transcript

Speaker 1:
[00:00] Welcome to How to Money, I'm Joel, and today I'm talking real estates taking time bomb with BiggerPockets' Dave Meyer. Okay, so the housing market fascinates me. But if I'm being honest, it confounds me at times too. It's incredibly complex, and there's rarely a simple explanation for why the real estate market moves in the way that it does. And so that's exactly why I wanted to bring on Dave Meyer. He's a real estate expert, he's a longtime podcaster. He's the chief investment officer at BiggerPockets. And so we're gonna dig into the forces shaping the housing market right now. And then we're gonna zoom out. We're gonna look at the bigger trends that could influence how we buy homes in the years ahead. Dave has some really interesting predictions that I'm stoked to dive into. Both as individuals and investors, we're gonna look at both. And so Dave, he believes that the next decade in housing could look a lot different from the last one. And that makes his perspective especially valuable. And it's because it's deeply grounded in data, not just like gut instinct. So Dave, thanks for joining me today.

Speaker 2:
[01:20] Joel, thanks so much for having me. I'm really excited to be here.

Speaker 1:
[01:24] Oh, man, I always love talking to you. And listening to the way you think about the housing market, I said it's grounded in data, which is true. You use a lot of data to inform your analysis. First question, though, before we get to that is, what do you like to splurge on? What's your craft beer equivalent? I'm curious to hear what you're wasting money on, even though you're doing smart stuff for your future.

Speaker 2:
[01:44] I'm so bad about bougie hotels. That's like my thing. I'm pretty frugal in the rest of my life, but if I go on a week vacation, I'm spending up for the nice hotel. I want all the pampering.

Speaker 1:
[01:59] Are you getting the massages and stuff like that too, at this fancy hotel?

Speaker 2:
[02:02] Not always, sometimes. It's not even that. I love going to a really nice place where the service is really good, and the food is great. I love eating, so I'm a big food guy. But I don't normally splurge on that. But vacation, it's just the one time I can mentally unlock from being frugal and thinking about investing and trying to build for the long term. I just let myself turn off my brain and just spend a little bit of money and enjoy the fruits of my labor.

Speaker 1:
[02:32] There you go. We got to do that, man. That's important. You got to have the outlet and remember why you're saving, which is spending, right? Saving is delayed spending, so you got to spend it at some point.

Speaker 2:
[02:43] Exactly. When I first started as a real estate investor and entrepreneur, travel was the thing that motivated me. It was always the thing I wanted to do. I wanted to see the world and that's still the thing that motivates me. And fortunately, I've been doing this for 16 years now. And so I have a little bit more capital. I'm able to not stay in the hostels anymore, and which I did for many, many years, but can now, you know, married now, take my wife on nice vacations. It's, it's worked out well.

Speaker 1:
[03:12] Think, I can't think of many instances where my wife would leave me, but trying to make her stay at a hostel with me, that's one where she might piece out real quick, right?

Speaker 2:
[03:21] Yeah, well, we've been together for, oh gosh, 13 years now. And so we did it together. We've definitely stayed in the bunk rooms and done all of that. But now we're able to upgrade a little bit, which is nice.

Speaker 1:
[03:32] Nice. All right, let's talk, let's talk housing. And I wanna, I wanna kind of look down the road further in just a second, but I'm curious, what, how would you describe the housing market in 2026? And did it change recently? What you expected from the spring housing market? I don't know, some current events kind of might have messed with that.

Speaker 2:
[03:52] Absolutely. We are in what I've dubbed on our podcast at BiggerPockets, the great stall. That's how I help people understand what's going on in the housing market. I think we're in a period of prolonged flat housing. It might even be negative. I actually, I know this is unusual for real estate investors or people who work in this industry, but I've been predicting negative home prices for the last year or so. I think that's what we're going to have here in 2026. A lot of people like to call, the reason for this, the reason we're stalling out is just affordability. Everyone knows this, whether you're a renter or a homeowner or an investor, home prices are no longer affordable to the average American. I think that's a big problem. I know real estate investors do tend to make money off that, for a, just from a society perspective, it's bad. People can't afford it. And so I think we need to see, and the data shows that when you reach this level of unaffordability, home prices need to go down. Now, a lot of people like to predict something dramatic happening, like a crash, something that we saw in 2008, where home prices peaked to trough, went down 20 percent. And I'm not saying that can't happen. It is certainly still possible, but it is unusual. In fact, we've only had one period of really significant home prices since the decline, since the Great Depression. And that was during the 2008 Great Financial Crisis. There is another way affordability gets restored to the housing market. It's just more boring. It's not as exciting to talk about on social media. And that's what I call the great stall. It's basically home prices stay somewhat stagnant or maybe decline a little bit, single digit declines. At the same time, you see mortgage rates start to decline a little bit. Real wages have been going up and hopefully that will continue. And when you see the combination of those three things, that actually improves affordability just slowly. And we're actually starting to see that. Nine months in a row now, housing affordability is better. The average mortgage payment, if you bought a house today monthly, it's about 8% lower than it was a year ago. Long way to go. We still need affordability to improve. But we are trending in that direction. And outside of sort of black swan event where something crazy happens, I think that's the trajectory that we're on for the next several years. It could be another year, it could be three more years, it could be five more years. We just don't really know. And so when I look at the spring market, it's kind of what I was predicting. I actually think I've been saying that we're going to have a slow market. And because mortgage rates, we're recording this at the end of March, mortgage rates have gone up since the invasion, sort of the war, conflict, whatever people call it in Iran, it's probably going to be even slower than we were expected. But I was not expecting some big movement in the housing market this year. I think we're in for a frustratingly slow housing market for the foreseeable future.

Speaker 1:
[06:57] I think you're right. And I think it's kind of like when what Vanguard has predicted for the stock market, right? Like, hey, actually, we've had incredible returns over the last, like since the Great Recession. Don't get used to it is kind of what Vanguard's saying in their predictions moving forward. I think you're saying something similar is like, hey, the housing market had some crazy years there where home prices were going up at an insane rate. Don't get used to it. That's not normal. And maybe we need a plateau here to kind of help us get back to a state of normalcy.

Speaker 2:
[07:33] Exactly right. Yeah, I've read those same reports from Vanguard and I agree. I think it's similar. There's this term you hear sometimes called a pull forward, right? Where basically the average in the stock market, the average in the housing market is probably not going to change that much if you zoom out. But after years of incredible, above average growth and returns, you sort of have to have a counterbalance. You have to have years of underwhelming growth and we can talk about this. I think there's still ways to invest in real estate because real estate investing is not all about the price of an asset. There's definitely other ways to make money from it. But I think when you just look at pure appreciation, I'm not expecting it in most markets. Of course, real estate is very regional. There'll be markets that grow. There'll be ones that have real significant declines that you could potentially call a crash. But I think the average is gonna be just slightly down to flat.

Speaker 1:
[08:29] How do you think investors are impacted by recency bias? Think about, oh man, big run ups. I guess I should predict more of that. Or the longer this housing plateau continues, are people going to expect that, oh, housing is just not where it's at. It's not worth investing in because prices aren't going up and I was banking on appreciation of this asset I just purchased.

Speaker 2:
[08:54] A lot, that's a very good astute observation, Joel, is that people are really impacted by this recency bias. I have dubbed the period from 2012-ish to 2023 as this Goldilocks era for real estate investing. It couldn't have gotten better for people from an appreciation perspective. We had artificially low mortgage rates in the lowest we've ever seen. We saw a structural supply shortage after the great financial crisis. Huge demographic tailwinds from millennials, now the biggest generation in the US reaching their peak home buying age. Just all these things came together to make it an extremely good time for real estate investing. That's great. I came of age as an investor slightly before that, but was a beneficiary of it. But what I encourage people to do, as Joel, I'm sure you encourage people to do outside of just real estate, is not compare to the best possible returns. The job of an investor, whether you invest in real estate or any other asset class, is to compare to what else can you do with your money? The question is, I have a certain amount of time, I have a certain amount of money, what's the best way to optimize for my financial future, given the realities on the ground? Unfortunately, I do think we're just in a period of lower returns across asset classes right now, unless something crazy happens, if we start seeing quantitative easing, or some things that are not currently happening start to happen.

Speaker 1:
[10:32] New AI models, right?

Speaker 2:
[10:34] Yeah, right, like stuff that we can't predict, but if there is, the status quo, I think right now, is lower returns, doesn't mean you can't invest, doesn't mean there aren't good returns out there, but I think it's just gonna be a little less obvious. You're gonna have to look a little harder for it. You're gonna have to probably be a little bit more skilled than you were, but what I say to most investors is, we're in a period similar to the 80s or 90s in real estate investing, people were still making money there. You don't need everything to be perfect to make money, but you do need to adapt. You need different skills and different strategies and tactics to make it work.

Speaker 1:
[11:12] What you're getting, I mean, a little bit, like 2011, 2012, 2013, 2017, you could, any old idiot could kind of get into real estate, right?

Speaker 2:
[11:21] Me, yeah, I am that idiot.

Speaker 1:
[11:22] Including myself, exactly. So I am that idiot and have done well because of the momentous forces behind me that were the wind at my back. And you just, as a real estate investor moving forward, you've got to do more due diligence to ensure that you're making a good investment versus like, hey, the tailwinds are at my back. I'm just going to take that and run with it. Well, the tailwinds aren't at your back anymore. And at least not in the same way that they were. And so you have to be just a lot more thoughtful, I think, and parse the data specifically where you live. You have to do a lot more, I would say, analysis. Do you agree, before making a purchase?

Speaker 2:
[12:07] Absolutely. You could get away with being a bad investor for a really long time in real estate and made people focus artificially, in my opinion, on appreciation as the way to make money. But real estate investors can make money, I would say, four or five ways. It's appreciation, that market appreciation, which is really out of your control. It's just macro conditions, pushing home prices up. But there are things that are still in your control, like generating cash flow, paying down your loan, or value add investing, which I think is the number one way people can still make money, buying something that's not up to date and fixing it up. That's still a way to make huge gains in real estate investing. And there's also tax benefits to real estate that are very powerful and haven't gone anywhere. In fact, they've probably gotten better over the last couple of years, given recent policy. And then there are defensive reasons to be in real estate as well, which I think things like inflation hedge. I know we're getting over a period of inflation, but I think there's still a lot of inflation risk long-term in the economy if you look at our national debt. And so there's reasons to do that as well. And so you need to be able to analyze these deals for that combination of benefits that come from real estate, not just, oh my god, the price on Zillow went from $400,000 to $450,000. There's just more to it than that.

Speaker 1:
[13:33] Yeah. How do you when you talk to investors and they are super stoked about, well, man, I think this is a market where I'm going to see outsized appreciation. Do you think of that, is there a way to bank that into the way you think about how intelligent that is of a purchase versus what the fundamentals of cash flow are for that property? Do you think of the goal of outsized appreciation as just a speculative maneuver or is there something worth considering in that?

Speaker 2:
[14:07] It's a great debate. This is something that happens in real estate all the time. People say, a lot of old school investors would say, you never count on appreciation. Actually, I wrote a book called Real Estate by the Numbers with a guy named Jay Scott, fantastic investor, better investor than me. He never underwrites for appreciation. We always debated that because I think during a zero interest rate policy era, you should count on appreciation. You could for a really long time. I underwrote deals when I was doing my analysis with modest appreciation, never more than three or four percent, pace of inflation, something like that. But I've stopped doing that. I don't, in the last couple of years, I think for the last two or three years, I said zero appreciation. I've been wrong about that, which is good. But I guess I'm not wrong because doing that is not necessarily a prediction that prices won't go up. I want my deals in today's day and age, to do well even if there is zero appreciation. I think that's the way to think about it, where can the combination of cash flow, value add, amortization and tax benefits get you to the return that you need? And then appreciation is just gravy. And you might get it. You probably will. It will probably pick back up again at some point. But I like, I'm just a conservative investor. I like underwriting deals and being very, very selective about deals. And luckily, I think that is sort of the benefit of this market. In a market where there's less appreciation, you usually have more choice, you have more leverage, you're better able to negotiate. And so I think this is a time where you have to be very precise and patient. And if you are an underwrite with sort of these conservative principles, you can still definitely make money. It's just a, it's a different mindset than this scatter shot. Like I just got to buy anything and make all cash offers because it's going to go up 10 percent by next year. It's just a different way to think about it.

Speaker 1:
[16:03] Yeah. Yeah. And I think you're, you're right. Like what's happening in the market is very indicative of what you're likely to see as far as appreciation in moving forward. And a lot of people who bought a home a year ago, a year and a half ago, if they need to need to or want to sell, they're a little nervous because they haven't seen. They have to come to the closing table with a lot of money. They didn't. They were like, but I just thought housing prices always went up. And I thought they always went up significantly. And again, that's recency bias. That's not always the case. And what we've experienced over the time frame you mentioned is kind of an outlier, ultimately, when we talk about the history of housing. Let's talk specifically about markets. And you did a video on this recently, but I'm curious to know, like, what you think some of the hottest markets that people kept talking about, Austin, Austin, Texas. And it seems like maybe we've reached a little bit of equilibrium there. And rent prices are not falling in the way that they were. But how do you help investors think about what markets make sense to invest in and what markets maybe to avoid?

Speaker 2:
[17:13] Generally speaking, you can invest in almost any market, even Austin, while it was correcting. It really depends on your strategy. I think that the basics are, look for strong economic fundamentals, markets where there is good job growth and where there is something called household formation, are the number one and number two things that I personally look for. Economic growth tends to bring people to an area that increases demand. It also, as people's wages and incomes go up, it pushes prices up for homes and for rents as well, which can help your returns as an investor. Those are, I think, two things that I like to look for. I think the place where people err, especially in recent years, is only focusing, though, on the demand side of the market, because every market, there are supply and demand, and Austin is a perfect example of that. People were moving there in droves during the pandemic, or Florida, a lot of places, people moving there, and that means demand. It also means that developers are going there and building tons of supply. What we're seeing right now in a lot of markets is that even in markets where there's sustained demand, people want to live there or rent there or buy there or whatever, they've just built too much. There's over supply, there's a glut in some of these markets, and so that is pushing down performance in a market like Austin is a great example of that. People saw Google moving there, Tesla moving there, and developers built literally tens of thousands of units. And even though we are in a sort of a structural supply shortage in the United States, you can't have all of that inventory and all those housing coming in at the same time, not everyone's ready to move or to buy at the same time.

Speaker 1:
[18:58] Not without prices dropping, right?

Speaker 2:
[19:00] Exactly. And so we are seeing prices drop, which is probably a good thing in Austin, right? Like it got a little unaffordable there. And so that's the other thing I really recommend people look at is the supply side and trying to understand where are markets in equilibrium. You basically, as an investor, want supply and demand to be roughly equal, ideally a little bit more demand than supply, because that's going to keep some upward pressure on rents and prices and will at least keep pace with inflation. So that's good.

Speaker 1:
[19:28] Yeah. I love what you just said there. It makes me, I guess, just for the person in the How to Money audience, who's like not thinking like an investor, they're thinking of someone who wants to buy their first home, seeing rents decline or seeing prices moderate is like music to their ears. Yeah. They're like, I've been trying to buy a house and every time I'm trying to save up a down payment, the market continues to outpace me. And but for an investor, like they're seeing it through different eyes. So I don't know, how do you think about what's good for the investor is often bad for the individual home buyer?

Speaker 2:
[20:05] Yeah. I think I have maybe a little bit of a contrarian take here as an investor. I don't look for markets that have exploding growth. My personal thesis about investing is affordability. I like to invest in places where the average person can afford the average price home. I just think that's good for our society. I don't want to be a kind of investor who's like pricing people out of their homes. And it's not necessary to be a successful investor. You don't need these massive swings of appreciation that push people out of the market. In fact, on my podcast and what I do is I look for markets where people can have that literally, that's the equation. Can the average person based on their average income afford a home here? That to me is going to ensure that there's sustainable growth, right? Like that prices keep going up in a predictable pattern, like two, three percent a year. That's plenty. And it means that you're not going to have these wild swings in valuation. For me, I'd rather invest in a market like Chicago or Milwaukee or something like that than Las Vegas. You can have huge run ups in prices, but you have big corrections as well. And I think the thing people need to remember, whether you're a homeowner or an investor, is that the way you make money in real estate is time. You don't need to time the market. You need to buy right. But you just need to wait. And so for me, I'd rather be in a market that's just going to do two, three, four percent appreciation a year where people are happy. My tenants are not rent burdened. They can easily afford to pay the rent. It just makes for a better sort of mutually beneficial relationship, which is how I believe real estate investing should be approached. So I agree with you. Some investors do see it that way, but I encourage them not to. I think being in a market and providing a service that the average person in your market can afford, to me is rewarding on a personal level and it's just good business.

Speaker 1:
[22:02] I feel the same way. I enjoy being a landlord and I have a good relationship with my tenants. There's something really that I love about that. I think there's conversations in the past about the ethical nature of landlording. Is it ethical? I think it totally can be. I think there's a lot of unethical landlording, but I think there are a lot of great ethical landlords out there too who just want to provide, who are not getting wildly rich overnight and just want to provide a great place to live for individuals and families. I'm curious too on financing. Rates have come down a little bit. How do you help home buyers and investors think about what lending products are worth looking into? There's a rise in adjustable rate mortgages right now. People are more interested in those. To me, they've gotten better as a product and the savings can be significant versus just a traditional 30-year fixed. How do you help people think about the lending conundrum?

Speaker 2:
[23:01] Yeah, it's tough right now because we're seeing wild mortgage swings, unusually large volatility in the mortgage market. I think it really depends on who you are and what makes you sleep well at night. The third question, which is always hard, is how long you intend to stay in a home. If you intend to stay somewhere for long term, and the difference between a 30-year and a fixed rate mortgage and an adjustable rate mortgage is not that big, I'd take the 30-year fixed. Most people, it helps you sleep at night. You don't have to worry about it, you can always refinance, so that is beneficial. That said, I used my first adjustable rate mortgage of my life about a year ago for my primary home residence, because I don't know how long I'm going to live here, and it was more than a point for... It's hundreds of dollars a month for me, and I'll keep an eye on it, maybe I'll refinance, but I think you're right in that the products have gotten better. I think adjustable rate mortgages got a very bad rap during the financial crisis with good reason. They were garbage loans and they were irresponsible. For people who are listening, what was happening was the loan officers were giving out mortgages and adjustable rate, and you'd have what they call the teaser rate. It was 2, 3 percent, whatever, and they would underwrite the borrower based on that 2 or 3 percent, not what it would adjust to. So when it adjusted to 6, 7, 8 percent, a lot of those borrowers couldn't pay, and that was a major contributing factor to the housing crash and the financial crisis. Now, the underwriting standards are much higher, and so the loan officers and originators have to underwrite based on willingness to pay for what the adjusted rate will be. There's no teaser rates anymore, and I think you see longer-term adjustable rates. So the example, the one I got is a 7-1, which means that for the first seven years of my loan, it's locked in, so I know I have a 5.25 mortgage rate for seven years. Then after that, it can only adjust every one year, and the maximum it can adjust in any one year is 0.5 percent. So for me, although there is some risk, the upside was worth it to me, saving money right now. Because the worst, 10 years from now, even if it adjusts up three times, 10 years from now, it will be roughly what I would have paid with a 30-year fixed.

Speaker 1:
[25:32] Yeah.

Speaker 2:
[25:32] So I think it's worth considering, but you really do need to just make sure that you read all the fine print on these to make sure you're not putting yourself in a position where you might not be able to pay your mortgage. That to me, it's the biggest risk in real estate. If you can pay your mortgage, you will almost always make money. The risk is when you cannot pay your mortgage, and so you should, in my opinion, do anything you have to to not take that risk.

Speaker 1:
[25:59] Yeah, we're seeing more even like 10-year arms. Local credit union has a 15-year. It's awesome. Yeah, the rate doesn't adjust for 15 years. When you think about how long the average person is in their home, you're like that doesn't look very risky at all, and yet the savings in interest are significant. So I've got more I want to talk to with you, Dave. Let's talk about the future of real estate. Let's go a little further out and make some projections because I don't know. Maybe it was a little, the title, The Taking Time Bond, maybe that was a little too clickbaity. I don't know, but we'll get your thoughts on that in just a sec. All right, we're back from the break, still talking with Dave Meyer. That was my fault on the Clickbaity headline, but I went with it anyway, just cause, I don't know, Dave's gonna pay it off, right? Dave, they're taking time bomb, what is it? No, I'm just kidding.

Speaker 2:
[26:51] It is, I said it too.

Speaker 1:
[26:53] Okay, all right, so you said this too, so maybe I stole it from you. But like, we've been hearing this argument about a lack of supply in the United States, or so like, that's, hey, that's part of why real estate prices have run up so much, is because we're short millions of units, and we talk about these parts of the United States, where just building has not kept up with population growth until recently, at least in some parts, but still in much of the country, especially in places where people want to move, there's just not enough supply, and the regulations around introducing new supply are stringent, and so, gosh, we need more homes. But you don't know, or you don't think that's gonna be the case for too, too much longer, right?

Speaker 2:
[27:36] Yeah, I think we're in a structural supply deficit, depending on who you ask. The estimates are huge. Some people say 1 million, some people say 7 million. I like to just average them all. I think it's somewhere between 3 to 4 million housing units short.

Speaker 1:
[27:50] And that's predictions from what, the National Association of Realtors, and who else?

Speaker 2:
[27:54] Yeah. We see a lot of private companies do them as well. I think Cotality puts out one. There's the National Home Builders Association puts out one. They all have very different methodologies, so it's hard to pin down. But the logic behind it makes sense. After the great financial crisis, there was just a lack of building. A lot of builders just went out of business. It wasn't profitable to be building new homes in the United States. But at the same time, millennials, again, now the biggest generation in the US reached their peak home buying age. So there's a lot of demand for housing. That is something that, in my opinion, absolutely has pushed up the price of housing, and it's really location dependent. A lot of rural areas are not seeing this. If you live in parts of the Midwest, you're probably not seeing this. But for large parts of the country, this has absolutely been true. We just see it all over the place. But I do think there is a chance that starts to change. There's a couple of things that are happening in the world that are probably going to impact this dynamic. Now, I should caveat this by saying, normally I don't make predictions for the housing market more than a year or two in advance, but you start to see some of these big trends taking shape, you wonder what's going to happen. To me, the two big variables, there's three big variables. Two are on the demand side. One is just lower birth rates in the United States. They're lower than the replacement rate. There's this thing in demographics where basically, every couple has to have two children, 2.1 children for population to grow naturally. And we're at about 1.7. So that means that we are probably going to hit peak population in the United States, at least from domestically born people, sometime in the 2050s is sort of what people are expecting. The other thing that usually supplements, or at least over the last several decades in the United States have supplemented population is immigration. Immigration is a pendulum that swings back and forth. We are at one end of the extreme right now and actually saw the net immigration decline last year. And so a lot of the demand for housing that we've seen over the last couple of years is from immigration, both legal and undocumented. So it's not just from people who are here illegally. You also see it from people who are getting visas. That is actually declined as well. So when you look at those two things together, you say the population of the United States, unless something changes, because again, then that is going to decline. Birth rates, I have a hard time imagining going back up anytime soon. There's all sorts of reasons why birth rates are declining, but it's happening across the world. It's not just a US phenomenon. It's expensive to raise children is the number one reason people say that they're having fewer children.

Speaker 1:
[30:45] Yeah, some say that having four children is like the new status symbol.

Speaker 2:
[30:49] Yeah, exactly. It's so expensive. And so I have a hard time imagining that. I can't predict what immigration policy is going to be 10 years from now. But if you stay on the same trajectory that we're in now, we're going to need less housing in the United States. That's just going to happen. I don't think it's going to be in the next couple of years. I think that's going to happen slowly, probably starting in the 2030s. And then the third thing is what people call this silver tsunami or the time bomb is that a lot of the housing in the United States is owned by boomers. And although I think the calls of this tsunami and crash have been really overblown, I've been hearing this for 12 years now, that the market's gonna crash because boomers sell their homes, there is some inevitability to the demographics there, right? That they're gonna have to get rid of some of their homes. I don't think it's as dramatic as people say, but I think this could take, these three things combined can take us from a supply shortage to hopefully a neutral market. But there is a potential that it swings, the pendulum swings so far in the other direction, where you actually have more supply than you need. And I do think that's another thing that could potentially suppress appreciation in certain areas, in certain asset classes, in real estate for the foreseeable future.

Speaker 1:
[32:06] So as a real estate investor who sees the demographic riding on the wall, right? And I talked to an economist from Notre Dame who focuses on demographics. I was so curious to pick her brain because, yeah, that's going to impact a whole lot of the future of our country. And you're right to point out not just declining birth rates, but a decline in immigration. And an influx in immigration has at least softened the blow of declining birth rates in this country for a long time, and it's no longer doing that. So as a real estate investor who sees this coming, how do you react?

Speaker 2:
[32:40] I think it's further reason to be really precise about what you buy. Because I actually, I got into this on my show, I was super curious. I started looking at what happened in Japan. They've had a declining population for a while. Look at Germany, this is happening in a lot of Western Europe as well. What you see, generally speaking, is that certain areas are unaffective. If you look at large economic centers, urban areas, largely unaffected. A lot of the demand for housing just gets concentrated in these areas where rural and suburban areas are hit a little bit harder. So for me, if I'm looking at places where I want to buy and I want prices to at least keep up with the pace of inflation, which is a goal as an investor, I want at least to keep pace with inflation, I would be skeptical and worried about suburbs or rural areas with higher age groups, higher demographics. You're going to see a lot of people selling in those markets and you're not going to be able to find demand. Like I don't think a lot of young people are going to move to those areas and absorb all that housing. And so I think it's just another reason you need to be very careful. I don't think prices are going to go away everywhere. I also think there's other things that can soften this blow. For example, how does construction respond, right? If construction slows down because they see the writing on the wall, that will soften the blow as well. I think people also forget that 400,000 homes a year just become obsolete because they're too old and it's not economical to fix them up. And so there could be supply coming off the board. So there are a lot of variables here. But I think the key takeaway is we're probably going from demographic tailwinds to demographic headwinds and that's going to further challenge appreciation. Again, though, I want to call out that the opportunity exists for real estate investors or home buyers, it means you can buy for cheaper. And so that's the correction that people need to make is that if you think prices are going to go down or they're going to flatten, you need to be able to buy below current market value. If the current value of a home, and I'm not saying list price, that's a key difference people can list their price for whatever they want. The current value that you need to figure out through comping, if it's 400,000, can you buy it at 385? Can you buy it at 380? Can you buy it at 350? And I know that sounds like just making up numbers, but that is the way the market shifts, right? When you go from a seller's market to a buyer's market, you have more leverage as a buyer. And so that's the discipline I encourage people to have is, don't buy at current market value because if it goes down 2%, you're not going to get killed. You'll still make money other ways, but it will not perform as well. But if you can buy 10% under market value, you're insulating yourself against some potential declines and you're ideally walking into some return.

Speaker 1:
[35:33] And that's where I think a lot of people who, and it's really hard not to in real estate, especially as buying your primary residence, get a little emotional about it. But that's where you have to remove some of that emotion because like I've already spoken to How to Money listeners who have bought something, let's say, in the not too distant past. And they, let's say, want to move or want to upgrade their house already, like, oh, we're having twins or something like that, right? And we need more space. And my goodness, though, I think we overpaid a little bit, and the housing market's softened. And that can feel like a double whammy that makes it really difficult to sell. And it feels like you're forced to stay put then. And the house that was a joy to purchase now becomes this headache that you have to hold on to. But so much of that boils down to purchase price and being able to negotiate wisely on the front end.

Speaker 2:
[36:23] Absolutely, 100%. Real estate, yeah, being able to... Two things you can't change in real estate, it's kind of a note-saying, is what you pay for it and the location. So those are the two things that I think you really need to focus on, is in an area with high demand and paying the right price. I know it got crazy in 22, 23, where you had to be really aggressive, if you start in a family, you just gotta do what you gotta do. I totally get that. We're in a totally different market now, though. You have to be disciplined, you have to be patient. If that means renting for another year, rent for another year. I think I surprise people a lot when I tell people to rent all the time. I just think it makes sense. Real estate, not just the purchase price, the transaction costs are what really kill people. Because when you go to sell a home, you're usually paying 5% or 6% of the purchase price on commissions. It's a lot of money. If you bought a home for $400,000, you're paying 5% on commission, that's 20 grand. Means that you'll need to have even either paid down 20 grand of your mortgage or appreciated $20,000, just to break even. And so, especially if you're a homeowner, the way, if you are not going to live there for three or four years minimum, I'd say keep renting. I just think that's a better decision. You can rent and buy a rental property, if you're going to hold on to that for four or five years. If you want to put your money to work, that makes sense. But it's really hard to, it's not hard, but it's much riskier to buy a home if you don't know if you're going to live there for three, four, or five years.

Speaker 1:
[38:00] Yeah. I heard you say recently that your goal, and one you suggest for investors is to buy 10% below comps.

Speaker 2:
[38:08] Yeah.

Speaker 1:
[38:08] Like what the similar house would recently sold for in the neighborhood, same similar size, acreage, all that kind of stuff. Okay. People are like, sounds good, Dave. Yeah.

Speaker 2:
[38:18] We all want that.

Speaker 1:
[38:19] How do I get that sweet 10% discount?

Speaker 2:
[38:21] Just buy it for less, so easy.

Speaker 1:
[38:23] Right. The $400,000 house for 360, how do I do it?

Speaker 2:
[38:26] Yeah. I think it's about patience. There's different ways that people do this. A lot of real estate investors will do off-market deals. They'll do direct to seller marketing. They'll email sellers and try and do that. That's a great way to do it. But I actually think you can start to find these things on the MLS, just publicly listing things on Zillow. The best way to do it is to target either relistings or properties that have high days on market. This is data that you can find on Zillow, on Redfin, and any real estate agent should be able to help you with. Basically, the longer a property sits on the market, the more likely it is that that seller is going to be willing to negotiate. There's this psychological thing that definitely happens in the housing market where it's like, a property might be priced 10 grand over. Say the property is worth 400, they put it on for 410. No one wants to buy that house at 410, because everyone's like, this is bad. Maybe that seller, they take too long to adjust, and they eventually drop it to 400, but it's already been sitting on the market for 120 days. People don't look at it. It doesn't show up in their filter. They think there's something wrong with it, because it's been sitting on the market for so long, and then they drop it to 390, and then they drop it to 370, or whatever. It might just sound fanciful, but this happens all the time, and I think it's going to happen more and more. Go on Zillow now. Redfin's actually better for this, but you can go and put a filter on where it says, only show me properties that have been sitting for at least 90 days. If it's been sitting for 90 days, most sellers are willing to entertain an offer. So go in and write offers. Like you don't have to pay what people are asking. And it's not disrespectful. I know people call it the disrespectful offer, but like this is a free market, right? You know, this is a, you were, you could pay what, what that asset is worth is what two people are willing to agree on, right?

Speaker 1:
[40:19] And they can tell you no and laugh in your face.

Speaker 2:
[40:22] Exactly. And you have to get comfortable with that. I think that's sort of the thing that a lot of people, especially homeowners, get used to because it is emotional. It's your home, right? You want this home so badly. I really think in today's day and age, write it for less. Maybe they'll come back and you agree on something in the middle, but I think that discipline of trying to get something under asking price, especially if you're only going to live there for a couple of years, is sort of a crucial skill to learn. Not all agents are going to want to do this, but find an agent who will because those are the ones you want to work with in today's day and age.

Speaker 1:
[40:53] So is there a specific way to write this offer to maybe grab more attention or to not offend and to get them to counter back instead of just laughing in your face? Is there a way to make this offer appealing, appetizing in a way instead of potentially frustrating to the person who's got their house on the market?

Speaker 2:
[41:13] Yeah, I think it's almost hard and it's hard to avoid. I think you don't want to do something totally disrespectful. People will write that off. But usually if you have logic to the price that you're putting in front of them, you can explain that to the agent. I mean, there's most ways you offer, you don't actually communicate directly with the seller. But if the agent can convey, hey, this is the only way as an investor I can make money is buying it at this price. If you can't take it, I totally understand, but this is the only way it's worth it to me. I think that's usually the best way to do it. Or as a homeowner, just say, this is my budget. I love your home, this is my budget. If you can't do it, you can't, but I can't pay your price. Both of you are entitled to say, as a home buyer, say, I can't pay 400, that doesn't work for me. And the seller could say, I'm not gonna sell for 360. That's gonna happen. And I think if you're gonna take this approach, you need to see it as a numbers game. It's not gonna work every time. It's probably not gonna work your first time. It might not work your fifth time. But if you do this enough, and there will be more inventory, so you'll have more properties to offer on, I think it will, you know, for the majority of people who are willing to be patient, it can work. Depends on the market, right? If you're in the Northeast right now, super competitive, like it's not going to work. But if you're in Florida, if you're in Texas, if you're in California, where prices are flat and inventory is going up, like that's the way to go about this.

Speaker 1:
[42:34] And I've been shocked to see just how much of a discount people get versus the list price. Like sometimes I'm like, oh, that house, it's listed for 800. Maybe it'll go, if somebody gets lucky for like 700, and then I see the final details and it's sold for 560. Because some patient investor was like, well, this stayed on for a long time and I'm going to try to get the price. I think it's fair, given the work that this needs. And most people just assume the list price, well, yeah, maybe I can get a little bit of a discount, but not that much. But the truth is, a lot of people are getting big discounts.

Speaker 2:
[43:05] It's true, the average discount right now is 8%. So just think about that.

Speaker 1:
[43:10] That's average.

Speaker 2:
[43:11] Yeah, the average discount. If you get a discount, I should caveat that. The average discount off list right now is about 3%. But for the people who bid under and succeed at this, the average is 8%. On an average price home in the US, 420, like $35,000. That's a lot of money, right? So that is average. So I would recommend trying to do at least that, if not more. And the other thing I'll say is to be patient. Sometimes the seller are not, they haven't come to terms with their market. This is just human nature, right? They anchor to what their neighbor sold three years ago, and they're like, I want to get that. That's not the market anymore. It's softer. It's slower. Prices are lower in a lot of markets, and they might need three months to come to terms with that. If you're respectful and explain what you're willing to pay, they might call you three months from now and say, you know what? No one else is offered, and I'll take your price, or you go back to the negotiating table and figure something out. But I think this game of patience and precision is the way to go right now. There's too much, I don't want to call it garbage, but because they're not, they're like nice homes, people homes. But there's too much bad, too many deals are bad financially out there right now. And so you need to wade through that and find the ones that make sense for you.

Speaker 1:
[44:29] Yeah, it takes time, it takes patience, you're right. All right, I got more I want to talk about with you, Dave, including I want to get to maybe advice that you have for a wannabe first time investor. We'll discuss that right after this. We're talking with Dave Meyer, we're talking about the ticking time bomb in real estate. And Dave, one of the things, just thinking about moving into the future and demographic changes, and we talked about how that should impact the way you think as an investor. Do you think some investors right now need to change their strategy meaningfully? Do they even maybe need to start unloading some properties that don't make sense moving into the future? How are you helping current investors who have, let's say, 8, 10, 12, 15 homes they rent out, think about the supply they currently own?

Speaker 2:
[45:25] A hundred percent, Joel. I know this is another debate among real estate investors. Many of them say never sell, just buy and never sell. I completely disagree. I'm always trading out and optimizing my portfolio. That said, I still buy every property I own with the intention to hold it for at least five years. You got to offset those transaction costs. But I think we're entering, it depends on where you are in your sort of investor journey. But I just think right now is an opportunity to sort of reload. I'm going to sell certain properties. I have been selling, I'm selling more. But I'm not just like exiting the market, I'm just repositioning my portfolio into better assets. Right now, I think the opportunity is there for real estate investors who are in this for the long run, to buy great assets in great locations. This almost never doesn't work. Even if demographics shift, even if we're in a high interest rate environment for a long time, you buy a good asset in a good location, you're gonna do well in real estate. Like that, I feel very confident about. During the last couple of years, I bought some older homes in exurbs of the neighborhood because the trends were good there and I've made money on all of them. But like, is it something I wanna hold for five years, 10 years, 15 years? I don't think so. So I'm gonna give it to someone who will and who will probably make more money off of it than I would by holding onto it and just refocus my portfolio. I think right now, it's a good time to just sort of take stock of what you got and prune. You got a property that's a pain in your butt, a property that sort of hit its peak in terms of performance, sell it, sit on the cash, do a 1031 exchange, and buy something that you do want to hold on to for 10 to 15 years. That's sort of the framework that I'm working on right now is I'm 38 years old. I've been doing this for 16 years. I would love to be sort of retired by 50. I'm not one of those people who wants to retire right away. 50 sounds like a good year for me. So I'm like, what properties do I want to own when I'm 50 years old that are going to be still in great shape, still in a great location, regardless of what's happening macro? And that's the opportunity because the inventory going up, more of those properties are available. And so that's sort of at least how I'm doing it. And I think that that mindset I see is consistently adopted by experienced investors right now. It's like, how do you just prune down to the good stuff and not be in growth mode all the time? And just focus on the stuff that really gets you your long term goals, which I think most investors is like long term financial stability, not trying to make a quick buck in the next year or two.

Speaker 1:
[47:56] Well, I love that you have a long term focus, but that doesn't mean you're averse to making changes along the way too. But you're moving your rudder slowly instead of dramatic turns, right? Based on, well, I saw this study and now I'm freaked out and so I've got to make like a massive overhaul of my portfolio now and it's like tweaking, pruning like you would with your garden.

Speaker 2:
[48:18] Exactly. Yes. I think that's exactly the way to think about it. I'm not the kind of person who's like, oh my God, I'm going to sell everything and get out of the market. I think that's crazy. If you just look historically, time in the market, it's an old saying, but it's true. Time in the market works. You pay down your mortgage, your cash flows go up. It's the beauty of real estate. You have a fixed rate mortgage, rents keep up with inflation. You're going to keep making more money over time. It's great. It's a great tax advantages. It's an inflation edge. There's so many reasons to be in real estate. But there's a time, same thing in the stock market. There's a time to take some bets on growth stocks. There's times to take some bets and there's a time to be a little more risk averse. You hear this from private equity stock investors, risk on times and risk off times. I think it's a risk off time in real estate. Buy the good stuff. It's out there. It's still going to perform. I just, some people will make money doing the risk. I just don't, for me, it's not worth it.

Speaker 1:
[49:14] So what does that mean if we're in a risk off time for the first time investor? The person who wants to buy their first rental property, who is still trying to figure out how to evaluate and assess whether something is a good deal or not? How, what do they need to pay attention to? And then also, are there specific types of properties that maybe make more sense for them? Does it make more sense to buy like a multifamily house or live in part of it, do some sort of like a rental hack, right, where you're reducing your monthly costs at the same time and it's kind of a can't lose situation? Or how, what would your advice be for someone who's like considering buying their first rental property right now?

Speaker 2:
[49:52] Absolutely, great question. So I think we've covered two of them, location and purchase price, two things you really gotta focus on. If you're in an area that's a little bit outside the city, not great demand, I wouldn't buy that these days. You wanna be in the place where you know you're gonna find great tenants and if you have to sell or want to sell, that people are gonna like that area. I don't like tertiary markets these days, or tertiary neighborhoods. I just like being in the thick of things and there's more and more good deals there. Purchase price we talked about a little bit. And then I would also say conservative underwriting. I think a lot of people got into this mode where they were presuming they were gonna get the highest rent comp or that appreciation was gonna be what it was the last couple of years. I, you know, if I go to my agent and say, I'm gonna buy this property, what's the rent? And property manager agent says 1500 bucks. I immediately say 1350. I'm like, I'm gonna take 10% off of that. They're probably right. But I just, you know, risk off to me as, does this deal work with no appreciation and lower rent and high vacancy? Like, I know it sounds crazy and a little bit, I don't know, like pessimistic or paranoid, but the deal still works. So like, why wouldn't you in this kind of market be that disciplined? And so those are the things I recommend to anyone.

Speaker 1:
[51:14] Like, plan for the worst and hope for the best.

Speaker 2:
[51:16] Exactly.

Speaker 1:
[51:17] I mean, vacancy for me and the properties I own was nonexistent for like a decade. And in the last couple of years, I've actually had vacancy and I'm like, yeah, it's a good thing you plan and build for it because it does happen. For the longest time, I was like, what are they even talking about with a vacancy thing? But it happened.

Speaker 2:
[51:33] It's real. I think I don't think I had one for 10 years in Denver. And not even a day. You just have people lining up and it's changed and that's fine if you underwrite for it. I think that's the thing that really hurts people is they underwrite the deals, they analyze them really optimistically. And then when things don't go perfectly, then it doesn't do well. Well, I think Morgan Housel, I think said in his book, I don't know if he said or someone in his book, Psychology of Money said, plan for your plan to not go according to plan. And I love that because it's just like, if you do that, then nothing phases you. It's not stressful when you get a vacancy. It's not stressful when your rents don't come in, what you expected them because you weren't expecting that. And then I say this on the show all the time, I love putting myself in a position where I benefit from being wrong. Like that is the best to me. If I say there's going to be no appreciation, rent growth is going to stink and then it does well, great. I love being wrong about that. It's really beneficial. So I think people should really adopt that mindset. You did mention though, I just wanted to say Joel, about house hacking or living in a rental. Personally, I think it's the best way to invest in real estate. It's boring. I still do it. I'm trying to do a live in hack myself, a live in flip, excuse me, done house hacking for a lot of my life. I think it makes just a lot of sense. It's so low-risk and there's really good upside. There's so many benefits that our society has created for owner-occupant investors, and it's kind of fun. It's a great way to learn the business, see if you're good at it, see if you like it, and a great way to get into it. Even if you don't cash flow, most house hacks will allow you to reduce your living expenses significantly. So even if you're still coming out of pocket 500 bucks a month for your mortgage, average rent right now is 1800 bucks a month. I'm pulling numbers out of thin air right now. But if you save 1,000, 1500 bucks a month of your living expenses, that's a big return on that investment. Plus, you're getting the loan paid on the tax benefits and all these other things. So I still think that works almost everywhere. There are a couple of really expensive markets where it doesn't make sense, Seattle, LA, New York. But outside of the super expensive markets, it's a really, really reliable way to get invested in the market even today.

Speaker 1:
[53:55] I agree. It's so underrated and it's uncomfortable in some ways. People are like, I don't know, people live in with me or I'm going to have to settle for the duplex and rent it out the back. But man, it worked for us and I've heard it work for so many other people. Just the ability to, it's like the snowball rolling downhill and it rolls so much quicker if you start with house hacking. So I think more people should consider it.

Speaker 2:
[54:17] A hundred percent. And I will just say, I often think people are a little dramatic about the discomfort of it. Yeah, some people do it in an extreme way. Where you buy a single family home, you live in one bedroom, you rent out the other and have roommates. I don't even think that that's that bad, but it's probably for younger people, just generally speaking. I live with roommates for a long time after college and why not be the landlord if you're going to do that? But even with a family, I know tons of people who do this. You can find ways to make it work. Buy a side-by-side duplex. You can absolutely still make that work. You can buy a single family home with an ADU or an apartment above the garage. There are ways to make this work that are comfortable for you and your family. It's just a matter of what you want more. I think for a lot of people, they choose, hey, I'm willing to do that for a couple of years to jumpstart my financial future. I've done it. It's really not that bad. I think most people, I don't know. I grew up in the Northeast. I'm used to living in an apartment. My mom lives in an apartment. It's no different than that. I lived in a dorm in college. It's no different than that. People, it's not that bad. I know we have this dream in the United States of living in a single-family home and having privacy. If that's what you want, go for it. But if you're willing to give up a little bit on that, the financial benefits are significant.

Speaker 1:
[55:39] Yeah. Sometimes it's short-term pain for long-term gain as well. If it's not your ideal. Dave, this has been a great conversation, man. I really appreciate you taking the time. Where can HTM listeners find out more about you and get more of those long-term predictions and insights that you're throwing out?

Speaker 2:
[55:54] Absolutely. Well, if you're interested in real estate investing, I host two podcasts, The BiggerPockets Real Estate Podcast and On the Market. We do those every day. So you can find those at The BiggerPockets Podcast Network. Or if you want to connect with me directly, the best place is on Instagram where I'm at TheDataDelhi.

Speaker 1:
[56:12] Love it. Dave, thank you very much.

Speaker 2:
[56:14] Thank you, Joel.

Speaker 1:
[56:16] All right. There are a few people I enjoy talking about real estate more with than Dave Meyer. My buddy, Chad Carson, he's up there too. I think it's largely because their philosophy is so sound. It's so steady. Dave alluded multiple times during this talk, during this interview to the long-term nature of how he thinks about real estate investing. I think that's what makes, like we're kindred spirits in that way. When you hear us talk about investing in the stock market, it's the same thing. I've actually never sold a rental property. It doesn't mean I'm against it and Dave's not against it. He's repositioning his portfolio as he said, but I love that. My goal, my thought process at least when I'm buying a rental property and it's been a minute, but is to ensure that this is a property I want to own for a long time and that there are a number of reasons I see this as a sound investment for not just a couple of years, but for a decade plus. And man, so much good stuff. Like if I'm coming up with a big takeaway, it's really hard, but Dave literally said, the way you make money is time. And it's true, when we talk even about the transaction costs of real estate, it's prohibitive if you don't own the home for very long. And it's why so many people, if their timeline is too short, that eats into their ability to do well with that purchase. And man, just so much good advice, though, I think I loved it the most when he said that the best deals are gonna be less obvious, you're gonna need to look harder, and you're gonna need to bring more skill. And it really was, like shooting a fish in a barrel in 2011, right, 2013, to buy a property that would cashflow well, that was going to appreciate meaningfully over the next decade. Like, you're sitting pretty, you look amazing, you look super smart. But the truth is, the tailwinds were at your back, and it's not that you weren't smart, but you have to be even truer to make a smart decision in today's market. And then at the end, what Dave said was so brilliant and so insightful and so true, it's a matter of what you want more. We're talking about something like house hacking, or buying a rental property. There's a lot of sacrifice that goes into it, because you're taking a lot of money and you're squirreling it away in hopes of making an investment that's gonna pay off for your net worth, that's gonna pay off for your ability to live the life you want in the future. And so you have to be really, really think about what do I want more? Do I wanna utilize this money now? Spend it on myself and my own life, like nicer apartment, whatever, or buy a better single family home for myself and my family now? Or am I willing to make concessions? Am I willing, do I want something else more than I want to inflate my lifestyle right now? Do I want the new car? Whatever it is. But that's ultimately what investing is, right? In the market or in the housing market to say, actually, I would rather build wealth for the future than to consume all my resources right now. And if you want to listen to sound advice on real estate investing, Dave is one of the best places to turn. And so I highly, highly recommend checking out all the content he creates. But I hope this at least gets your brain ticking, whether you're a real estate investor already or you want to be a real estate investor. It's not as like simple, right? But there's actually, there's more opportunity, I think, right now in the real estate market than there has been in the last few years because of some of that softening in the market. So if you're like, I don't know, the market's hot, prices are high, well, we're finally seeing a lot more movement and a lot more willingness to negotiate from sellers. And as always, thank you for listening to the show. We really appreciate it. You can find show notes up on the website at howtomoney.com. Until next time, best friend out.