biden tax changes impact on real estate investors

Nationwide, home prices are up nearly 11% over the last year. But rents are up less than 1%, and in many of the largest cities they’ve dropped 5-10%.

Which means rental returns and cap rates are dropping in most markets.

Should you keep investing in rental properties? What about real estate in general? What are some alternative ways to invest in real estate?

Deni & Brian break down your options to invest in real estate profitably, both among rentals and other types of real estate investments.

Video Broadcast Version

Audio Podcast Version

Also available on iTunes, Stitcher, and wherever else you listen 🙂

Resources Mentioned in This Podcast & Video:

What short-term fix-and-flip loan options are available nowadays?

How about long-term rental property loans?

We compare several buy-and-rehab lenders and several long-term landlord loans on LTV, interest rates, closing costs, income requirements and more.

live off rents podcast transcript
Deni: Hi everyone, and welcome to Spark Rental’s, broadcast live from Facebook and our podcast. Let us know where you’re joining us from. We don’t like to just talk to the air. We talk to each other all the time. If you joined us last week, you saw that Brian interviewed Rick Orford and it was an awesome interview. He’s a cool guy. Today we’re going to touch base on a touchy subject. With cap rates down, should you invest in real estate? And with that being said, Brian, go for it. Let us know. Brian: All right. Well, over the last year, there’s been a troubling trend for rental investors, and home prices have skyrocketed. According to Zillow, home prices nationwide are up almost 11 percent year over year. But rents are flat for the year. The rents have risen less than one percent nationwide. And in the largest cities, prices are going up, and rents are way down. Like in New York City, for example, prices are up nearly 19 percent, while rents are down over nine percent. And that trend you can see in all the largest cities in the US. In L.A., prices are up to nine and a half percent. Rents are down slightly. Chicago rents are up over eight percent, while rents are down nearly three percent. In Boston, it’s even worse. Prices are up almost 11 percent, while rents are down over six percent. Deni: Don’t you find it interesting, though? I mean, if housing prices are up, fewer people will be able to afford to buy. You would think more people would rent and our rent prices would go up. But that’s too simple, right? Brian: Well, there’s a couple of things at play here. One being the eviction moratorium. landlords can’t inject nonpaying once tenants. And there’s been particularly high unemployment among lower-wage workers in the US. You know, a lot of the industries that got hit super hard. The service industry, the hospitality industry, you do have a disproportionate number of renters in those industries, whereas a lot of professional jobs and white-collar jobs have been those industries have largely remained unscathed throughout the pandemic. Those people have had consistent buying power and in fact, maybe some extra buying power from all the stimulus money they’ve received but didn’t need. Whereas a lot of lower-wage people really did get hurt and did lose their jobs or lose income, maybe reduced hours. It kind of makes sense that, middle and upper-class people who tend to be the bulk of homeowners, they’ve done pretty well actually during the pandemic. And they’ve wanted to go out and buy properties with more space. And there’s been this kind of lunch for real estate, particularly as fears of inflation have stoked as well, with trillions and trillions of dollars of stimulus spent, a lot of middle and upper-class Americans are worried about inflation. And one way to protect against inflation is to buy real estate because you lock in your mortgage, your monthly payment for the next 30 years as opposed to renters, the rents are going to probably go up year after year. Deni: It’s interesting. We had a meeting at my real estate office. And one of the things they were saying is because the entertainment the business went down so people couldn’t do things. They were opting for larger homes because budgets for entertainment were slashed. They were looking for more space to be able to do more and homes, And we’re seeing that here in Pennsylvania. Brian: Oh, there’s no question we’ve seen that across the board, the bottom-line trend, the story over the last year was that or at least for investors, the cap rates and grocery multipliers are looking uglier in the US. House prices are higher. Rents are either lower or have stayed flat. it’s more expensive to buy the same amount of rock bottom line for rental investors. Deni: What is your prediction on all of this? Brian: Well, so I expect rents to rise a little faster over the next 12 months than they did in the last 12 months. We’re going to likely see the eviction moratorium left at the end of June. I don’t think that will be extended a fifth time or whatever it’s been, and I hope not. Brian: I do think that is where the buck will stop, when the eviction moratorium lifts, that will ease some pressure there. And we’re already seeing the service and hospitality sectors rebound, those jobs are coming back with a vengeance. But I don’t expect rents to rise enough over the next 12 months to catch up with the lift and home prices, both that we’ve seen in the last 12 months. And they will continue going in the next four months., we are going to see immigrants start to rise some more, but it’s not going to be enough to offset this huge differential in how prices have risen versus rents. Deni: Do you think that properties are out there? Brian: Yes, there are always deals to be found, that doesn’t mean that it’s necessarily easy to find those deals right now. That is one option out there for real estate investors who do want to continue buying properties directly because you can find off-market deals, you can find excellent deals from distressed sellers, people in foreclosure, people getting divorced, people’s properties are intact, Taxila, and people who inherited properties that they don’t have any interest in. You can find these off-market deals for people that haven’t hired a realtor, listed their property publicly for sale, but who would be open to selling or making a quick sale without necessarily marketing it to top dollar. you can use tools like Prop Stream, for example, to find some of these distressed sellers. That’s his favorite tool for finding some of these off-market deals. Check out Prop Stream and we’ll put a link to that in the comments here as well. And you can also use strategies like driving for dollars where you drive around and look for properties that are clearly run down or vacant or where the owner is just obviously not taking very good care of it or pretty much interest in it. And there’s a great tool you can use for that Deal Machine where you literally snap a photo of the property phone and then the app will pull up the public records quickly. It will pull up the owners’ information and their contact details. And if you can even with a click a button, send out letters or postcards to the owners of these properties, those are two tools that we like a lot for finding some of these off-market deals. It’s hard to find good deals or rental properties on the MLS right now. Deni: Yeah, I mean, it is. Brian: I mean, you’re going to have a really hard time if you’re trying to compete with every Tom, Dick, and Harry who’s got ears looking at the MLS. Right. I mean, these are all publicly listed. And you can find other you can find better markets to invest in. You can invest out of state and find cities with better cap rates or better gross multipliers., you can check platforms like rootstock stock, which is a good platform for buying turnkey rental properties long-distance. The last stat I saw from them, it was more like. Sixty-two percent of the transactions on restack are from buyers who are more than a thousand miles away from the property. it is designed to make the process easy for long-distance buyers to buy rental properties. And they include all kinds of cool resources and tools for out-of-state buyers. And a bunch of guarantees, that you kind of have. One of their guarantees is that if you buy a vacant property, that you’ll have it rented within 30 days, you must feel bad about it. But they’ve got several guarantees you can check out. Brian: And I’m going through the link to stock as well in the comments here. And you can also go through turnkey property sellers like we have a friend of ours, Ali Boone, who is the founder of Hipster Investments, who is going to be joining our show in a couple of weeks here, should be coming on as a guest. She operates in a bunch of markets like I know she works in Indianapolis and I think she works in some markets in Ohio as well. We have a good friend of ours who operates in logical property management up in Michigan. She can go through these kinds of turnkey sellers who will help you find rental properties that are good deals and cash flow. Well, and then in some cases, like Drew, I mean, he wants to become a long-term partner but is not trying to just sell you something once and then disappear if he wants to manage your property for you if you would like, but form a long-term partnership with you. those are some trust indicators that you want to look for when you’re going to properties long-distance. Deni: It’s like the term you use skin in the game. Brian: That’s right. Exactly. And if you’re looking for some ideas for cities that are not in your backyard or, markets that do have strong gross rental multipliers, which means, low price to high rent ratios, we do have an interactive map that we’ve created and we update every month or two with the top one hundred cities in the US and their gross rent multipliers, along with their median rent and medium property price. we’ll put a link. About as well here in the Commons. Deni: Which is his. now in my area, it’s ridiculously crazy and some other areas are just nuts, but do you notice a similarity in these places or, you know like Pennsylvania is one I know Florida is picking up. I was just there, so, Brian: Yeah, so a lot of secondary markets have done well during the pandemic, know the most expensive cities have not done as well during the pandemic. But markets like Austin, Texas, Memphis, Tennessee, some of these kinds of secondary markets that are major cities, but they’re not the largest, most expensive cities in the US. A lot of these places, the suburbs, or major cities, have done pretty well over the last year, vacation hot spots or tourist towns that are inherently beautiful or have some inherent attractions to them, like beach towns, ski towns. These places have done pretty well in the last year, prices, which makes them not fantastic places to invest in, rental properties, necessarily, if the prices have been spiking. Right. we put together a couple of interactive maps, as well as some of the hottest real estate markets over the last year. These are not necessarily markets where you want to buy rental properties, but it’s just something to be aware of as a real estate investor where prices are going through the roof right now, Deni: It’s crazy, too, because when the pandemic first started, they were dropping the house. The home prices and vacation areas were dropping drastically. Then when it started lifting people, didn’t want to travel too far, but they didn’t mind traveling. You know, if it was close enough to their home, to mountain and sure. Resorts and then suddenly, they just went nuts. it’s funny how you don’t know. You just don’t know. Brian: That’s true. I mean, we pretend we have a crystal ball, but I mean, the future is uncertain for all of us. Deni: That’s for sure. what are some other alternatives? Brian: Oh, sure. I mean, our whole business is around helping people invest in real estate, so we love investing in rental properties directly, but that’s not the only way to invest in real estate. You can flip houses, of course, which in this market has been a good market for flipping houses with depreciating so best. 2006, 2007 was also a good market for flipping houses. And then a lot of people got stuck holding properties that they suddenly couldn’t sell. used to be a little careful. When prices are skyrocketing so fast, you can also wholesale properties, some another way of kind of indirectly investing in real estate. You can buy shares in publicly traded REIT real estate investment trusts. I don’t love publicly traded REITs for a couple of reasons. One is that because they’re traded on public stock exchanges, they tend to move in too much correlation with stock markets. And to me, one of the huge benefits of investing in real estate is to not have that correlation, to have to benefit from the diversification of asset classes. You want your assets to move. Deni: Different directions… Brian: Different directions from each other. You don’t want too much correlation in the market movements of your asset classes. that’s one reason I don’t love publicly traded rates. I also don’t love the fact that under regulations, they have to return 90 percent of their profits to investors in the form of dividends, which sounds like a good thing for investors. And it means you end up with high dividend yields. But it also means that these funds can’t go out and buy more properties because they have to return all their profits to investors as dividends so they can’t reinvest those profits to buy more properties, build their portfolios so they don’t have much potential for growth and appreciation in their fund, their share prices. Deni: It’s probably a good way, to get involved in that. But don’t make that your whole real estate portfolio. Brian: Right. I have some shares in publicly traded REITs. I’m not saying you shouldn’t buy them. As you said, Deni, they make a good kind of minority share in your portfolio, a very small share. I’ll tell you what I like more than publicly traded REIT is real estate crowdfunding platforms. some of these operate as private REITs. They’re not traded publicly on stock exchanges. You buy them privately, directly from the platform. one example of these is Fundrise they have a few different REITS that you can buy. Fundrise does mostly residential apartment buildings And that sort of property, Streetwise is another one. And they do more commercial properties. I like Streetwise because first of all, they have a really strong dividend. They’ve been returning between eight and 10 percent annual returns, dividend-wise in dividend yields since inception, basically even throughout the pandemic. I like them. Now, some of these crowdfunding platforms don’t just own properties. They lend money against properties as well. And those can either be in the form of REITs, like Fundrise you can choose whether you want to have more of your money in actual funds that own properties versus more money in funds that lend against property more or one other platform. Brian: A crowdfunding platform that I like is the Ground Floor. They are a hard money lender. They lend to people who buy houses or flip properties. renovate it and then sell it or people or developers who build properties on vacant land. But you can pick and choose on Ground Floor which loans you want to fund. And you can lend as little as ten dollars toward any one of these different loans. You can diversify out a little bit of money to a lot of different loans secured against these different properties around the US. And it’s a short-term investment. You get your money back usually within six months or a year, as opposed to Fundrise and Streetwise and some of these other real estate crowdfunding platforms, they expect you to leave your money in for at least five years. In some cases, they penalize you if you try to take your money out early, whereas Ground Floor is a short-term investment, you usually get your money back within a year in most cases. Deni: Christina mentioned. What I am noticing lately is everybody is creating a course and going the coaching route. Which is for all things. Brian: Sure. I mean, we sell a couple of courses, it’s a relatively minor component of our business. We have landlord software and then we do a lot of free education as well. That’s been a popular business model increasingly over the last five years. And some people do well with it. And there was no there’s just a huge variation in quality among those courses. Some of them are outstanding. Some of them are not as great. But it’s a business, right? Deni: It is. But I mean, there are so many niches in real estate. It’s nice that there are courses for whether it’s land investing, short term, or like what we do, which is, buy and hold. it’s nice to be able to get that kind of information and mentoring. Brian: Yeah, absolutely, and, I mean, we are partnered with Mark Podolsky Land Geek course, if you’re interested in land investing, let us know. We can send you a link for that as well. And it is something that we have started doing ourselves more is investing in land for a couple of reasons. I mean, one, because of some of these trends we’ve been talking about for the last 15 minutes, but also because we’re a little concerned about the way regulation is headed. It’s early, so I won’t speak for Deni, I am a little concerned about how residential real estate and rental properties are being regulated in the US and the trend that that’s moving in kind of anti-landlord, much more tenant-friendly rules, and regulations. And you can see it in how the eviction moratorium has been extended four or five times. The land is unregulated, it’s effectively a commercial transaction, And you don’t have the headaches of tenants calling you at 3:00 a.m. complaining that a light bulb burned. Deni: Just dirt. Brian: Yeah, exactly. Before we wrap up one other thought that is worth sharing as far as alternative ways to invest in real estate. You can invest with us if you want. We are. And we’ve been saying this for a year now. We are going to be rolling out co-investing properties where you can buy fractional shares in rental properties that we own ourselves. I mentioned Drew just a few minutes ago of a Michigan. We’re working with him on a property right now and we’re going to be releasing it out to a few people on our waiting list who asked to be notified when we do our next co-investing property. Deni: This is such a good way to invest. This is almost better than, of course, because now you’re invested in it and you’re learning the steps along the way. Brian: Yeah. You will see both the behind-the-scenes of what that looks like, buying and renovating, renting out this property because you’ll be a fractional owner of it. And we’ll be broadcasting all of that behind the scenes. the way that will work most likely is selling shares in increments of one percent ownership of the property. if you’re interested in that, just shoot us a comment here on Facebook or you can email me at [email protected] or [email protected] And we’ll add you to the waiting list for that. Deni: Absolutely., do you have anything else for us, Brian? Brian: No, just do a quick recap of what we talked about today, so we talked about how prices have been skyrocketing, home prices in the US have skyrocketed over the last year, but rents have stayed flat in many markets or dropped in a lot of the larger cities. Talked about how rents will probably rise a little faster over the next 12 months, but not as fast as home prices and certainly not enough to catch up to the difference in how those have diverged over the last 12 months. One way that you can still find good deals is to pursue distressed sales and other off-market deals. You Can do things like driving for dollars, using tools like a Deal Machine. You can use tools like Prop Stream to try to find distressed sellers or look for markets that still have good cap rates, good growth rate multipliers using tools like Roof Stock, go through turnkey sellers like Ali Boone or Drew. We put a couple of links to where you can look at the top 100 cities in the US by gross rent multiplier. A couple of alternative ways to invest in real estate, publicly traded REITS, private crowdfunding investments like private REITS, and putting money towards loans secured by real estate or co-investing with us. Deni: Edwin and Christine both would like some information on that, just shoot us an email either at [email protected] Or [email protected] and we’ll get you on that list. Brian: Edwin and Christina we will need your email addresses to add you to the waitlist. And the waitlist is not super long, we’re going to be releasing this first one that we do just to people on the waitlist. We’re not publicly advertising it or trying to we’re not trying to raise money here. This is purely among our circle of people who have worked for this before and knew we know and like and trust, because we are going to be partners on a real estate deal. Deni: Absolutely. And we have a passion for teaching and providing the knowledge and whatnot. Brian: Learn while you earn. Deni: Yes, that’s the best way to do it. Brian: Deni, anything else you want to add before we wrap this up? Deni: No, I think that you pretty much covered a lot of this. It’s a lot of information, but a lot of good information. I know we have seen many people worried, about real estate and buy and hold real estate because of the moratorium, primarily because it’s kicked some of the landlord’s butts of just one or two or one to four properties big time. I think these are some good alternatives. Brian: Sounds good. Well, let us know what you guys want to hear about next week. These Facebook live broadcasts and podcasts are all about you and what you want to hear is not done. And I don’t do it for our health or not just to chat with each other. This is all about you guys. stay in touch. Let us know what you want to hear about this message over Facebook or choose email support to on. And we will catch you next Tuesday. Deni: Absolutely. Have a great day. Brian: See you later.

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