The housing market relies on many things: market sentiment, Federal Reserve policy, supply, demand, interest rates, inflation—the list goes on and on. For most homebuyers, it may seem almost impossible to crack the code of when (or if) it makes sense to buy a home or rental property. But, as we’re seeing housing market turbulence, we’re also seeing investor activity skyrocket. What do experienced investors know that we don’t?

Joining us for the first episode of On The Market is VP of Data and Analytics at BiggerPockets, Dave Meyer, real estate investing expert Henry Washington, builder, buyer, and landlord, Kathy Fettke, home flipping extraordinaire James Dainard, and arguably the biggest (and best) wholesaler in the United States, Jamil Damji.

This week’s episode focuses on 2022 housing market predictions, where each guest gives their take on where the housing market may end up at the closing of this year. We also touch on how to invest in 2022, updating your investing strategy, whether to wait or invest, and the double-edged sword of debt that can make you rich, or sink your ship.

Dave:
Hi, I’m Dave Meyer, and you’re listening to the very first episode of On The Market, so welcome. We are so glad to have you here. Personally, I couldn’t be more excited to finally have this pilot episode air after months of dreaming up and working on this concept. If you don’t already know me, I’ve been investing in real estate for 12 years, and I am also the Vice President of Data & Analytics at BiggerPockets.
And in that role, my job is to give information a voice. I work with my teammates to connect the dots between data, trends, policy and world news, to help the organization make informed and confident decisions about our strategy. And through this role, it occurred to me that real estate investors could benefit from the same type of information gathering and analysis, so we designed this show with you in mind. In this show, we’re going to bring you the information and news that impacts your investing.
We’re going to undercover which markets we should be watching. What’s with the metaverse? Are 3D printed houses really the future? What strategies work best in 2022? Our mission is to consolidate all the sometimes chaotic information, headlines and stories out there while analyzing and making it simple. On The Market will be your source for everything you need to know about the real estate investing world. And we’re going to make this fun, actionable and easy to understand.
This is definitely not a boring news show where we’re going to read off a bunch of stats and data in a monitory voice. If there’s an opportunity to turn something into a game or make it goofy, I’m going to do that. With that being said, I have an amazing group of expert investors with me in-person here today to assist me with this endeavor all with different life experiences, viewpoints and takes. Let’s get to it. Today, for our very first episode ever, we’re going to be going deep on the 2022 housing market.
That brings us to our first segment of the show, Between the Headlines, where we do just that. We’re going to be looking between headlines to get to the point of every story. And we’re not just going to banter about this, we’re going to make this into a needlessly competitive game every week. And this week, our game is predict this, where the expert panel and I are going to be making predictions about the housing market.
I mean, I think you guys all agree, we all are very curious about what’s going to be going on the rest of this year in the housing market. I want to get all of your predictions about where you see the housing market, and then we’re going to come back to this at the end of the year and see how we all did. All right. But first, let me introduce our panelists this week.
We actually, we got a full house here. First, we have Kathy Fettke, who has been investing since 1997. But she says she’s not a boomer, not quite a Gen Xer, more of a millennial trapped in a grandma’s body. And just to be clear, these are Kathy’s words, not mine. I did not write this.
But she is the co-founder of Real Wealth, where she’s been helping thousands of busy professionals since 2003. Next, we have Henry Washington. You might know him from the real estate show in BiggerPockets. He’s a fairly new investor who bought his first house in 2018 after having a panic attack about being broke. And now he owns over 70 doors and is basically still just trying not to be broke.

Henry:
That’s right, man.

Dave:
All right, next, we have Jamil Damji, who is a Sagittarian wholesale genie, who also runs the nation’s largest wholesale real estate operation. And he’s occasionally on TV that’s very modesty. He is on the A&E show, Triple Digit Flip, which you should definitely check out as well. Lastly, we have James Dainard, who is a veteran real estate investor, who has fixed and flipped over 2,000 homes in the Pacific Northwest.
No house for him is too damaged, too dated, or simply too disgusting for him. We’re going to have to jump into that. From stepping into buckets full of human urine. Oh, we’re dumping right into that. Animal encounters to brushes with death, James put the real estate in … I can’t even get through this. James put the real in real estate investing. All right, I got to ask you about the human urine one later.

James:
Lots of life experiences.

Dave:
Okay guys, thank you guys all so much for joining me here. We are all here live in Denver for our very first show, which is super exciting. In this game, you all are going to make a prediction about some questions that I have prepared to you. I’m going to give you a little bit of context, a little bit of data, and share some news stories with you and then ask you how you see these trends going over the course of 2022.
And we are going to revisit this at the end of 2022 to see just how well we all do at predicting the future. The first question is about rent growth. It just came out that rent growth was up 15% year over year in February. And we’re seeing huge markets like Austin and Portland seeing 39% and 40% year over year rent growth. It’s absolutely insane.
And actually, only two of the biggest markets in the US declined, sorry to Milwaukee and Kansas city. They did see rent declines over the last year, which is pretty wild. Jamil, I’ll start with you. Where do you see rent growth going through the end of 2022?

Jamil:
I think we still have a lot of room. I know that people aren’t going to be happy to hear that, but there’s … I don’t think we’ve caught up to it yet. The housing prices have spiked. The cost of buying a house, if you’re going to have a rental or cash flowing rental, is increasing. I think rent growth is going to be at about 7%.

Dave:
All right, 7%. So just for context, we usually really see rent growth about 2% or 3% per year, so you’re seeing it away above average. What about you, James?

James:
I think it’s going to come in fairly heavy this year, around 10% to 12%. I mean, the fact that we’ve already had a 15% increase in the beginning of the year is getting us that big jump, where I think … And the reason being is, A, we weren’t able to raise rents for the last 12 to 24 months, so it’s backlogged. We got to get those rents up.
And at the same time, the cost of housing has gotten so expensive the metrics are all out of whack. Typically, in Seattle, it’s about 25% cheaper to rent than own, or it has been historically. And that gap has jumped so dramatically with housing prices. Now it’s like around 30% to 40%. So I’m seeing that gap’s going to get filled pretty quickly.

Dave:
All right, Kathy, what do you got?

Kathy:
Well, it obviously depends on the market, and some markets will see the lower growth and maybe even negative, and some will be double digit again. But if you were to average it, I’m going to go with half of what it was last year, because we’re still going to have tremendous demand. So many millennials and Gen Zers now looking for a place to live and many people priced out of the market. So half of … What was it?

Dave:
15%

Kathy:
Oh, so it’s 7.5%.

Dave:
7.5%. Very precise.

Kathy:
Yeah, thank you.

Dave:
All right, Henry.

Henry:
Yeah. I mean, I’m on the same train, man. I think it’s going up. I think you’re going to continue to see a rise. Similar to what James said, you’ve got plenty of people who kind of got on the boat early with raising rents to what these new market rates are and then you’ve got the late comers, the people who’s leases haven’t expired yet, right? And so they’re going to be coming up over the next year, and they’ve been watching and seeing everybody like, “Oh, you can get that much now in rent?”
So you’re going to see that influx of rent raises. As well as most landlords, if they’ve had somebody in for a long time, or if they’re going to do a big rent raise, they also want to do some sort of renovation or sort of upkeep to the property. And the cost of materials is higher now, and so that’s going to cost them more than it typically would so they’re going to try to make up for it on the rent raises. So I think you’re going to see somewhere around 10%.

Dave:
All right. I’m going to go high. I’m with you, James. I’m going to go with 12%. I just think that you’re going to see, with inflation, wages are going up, and I think double digit rent could growth is in our future. All right, James, we’ll start with you this time. What about housing price growth? This is on pretty much everyone’s mind, whether you’re a real estate investor or just a home buyer, maybe a real estate professional.
We’ve seen incredible price appreciation over the last couple of years. And actually recent data from Redfin shows that in February, we were 17% year over year, which is actually the highest it’s been since August. We were starting to see things starting to taper off a little bit over the winter 14%, which is still crazy in historical context. But now we’re seeing it start to accelerate again, which is wild. James, what do you see for house price appreciation in the rest of this year?

James:
I’m going to cheat a little bit and I’m going to answer this two ways. I think the homes that are above, the average above, the median home pricing, where the money is, I think those are going to appreciate continually fast. I think we’re still going to see that 10% growth in a lot of markets, 10% to 15%. I think the first half of the year we are seeing that 15% to 20% growth pretty rapidly, and it’s going to taper down towards the last three to four quarters.
I do think the first-time home buyer market in the more affordable markets, we saw this jump 10% to 15% in this first quarter, and I do think with interest rates rising that it’s going to cut little bit of a clawback, and it’s going to average out more like 5% to 8% in the first-time home buying sector with the rates adjusting. And then again, the luxury, I think it’s going to continue to go up.

Dave:
Yeah, it’s a really interesting point given that affordability that is declining due to increased interest rates is probably going to hit that first-time home buyer lower end of the market harder than the more luxury market. But do we have one number for you? Because we have to grade your scores. You have to give me a number.

James:
I’m going to blend the two together then. I think year over year for this year, we’re still going to see around a 10% to 12% growth. Because I mean, we’ve already seen 20 in the first quarter, so if it slows down, it’s going to average out.

Dave:
All right. Henry.

Henry:
Yeah, man. I’m on the boat it’s still going up, and I think it’s going to go up in all segments. The reason being like you’re the data guy, right? I don’t know a whole lot about data and analytics, but I know about supply and demand.

Dave:
You were just telling me you worked for Walmart doing data analytics for 10 years.

Henry:
I did do data analytics for 10 years, but this is a whole different ballgame, man. We’re talking real estate trends, and I mean, supply and demand. It’s just there’s way, way more demand than there is supply, and I think that’s because obviously there’s way more buyers. And so yes, there is a first-time home buyers pool who is going to be somewhat affected by higher interest rates, but still even these higher interest rates aren’t that high in comparison to where they were 10, 12 years ago.
And so yeah, some people that were kind of on the cusp of home ownership will probably get priced out through raised interest rates. But you’ve also got this pool of investors who want to put their money in tangible assets because the dollar is losing value you. And so you’ve got more investors, you’ve got people who are relocating all across the country because you’re not tied to living where you work as much anymore.
And so you’ve got this influx of buyers, you don’t have enough homes, and I think that’s just going to make the prices increase. Even with interest rates rising a little bit, they’d have to rise pretty drastically, I think, to have a hugely lasting impact. But all I had to say, at the end of the day, I think you’re still right around what James said about that 10% to 12%.

Dave:
Okay. Kathy.

Kathy:
I am going more conservative. Because last time we talked about this, I didn’t really think the fed was going to be as aggressive, now they’re really going for it. And I think they’ve really realized that they overshot, printed way too much money. Inflation is way out of hand. And the only way they know how to combat it is raising rates, and they’re going to go big. And that’s a little concerning.
I agree with all of you, supply and demand is just completely imbalanced. But people are living somewhere right now. And even if it’s a couch, if that’s what they can afford, they’re going to stay on that couch. So I’m going with prices I do believe will still continue to increase. But again, I’m going with half, and it’s my understanding that it was about 15% median.

Dave:
That’s right.

Kathy:
So I’m going with 7.5%.

Dave:
Okay, even.

Kathy:
Yes.

Dave:
All right, even odds. Jamil, what do you got?

Jamil:
I’m a little bit in the middle here. For me, I think that rising interest rates are going to do something, but we really have to pay attention to the other people at the table, right? And so if we look at real estate prices as a product or in relation to, let’s just say, a dinner table, right? You have normal people eating normal meals typically, and you can say, “Hey, if I cook this many chickens, I’ll be able to feed everybody.” But what if you invite a professional eater to the table, right?

Dave:
My dream job.

Jamil:
What if you have David Meyer eating, right, who can eat more than everybody, right? That’s what we have right now. We have a professional eater at the table, and they’re gobbling up all the houses and they’re … I mean, the secondary home buyer right now is crushing the average primary home buyer. You’re a fireman, you’re a school teacher, they’re not competing. They are not competing.
And when they do compete, they’re so emotional with what they’re doing that they’re driving prices ridiculously through the roof. I’m seeing it on my flips. I’m seeing it time and time again. I believe that we’re going to have aggressive appreciation, but I don’t believe it’s going to be as aggressive as you guys think. I’m going to go somewhere in the middle. I’m going to call it 9%.

Dave:
Okay, 9%. I like it. I’m actually with Kathy. I’m a little worried about rising interest rates right now. And I’m going to say that the year over year mark in December will be somewhere around 6%, so maybe I’m the most pessimistic. But I think what’s interesting is because I believe rent growth is going to go up so much and housing price a little bit less, that means that cash flow prospects could actually increase, something we’ll jump into later in the show.
Last question here is something that is on every American’s mind, whether you’re into real estate or not, which is of course inflation. The most recent CPI data showed 7.9% year over year growth, and that was led primarily by energy. We all know gas prices are up a lot. But prices were really up across the board.
Really, the only glimmer of hope is that car prices actually went down a little bit, but not in any significant way that’s really going to be helping anyone out. So inflation, really high right now, and is obviously a huge factor in the housing market and the broader economy in general. Kathy, where do you see inflation going in 2022?

Kathy:
Well, the fed is doing everything they can to slow it down. And generally when the fed wants something, they get it. I didn’t think that they could really raise rates as much as they’d like to because of the national debt. And can the US afford higher interest rates? But now, at least from what they’re saying, they’ve done a complete 180 from, “Oh, this is just transitory inflation,” to, “Oh, we got a problem here.”
And so with their aggressiveness and their intent to slow down inflation, I think they’re going to do what they can to make that happen. With that said, I think it’s probably going to go up. In the next few months, we’re going to see some crazy terrifying headlines in the double digits because of supply chain issues and all that. But maybe that will start to settle down as demand starts to go back, as people have less money to spend it. And so with that said, hmm, let me just see what comes and pops in my head. 7.5%

Dave:
Oh. All right.

Jamil:
That’s awesome.

Dave:
All right. Jamil, what do you got?

Jamil:
I think like Kathy said, the fed is going to get what they want, and they’re going to do it in the ungraceful fashion that we typically see the fed behave in. And so I think they’re going to be aggressively raising rates. I think that they will curb it. How much that’s the big answer, that’s the big ask. I think supply chain problems are going to start to settle down.
It can’t remain the way it is right now and be real. Right? Because at some point, everything’s got to come off the boat, right, or at some point people have to go back to work and start making things, I imagine. Right? So with that easing and with a fed policy, I think that we are still going to have upward pressure. But I don’t think it’s going to be in the double digits, so I’m going to temper it and say 6.19.

Dave:
Ooh.

Kathy:
Wow.

Dave:
Extreme accuracy.

Kathy:
Very accurate.

Dave:
All right. Henry, do you agree? Do you think the fed’s going to get this under control and we’re going to start to see this turn back around or are we in for worse numbers?

Henry:
Yeah. No, I think Jamil hit it on the head, right? And we’re starting to see it. Just as now, as we all traveled here, right, the world is opening back up, right? Things are starting to loop. When I was just on vacation in Hawaii, they lifted the mask mandate while we were there. Right? And people are starting to feel more “normal”. Right?
I still think we’re in a new normal. It won’t ever be exactly as it was, but we’re getting closer. And as we get closer, if interest rates are higher, supply and demand starts to balance out, and I think you’re going to … I’m in agree. I’m not 6.19 in agreeance with you, and I’m not 7.5. I’m right about 7%.

Dave:
Okay. All right. Everyone’s going the same. James, what about you? Do you see it differently?

James:
I think we made some major mistakes in the last 12 to 18 months that are going to take a lot longer than six to nine months to burn through. I mean, I know in my everyday purchasing of things, like construction, I mean, we’re up 20, 25% on costs. And I think we’re on the tip of the iceberg to having all these data points starting to come into the inflation real, and we’re going to see it jump to like 9%, 10%.
I think there’s other factors too, besides the world opening up. And I hear that a lot too, like, “Oh, the world’s opening up now. Things will come off the docks,” it’s like, “Well, we still don’t have enough things in the boats.” And I’m on the coast of California all the time, there is a lot of boats out there, but even if they unloaded all of them, we’re still going to be short on items.
And now we have this Russian-Ukraine conflict. There’s going to be other chain issues. The more supply chain issues, the more expensive things are going to go. And I do think the fed’s doing a good … They have the right plan, raising rates to get it under control, but this is not going to be a quick fix. This is going to be … I think it’s going to spike towards the end of the year, and then in about nine months, we’re going to start seeing it start taper down.
But this isn’t something where they just raise rates and it flips the other way. It’s we put way too much money in the market, the money’s been cheap for too long and it’s going to be kind of a settle down period. I’m predicting, unfortunately, and I don’t want it to be this way, I’m hoping it’s not, but more around 9%.

Dave:
All right. Yeah. I mean, I hope you’re wrong. But I do agree. I feel like we’re starting to trend in the right direction. And this Ukraine-Russia conflict, you started to see gas prices go up, you’re seeing wheat prices go up. And who knows what else can happen in the geopolitical sphere that could impact the US to some things that are completely out of the US control?

James:
They were talking about food shortages. I mean, that’s on the table. Things are getting expensive. I haven’t heard that ever in my lifetime.

Dave:
I do think we’re also going to go up and see it increase. I don’t think we’ve peaked yet. But I’m hoping we’ll peak towards the middle or the fall. And I’m going to just go with 6% and be optimistic, mostly because, I don’t know if you guys have heard this, but there’s this theory that expectations of inflation actually impact inflation.
If people believe there’s inflation, prices actually go up. They demand higher wages, which increases cost for businesses. I’m just going to put it out in the universe that inflation is going down and hopefully we’ll all collectively start believing that and then inflation will go down. We’ll we’re doing our part [crosstalk 00:20:10].

Henry:
So you’re going full on self-fulfilling [crosstalk 00:20:12].

Dave:
Yes, exactly.

Henry:
Got it.

Dave:
I have this-

Jamil:
Let’s just name this podcast Inflation Is Down.

Dave:
Yeah. If we say it enough times, maybe we could do it. Okay, I do want to jump into what all of this means, because obviously you guys have brought some really interesting insights to the table. And we’re going to spend most of the rest of the show talking about how take this information and craft a strategy for 2022, how to invest in this type of climate. But before that, I have to keep you guys honest. I don’t know if you guys have seen the goat who predicts March madness or the octopus who picks like World Cup winners better than all of the experts.
And so Kailyn and I, Kailyn is our producer, before this show we decided that we would just get a bingo ball to prick random numbers to see if it does better or worse than all of us supposed experts at picking these things. So-

Kathy:
This is harsh.

Dave:
Well, maybe everything’s going to come up 7.5%, Kathy, and you’ll have it perfectly. All right. For rent growth, which is what we started at … How do I do this?

Henry:
There’s probably only one 7.5 ball in there, Kathy.

Dave:
Yeah, I don’t think we have fractions there. Rent growth is going down 10%. I think we’re pretty safe at that. That’s a negative 10. Yeah, I also, I doctored the [inaudible 00:21:30] so there were some negatives in there, because we realized they were all positive. All right. Rent growth is at negative 10%. Home price appreciation, a modest 3%.

Kathy:
Wow.

Dave:
I would actually love to see that personally, the chart, have a healthier housing market. And then inflation, I’m worried about this one.

Henry:
Even fate.

Dave:
Negative 2%. Yikes. I don’t think anyone’s in danger.

Kathy:
That’s a little scary. All right.

Dave:
Yeah. I mean, deflation is even worse than inflation, so hopefully we don’t see that.

Henry:
You need to bring the goat out.

Dave:
Yeah, exactly. The octopus will do a lot better. We’ll be back right after this message. All right, everyone, welcome back to On The Market. We are now moving into our next segment, which is called Due Diligence. And this is the meat and potatoes of the episode. This is where we’re going to dive into a larger topic at length.
We’re going to discuss large philosophical questions, trends, data in this section. And today, to continue the theme that we’ve started with, we’re going to talk about how to craft a strategy in 2022. Because as we’ve all heard at the beginning of this show, things are pretty unusual in the housing market. And we’ve heard that everyone really thinks we’re going to see a bit more of the same, at least in 2022.
And I think for real estate investors, that brings up a lot of questions about how to invest in 2022. Kathy, let’s start with you. How are you approaching the 2022 housing market, and how are you adapting your investing strategy to this unique climate we’re in?

Kathy:
We’re kind of doing the same thing we’ve been doing for 20 years, which is kind of sounds really boring, I guess. We’re looking for those markets where there is growth, there’s the demographic movement. And well, I should say migration. Migration patterns, job growth and affordability. A lot of people are talking about affordability lacking, but now with so much movement, for some people, things are more affordable than ever.
If you’re moving out of New York City to Florida, you could buy a whole house, or rent a whole house for what you might have rented a studio for and had four roommates. And the same with San Francisco or LA, people are moving to Phoenix or to Arizona or to Las Vegas and Texas. This movement, we were already tracking that for years. We were helping investors buy in Dallas 15 years ago, when you get a house for $120,000 that was brand new and rented for 1,500.
People are still doing that, they’re just going more into the suburbs with lots more money. They’re armed with so much money, so much cash. People selling homes in high-priced markets, getting multiple offers and taking that cash and just going to buy somewhere cheaper. We’re following the trends. Where are the jobs going? Where are the people going and buying in those markets? Right now, the strongest migration is into the Southeast. We love Florida, Jacksonville, Cape Coral, St. Pete. I’m telling all my secret. St. Pete is-

Dave:
It’s too late. We got you on camera.

Kathy:
… Oh, man.

Dave:
You can’t go back now.

Kathy:
Okay. Well, forget about St. Pete. And then we’re building. We’ve been building homes in places like Bozeman, Montana, which a few years ago people were like, “Why would you do that?” And the reason we did it was the land was cheap and there were no other builders. We were the only game in town. And now, well, Bozeman, I mean, thanks a lot to Yellowstone. You guys, tell me you watched it.

James:
Great show. Great show.

Kathy:
Well, we’re like the evil developer in that show. But we got the land sheep and we’re providing affordable housing in Bozeman. So just kind of staying where the big institutional investors aren’t necessarily going, but kind of going near them or buying things that they’re not interested in. And just areas where we could see there was growth. Again, Bozeman, there’s a huge university there and there was just not a affordable housing. So it was a great opportunity. There’s going to be opportunities, but it’s just kind of getting under the radar, finding where people are moving, but nobody else knows that they’re moving there.

Jamil:
They do now.

Dave:
Yeah, it’s not too late. Henry, what about you? I assume you’re just going to stop buying and pack up shop.

Henry:
Yeah, I’m done. I’m out. No, man. Absolutely the opposite. We talked a little bit about this prior to the episode, right? Real estate investing is like any other investment strategy, right? The general concepts are pretty simple, right? Buy low, sell high, or in the case of most real estate investors, buy low, rent, keep them forever, right? Because the reason real estate investors keep their property forever is because appreciation always wins out, right?
The appreciation is coming if you hang onto your property in the long term. And so are we changing our strategy? No. We’re still in the market of finding undervalue homes. And then we add value to them, and then we make a profit on them by renting them or selling them, right? And the market does shift from time to time. In very few cases, it’ll shift so rapidly that you have to pivot pretty quickly.
But I mean, this isn’t 2008, right? We’re not playing the same game right now. And so even if the market starts to head a different direction, if you’re good at identifying opportunities, right, and then purchasing those opportunities and adding value to them, you’re going to have some time if things start to shift for you to change your strategy. And so our strategy has always been buy a property that you can monetize in more than one way. Or said differently, buy property with more than one exit strategy, right?
If I buy a property, a single family, a small multifamily, I’m looking to make money on it as a rental, but I can also make money on it as a short-term rental, or I can make money on it as a flip, or typically I can sometimes just make money on it by calling another investor saying, “Hey, do you want to take this off my hands?” Right?
And so it’s more about getting good at finding those opportunities. And in this game, opportunity comes where you’re helping someone out of difficult situations. If you can eyeball and find those opportunities and buy those opportunities, you’re always going to be fine. I would say the thing that’s going to be a little different now is maybe how to find the money to buy those opportunities. Right?
Because if the interest rates are rising aggressively, then bank money is going to be a little more difficult to get. It’s going to cost you more. And so you just need to weigh your options. Bank money has never been the only money out there to buy real estate with. Right? There’s tons of options. And so there’s always going to be private money out there. There’s going to be hard money out there. There’s always going to be bank money out there on some level.
And so you just need to weigh your options, maybe how you go about finding the money to buy the deals changes. But for us right now, we’re staying the course. I love the small multifamily and single family space. And you’re always able to identify opportunities to buy at a discount. And if you can do that, you’re usually pretty safe.

Dave:
That’s great advice. I think given interest rates being so low over the last couple years, people assume that bank money is the only money. And frankly it has been the best money over the last couple years when you’re seeing interest rate at 3%. But people have been buying real estate when interest rates were at 15% or at 20%, or even in the ’90s it was between 5% and 10%. It definitely can still be done. James, you said that you were a little worried about the lower end of the housing market. You see inflation going up really high. Is that changing what you’re doing in your strategy?

James:
Yeah, there’s been two major shifts that we’re making for this next year. One is we are focusing on a little bit more expensive areas. We want to focus in the areas where the jobs are, where the money are. The one lesson I really learned in 2008 was we got our teeth kicked in 2008. And the reason being there wasn’t access to financing. The money wasn’t there. People had lost a lot of wealth at that time.
And because of what we’ve done over the last 18 months, 18, 24 months, I’ve seen this huge gap in wealth, right? People with money have made a lot of money, whether it’s stocks, Bitcoin, real estate, assets in general, and those people continue to have it. And so as I’m looking at my short-term projects, I’m going, “Okay, where is the money not going to dry up?”
The first-time home buyer pool is very financing independent. And the higher that rate goes, if it goes up a point, that can bring 10% down in affordability. That’s going to throw a lot of weird metrics when you’re throwing performance on deals.
And so we’re going where the money is. I’m doing more luxury flips. We’ve also targeted. We’re a heavy tech space in Washington. What do they make? We know that the average Amazon person, there’s two types. There’s the single Amazon employee. They buy 750 to 900. That’s the sweet spot. And then when two Amazon employees fall in love and they get married, which happens now all the time-

Dave:
Your dream as a real estate agent, to get the Amazon couple.

James:
… Yeah, maybe we get a little Apple, little Microsoft mix. I mean, those are even better due incomes. The sweet spot is 1.5 to 1.8. We know exactly where the money is, and so we’re actually building more town homes now because it’s falling in play to that space. The other thing that I am avoiding right now, we’re heavy construction guys. We do a lot of serious, studs-down renovations, manipulate buildings.
But as inflation’s soaring, and it’s harder to track, you don’t know exactly what your renovations cost is going to be. So we want to put less materials in. Hedge that bet to where we’re doing less work there. And in addition to, the value ads are great because you get huge discounts, but a lot of times you’re not going permanent financing on that. With hard money or soft money, you’re not getting your actual financing until 12 to 18 months down the road.
If I’m looking at a deal, the rates are right now at like 5%, which is way up from where it was. And it jumps to six, that’s going to throw all of my off. As we’re going into a frothy market, I’m trying to hedge against different variables, inflation, interest rates rising into shrinking the timeframes. So go where the money is and then staying in a manageable timeframe to kind of mitigate any kind of risk.

Dave:
That’s great advice. Jamil, I wanted to ask you, because something I hear constantly is that there are no deals right now.

Jamil:
Lies.

Dave:
And it sounds like it’s all lies. All right, well, you already answered my question. I mean, it seems like all four of you are fairly bullish, maybe with some caveat shifting your strategy a little bit and wanting to be cognizant of the market. But if you’re excited to invest in real estate, how are you finding deals? And how do you recommend people listening to this should find deals in this kind of market?

Jamil:
Great question, Dave. And I think that’s very true, that there’s a gripe that people say there’s no deals out there, but that’s absolutely inaccurate. Because this whole concept of there being low inventory, we’re talking about a different type of inventory. We’re talking about retail product. We’re talking about the houses that people have already improved.
The kind of product that someone’s going to go get traditional financing on, move into, or a hedge fund’s going to buy and turn into a rental, whatever that is, it’s a different kind of product. The kind of product that we go after as wholesalers is distressed property, distressed situations, and life hasn’t changed. In fact, it’s gotten worse for a lot of people. And because it’s gotten worse for a lot of people, these opportunities still exist.
Now, I’m not talking about going in and being predatory. I think the thing is you go in and you do it in a way where you can pay homeowners 100% of as is value. But again, let’s look at this. If there is a house that’s been renovated five doors down that had $80,000 or $90,000 put into it, there has to be a gap between what I’m buying your house for and what I’m going to be able to sell that house for.
All the players in that space, they understand the product that we’re trading in. And so we’re going after ,again, just the pre-foreclosures are back, right? They’re definitely there. The tired landlord exists. And even though they’ve gotten all this equity, they are not interested in possibly raising rents. They don’t want to do this cashflow. They don’t want to do the capital improvement that they’re going to require to increase rents. They’re willing to sell at the height of their market based off of the product that they’ve got. And I’ve seen opportunities in multifamily right now.
I just did a deal where I made $450,000 on one transaction, one six-plex, where all I did was I had one vacant unit. I had five units rented at $1,200 a month that were basically month to month. One vacant unit that I was able to rent out at 1,700. And then I flipped that six-plex to a buyer and made $450,000 on that. And I literally sold that days after closing. And I just put another one under contract. So these landlords exist. These opportunities to spot potential exist.
And that’s all we’re doing as real estate investors guys. You’re looking for potential. Don’t let anybody fool you out there. When you’re looking for a deal, you’re looking for a potential, so how do you do this properly? Learn how to underwrite. Learn how to underwrite. Learn how to underwrite. Understand if you can figure out how much something should cost based off the condition it’s in right now, you’ll spot potential.
If you can spot potential, you can avoid the frothiness that James is talking about. As a wholesaler, I’m in and out of a transaction. I very rarely take title. Think about that. If I’m making money without ever having to hedge risk, I’m in a good place. And I made money as a wholesaler when the market sucked. I made money as a wholesaler when the market’s great. And I’ll make money as a wholesaler when the market sucks again. That’s why I think that, that as a strategy will never, ever end.

Dave:
Are you investing and are you wholesaling, I should say, because you think there’s risk in the market right now, or is this what you just do in any market?

Jamil:
I think I wholesale because I have PTSD from my first go around. I have done well in real estate multiple times. And the first time I did well, I was more in the development phase. I was condo converting. I was taking old apartments, converting them into condominiums. I had a lot of leverage. And because I had a lot of leverage, and I didn’t understand on how to mitigate that well, I got hurt.
As a wholesaler, I hold a lot of cash. Now, of course I’m losing value in my cash because of inflation and whatnot, but I’m still very well positioned for any black swan event. And we are seeing this. 2020 showed us that we never know what’s going to happen. Right? The octopus will very likely win.

Dave:
Randomness [inaudible 00:36:22], right?

Jamil:
Randomness. It’s just the way the universe works, right? It’s entropy. Things are random. And random things are always going to mix stuff up. And if we can count on the randomness of things getting mixed up, then I can just say, as a wholesaler, I’m always going to be there to cash in on the randomness.

James:
Wholesalers are also getting paid right now. It is. I’ve been wholesaling for 20 years, never been paid like this before. So you get no risk and you get all reward.

Dave:
Is that just because it’s so hard to find a deal on the MLS?

James:
Yeah. And it’s also just the perception that everyone thinks that there’s not a lot of deals. It’s put the new pairs of glasses on. I buy better deals on market than I do off, but people want that off-market deal. It’s like I got this thing that no one else has, and they lose their minds over it. But if you put the right pair of glasses on, you can look at different spots and you can find all sorts of different opportunities. But wholesaling is a great business to be in right now. Low risk, getting paid, and people are making a lot of money on it.

Jamil:
Yeah. Dave, I shared with you earlier just our stats, right? February we did 66 transactions, near a million dollars in assignment fees. This month we’ll probably hit somewhere close to 60 transactions. This is just our corporate stores, not our franchises. And we’ll do over $1.4 million in assignment fees.

Kathy:
Wow.

Jamil:
I can’t get that in a rental.

Kathy:
I want to be you in my next real estate life. But I really want to emphasize something that’s so important that you said, that we are in a changing market. The tides are shifting. You’ve got to be aware and you need to be more careful. And one of the ways to be more careful is not over-leveraging.
And so many people are just going wild and crazy out there with their leverage. Anything can happen, so just be wise about that. Short-term loans, be careful of those. Because we don’t know where we’re going to be in a few years. And if you’ve got a refi, you don’t know if the money’s going to be there. What we know is the money’s going out of market right now. That’s the tide.
It was flooded over the last few years and now it’s being pulled out and that will affect us. So be careful of that leverage, get low LTVs, at least not 100%, 80% or lower. Be very, very careful, and get long-term debt when you can. Because even with rates going up, they’re still low. They’re still incredible.

Dave:
Super. I mean, if you look, before The Great Recession, mortgage rates, at least as far back as I’ve seen data, were never below 5%. Now everyone expects that. You expect, oh, 4% is so high. It used to be 3%. Because people have this fear that they’ve missed out on something. But it is still really low. But Kathy, could you explain for people who might be newer to real estate investing what it means to be over-leveraged, and why perhaps using less leverage is a more conservative or safer strategy going into this market where we all agree is somewhat uncertain.

Kathy:
Well, I came into the industry as a mortgage broker years ago, and boy, was it easy to get loans. Those were the good old days. Oh. There was unlimited investor loans that you could get with no money down. How about that? How about that? That was great, until it all fell apart, right? Because people didn’t actually qualify. I love leverage. I love borrowing at low interest rates. It’s a wonderful thing. You get in trouble when you don’t have reserves.
If you have very little reserves, and you get a high leverage situation and you can’t make those payments, that’s the problem. So just make sure you have plenty of reserves. And expect that if you’re holding rentals like we do, have six to 12 months reserves set aside in case there’s vacancies. Things happen to tenants. Just make sure you’ve got … Again, the reserves is most important.
And then that short-term debt back in 2007, I thought I was really great at investing because we’d bought so many good deals in Dallas. And then I tried it somewhere else. We went to Tennessee and we got construction loans on three homes. And they were ballooning in a year once the homes were built. They were great deals. Everything was fine. The problem was the market fell apart and there was no loans to get.
They changed the rules. The rules can change. The laws are enacted. And in this case, now it went from unlimited investor loans to 10, and we were way beyond that. We had no loans to get into, even though we had these fabulous deals. The construction loan was due, it was a balloon note and we couldn’t pay it. And we had to give those properties back to the bank and we lost all our money on those.
Again, it’s the short-term loans that can get you in trouble. If you’re going to do construction, try to get a construction-to-perm loan, where you lock it in now, you get the construction loan and it converts into a long-term debt. There’s still ways to play the game. Just be careful, and know that what exists today may not be there tomorrow or next year.

Dave:
Henry, I’d like to get back to something you said about this earlier, that there’s other types of financing out there other than bank loans. Are you continuing to use bank loans, and how are you applying leverage in this market?

Henry:
Yeah, absolutely. We are still using bank loans because typically it’s still cheaper money. It was just way cheaper money before they were raising rates. But it’s still pretty competitive. Yeah. But have started looking at and are shopping out over several hard money lenders, and then I’ve recently brought on two different private lenders. And they all kind of have their different lending niche and their different percentages that they want as far as interest rates go.
And so I look at lending, it’s just another tool in the tool belt. A bank loan is one tool. It just so happened that, that hammer worked on all the projects because the money was so cheap. Now you’re going to have to get a little more crafty with your money and with the tool that you use to take down your deals. And so the more relationships you can build, and that’s truly what this is, is people want to know that their money is safe with you, right?
They are concerned about the deal, but they’re mostly investing in you. And so if you can focus on building good, strong relationships, you obviously need to do good projects in order to give people confidence. But they’re getting the confidence in you, not in your projects. And so if you can build strong relationships with people who have money, whether they’ll be hard money or private money. And the difference between hard and private money for folks is people who have hard money are people with lots of money who are in the business of lending the money.
Private money are people who aren’t in the business of lending money, they’re just willing to lend you some of their money, and so the rates and terms can be a little different. But real estate has been an investment vehicle for people. You heard Jamil say it. He’s made money in up markets and down markets. Most wealthy people who understand real estate understand that they want their money in that space, no matter the market, which means somebody’s there that’s going to be willing to lend to trustworthy people who they feel like is going to get them a return on their money.
If you can focus on finding those quality deals, and Kathy was right, you can buy a good deal, you want to couple that with a loan product that’s not going to fall out underneath you in 12 months. Right? Safety net is your cash reserves and your equity, right? Because if the market shifts, and it starts to shift and you can see it coming, and you’ve got equity, you’ve got time to sell and still make a profit. You’ve got time to change your strategy. Your equity and your cash reserves are your safety net.
If you’re going to go out there and pay over asking price for something, because you’re like, “Airbnb is killing it. I’m about to go buy this $5 million mansion with four of my buddies. We’re going to turn it into an Airbnb and we’re going to make a whole bunch of money,” and then the market turns on you, you’ve got no other excess strategies, you don’t have any cash reserves, you’re in a short term loan, you’re in a world of hurt, right?
You just have to be careful of your strategy. Make sure you’re buying with some equity and use a product that’s not going to fall from underneath you in 12 months. And I think you can get out if you need to.

Dave:
That’s great advice. One thing I keep hearing about is that with rising interest rates, it always leads to negative home appreciation. And there were times when that was true. But before The Great Recession, we did see a really strong correlation between interest rates going up and housing prices going down. We all know that interest rates are going up.
I don’t think anyone thinks that’s going to taper off anytime in the next couple months. But at the same time, all five of us said that we think that the housing market is going to continue to go up. James, can you tell us a little bit why you think that’s going to happen? Why is it different now? And why do you think that despite rising interest rates, we are still going to see home prices appreciate?

James:
It comes back to money again. Interest rates are rising, but the amount of capital and what employee wages are in Washington and that are growing, the wage increase is offsetting a lot of this home pricing increase. Now, if you’re in a market that doesn’t have that same job growth and income growth, that’s where you might see that negative appreciation.
But what we know in Washington is the reason we think it’s going to keep going up is we have Amazon come out and they said that they want their … They doubled their execs max salaries. It went from 175,000 to 350,000.

Dave:
What? Are you serious?

Henry:
Holy bowly.

James:
That’s where I’ll double down in that market. I think it’s still going up. The money-

Dave:
I mean, I’m going to quit right now and go apply for a job at Amazon.

James:
… We’re trying to hire. And I got jobs up for EAs, accountants. And these are well paying jobs because we’ve had to make them pretty well paying. I can’t even get people to apply because these tech companies eat up the market. And so depending on where you are, there are these juggernauts in the market to where it won’t affect things as much.
In our local market, I don’t think … The interest rates will rise, but it’s kind of like gas right now. For some population, the cost of fuel is annoying. For some population, it’s detrimental. And so depending on the geographical location in, where you’re investing in, what the demographic in, you’re still going to see that appreciation.
I’m doing it more based on a Pacific Northwest. I think we’re going to look pretty strong. And a lot of these other markets, Austin, I mean, these growing cities with growing jobs, it’s still going to offset the interest rates.

Dave:
I have a question for all of you guys. Do you guys see a lot of people, experienced real estate investors sitting out in this kind of market?

James:
No.

Kathy:
No.

Dave:
What would you say, Jamil, to people who are sitting out? It seems like every experienced investor is continuing to buy right now. I think we all agree. There are some warning signs in the market. We all think it’s going to go up, but things are a little weird. No doubt. Why do you think that everyone who knows real estate really well is bullish on this market?

Jamil:
I think because, again, they’re seeing who’s sitting at the table. It’s when you have different players at the table, things change. Historically, look, if you look at housing prices from the 1930s to today, housing prices have gone up. And there’s been hurt in between. There’s been moments of depression. There’s been things that have happened, but they’ve still gone up. So no matter what you look at for temporary blips, housing will go up.
Now, knowing that, and then knowing that you have a professional eater at the table who’s gobbling up all the houses, that is changing the demand. It’s just changing the game. And the professional investor is looking at the landscape and they’re saying, “I’ve never seen this big guy eat all these hot dogs. I’ve never seen this before, but now I’m sitting at this table with him and I’ve got to do what I’ve got to do to get my hands on as much as I can to at least compete,” because we are heading towards a housing crisis.
I believe we’re heading towards a housing crisis. We are not building enough homes. We don’t have enough inventory. We will always be needing houses. We will always need them. Look, if you’re sitting right now waiting for the housing market to crash, there’s a deeper a problem here. Okay? You have a fear problem. You don’t have an investing problem. And so what I would suggest is do your research, understand.
If you can learn how to underwrite, if you can learn how to value property, and you understand the consequences of overpaying, you understand the consequences of getting a good deal and how you can leverage that to make and grow your wealth, you will do well. How do you move forward? I think first and foremost, learn. Learn, learn, learn. Listening to a podcast like you’re listening to right now, this is key.
This is key because you’re getting insights from people who are doing this at a high level, from different aspects and perspectives of the housing market. Right? Learn from them, see what they’re doing, understand how they’re underwriting and follow their bets. Follow their bets.
And if you’re not following their bets, at least understand why you’re not, rather than just having this overarching idea that, “Well, it’s gone up now. It’s going to go down.” Because I’m sorry. I’m sorry. But yes, things like that, we’ve seen this cyclical nature of the house market, but as cyclical as it is, it’s still up to the right.

Dave:
And when you talk about a professional eater, are you talking about like the Blackstone’s, the BlackRock’s-

Jamil:
Of course. Yes, yes.

Dave:
… whatever those companies are called of the world?

Jamil:
Yeah, I should have called them. I should have given them a name. But yes, that’s exactly what I’m talking about. I think that’s the professional eater at the table right now, and they’re gobbling, gobbling, gobbling, gobbling all the hot dogs.

Dave:
One of my claim to fame is I actually got to be a judge at the Nathan’s Hot Dog Eating Contest at Coney Island. Yeah. I counted for a guy, Pat Bertoletti. He ate 44 hotdog in 12 minutes.

Jamil:
So now that you’ve seen that, you understand my analogy, right?

Dave:
Yes, absolutely.

Jamil:
And when you-

Henry:
You’ve got to buy more hotdogs.

Jamil:
… You’ve got to buy … Yes. When you have the professional hotdog eater there, he’s not the person putting just relish on a hotdog and enjoying it bite by bite, right? That’s not what Blackstone is doing. They’re not looking into a primary bedroom and being like, “Oh, I can see myself of living here.” That’s not the decision that’s being made, right? It’s a completely different decision.
And when you have people making decisions that are taking up near 19% of the housing volume, and they’re not making decisions the way that your primary home buyer would be making decisions, you’ve got a different animal.

Dave:
Absolutely. They’re just trying to capture as much market share as possible right now, and that is going to have long-lasting implications, probably worth a whole show. We’d probably do a whole show on that in the upcoming future. I do want to shift gears a little bit here. Kathy, I’m curious, how do you see the general economy and investing situation with the stock market? Everything else that’s going on in the economy, how is that impacting the housing market right now?

Kathy:
Well, I’m not a stock expert, but the ones I listen to are basically moving into stocks that go with inflation. So food, gas, and of course housing. These are things that inflate, and we know we’re in an inflationary time. Will there be stocks that don’t do well? Sure. But that’s at least the guys that I’m listening to are talking about it that way.
We have so much money circulating, trillions of trillions of dollars. And it wasn’t just the US that printed trillions of dollars. The whole world is addicted to this modern monetary theory that is really just a really bad theory. I sometimes wonder how people think that makes sense. I’ve talked about this before. It’s like we’re all sitting here playing Monopoly, and we’re having a good game. And there’s all these apartments and houses on the table and we’re bidding for them.
And then all of a sudden, the bank comes in and brings another box and passes it around. And now we all have more money, but the same number of assets on the table. What are we going to do? We’re going to bid more. We’re going to spend more, because there’s more money. It doesn’t mean the values necessarily went up, it meant that there’s just more money circulating and the value of the money has gone down.
That’s the situation we’re in right now. And so the economy’s already slowing down. We already see that happening. GDP has been declining and there’s projections that it’s not going to be as robust as expected simply because that’s the fed’s effort, is to slow it down and they’re going to do that. But when it comes to our industry in real estate, kind of coming back to what you said, it’s mathematically impossible.
In my opinion, you can call me on this a year for prices to go down, because we’re not in the same world that we’ve been in before. We’ve never been here. This is unique and unusual with trillions of … We’re in a modern monetary policy that has not been tested.

Dave:
Okay. Guys, thank you so much. That was our first due diligence section. That was awesome. Great job to all of you. I hope for everyone listening out there that this was helpful for you in understanding the 2022 housing market and how this group of incredible experts doing all sorts of strategies are handling this market.
Let’s go to our final section of the show, this is called Crowdsource. And this is where we engage with all of you, our listeners. We’re going to be doing all sorts of fun stuff in this last section. We’re going to be taking questions, or we’ll maybe even bringing people onto the show. We’ll be doing polls. We’ll be gathering data from all you. But as Kailyn and I were planning out the Crowdsource section today, we realized we don’t yet have a crowd.
This is our first episode. We can’t really ask anyone for anything because we don’t have any listeners yet. What we’re going to do is give you, one, a challenge and two, a gift for being a listener on our first show. First, we’re going to give you all a challenge and that is to join our community. And the best way that you can do that is to subscribe to our YouTube channel.
We will have a forum just for On The Market. And so go on there, post your own thoughts about the 2022 housing market. Let all of us know how you are going to handle or approach the 2022 market. And please, we do ask, we would love it if you told your friends and help grow the On The Market community. And in exchange for that, we have our first ever data drop.
The data drop is something that we came up with and it is a gift for our listeners. From time to time, I’m going to prepare a unique data set and you can go on BiggerPockets. You can go to www.biggerpockets.com/datadrop, and you can download the first file that I’ve created for all you, and it is a super valuable data set. Basically what I did was take the biggest hundred markets in the US and I analyzed all of the rent data.
If you want to know what markets have rent growing the fastest, if you already earn a market like Denver, and you’re curious, “Should I buy a one bedroom, or two bedroom or three bedroom? Where are rents growing the fastest? What segments of the housing stock are best to invest in?” this data set is going to be super helpful for you and I hope it is useful for everyone. So hope you enjoy that as a gift for being a listener on the very first On The Market. All right, guys. Anything else you want to say before we wrap up our first ever episode?

Henry:
Dude, you’re giving that away for free?

Dave:
Yeah.

Henry:
That’s incredible, man.

Dave:
Maybe I shouldn’t tell people this. I should be selling this.

Henry:
I don’t think people understand how valuable of a tool just that one data drop is. For you to be able to get that analyze-

Dave:
You can get that.

Henry:
… Right. If somebody wanted to do that, they’d be hunting for months.

Jamil:
Well, they’d have to hire the vice president of data analytics at BiggerPockets.

Henry:
Right, absolutely.

Jamil:
And he’s expensive.

Henry:
Right. And to be able to quickly jump on a tool and be able to know where your money is best spent in your market from a rent perspective, that’s phenomenal. I don’t want to gloss over how incredible of a free giveaway that is. You see free giveaways all the time on the internet, right? “Get my free book,” and it’s just some … This is huge. That’s huge, man.

Jamil:
It’s just pictures of Henry.

Henry:
Yeah. That is [inaudible 00:57:03]

Jamil:
Who says you can’t buy friends?

Henry:
No, that’s a phenomenal, phenomenal thing by the way.

Kathy:
Yeah. We get access to it first, right?

Dave:
Yeah, absolutely. Yeah. Well, we do have a week before this comes out, so you can scour through that data.

Jamil:
And then come to our reseller website at-

Dave:
But really guys, this is what we’re going to be. We’re not going to do this every single week, so you do have to pay attention and watch the show. But we’re going to be leaving these little Easter eggs value for you. In On The Market, this is what we’re all about here at this new show, is giving you the tools and information you need to make wise and confident investing decisions. So to all of you guys, thank you so much for joining me here in Denver. It’s so awesome to do this in-person. It is so much fun, and I’m really looking forward to growing the show with all of you.

Henry:
All right, thanks for having us, man. It’s amazing.

Kathy:
Love it.

Dave:
On The Market is created by Dave Meyer and Kailyn Bennett, produced by Kailyn Bennett, edited by Joel Esparza, copywriting by [inaudible 00:58:00]. Special thanks to Lisa Shroyer, Eric Knutson, Danielle Daly, and Nathan Winston. The content on the show On The Market are opinions only. All listeners should independently verify data points, opinions and investment strategies.



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