The Real Estate “Red Pill” That Made Me $400K/Year

David:
This is the BiggerPockets podcast show, 813.

Dana:
I was a recent college grad from UMass, and I had actually bought a little bit of real estate. I had a condo, I had a two family, but I was sort of just going through the motions. Had hired a real estate broker and he brought me into his office, and it was, I call it the corruption. And it was very much this matrix moment where he said, “You can take the red pill and see how far the rabbit hole goes, or you can take the blue pill and just kind of get out of this real estate thing and just keep going down the typical path.”

David:
What’s going on everyone? This is David Greene, your host of the BiggerPockets real estate podcast, here today with the Seeing Greene episode, and I brought back up. I’m joined today by my cohost, Rob Abasolo, as you can see, if you’re looking on YouTube, looking handsome and ever. As well as Dana Bull, who is featured on BiggerPockets podcast episode 187. We brought her back to give us a little bit of air support on the questions that you, our audience, has answered, and today’s show does not disappoint.
We’re about to get into questions that you asked and provide our answers that everybody can benefit from. Dana is a real estate agent, an investor. She basically has a strategy that was like, how can I get out of real estate investing, instead of how big can I get? Very interesting philosophy, and the answers that she provides are based on that philosophy. Rob, what are some things that you think investors should keep an eye out for in today’s episode?

Rob:
Is going to be a great episode. I can already tell you that. We’re going to talk about so many cool things from how big should your first investment be? Should you go all in? Should you maybe be a little bit conservative with your first investment? We’re going to talk about the logistics of adding to your property. We’re going to talk about seller financing. Today, we’re going to cover some pretty big topics that I know will change perspectives at home.

David:
Yeah. So, keep an eye out for that because we have a very good conversation about things to look for in different markets if you’re into long distance real estate investing, and things you might not have considered that can help you make that decision. And before we bring in Dana, today’s quick tip is brought to you by Batman. Don’t forget to make insurance part of your due diligence. For many years, insurance was such a small percentage of the overall monthly payment that it was sort of just something you tacked on, it wasn’t a big deal.
Across the country, insurance companies are going out of business. They’re fleeing certain states, and it’s getting much more expensive to find it. Rob and I recently had this problem with our Scottsdale property where my company was able to find us a policy, but it was much more expensive than what we were expecting. So, don’t consider insurance to be a small expense like it used to be. In some places, it’s doubling, tripling, or quadrupling. So, make sure you underwrite appropriately. Anything to add there, Rob?

Rob:
It hurts whenever your insurance rate doubles, triples, or quadruples. Can confirm.

David:
Yeah, because other things don’t. Property taxes don’t. If you have a fixed rate mortgage, that doesn’t double or triple, but insurance goes up in leaps and bounds. So, keep an eye on that, folks. All right, let’s bring in Dana and get to your questions.
Dana and Rob, thank you so much for joining me today. Quick recap of Dana. Her story is featured on BiggerPockets podcast episode 187. She thinks it’s a myth about how having a strong why is important.

Rob:
So Dana, tell us why is having an end goal more important than having a why when it comes to real estate investing?

Dana:
Well, I think one of the biggest unknowns for people is knowing when to stop. Real estate can be addicting, it can be fun, riding that roller coaster of emotions. And I just found that it was easier for me to come up with a plan, execute on that plan, and then give myself permission to be done and to move on to other things in life. So, I feel like you don’t always need to have a why, but you do need to have a will to be able to execute.

Rob:
I love it. We recently had a guest, Chad Carson, on the air, and he gave a very similar thing, right? Having an end goal, having a reason. Not just blindly stating it, right? Having a purpose, but not just having a super wide net cast out there, but actually having intention behind it. So, a lot of reminiscent things. And as I understand it, your original end goal was to hit $450,000 in gross rental income, and you hit that within five years. First of all, congratulations. That’s absolutely insane. Why did you pick that goal and how did you get there?

Dana:
Okay. So, let me tell you a little bit about how it all began. I was a recent college grad from UMass, and I had actually bought a little bit of real estate. I had a condo, I had a two family, but I was sort of just going through the motions. And I had hired a real estate broker who I met on Zillow. Zillow was this new platform at the time. And he brought me into his office and it was, I call it the corruption, and it was very much this matrix moment where he said, “You can take the red pill and see how far the rabbit hole goes, or you can take the blue pill and just kind of get out of this real estate thing and just keep going down the typical path.” And I was so curious. I didn’t have a why, but I was impressionable, and I frankly had nothing better to do at the time.
So, the next step was, my boyfriend and I, we were in Florida. After we had this conversation, we were all fired up. We were walking down the beach and we were just talking to each other, asking each other, “Should we go for it?” And we decided, yeah, let’s do it. So, we were out getting drinks at the restaurant bar, and we chicken scratched this plan. And we pulled the number, the original number was $400,000 gross, and we just pulled that out of thin air. And the rationale was, if we have a business that’s bringing in $400,000, we should be good. We should be set. We should be able to make that work. At some point, it actually creeped up to 450, but the original goal was $400,000.

David:
You don’t want to set your goal’s too low.

Dana:
Right.

Rob:
Let’s add another $50,000.

Dana:
Yeah, why not? Why not?

David:
Why shortchange ourselves?

Dana:
So, from there, we actually reverse engineered into it. The average rent at the time our market was $1,600 a month for a two bed, one bath. So now, I’m just taking $400,000, dividing it by $1,600 a month divided by 12 months in a year. So I need 21 units. 21. I can do that, right? And so then, I became obsessed with 21 units. It’s like, eat sleep, 21 units. The next step was, we came home from the trip in Florida and I created a business plan. And when I start talking about business plans, people, their eyes glaze over. But I think it is so helpful, even if you don’t feel like you’re super business savvy, my business plans are always just one page, and broke it down into where I’m at with real estate right now, the direction I need to go in, and then what are the goals, what are the next steps, what are my marching orders? And that’s how it started.

Rob:
Well, okay, so obviously big goal here of 400 to $450,000. At what point, because obviously that’s gross, right?

Dana:
Yes.

Rob:
Was there any moment where it sort of dawned on you that the actual profit of that $450,000 is different? Or was it just sort of big scary goal, doesn’t really matter, I just want to put something out there and I’ll figure it out as I go?

Dana:
Yeah, so that was actually the point of narrowing in on gross instead of net, because once I realized if I tied this to net, I would get so into the weeds with it. And for me, this is just all long-term. The idea is, I will be hopefully sitting pretty in 10, 20, 30 years. And that’s where my mindset was at the time, so that’s why it became more practical for me to narrow in on gross instead of net.

Rob:
Okay, so you were kind of thinking of it as, obviously you want the portfolio to make money, but even if it were breaking even theoretically, once it’s all paid off in 20 to 30 years, you’re effectively making $450,000 profit every single year.

Dana:
Right.

Rob:
Got it. Okay.

Dana:
Plus the benefits, the other benefits of investing, the write-offs. Boston, the Boston area is a huge appreciation play. So, with all my buildings, there needs to be cashflow. That’s a must. But what I’m really leaning into is appreciation. I just decided I’m not going to fight that. That’s the market where I live, that’s the market I’m knowledgeable in, so I want to lean into it as much as possible.

David:
Yeah, I think that’s the way that the savvy investors are adapting right now. First off, we want to highlight, appreciation is not the same as speculation. Those have become synonymous, and I think a lot of people get nervous whenever appreciation is mentioned because they assume that means hoping that the prices go up and you have no plan in place. There’s no cashflow, there’s no built-in equity, the loan to value is crazy. You’re just hoping that prices go up. That’s not what we’re talking about.
There actually is a mathematical approach to investing in real estate that will capitalize on how appreciation plays out. So, I think that’s wise. But even more wise is, why go against the grain? If your market is a cashflow market, you’re going to invest for cashflow. If your market is an appreciation market, you’re going to invest for appreciation. If there’s creative opportunities, you’re going to use that. So I think that’s wise that you just said, “Hey, why fight the flow just because everybody else talks about it a certain way? This is what my market’s good at, so I’ll take advantage of it.”

Rob:
So, what are some other mistakes you see people making today?

Dana:
So, a mistake that I made is compromising a bit on location. The location, location, location, we hear it all the time, but it’s hard to grasp. What does that really mean? And I think it’s all about understanding the context. So, if I were to buy a multifamily in some of the nicest neighborhoods of Boston, I’d be looking at $2 million entry price point, right? I can’t afford that. So, instead, I’m going to step out of that market, but I still want to purchase a property that is sort of premier for the location where I’m buying.
So, my strategy was built on buying properties in A and B locations in various towns. And I made the mistake of buying two properties in B minus locations. And the caliber is staggering. They’re my problem properties, just nonstop headaches. I don’t really understand what the correlation is, but it’s real. And now that I have 10 years worth of data, I don’t regret what I did, I don’t regret those purchases, I’m not going to sell them. But if I were to go for a second round, I would be very specific with my buy box, and I would only focus on the A location.

David:
Yeah, that is a mistake a lot of people make. When you look backwards 20 years and you say, “Hey, what properties performed the best?” Not just appreciation, but cashflow too. Rents go up way more in the best locations than they do in the shorter ones. And for some reason, we’ve gotten into what I think is an unhealthy habit of analyzing properties based on right now, year one, as soon as you buy it. We know that real estate is an organism that grows at different rates in different areas and different opportunities, but yet, we still only analyze a deal as tomorrow if I bought it, what would my cashflow be?
But we’re not going to own it for one day. We’re going to own it for a long period of time. So when you buy in these grade A areas, they can look like a poor investment when you compare it to some turnkey thing in the Midwest that has a 16% cash on cash return, and then 30 years later, it says a 16.5% cash on cash return, and those grade A areas have gone up 10 times in rent and you’re crushing it. So, I appreciate you sharing your wisdom on that.

Dana:
Yeah. The other thing that really blew my mind, and I learned this further into, about five years into my career, and I actually learned it through this property where I’m sitting right now for this recording. I’m sitting inside of a small cottage that was built in the late 1800s. It was a fishing shanty. So, this property, based on the assessment is, the overall real estate is worth about $500,000. The actual structure is $35,000. So, I just bought a minivan for $55,000, okay? I own a car that is more expensive than the structure.
All the value in this piece of real estate is tied up in the land. Just, it never really clicked until this slapped me in the face with owning this home. So now, when I’m working with clients, especially those who want to buy single family homes as investments, I really point this out and want them to be aware of the land value.

Rob:
Yeah. I mean, I think this is significant for a lot of reasons. I mean, it’s something that can be a plus or a minus, I’d say. But one reason to really think through that, I guess, to sum up what you’re saying, the real estate, the entire property, house, land, $500,000, the land is very valuable. The actual structure is just, it’s basically, I don’t want to say a tear down, but is insignificant compared to the land value, right? And that comes into play especially for cost segregations, depreciation, because you can only depreciate the actual improvements on a property. And so, if you go and you buy a property where the improvement is only worth 5% of the entire purchase price or the cost basis, then you actually won’t be able to depreciate very much on that property. Is that right?

Dana:
Yeah, that’s true.

David:
Well, we are going to take advantage of your insight, Dana, reading some questions from different listeners who have written into Seeing Greene, because they’ve got some problems and they want solutions. So, let’s dive into that. Question number one, this comes from Gabby in Los Angeles. So, as I start planning for my first investment property, I’ve been thinking about this question. Is it a better strategy to put all of my cashflow to get one best property I can afford or diversify into a few lower price properties?
So, this is the typical all my eggs in one basket or several smaller eggs over several smaller baskets. I wonder if it’s better for me to put 20% down in a $1.2 million-ish property in LA, or get three, $400K-ish property somewhere else? Or also get a lower price one first, then a more expensive one when I have some experience? What are some factors I should consider to make the best decision here?
Dana, what do you think so far?

Dana:
Oh my gosh, she took the words right out of my mouth with the putting all your eggs in one basket. I love this question and it comes up all the time in markets where, pricing markets. So, I probably tell this listener what they want to hear. These are both great options. I have two pieces of advice, two kind of overarching considerations. The first is, what do you want to buy? Because they both work, and I really sincerely mean this. I’m a advocate for buying properties that you are excited about, and I know most investors, they want to take the emotion out of it. And I just refuse. That’s a hill I will die on.
The reason being is that I truly feel the way to make significant wealth in real estate is to just hold onto it and to do whatever you need to do in order to hold onto it. So, if you end up buying a property that you’re not excited about when problems arise, you’re going to be very tempted to sell. When I was younger, my mom taught me something, which has nothing to do with real estate but also everything to do with real estate. When we go back to school shopping, she would make me try on all the clothes, and then she would evaluate, “Do these pants fit? Okay, they’re not too big, they’re not too small, they fit.” But then, the next question she would ask me is, “Do you love them?” And then she’d go a little bit deeper and she’d say, “How do they make you feel?”
And I’ve learned to apply that to everything that I purchase, especially real estate. So, this new investor is talking about putting 20% down on a $1.2 million property? That’s probably everything she has. So, I would encourage her to really think about what type of property is she going to be excited about. The other thing that I think this person needs, no matter which direction they take, is a jumpstart plan. So, some way to make this work. And Rob, you have a ton of experience here, but the first thing that I think about is probably a 12-month lease is not going to work on this $1.2 million place. It’s probably going to be negative cashflow. So, could she do a shorter term rental, a midterm rental, get those numbers up for the first few years? Because she’s going to need that to become confident and to also get the momentum going.

Rob:
Yeah, 100%. My LA property, I mean, it kind of happened accidentally, but it was a short-term rental. Actually, at one point, I had a short-term rental, midterm rental and long-term rental, all in the same property. But it was really nice to start off strong income-wise with the short-term rental, test out that property, see how I do, and then it did well. But then, when regulation hit, I converted it to a midterm rental and actually found that I really liked that strategy even more, and it was a great hybrid. And having done all three, I could experiment on that property and see, I could choose my own adventure basically. But I think it is really nice to have those contingency plans and see what are the different ways that you can make revenue from that same property.

Dana:
Right.

David:
So Rob, what’s your thoughts? Should somebody put all their eggs into one basket in one property or should they diversify over smaller ones?

Rob:
I don’t think anyone should put all their eggs into their first property. I think they should take a swing, but I don’t think they should swing for the fences, right? I think, real estate is a skill that you get better at, and I would rather, personally, scale accordingly. Learn how to do real estate before you get really, really crazy with it, right? So hit a couple base hits, load up the bases, and then go for the grand slam, right? That’s how I did it. Usually, if someone were approaching me with this exact same question, I’d honestly probably tell them to go somewhere in the six to $800,000 range. Don’t go so small that you actually can’t cashflow it, and then you find that it wasn’t worth it.
Similar to what you’re saying, Dana, we want to make sure that this property is something that you like. And if you’re only making $100 on it, I don’t really think it’s going to, I think a lot of people, especially for their first investment will say, “Well, I don’t know if this is worth my time.” So, I would definitely find that sweet spot in the middle. I would like to see this person sort of break it up into two purchases, and give them a bigger one maybe in that six to $800,000 range. Learn the ropes, learn how to do real estate, give themselves enough capital to get into that next property, if they really find that real estate is what they want to do.
What about you, Dave?

David:
I think, my advice to Gabby here is capital preservation. We only have so much time, we only have so much energy. We understand that, but it’s easy to forget how quickly you run out of capital, especially when you’re putting 20% down on every deal. So, the worst thing that can happen is you buy 3, 4, 5 bad deals. You go through the, “Oh, turnkey sounds easy, I’ll do that.” Works out bad. “Oh, this cheap area, I’ll go invest in there.” Turns out terrible, you don’t want to do it anymore. You finally figure out the right location, the right asset class, the right deal, how to find it, and you run out of money.
So as you’re learning, what I advise people to do is to try to keep as much of their capital as they can in the first couple of deals. No huge renovation or rehab projects where you seek hundreds of thousands of dollars into the deal. Don’t put 20 or 25% down just to try to buy cashflow because you’re obsessed with it. Try to do it with primary residence loan, 3.5% down, 5% down. Learn the basics, but keep as much of your capital as you can. Once you’ve done what both Dana and Rob said, you’re a little bit more comfortable with how this rhythm of investing works, now you have the money to really ramp up what you’re doing and you don’t run out of cash. So, start slow. Once you’ve got it down, then go big. Sound good to you guys?

Rob:
Yeah. My favorite part about this is that we’re all right. You know what I mean? All of these things are perfectly great answers. It definitely comes down to preference, and some people are just go-getters, and they’re like, “You know what? I’m ready to go. Let’s do this thing. I’m going to go big or go home.” And then some people are like, “Yeah, I sleep better at night knowing I have money in the bank, but I can take the small risk and see how it goes.” That’s totally fine too.

David:
All right. Our next question comes from Gregg Peterson, Gregg with two Gs, in Cape Coral, Florida. I was just in Fort Lauderdale, Florida not that long ago, and let tell you, you can cut the humidity with a knife. I’m planning to buy my first small multifamily within 90 to 100 days. I’m looking in Cape Coral, Florida. The one thing I hear constantly is to force equity build on or additions. Sounds like he’s been listening to me. I ran into a lot of listings that show potential, but how much of a headache is there for trying to legally add on or buy a property that has a non-legal addition already? This is good. There’s nothing that influencers like talking about more than legal issues, especially ones that could get people in trouble. So Dana, we brought you in to absorb all the liability. Rob and I aren’t going to say anything. Go.

Dana:
Rob, you want to take this one?

Rob:
Sure. Sure, sure. I’ll talk about it. Listen, I think that new construction and adding onto a property is an absolutely amazing way to build equity. I actually think that it is the best way to build equity. You can go and you can buy a property and you can rehab it. There’s a lot of risks, really, I mean, that goes into that because you don’t really know what’s behind the walls, right? But when you’re talking about new construction, there are no surprises. It’s not like you’re going to open up a wall and be like, “Oh my gosh, there’s mold here.” It all usually follows a pretty good plan and it just gives you so much equity once you’re done, because you’re basically building it at your cost, right?
Now, with that said, building is not something that is a cashflow play right now. It is an entire process, and if you’re talking about, let’s say, building an ADU, if you’re talking about building a new construction, if you’re talking about adding onto your property, could very, very easily be a 12 to 18 month process. And if you’re talking about a non-legal addition that you have to convert, I don’t even, I would never even tell someone to go that route because I don’t know enough about it, other than that it will probably be a very painful experience.
So with all that said, I think that if you have the time to wait and you don’t need the cashflow right now, and 12 to 18 months is not a big deal, then you should do it, because I think it’s a really great way to supercharge your cashflow on a property.

David:
What’s your thoughts on buying something that already has non-permitted additions in the property? Because that’s almost everything. Very few, in my experience as an agent, I don’t know if it’s the same for you, Dana, you hardly ever find ADUs or additions to houses where the people went and got permits because that’s just asking for your property taxes to get raised. So most people add onto their home but they don’t get it permitted. Is that a danger if you’re buying the property?

Dana:
This comes up all the time. Yeah.

David:
Well, we’ll start with Rob and then I’ll get Dana’s take on it.

Rob:
I’m iffy on it. I think it depends on how easy it would, because I think it’s going to be county by county, and then I’ve also had lenders that have kicked back that kind of stuff in the appraisal. Or, the one thing that really affected me not too long ago, maybe about a year ago, was that they valued the addition or the kind of other structure significantly less than the actual square footage of the home, so the house didn’t appraise and I fell out of escrow a week before. So, I’ve run into situations like that. So, usually, I’m more in the camp of start fresh and do it. But again, I think that’s going to be up to the individual investor. What about y’all?

David:
Dana?

Dana:
I agree to tread lightly. Where I see this is in the small multifamily space where you might have a two family property that’s zoned as a two family, building department has it as a two family, but it’s actively being used as a three family. And I always tell people, “Look, we have to analyze this and evaluate it as a two family, but this could be huge if we could get it approved.” And sometimes, there’s a pretty good chance. So, in my market, we can’t bank on it, but a lot of times it comes down to parking. So, does the property have adequate parking? Because in the Boston area, we don’t have enough housing, we just don’t have enough housing. So, it might not be a quick thing, but it is possible if you push on it. You just need to accept the risk that it may not pan out the way you hope.

Rob:
Yeah, like do you have the time and the budget for the upside and for the downside, I think is ultimately where I would land on that too.

Dana:
And also to your point, with financing, that is a huge snag. Usually they want the stove, I don’t know what it is with the stove, but you got to pull the stove out in order for the property to still go through financing.

David:
Yeah, I can tell you that’s why. It’s because one of the regulations that Fannie Mae and Freddie Mac have is that it can’t have more than one kitchen unless it’s zoned for multifamily. So, if it’s zoned for three units, you can have three kitchens. If it’s zoned for one, but the house is split into three pieces, it’s not a kitchen if it doesn’t have a stove. It can have a microwave, countertops, you can have as many fridges in your house as you want. They’re never going to come and say, “Who told you that you could have a second fridge?” Some garages have four fridges or freezers full of elk meat, if you’re a Joe Rogan fan.
But the stove is the big thing. So, you see, frequently, people take the stove out of the house. Now the appraiser will say, “This qualifies for financing because it’s not breaking a zoning regulation.” Then they just go put the stove right back in it. Nobody really ever talks about this, I just said it on the podcast. But this frequently happens, like stove removal. If someone can have a company that’s like, “We take your stove and we store it for seven days and bring it right back,” they’d have a really good business.

Rob:
Well, it’s really with the appraiser, right?

David:
Yeah, it’s the appraiser, and only for financing. That’s the other thing, because the person buying the house can’t get the loan if the appraiser says no because it’s the zoning laws. But people confuse that with the city is going to get all mad at you. Some cities don’t care at all. They could not care less that you have an extra kitchenette in your house or you’re renting it out. I will say this though, it really depends on what city you’re in. I’ve seen clients and I’ve had houses that no one takes a second look. When I got into short-term rental investing, this whole thing got turned over on its head. I have several properties in Florida that I bought and I did not add the units to them. I bought them with the units in them. And when I applied for the short-term rental permit, the city was angry about short-term rental investors.
They’re getting all kinds of angry phone calls from the neighbors who don’t want a short-term rental in their neighborhood. They came in and said, “I need to tear down the ADUs that are a part of the house.” One of them is literally a duplex on the same lot as the main house and they tried to say, “You have to tear down your duplex.” I didn’t build this duplex. It’s been there forever. All the other houses on the street also have ADUs. And I said, “Why do I have to do this, but all the other homes that you can clearly see driving down this alley, they have the same thing.” And the city told us, “Well, we don’t actually do anything until someone applies for a short-term rental permit. And when they do, we go in there and we make them tear them down. So, even though we know they have those ADUs, we’re not going to do anything to enforce it unless they apply for a short-term rental permit.”
So, it can be tricky, when in the past it wasn’t tricky. They weren’t looking to target people, but there’s certain scenarios that will bring it up as a red flag. Have you seen that, Dana, in your business as well?

Dana:
Yeah. So, the issue is the liability with an unpermitted unit, and then you can’t get a certificate of occupancy when you go and register it because most people are not registering their rental units. But eventually, you might get called in to do that. The other sticky point is, it becomes more difficult when the property is occupied. So now, how are you pulling out a stove, getting all this figured out while somebody’s living there, and then it’s triggering for the tenants. And they realize, “Oh, this place isn’t even legal? Does it have egresses?” All this kind of stuff. So, I would say, it’s pretty hard in my area to push it through just because it’s been there. It would need to go through all of the official, it would need to go through the official process for somebody, I think, to feel comfortable renting this moving forward.

David:
It’s a great big mess, isn’t it? We don’t have enough housing, so that makes housing super expensive, which sucks for tenants because we have to keep raising rents because we have to keep paying more for the houses. Then they make more regulations, so it’s harder to build more houses, so investors buy and then we try to add housing so that we can keep rents lower by increasing supply. Then the city comes in and charges us more, or makes us take away the existing housing that was already there, making rents even more expensive, all in name of protecting tenants. It is the most ridiculous, backwards, circular logic, and it’s happening in big cities near you, everywhere.

Rob:
Brought to you by your city. Yeah. This has all been, I’ve been trying not to shed a tear because I did have to pull the stove out for a cash-out refi many years ago for an appraiser while I had a tenant in there, who luckily was great and it was super easy to do. But, yeah.

David:
I love how you say you shed a tear because you pulled one stove out, while I’m literally having to destroy a duplex and turn it into a garage. It’s like, oh yeah, David had to-

Rob:
How insensitive of me, I’m sorry.

David:
… David’s arm had to be amputated. I can relate. I popped a pimple once and it was, it was so painful.

Rob:
I threw out my back, man. I’ve never recovered.

David:
I had to take a stove out for two days.

Rob:
I had to go rent a dolly,

David:
I had to rent a dolly. You threw your back out.

Rob:
You understand how much dolly rentals are? They’re $25.

David:
It’s because you do everything yourself. This is exactly why. Rob’s like, “Oh yeah, I had to fly to Tennessee and rent a dolly and take a U-Haul to move the stove because I couldn’t trust anyone else to do that right.” That’s funny. All right. Our next question here comes from James in Seattle. Do you think this is James Dainard who also is a James from Seattle? Is he sneaking into Seeing Greene?

Rob:
He’s asking for… He’s too nervous to text us for advice because he doesn’t want to seem green.

David:
He doesn’t want to seem green, that’s exactly right. I don’t want to admit I don’t know this. All right. From Jimmy Neutron himself. As a brand newbie considering markets outside of my hometown Seattle due to cost and competition, how do you decide to factor in future environmental impact on your investment? Okay, this isn’t James Dainard. He’s lost me right there. Florida and Texas look like great opportunities, but they’re under threat of hurricane and flooding, and insurance companies are going bankrupt or fleeing. Side note, that is actually a good point. We should talk about that later. Phoenix looks inviting, but they are out of drinking water. Insurance companies are refusing to insure California and Colorado due to wildfires, and Florida due to hurricane risk. BiggerPockets Ally Elle just wrote an article about this.
Do you try to keep your exit strategy short on markets like this, say, a five-year term, or avoid them entirely? Thanks for all the inspiring and sobering content. Listening to BiggerPockets has catapulted my confidence. Okay, this is a good question. Let me go sum up all the things he mentioned because I read a lot there for you, and then we’ll go to you, Dana. He’s trying to invest outside of Seattle because there’s so much competition, which is driving prices high, but he’s considered about the negative aspects like defensive investing here.
So, Florida and Texas would be good, but there’s threats of hurricanes and flooding. Insurance companies are leaving some of the top markets, which is true, like Florida and Texas. Phoenix is running out of drinking water, California and Colorado have issues with wildfires, and Florida has constant hurricanes. All true as well as all kinds of lizards everywhere, and alligators. It’s amazing how many people are moving to Florida with as wild as that place is. What are your thoughts, Dana, on when you’re picking a market, how much you should consider some of these environmental hazards?

Dana:
Oh, you should definitely consider it. This is coming from somebody who buys old properties. Knob-and-tube doesn’t scare me. Nothing scares me.

David:
Can you explain what knob-and-tube is for those of us that aren’t agents who have seen this destroy?

Dana:
Sure. So, knob-and-tube is old wiring. It’s risky.

David:
As far as electrical systems are concerned, it’s like an abacus.

Dana:
Yeah.

David:
Instead of a calculator.

Dana:
And I see it in properties all the time. That doesn’t scare me. We can fix that, we can fix property problems. Environmental threats, I think, are ultimately the biggest threat to your asset, to your real estate. I’ve been waving a red flag on this for a while with insurance. It’s definitely hitting me here. A couple months ago, I actually had to go out and procure all new policies because some of my policies were being dropped. Where I bump into this is with flooding, because I work in markets, coastal communities, and the FEMA flood maps are your friend.
You can Google FEMA flood map, search by address. It’s going to pull you to a website where you can type in an address and see how close you are to a flood zone. Pull up the GIS mapping, whether you’re in a flood zone, and this is a conversation I’m regularly having with people. It’s going to be a problem before it actually is a problem. And I won’t do it. I will not buy in a flood zone. The last four investments I’ve made are properties that are all perched up on hills, and I’m very specific about that because I want to, again, I’m a long-term investor. So if I am partnering with these properties for the next 30 years, I don’t want them to be underwater.

Rob:
It’s likely that, yeah, likely, if it’s in a flood zone, in 30 years from now, it will have faced at least a flood, in theory.

Dana:
Yeah. So, that’s how I feel. I know it’s doom and gloom and it does feel like, well, where can you invest where we don’t have this environmental threat? I guess I would position it, if it is a current known threat, why wouldn’t you avoid it? Why would you buy in a flood zone for an investment property? If you’re buying in a flood zone but it’s your primary residence, you’re going to get to wake up every day in your $3 million oceanfront home and enjoy the views. Okay, we can justify that potentially. But if this is really for investment purposes, maybe just try and find a property up on a cliff.

David:
What about mudslides? What about rainstorms?

Rob:
Yeah, I was going to say, that sounds like its own risk there too.

Dana:
On a cliff and back from the cliff, I don’t know where you’re going to find this property.

David:
What about lightning strikes? Have you considered that?

Dana:
So, that’s where it’s, it’s just, you have to assess your own risk tolerance, because yeah, we could pick apart so many markets. Yeah, Florida, we have hurricanes, we flooding. But flood, if it’s in a flood zone, it’s in a flood zone. It’s going to flood.

David:
That’s a pretty clear one, right? Absolutely. You know what my dream day would look like?

Rob:
Hanging out with me?

David:
Hanging out with you, but I get to just look at the negative side of everything you say. So you’re like, “Hey David, do you want to get Chipotle?” And like, “Oh, they charge extra for guac. It’s really not fair. They never give me enough cheese.” And you’re like, “Okay, what about Chinese food?” “Oh, I don’t like the MSG. If people just came to me and said, “Hey David, you should invest in real estate,” and I just got to come up with all the reasons it won’t work, like what we just did, God, that would be fun, because this is, I’m always on the other side of it all the time.

Dana:
Yeah.

David:
Like, “You should buy a house.” “Oh, but housing’s too expensive. Rates are too high.” “Okay, well your rents are going to go up too.” “Yeah, I would’ve bought before when rates were lower.” But when rates were lower, it was like every house got 20 offers. You couldn’t get anyone and they were complaining about that. You could just go back. Every single market had problems.
This is a funny thing I was just saying last night to my group. If prices dropped as much as we want them to, that means nobody wants to buy houses, right? So, if all these houses at $800,000 dropped to $300,000 and we’re like, “I’d buy all of them.” No, you wouldn’t, because the only reason they would drop that far if there was some serious massive problems with the industry. You couldn’t find tenants or insurance went up times 10. Something terrible has to happen for no one to want them, right? So, you keep getting these people that are, “I’m waiting for the next crash. I can’t wait.” Assuming that the crash is going to happen and real estate’s still going to be an attractive vehicle, and it will never, ever occur.

Rob:
Yeah. The moment it’s doomsday on their prices, everyone’s going to be like, “Oh, hey, you know what? Nevermind. Let’s just see how it goes for the next three months.”

David:
“This is a bad buck to invest in. It’s going to go down even more. Don’t catch a falling knife, blah, blah, blah.” They’re going to have a reason not to want to do it.

Rob:
Yeah, totally.

David:
So, I thought, Dana, you provided some good stuff there. What do you like about Boston? Is there a lack of environmental hazards that you feel comfortable investing there?

Dana:
Generally, yes. I would say that the rising sea levels is our big threat. But we have snowstorms, so it’s expensive. If you have parking, to make sure your driveways are plowed.

David:
Yes.

Rob:
Yeah, that’s a big one.

Dana:
We’ve been having freakier weather, for sure, more. We’ve had tornado warnings more commonly than in the past, so we are experiencing some change. Our winters are not as cold as they used to be as when I was a child, which is concerning. But yeah, I mean, in general, I’m with you, David. With real estate, it’s like we can pick apart and we can figure out why we shouldn’t do things, and I have a very high risk tolerance. This is my thing that gets me worked up is the environmental stuff. But yeah, overall, long-term, 30 years out from now, sure. I’m worried about it.

David:
Rob, you’re a local, or sorry, you’re a fellow out-of-state investor. You never read my book, but you did it anyways, which is cool. Not that I’m upset about you only have reading one book.

Rob:
I’ve listened to the podcast, which is kind of like-

David:
A functional equivalent. It saved you the $12 of getting the book?

Rob:
… Yeah, it’s the director’s cut of your book, the director’s commentary.

David:
Nice analogy. You have been hanging around me, man. That was very nicely done. But what do you think about when you’re picking these markets to invest in? And should we do an episode where all we do is find negative things about every single market? That could be a fun thing to do where you guys are like, “What about here?” And we just find everything we can wrong with it.

Rob:
Yeah. What about… Yeah, what Montana? It’s too beautiful. No.

David:
I don’t want a elk running through my house and trashing the whole thing, and I got to drive too far to get to a gas station, and Teslas would never be able to make it out there. That’d be funny.

Rob:
I don’t… I would say, honestly, the biggest thing that scares me is the insurance, especially in Florida. David, we have our Scottsdale property, which has been a bear with insurance on that too. Luxury properties are tough to get insured. So I think, that’s my first and foremost thing, because you sort of need that to be protected, from a liability standpoint. I kind of come from the mindset that everything is fixable, right? It doesn’t mean that I want to, but I have a beach house in Crystal Beach, and there will be a hurricane there again. I understand that. I know that.
It will likely need repairs, and that was sort of, that is my, both my personal home that I use whenever I want, and then I also rent it on Airbnb to help supplement the income. It’s fine. I understand the risk there. It’s very high, so I won’t get flooded. But I probably don’t, I don’t seek it out though. I’m not seeking out buying homes where natural disasters are, right? Probably not going to buy a house in Tornado Alley, per se.

David:
You don’t want to go into New Orleans and have another huge flood.

Rob:
Yeah, not really. It’s not really at the, it’s something I consider, but it’s not necessarily a deal breaker unless it’s clearly in the… If on Redfin it’s like, “Flood factor, 10 out of 10.” I’m like, “Yeah, probably not going to do that.” Right? But overall, everything else, I’m usually okay with if I really like the property or the deal.

David:
That’s really good. I love that I get to answer last because it’s like playing poker. You get to watch what everybody else’s bets were, and you always have the better position to be in, because I get to hear all your arguments and then sum them up and add one little thing on. Remember when we were interviewing Alex and Layla and he said, “I like to let Layla answer first because I could just take what she said, sum it up and add one extra piece.” And she was like, “Yeah, it sucks. I always have to be the…”

Dana:
Throw us under the rug.

David:
Yeah.

Dana:
Or your throat. Wait, what is that? What did I just say?

David:
Under the bus. You were saying sweep it under the rug and throw it under the bus, and you created a hybrid analogy there. I liked it.

Dana:
Well, let’s go with it. Let’s go with it.

David:
So, there’s two things that I would say when it comes to these concerns, which are valid. One, if you can develop the skill of quantifying risk, your crock brain that screams, “This is going to hurt me,” will quiet down. So, find some way to take the what if this happens and turn that into a number. Numbers aren’t as scary. The easiest way to do that is through insurance, because insurance people are way smarter than I will ever be. They’ve already quantified the risk of flood, the risk of hurricane, the risk of fire, the risk of earthquake, and they’ve turned that into a number that I can just use to protect myself.
So, like Rob said, luxury properties have more expensive insurance. That will cut into your overhead, so it needs to be priced into how you’re going to analyze the deal. But man, insurance is this awesome tool that I can use for all these, “Well, what if this happens?” Well, if I’m covered by insurance and I know how much it is, I can easily underwrite it and make the decision. The other thing is I’ve learned, changes will always happen. At some point, Arizona very well may run out of drinking water. So you got to ask yourself the question, what would happen if that happened? Would we all just say, “Well, there it goes. Time for everybody in the state of Arizona to go somewhere else.”

Rob:
Right.

David:
If you thought that buying the areas you think they’d go to, you’re going to get an influx of demand and you’re going to do well. But probably not. They’re probably going to find a different way to ship water from somewhere else. They’re probably going to change some rule to dig more wells to bring water up, or they’re going to put funding towards turning salt water into clean water, and we’re going to develop a technology, just like we did when we got scared of gas prices being high, and 10 years later, we have electric cars everywhere, right? When everyone’s talking about, “We’re going to run out of gas,” or, “It’s too expensive.” We’re like, “Okay, we’ll build electric cars.” We could do the same thing with drinking water. I don’t know exactly how it’d work out because I’m not that smart, but I do know it’s a problem that humans can solve.
That’s why I don’t freak out completely. I just think, if we do this, what would the result be? That’s one of the reasons I sort of understand economics when it comes to the housing market and why prices didn’t drop when everyone said they would. We shut down the country. We should have gone into a great depression, but we didn’t because we printed a bunch of money. Well, what would we expect the result to be? A lot of inflation. Things are going to become more expensive.
So, I adjusted my advice. Don’t quit your job right now. Things are going to get more expensive, and buy assets that rise with inflation, which real estate is one. The people who followed that, they did really well over the last five or six years. I think we’re going to consider to see it. If you could get into the mode of just saying, “How do I quantify the risk and what can I expect the reaction of humanity to be when these things happen?” You can make calculated decisions that aren’t that bad. But it stops you from getting into analysis paralysis, you guys agree with that?

Rob:
Alternatively, you could also buy assets that rise with the sea levels and only buy boats.

Dana:
There you go.

David:
House boats?

Rob:
Buy boats and rent them. House boats.

David:
It’s screaming real estate. It’s a houseboat.

Dana:
What’s the land value?

Rob:
Zero.

David:
Do you get the mineral rights?

Rob:
Exactly.

David:
Rob’s told two funny jokes today, man. He’s really stepped his game up here.

Rob:
Thank you. You told one, so you could still come out on top here.

David:
Dana, we got one more question, and Rob talked too long in the last one, so this is only going to you. While we have you here, do you have any insights on the current market that we haven’t talked about today?

Dana:
Yeah. So, there’s something that I feel like people aren’t talking about enough in general, which is this misalignment between what’s being built and what people actually want to buy. And if I were to get back into investing actively, this is where I would plug right in. It’s the fact that we’ve got the millennial buyers, they make up over 40% of buyers, and they want single family homes, these traditional homes. And what’s being built, I don’t know if this is just happening where I am or everywhere, but luxury townhouses. And I understand why, developers have to make their margins work.
But the result is, people are fighting over the little inventory for single family homes, the traditional properties. So, people ask me, once they hear that I stopped investing, they’re like, “Why?” They’re also confused why I never graduated into the commercial space, right? It’s very unusual for somebody to build their entire portfolio off of small multifamily homes. What’s ironic is, now that I’ve taken a step back, if I were to get back into it, I would actually go smaller than small multifamily. I would just go straight into single family homes because I do see this gap, and it’s significant.

David:
Awesome. I like that line that you said, there is a discrepancy between what people want and what is being built, which always creates opportunity in the market. So, I’ll wrap up by just asking you, Dana, if you were giving advice for people who can take advantage of the opportunity, the gap between what is wanted and what’s being provided, what would you tell?

Dana:
What would I tell them? Go for it.

David:
Yeah?

Dana:
Is that what the question was?

David:
Or specifics of where should they be looking based on what you see. Should people get into spec building? Should people be buying properties and converting them into something different? What should they convert them into?

Dana:
So, where I see the opportunity, and it’s this, at least I can speak to this market, the formula is location. Narrow in on the location. Quiet side, straight. Heck, I’ve just bought properties because they’re sunny, and I like the trees in the neighborhood, right? Finding that classic home, paying attention to something called neighborhood conformity. Are you familiar with this term?

David:
No.

Dana:
It’s where, sometimes we go down a street or we go down a neighborhood and we can’t really pinpoint what it is that we like about it. Oftentimes, it’s because the properties all play nice with each other and they’re a similar aesthetic. Maybe they’re all colonials, they’re all a mix of colonials and capes, and they play well. When you see a property that sort of sticks out like a sore thumb, that can be, I think, a higher risk investment. So this concept of neighborhood conformity is something I would pay close attention to if you’re buying a single family home.
And then the last bit is value add, and I know we sort of beat a dead horse with that one. But can you finish out a basement? Can you add livable square footage? Can you reconfigure the current layout to make it more functional for today’s living? All these sorts of ideas can create this power play.

David:
Awesome. Well, this is awesome. Dana, thank you for joining me on this Seeing Greene. We got to see green, and through the eyes of Dana and Rob today. Where can people find out more about you if they want to reach out?

Dana:
So, my website is just my name, danabull.com. I’m on Instagram. It’s a bit cringe-worthy, but you can check me out there. And I’m on LinkedIn.

David:
Wait, why is it cringe-worthy?

Dana:
I just don’t know what I’m doing. Social media is not my thing, but I’m sort of having fun with it.

David:
You’re talking to the person whose online handle is DavidGreene24, and Rob mercilessly calls me old and boring for having a handle. He thinks it should be like OfficialDavidGreene or DavidGreene_ [inaudible].

Rob:
TheRealDavidGreene.

David:
Yeah. He wants it to be like ThyRealDavidGreene or something, so I don’t think you’re as cringey as you think.

Dana:
The 24 works.

David:
DanaBull_Realtor. That’s awesome. Rob, where can people find out more about you?

Rob:
You can find me at Robuilt24 on Instagram, on YouTube, and on Threads. I’m going to add the 24 just for one day, just for you, in solidarity.

Dana:
How’s Threads?

Rob:
It’s the Instagram Twitter. You can find me at Robuilt. On YouTube, I make fun videos that teach you how to do this real estate thing every week.

David:
All right. Well, thank you Dana. If people want to follow me, they can do so here on BiggerPockets, or my social media is DavidGreene24 on Instagram, Facebook, TikTok, Twitter or YouTube. So, go check me out there. Great time with you, Dana. Thank you for coming back, and congratulations on your successful business and making real estate work for the life that you wanted for yourself. Very nice to see.

Rob:
So cool.

Dana:
Thank you.

David:
This is David Greene for Rob. No asky, no getty Abasolo. Signing off.