The Fall Housing Market Could Be One of the Hottest Ever
According to Zillow, lower mortgage rates could lead to a busy homebuying season this fall. “Lower mortgage rates and rising inventory are giving homebuyers a window of opportunity at an unusual time of year,” the listings giant said.
Inventory Is Still Down From Pre-Pandemic Levels
Zillow reported that nationwide active inventory was up 22% year over year in August, although it remained 31% lower than the pre-pandemic level of August 2019. Meanwhile, new listings grew slightly monthly and yearly but were 21% lower than the same month in 2019.
In a separate report, Zillow reported that unlike at the height of the rate hikes, when renting was cheaper than buying, the opposite is true in 22 of the 50 largest U.S. metros. New Orleans, Chicago, and Pittsburgh offer the most significant savings when comparing the cost of rent to a mortgage payment, assuming that the buyer purchases conventionally with a 20% down payment.
Said Zillow Home Loans senior economist Orphe Divounguy:
This analysis shows homeownership may be more within reach than most renters think. Coming up with the down payment is still a huge barrier, but for those who can make it work, homeownership may come with lower monthly costs and the ability to build long-term wealth in the form of home equity—something you lose out on as a renter. With mortgage rates dropping, it’s a great time to see how your affordability has changed and if it makes more sense to buy than rent.
5.25% Is The Magic Number
The Wall Street Journal, quoting Moody’s Analytics, wrote that a 30-year fixed mortgage would need to fall to 5.25% before the monthly payment on a $419,000 home would close in on the average U.S. rent of $1,840.
According to a report on Realtor.com, much homebuying activity this fall could be seen in expensive California cities and/or on the East Coast, where the rate cut could have the biggest impact on monthly mortgage payments.
Many economists differ on just how busy the fall market could become. Though the half-point Fed rate cut is meaningful, as the market anticipated it beforehand and adjusted accordingly, many people feel it will be 2025, particularly in spring, when buying and selling kick into high gear.
“We should be going back to pre-pandemic norms,” Selma Hepp, chief economist for CoreLogic, said in an interview with USA Today. “The pent-up demand is there, but the lower the rate, the better.”
One of the biggest contributing factors to the degree of activity depends on the available inventory and house prices. According to the latest S&P CoreLogic Case-Shiller Home Price Index, which ended in June, U.S. home prices posted a 5.4% annual gain, making buying still out of reach of many prospective homeowners and investors despite the recent rate drop.
“The upward pressure on home prices is making this the most unaffordable housing market in history,” Lisa Sturtevant, chief economist at Bright MLS, said in her analysis.
“For the best possible outcome, we’d first need to see inventories of homes for sale turn considerably higher,” Keith Gumbinger, vice president at online mortgage company HSH.com, said in the USA Today article. “This additional inventory, in turn, would ease the upward pressure on home prices, leveling them off or perhaps helping them to settle back somewhat from peak or near-peak levels.”
Cutting Rates Too Quickly Could Have an Adverse Effect
Though many investors are hoping for further rate cuts, too many too soon could cause a frenzy in the housing market that would be detrimental to both buyers and investors, resulting in higher prices that could eradicate any increases in inventory. It’s a double-edged sword because lower interest rates will allow rate-locked homeowners to sell and thus create more inventory. However, if the rates drop too precipitously, prices will rise.
According to a recent Freddie Mac report, the inventory shortage remains well below the pre-pandemic average for now.
“I don’t expect to see a meaningful increase in the supply of existing homes for sale until mortgage rates are back down in the low-5% range, so probably not in 2024,” Rick Sharga, founder and CEO of CJ Patrick Company, a market intelligence and business advisory firm, told Forbes.
Commercial Real Estate Investors Could See Fast Relief
The Fed rate cut directly impacts commercial real estate investors with adjustable-rate mortgages, as they are indexed to short-term rates, such as SOFR or prime. Lower rates also increase liquidity across the financial system.
“With rates rising faster and higher than in recent memory, cash flow coverages on many deals have gotten skinnier,” Al Brooks, head of commercial real estate for JPMorgan Chase, said on the company’s website. “As a result, commercial real estate lenders have had to take out additional reserves against their portfolios.”
“As interest rates decrease, cash flow coverage increases, bringing down loan loss reserves for banks,” Brooks continued. “Lower reserves can then be put back into the market and facilitate more deal flow.”
Thus, it will be easier for prospective commercial real estate borrowers to get loans from banks. Even if the rates aren’t exactly where investors want them, looking for opportunities and starting conversations with lenders early, in anticipation of further rate cuts, is probably a good idea, considering how long commercial real estate deals can take to close, factoring in inspections, lease audits, and financing. Brooks advises that lower rates could be a good time for commercial investors with loans near the end of their term to refinance to lower payments, save money on interest, and free up cash for renovations or to purchase more real estate.
Final Thoughts
If there was ever a time to buy and hold real estate, it is now. With the Fed signaling that 18 months of rate cuts are ahead and prices likely to rise with increased affordability, simply buying now and selling once this happens is expected to be profitable, even with a minimum amount of work. Of course, it means buying right—regardless of asset class—and not paying too much.
Regardless of your investment preference—commercial, residential, flipping, or buying and holding—buying this fall should prove a prescient move before the next round of rate cuts.
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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.
BiggerNews: 2 Real Estate Markets That PROVE Cash Flow Is Alive in 2024
Cash flow is hard to find in 2024, but these real estate markets have plenty of it. Since so many previously “cash-flowing” markets have seen rising prices, higher expenses, and limited housing inventory, we went back to the drawing board to reevaluate which markets in the United States offer the most cash flow potential. Today, we share these markets and hone in on two specific ones with real-life on-market examples to prove that cash flow is still possible.
But before we get into that, we’re sharing the cash flow formula even beginners can use to quickly calculate whether a rental property will cash flow. Then, we describe what type of cash-on-cash return WE target in today’s market and list some of the most cash-flowing markets of 2024.
Want to see real cash-flowing rental property examples? We’re hopping over to BiggerPockets Deal Finder as we quickly analyze two separate rental properties in two cash-flowing markets to prove that these properties do sport some serious cash flow. Don’t believe us? Head over to BiggerPockets Market Finder, where you can see the nation’s top rent-to-price investing areas (that’s where the cash flow is!).
Click here to listen on Apple Podcasts.
Listen to the Podcast Here
Read the Transcript Here
Dave:
If you’ve been analyzing deals or trying to get into the real estate game for the last year or two, you already know this, but I’m gonna say it anyway, strong cash flow is getting harder and harder to find. And a lot of people are saying that the 1% rule is dead, or that it’s just impossible to find cash flow today. But harder doesn’t mean impossible. And today we’re gonna prove it to you with real markets, real deals and real numbers. I promise you all great deals do exist. You just need to know where to find them.
Dave:
Hey everyone, it’s Dave, it’s Friday, which means it’s time for bigger news. And we’ve got a great one lined up for you today. My friend and on the market co-host Henry Washington, is here to talk about the best markets for finding cash flowing deals right now. And we’re actually not just gonna talk about what markets are great, but we’re gonna actually analyze real deals from the MLS in the markets that we’re talking about. So you can see what kind of returns you can expect. Henry, man, it’s good to have you back on the show. Thanks for being here.
Henry:
Hey man, thanks for having me. You know, I love doing shows where we’re talking about finding good deals. That’s my jam.
Dave:
Yes. Well, we have the, the, uh, expert in the house. So thank you and I do wanna hear what you’ve been up to recently. And in order to do that, we’re actually trying something new. Everyone after this episode records, Henry and I are gonna record an after show. It’s gonna be exclusively on our YouTube channel where we just casually talk about what he and I have been up to in our portfolio. ’cause we don’t always have time for that on these shows, but we think it’s gonna be helpful for you to just see the challenges, the successes that Henry and I are both having in our real estate investing. So if you’re listening to this, go check out the YouTube channel and check out our new, uh, idea that we’re testing out the after show.
Henry:
Yeah, it’s cool. So guys, I just snagged a couple of cool deals that I want to talk about, so that’ll be fun.
Dave:
Oh, I’m very interested to hear more about this. I’m having the opposite, uh,
Henry:
Great. Well on this show we are gonna talk about which metrics investors should use to project future cash flow. We’ll also talk about what regions pop when you start running the numbers and seeing where you can actually get some cash flow and which markets in those regions are our top picks for cash flow right now.
Dave:
Awesome. This is gonna be a lot of fun. Before we get into it, I should just correct something. I said that after show that we’re filming, it’s happening, but it’s not coming out till next Tuesday. So I know you all are gonna be waiting all weekend furiously refreshing your set, your alarms, set your alarms for Tuesday because you could hear more of me and Henry on the BiggerPockets YouTube channel. But with that, let’s get into our episode today talking about cashflow markets. All right, Henry, so today we’re obviously talking cashflow, but before we get into specific markets and the specific deals, let’s just define the term for anyone who’s new to real estate investing. When we talk about cashflow for property, how do you think about and calculate cashflow?
Henry:
Uh, isn’t cashflow just any money that’s more than the mortgage payment?
Dave:
Oh yeah. All you gotta do is you just take your rent, you subtract your biggest expense, and then just ignore all the other expenses. You don’t need to think about them.
Henry:
Absolutely
Henry:
Mm-Hmm.
Dave:
When Henry says five to 8% you’re talking about of rent, right? Yes. Like you take five to 8% of your revenue and set that aside, uh, as an an expense. Even if you don’t need it every month, you just put it on the side.
Henry:
We have a rental expenses account that we automatically set up draws to come out of our rental income account every month based on those percentages. So we didn’t have to think about it. And then if we need it, great. If we don’t, it’s there. So five to 8%, depending on the age and how much maintenance you think it’s gonna need. And then capital expenses because there are things that just go bad over time. HVACs don’t last forever. Water heaters don’t last forever. Roofs don’t last forever. They’re big capital expenses. You need to be budgeting a little bit every month for when they do fail. You can’t afford to replace them. So you got your capital expenses and then you have to budget for property management. Even if you are managing properties yourself.
Dave:
Yes.
Henry:
Because you may think, I’m never hiring a property manager. And then you grow your business or something terrible happens and you’re like, you know what? Property management isn’t for me and you want to turn your portfolio over to a property manager and you didn’t budget for it. Well, all your cash flow gets eaten up by this new 10% expense you have to pay. So budget, 10% property management when you’re doing your cash flow. So then make sure that your insurance budget is accurate because insurance has gone up over time. If you have been investing for a year or two now and you haven’t adjusted what you’re budgeting for your insurance, you need to take a look at it because they have gone up over the past year and you wanna make sure that that’s accurate. And so your cash flow for this very long-winded answer, your net cash flow is what is left from the rent every month after you subtract all of these things.
Dave:
Well said, Henry, thank you for putting it so clearly and actually using the right metrics and the right categories here for expenses. I, it just makes me so mad, honestly, seeing people on social media, honestly being like, I get a 10% cash on cash return. I get a 15% cash on cash return. And you ask what expenses they’re taking out. They’re like principal insurance, taxes and maybe maintenance. But there are things like vacancy, property management turnover costs for when you eventually do have to do it, do. And when we talk about cashflow during the, for the remainder of this episode and for the future of this podcast, we are talking about underwriting using all of these categories. And this, some people may say that you’re being overly conservative. Fine, I’m fine with that. Yeah, exactly. Like I would rather invest in a deal that has a 5% cash on cash return that is underwritten with all the things you just said it than just pretend that I’m gonna get a 12% cash on cash return and hope that everything goes extremely well.
Dave:
So just keep that in mind as we’re talking about this, that we’re talking about fundamentally sound conservative underwriting so that the cash on cash return that you get at the end of this analysis is hopefully the worst case scenario, right? Like that’s how I always think about is like if I’m looking at 5%, that’s if everything goes wrong, hopefully not everything’s gonna go wrong, I get eight, nine, 10% cash on cash return. But I think that can be confusing for people when you see other educators in the real estate space talking about these massive numbers that maybe aren’t underwritten with the same degree of scrutiny.
Henry:
And to be fair to people, like you could be a little wishy-washy about your numbers two, three years ago, right? Because values were going up so high, insurance wasn’t as high, taxes weren’t as high interest rates weren’t as high and rents were going up. So you could underwrite a deal, miss a couple of these expenses and look at the end of the month and still say, man, I made some good cash flow. You probably did.
Dave:
Yeah,
Henry:
Not like that anymore. You really this, this, this new market with the interest rates and the taxes and the insurance all being higher, it will eat your lunch if you are not prepared. And if you’re a new investor who doesn’t have other cash flow properties helping to carry a portfolio, or you’re not sitting on cash reserves that you can use to fund your portfolio, when you miss one of these, uh, expenses, then you’re gonna find yourself in a world of hurt. It’s really the new investors who don’t have that cushion yet. Mm-Hmm,
Dave:
That’s such a good point. I, uh, yeah, I’ll talk about this more when we catch up later, but I had this, uh, rough week as a, as a property manager, but it was okay because I’ve owned this property forever. So the cash reserves have just like, you know, built up a lot over time. So I’m fine, like I had cash reserves for it, but if you’re brand new to it and you hadn’t allocated for some of the things I’ve gone through in the last week, you’d be in a a, a tough uh, situation. Alright, time for a break, but we’ll be back shortly. Thanks for sticking with us. We’re back with bigger news. Okay. So we’re going to get into our list of top markets and then actually analyze some deals in those markets just to show you what type of returns you can expect. But before we do that, Henry, let me just ask you, what type of cash on cash returns do you normally look for?
Henry:
Yeah, I mean, obviously a 10% cash on cash return is great. I’d love to underwrite it and see a 10% cash on cash return. That doesn’t always happen, quite frankly. It’s, uh, pretty rare that I’ll see them. Now, if you’re truly underwriting deals properly, like we just talked about, um, we’re typically seeing somewhere near half of that. And I’m okay with that right now.
Dave:
Mm-Hmm,
Henry:
For a couple of reasons, right? Again, guys, I am a seasoned investor, which means yes, I want cash flow, but there’s other parts of how real estate pays you that are important to me as well because of the tax benefits. Because how much equity am I walking into on day one? There’s other things that I’m also looking for, but um, sure, I’d like to underwrite it at a 10% cash on cash return, but typically we’re seeing probably closer to five.
Dave:
Yeah.
Henry:
Six. And I like those deals. Those are solid deals. ’cause that’s telling me that in the worst case scenario, this property is paying for itself, uh, and still paying me a little bit of money every month. And, uh, given all of the factors working against me right now, I think that’s pretty solid.
Dave:
Totally. I don’t wanna go on a whole resource allocation tangent here, but it really, you have to think about how you’re allocating your money. And a five or 6% cash on cash return is so much better than any cash that you can get anywhere else. Mm-Hmm.
Dave:
So just keep that all in mind as as we are, uh, talking about this deal. All right, let’s start talking about, uh, just some of the ways that we look for cash flow. So you’ve probably all heard this term or this metric, the RTP or rent to price ratio, if you’ve heard of the 1% rule that is applying this metric called the rent to price ratio. And it’s basically this very frankly, pretty crude metric that looks and helps you estimate cash flow. It basically looks at how much a property costs and compares that to how much rent that you can generate from it. And when you divide one month of rent by the purchase price of a property, the closer you are to 1% the better. If you’re above 1%, that’s generally seen as really great. Now, I don’t know about you, Henry, but I gave up on the 1% rule a long time ago. Is it so something that you think about?
Henry:
I’ve never used it as a hard and fast rule. For me, it’s always just been a, a rule of thumb or a measuring stick to know if I’m actually considering or looking at a what could be a good deal?
Dave:
Mm-Hmm.
Henry:
If I get a lead in my inbox and I do some quick math and go, well, if I rent it for this and if I buy it for this, will I hit 1%? Yeah. Then I know that I can pursue that deal and then I’m gonna try to get it cheaper than that so that I can get more than 1%. But I’ve never thought, oh, well it hit 1%, I’m buying it. That’s not what it, that’s it’s not a hard and fast rule for me. It’s always just been a measuring stick to know, am I looking at what could potentially be a good deal here?
Dave:
Yeah, that’s a perfect way to put it. I I think it’s a good way to compare two similar assets, right? So if you are looking at, in the same neighborhood where taxes and insurance are likely to be the same and two different properties, one’s better, you know, one has a higher enterprise ratio than the other, you can say, okay, this one probably is gonna generate more cash flow. Or if you’re doing, comparing markets, for example, that one, it works as a proxy, but it, it’s not a be all end all because, you know, different markets, like you might have a really high rent to price ratio in Texas. Texas has some of the highest property taxes in the country. Mm-Hmm. It has really high insurance costs right now. So those are things that you obviously have to factor in as well. But it still can be useful. It’s like as long as you take it with a grain of salt, uh, it’s still useful. But I also just think the 1% rule at this point in the investing cycle does more harm than good
Henry:
Bit. I agree.
Dave:
Anyway, I wanted to talk about rent to price because just to help people understand where regionally in the country cashflow is generally easier to find. You find the highest rent to price ratios right now in the Midwest. Uh, so you look at places like Indiana, Ohio, Michigan, Illinois, those places tend to have better rent to price ratio. It’s been like that in the southeast a lot, but Southeast has gotten more expensive over the last couple years. But I still think, I mean, you know better than me, I still think there are places there that offer cashflow in the southeast
Henry:
When I was doing research for this show, uh, it’s pretty much you just draw a circle around the Great Lakes. It’s like the, it’s like, you know, they have lake effect snow, you have lake effect cash flow,
Dave:
Is such a good term. You should, you should trademark that Lake Effect. Cash flow is great.
Henry:
There’s like a sweet spot right in between Milwaukee and Chicago where it’s like cashflow heaven.
Dave:
Yeah, it’s great. And just so everyone knows, like there’s usually trade offs. A lot of places that offer the best cash flow don’t appreciate as much right now. A lot of those markets are appreciating, but historically that relationship does exist. Um, I will just tell you that I did put out a list of top cashflow markets earlier this year, and they’re not all in the northeast. ’cause I did sort of some other metrics other than rent to price ratio. I looked at job growth, population growth, and number one was in the Great Lakes. It does have lake effect cash flow in Peoria, Illinois. Uh, but then you see places like Shreveport, Louisiana, which I know our colleague, uh, Tony Robinson on the rookie podcast is much maligned to admit he is invested in. Um, but you see places like Pittsburgh, Pennsylvania, which has a great economy up there, um, places like in Texas, like Lubbock, Texas, Corpus Christi, so they really can be found all over the country. But I thought it’d be fun, Henry, to just pick two markets that have decent rent to price ratios and just walk through one of the deals. Are you, uh, wanna do this?
Henry:
Dude, I’m a deal junkie. Let’s do it.
Dave:
Let’s do it. Okay. So the first one I picked, I think I picked this on, I went on the rookie show recently and it asked me to pick a market I would invest in, and I picked Pittsburgh.
Henry:
Mm-Hmm.
Dave:
So the things that I like about Pittsburgh is one, it has a, it’s a big population, 2.4 million people. It’s growing, but the median home price is $200,000, which means that it is half the national average. So it’s super affordable, but it’s like the epicenter of the robotics industry in the United States. And so there’s a lot of really high paying good jobs. There’s great price growth, uh, and from what I read, there’s decent quality of life and quality of living. So, and just for the record, Pittsburgh’s rent to price ratio on average is about 0.7, which might sound terrible, but by rule that means of the deals in that market are better than 0.7 and half of them are worse. So I went on the BiggerPockets deal finder and just poked around for honestly two or three minutes and found this deal. It is on the market MLS, it’s a four bed, two bath, 1800 square foot house. It looks really nice. It’s like one of these brick buildings. It looks like it’s recently had a cosmetic update. Are you looking at these pictures?
Henry:
Yeah, man. No, it looks clean.
Dave:
It looks pretty nice, right?
Henry:
Like it’s ready to go.
Dave:
Yeah, it’s on sale for 1 75 and the rent estimate from the BiggerPockets deal finder is $1,737. So it’s not quite 1%
Henry:
That’s a solid deal, bro.
Dave:
Right
Henry:
Rick? All the way around final windows and a couple of them like, it looks like this is, this is pretty solid, man.
Dave:
I know, right? So I, it got me excited because I felt like I spent almost zero time looking for this. And this is an already renovated turnkey property. Like this is one that you wouldn’t have to do any work for. If you wanted to do more work than this, you probably could get even a better cash on cash return if you’re willing to do some of the cosmetic rehab yourself.
Henry:
Oh yeah.
Dave:
So I just wanted to show you this just as an example because to me it showcases the fact that cash flowing deals on the market are absolutely still possible if you just look in the right places. Is this a kind of deal that you would see in your market, Henry? Like, could you think you could get cash on cash return, 5% turnkey, turnkey like this?
Henry:
Yeah. No, no, definitely not.
Dave:
So when you were saying 5% earlier, that’s after a little bit of work, right?
Henry:
Yes, absolutely. This is, that’s after buying value add. Like what’s cool about this deal you’re showing is this is 5% cash on cash return day one.
Dave:
Day one,
Henry:
Right? And so in my market, I’m getting 5% cash on cash return, takes me six months to renovate it. I mean, uh, three months to renovate it, another month or two to throw somebody in there. And then they’re paying rent and deposit. And so by the time that happens, you’re six months down the road before you’re actually starting to see some of the fruits of your labor.
Dave:
Yeah.
Henry:
And so this is a, a day one property. And what’s also cool about it being a day one property is you can go ahead and start getting the tax benefits because the property has to be in operation before you really get a lot of those tax benefits,
Dave:
Right? Yeah, absolutely. That’s so true. That’s a great point. And of course, there’s a benefit to doing what you were talking about in doing a rehab because you know, you’re increasing the value of the property and building equity at the same time. But if you’re the type of investor who just wants low headache, easy type of deal, like do go do this. Go buy real estate in Pittsburgh.
Henry:
But it just, it it squashes that. ’cause everybody’s saying it, you can’t find cash flow. It’s too hard to get cash flow. You can’t find any good deals. You found one in five minutes,
Dave:
Dude, it was so easy. Yeah. And I, I started investing earlier this year in a market with a little bit of lake effect cash flow. And I’m finding these kind of deals as well. Like in my mind, the best one you can find is somewhere that has like a three to 4% cash on cash return. But after a cosmetic rehab, you can get like a seven or eight cash on cash return, which definitely exists in a lot of markets. This was just one I I picked up out of nowhere. Okay. We have to take a quick break, but I first wanted to remind you that if you’re looking for deals right now, the BiggerPockets deal finder can help. This is actually what I used when I was doing research for this show and I picked these markets and just wanted to find a deal as an example of what you could find in there. It took me just a couple of minutes to find cash flowing deals, and you can check it out by going to biggerpockets.com/deal finder. We’ll be right back. Welcome back. Let’s jump back in with Henry Washington. So the other market people tell me about a lot is Augusta, Georgia. Never been there. I just know the masters. Is there you ever been?
Henry:
No, never been. But I obviously would love to go watch the masters.
Dave:
I tried. I I put myself in the, uh, the lottery and that was like seven years ago and I’ve never heard a single peek about it.
Henry:
Dirt cheap? Yeah.
Dave:
Yeah. What is that? So it’s like they make you wait nine years and pay a thousand dollars for a ticket and then you get a $2 cheeseburger.
Henry:
Yeah, it’s totally worth it.
Dave:
That works. That kind of marketing works on me
Henry:
Like
Dave:
You find houses in the 1890s, 19 hundreds. So that comes with some, some challenges. But this place, to me, the outside exterior is nice. The inside it needs a little bit of love. So I actually went to the BiggerPockets calculator and ran the analysis. I still plan to buy it for full purchase price, which, uh, it is listed for 185,000. But I said that I was gonna spend, i I just really roughly estimated this. So take this with a grain of salt, 20,000 bucks on repairs. Mm-Hmm.
Henry:
I think that might be a smidge low. I’d say this is probably a 30 K or
Dave:
Okay. 30 k know what? I’m gonna use a BiggerPockets calculator. I’m gonna just change this right now. 30 k tell me Henry, it’s listed for 180 5. If we put 30 K in, what do you think the after repair value is?
Henry:
Two 30.
Dave:
Two 30. All right. I like it. Obviously everyone, this is not how you should underwrite deals long term, but honestly this is how I do a lot of like preliminary analysis. Like if someone sends you a deal, I just use estimates, rules of thumb to see if you’re in the right ballpark and then start refining your estimates from there. So if we do this, I assume that I’m gonna be able to, uh, raise my rent a little bit. I’m gonna hit next expenses, update my analysis here. Okay, dude. So if we did this, even putting in 30 grant, this property would generate $446 a month in cashflow and for a 6.6% cash on cash return. That’s right. In your wheelhouse.
Henry:
That’s solid.
Dave:
Yeah. And in addition to that, you were improving the value of the property, so you were also gaining equity in this type of deal.
Henry:
Yeah, man.
Dave:
Now I obviously, we don’t know if this deal is exactly right. You might walk into this place and say, there’s foundation issues, there’s structural issues. This is gonna cost 70 grand, 80 grand. But my hunch is that if in seven minutes of looking on the MLS, I could find a deal that sort of makes sense just by the eyeball test that if you spent some time doing what your job is as an investor to go in and analyze and look for these deals,
Henry:
Diligence
Dave:
That you will be able to find them. Yeah, exactly. Right.
Henry:
I mean this is solid. Like this is, and to kind of echo what Dave was saying here is you, you do this eyeball test and this will tell you, you get a handful of properties like this that you can now dive deeper into and you can get somebody out there to get eyeballs on it, to walk it, to tell you the things you can’t see in pictures. And then you can select from those 3, 4, 5 properties, the one that’s actually gonna work, uh, that, that you’ve had physical or had somebody do put physical eyeballs on. And then you can make offers. And also Dave is analyzing this saying he’s going to pay what they’re asking.
Dave:
Yep.
Henry:
But guess
Dave:
Yeah, exactly. That’s, that is the whole job, right? Like we’re just showing you that there’s opportunity. You as the investor have to go and figure out and sort of design the deal in a way that works for you and for some people that might be offering less. For some people that might be maybe looking at a property that’s not as in good as condition. Like the property I picked in Pittsburgh was like turnkey. That place was nice. If you want higher cash flow, uh, you might need find something that needs some work. Uh, or maybe you go the opposite direction. If you just wanna break even, you just find something that’s even nicer. But it’s totally up to you. I think my goal is I looked at these two markets and I said, what kind of deals would I personally just given my preferences, my investing style, what would I look for in these markets? And I was able to find deals like instantly. And these aren’t just two markets in the whole country. There’s has to be dozens of them. If these two that I sort of just picked based on some analysis, but they weren’t the only two options I had,
Henry:
I can hear it already. People are like, yeah, but I don’t live there. Right? Mm-Hmm. And so I get that you don’t live there, there are trade offs, right? So if you don’t live there, but you want to find a market that has cash flow, congratulations. These are some markets that have cash flow. The trade off is you’ve got to do the hard work to build a team in that market to help you get your deals to the numbers you’re looking for. So if you’re gonna, like for example, if you’re gonna buy this deal in Augusta, Georgia, well you’re gonna have to do the hard work to find the contractor that’s gonna do the work. Mm-Hmm.
Henry:
You’re right, it is gonna be a little harder, but not impossible. There are people who invest out of state every day. There are people who own properties outta state who’ve never seen them. If they can do it, you can do it too. It does take more work if you live in one of these places. Congratulations. You probably already know everything we’re talking about with these markets, right?
Dave:
Yeah, absolutely. And if you are one of those people who don’t wanna invest out of state, I would question why, first of all. But then second of all, it’s to say if you don’t, that’s fine. You should just invest where you live locally, but you’re probably not gonna get as good cash flow. Like if you live in a place like Los Angeles, like it’s just gonna be very difficult. There’s still ways to invest in real estate, but you’re probably gonna be investing for equity
Henry:
Yeah.
Dave:
In that market by doing flips or burrs or something like that. The topic of this show is cash flow. And the reality of the market right now is that unless you wanna do heavy rehab or maybe an owner-occupied strategy like house hacking in really expensive markets, it is going to be hard to find cash flow. Absolutely. Like that is gonna be very, very difficult. So your options are to not invest for cash flow. And that doesn’t mean that they have to be risky strategies. You just have to use other strategies or consider investing in some of these markets like the ones that we’re talking about here. So last question here, Henry, before we, we go, once you find these deals, you know, you’re fi making five, 6% in year one, I should say, because hopefully your cash flow is growing, uh, over time. Um, what, like what’s your philosophy about it? Do you hold onto these deals forever?
Henry:
It depends, right? So it depends on location. Let’s say you buy one of these deals and you buy it in a phenomenal location, right? Then that’s probably one I’m gonna look to hang onto for the long term. Let’s say I buy this deal and it’s cash flowing well, but then I realize I’m not getting the equity or the appreciation that I want over time. As I become a more seasoned investor in this market and I buy more deals, I might look to sell one of these deals to invest in a neighborhood I understand more that’s gonna get me the equity in the appreciation as you start to learn the market. So it really truly does depend on what your investing strategy and how sophisticated are you in that market. Uh, because I bought deals in my market, uh, in my first couple of years of investing that made great cash flow sense.
Henry:
But we’ve since sold because, um, the, uh, taxes have gone up Mm-Hmm.
Dave:
Exactly. I know I’m beating a dead horse here, but it’s resource allocation, right? Like you, you might be getting great cash on a deal, but is that the best place to put your money? I don’t know. Your life changes, your, the rest of your portfolio changes. It’s like always shifting and changing. It’s not as simple to say like, I’m just gonna buy assets and hold onto them forever.
Henry:
Yeah.
Dave:
In fact, that was probably the biggest mistake I made early in my invested career as like, I bought an asset, it was going up, it was cash flowing, and I had so much equity that I could have, you know, grown way faster, but I was just so enamored by the cash flow number that I didn’t reallocate quickly enough. So just hopefully that you, everyone just continues to think about that and to look at it holistically. Cash flow is important, but it’s not the only thing that you should be looking at. And did wanna just call out something you said earlier, Henry, about depreciation and that, uh, if you do a cost seg, you need to hold onto a property longer. That’s another potential trade off with turnkey properties. Uh, you know, if you buy a, you know, a stabilized nice asset like the one I I found in Pittsburgh, you know, it’s making 5% cash on cash return.
Dave:
That’s a great cash on cash return. But the way that real estate works is the transaction costs are heavy. Mm-hmm,
Henry:
Oh, this was great. This was like the fundamentals of real estate in this episode, man. Like, it seems like boring stuff, but man, this is the stuff you gotta do right, right now.
Dave:
This is, has everything you and I love is finding deals, talking data, talking numbers. This was a good one. Well, thank you so much Henry, and thank you all for listening. And again, if you wanna check out and learn more about what’s going on in Henry and my portfolio, make sure to head over the BiggerPockets YouTube channel. We’ll put a link below and that will come out this coming Tuesday for BiggerPockets. I’m Dave Meyer. He’s Henry Washington. Thanks for watching.
Help Us Out!
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In This Episode We Cover:
- Two cities that have cash-flowing rental properties for sale RIGHT NOW
- Precisely how to calculate cash flow for rental properties (and why most investors do this wrong)
- The optimal cash-on-cash return we target that properties must meet before we bid on them
- The 1% rule explained and whether or not it’s still worth using in 2024
- When to sell a cash-flowing rental, even if it’s making you mailbox money every month
- And So Much More!
Links from the Show
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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.
How are these new commission rules improving transparency?
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There’s a lot of confusion around the particulars of the National Association of Realtors (NAR) commission lawsuit settlement and the resulting business practice changes. Compliance expert Summer Goralik is here to help clear up some of the looming questions so that we can move forward together as an industry.
This week’s question
How is hiding an offer of compensation from the seller in the MLS supposed to make things more transparent?
Compliance expert answer
Before diving into how removing compensation offers from the multiple listing service (MLS) relates to transparency, I want to share an analogy that I can’t seem to shake.
With the new practice rules, changing guidance, and diverse opinions on how agents should comply or proceed, it reminds me of an early computer game called “The Oregon Trail.” This educational game required players to make decisions that impacted their journey westward. Choices like which supplies to take or how to cross a river determined whether you survived, leading to a variety of outcomes.
Similarly, in the post-National Association of Realtors (NAR) era, today’s Realtors face a complex time in the industry, filled with critical decisions on how best to implement the new practice changes. But unlike a game, these choices directly impact their careers and livelihoods. With this in mind, let me address this week’s question from the beginning.
Communication, transparency and disclosure are the cornerstones of real estate compliance, grounded in the fiduciary duty that requires agents to put their clients’ interests above their own. These principles are key for maintaining client trust and professional integrity within the industry.
Good agents embrace these fundamentals not just because they’re required by law, but because they are committed to fulfilling their duties to their clients.
Given these standards, it’s understandable why recent changes stemming from the NAR settlement, particularly the removal of offers of compensation from the MLS, have sparked confusion and concern.
The NAR settlement, effective Aug. 17, 2024, mandates that listings in the MLS no longer include or display offers of compensation from listing brokers or sellers to buyer brokers or other buyer representatives.
As a result, MLSs have eliminated all broker compensation fields and related information from their platforms.
Many practitioners have questioned how this aligns with the goal of transparency about real estate commissions.
At first glance, it seems contradictory: How does removing compensation details from the MLS enhance transparency?
Some agents and brokers argue that this change directly undermines open communication and disclosure rather than prioritizing them. Others have raised concerns that replacing public offers of compensation on the MLS with private communications about commissions between agents could potentially lead to unethical conduct and fair housing issues.
Interestingly, Realtors may recall a prior lawsuit filed by the United States Department of Justice (DOJ) against NAR in 2020, which partially addressed the lack of disclosure of offers of compensation on the MLS.
Although the DOJ has since reneged on that agreement, the details of the complaint remain noteworthy. The Antitrust Division of the DOJ filed a civil lawsuit and proposed a settlement that required NAR to repeal or modify certain rules to provide greater transparency to homebuyers about the commissions offered to their brokers.
Notably, NAR could no longer recommend that their affiliated MLSs prohibit the disclosure of commissions offered to buyer brokers.
Fast forward to 2024, and as a result of the NAR settlement, we see a complete reversal with the demand to remove offers of compensation from the MLS entirely, along with new rules requiring buyer representation agreements before home tours and changes to existing commission structures.
Naturally, these changes have elicited a wide range of reactions from Realtors, and this week’s question is just one example of how licensees are trying to make sense of the new rules of engagement regarding real estate commissions.
But the dust has yet to settle, and it seems that the industry dialogue about these new practice rules — and how agents apply them — is continuing to evolve.
Initially, many Realtors questioned where offers of compensation could be made if they were no longer displayed in the MLS. Now, some are debating whether listing brokers and sellers should offer compensation to buyers’ agents in advance of receiving purchase offers.
The federal government’s push toward decoupling commissions is driving this conversation and reshaping the landscape of real estate transactions.
One revealing moment in this topic of discussion, previously reported by Inman, was a legal brief filed by DOJ attorney Jessica Leal in the Nosalek case in February.
Leal wrote, “The critical issue is not how much a seller should offer a buyer broker, but whether a seller should set buyer-broker compensation at all.”
Months later, and after the NAR settlement was proposed, Leal publicly commented that the DOJ would neither support nor oppose the agreement. She also stated that the DOJ did not want to see offers of compensation being made on the MLS or anywhere else.
Collectively, these remarks reinforce the DOJ’s position on the decoupling of commissions, where sellers negotiate their commissions with listing brokers, while buyers negotiate separately with their brokers. This standard of practice aims to support the competition the DOJ wants to see and believes has been historically absent in the real estate industry.
Considering this perspective, the removal of offers of compensation from the MLS isn’t about obscuring information or finding alternative ways to display commission splits; it’s about adhering to a more consumer-centric model where commission arrangements are negotiated independently by each party.
Under this dynamic, buyer-broker commissions are no longer predetermined by sellers or listing brokers.
Even if some agents and brokers don’t fully agree with this course of action, or choose to implement changes differently, they would be remiss not to consider this government guidance.
Speaking of regulators, there is one thing I know for sure: From my experience working as an investigator for the California Department of Real Estate, when a governmental entity tells real estate licensees what they believe is right and wrong or what compliance should look like, they are essentially giving stakeholders a preview of how they intend to enforce the law and regulate licensed activity.
Returning to the “Oregon Trail” analogy, Some real estate professionals might focus on preserving traditional practices, such as determining where to display cooperative compensation or how best to communicate buyer-broker commissions before submitting purchase offers.
Some may even devise workarounds that, if they’re fortunate, align with the NAR settlement; if not, they could put themselves and their brokers at risk.
In contrast, those adopting a more consumer-driven approach are figuring out how to communicate compensation and concessions with sellers and buyers in a way that complies with the decoupling of commissions.
Transparency about commissions in real estate will now stem from direct negotiations with clients, especially between buyer agents and their homebuying clients, rather than from historical arrangements that relied on offering cooperative compensation in the MLS.
It’s worth noting that, despite these two opposing strategies, the outcome could sometimes be the same — for example, the seller ends up paying the buyer broker’s compensation.
What sets them apart, however, is the path taken to achieve that result, which may involve different market forces, client needs and instructions, agent-client communications, advertising methods, brokerage policy, party negotiations and real estate documents executed by the buyer and seller.
Each method also carries its own set of risks, with potential implications for compliance, client satisfaction and legal outcomes.
Whatever changes licensees are advocating for in this evolving real estate environment, and considering that the best solution may not be as simple as choosing between two extremes, it’s crucial to identify the central compliance issues involved. Only then can they ask the right questions, analyze different solutions and make informed decisions.
Listen, if this were easy, all the noise about the commission litigation, the NAR settlement and practice changes would have surely died down by now. But it persists because the situation is neither entirely clear nor straightforward, and in my opinion, competing arguments about the path forward don’t help.
Even still, agents who thoughtfully consider the challenges at hand and understand the potential risks will be better equipped to identify opportunities, make smarter choices, and thrive.
Although it hardly needs reminding at this point, this is not a game — it’s a journey through significant changes in the industry, and agents’ choices will dictate their outcomes and success.
Editor’s note: Licensed real estate agents should always check with their responsible brokers for guidance, direction and policy regarding the new practice changes, and licensed real estate brokers would be wise to consult with a licensed attorney for legal clarification and support.
The opinions, suggestions or recommendations contained in this discussion are based on Summer Goralik’s experience working for, and knowledge of the laws enforced by, the California Department of Real Estate and must not be considered legal advice or relied upon as legal advice. You should consult with your brokerage, and/or appropriate legal counsel in your jurisdiction, for further clarification.
Summer Goralik is a real estate compliance consultant and former CA DRE Investigator in Huntington Beach, California. Connect with her on LinkedIn.
Demystifying KPIs and essential marketing metrics
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Success in real estate isn’t just about closing deals — it’s about making informed decisions that drive your business forward. A little daunting and potentially yawn-inducing at first glance, marketing metrics are the secret sauce to understanding your efforts, your performance and where you can make strategic changes.
I know, I know. You’re here to sell homes, not become a data scientist. I get it. But whether you’re deciphering reports from your marketing team or venturing into the world of digital ads yourself, understanding these key performance indicators is crucial.
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Let’s take the mystery out of these and learn how to harness the power of data to elevate your real estate game
Marketing strategies
Websites
It’s important to know how many visitors you’re getting on your site to know where to lean in or where to cut corners and how to measure its performance and popularity.
- Unique visitors: The number of unique individuals visiting your web page.
- Bounce rate: Gauges the engagement of a website. In its simplest definition, it’s the amount of time users leave the site and don’t take any action.
- Page load time: This is important for SEO purposes. If your page loads quickly, there is less of a chance for an increase in bounce rate. Test your site speed regularly, especially after updates are made.
- Search engine rankings: Monitor your website’s ranking on search engine results pages (SERPs) for relevant keywords to assess your SEO performance
Newsletters
Your email subscribers can be a great source for repeat business and referrals. The more emails you send and analyze, the better opportunity for success. Don’t be afraid to try new things with subject lines, content and calls to action. Don’t try them all at once or you won’t know what’s working. Make small incremental changes for big results over time.
- Open rate: The percentage of recipients who opened the email out of the total number of emails delivered.
- Click rates: This is the percentage of link clicks within in the email from those who opened the email.
- Hard bounce: Usually means the email address does not exist.
- Soft bounce: Not deliverable due to a temporary issue such as a full inbox or server issue.
Industry email averages per Mailchimp.com. Your newsletter provider should provide these statistics as part of their product offering.
Social media
Everyone loves the socials, but don’t expect to be an influencer. You’re a Realtor, remember? Here are a few metrics to consider if this is your preferred method for marketing your business, and spoiler alert — it isn’t all about the total number of your followers.
- Engagement: Measures the level of engagement (likes, comments, shares) your social media posts receive.
- Reach: The number of unique accounts that viewed your content.
- Impressions: The number of times your content was seen in aggregate. This is different from Reach, which measures unique views, whereas impressions are the total number of times the content was seen.
- Followers: The net increase in followers and unfollows over time.
Of these metrics, engagement is the most important metric for social media content and growth. Lean into the content that garners more engagement from your audience. And don’t forget to engage with your audience and others you want to reach on the platforms.
Digital ads
Metrics associated with Meta and Google Ads can be very complex and certainly are not limited to what I detail here. However, it’s worth noting common terms and industry averages.
- Cost per click: Cost associated with each click on a digital ad, whether their contact information is submitted or not. A click does not equal a lead.
- Cost per lead (CPL): Calculate the cost of acquiring a lead through each marketing channel to assess the efficiency of your marketing spend.
- Cost per mille (CPM): The cost per 1,000 impressions for any ad.
- Conversion rate: Measure the percentage of website visitors who take a desired action, such as filling out a contact form or requesting more information. This can also be used to determine your conversion rate further down the funnel. For example, of the leads received, how many did you turn into clients?
This measurement can help you identify which part of the funnel needs adjustment. Are you acquiring a relatively good number of leads but not setting any appointments? Are you setting appointments but not closing the deals? This data is feedback for your process at each stage of the customer journey. Use it to make measurable improvements in your conversion rates.
The bottom line
One of the most readily thrown-around metrics for marketing is ROI. And ROI will be subjective based on the tactics used..
Return on investment (ROI): Measure the overall return on your marketing investment to ensure you’re getting a positive return. The formula to calculate ROI is:
(Net profit / Cost of investment) x 100
While ROI is useful in determining success for specific campaigns, a holistic perspective would better serve long-term marketing goals and an overall assessment of your business success. Consider Client Acquisition Cost (CAC) as a general marketing metric to identify if you’re growing in the right direction.
Client Acquisition Cost (CAC): Calculate the average cost of acquiring a new client to assess the efficiency of your marketing and sales efforts.
Ideally, CAC declines as you ramp up your business and generate referrals. This is an excellent measure of your business and should be used as a Key Performance Indicator (KPI) every quarter.
If these numbers start to go the wrong direction (i.e. increases), it’s time to evaluate your marketing spend and how you’re converting within your funnel.
Are you converting the leads you’re paying for? Are you missing out on potential clients due to a lack of follow-up? Are you nurturing past clients and SOI in a meaningful and productive way that generates opportunities?
Always strive for efficiency in your business by keeping an eye on CAC.
Creating raving fans and cheerleaders organically adds more opportunities to the top of the funnel. This means low-cost to no-cost leads, which lowers CAC.
Consider client lifetime value over what is right in front of you or immediately behind you. You might be more inclined to keep them close when you realize their true value.
Client Lifetime Value (CLV): Estimate the total value in sales and commissions a client brings to your business over the lifetime of your relationship.
Think about a first-time home buyer client. Not only do they buy one house, they will likely sell that house and buy another. They might also refer a friend or colleague to you. That friend refers another home buyer who also needs to sell their house. You get where I’m going here.
That client who started with one transaction has turned into five transactions over time.
These are the clients you want to keep. They decrease your CAC and increase your Commissions. If your marketing costs stay the same and your sales increase — congratulations, you just got a raise.
This is the goal, my friends.
By monitoring these metrics, real estate professionals can gain valuable insights into the performance of their marketing efforts and make informed decisions to optimize their strategies for better results.
Measure, analyze, improve
So how do you track these numbers and know what to do with the trends? With any type of data, you need a baseline. Establish a starting point over a short period of time and start to adjust from there. Keep in mind the images contained in this article are industry averages. While they are a good starting point, your data will vary due to marketing efforts, audience size, market, skill and established reputation.
If you’re paying someone or a company to handle your digital ad campaigns, they should be able to provide your campaign results. Ask for it and get an understanding of how it’s performing.
Website metrics are best viewed on Google Analytics (GA) if you’re up to the task, but they can be intimidating for beginners. Again, your web developer should be able to provide information on website performance if GA isn’t in your wheelhouse and you have no desire to DIY.
Track social media metrics using the professional dashboard on each platform. Take snapshots or note performance metrics monthly. Alternatively, use a platform like Metricool, Hootsuite, Later or Buffer for detailed insights on individual posts and performance. Choose the one that works best for you and your budget. They’re all a little different.
Embracing data-driven strategies is no longer optional — it’s essential. By consistently tracking and analyzing these key metrics, you’re not just measuring performance; you’re uncovering opportunities for growth and efficiency.
As we enter the last half of 2024, make it your mission to understand these insights and how they can guide your decisions and ongoing processes. As you dive in, stay adaptable and watch your actions take the shape of success in the coming year.
Tara Meier is a Certified Google Digital Marketing Specialist, licensed Arizona real estate broker, NAR technology trainer and coach. Connect with her on LinkedIn and Instagram.