell people at parties that they have “multiple properties,” like it makes them sound sophisticated.

Then they end up owning two doors and exactly zero hours of sleep while wondering why their bank account looks like a crime scene.

Buying the second property later can genuinely be better than buying it sooner. Here’s why: 

• You’ll have more cash saved because you weren’t throwing everything at another down payment before you were ready. 
• Your systems will be tighter because you’ve had time to actually test and refine them, instead of just making stuff up as you go.
• Your vendor network is stronger because you’ve been working with them long enough that they actually return your calls.
• You’ll underwrite properties better because you know which numbers are real and which are fantasy.
• You’ll know what actually drives revenue in your specific niche, instead of guessing based on some pro forma you found on BiggerPockets.
• Your co-hosting income can help cover slow months on your owned property, which means you’re not panicking every time occupancy dips.

This is the boring truth that nobody wants to hear: The second purchase is dramatically easier when you’ve already proven you can operate at scale, even if that scale is co-hosting other people’s properties. It’s the difference between “I really hope this works, and I’m not making a huge mistake” and “I’ve literally seen this exact playbook work on 10 other properties, so I know exactly what I’m doing.”

That confidence is worth actual money. It helps you negotiate better, avoid bad deals, and sleep at night.

Year 4: Stack Smart, Not Fast (Because Fast Is How People Go Broke)

At this stage, you’re not “starting” anymore. You’re repeating a process that you already know works.

This is where growth stops feeling like complete chaos and starts feeling like an actual business, with systems and processes and maybe even some predictability.

In year four, your only job is to do two things:

1. Buy one more property. Now you’re at three owned, which is enough to feel legitimate, but not enough to drown.
2. Keep co-hosting, or transition into partial management if you want less day-to-day involvement and more strategic oversight.

This is also where you’ll feel the first real benefit of scale that makes you realize why you did all this work in the first place. You can:

• Bulk-buy supplies and actually save money. 
• Standardize amenities across properties so you’re not reinventing the wheel every time. 
• Reuse your guidebook and messaging templates without changing a single word. 
• Train cleaners once, and then copy that exact standard to every other property. 
• Negotiate better pricing with vendors, because now you’re actually worth their time. 
• Move faster on deals, because you already know what matters and what’s just noise.

You’re basically building a tiny hotel brand—without a lobby or matching uniforms or any emotional stability. But you do have a business that actually works.

Year 5: The Jump to Five Is a Systems Question, Not a Money Question

By year five, getting to five rentals is no longer about “can you find the next deal?” or “can you convince a bank to give you another loan?” It’s about three much more important questions:

1. Do you have the cash flow to support down payments without stretching so thin you can’t handle a single surprise expense?
2. Do you have the team to support more listings without you personally answering every guest message at 10 p.m.?
3. Do you have systems tight enough that adding another property feels like an addition, not a complete lifestyle change that requires you to quit your job and become a full-time Airbnb babysitter?

At this point, you can hit five properties in a few different ways, and honestly, they’re all valid:

• Option A: Own five properties outright. This is traditional, straightforward, and requires the most capital, but gives you the most control.
• Option B: Own three to four properties and co-host 10 to 20 for other owners. You still have “five STRs” in terms of operational experience and income, but they’re just not all sitting on your personal balance sheet, making your debt-to-income ratio look terrifying.
• Option C: Own two to three properties, but build a brand that’s actually worth more than the properties themselves through direct booking, repeat guests, content, partnerships, and systems that other people would pay for.

Most people obsess over “How many properties do I own?” like it’s a scorecard at a networking event. Real operators obsess over “How much infrastructure have I built?” Infrastructure is what makes five feel easy and makes 10 feel possible instead of insane.

The Real Secret: Scaling STRs Is Not a Buying Strategy. It’s an Operating Strategy.

If you take exactly one thing from this entire article, make it this: Buying properties is the fun part. It’s exciting, gives you something to post about on LinkedIn, and makes you feel like you’re making progress. However:

• Operating properties is the part that actually gets you paid and determines whether you succeed or fail spectacularly while drowning in debt and regret.
• The first Airbnb is tuition. It teaches you the game.
• Co-hosting is cash flow without debt. It teaches you scale.
• Waiting on the second purchase is discipline. It teaches you patience.
• Scale is systems, not hustle. It teaches you leverage.

And if you build it that way, five properties in five years doesn’t feel like a sprint where you’re constantly on the edge of disaster. It feels like a plan. A boring, repeatable, actually sustainable plan that doesn’t require you to sacrifice your sanity, relationships, or ability to sleep through the night without checking your phone.

And honestly? That’s the version worth building.

In This Article

“Follow the money” is cogent advice for investors deciding which Sunbelt state to invest in. Unlike in previous years, however, the money trail leads not to Florida or Texas but to North Carolina, where millennials are flocking for tech and finance jobs and a lower cost of living. While cash flow is tight for landlords in the main hubs here, by picking the right neighborhood, those who buy smart and move fast can enjoy the spoils of a state on the move.

From July 2024 to July 2025, North Carolina attracted 84,000 new residents, according to Census data, more than any other state, and is consequently the third-fastest-growing state in the nation. While North Carolina has plenty to offer in terms of climate, geography, and jobs, the two Southern powerhouses that have grabbed the headlines over the past few years for attracting remote workers and job seekers—Florida and Texas—have handed North Carolina an immigration victory lap due to the rapid cost of housing and soaring insurance costs in the two states.

“The cost of housing, in particular, is driving young people and retirees to other states,” University of Florida research demographer Richard Doty told the Associated Press. “Also, insurance is higher in Florida than in most other states.”

Rival States Hit the Brakes

The post-pandemic tech boom in Texas appears to have hit the brakes recently, as major companies have laid off workers, while traditional coastal employment hubs such as New York and San Francisco have picked up.

Isabelle Bousquette, a tech reporter for the Wall Street Journal, said on Texas Standard, a Texas Public Radio station:

“There was a recent report from SignalFire, which is a venture capital firm, and that was showing that in 2024, employment in big tech companies declined 1.6% in Austin, and employment in tech start-ups declined 4.9%. We also saw declines in cities like Dallas, Houston, Denver, and Toronto. But then, you know, increases actually in New York and the Bay Area….A lot of the companies that moved to Texas have done layoffs since.”

Escalating rents and home prices have also contributed to the exodus. “I think a lot of people were frustrated and disappointed when the housing costs went up or fluctuated. And yeah, I think that was also one of the reasons that they may have headed out,” Bousquette added.

Smaller Cities Make for a Better Quality of Life

Also playing into North Carolina’s hands are the generally smaller, less bustling metros compared to Florida and Texas, where families can live closer to their jobs or work remotely while being in a scenic environment.

“North Carolina is attracting younger folks because we have so many nice areas in North Carolina—the mountains and beaches and lakes in between—that we’re benefiting from younger people who decided they can work from anywhere and would rather be in a nice area,” North Carolina state demographer Michael Cline told the Associated Press. “One of the things about North Carolina, our cities are not huge, and that may be attractive to folks, too.”

These factors have helped employment hubs such as Raleigh, Durham, and Charlotte evolve into diversified centers rather than single-industry boomtowns. 

This is why Ralph DiBugnara, founder and president of real estate investment platform Home Qualified, recommended Raleigh as the prime place to invest in 2026.

“A great strategy for 2026 would be to look into any cities that are growing population because of workforce,” he told GoBankingRates. “This can be a major needle mover in higher prices for real estate.”

Employment Diversity

In addition to its core employment drivers in tech and finance, North Carolina has been broadening its employment reach in manufacturing and life sciences through Swiss drugmakers Roche and Novartis, as reported by Reuters. Construction for the buildout, along with the creation of permanent new positions, will result in thousands of new jobs.

The Landlord Play

For smaller landlords, the play is straightforward: More high-paying, stable jobs result in stronger rent rolls and deeper tenant pools over time. The real decision is choosing where to invest.

For all-cash buyers who are looking for a solid place to park their money and enjoy strong returns, Raleigh, Durham, and Charlotte in B and B+ neighborhoods close to the main employment area are a no-brainer. Research is needed, though, on the types of wages being paid so that rent does not take up the majority of a tenant’s paycheck.

High on a millennial’s list of must-haves will likely be a walkable neighborhood, with easy access to parks, trails, restaurants, and an adequate supply of housing to invest in with numbers that make sense. That means targeting submarkets with commuting distance to their jobs.

Important Stats

Raleigh, Charlotte, and Durham

Charlotte is a prime target for investors, according to lender Equitycheck, and has recently posted a 12% appreciation rate. It’s competitive and pricey. Prime investment areas include Uptown (City Center), NoDa and Plaza Midwood, Optimist Park, and Villa Heights, while more affordable suburban markets such as Huntersville, Matthews, and Indian Trail appeal to families.

Granitepark.co, a real estate investment blog, recommends University City, Steele Creek, and Concord in Charlotte as places to attract young professionals without premium pricing.

With a thriving tech industry, Raleigh has seen an influx of workers with higher-paying jobs in recent years, driving demand for housing. However, they come with higher price points.

In addition to Charlotte (Chapel Hill), Raleigh and Durham—the Research Triangle—Asheville, and Carolina Beach are strong short-term rental enclaves. There is also high student housing demand, especially in Chapel Hill, which has over 32,000 students and is home to the University of North Carolina. Raleigh is home to North Carolina State University (NC State), with 36,000 students. Duke University is based in Durham, with students paying high rents.

Greensboro

No mention of investing in North Carolina would be complete without mentioning Greensboro, which is generally affordable, with a median price of $257,450, according to Zillow, and strong cash flow potential in manufacturing, tech, and logistics.

Wilmington

The laid-back coastal city of Wilmington offers a small-town vibe with big-city amenities, attracting many well-heeled investors. The average home price of $406,726 means rental prices need to be high to turn a profit. However, for investors who can afford it, it’s a solid place to buy due to expected appreciation, consistent demand, and a steady short-term rental business.

“Wilmington should continue to grow, and because most of the land within the city limits is developed, we’ll continue to see more redevelopment of existing properties,” developer Jason Swain, of Wilmington-based Swain & Associates, told Wilmington Biz. “At the same time, much new growth will likely occur on the periphery of the city…With interest rates falling, we expect some projects that have been on hold to start moving forward as development fundamentals stabilize and expectations adjust to new market norms.”

Rent prices

Compared to the state average rent of $1,895, Raleigh’s average rent of $1,574 is on the lower side, especially considering the average home price of $424,924. Durham is also fairly expensive for rental income, with cap rates around 4.4%. Greensboro is around the same, but the lower-priced housing makes this far more attractive for investors from a cash flow perspective.

Final Thoughts

What North Carolina has going for it is momentum. It’s growing fast, with vibrant employment and education hubs, and people are moving there in droves, so it’s hard to put a foot wrong if you plan to buy. The main question for an investor is whether to buy for appreciation or cash flow, because the coveted job-heavy cities are pricier and, with current interest rates, won’t cash flow for leveraged buyers.

The smaller pockets in and around areas like Greensboro will, however, and with prices still around $250,000, even a break-even scenario with a view to tax breaks, debt paydown, and refinancing to a lower rate in the future could be a prudent move.

Dave:
Financing is still the biggest gatekeeper for most real estate deals. And therefore, small changes in rates, credit trends and loan programs can make huge differences for investors trying to build their portfolio. I’m Dave Meyer and today on the Market I’m joined by Jeff Welgan from Blueprint Home Loans to talk about the state of lending right now, what investors should understand as we move through this phase of the cycle and how lending conditions, shape prices, inventory, and opportunity. We’ll cover what’s changed recently, which loan products are most useful today and you should be looking into and the practical tactics borrowers should be using to get better terms on their next deal. This is on the market. Let’s get into it. Jeff, welcome to On the Market. Thanks so much for being here.

Jeff:
Yeah, thanks for having me on. Dave,

Dave:
For those who don’t know you, could you just give us a quick introduction?

Jeff:
Sure, yeah. My name’s Jeff Welgan. I’m the VP of Investor Lending at Blueprint Home Loans. We are a nationwide direct lender and we specialize in strategic planning for real estate investors and I’ve personally been in this incredible industry for the last 22 years and I grew up in a real estate investing family, so I’ve been around it my whole life and I love it and what I’ve really made it my mission to give back any way that I can and teach what I’ve learned and love what I do.

Dave:
Well, thanks for being here, Jeff. We’ve been through a lot of cycles in the last 22 years, so you were doing this in oh eight, obviously the last few years have been crazy. Maybe you could start there and just tell us a little bit about where you feel like we are in the financing cycle.

Jeff:
Looking back to that period that you mentioned of oh eight through, let’s call it 2012, my industry went through the exact same cycle where we had mass layoffs, company closures, and now we’re going through M and as mergers and acquisitions and we’re seeing a lot of that occurring right now, which leads me to believe that we’re coming to the end of this cycle because we’ve seen it before and the big money is preparing for the next cycle and the next wave. So as of right now with what’s been going on with mortgage rates and how they’ve improved a bit, I mean they’ve come down about a point or so here over the last six to nine months, it’s been enough to where we’ve seen an uptick in the refinance business, the side of the business, and then purchases have really been picking up as well. So it’s been an interesting evolution and I think we’ve got some good days ahead.

Dave:
What is the driving the increase in demand? Is it just that one single point reduction in mortgage rates?

Jeff:
I think it’s more momentum than anything where you’ve got to really think about what’s occurred here over the last three years and how challenging this has been as a country. And I mean we’ve all experienced borderline runaway inflation. I mean it could have been a lot worse, but not quite the seventies, but it really has been ingrained into all of our psyche now to where we’re cognizant of what’s happening with inflation, what’s happening at the prices of goods and services. And so now that we’re starting to see inflation easing and mortgage rates coming down a bit, it’s opening opportunities for people that couldn’t qualify at the elevated rates, let’s say at seven or 8%. So keep in mind the only thing that’s changed since 21 or 22 is that rates over doubled. And so you got to think how many people we had pre-approved back then that have been stuck on the sidelines just couldn’t qualify because property values didn’t come down and rates went up and it’s caused an affordability crisis.
It’s as low, the affordability percentage number is the lowest it’s been in a very long time and unfortunately it’s just been stuck there. So without something changing here significantly with either rates or property values, I think this is going to be fortunately the way things are going to be for the foreseeable future. But I think a lot of it because the people smart money, the people that are actively still in the game are trying to buy investors and even people that are buying primary residences that are paying attention are taking advantage of these dips and getting in because the inflection point that we have seen coming here for the last few years is when rates convincingly get back down to around five and a half or so, and when the media starts getting back on board and we start hearing rates are in the 5% range convincingly again, we’re going to see a lot of these people that have been stuck on the sidelines jump back in, which creates that imbalance again where we have too much demand and not enough supply and there’s no big amount of supply coming anytime soon in most markets at

Dave:
Least. I do want to focus most of our conversation today about people who want to be in the market today, but you said a couple things that I got to follow up on. Even though I know you don’t have a crystal ball. You said things will be like this for the foreseeable future unless rates change or home values change. Do you see that coming this year or what’s your read on the market?

Jeff:
You and I are pretty much in alignment on this. I mean, I think I’m a little more optimistic with rates because of the industry that I’m in, obviously and some of the economists that I follow. But the reality is I think there’s still room for rates to improve. And we’ve seen what’s happened with the mortgage spread this year. Mortgage spread was the hero of the year last year in 25. There’s still room for it to come down a little bit further. And I talked about this a little bit on Tony and Ashley’s podcast here last year, and I caught a little heat for it. So I try to be careful and I want to preface this, that I stay out of politics. I don’t touch politics with a 10 foot pole. I don’t care what side anybody’s on as far as politics is concerned, but it’s important as investors that we’re able to have these conversations to understand where the opportunities are.
The current administration love ’em or hate ’em. They are probably the most real estate and mortgage friendly administration that we have had. And everything that they’re putting out is if you listen to what they’re saying, one of their primary objectives is to lower mortgage rates and unfreeze the housing market because they understand how important this is. And so with it being an election year, there’s a lot of momentum towards that right now, and you’ve talked about it, I’ve heard your updates and I mean you’re spot on with it. I just think that given all the momentum and what they’re trying to do, I think we’re probably going to see rates go a little bit lower. I don’t think that they’re falling off a cliff. I agree with your rate range for this year, five and a half to six and a half. That’s where they’re probably going to swing back and forth, which means we can still see rates come down three quarters of a point on the lower end, and that’s going to open up a lot of opportunities potentially

Dave:
For sure. I still think the trend is down. We’ll see on Friday the

Jeff:
Inflation

Dave:
Report, but all of the suggestion is that inflation is not as bad as a lot of people thought they might post the implementation of tariffs and the administration has really suggested that they want to bring down these rates. And so hopefully I think that’s a good range. If we get in the lower half of that range, it’s pretty good in the high fives even it’s a point and a half higher than we were lower, excuse me, than we were last January. That is the difference between deals making sense and not making sense. So just something to keep an eye on. But as we talk about on the show, waiting for rates to go down is sort of futile. They might go down this year, they might go up, we don’t really know. And so the only thing you can realistically do is underwrite deals based on current rates and pick deals that make sense today. So Jeff, let’s talk a little bit about what kind of products you think work best for investors in today’s market.

Jeff:
So we lend in the conventional and non-conventional space, and I’ve seen a lot of changes on both sides over the years. And what’s interesting about the differences between conventional and government financing and non-conventional financing like the DSCR loan is on the conventional side, the government forecasts when there’s going to be changes and when things are going to come down the pike. On the non-conventional side, it’s all the big investment banks on Wall Street and they change the guidelines depending on which way the wind’s blowing. So if we have an announcement over the weekend that comes out about tariffs or we’re going to war with our rent, whatever it may be, we come in Monday morning and all of a sudden we have new guidelines. And so
It’s just we’ve watched the ebbs and flows in that space. The good news is, is that the market volatility and specifically in the non-conventional mortgage space, is having less of an effect now where in the last, let’s call it year or two, every time we’d have an inflation reading that would come out or a jobs number that was better than expected, we’d see pretty significant swings and we needed a week or two to wait for the dust to settle to see where the new rate range was going to be. That doesn’t occur as often anymore. The markets are used to it. So we’ll see some swings, especially on the larger announcements. But as far as programs are concerned, I think, and this is don’t have a crystal ball, anything could change this, but as of right now the trend is things are continuing to improve incrementally.
The appetite for risk is starting to come back again on the secondary market to where we’re starting to see new products. We’re starting to see looser guidelines again where we’ve gone through over the past 12 months, a very restrictive period on the secondary market when it comes to DSCR loans and non-conventional financing, conventional options, I mean it’s pretty much been business as usual. I mean, there hasn’t been a lot of significant changes with the exception of the Trump administration allowing a lot of the first time home buyer programs to expire. So there was some $6,000, $8,000 incentives, they allowed that money to expire and they didn’t fund it again. But outside of that, there really hasn’t been any significant changes on that side.

Dave:
It’s great that we don’t see that volatility anymore. I just feel like everyone was so hypersensitive to every piece of news during the pandemic. No one knew what was going to happen. There was just so much policy shifting, but now we know who the next fed chair is going to be. I think people have a sense of what to expect. And so hopefully every announcement every week, every headline isn’t swinging mortgage rates that much, which I think is good for investors because you’re not waiting thinking, oh man, next week some piece of news might bring rates down a quarter point. It makes it a little bit more predictable, which is good for underwriting and for looking for deals. More with Jeff Welgan after this quick break. Welcome back to On the Market. I’m Dave Meyer with Jeff Welgan. Let’s jump back in. So for the average buy and hold investor, are people still looking at 30 or fixed rate mortgages or what are people using the most?

Jeff:
It’s a mix right now, depending on the strategy. Let’s start with short-term rentals. Most short-term rental investors are wanting to put as little down as possible and they’re using some of the conventional 10 and 15% down options. Those are all going to be 30 year fix. There’s no adjustables or interest onlys. There are a handful of credit unions out there that I’m aware of that are starting to do or have been doing some arms in that space. But outside of that, usually in the higher leverage, it’s 30 year fix. And then in the long-term rental rent space, we’ve been doing a lot of those 30 10 interest onlys where that really made a comeback where it’s helping make the numbers work, but you need to understand how to use that program interest only for the first 10 years. And then we’ve really seen arms come back.
So what’s been interesting with everything the government’s been doing with the shorter term debt, it’s really driven down five, seven and 10 year arm rates where we are really starting to see a spread between 30 year fix and arms, and that’s forecasted to continue going into this year. So throwing a dart at a board, I think this is going to be the year of the arm. And it is important to understand, and I try to get the right information out there about this. These are not the adjustable rate mortgages that cause the great recession. These are totally different products. Back then we were doing negative amortization loans where if you made the minimum payment, the principal balance went up and they were adjustable. We were doing two year fixed with three year prepayment penalties. So they’d go adjustable that third year and you’d be stuck in it.
And so those types of products were all done away with after the great recession. All of these armed products, nowadays, they’re all fixed for, let’s call it three, five or 10 years, and then they adjust every six months to a year after that. And there’s caps on them. They typically don’t have prepayment penalties, and if they do, they don’t exceed the length of the fixed period. The reputation these loans have got because of that period just kind of precedes them. And that’s why I try to get that correct information out. Caveat to it is it will go adjustable if you hold it obviously long enough. So what I always recommend is if you think you have a five-year timeline, take the seven year, always build on a little bit of a contingency. Same thing with seven years. If you plan on selling within five to seven years, take the 10 years so that way you’ve got enough of a buffer in there that if rates do go the opposite direction and we start seeing inflation really go in the wrong direction again, that you have enough of a long enough timeline here where you’re not going to get stuck, the adjustable rate period for too long.

Dave:
Thanks for bringing this up, Jeff. The arm I think is a super interesting option. Just so everyone knows, if you’re not familiar with the terminology 30 year fixed rate mortgage, you get a mortgage, you pay back over 30 years, your interest rate, it doesn’t change the entire time. Your payment is exactly the same. There are other types of loans where the interest rate floats or adjusts, and basically you lock in one interest rate for a certain amount of time. Jeff alluded to maybe a five year adjustable rate, a seven year, a 10 year. And then once that period is up, you still keep paying. It’s not a seven year mortgage, but your interest rate starts to adjust based on current market conditions. Now, if you can imagine this, an adjustable rate lowers the risk for a lender because rather than saying, I’m going to give you the, I promise you the same interest rate for 30 years, so like I promise you this rate for five years, and then we’ll see what happens. Because that lowers risk to the lender. You typically get a lower interest rate than you would on a 30 year fix. So Jeff, I don’t know, maybe you have an example. Do you know where a seven year arm rate is compared to a 30 year arm today, roughly speaking?

Jeff:
Yeah, I mean they’re touching high fives versus mid sixes in some cases on investment properties. I’ve heard of some of the bigger banks doing private client money that’s down in the low fives. If you move over a bunch of money, they’ll give you preferred pricing, but they’re all on arms.

Dave:
Do you think that spread is going to increase? Because just so everyone knows, the spread between an arm and a 30 year fixed in the last couple of years hasn’t been very wide. It wasn’t even worth it two or three years ago because you were just so much more security with your 30 year fix and the interest rate reduction was not good enough. But the way that the mortgage market works is that arms, like Jeff was saying, are much more influenced by the federal funds rate, which has been going down. And we think we’ll keep going down a little bit. The 30 year fix is much more tied to the bond market, which is also influenced by the federal funds rate, but has all this other stuff going on here. So I’m curious, Jeff, if you think that spread is going to get wider and therefore the opportunity to use an arm is going to be greater, the incentive will be greater.

Jeff:
Well, yeah, absolutely. I mean, I think if you look at again what the current administration is putting out, if you look at Scott Besant, our treasury secretary, they have been dumping a lot of money into the shorter term treasuries, which has been driving down these rates and that’s why the spread’s increased. And so I think this will continue. I think the emphasis is going to be on that. We’ll see what they decide to do with the mortgage backed securities, 200 billion that they’re going to be buying the Fannie Mae’s buying. So if they end up putting that into longer end like they’re talking, that may keep the spread relatively similar, which will mean both will come down in theory. But I think again, the caveat is I don’t think it’s enough to really move the needle significantly with what they’re talking about as far as that 200 billion is concerned unless they really start, like you’ve talked about, really start doing QE again, quantitative easing, which I hope they do not do unless we get into bad times again. But it’ll probably increase as rates continue to come down. But we’re going to hit a point. I don’t think we’re going to see threes and either one anytime soon. Personally, I hope we never see ’em again because of the longer term consequences and all of the problems that’s occurred. But I do think that there’s room for them to come down a bit and we may see arms in the high fours, which would be great.

Dave:
So when you’re talking to clients, then how do you advise them on when it’s advisable to use the arm versus fixed rate?

Jeff:
We give options and we explain the options. We don’t push clients one way or the other because there’s no, with the way that our industry is set up nowadays, there’s no benefit. Prior to the great recession, we used to be able to, as loan originators, steer clients towards certain products that would pay more. Now it’s an even playing field, so it doesn’t make any difference. And so what we do is we try to figure out what our client’s goals and objectives are, and if they’re planning on keeping the home 30 years, we’re not going to put ’em in a three or a five year arm, at least not make that recommendation. But if it’s somebody that has a shorter term outlook that’s thinking about keeping the property for three to five years or maybe even five to 10, it could be a better alternative right now, especially when you’re looking at ways as rates are still staying elevated to make the math work and get these deals to pencil. So it’s another way that you can approach this where you’re not having to buy the rate down significantly, and you’re also not having to go with an interest only program. So you still get the effect of amortization and you’re paying down the principle with most of these loans where on that 30 10 that we were talking about briefly with that one, if you just make the interest only payment, your principal balance stays the same. I mean it maximizes cashflow, but you lose the benefit of amortization.

Dave:
It is very individualized on your strategy. I personally usually favor fixed rate debt. I just think it’s one of the unique things about the US housing market. I think as a real estate investor, if you find a deal that makes sense with a 30 year fixed rate debt, there’s really no reason not to. I get maybe you save a couple extra points, but if you’re trying to hold onto that property for 10 or 20 or 30 years, I would much rather just know that my deal pencils for the next 30 years and there’s no big question mark coming five or seven or 10 years down the line. But one question, Jeff, I’ve been getting increasingly both for investors and friends buying homes is should people be buying down points right now? And I’m curious what your thoughts are on that.

Jeff:
Our advice on this has shifted here over the last few years. So when rates were up in the sevens and eights, I mean it was a way to get the deal to work in a lot of cases. And what we would do is build in seller credits. The max is up to 6% on a lot of programs, especially on the DSCR side, which you build in 6% of the purchase price and you can get the rate down pretty low, whatever the floor rate was at that time. And that can mean the difference between an 8% rate and one that was down in the six, around six. So it made sense, especially if they had a longer term outlook with the property. And the downside to this is, and why our advice has shifted is because now we’re in a downward trending market. Back then there was no telling.
I mean, there was a lot of fear that rates were going to continue to go up and that inflation was going to continue to increase. Now that we know that rates have come down and it could potentially come down a little further prepaying all of that interest and buying the rate down that far, if you end up refinancing that loan at any time in the first five to 10 years, you’re leaving a lot of money on the table and that just the benefit outweighs or the risk outweighs the benefit. Now at this point, I will say though, where we are still trying to find a middle ground on this once, if we do hit a period where rates stay stagnant, let’s say we stay in this range still building in maybe like a $5,000 seller credit on a purchase, a small one to help cover closing costs, minimize that upfront cost, maybe buy the rate down a little bit to increase cashflow.
There’s a good argument for that. And that’s what I would recommend is explore your options, look to see what a no point loan looks like. Look to see what building an extra 5,000 into the purchase price looks like because we’re going to go one of two ways and you want to be prepared either way. If rates go up, then hey, you’re locked in, you’re good. You don’t have to worry about it. At least for the foreseeable future, if rates come down, you just don’t want to be stuck in a loan that you’ve paid $20,000 in rate countdowns right now because it’s a long timeline to recoup that initial cost. Even with tax benefits of being able to write off those points. I mean, you’re still looking at probably a five to seven year timeline. And so
The example I like to use, and it feels like we’re kind of going into this right now, is that 2016 through 2019 time period where rates had come up to about five and a half and we thought rates were high, then a little bit we know was coming. But when rates did start to drop in 2020 and 2021, we implemented a refinance strategy that we’ve done numerous times over the years where as rates come down every time our clients are saving a hundred, 150 bucks a month, we do a no closing cost loan. Oh, wow. And that way they’re benefiting with the lower rates and lower payments and then not tacking on three to $5,000 worth of closing costs every time. And then eventually, when rates did drop down into the twos, the way our clients were able to get rates down to the ones where they bought the rates down a little bit, did one last refinance at that time and never touched it again.
So the way it actually works from a fundamental standpoint on mortgages where if you look at the par rate, which means no points, what we can do is raise the rate an eighth, we get a spread on the back end of the loan that usually, depending on the loan amount, it’s based off of a percentage, we can then apply toward closing costs. And on a $300,000 loan, it’s very easy to do by raising the rate an eighth or a quarter, and even larger loans, it’s much easier. But smaller loans, it gets a little trickier because it’s again, all based off of percentage.

Dave:
Well, I want to ask you a little bit more about refinancing because that’s a really important topic right now. But first I should explain what points are, by the way, it’s just an upfront cost. You can pay when you’re closing on a mortgage that will lower your interest rate. When you talk to a lender, they will give you usually a grid, a table with different options. Like Jeff said, no points, that’s going to be the cheapest. You buy some points, your interest rate will come down. Usually the breakevens like six, seven, eight-ish years. If you hold onto it, it can be worth it. But I have a calculator, it’s free biggerpockets.com/resources that allows you to put in some assumptions. The big question is always how long you’re going to own the house, which is always a variable, but if you have an idea of how long you want to hold it, you can make these estimates for yourself. So definitely think about that. Before we move on though, Jeff, what we’ve been talking about so far is buying down the points yourself, but given that we’re in a buyer’s market, are you seeing sellers buying down people’s points or what are the trends with some of the concessions that buyers are able to extract on the financing side?

Jeff:
And that was part of what I was talking about as far as the up to 6% of the purchase price. So years ago we would do, let’s say a $500,000 purchase price build in 30,000, that’s 6% of 500,000 and offer five 30 with a 30 K credit to cover closing costs. And by the rate down, well now that’s shifted. And so what we’re seeing primarily is in this market, given the fact that it is a buyer’s market, we’re seeing a lot of sellers willing to negotiate and willing to work with our buyers. And so what we’re typically recommending is building in more of like a five to $10,000 credit at the most. And then that way you can go into a deal, let’s say at 500, offer five 10 with a $10,000 seller credit and use that 10,000 to cover all of your closing costs. And then that way it keeps that money in your pocket and you can find your next deal with it.

Dave:
Nice. And so most people are, I know for a while, two, one buy downs and 3, 2, 1 buy downs were popular, but now are people just buying down points.

Jeff:
So the problem is with the two one and the three, one is that it’s user or lose it. So if you end up refinancing, you don’t get that money back.

Dave:
So

Jeff:
We’re still doing quite a few one ones where it’s for the first year, it’s one point lower than whatever the note rate is. So let’s just say if it’s six and a half, you do a one one buydown that the seller pays for or you can pay, there’s flexibility with the one one where even the buyer can pay for it and buy the rate down. Basically for the first 12 months, you’re prepaying that interest. So your payment’s going to be based off of a five and a half rate, and then it goes up to the note rate on the 13th month. But they’re becoming less and less commonplace, I would say. I mean, I still hear people that are on our team that are doing those for their clients that are working primarily in the primary residence space, but the investment is second home space where I haven’t done one in a while and I know we’re not doing them with any frequency.

Dave:
Well, yeah, I mean I think for most investors, if you’re in a position where you have some leverage to negotiate, you’re just better off getting the permanent. So I think this is a good thing that everyone listening, if you’re looking to acquire and build your portfolio right now, this is one of the benefits of being in a buyer’s market is that you can extract these kinds of concessions that can significantly improve your cashflow if you’re getting a half point off your loan, something like that, that could be hundreds of dollars a month. And these are things that your agent should be able to, not for every deal, but should be at least inquiring about and trying to negotiate if you’re cashflow focused. I think this is a great tip for everyone listening right now. We got to take a quick break, but when we return more on which loan products you should be looking at how to use buy downs and how to get the best possible turns for your Lex loan, welcome back to On the Market. Let’s get back into it with Jeff Welgan. Jeff, let’s turn our conversation to refinancing. You mentioned that refi activity is picking up. Is it mostly people who got mortgages that start with the seven or eight in the last couple of years, or what are the trends you’re seeing

Jeff:
Primarily? Yeah, I mean these are the last few years. Everybody that’s taken out loans that don’t have prepayment penalties are looking refinance now. And so that’s been the majority, but there’s still, we’re going into a period where we’re seeing more layoffs and people have been needing money. And so we go through these periods where even clients that have lower rates, twos, threes, fours, they’re doing cash out refinances and to pay off debt. And when you look at it, when you actually do that blended rate calculation versus your 25% credit card debt, and depending on you don’t want to do this over $10,000, but if you’re a hundred K in debt, I mean it’s worth taking a look at. I always recommend people look at second mortgages first if they have a lower rate loan because my first and foremost, don’t ever touch those loans if you don’t. Absolutely have to. But also, don’t wait until you start falling behind on credit card payments and car payments to start doing something because then it becomes much more difficult. And the problem that occurs a lot of times with our clients that have more debt, they can’t qualify for second mortgages in a lot of cases because the underwriting criteria is more stringent because they’re going in second position and the increased risk. So just trying to find that balance. But that’s a lot of the other refinances and second mortgages that we’ve been seeing, and I think as rates continue to drop,

Dave:
Is that something you see across investors? Is that homeowners everyone?

Jeff:
It’s both, yeah. And it’s not, don’t get me wrong, this is not leading up to oh eight, that kind of a situation by any means, but we are starting to see more people. I mean, you’ve seen the employment numbers. I mean, there’s some cracks, and I don’t think we have 15% inflation coming anytime soon like we were talking about before this. But I do think that we’re probably going to start seeing some more layoffs and as less the market really starts heating up again. I mean, I think with the evolution of AI and everything that’s going on right now, there’s a big argument that we’re going to see an uptick in unemployment here for the foreseeable future, which means people are going to need money. And from an investor standpoint, that means people are going to be motivated to sell. So going into this next, let’s call it year, two, year three year period, I think there’s going to be a lot of opportunities ahead of us because there are going to be people that are transitioning out of all of these jobs that AI is slowly taking and you’re going to have a lot of people that need to sell homes, which creates opportunities for the people that are prepared.
And all the conversations we’re having are our end. This is not the time to get overextended. I mean, be ready for the next cycle because it’s coming.

Dave:
Yeah, I’m with you on that. I am not super optimistic about the labor market these days. I think if you look beneath try and read between the lines you see, especially youth unemployment is really getting higher. I think we see a huge plunge in the number of job openings across the us even though we’re layoffs, I think is the highest it’s been since the great recession in January. There’s a lot, even though the total unemployment number isn’t bad, I think there’s a lot of signs that it could get worse in the near term.

Jeff:
Agreed.

Dave:
Let’s hope I’m wrong. Yeah, we were both wrong. I think it makes sense to be prepared for

Jeff:
That. Yeah, definitely.

Dave:
Last question, Jeff, what about HELOCs if you need, you talked about a second mortgage, is that what you mean? Do you see people using HELOCs? How do those terms compare to refi and how do you advise clients on using a line of credit these days?

Jeff:
Yeah, I mean if you have a rate below, let’s call it five and a half, 6%, you definitely want to take a look at your home equity line options. So the primary residence options are going to be your best first jumping off point because they’re directly tied to prime. Prime is currently at six and three quarters right now, and there’s banks and credit unions out there that are doing free home equity lines where it’s literally no closing costs, no appraisal fee because they do desktop appraisals and they service ’em. So they make the money on the servicing side. But that is the place that you’re going to want to start for the cheapest money. And I mean, being that we’re coming in out of this period where the cost of capital has been as high as it is, we’re always looking for ways to keep the cost down.
This is my best recommendation. You’re not typically going to get these from brokers or direct lenders like myself, full transparency, because we are not servicing them. Typically, we have lower rates on these, but you still have to pay the title fees, which can be a couple thousand dollars. So I always recommend primary residents, whoever you bank with, either in a regional bank or a credit union level, all of the big banks have stepped out of this space back in 23, and you can find out what’s available. You can typically go up to about 80% loan to value. So you basically just take whatever your property’s worth, multiply it by 80%, subtract out your first mortgage balance, and that’s what you theoretically could qualify for on your primary residence. And then if that doesn’t work, because the credit unions and regional banks have pretty tight underwriting criteria, it’s all full doc loans.
It’s going to be ready for pain in the more challenging yeah, process. It’s not fast, but hey, that comes at the cost. So that’s the trade off of a better rate and a free loan. But as far as additional options, so if that doesn’t work, then look at second homes and investment properties, though they’re available home equity lines and closed end seconds, the rates are typically going to be start at about a point higher and go higher than that than where the prime rate is. So where on a primary, if you’ve got great credit and you can qualify, you’re going to be looking at a rate and somewhere in the mid sixes on investment properties, they’re going to start somewhere in the mid to high sevens and go up from there depending on what the LTV is, but most are going to cap out at about 75% in that space.

Dave:
Yeah, I mean, I just think this is a good option, whether it’s because of a lifestyle need or you’re just seeing opportunity right now. Personally, I would choose to take the heloc, even if it’s a slightly higher rate than giving up those fixed rate mortgages at two, three 4%. That’s something you’re going to love to own for the next 25 years. And if you can find capital to grow your portfolio in a different way, like a HELOC or a second mortgage or private capital even in most scenarios, I think that’s probably a better option. So these are really good things to start looking at. And as Jeff said, just one thing to call out, these can take a while, so don’t wait until you have a deal lined up to try and go figure this

Jeff:
Out. Great advice.

Dave:
That’s the beauty of a HELOC too. You don’t have to draw on it until you need it. And so if you are getting into a time where you’re either going to do an acquisition or you want to do a rehab or something, start before you think you need to give yourself a little bit of time, there’s really no downside to doing it that way. So just something to think about. Jeff, this has been super helpful. Before we get out of here, any last advice to our audience about financing here in 2026?

Jeff:
Going back to what we originally talked about in the beginning as far as the market cycle and where my industry is, what we’re going to see, just to do a little forecasting here, we’re going to go through the same cycle in my industry that we did back in about 2012 through 2014, where there’s not going to be a lot of people in the industry, but once rates do drop and we see that refinance, boom, come, everybody’s going to jump back in. We’ve lost over a quarter of a million employees or people in the industry due to this shift. And what occurs is that as soon as rates drop, everybody starts jumping back in, which can cause a lot of problems for real estate investors because this space is the most challenging thing we can do as mortgage loan originators. I mean, it’s just the nuances and variability in the investor space is not like working with primary residents, home buyers or veterans, things along those lines.
So just keep in mind that when you guys are looking at whoever you’re going to work with here, you’re going to want to do your research, find out what your loan officer has been doing for the last five years, have they been in the business, those kinds of things. And you guys do a great job of vetting through the BiggerPockets lender finder. You guys really just want to make sure you know who you’re talking to because we saw so many problems during that period coming out of the great Recession where people would jump into the industry for a quick buck and didn’t know what they were doing, and deals are falling out, clients are losing deposits, those types of things. All the horror stories that we all have heard of, we’re going to go through a period like that where it’s going to be a free for all at some point here in the not too distant future. So just be prepared for that. And I really do your research on whoever you’re working with,

Dave:
Especially in these times. Like Jeff said, just focus on people who are going to shoot you straight, be honest with you, and trying to build a long-term relationship and not just maximize on a single transaction.

Jeff:
Absolutely.

Dave:
Well, Jeff, thank you so much for your help today and your insights. This was really beneficial. I think our audience will be really grateful to get these tips on how to find good financing for investors here in 2026. Thanks for joining us, Jeff.

Jeff:
Yeah, thanks, Dave. Thanks for having me back on.

Dave:
That’s it for today’s episode of On The Market. Big thanks to Jeff Welgan for breaking down the lending landscape for us. If you haven’t already, make sure to subscribe to On the Market, wherever you get your podcasts, or if you prefer, you can subscribe to the On the Market YouTube channel for BiggerPockets. I’m Dave Meyer. I’ll see you next time.

In This Article

If you want financial freedom faster, you need to stop buying rentals and start buying rental portfolios.

Most people have never thought about it. Instead, they slowly build their rental portfolio to 10 or (at the most) 20 units. And while we love the slow-and-steady approach, Jose Martinez is doing something much more—buying 10+ unit portfolios in a single transaction. He only needed a few “deals” to reach financial freedom.

No risky creative financing or buying a bunch of $50K houses in the middle of nowhere. Jose’s portfolio rakes in steady rent, and now he’s a full-time real estate investor. And he did it all in just four years—starting in 2022.

Two secrets helped him do this so quickly: the right mentor and the right financing. A lucky run-in at the gym changed Jose’s entire life forever, but you don’t need luck to use his financing strategy. This often-overlooked strategy has allowed Jose to use equity from other properties to buy bigger deals, often putting down less than 5%!

If Jose could do it, starting with no experience, speaking no English, and being new to the U.S., why can’t you?

Click here to listen on Apple Podcasts.

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Dave:
If you skip this episode, you could be leaving thousands of dollars on the table. They say there’s only two things guaranteed in life, death, and taxes. And since you’re alive watching this right now, today we’re going to focus on the latter how real estate investors can legally pay less tax. And things have changed a lot this year. Big time. The big beautiful bill tax provisions are going into effect for this April’s tax deadline, and it has huge implications for real estate investors, and that’s true whether you own one rental or an entire portfolio. The strategies we’re sharing today, they could save you hundreds, thousands, or even tens of thousands of dollars over the lifetime of your investments. In this episode, we’re also going to share under the radar tax strategy that 99% of investors are missing out on. And we’ll have a CPA tell us what you need to do today so you’re never scrambling during tax time again.
Hey, what’s up everyone? I’m Dave Meyer, chief Investment Officer at BiggerPockets. Today’s guest on the show is Amanda Hahn. If you haven’t heard Amanda before, she’s been on the show a lot, but she’s an expert. She’s a CPA tax strategist, and she’s a real estate investor herself. She specializes in helping investors pay the least amount of possible taxes legally. And since April 15th is coming sooner than any of us hope or think. Let’s bring out Amanda and learn together how to save some money this year. Amanda Hahn, welcome back to the BiggerPockets podcast. Thanks so much for being here.

Amanda:
Yeah, thanks for having me, Dave. I’m super excited to be back.

Dave:
Well, we’ve had you on the show many times, but some in our audience may not know who you are yet, so can you just introduce yourself for us?

Amanda:
Of course. Hi everyone. My name is Amanda Hahn, and what I always tell people is that I am a CPA by day and by nighttime I am like many of you a real estate investor. My husband and I co-authored the two BiggerPockets textbooks, so if you haven’t checked those out, make sure to do so. One of my passions is really in helping to educate people on all the different things they can do to use real estate, to not just build wealth, but also to save a significant amount in taxes if you do things correctly. So really excited to be here. It’s that time of the year when taxes are top of mind.

Dave:
It is. Well, thanks for joining us today, and if you haven’t read Amanda’s book and you want to save money on taxes, it’s the single best thing that you could do. Self-admittedly, Amanda, this about me am terrible at this stuff. I’m not good at tax strategy, but I’ve gotten better because of reading Amanda’s books and getting to know her. So definitely check that out, but hopefully we’ll give you a little taste of the kind of stuff that you can learn here in this episode. So Amanda, maybe just break it down for us, for people who might be new to investing or for those who are just scaling their portfolio, I think a lot of us, it takes a little time to realize that you should be thinking about taxes. What sort of the big buckets of tax strategy that investors should be thinking about?

Amanda:
Yeah, well, we will start at the basics, which is that it’s important to understand when you invest in real estate, you are actually a business owner in the eyes of the IRS. And so we hear people talk a lot about how tax law favors business owners when it comes to write-offs, deductions, depreciation. And so it’s really important to understand that as a real estate investor, I am now able to take advantage of a lot of those same tax benefits and deductions that the traditional business owner has access to. And this is true regardless of whether we own our rentals in our individual name or in our trust or in an LLC,

Dave:
We call it real estate investing. But it really is just entrepreneurship. You’re starting a small business to own real estate just like any other service business or business that you create. And that is good. That’s a good thing for real estate investing. That’s why you get better tax benefits than if you were to go out and buy stock or cryptocurrency or anything like that. That’s why real estate has so many advantages. So what are the big things that people should be thinking about as they enter tax season right now?

Amanda:
What’s really interesting is when we work with investors all over the US on proactive tax planning, about 40% of tax returns that we review from previous years are not optimized for tax savings. And I can share some of the most common mistakes I see. And I think these are kind of the things that we should all keep in mind
As we get ready for tax season. And we’ll start with just capturing expenses as real estate investors. I think we’re all really good at making sure we write off our mortgage interest and property taxes and management fees. But some of those common mis deductions, even insurance, property insurance is one that we see missed pretty frequently. Really, and it’s really strange because we all have property insurance, but just some of the overhead things. Home office, most real estate investors manage their rentals from their home. Very few people actually go out and rent an office space. So if you have an eligible office, make sure you are claiming it because it does help you to save on taxes either today or sometime in the future depending on your facts and circumstances, but just overhead expenses, going to BiggerPockets conference, your BiggerPockets membership, buying a textbook, for example, using your car for business, right?

Dave:
Yeah, absolutely. For sure. I always wonder about travel. Is that something that you can deduct? I invest out of state, and so sometimes I’m going to visit the Midwest and I’m staying at hotels. That’s something I can deduct, right?

Amanda:
Yeah, for sure. And you actually, it’s not a requirement that you own rental properties in a state in order to take a tax deduction. What is required is that you’re able to demonstrate the main reason for that travel is related to real estate activities. So for example, if I didn’t own any properties in Orlando, but I’m going to Orlando for a BiggerPockets conference, that travel itself should be tax deductible, right? The flights, the hotels, the food when I’m there. And same thing, if I happen to have a trip planned to go to Ohio to look for rental properties, even though I don’t end up buying any properties, my travel costs could be deductible as long as I can show I went there for the purpose of looking for real estate touring properties and things like that.

Dave:
So I want everyone to listen to that. This is something that comes out a lot when we talk about outstate investing. People don’t go and visit markets that they’re considering investing in. And I always encourage people to do it. It’s a big expense, I understand that, but it is tax deductible in most situations. So that does take the sting out of it a little bit. It is a business expense and encourage you to think about it. So that’s one big thing people should be thinking about the returns, right, expenses. What else is there?

Amanda:
Well, along this kind of a similar line, oftentimes when we review tax returns, obviously one of the big things we look at is depreciation, right? Our ability to take a paper loss on the purchase price of the rental building we purchased, and we frequently we’ll see the depreciation as a very round number. So $500,000 for Main Street or $200,000 for Fremont Street. And that usually jumps out to me as not really capturing all of our costs associated with the acquisition of a property. Because we all know when we buy a property, we’re not just paying the purchase price of it, we are also paying closing costs. And there is different allocated or prorated property taxes, insurance and all those. So one thing we can do for any of you who’ve purchased a property during the year, sold the property, refinanced on a property, make sure you send your closing disclosure to your accountant as you get ready to meet them because then they can take the closing disclosure and pull out all of those associated expenses beyond just you telling them what the purchase price is.

Dave:
Okay, that’s a very good tip. And how big of a difference does it make? If you have an average rental property, it’s $400,000, you’re making some cashflow off of it, how big of a difference in your tax is it when you prepare the tax, right? And when you do it sort of just haphazardly?

Amanda:
Oh, the answer really depends from person to person, right? Because one question is going to be what is your tax rate? If you’re someone who is in a high tax bracket because you make a lot of income from other sources, then even a thousand dollars of a deduction could save you $500 in actual cash. And for some people that’s, it’s a decent amount. I think for anyone, I would never throw away $500 for no good reason. No. But if you have a good system to track your expenses, those items add up over time. So if you’re able to utilize it this year to offset your taxes, great. If you can’t because of passive activity limitations in the tax world, I always encourage clients, still track them, send it to your accountant because you want to make sure it’s reported. Because even the expenses that you can utilize today, you never lose them. You get to utilize them some point in the future.

Dave:
In an era of real estate investing where it’s super hard to find cashflow, this is cashflow. We often treat taxes as this separate income source or something different to think about in real estate. But as Amanda just said, she used a modest example of if you can save 500 bucks, that’s reasonable. If you could save 1200 bucks and that’s a hundred dollars a month in cashflow, that could change your cash on cash return from 3% to 6% in a given year if you’re actually just doing this right? And it’s one of the ways I think you could just keep more money in your pocket and that really has measurable differences in your actual overall return profile.

Amanda:
Yeah, I used a very small example, but if we go to the other extreme and say, well, how impactful could that be in real life? If we’re talking about somebody who invested in a rental property where the building was $400,000 with the current law where we have a hundred percent bonus depreciation, that could be what? $120,000 of a deduction just in the first year. If you’re in a 50% tax bracket, that could be $60,000 in tax saving. So we’re saying, okay, save 500 or save 60,000. I love both of those.

Dave:
Yeah, sign me up a hundred percent. Alright, so those are some great basics that everyone, whether you’re just starting or have a big portfolio should be listening to. Of course this year we have some exciting tax stuff, I think from a real estate investing perspective where many of the provisions that were passed last year in the one big beautiful bill act are starting to go in effect. So I want to pick your brain on that a little bit. Amanda, we do have to take one quick break. We’ll be right back. Welcome back to the BiggerPockets podcast. I’m here with Amanda Hahn talking about tax strategy. It’s the beginning of the year, it’s time that we all start thinking about this. Amanda enlightened us before the break just on how you should be thinking about capturing your expenses on a property level and how to maximize your deduction so you can keep more money in your pocket. A lot of things are changing though, Amanda. It’s not just the same old, same old in tax world for real estate investors. So maybe you can give us a high level overview of what has changed and what’s in the big beautiful bill act that is relevant for real estate investors.

Amanda:
Yes. Well, I mean not surprisingly with the current administration, the one big beautiful bill included a ton of very amazing benefits for real estate investors. One that I think everybody was really excited for was the return of 100% bonus depreciation.
Previous to that, we can always take depreciation on our rental properties, but under the old law, if there hasn’t been changes this year, bonus depreciation would’ve only been at 20%. So with the change of the law, now bonus depreciation for 2026 is at a hundred percent, which effectively means if you bought a property after January 19th, 2025 or anytime in 2026 and the foreseeable future, not only do we get to take depreciation on our rental properties, but that amount is supercharged, meaning we can take a very significant tax benefit upfront rather than the traditional rule of having to wait over a significant number of years to take a tax write off for it.

Dave:
And maybe you could just help us understand what is the benefit of frontloading depreciation and what are some instances or circumstances where you recommend that for real estate investors?

Amanda:
For sure, the purpose or the benefit of accelerated depreciation, basically saying rather than waiting over time to take a tax benefit on the purchase price of my rental building, I’m going to do what’s called a cost segregation study. And what that does is it allows me to then take faster depreciation this year and maybe the next few years rather than having to wait. So effectively we’re looking at the time value of money of

Speaker 3:
Savings.

Amanda:
In other words, I know I have to pay taxes to the IRS, I can either pay it now or I can pay it slowly over the next 27 or 39 years. And if I choose to pay my taxes later, that means I’m able to keep my cash longer with me today and reinvest and grow that money today rather than just giving it to the IRS. So that’s where the concept of it. Now, I will say it is not for everyone. So don’t run out and start taking accelerated depreciation just because you hear it here. The ideal profile of when you want to take accelerated depreciation are in years where you can actually benefit from it. So that would be years where you have high taxable income and or years where you can actually utilize rental losses to offset that different set of income that you’re generating, whether it’s from a W2 or a business that you operate. And so conversely, who should not do a cost segregation? Well, you should not accelerate depreciation if you’re not able to utilize it this year.

Dave:
For someone like me or maybe for someone else who has a W2 job is bonus depreciation and doing the cost even worth it.

Amanda:
Another great time to do cost segregation is if you have a gain. So let’s say I have a portfolio, but I sold one rental for a huge gain and I didn’t want to 10 31 exchange or use other strategies. I could also consider a cost segregation on one of the properties in my existing portfolio and try to offset one with the other.

Dave:
So you can actually take the depreciation from one portfolio property and apply it to another one even if you’re not a real estate professional.

Amanda:
Yep, exactly. Exactly.

Dave:
Love that.

Amanda:
And I will say one other thing since we’re on the topic of someone who is not a real estate professional, you may have been told by your accountant that there is no tax benefit to you investing in real estate because either you work full time or you make too much money. And when you hear that from an accountant, they’re doing what I called tunnel visioning because all they’re saying is, for example, Dave, you are not going to see a huge benefit this year in owning rental real estate. You’re still going to pay taxes on your W2 income. But what they’re not factoring in are the different benefits, which is I generated rental cash flow that I’m not paying taxes on. And also in the future when I generate future cashflow, I may not have to pay taxes on. And also the most important part, which is at the end of my investment with this specific property, if I were to sell it at that point, I can actually use all of the accumulated losses from that property to reduce not just the capital gains from the sale, but also W2 and all other income as well. So there’s absolutely benefit to being a real estate investor. It’s just a timing of when somebody actually sees that.

Dave:
One of the things I struggled with early in my investing career is you look at these things, you say, oh, I’m going to pay this tax eventually if I just defer it. And at least for me, I didn’t really appreciate the time value of money element. I can keep more principle in my pocket and use that to go buy other investment properties to make renovations on my properties. And in addition to just delaying that, this is getting nerdy about it, but you also wind up paying your taxes in inflated devalued dollars over time too. So you’re purchasing power. Part of the idea of the time value is money is your money is worth today more than it’s worth in the future. And so if you can hold onto it and use it to build your portfolio currently, then it’s better to invest a hundred dollars today than it’s a hundred dollars several years from now.
And so that’s one of the main things about tax strategy that real estate allows you to do. And that’s kind of the same idea behind a 10 31 too, right? You eventually in theory at least have to pay that tax, but if you can defer that and go out and save the 20% on capital gains and just go buy another property, it means you just have more purchasing power, which is so powerful, especially early in your investing career. So anyway, long conversation here about bonus depreciation, depreciation in general. Anything else from the one big beautiful Bill act that our audience should know about?

Amanda:
Yeah, well beyond bonus depreciation, one of the good things about the one big beautiful bill is that we were able to retain the tax that’s called qualified business income deduction, QBI for short. So that was something that was available that was then extended as part of the one big beautiful bill. And basically the reason we care about that is real estate investors is QBI basically allows certain types of business income to have tax-free treatment up to 20%. So an example could be if I’ve owned my rentals for many years and even after using depreciation and cost segregation, I have to pay taxes. There’s taxable income. Well, under QBI, if I had a hundred dollars worth of taxable income, I may only have to pay taxes on $80 of it, which means $20 of my taxable rental income could be completely tax free. And this doesn’t just apply to rental income, it applies to all different types of income, specifically in real estate as well. So for those of you who are flipping properties, doing wholesale, or if you’re property manager co-hosting all of the different types, up to 20% of that taxable income could potentially be tax free under QBI deduction. And that is something we enjoy for 2025 as well as 2026.

Dave:
Amazing. Finally, a tax win for flippers at wholesalers. Honestly, as you’re listening to Amanda, most of the benefits for real estate investors come with buy and hold styles of investing. It doesn’t need to be rentals. A lot of them still apply for short-term rentals or midterm rentals, but it’s kind of a buy and hold. The transactional kind of real estate doesn’t always get the same treatment. But QBI is a great example,

Amanda:
Although I will say that for some reason a lot of tax returns we review that are prepared by other firms are often missing that QBI deduction. So one of the things as you’re getting ready to meet with your accountant to file last year’s taxes, that’s another question you can add to the list is just to have them double check, make sure I’m getting my qualified business income deduction. And it very well could be that, hey, it doesn’t apply to you because you have rental losses, right? So when we have losses, it doesn’t apply because we’re already not paying taxes on it. But to the extent you have taxable income from real estate or even a non-real estate business, it’s super, super significant when it comes to savings. We see this mostly with our clients who do fix and flips and our clients who are on the active real estate side, brokers, realtors, has been a very significant tax saving in the past couple of years.

Dave:
All right, well everyone, make sure that you have QBI or at least think about QBI and see if you qualify for this QBI deduction this year. Sounds like that could be a huge savings. Alright, we got to take a quick break, but when we come back, we’re going to talk to Amanda about how to set yourself up for a stress-free and hopefully very profitable tax prep season this year. Stay with us. We’ll be right back. Welcome back to the BiggerPockets podcast. I’m Dave Meyer here with Amanda Hahn talking tax prep and tax strategy for 2026. We’ve talked about what things you should be looking for in your tax prep this year. Talked about the new changes in the one big beautiful bill act that investors should be paying attention to. But Amanda, I just want to talk about the stress that comes with tax prep. It’s not fun for most people, so how do you systematically recommend people go about doing this so that they can capture the most benefit, but that’s not driving them crazy?

Amanda:
I’ll tell you what I feel are the two main reasons people hate tax season. I mean outside of just the fact that they have to pay taxes. I think one is record keeping. Okay, if you’re someone who has not done good record keeping last year, this is sort of the end of the road where you’re like, man, now I got to go through my bank statements and my receipts and try to categorize all the stuff that I don’t remember what I did or didn’t do. And really the best way to change that is just to have systems in place, right systems for your bookkeeping and accounting. If you have the budget to outsource it, great, take that off of your hands If you don’t, it’s really just a matter of setting time aside on a monthly basis to make sure you do all of that.
Because if you’re like me, it’s difficult for me to remember what I did a week ago. So for me to have to think about a year ago, that’s the stress of like, oh my gosh, it’s like a mountain of paperwork and we know it’s coming every year, tax time comes. So I think just taking the time set up a system that works for you, whether it’s QuickBooks or SSA or an Excel spreadsheet, whatever that happens to be, but getting the system set up so you are doing it on a month-to-month basis really will help alleviate a lot of the stress at tax time. I think the second reason people don’t like tax season is the surprise. So the surprise of

Dave:
So true,

Amanda:
The anxiety of like, am I any refund? Am I going to owe a lot? The best way to alleviate or prevent that is with proactive tax planning. So for a lot of our clients, and that’s why we focus so much on the planning because your tax bills should never be a surprise. If you’re planning during the year, if you’re meeting with your accountant throughout the year, before you buy properties, before you sell properties, before you open a new LLC or partner with a friend of yours, to always kind of have at least touch points on, okay, what’s our income, what’s our deductions? So that by the end of the year in December, we have a pretty good idea whether we owe or we’re going to get a refund. But I will say you can only have effective tax planning if you have good financial records. So that also goes back to just having clean bookkeeping. So we know

Dave:
That’s a good point.

Amanda:
We can monitor year round.

Dave:
Well, I want to talk to you more about tax planning. I think that’s a super important thing. But when you talk about bookkeeping, are there any tools? You mentioned QuickBooks, tesa, both good tools. Are there any new ones? I’ve been getting a lot of ads honestly for AI bookkeeping. I don’t know if that’s just people who want to say everything is AI right now, but it’s really just the same product. It’s always been. But are there any specific things that you think people should be looking for when they’re setting up a system

Amanda:
From a tax perspective? The main thing you want to look for is the ability to track income and expenses by property. That is what’s required for IRS reporting. And also just for you as a property owner, if you have multiple properties, I want to know how each property is doing. And I think a quick tip I would say is to have a separate bank account that you use exclusively for real estate things.

Dave:
A hundred percent, yes.

Amanda:
If you have an LLC for your rental properties, use that account. If there’s no money in there, you transfer money from your personal account into the LLC account and then pay for the expenses. That I think helps to cut people’s bookkeeping headache by maybe 80 or 90%.

Dave:
Yes, there is a no brainer for doing that. That’s a great quick tip. So let’s talk a little bit about tax planning proactively. I like this idea. So can you give us an example? I’m going out to buy a new property this year. I call you and say, how do I plan for this in the most taxed optimal way? What are some of the things you’re thinking about or some of the things I should be thinking about?

Amanda:
And I think, again, it kind of depends a little bit on the different facts and profiles of a specific taxpayer. So if we’re saying, oh, well Dave is not a real estate professional, a household with dual income W2, nobody is really able to claim real estate professional status, then maybe a recommendation could be, can we consider a rental property or the next one you buy to be a short-term rental?
Why? Because short-term rentals, we can use the short-term rental loophole where you don’t have to quit your job. Real estate could be a side hustle. You could potentially use the short-term rental losses against W2 and other types of income provided that you meet all of the requirements that still being hands-on and all those things. And so that part of the conversation then maybe kind of veers into where should the property be? Should it be close enough where you can be more hands-on, or are you comfortable with using apps to be able to semi manage or self-manage remotely as well? And then what kind of entity who should be on it? Is it one person, both spouses? So that’s the fun part, right? The initial question is, I want to buy more real estate this year. And then it turns into a lot of different decision makings on, well, have you considered this or that also to get the optimal tax benefit too.

Dave:
Yeah, and I would imagine we started this section of show just talking about stress, that when you plan this upfront, that basically takes away what you were saying, the stress of the unknown at the end of the year. When you add a new property, it’s only incrementally making your taxes more complicated, not like doubling it. If you’re going from one to two properties, now you have double the amount of work you have to do for taxes

Amanda:
For sure. I mean, just having even a system could be, I have a checklist whenever I buy new properties, here are the things I need to put in a folder, the closing disclosure, the appraisal form. I also probably want to make sure I have an entity set up, or at least I’m going to call my CPA, let them know these things happened. So just having that already. So every time I am expanding my portfolio, these are the things I’m going to keep here together. And that tax time is just a matter of sharing all those things in that folder with your accountant or with your bookkeeper even on a monthly basis.

Dave:
Awesome. Well, this is great advice and I really recommend people doing this. Again, I know I keep saying this, but I just think in general, people get really excited about buying properties when they’re first starting, which is right. And then two years into your investing career, you’re like, oh my God, I could have been doing this so much better from a tax perspective, but take it from me, take it from Amanda. Just try and do this stuff upfront. I promise you it will be worth your time and money. It is always worth your time and money to start doing these things upfront.

Amanda:
And I will say I unfortunately do meet people who historically are very model citizens when it comes to tax filing. If they just have a W2 job, they own their home and it’s like always filed on time, filed by February or March, and then, oh, I bought rental properties and then I got overwhelmed and I just basically stopped filing tax returns because I didn’t know what to do. But I think it’s really important to understand if I’m describing you as a listener, it’s really important to understand that taxes don’t go away, so you will have to file your tax return. And again, the sooner you do it, the better you’re going to feel. I promise you.

Dave:
All right. One last question for you, Amanda, before you get out of here. You said you’re also a real estate investor. What are you investing in these days?

Amanda:
Oh, well, actually I live in California, but I grew up in Las Vegas and I went to college there. So a big part of our portfolio has been in Las Vegas, so we continue to expand in Vegas. But I think our latest acquisition was in Florida, and I talk about this with clients as well. In the last couple of years, we’ve gotten more and more into passive investments through syndications and things like that all over the us. And for us, it’s just a change in priorities. And our focus, we’re in a season of life where we have two young boys that require a lot of attention with sports and all the things. So it wasn’t like before when we were starting out, it was a lot of Burr properties. We have the time, we didn’t have the money, we had the time, and now we’re in a different place where we have more of the resources but not as much time to go after the properties ourselves. And we might change when the kids leave us and go off to college, then we might go back to doing burrs or maybe doing our own apartment buildings.

Dave:
A hundred percent. I’ve done the same thing, done a lot more passive investing over the last couple of years. And that’s the benefit. You get to a place where you’ve put in the hard work and then you get to choose. You get to choose if you want to do investing passive. I moved back to the States now I’ve kind of missed doing some active investing. So I’m doing that more for fun than just not needing to. But that’s the goal. So congratulations on getting to that stage in your investing career.

Amanda:
Yeah, thank you. And are you considering house hacking with your new home?

Dave:
I’m calling it a live-in flip because we’re not renting out any part of it, but we bought an under, it’s a 1968 build and it feels like it’s 1968, I’ll tell you that. We got popcorn ceilings. We still have those intercoms that people used to have super old school. They still work. It’s pretty fun to use

Amanda:
Only in the expensive homes though, when they have those, right?

Dave:
I think back in the day, yeah, it was nice, but it’s still perfectly comfortable. But the idea is we’re going to start renovating it and hopefully spend probably in somewhere in the 200, 250 grand range, but we think it will increase the value like 400,000. This is in Seattle, very expensive market. But that’s kind of the idea. But I’m calling it a live in flip, but I don’t know if we’ll actually sell it after two years. We might live in it for longer, but we’ll see. But we’re going to do a value add to it.

Amanda:
Yeah, I love that. And I think a lot of clients, I mean a lot of newer investors think that primary home investment strategies are for people who are just starting out in real estate, but I think people will be shocked to know how many of our clients that are doing very large deals also try to optimize their primary home a hundred percent to the nth degree. So I love that.

Dave:
Yeah. The other place we were considering buying was a house hack. It was like an up down duplex, and we were going to rent out the bottom basement. Personally, my dream home is like a primary that has an A DU above a garage that I could rent out. That would be the perfect situation. But Henry and I actually just did a show about this yesterday. We recorded it talking about how at every phase of your investing career, thinking about your primary residence as an investment makes sense. You don’t have to for your lifestyle, but there are always things you can do to make your primary home a money maker for you if you’re willing to make what I think are pretty small sacrifices to get those gains.

Amanda:
And the tax benefits are just typically pretty amazing when we’re talking about primary homes. Absolutely.

Dave:
Well, Amanda, thank you so much as always for being here. We really appreciate it.

Amanda:
Yeah, thanks for having me.

Dave:
And if you want to learn more from Amanda, you should go check out her two books that she’s written. You can get them on biggerpockets.com or you can always find them on Amazon. And I’m happy to say Amanda will be back at BP Con this year speaking and leading a tax workshop. As she always does, BP Con tickets are now available. Early bird tickets are for sale to the cheapest they will ever be. So if you want to get in there and get some hands-on advice from Amanda and her husband Matt, come to BP Con in Orlando this year, biggerpockets.com/conference. And if you to hear the episode I was just talking about with Henry and I talking about primary residents, it’s episode 1236. It came out on February 6th. Go check that out. Thanks again, Amanda, and thank you all so much for listening to this episode of the BiggerPockets podcast. We’ll see you next time.

 

Ashley Kehr:
Today’s rookie reply is a great one because it hits three different fears that rookie investors have when they’re ready to move on from learning into execution.

Tony Robinson:
Yeah, we’ve got someone worried about how to rinse and repeat after their first rental. Another rookie panicking mid deal because insurance blew up their numbers. And a W2 investor trying to use short-term rentals for tax savings without getting crushed by regulations.

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

Tony Robinson:
And I’m Tony j Robinson. And with that, let’s get into today’s first question. So this question comes from the BiggerPockets Forum and it says, after spending four months reading and listening, I’m close to finally taking that first step, enough talk time for execution, but I still find myself questioning what do I do after I purchase my first rental? I’m focused on long-term rentals and cosmetic burrs, but I struggle with grasping creative ways to finance and rinse and repeat. While I’m fine dropping 40, 70 K as a down payment, I feel stuck in a holding pattern wondering if I need to wait and save another 40, 70 K to do the next deal. I’m excited about Cleveland, Cincinnati, Pittsburgh, and Dayton. Any nuggets of wisdom would be appreciated. Alright, so this question is really about how to scale your portfolio beyond the capital that you currently have access to.
I think there are maybe a few approaches that you can take. The first approach is to do probably the simplest way is just to take the 40 70 K that you have right now, put that down as a down payment on a deal, and then save up under the 40 70 K and just repeat that process over and over again. It’s slower, but it’s significantly less work and requires less creativity and it’s just a really kind of tried and true approach to build a portfolio. The second path is that you find a way to recycle that initial set of capital. So you can do things like the burrs that you mentioned where you’re buying a property, you’re renovating it, you’re rehabbing it, then you’re refinancing to get back some or potentially all of the capital that you put back into that deal, right? So the burrs strategy is the second way, and then another way is then partnering with other people to help fund your deals.
So if you’ve taken down this first deal, you’ve got a bit of a track record, you’ve proven that you know how to find deals, execute, and so on and so forth, maybe then you start leveraging partners and their capital to take down more deals. And then maybe probably the more complicated path is going after something like more creative financing. If you can do seller financing where you’re finding properties that are owned free and clear and then you’re negotiating directly with the seller to have them loan you the money is another way to scale beyond your original capital. But in my mind, Astros are probably the four big buckets, but curious what your thoughts are.

Ashley Kehr:
Yeah, I think the last part of this question as to should I wait and save up more money or should I go ahead and try and find another creative way to purchase a property without waiting and saving up money? But I think the answer is really to do this simultaneously. Start saving again, but also looking for deals where you can do some creative financing. So whether that’s a bur where you’re using hard money and then you’re going to refinance out of it and pull your money back out, whether it’s going to be finding a deal where the person will do seller financing. If you go to, I think it’s called landwatch.com I think is what it is, you can literally click a toggle or a filter that is for seller finance deals that are available that people are already saying they’ll do seller financing and you can submit offers and put the offer as seller financing.
One thing that I’ve always done is when I get to go face to face with a seller or I try to have my real estate agent communicate this, if I’m going to submit an offer that’s seller financing, I always like to say, have you talked to your accountant or your CPA about the tax advantages of doing seller financing? And that usually piques a little bit of interest and it sounds more reputable to somebody having it come from their own personal CPA rather than from somebody who’s trying to buy their property. If I try and tell them like, oh, here’s all the advantages and the reasons why it’s more likely they’ll listen to their CPA than me who’s trying to haggle them for a deal.

Tony Robinson:
Just last thing I’ll say asra, I do think that there’s value in thinking about deals number two, five and 10 before deal number one, but I think it’s a bit of a fine line because oftentimes I see people get so caught up and well, how do I scale and how do I get property number two and how do I get property number five that they lose focus on the fact that they don’t even have deal number one yet. So I think the majority of your focus right now should be on how do I make deal number one work? And then from there you can start making pivots and adjustments to go on to deal number two, number five, number 10. But don’t get caught in that loop of thinking so far ahead that you forget to take that first step.

Ashley Kehr:
That’s totally a great point. So we’re going to take a quick break, but when we come back, we’re going to understand when you should walk away from a deal or stick it out. We’ll be right back. Okay. Welcome back. So this next question comes from the BiggerPockets forums and it says, hi, I am a new investor to real estate. I’m 22 and looking to do a house hack using an FHA loan with three and a half percent down. I’ve got under contract on a property in Baytown, Texas, but during underwriting we found insurance costs were 6,000 to 8,000 per year plus flood insurance. The deal no longer cash flows even long-term, and I’m past my option fee. I feel stupid backing out but don’t know what to do. Is my earnest money gone? Please help. Ouch. That does hurt. And it doesn’t say how much the earnest money was, but I will say I’ve lost earnest money.
There was a deal, it was a cabin and I found out some things, title issues and all this stuff after my due diligence period was over and I think it was $2,000 and they told the sellers, keep the money. I’m backing out of the deal. And looking back now, I would’ve rather have lost that $2,000 than be stuck in a deal where I’m losing even more money. And I think that would probably be the case in this situation. If I mean just six to 8,000 per year plus the flood insurance, I don’t think I have a single property right now that is that much an insurance per year.

Tony Robinson:
Yeah, that is wild. Six to eight grand plus flood insurance and flood insurance is not cheap. You have to go out and go out and get special flood insurance. Yeah, I agree with your point, Ashley. Whatever the EMD is, you have to weigh that cost against the ongoing cost of owning this property year after year after year after year to see if it actually makes sense to move forward with purchasing this property. I think a lot of this goes back to what Ash and I talk about a lot is that it’s easy to get emotionally attached to a deal and feel like you’ve already put so much time, effort, and in this case money into a deal. But sometime the smartest thing to do is to walk away. And if your deal does not work because of these new finances, then just go back to the settler and be honest.
Say, look, I had every intention of purchasing this property, but the flood insurance quotes that came back and the insurance quotes that came back are significantly higher than what I had originally anticipated. So I would ask that you release my EMD because this is not within my control. It’s not me trying to back out of the deal. Like here are the cold hard facts. Hey look, if you have an insurance agent that can give me a better price, I would love to talk to them, but if not, please work with me to make sure that we can walk away amicably. So I’m with you, Ash. I think I’m walking away from this deal because it’s not worth stepping into

Ashley Kehr:
Wait 100%. That should be the first step is trying to renegotiate with the seller. You might as well ask, they probably don’t want to have to start all over in the process of selling the property. So maybe they do have some wiggle room to continue to make it work. But that’s where I would start.

Tony Robinson:
And kudos to you for being 22 and locking down your first house hack, right? And then it’s a great way to start. We’re going to take a quick break, but while we’re gone, if you haven’t yet followed the podcast on Instagram at BiggerPockets rookie, then you can follow Ashley at Wealth and Rentals and me at Tony j Robinson and we’ll be right back after a quick break. Alright guys, we’re back and we’re here with our final question. This one’s about short-term rentals, taxes, and regulations. So the question is, I currently invest in long-term rentals but cannot take advantage of real estate professional status due to my W2 job using the short-term rental tax loophole to offset my W2 income with supercharge my investments. But I’m afraid of buying a property denied, but I’m afraid of buying a property and getting denied a short-term rental license.
Can anyone recommend beginner friendly STR markets, preferably within three to four hours of NYC? Alright, so a few things to unpack here. I think the first piece is that we need to break down what the short-term rental tax loophole is. I’ll try and do this in a way that’s super clear for everyone to understand. Real estate investing offers the ability to take losses, whether those are real losses like you actually lost money on that property or paper losses, things like depreciation, which is not a real expense, but it’s a paper loss. You can take those losses and apply them against other forms of income that you collect. Now, in order to take those paper losses and apply them against your W2 income, you have to be what’s called a real estate professional or qualify for what’s called the real estate professional status. For most people with a day job, it’s virtually impossible because you have to show that you put more hours into your real estate business than you do into your day job.
Most people can’t prove that. But with short term rentals, because they are classified as a business in the eyes of the IRS, not necessarily passive income like a long-term rental, you don’t have to qualify for real estate professional status. There’s something called material participation. And as long as you can show that you materially participate in your short-term rental, that then unlocks your ability to take the passive losses from your short-term rental and apply them against your W2 income. So I know that’s a mouthful, but if you just look up short-term rental tax loop, you’ll get some more insights there. So that’s this person’s motivation. And I know a lot of people who invest in short-term rentals primarily for the tax benefits associated with it, and it truly does give you the ability to largely reduce or sometimes even eliminate your tax bill altogether. Okay, so that’s the first piece.
Now, what this person is worried about is the regulatory landscape of the short-term rental industry. And while it’s shrewd that the regulations across the country have changed, shifted, evolved, some have gotten significantly more strict, it doesn’t mean that every single market is this huge regulatory risk when it comes to short-term rentals. There are really a few core things I look at to gauge the regulatory risk in a market. The first thing I look at is what is the current ordinance in that market? Can I legally rent a short-term rental? Is there a cap? Can I only do it in certain parts of town? Does it have to be a certain property? Is there a limit on occupancy? Is there a limit on usage? Just understanding what that current ordinance is to make sure that it allows me today to profitably run this property as a short-term rental because there are some markets where you can run it as a short-term rental, but you’re capped at only using it for 30 days out of the year.
Who cares if I can use it in any way, shape, or form if I only get one month from that property? It doesn’t make sense as a short-term rental. So just understanding the current ordinance. And then the second element is understanding the risk of that ordinance changing in the future. And the core thing that I focus on when I think about answering that question, Ash, is how economically dependent is that city on the revenue generated by short-term rentals? I’m going to pick on your home state of new, and in New York City, they effectively banned short-term rentals a few years ago. But if you think about why NYC was able and willing to do that, it’s because they didn’t care about the money that short-term rentals generated for that city, right? Like NYC is one of the, if not the most populous city in the United States, it generates revenues from literally every single industry.
It has no economic dependency on Ashley and Tony’s little Airbnb. But if you think about true vacation destinations, places where people only go to vacation, those are cities that are truly dependent on the money generated by short-term rentals in the form of transient occupancy taxes in the form of property taxes, in the form of people coming in saying a few nights and spending money in the local businesses where if those short-term rentals were to shut down that local economy would be severely impacted, maybe even collapse. So we want to look for cities that have that element of economic dependency and not so much the big cities that have a lot of things driving that economy. So that is my brief masterclass on the short-term rental tax food poll and regulations and how to avoid them. Ash, any questions or what do you have to add to that?

Ashley Kehr:
Any value that I can provide is I know the New York area and destination, so I can add two places that I think would be a good short-term rental areas to invest in. I did a quick Google search and tried to look real quickly if they’re short-term rental friendly. And it really depends on the specific area, but within that three to four hours of New York City is the Poconos tons of things, skiing in the Winter Lakes in the summer, and then also Lake George. It’s one of the cleanest lakes across the us I think in a great destination area. It’s close to I think Saratoga, where they have horse r ising and different things like that. But yeah, so those would be the two markets I would look into and just searching real quick, you have to get permits, things like that. And the laws vary depending on the specific area that you’re in and things like that. But those would be the two places that I would go and stay in a short-term rental.

Tony Robinson:
And I think the other thing I’d add to that question too, Ash, and this is not true for short-term rentals, but for all strategies is ask yourself what your motivation is for staying within three to four hours of New York City. Is it because there’s just this comfort factor of being able to go and check in on the property yourself and in case something happens, you’re there to kind of be present? Or is it because maybe you want to use it yourself if it’s more so the personal use, that makes sense. But if you’re leaning towards this tighter radius simply for comfort reasons, I would encourage you to understand that whether the property is four hours away or eight hours away, you’re probably not going to be the person cleaning the Airbnb. You’re probably not going to be the person fixing maintenance issues. You’re not going to be the person restocking supplies, you’re going to hire all of those things out anyway.
So if you can find a deal in a property that’s in Bozeman, Montana or Des Moines, Iowa, or name the city in the random place on the west coast, if that is a better deal for your specific situation, I wouldn’t say that you should necessarily avoid that just because it’s not as close as you want it to be. There are tons and tons of people every single day who are buying properties remotely and are successfully managing them as long as they have the right systems and processes in place and likely for you. You’re already listening to this podcast and we share a lot of the different ways you can do that remotely.

Ashley Kehr:
And one thing I would add too is if you want to use it for yourself personally, make sure you’re aware of what the rule is for that. Isn’t it a pretty gray area though, Tony, as to how many days you can actually use it if you’re writing it off as a short-term rental?

Tony Robinson:
Yeah, there was a lot of discussion on this, but yeah, I mean, usually what most lenders say is that somewhere around seven to 14 days is a good baseline of personal use. So there’s actually two different things we’re talking about here. One is a lending requirement, and then the other is how the IRS views it. So from the IRS perspective, your average state duration for the year has to be seven days or less. So as long as your average guests stay, when you look at all your reservations is seven days or less, then you’re still able to quantify this as a business. Once you get over seven days, they start to treat it more like a traditional long-term rental and you lose that ability to qualify for material participation. But if you’re seven days or less, you get that ability. So midterm rentals wouldn’t qualify for material participation because most of your saves are 30 days or more on the lending side.
The only real requirement is if you’re using a second home loan to purchase the property, and if you’re using the second home loan, there’s a personal use carve out where you have to use a property yourself in order to qualify for that specific loan. And I’ve heard different figures from different lenders, but seven to 14 days is like a usual good benchmark, but you just got to have the intention to use it yourself at some point during the year. So luckily, those two things are not connected. So I can get whatever kind of debt I want. I can get hard money, private money, conventional debt, not FHA, because you got to live there, but I can do any kind of debt that I want, and as long as I’m seven days or less, I can still qualify for material participation.

Ashley Kehr:
Yeah, I think another point I wanted to make on that too is just if their motivation is three to four hours is because they want to use it for personal use, knowing that they can’t spend, depending which way they go, they can’t spend their whole summer staying there, going every single week up there for the whole summer if they are going to use it for the short-term rental tax loophole or whatever too. So I thought I would use my A-frame all the time, the day I was so sad to rent it out the day I rented out, I was like, oh, don’t worry, kids are going to come here all the time. We haven’t stayed the night once. Maybe one time we went since we started booking it out, but it’s like, yeah, don’t make that a huge deciding factor, I would say, as to deciding on a market if you don’t know for sure if you’ll actually use it or not. Anyways, thank you guys so much for listening to this episode of Real Estate Rookie. I’m Ashley. He’s Tony, and we’ll see you guys on the next episode.

 

In This Article

Looking for an affordable, cash-flowing market earmarked for major development and a projected population and economic surge? Grand Rapids, Michigan, could fit the bill.

Among the new projects planned in a billion-dollar development, the Transformational Brownfield Plan in the Grand Rapids Riverfront area, is the construction of a new soccer stadium, amphitheater, apartment building, and supportive infrastructure, Michigan Public, an NPR station, reported when the project was announced in 2024.

In late 2025, another development was announced: the seven-acre Fulton & Market riverfront plan, led by Magellan Development and local partners, costing $795 million, backed by the Michigan Strategic Fund, and including multiple new housing projects.

“This corridor has long been a vital part of the community, home to so many people and businesses that make Grand Rapids special,” Winnie Brinks (D-Grand Rapids) said in a statement. “It’s great to see them finally getting the attention and investment they deserve.”?

The Michigan Economic Development Corporation reports that the development will add roughly 630-735 new housing units, including three new towers, with tax-capture incentives. Magellan president J.R. Berger called the Transformational Brownfield Plan “a cornerstone of the Fulton and Market development” that unlocks the ability “to transform riverfront parking into a vibrant ecosystem of residential, restaurant, office, retail, hospitality, and public space that connects neighborhoods and further energizes downtown Grand Rapids riverfront.”

The Appeal to Investors

Those unbeatable Midwest price tags, coupled with economic development, have made the chilly Great Lakes area and beyond a hotbed for investors in recent years. Below the hulking skyline cranes and beyond the hype of the Midwest, Grand Rapids is anchored by some sturdy business fundamentals.

According to regional economic development group The Right Place, Greater Grand Rapids’ cost of living is about 8% below the national average, even as the area experienced 6.1% population growth over the last 10 years and a 9% increase year over year in residential building permits in 2024, which occurred in conjunction with burgeoning healthcare and tech industries.

The Stats

In a positive sign for investing, the Grand Rapids area is predicted to enjoy a moderate but steady price appreciation rather than an explosive boom and all the frenzy that comes with it. A housing trends analysis from Redfin noted that as of January 2026, the median sale price in the city was about $282,000. That marked a roughly 4.4% increase from last year, with the price per square foot up 5%, and homes sold in a brisk 33 days, signaling a price-sensitive buying public, but overall demand remains solid.

Realtor.com named Grand Rapids as one of its “refuge markets,” where buyers are migrating from larger, more expensive metros in search of affordability, value, and stability.

“Our 2026 top housing markets offer better value than nearby high-cost hubs, yet steady demand and persistent inventory shortages keep prices moving upward,” Danielle Hale, chief economist at Realtor.com, said in a press release. “For buyers, that can mean more competition and faster price gains. For sellers and homeowners, it signals strong demand or home price appreciation and equity gains.”

A Deeper Dive

Home prices in Grand Rapids rose a healthy 9% in 2024, preceded by 7% in 2023 and a 32% increase overall since 2021, according to Grand Valley State University’s Seidman Business Review, drawing on data from Greater Regional Alliance of Realtors (2025) and Federal Reserve Bank of St. Louis (2025). The price increases in the area have been driven by rising employment and constrained supply, which seems set to change, as 40% of residential permits in 2024 were for multifamily construction.

The Investor’s Play

The economic push toward development, as well as toward more established healthcare and tech industries, creates a housing need. For smaller investors, development projects always create opportunities around the glossy new riverfront condos in the modest infill projects in surrounding corridors.

According to real estate company Cornerstone Home Group, the best values for investors to buy in Grand Rapids come with B-class and C-class properties, which include the biggest Grand Rapids neighborhood Creston (North Grand Rapids), as well as the West Side, Southwest/Burton Heights, and Walker, all of which should be able to be purchased between $150,000 and $300,000, per Zillow data. 

Rents and their outlooks for investors are as follows, according to Cornerstone:

• Studio, about $1,280 to $1,330 per month: Stable to modest gains
• One-bedroom, about $1,420 to $1,540: Moderate gains
• Two-bedroom, about $1,640 to $1,800: Moderate gains helped by new builds
• Three-bedroom, about $1,850 to above $2,110: Stronger gains, especially for single-family rentals

Sizable Rent Growth

Small landlords make up the main investor base in Grand Rapids (institutional investors own less than 1%), says Business Insider. Rents are up year over year from 4.1% to 4.5% as of mid-2025, according to the Cornerstone Group. This follows a statewide trend in which housing demand has increased while supply has not, leading to rent increases, according to the Mackinac Center for Public Policy.

Not helping matters have been the number of foreclosures in the state, with Michigan one of the top five states in the country for foreclosure activity as of the first half of 2025, according to ATTOM.

Final Thoughts

Grand Rapids has come a long way. It still has a way to go, however. Behind the splashy headlines of imminent development, U.S. Census statistics reveal that 16.9% of households were living in poverty, which is higher than the state average. With new construction and businesses coming to the city in the next few years, there is an ideal opportunity for astute investors to purchase low-priced rentals in pivotal areas, get them up and running, and enjoy the ride as the city takes flight.

Dave:
Something pretty remarkable happened this week that’s going to impact every real estate investor. The House of Representatives just passed the Housing for the 21st Century Act by a vote of 390 to nine. Let that sink in for a minute. 390 to nine. In 2026 in this Congress, when was the last time you saw that kind of bipartisan support and agreement on anything? And this bill is all about real estate. It touches everything from zoning reform to manufactured housing to how community banks can lend. And if this bill actually becomes law, it could truly reshape where and how housing gets built in this country and could help eliminate the housing shortage we’ve had since the great financial crisis. So today we’re going to break this all down. I’m going to go into exactly what’s in the bill, what it means for real estate investors at every level, and why I personally think this could be one of the most important policy shifts for the housing market that we’ve seen in years.
Everyone, it’s Dave. Welcome to On the Market. This Monday, we saw something that happens pretty rarely these days actually happen. A bipartisan bill passed Congress with an overwhelming majority. And that bill is taking direct aim at the housing market. There is a lot in this bill, 37 total provisions to be exact. So although this isn’t officially law yet, if the bill gets passed, then personally I think there’s good reason to think it will get passed. If it does, real estate investors are going to need to pay attention to this. This is 37 new provisions directly impacting our industry. Now, of course, some of these provisions will be minor. They might not apply to you, but there are some ideas and policies in here that could really shake up the housing market. So today on the show, we’re digging into what we know so far, what the major ideas in the bill are, how these policies could be implemented.
And of course, we’ll talk about what this means for investors. Let’s do it. All right. We’re going to get into the bills language and those 37 provisions, not all of them, but we’ll get into a lot of them, the most important ones in just a minute. But I think let’s just first talk about why. Of all the things Congress disagrees about, are we seeing bipartisan support for a housing bill? Well, first and foremost, because it’s a real problem in the United States. We talk about this on the show a lot, but affordability is near 40 year lows. It has gotten a little better last couple of months, but it’s still really low in a historical context. And of course, there are a lot of reasons for low affordability that we talk about, but we know that a lack of supply is one of, if not the biggest major issue.
And that lack of affordability is starting to weigh on people. People talk about it all the time. I don’t know if you guys witnessed this, but even people who aren’t in real estate, the unaffordability of housing in the United States is a problem. It is now a big issue for voters. It now ranks among the top three concerns for voters across the political spectrum. So this is a problem. Politicians know it and they’re starting to pay attention to it. We’ve already talked about several of the ideas and executive orders President Trump has implemented or started to talk about, but Congress is now paying attention and is also trying to pass legislation to improve affordability. Now, again, before we get into this, I do want to remind you all that this has only passed the House of Representatives, not the Senate, but there was a similar version of the bill called the Road to Housing Act, which was also bipartisan that already passed a Senate committee 24 to zero.
So we’re seeing in both chambers of Congress right now, a lot of bipartisan support. So although some of the provisions that we’re going to talk about today will probably be tweaked and modified before they go into law, there is, I think, a very good chance that this does get implemented. We’re not talking about just some random idea. We’re actually looking at what I think is a genuine shift in political priorities around housing supply. So we got to get ahead of it. That’s why we’re digging into this today on On the Market. With that said, let’s talk about this bill. So the bill itself actually has six different sections. They call them titles. So there’s six different titles, and within them, there are a couple of different provisions. And before I cherry pick the provisions that I think will matter most, because I’m not going to sit here and list 37 different provisions for you.
I’m going to talk about the ones I personally think are going to be most impactful for the BiggerPockets and on the market community here. But before we do that, I just want to give you a roadmap of what each of these six titles is about so you have the big picture. The first one is called Building Smarter. The idea here is about zoning reform, construction streamlining, and some overhauls to environmental reviews. I think this one is going to be super important for our community. I’m going to dig into this one a lot. The second title is Local Development and Rural Housing. This affects a couple of grant programs, specifically in rural areas. So I do think this will have some impact for our community. The third, this is kind of my sleeper favorite one. It’s called manufacturer housing and finance. This is redefining what manufactured homes are, which may not sound like a lot, but I actually think has the potential to bring down construction costs, which I’m excited about.
Title four is Borrow and Family Protections. This is mostly doing with veterans groups. So for most people in the community here at BiggerPockets, not going to be impactful, but if you are active duty military or a veteran, you’re definitely going to want to pay attention to that because there’s some interesting positive stuff there. Number five is housing provider oversight. This is stuff like accountability for HUD and some housing agent transparency. Important things not really going to impact you day-to-day as a real estate investor. And then number six, which I think is pretty interesting too, is about community banking. It basically allows community banks to start more easily, changes some deposit rules. So if you use community banks, this is going to be really positive as well. So that’s the big picture, but let’s dig into each section and what it’s going to mean. Again, if you want to read it all, go look at the 37 provisions, but I’m going to highlight the ones that I personally think have the biggest impact.
We’re going to start with title one, which is building smarter. I’m not going to bury the lead here. I’m just going to just come out and say, I think this one is really important. We talk about housing supply and why there’s such a shortage all the time. Construction costs and regulation are big impediments to supply. That’s just the reality of it. And this building smarter part of the bill tries to tackle it directly. The first thing it does is creates a exclusion program for something called the NEPA, which is basically environmental reviews for a bunch of different types of housing activities from rehab projects, urban, infill construction, small scale builds. So for these types of deals, we have to get the details of it, but for more types of development, you are going to be able to streamline or actually be excluded from environmental reviews.
Now, I’m not saying that environmental reviews are bad, but they take a really long time. If you actually dig into these types of things, sometimes it can take projects months or even years to get approved because they go through continuous environmental review. That makes development really long, but it makes it even more expensive because you have all these holding costs. And it actually, according to all the research I’ve done, slows down a lot of development and limits housing supply. So this goes right after one of the biggest impediments to development and could be really impactful. So this goes right after that. And this is the kind of thing that really does bring down construction costs because if you think about what levers the government has to pull to bring down construction costs, they can’t lower the price of lumber. They can’t lower the price of labor, but they can streamline these types of things that increase holding costs like environmental reviews.
So I think this one could have a really big positive impact on housing supply. The second thing in this build smarter title, it goes after the same idea, trying to reduce the time it takes to develop housing and how much it costs to develop that housing. So the second thing is this pre-approved design pattern books they’re calling. And this is actually something we talked about on the market as an idea a couple years ago. So you know that I’m a fan of it, but basically HUD’s going to fund a pilot program for pre-reviewed building designs that are automatically code compliant. Think about it right now. If you want to go and build something, you have an architect, you have engineers, you build something, you submit it to the planning department, they check if it’s code compliant, that can take months, that increases your holding costs.
But what if there was just sort of a catalog that you could look through of pre-approved home design that allowed you to skip the month-long permitting review process because it’s already approved? This is just a pilot program right now, but I really like this idea. It’s only going to be in certain markets apparently, but I think this is a really cool idea for them to be testing because if it works, this could really help bring down costs as well. The third thing that I want to mention in that build smarter category is FHA multifamily loan limit updates. Basically, this updates the statutory max loan limits for FHA insured multifamily construction to actually reflect current costs and it pegs them going forward to a construction cost inflation formula so that they doesn’t need to keep getting updated because it’s been a while. It’s a bit outdated.
And so hopefully this will help finance multifamily construction as well. So those are the big three in Title I. There’s also a provision directing HUD to publish voluntary zoning best practice guidelines. Another idea that I like, but it’s voluntary, so I don’t know how many cities are actually going to do it. They could voluntarily change their zoning right now, but they’re choosing not to. So I don’t know how much that will do, but I like the encouragement at very least. So those are the three big ones in Title I. With that, let’s move on to Title II, which again is local development and rural housing. This whole section is basically about modernizing two of the biggest block grant programs that we have in the United States, home and CDBG, and improving rural housing. There are two provisions I’ll talk about. The first is the home program overhaul.
You never heard of this. It’s the largest federal block grant for affordable housing supply, and it really hasn’t been updated in a long time. And so what this bill has in it is expanding eligibility for these block programs to workforce income households. So it’s not just people with the lowest incomes. It updates sort of outdated limits that haven’t caught up with costs today. It exempts small scale projects from environmental mandates, and it gives local jurisdiction more time and more flexibility in how to deploy those funds. So if you invest or active in areas that use home funds, I think there are going to be more projects that actually make sense, which is good news. So the second thing is the CDBG public land database. First change here is that basically communities that receive these kinds of grants, they need to maintain a searchable database of undeveloped government-owned land.
It’s like this sort of a prospecting tool or discovery tool for developers. It’s an interesting idea. I’m not sure it’s going to make a huge differences. Developers build in popular spots and any developer worth their weight should already know where undeveloped land is in popular spots, but maybe it will help. The second thing is that communities can now direct up to 20% of the funds towards affordable housing construction specifically, so I do think that could help housing supply as well. So those are the two bigger ones here. There are a couple other things like regional housing planning grants. There are some changes and expansion to the Section 504 home replant program. A lot of stuff like that, that if you operate in a rural area, you’re going to want to dig into. I’m not going to get into more detail now, but if you’re in rural markets, go check out this Title II of the new Act, because there’s a lot of interesting stuff in there.
With that though, I want to move on to Title III, which is my sleeper for my favorite part of this bill, but we do have to take a quick break. We’ll get to that right after this.
Welcome back to On The Market. I’m Dave Meyer going through the new bipartisan bill that just passed the House of Representatives that could really reshape housing supply in the United States. We’re going through the bill right now. We’ve gone through Title one and two. Now, let’s move on to Title III, which is manufactured housing and affordable finance. I got to say, I think this is kind of the sleeper section of the bill. I really like this stuff. Basically, they’re redefining what a manufactured home is to include housing built without a permanent chassis. This has been a problem for a while. Basically, currently, it is hard to get a loan for some manufactured homes, just based on the definition. This change could mean that modular and factory built homes, which I should say are typically 20 or 30% cheaper to build than things that are built on site.
Those types of homes now can get financing from HUD, which will make them much more attractive and will make it easier for these types of deals to pencil for developers or people who want to build homes. I like this because this financing barrier has been the main thing, I think, holding back factory built housing. Again, it could be 20, 30, maybe even more percent cheaper to build these kinds of homes. This is the kind of innovation that we need in the United States right now. I have not seen anything, maybe 3D printing housing. I’ve not seen a lot of ideas that will bring down construction onsite doing these infill projects, but we already know that pre-manufactured housing is at least 20 or 30% cheaper. And so if you make that more accessible, that could bring down overall construction costs. So I do really like this.
There’s one other provision in this title that makes it easier for people to get actually mortgages on really cheap houses. It’s kind of this weird thing, but it’s kind of hard to get a mortgage under $100,000. They’re opening that back up, which will help in certain parts of the country, probably the Midwest. Most people are probably jealous that they even have that problem of trying to find a mortgage for house under $100,000. But anyway, that is title three. We’re going to move quickly through Title IV, which is borrow and family protections. Basically, it’s mostly consumer protection and veteran benefits. Really important stuff, great policy, but lower direct impact for most investors. Number five, housing provider oversight. This requires the HUD secretary testify before Congress annually. Housing agencies are going to have more oversight. So good stuff, again, not going to directly impact any of us here that much.
So we’re going to skip over that and go to Title VI, the last one, community banking. I know banking regulation sounds dry, but if you’re buying rentals or doing development, this stuff matters. I mean, you hear me, Henry, James, Kathy talk about it all the time. Community banks are a really powerful tool in financing, and this is going to hopefully expand access to community banks. One of the provisions is basically bank exam relief and offers some flexibility on deposit requirements. Basically, if your community bank qualifies, there’s going to be less regulation and red tape, and they will be able to lend more on real estate projects. The other thing that they’re introducing here is that new bank charters are going to be streamlined. So hopefully, that means we’ll get new regional and local banks that has not been happening a lot recently. Basically, there’s been a lot of consolidation in the lending industry.
And so this provision actually is encouraging more local banks. I’m not an expert on that, so I don’t know if that’s going to happen, but I like the idea of trying to encourage local competition because local and community banks do provide a really positive role for real estate investors and homeowners in most markets. So bottom line here on Title VI, anything that makes community banks healthier, more willing to lend, I think is good for our community and for housing supply in general. So I like this as well. So that’s what’s in the bill. There’s plenty more. Like I said, there’s 37 different provisions. I covered about 10 of them that I think are important. Go check it out if you want to learn the rest. But before I give you some other thoughts on what’s going on here, I want to just also talk about what’s not in the bill because a lot about housing policy has been discussed recently, and not everything that’s been in the news is in the bill.
Notably, there is no ban on institutional investors. Trump signed an executive order three weeks ago targeting Wall Street buyers of single family homes. This bill doesn’t include any provisions formalizing that ban, so we really don’t know if and how that will work. The second thing I think that’s really important is that there’s not new federal funding for any of these programs, right? This is policy reform. It’s not like the government is all of a saying we’re investing billions and billions and billions of dollars into new construction or anything like that. It’s policy reform that will hopefully help. The idea is that it will help local jurisdictions and private investors and private individuals create new supply without the government actually going out and funding that itself. There’s also no rent control in here. There is no mortgage rate relief ideas in here. This is really focusing on housing supply.
This is a fundamentally supply side bill, and I think that’s really important to investors. The philosophy here seems to be remove barriers, modernize programs, and let the market build more. That’s good. I did a whole episode recently, I think it was like two or three weeks ago, about demand side policy. I was saying that Trump and his administration have introduced a lot of ideas to help housing affordability, but it was almost entirely demand side, meaning that it helps buyers buy more homes. But my point in that episode was that, yes, demand side stuff can help, but if you don’t pair that with supply side fixes, it actually makes the problem worse, right? Because you’re inducing more demand without increasing supply that pushes prices up. So in my opinion, supply side is what fixes things long term, and that’s why I like a lot of the ideas in this bill.
I am not saying this is going to fix things overnight. It will not. It’s going to take a while and there are probably more policy changes that need to happen as well, but I like the idea that Congress is passing bipartisan laws that are focused on supply issues in the housing market. That is what fixes things long term. Demand side help can be important during a crisis. It can be important for certain demographics and people in our country, but those are bandaids without a supply fix. And so that’s why I’m excited because we’re finally talking about supply side fixes. All right. We got to turn our attention now to what this means for investors, but we got to take one more quick break. We’ll be right back.
Welcome back to On The Market. I’m Dave Meyer talking about the new bipartisan housing bill making its way through Congress. We have talked about what’s in the bill, what’s not in the bill, and now let’s talk a little bit about what this means for investors. And I want to sort of get the elephant in the room out of the way because one of the main reasons we have an affordability crisis in this country is because people, they say they want more housing, but they don’t actually want more housing. This is this whole idea of NIMBYism, not in my backyard. Most people know that when you suppress supply, you stop people from building, you get more appreciation. And so they stop multifamily development or more houses from being built in their neighborhoods because it keeps their home prices up and increases appreciation. On the other hand, when there is more supply, that can slow down appreciation and a lot of homeowners don’t like that.
Look at Austin, Texas, for example. They have a supply glut and prices are falling because of it, and a lot of homeowners don’t want that. And I bet there are some investors out there who don’t want more supply because they want rapid appreciation or they don’t want their home values, property values to sink. But I’m just going to tell you, I believe that more housing supply is a good thing for investors, for homeowners, for everyone. And I’m going to tell you why. First, it’s just good for our country. Homeownership has long been part of the American dream. It is an important component of building wealth and stability for your family. It’s provides security and predictability to families. And I just believe that homeownership should be within reach to average Americans, not just wealthy people or investors, which is what the housing market has become of late.
We can measure this in the United States. The average person in the United States cannot afford the average price home, and I think that’s a problem. The second thing is a more predictable market. I believe as an investor is a better market. Supply constraints create unpredictable conditions like we’ve seen the last few years. We get huge appreciation. Now we have a long contraction. Housing, ideally, should be more stable. I say this all the time. I would love to get back to a place where we could just count on the housing market going up close to the pace of inflation every year, two, three, 4%. I think better balance between supply and demand would get us there, and that makes better conditions as a real estate investor. For those of us who are just trying to build financial freedom over the long run, that’s a market we can definitely work with.
Third, more supply makes building a portfolio easier. This would lower entry points and help grow portfolios. It is not just homeowners who are struggling with affordability right now, but new investors trying to get into the game, people who want to add to their portfolio are also struggling to get into the market and more supply should help the market become more affordable. Fourth reason, real estate worked even before there was a housing shortage, right? We don’t need this. I get some homeowners think that they need to constrain supply for their home to have value. But as real estate investors, we don’t need that. We don’t need homeowners to be squeezed. We don’t need families to be rent burdened. We don’t need first-time home buyers to be squeezed out of the market. We just don’t need it. Real estate can and should be a profitable business that adds value to our society without keeping the housing supply scarce.
This business worked long before there was a housing shortage and it will work again. I think we’ll work better if supply and demand were better balanced. The last thing I’ll say about adding supply and why I think this is such a good idea is because it allows us as real estate investors to play a positive role in communities. We need more housing in this country. Whether you believe it’s three million short or seven million short, we need more housing. And if this bill passes or something similar or just in general, it may get easier for you, literally you as a real estate investor, to provide that value to your community. And I love that. You could help solve a problem in your community and build a great business at the same time. To me, that is a win-win situation. Now, some people may disagree, but as you can tell, I really think that we need more supply in the United States and I’m standing by it.
With that said though, let’s talk about what some of these provisions actually mean for investors on the ground. First, I’ll say for anyone who’s thinking about development or adding value, adding capacity, there’s a lot of good stuff in here. From the NEPA streamlining, these ideas behind pattern book programs, loan limit updates for FHA multifamily, these ideas could meaningfully reduce your timelines and expand what you can build. More things will start to pencil. So I personally, if you’re interested in development, I dig into this stuff right now. See how these ideas, even though they’re not finalized, how they might apply in your market. I think if you can get a jumpstart on some of these development ideas, you could have an advantage in your market. So I would definitely check that out. The second thing is I’m personally really interested to see what happens with the manufactured homes.
I need to learn more about this, but I just love the concept of being able to mass manufacture housing at 20 or 30% below other costs and use that either for urban infill or building developments, whatever it is, I’m going to look a lot into that and I’ll share with you what I learned, but I just think that’s another thing. If you are a developer or value add investor, you should be looking at. For buy and hold investors, I think there’s a couple things. One, can you work with a developer and do some build to rent? Because if development is getting easier, like we were just talking about, but you’re not a developer, built to rent could be a good option because you might find people who want to build and develop, but don’t want to hold and operate properties. So I think that’s going to be a really interesting opportunity.
We’ve seen institutional investors doing a lot of build for rent. For the last couple years, it makes more sense for them financially, but I think this could be more available to small and medium size investors with some of these provisions to work with small and medium sized developers as well. The second thing is when you’re underwriting deals, I think you have to really watch supply growth carefully. Now, we don’t know if this bill is really going to lead to an explosion of construction and supply. I think it will take some time. I don’t think it’s going to happen overnight. It’s probably going to take years. But it’s something that I talk about a lot with just people when I’m traveling around and talking to people. I think everyone when they’re evaluating markets and underwriting deals, they’re all looking at demand side. How many people are moving there?
How many jobs are there? That’s all important and good. But supply side matters a lot. Ask anyone in Austin, Texas. Ask anyone in Phoenix right now, right? Ask anyone in Florida right now. When there is a lot of supply that comes online quickly, it can lead to a contraction in the market or slower growth times. Now, I’m not saying that you can’t buy or operate in areas where supply is getting added. I just made a strong argument that I think supplies should be added. I just want to say that you need to track it carefully to try and make sure that you are underwriting appropriately. If you are going to buy something that’s next to a new housing development, you probably shouldn’t expect a lot of appreciation in the next couple of years because there’s going to be a lot of supply coming online. That is okay, but you need to underwrite for it and therefore pay less for that asset because it’s not going to perform the same.
In a lot of markets in the last couple of years, it’s been easy to ignore supply side because there’s been so much demand, but because we’re in a correction right now, a contraction in the market, and because we might see more supply, I think this is going to be more and more important and something that you should focus on in your underwriting. The other two things that I will mention are watch what happens with this institutional investor policy. It’s not in here. I personally don’t think it’s going to amount to much, but it will matter. If there is a real ban on institutional investors buying single family homes, I think it’s going to create sort of this sweet spot for small and medium size investors who want to do buy and hold. We’ll obviously cover that on a future episode if it actually does take shape, but it’s something I just wanted to mention because it’s not in here, but it would matter.
And then the last thing I’ll just say is look at your funding options. If you are developing or working in rural areas, if you’re a veteran, if you’re looking in low income areas, there are more and more funding options available. Also, look to your community banks. They might be able to introduce new programs. They might have higher limits. They might have new first-time home buyer programs because of these policies. So even if you’ve done your research in the past, go do it again. Look through different funding options for your next deal if this bill goes into place because there might be better options for you. There’s a lot in here that is designed to do just that. All right, so those are my feelings about the bill. Obviously, we’ll learn more if it actually gets passed and we can talk about some of the provisions as we get more details, but these are the big high level things that are in the bill.
And overall, I like what I see here. Supply side policy is what is needed. It is not a silver bullet. It is not going to help immediately. There is still a lot of work to do to restore housing supply in the United States, but I think there are worthy ideas here that are a step in the right direction. And although we don’t know the exact impact, personally, I’m just happy to see the government talking about supply side solutions to the housing market, and maybe these will help us move in that direction and will lead to other policy changes or other ideas that can really help accelerate supply side growth in the housing market. The other thing I like about this is that it allows us as real estate investors to build successful businesses while also helping to address a major problem in our economy and help meet the needs of our community.
And like I always say, that’s the win-win type of scenarios that we should be looking to create as real estate investors. So hopefully this will help us all do that. That’s what we got for you today on On The Market. I’m Dave Meyer. Thank you all so much for listening. If you have any questions about this, you can always reach out to me on BiggerPockets or on Instagram. And if you thought this was helpful, share it with a friend, give us a like. We always appreciate it. Thanks again. We’ll see you next time.