Jeff Vasishta › Texas Ally Real Estate Group, LLC

Free Money? Can You Build a Real Estate Portfolio with Zero-Interest Credit Cards?

by Jeff Vasishta | May 1, 2024 | Investing, News Feed

Juggling 0% interest business credit cards is like juggling torches in a hay-covered barn. Drop one, and the whole place goes up in flames. However, if you are disciplined and know what you’re doing, they could be a great asset in helping you kick-start your real estate investing career.

Getting a 0% Business Credit Card

There’s lots of information online regarding 0% APR business credit cards. Most offer 0% interest for 12-18 months. This makes them well-suited for real estate projects that can be refinanced or sold, allowing you to pay back the cards before interest starts to kick in. These cards are relatively easy to get, provided you have good credit and a business entity.

But don’t expect to get hundreds of thousands of dollars right away. Once you have used and paid back the initial amounts borrowed, lenders tend to gradually increase the amount they can lend to you. It’s not unusual to get $50,000 to $100,000 with your first round of funding with excellent credit.

Because the 0% APR expires after 12-18 months, it’s not a good idea to keep using the same card beyond the expiry date. Rather, you will have to get a new card to benefit from a new introductory 0% APR. The more borrowing and payback cycles you go through, the more your credit will be extended.

If you’re using a broker to help you apply for multiple cards, as I have, talk to your accountant about writing off the broker’s commission and any fees charged for using the cards as cash to make purchases or pay contractors.

The Painful Pitfalls

If you get several business credit cards at once, I’ve found it difficult to stay on top of each one, especially in the midst of a renovation. Each card needs the principal payment to be paid on time, and if you are a day late, say goodbye to your 0% introductory period. You’ll find yourself paying up to 30% interest. It happened to me, and I could only get some relief when I refinanced the home and paid the card in full.

Using a 0% Credit Card to Build a Real Estate Portfolio

Investor Rick Matos from Lehigh Valley, Pennsylvania, told BiggerPockets how he purchased entire houses in run-down areas of Allentown using credit cards, which he then fixed up and refinanced into conventional loans. Rick’s is a classic case study because the houses he purchased were extremely cheap—often $10,000 to $20,000. However, soon after he refinanced them, the area went through a massive cycle of urban renewal and price appreciation, which rapidly increased his rent, allowing him to pay down his mortgages and increase his net worth.

Detroit investor Ashley Hamilton made a similar move, telling Business Insider (a story that also ran on Yahoo!) how she purchased 35 units across 30 properties over 14 years with 0% balance transfer credit cards.

Hamilton’s blueprint is one all investors can follow: She accessed her money via convenience checks provided by the credit card company and deposited the money directly into her checking account. After fixing up and renting out her properties (as with Matos, some of these houses were as cheap as $10,000), she paid off her balance transfer debt with rental income, cash-out refinancing, or tax refunds. Hamilton’s advice was to open credit cards that offered cash rewards and the 0% balance transfer rate, thus kicking back cash to help her repay the loan or use it on future projects.

Homes Around $100,000 Are Ideal Vehicles to Scale in Today’s Market

Using credit cards to build real estate portfolios sounds like a move from the land that time forgot, i.e., directly after the 2008 financial crash. Back then, low interest rates and burnout from the financial crash left banks looking to offload thousands of homes for pennies on the dollar.

But while this old-school playbook might seem dated with high prices and low inventory, it’s not. There are many cities where you can buy decent homes for just over $100,000. If you have a card with that much available credit, borrowing the rest of the money to renovate and refinance will allow you to pick up many such homes.

Alternatively, you can do the same thing by getting traditional mortgages (assuming the home needs modest renovations), using a zero-balance card to renovate, and pay it back with the cash flow you generate. This requires expertise and market knowledge to ensure the card can be fully paid back within the 0% introductory period. However, if you are unsure of what your house will rent for, this is not a move I recommend.

Using a 0% Credit Card to Flip a Home

House flipping works similarly to buying cheap homes in depressed markets and fixing them up to refinance and pay off through rental income. However, if you are flipping a house in a more expensive market unless you have a large 0% line of credit to purchase an entire home, you’ll have to be selective on how you use your cards.

This is because some lenders might want to know the source of your funds if you attempt to get a mortgage, and they might balk at the idea that you borrowed money to borrow money. A workaround is to deposit the money into your bank account and let it season for three months, but you are always working against the clock, using up your introductory zero-interest period.

The most obvious way to use 0% credit cards for a flip is to get a regular mortgage on a home and then use the zero-balance card to pay for appliances and renovations. If you intend to keep the house after it has been renovated, you’ll need to refinance the property or be confident enough that your cash flow will pay back credit cards before the 0% introductory offer expires. Renovations and budgets usually run over, as does the time to market and lease a property, so consider all this when deciding whether to use a business credit card.

0% Credit Cards and Short-Term Rentals: A Match Made in Heaven

Zero-APR credit cards are the perfect vehicle for a short-term rental business. If you have an existing property or are arbitraging one, fixing up the home to make it appeal to vacationers requires expenditures for TVs, beds, and decor. It can amount to a lot of money. However, the rental reward can be huge—over three times as much as a regular rental, depending on location—allowing you to pay off your card quickly and reap high profits.

This is a technique I’ve used myself, and it’s relatively safe if you are sure you can get the rent you need. In my case, I had a lease signed with an arbitrage tenant—we agreed to split the cost of the furnishings—before I spent a penny on the card.

Also worth looking into is installing an accessory dwelling unit (ADU) next to your STR or primary residence for additional income. These tend to range from $60,000 to $225,000. Using cards to buy or renovate and pay back with rent or via refinancing can increase your long-term cash flow.

A new wave of striking new tiny homes—ideal for short-term rentals—have recently come on to the market, starting at $20,000. This makes them well suited for credit card purchases, as banks won’t touch such small loans.

Final Thoughts

If you don’t have the security of a W-2 job or savings as a backup, you are walking a precarious financial tightrope when using zero-interest credit cards. In real estate investing, one thing generally holds: Things never go as planned.

However, with a monetary cushion and the understanding of how to best deploy zero-interest credit cards, they can be a tremendous asset, allowing you to bypass hard money lenders and build a foundation for financial freedom.

Be warned, though: These instruments come wrapped in yellow caution tape. Indeed, 0% interest credit cards are not recommended if you’re an unorganized person or do not have someone working alongside you who is organized. Neither would I recommend them if you didn’t have a fail-safe bailout strategy such as a HELOC or emergency funds should you find yourself in over your head.

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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.

These U.S. Cities Are Overflowing with Affordable Single-Family Homes Under $300k

by Jeff Vasishta | Apr 29, 2024 | Investing, News Feed

With median house prices in the U.S. inching towards half a million dollars and mortgage rates back over 7%, homebuyers and investors alike are getting choked out of the market. Although there are several cities in the Midwest and South where you can still buy homes for $100,000, they tend to be the exception rather than the norm.

Despite the shortage of houses, according to Realtor.com, there are several markets where you can buy a quality home in a good neighborhood for under $300,000.

The seven cities identified are:

Birmingham, Alabama
Buffalo, New York
Cleveland, Ohio
Detroit, Michigan
Pittsburgh, Pennsylvania
Rochester, New York
St. Louis, Missouri

With rents increasing and mortgage approvals tightening, these moderately priced homes might still struggle to break even at current interest rates—even with a conventional down payment of 20%—so they would need to be purchased for cash or with a sizable down payment and then refinanced when rates drop.

However, buying now—and catching an upward price cycle—would put you ahead of the buying frenzy when rates eventually come down. Also worth considering is buying a primary residence in these affordable cities to keep your debt-to-income ratio down while investing here for the long term.

Here’s a look at three of the identified markets.

Birmingham, Alabama

Median house prices in Birmingham rose by 4% annually to $290,000 in March 2024. The good news for buyers and investors is that listing inventory rose 27.6% year over year.

A completely remodeled, detached 1,700-square-foot single-family ranch home with three bedrooms, two bathrooms, and a garage currently costs $290,000 in Birmingham.

The University of Alabama anchors the city, which employs 23,000 people. It also has a robust car manufacturing industry (Honda and Mercedes have plants here) and finance and healthcare industries that traditionally tend to stay. There is also a burgeoning short-term rental market, with the number of listings doubling over the last 12 months, according to AirDNA.

“I realized that Birmingham has one of the best real estate markets in the nation, from a returns perspective as well as from a barrier-to-entry perspective,” investor Stephen Yin told Business Insider in 2022. “In a lot of neighborhoods, you can get a three-bedroom, one-bathroom for under $100,000.”

Since then, Birmingham has been one of the fastest-appreciating cities in the South. In March 2024, the median listing home price was $179.900, up 20% year over year. The median home sold price was $225,000, according to Realtor.com. The city has a low unemployment rate of 3.1% as of February 2024 compared to 3.8% nationally, with 54% of the city being renter-occupied, according to RentCafe, so there’s a large tenant pool.

In recent years, Alabama has been one of the sleeping giants of the South from a real estate investment perspective. However, with relatively low purchase prices, it’s a great place to invest once all other metrics are considered.

Buffalo, New York

Buffalo has been the poster child for an economic turnaround. The snowy industrial city in Western New York, bordering Canada, has benefitted from a decade of city initiatives that have poured billions into parks, public art projects, and apartment complexes. The 2020 census figures showed the population increasing for the first time in 70 years.

The city’s metro median list price of $270,000 is up almost 10% in the last year, with inventory increasing by 4.2%. For that price, you can purchase a fully renovated 1,444-square-foot single-family home with three bedrooms and 1.5 baths, with a two-car garage. Healthcare, banking, manufacturing for car parts, and retail groceries are some of the biggest employers in the area, while Buffalo (SUNY) University employs almost 6,000 people.

There have been double digital rental increases in the last few years, with some tenants experiencing 30% rent hikes. RentCafe cites Buffalo as one of the country’s top 20 most competitive small rental markets. With 57% of the households in Buffalo renter-occupied, according to RentCafe, it remains a great place to invest despite competition for homes.

Cleveland, Ohio

Cleveland was recently put in the global—or at least the U.S.—spotlight. The women’s NCAA Final Four was on Sunday, April 7; the following day, the city was a prime viewing location for the solar eclipse. No wonder mayor Justin Bibb enthused, “I see dollar signs, dollar signs, dollar signs everywhere,” as out-of-towners converged on the city.

Those two events represented a fitting fulcrum to Cleveland’s economic turnaround. Greater Cleveland (the Cleveland-Akron combined statistical area) has 3.7 million people and a $220 billion economy. It is the largest region in Ohio, the third largest in the Midwest, and in the top 20 in the U.S.

The area has over 110,000 college students and sees $3.7 billion in annual research. Medicine is one of the city’s leading employers through research, biotech, med tech, and healthcare, spearheaded by the Cleveland Clinic. Other industries include advanced manufacturing, law, aerospace, banking, insurance, technology, education, and polymers and materials.

The metro median list price is a very affordable $227,000, up 8.4% annually. That price will buy you a fully renovated three-bedroom, 2.5-bathroom, 1,628-square-foot house with a two-car garage.

Rents have risen dramatically in recent years—increasing 6.5% between March 2023 and 2024 in the Greater Cleveland area and 9.4% in the metro area for single-family homes in the same period, meaning rent has outstripped inflation. According to RentCafe data, 59% of households rent in Cleveland, making it another prime rental market.

Final Thoughts

The four remaining markets have one thing in common: They are formerly depressed industrial cities that successfully reinvented themselves through tech, medicine, finance, energy, and food and beverage. They are all relatively small cities with a decades-long history of low-priced homes.

Government incentives and investment have transformed these cities. The 2022 CHIPS Act sees around $280 billion poured into the U.S. economy through grants, tax breaks, and research incentives to bring essential technologies such as semiconductors to U.S. soil. Many of the beneficiaries of this money are located in the Midwest, in small cities that have the land to create technology parks.

“One advantage of having big companies return to the Midwest is that it helps take seriously some of the crises around geopolitical tensions, climate change, or potential disruption to our supply chains,” Brookings Institution fellow Annelies Goger told The Guardian. “It would help us have more capacity domestically to overcome those types of shocks in the future.”

The Midwest has been regenerating into tech towns for the best part of a decade. Indeed, 18,000 start-ups, backed by venture capital and talent, have landed in the region, settling into the heartland, sparking a population increase for the first time in years.

The lesson for real estate investors is to follow the tech and med dollars—see where labs and fabs are being built and where future-proof businesses are sprouting. When this coincides with former down-on-their-heels industrial cities, you’ll likely meet a perfect storm for investing: low housing costs, good local infrastructure backed by universities and hospitals, and large-scale stimulus packages attracting new residents.

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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.

Economic Surge, Housing Plunge: Why Economic Growth Is Wrecking Real Estate Opportunities

by Jeff Vasishta | Apr 26, 2024 | Investing, News Feed

Mortgage rates recently rose above 7% for the first time this year, bringing an already glacial housing market to a standstill. The news has hit investors like a horror movie jump scare after we’d thought the worst was behind us.

A robust economy is partly to blame. During the pandemic, when U.S. citizens feared rationing and mass unemployment, predicting our current economy would have been almost unthinkable.

In March, U.S. employers added over 300,000 jobs, and the Labor Department also reported that the unemployment rate had dipped from 3.9% to 3.8%, having remained below 4% for 26 straight months, the longest winning streak in over 60 years.

So, more jobs mean more money and more real estate deals, right? Wrong.

We’ve Gone From Five Potential Interest Rate Cuts to Maybe One

As we know, inflation is the cause of high interest rates. It still stands at a stubborn 3.5% after the rate hikes (after coming down from 9% post-pandemic, the Federal Reserve is aiming for 2%).

The robust economic outlook is the equivalent of letting the Fed have its cake and eat it, too. Had the economy stuttered, there would have been good reason to believe that the rate hike had a detrimental effect on businesses and that it was time to start lowering them. However, the opposite has happened, and real estate investors who might have hoped for five or rate cuts this year now have their fingers crossed that there will be one.

“They’ve got the economy right where they want it,” Mark Zandi, chief economist at Moody’s Analytics, told CNBC. “They are now just focused on inflation numbers. The question is, what’s the bar here?” My sense is they need two, probably three consecutive months of inflation numbers that are consistent with that 2% target. If that’s the bar, the earliest they can get there is September. I just don’t see rate cuts before that.”

Bank of America economist Stephen Juneau concurred, saying in a client note:

“We think policymakers will not feel comfortable starting the cutting cycle in June or even September. In short, this is the reality of a data-dependent Fed. With the inflation data exceeding expectations to start the year, it comes as little surprise that the Fed would push back on any urgency to cut, especially given the strong activity data.”

Many Renters Have Given Up on Owning a Home

High interest rates have put real estate investors between a rock and a hard place. Wait for rates to drop, and a lack of inventory could raise house prices. Buy an investment at a high interest rate now and kiss cash flow goodbye, potentially putting investors in a tough spot once vacancies and repairs are factored in.

Many renters have given up on the idea of ever owning a home, according to a January survey by property management firm Entrata, which found that 20% of those surveyed don’t expect to ever own a home, a 33% increase from 2021. Many of these renters are financially stable and could afford a home if they wanted, but prefer the flexibility renting offers—particularly with job uncertainty and remote work.

A February survey by Opendoor Brokerage—a technology firm specializing in buying and selling real estate—revealed that 46% of renters would not consider buying a home unless rates fell below 5%.

A Buying Pause Is a Golden Opportunity

However, simply waiting for rates to fall below 5%—which, let’s face it, currently seems about as likely as finding peace in the Middle East—does not mean there will be an abundance of homes to purchase. There is still a chronic shortage of inventory. It’s estimated the U.S. currently has a shortfall of over 7 million homes. It will take a long time for builders to fill that gap.

Current homebuyers are buying because they need to—after new babies, new jobs, or divorces. This pause in the market and increase of long-term renters means that there has probably never been a better time in recent years for savvy investors to buy. However, in the current market, it can only be done with a long-term goal in mind.

Practical Moves to Get Your First Investment Property

Despite the high rates, there are some practical moves new investors can make now to put themselves in a good position for the future.

A caveat: None of these ideas are new or involve assuming a mortgage, creative financing, or liquidating assets. Neither are they reliant on a super-high income or loans from wealthy family members. And most are not easy options for everyday working middle-class Americans with jobs and limited time who are looking to shore up their financial future by owning rental real estate.

Rent, don’t buy a personal home

If you are contemplating buying a home for yourself or a rental, adding personal debt with a high-interest rate mortgage won’t help your investment chances.

According to a recent Lending Tree study, it’s currently cheaper to rent in many markets than buy. Renting will not only help your debt-to-income ratio when qualifying for a mortgage on an investment property, but also enable you to make a down payment on an investment, increasing its chances of cash flow.

Increase your income

A higher income offsets the financial hurdles of being a landlord while also helping you qualify for a better mortgage rate. Whether you need to Airbnb a room or two in your personal residence, aim for a promotion at work, or take on some kind of side hustle, having more money has never been a better problem solver.

Lower your expenses

Another easier-said-than-done piece of advice, but this goes hand-in-hand with increasing income. No one is expecting you to adopt the brutal austerity moves of the FIRE movement and altogether forgo a trip to Starbucks now and again.

Lowering expenses could mean moving to a more affordable location—a must if you work remotely—or forgoing eating out or pricey trips. It could also mean moving in with a family member or having roommates. Calculate how much money you need to start your investment journey, and work backward from there to make it happen.

House-hack a small multifamily investment

This old-school method puts a roof over your head and allows you to qualify for an FHA 3.5% down loan. The money you save on paying for rent or a personal loan by having your tenants pay some or all of your mortgage is equivalent to having a cash-flowing investment property. It’s an ideal building block to launch your investment career.

Final Thoughts

Although many seasoned real estate investors are quick to cite that interest rates were over 7% 20 years ago, the headwinds facing investors today are that wages have not kept pace with house prices or rents. That means the nation is increasingly cost burdened, spending more than 30% of its monthly income on housing.

That is both a gift and a curse for new investors looking to buy their first rental. It’s a gift because the tenant pool is expanding, and there is limited investment competition. It’s a curse because it is tough to get on the other side of the fence and find a good rental property in a high-interest rate, low-inventory market.

Becoming an investor now—without creative financing, wealthy relatives, or hitching your hopes to a guru or syndicator—comes down to basic saving, cost-cutting, and being educated about the existing loan products available to help you get started.

In short, it means doing what many others are not prepared to do. There’s no magic bullet, but it’s doable. It comes down to making tough choices to succeed.

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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.

Sunbelt Surge: 15 Cities Dominating the Growth Charts

by Jeff Vasishta | Apr 24, 2024 | Investing, News Feed

Simply investing in any metro Sunbelt market is not a recipe for success. To catch a cresting wave of appreciation and cash flow, you’ll need to dive deep into the metrics to examine where people are moving to, how property and rental prices are increasing, and what the unemployment rate is like.

The good news is that we’ve done it all for you! So stop throwing darts at the map, examine our findings, and pick markets like the savvy, switched-on investor you are.

Rental Oversupply and Interest Rates Are Having an Effect

The first thing you’ll notice when looking at the table is that neither house prices nor rents in our top markets are growing at a great clip. Some are declining. After the frothy post-pandemic period in 2021, when prices and rents took off like spaceships, the advent of high interest rates has done what was intended: slammed the brakes on an exuberant house-buying market.

An increase in rental units has compounded this, as many new apartments came to market to accommodate population increases fueled by relocating job markets. National data, analytics, and listing site CoStar had the same findings in a recent report.

“The U.S. multifamily market staged a strong rebound in 2023 as the number of units absorbed rose by 122% year over year to 332,000 units,” Jay Lybik, national director of multifamily analytics at CoStar, said in a statement on their organization’s website. While the increase in demand was impressive, it was overshadowed by the influx of new units, causing imbalances in supply and demand and pushing vacancy rates higher.

Costar’s report stated that roughly 565,000 new units became available over the last year, mostly in Sunbelt states, with oversupply causing rents to drop in some Southern markets, as our table shows.

Austin Hits The Brakes

Nowhere has the home growth slowdown been more acute than in Austin, Texas, the poster child for the Texas tech boom, where our data shows a 6.29% decrease in home prices and a 3.01% decrease in rents over the year. It’s a decline from its dizzying high of just a few years ago, when investors purchased a record $9.4 billion in apartments in 2021, according to MSCI Real Assets, and rents increased 20%, more significant than anywhere else in the country.

The actual decrease is more profound than our YOY data shows, with the Freddie Mac House Price Index revealing prices have fallen more than 11% since peaking in 2022, the most significant drop of any metro area in the country, according to the Wall Street Journal.

“Clearly, there’s some pockets of overbuilding,” apartment investor Larry Connor, whose company manages a 15,000-unit national portfolio, told the WSJ.

However, counting Austin out would be a mistake. The area has so many major tech companies that once the market stabilizes, values will inevitably increase.

Charleston’s Tourism Is a $12 Billion Industry.

Interestingly, although Charleston, South Carolina, came in toward the bottom of our listing, that was due to its population growth only. Based on its house prices (up 6.31%) and rental increases (up 7.03%), the area is booming, which indicates that many of its jobs are being filled by locals. According to the U.S. Census, South Carolina surpassed Florida as the fastest-growing state in the country last year.

According to South Carolina’s state website, North Charleston, South Carolina, which includes Berkeley, Charleston, and Dorchester counties, had the largest percentage gain in nonfarm employment from October 2022 to October 2023. Employment rose from 402,300 to 426,800, reflecting a total change of 24,500, or 6.1%.

The largest private employers in Charleston are in healthcare, aviation (Boeing), and retail (Walmart). However, one of the biggest drivers of employment is tourism, which adds $12 billion to the local economy. Tourism would account for the increase in house prices and local employment. AirDNA statistics support this by showing double the active short-term rental listings in 12 months.

Highest-Growth Sunbelt Cities

The fastest-growing Sunbelt cities are all relatively close to one another: Myrtle Beach, South Carolina, followed by three Florida cities: Lakeland, Fort Myers, and North Port-Sarasota-Bradenton. Here’s a deeper dive into each.

Myrtle Beach, South Carolina

Myrtle Beach is not only one of the fastest-growing cities in the Sunbelt, but the fastest-growing in the country according to U.S. News and World Report’s annual list of fastest-growing places in America, which bases its list on net migration. Our data ratified this, showing 5.17% population growth, a stable 2.08% house price growth, and 3.65% rental price growth.

A significant component of Myrtle Beach’s success has been diversifying away from purely tourism. “We’ve said for a number of years that a key component of making this a year-round livable place is to diversify our job base and that we’re not wholly dependent on the summer seasons and the summer tourism industry,” assistant city manager Brian Tucker told News 13, a local TV station. “We have to have those job creators year-round.”

However, many year-round movers to the area are not drawn to the area for work but are retirees or work remotely. Horry County, for example, has seen an explosion of growth over the past 20-plus years, increasing from 198,000 people in 2000 to over 380,000 in 2022. Moving company Hire a Helper found that 16,000 retirees, most over 55, moved to the Myrtle Beach area in 2023.

Lakeland, Florida

Our numbers showed that Lakeland saw a healthy 4.5% population growth in 2023, a modest 0.87% home price growth, and 1.63% rental growth.

One of the main draws to the area is its location between Orlando and Tampa. It retains a small-town feel, has lower housing costs, and is less crowded than the suburbs of the two major cities surrounding it.

Lakeland offers diverse employment opportunities in education, healthcare, aviation, and logistics. It’s an excellent choice for people to live and retire, mainly if remote work is an option.

Fort Myers, Florida

Located between Tampa and Miami on Florida’s Gulf Coast, Fort Myers has many of the same attributes as Lakeland, in that it is not as expensive as some of the more glamorous cities in Florida and has a laid-back charm, with the addition of a vibrant downtown bar scene in the River District. It’s also a haven for outdoor and water enthusiasts.

There are employment opportunities here in healthcare, retail, education, and tourism. The commute to Naples is not far for work in the hospitality industry at many hotels.

U.S. News ranked Fort Myers No. 3 as one of the fastest-growing cities in the country in 2023-2024. Our figures show a healthy population growth of 4.38% and a marginal house price growth of 0.15% (due to interest rates and explosive growth when rates were lower). Rental growth has dropped 1.58% over the last year due to a rapid increase during high inflation.

Like many cities in Florida, Fort Myers is a magnet for retirees, with residents 65 and older making up nearly a quarter of the city’s population.

North Port-Sarasota-Bradenton, Florida

Located close to Lakeland, with many of the same attributes, lower house prices, and a quieter pace than nearby Tampa and Miami, the area is busy with new developments such as Marie Selby Botanical Gardens and the opening of a 1920s house-museum in Newtown, the city’s historic Black district.

Our figures showed population growth of 3.68%, with home price growth dropping 0.42% and rent growth dropping 0.20%.

One of the draws to the greater Sarasota area for New Yorkers is not only its proximity to target cities, but also its active arts scene (Sarasota Orchestra, the Asolo Repertory Theatre, the Sarasota Opera House, and the Van Wezel Performing Arts Hall), as well as popular white sandy beaches.

With a large population of retirees, it’s not surprising that healthcare is one of the big employers in the area, with the Sarasota Memorial Health Care System employing 6,550 people. A sophisticated arts scene appears to come with a price, however, as the median home price is over $450,000 and the median rent $2,382, which puts it out of the reach of many retirees.

Final Thoughts

Lower taxes, warm weather, and an affordable cost of living are the main reasons businesses and people have been moving to the Sunbelt, particularly Florida. According to U.S. Census data, Florida was the top location for newly formed business entities. Of the 5.8 million new business applications filed nationally from January 2021 to January 2022, 683,680, or 12%, were in Florida.

These businesses have spanned the gamut in size and scope, ranging from behemoths such as real estate investment group Blackstone, global investment bank Goldman Sachs, and autonomous vehicle technology company Argo AI to hundreds of smaller businesses. Combine this with remote work options and a perennially favorite spot for retirees, and you can see why Florida is—excuse the analogy—amid a perfect storm of migration.

The reasons for moving to Texas and other Sunbelt states are similar to those of Florida: work, weather, and a welcoming cost of living. So long as these remain intact, it’s hard to see how the Sunbelt won’t continue to tighten its hold on Americans looking to escape the cold, overcrowding, and high cost of living in other parts of the country.

Investors have two main choices regarding Sunbelt housing: appeal to retirees who are hesitant to commit to long-term mortgages or appeal to the influx of younger movers drawn to jobs, the weather, and affordable rents.

Exclusive Breakdown and Data Analysis of the Hottest Region for Investors

It’s no secret the Sunbelt has been a primary focus of investors for years due to appreciation and rent growth. But which markets offer the best opportunities for cash flow?

Download our Sunbelt Market worksheet for a synopsis of the most popular metros and states for investors, and get the full data for all states and markets in our accompanying Sunbelt Market Intel spreadsheet.

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.

Should You Invest for Cash Flow or Appreciation? Let’s Reevaluate in an Era of High Interest Rates

by Jeff Vasishta | Apr 22, 2024 | Investing, News Feed

For real estate investors, the question of cash flow versus appreciation is as old as time. However, in an era of high interest rates, buying properties for cash flow isn’t easy. That doesn’t mean investing should be off the table, as there are many advantages of owning rentals other than immediate cash flow—appreciation and tax advantages being the most obvious.

Whether to keep buying or stay on the sidelines comes down to some specific decisions. Let’s dig deeper.

The Higher the Cash Flow, the Greater the Headaches

The less expensive the property, the greater the cash flow. That’s the theory, anyway. Rentals in low-income neighborhoods might cost less, but tenants also earn less and cannot withstand the financial hurdles that life throws at them. Thus, potential cash flow numbers are rarely achieved due to vacancies, repairs, and evictions.

Buying multiple doors in C or D+ neighborhoods has the potential to turn into one big headache. This was exposed during the pandemic when most tenants seeking a pause in rental payments and an eviction moratorium were from lower-income areas. The landlords greatest affected were smaller mom-and-pop owners who fell behind on mortgage payments, ruing the day they chose to invest where they did.

The Section 8 Caveat

Some might champion Section 8 rentals, but the hurdles of dealing with Section 8 inspectors and hoping your tenants maintain your property often make the experience hard for investors who got into real estate to lessen life’s stresses rather than add to them.

However, with interest rates higher than they have been in years, the only places to cash flow are likely cheaper properties in lower-income neighborhoods. Many successful landlords are in these areas, but it is not a passive venture. Stabilizing buildings and maintaining repairs and rents is a full-time, labor-intensive endeavor.

Parking Your Cash for Appreciation and Tax Benefits

Not needing cash flow is the enviable position many investors want to get to because it means you are already financially free. According to CoreLogic’s U.S. Home Price Insights, nationwide, prices increased by 5.5% year over year as of December 2023. This coincides with a healthy job market, wage growth, and lowered inflation.

Using a 5% metric, if you own an investment property valued at $200,000, your home would have appreciated by around $10,000 in one year. That’s the equivalent of cash flowing just under $1,000/month. In the current interest rate climate, that’s a tough ask.

If you own $2 million worth of real estate, you would have increased your net worth by $100,000. Added to this are the tax benefits of depreciation, repair, and operating expenses associated with real estate, which means even if you are not cash-flowing, you are still building wealth. Refinancing will add cash flow to the equation when rates eventually drop.

Better Neighborhoods Equals Lower Cash Flow

The problem with investing in highly appreciating areas is that they generally do not cash flow well because they are more expensive. However, when factored against tenant issues in lower-income neighborhoods, holding on to a good asset in a more upscale neighborhood is likely to be more beneficial in appreciation, even if it only pays for itself. The cash flow will also increase once the asset is paid down and the rents increase.

The Case for Cash Flow

Many syndicators utilize the strategy of forcing appreciation through value-added improvements that increase cash flow to attract investors who would otherwise be unwilling to invest.

“We never invest for appreciation, since that is out of our control,” Tyler Cauble of The Cauble Group, a commercial real estate investor and consultant, told bestevercre.com. “Our team selects projects where we can create value and force appreciation through value-add or development from scratch. Any appreciation is just icing on top.”

Jonathan Barr of JB2 Investments, a multifamily syndicator, concurred: “I would say: Always invest for cash flow—but inevitably, increased positive cash flow is followed by appreciation.”

Grant Cardone is one of the most voluble proponents of the cash flow model. On gctv.com, he poses the cash flow versus appreciation question—and answers it this way:

“Whenever someone asks me if cash flow or appreciation is better when investing in real estate, I give them a dumbfounded look because they should already know the answer. Cash flow investments provide a regular stream of income. In contrast, appreciation investments offer the potential for a more significant return if the investment is sold at a higher price than the purchase price. Getting wealthy from real estate investments is possible. You have to focus on cash flow, and the market fluctuation won’t affect you as much.”

Is It Possible to Cash Flow Without Giving Your Money to a Syndicator?

Despite what most syndicator salespeople might claim, handing your cash over to them should require first knowing the details of their financing. Without this knowledge, you are taking a leap of faith. In an era of fluctuating interest rates, only long-term financing attained before the rise in rates can insulate an operator against financial difficulties.

If you want to maintain autonomy and cash flow on your investment properties, here are some steps to take:

Buy under-market properties that need work, complete the work, and increase rents.
Make a large down payment to ensure the home cash flows, and refinance once rates drop.
Add bedrooms by converting attics and larger rooms to increase cash flow.
Rent by the room to add rental income.
Use your property as a short-term rental, if possible. According to AirDNA, STRs generate 61% more income than regular rentals. The STR market continues to grow despite higher interest rates, as lower inflation has increased travel, AirDNA says.
Secure noninstitutional financing from a family member at a lower rate.
Enter into a subject-to-agreement with the current owner, keep the current mortgage in place, and refinance them out of the property when rates drop.
Liquidate other assets to buy the home for cash at a discounted price and refinance when rates drop.

Final Thoughts

Interest rates are the differentiator in the cash flow versus appreciation argument. Although many syndicators and gurus might preach that “cash flow is king,” with rates unlikely to drop substantially in a robust economy, a more nuanced approach could be beneficial—if you can afford it.

If you are not in a rush to quit your job and can afford to ride out high rates, buying for appreciation and tax advantages while waiting for a refinance to cash flow later could be wise. There’s little doubt that prices will soar as rates drop.

However, if you don’t have cash reserves and must find a cash-flowing investment, you’ll need to make a risk-versus-reward decision. Hitching your financial wagon to a syndicator without the requisite research is a risk. Implementing some of the strategies mentioned here could work. Also, waiting until you are in a better financial position to invest could be prudent.

As an experienced investor who enjoys their job (I write for BiggerPockets!), I have taken the somewhat uncomfortable move of stocking up on real estate in solid B/B+ neighborhoods, leveraging myself in a way that I wouldn’t necessarily advise others, taking the tax breaks over cash flow, and waiting for rates to fall. It’s a long-term approach that I have watched other investors successfully employ. It’s not for everyone, but having endured wipeouts previously, I’ve come to appreciate the value of holding solid assets in good areas. Cash flow is wonderful, but to expect it overnight is, I’ve discovered, often wishful thinking.

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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.

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