Renting vs. Buying: The Facts Nobody Talks About

With home praises so high, the question is what's wrong with renting? It's not a question. I mean I think people they solve to that monthly right, Like it's the same thing with a car. People forward what they can, right. I think generally most people, even though the landlords try to make it sound like why rent, you know, why buy when you can rent? And you know, and there are people that do rent, but I think generally people should be buy the house, right and but right now they can't. Right right now they can't. So but it is significantly cheaper to rent right now. So there is you know, some. You know, it's not going to get any better. Right, but I'm saying right now it is cheaper to rent in a lot of big areas than it is to buy. So I do see the appeal for a lot of people on their monthly payment. Yeah, well they have to. It's it's not really much of a choice, right. Well kind of, but Jerry pull up clip one. So like in Austin, you know, you have one hundred and forty one percent difference in renting than buying. You know, Seattle's one hundred and twenty one percent, Phoenix is almost one hundred percent. I mean, these are big numbers. The difference, like it's about half to rent than to buy. Let's stay right here for a minute, Jerry, if you would. So the one thing I. Also want to point out our home prices right like we don't have that on this chart, but it's important to know that some of those some of those cities. Are extremely expensive. And you know, we all know. So Austin led the rental market by a long shot over the last few years. And what I mean by that is it was kind of the darling of you know, where a lot of people were moving and so. There was a lot of developers building apartments, et cetera. There. And the reason why I bring that up is because now. As like everything it's oversupplied, Austin is oversupplied, and so you start to see these markets that potentially have these oversupply problems. Rents are flattening, maybe there's some concessions even certainly there is in Austin. I know in Phoenix. Now this Phoenix is a huge market as you can imagine, but this is where we are. We had our acquisition guy James go out last week to the West Side, which is kind of near the Cardinals Stadium. So if any of you guys ever, if any of you guys ever took a look at you know, where the Cardinals play, that's that's considered. The West side of Phoenix. Well he went out there, James, because we're looking at properties out there. It's a bloodbath. So what I mean by that is all these units opened up around the same time. Guess what they're offering right now? Oh yeah, well that's a given. But guess how much a couple two months free ninety nine dollars moves you in. So that's how competitive it is. So when you want to see a softness of a market, and this is temporary, of course, because it will get absorbed as Phoenix continues to grow, the question is how long will that happen? And the only reason I bring that up it's a small little spot in the country, of course, but it is Phoenix, and there are other areas of Phoenix that. Are doing really well. And so as you start to see the supply being added around the country. Now, this is certainly happening in areas of Florida, it's certainly happening in areas of Vegas, it's certainly happening in Phoenix, and you know, we're starting to see any Atlanta, We're starting to see kind of softness, certainly, lots of areas of Texas that needs to be absorbed. And so from a renter standpoint, the renters have a lot more options. Imagine that you could have she move into a brand new property in West Phoenix for ninety. Dolle eight dollars moves you in now in three months. You got a problem, right, But the reality is we have a three month break and there's all kinds of issues that can that can come from that. But so as you start to see these rents flatten, these are these are properties that that broke ground two three years ago and they're trying to lease up now. And that's that's also helping with these numbers. Yeah, and something has to give, right because right now, based on the current home prices, rates need to drop to about five to five point two five percent in order for renting and buying to be comparable in most studies of markets, and they're not happening anytime soon. And part of that is the expensive home prices, and part of that is the discounted rental prices that you were just speaking of. So Essentially, something has to give, right and that's why we're not seeing a lot of traction in the single home market because for investors it doesn't make sense and nothing's going to cash flow. And for buyers, you know. They're kind of priced out because the rents, the mortgage payment where right now would be so high when they can comparably rent something that is much cheaper. So we are seeing this stagnation. So something really does have to give, so either housing prices have to come down or rental rates have to rise. That makes buying more appealing, and that's why we're not seeing a lot of sales rates. Rental rates are not going to rise in the next two years. I'm telling you guys right now, like all you got to do is just look at the sheer number of volume of supply that's being added right now by market. Now, maybe it. Will in your little sub market somewhere. So of course i'm generalizing, but if you take a look, there's almost a million units that have hit in twenty four and twenty five, and I think they're trickling into twenty six now. That single family projects and yes there are some of those uh and apartments, they're all hitting all over the place, and the West Side is just one example. Not everywhere is a two months free. I actually think that this probably could be as bad as three months free. When you get to two or three months free, you're not even covering your operating expenses, right, I'm telling you right now, like, because what percentage of that rent actually goes to pay for stuff? Right? Property, had taxes, insurance and especially insurance, you know, utilities, all those kinds of things. They're basically just racing against the clock, all competing for the same tenant and giving them concessions to moving because what they're trying to get away from is. That construction loan. And the only way that a bank is going to let somebody off a construction loan is if that property stabilized. So what's also interesting is to note is. I think though the people that are going to suffer the most are the independent owners that are trying to list their house and sell them right now, right because the homebuilders are doing big buydowns, right, so they have a huge advantage where they can take funds and basically buy down that rate for a period of time, whatever it might be. S So it makes that monthly payment look really attractive to the individual. And so ironically, what's really actually doing pretty well are brand new single family home sales. What's actually lagging our existing listings because like let's say I'm listing a house for five hundred grand or a million dollars, and I'm competing against a new home builder in the same market, right rail correct, right, and it's brand new, So so you have that going on as well. That just throws a little little wrench at all of this. But I we just got done with our collective Inner Circle Mastermind, right, I was in Dallas this week. I'm listening to George Gammon, listening to Jason Hartman, Russ Gray and Robert Helms and all my. Partners in this mastermind that we do. And Jason did a whole. Presentation on the single family home market. And so it's very very interesting. As you guys know, when you follow listings, and which is listings is supply. So it's important to understand when the consumer has lots of choices, supply is high, and when they don't have a lot of choices. When people are you know, the people are driving to the houses in there, there's lots of different offers happening. That means that there's not a lot of choices. So supply is still at fifty percent of the average, So listings are at fifty percent, and the home prices are up over four hundred on the average of course across the nation. And I don't see I don't see this relief anytime soon. It's going to be the rent. This this charge is gonna get even worse because the rents are just starting to We're starting to see cracks in the rest, We're starting to get flat rents, concessions. All that's going to show up in twenty twenty five, which is precisely why I'm buying right now. Because you're buying buying, I'm. Buying multi family. But I want to I want to be buying when landlords, whoever they are, are offering concessions. I want to be buying when landlords don't have massive rent growth. You know that's the time to buy. And because it will swing back if you just take a look at the math, because all this will get absorbed. But on the other side of that, if you put your if you put your single family hat on, I don't see prices coming down on our four hundred and there's no thing. For and I know everyone watching is I mean in Phoenix, you know, in Scottsdale, you can't get a single family home under like six six and a half. So you're you're we're saying four because you're calculating like the Midwest, and but yeah, but it's a lot more in a lot of other ones. If you look at the coasts, it's a lot. Yeah, the coasts are expensive. In the middle of the country's less. I mean, if you just want to be general, but so yeah, but if you you know, if you just go on the. Saint Louis, is it the Federal Reserve a FRED. I think it is our. F f f R ED. Just go look, you can see what's the average home price. I think it's over four hundred. That's you got to track something for ten so you can you can you know, you can do that by market. You can do that, and you can get you can drill down into your own market and see. But also rents are going to be lower in those markets. Yeah, And so we still advocate for buying instead of renting, even though it is cheaper right now to rent. So a lot of people think, well, since it's cheaper to rent. That's what I should be doing, but not necessarily because you know, Jerry, if you could pull up clip two, So the media and home price in twenty fifteen was two hundred and seventy five thousand dollars. Today it's four hundred and ten thousand dollars. So that's a forty nine percent increase in the last decade, right, So you're not getting this appreciation if you're continuing to rent, even if you're saving a little bit of money month to month. And if you look at Ai and Jerry, if you can pull up clip three, AI is predicting that in two thousand and thirty five, prices of average home across the country will be six hundred. We got to get Ai on the show. Well that's a forty three was Ai? They take all the data. I'm joking. Cut that's a forty six percent increase in the next decade, so basically now, and that's a reasonable, you know amount, because we just in the last decade went up forty nine percent. We haven't even had that much inflation in the last decade until the last couple of years. We think we're moving into another point of high inflation. So a forty six. Percent increase is not unreasonable, and it could be higher. And so if you're not, if you're continuing to wrench, you're not going to be taking advantage of this. Well, one another way to look at it is that if you own something hard asset, it went up four to five percent a year for the last ten years, and its projected to go up four or five percent a year for the next ten years. That's another way to look at it. So also, it's darned near close to one hundred percent increase in twenty years, right, that's another way to look at it. So of course rear view mirror stuff doesn't mean it's going to happen through the windshield. But at the end of the day, what is going to offset home prices? Like anybody like I would love somebody that's watching to say, what do they think? Why do they think home prices are going to go down? I haven't seen any compelling argument for that yet. I've seen some stagnation, right, We're definitely seeing stagnation. We're definitely seeing some lowering of prices in the single family home market, but it's nothing significant, and I think everyone is just waiting, you know, because they either have tenants in there or they're living there themselves to get the price that they want. Right. So we are seeing some lowering, but it's not. Been anything like people. You know, this is going to go down twenty thirty forty percent. We're not seeing that, right. Yeah. But if you own something today and it's rented, you better make sure that you lock that renter for the next year to two. Yeah, because you're getting into a rent softness area. So if you're projecting rents to be increasing in the next couple of years, you got to be careful. We just bought a property, actually we just got into an ask girl. You're the first to know. We got it awarded last week and we're on the phone with the largest pension in Canada and the largest pension in Australia that actually owned this property. Very astute question. The question was what did you budget for years one and two for rent growth? Extremely important question because what I project for year one and two can significantly make a difference of the returns. So I thought it was a predible question, and I said, we actually budgeted for concessions and zero rent growth. Yeah. So it is always better to buy than to rent because you're you know, getting some of that benefit. You're also able to pull to. Pay your mortgage down over time because all of this money that you're putting towards rent versus your mortgage is going to actually do something for you versus just being thrown down the drain. True. True, there's no question you are panned out your principle if you have that kind of a loan for sure. And you know, again we advocate buying assets. Don't get me wrong, but right now that the facts are what they are, the facts are from a renter standpoint, Well, let's put this way. You're not going to pull a lot of renters out of rentals to buy homes. Yeah, but if you were so like say you're waiting for the market to go down before you buy. If you're paying two grand a month, that's twenty four thousand dollars a year. So how much is that four hundred or five hundred thousand dollars. Home going down? If you're paying twenty four grand a year to rent, you know what I mean? Like, you have to consider that because if you're gonna wait five years, okay, well that's gonna one hundred and twenty five thousand dollars that. You're paying in rent that you could have paid towards your market. Yes, and we're not going to see nobody's nobody's saying two points down on the interest rates. So when Daniel said, right now we're on seven and let's say on a mortgage, it's possible that the Fed, you know, goes down a little bit. But every everything I'm reading is maybe maybe two, three, four times at a core point each if we're lucky. But it doesn't matter if rents, if a home price is keep going up, If if these values keep going up, the one thing that's going to offset pricing is supply. So we need low mortgage payments. I'm sorry. We need low mortgage rates to spur new construction. That's what we need. We need, But I don't think we're really going to really get low interest rates. I mean, Trump wants low interest rates. The Fed doesn't want low interest rates. You know, they're cool. And people are asking, you know, well, what if renting is cheaper, because with your home you're paying what you're paying in rent for tax and insurance, you know, But the truth is you're not getting the appreciation because rents are rates are not going to just drop all of a sudden back to two three percent, So you're just you're never going to get that appreciation and you're never going to pay down. Your mortgage if you just keep renting, right, right. And rents are going to go up like rents are inflationary, so in ten years from now, rents are going to be way more expensive. Where if you lock yourself into a fixed rate mortgage, even if it's more right now, it's probably not going to be more in ten years just from inflation alone. Right, So five percent of four hundred grand is twenty thousand. So so if this trend continues, whatever it is on a hard asset, you potentially that hard asset could go up twenty grand using those numbers, right. So, and then of course next year is compounded based on the higher number, so it goes up a little bit more than twenty grand. But essentially that's what we're talking about. We're talking about a twenty thousand dollars a year put. Well, yeah, and you know everyone always says, well, I wish I would have bought you know, ten years ago, because it was two hundred and seventy five grand to buy a house, or you know, like you hear that all the time, But those same people aren't going to buy right now, and then in ten years from now, they're going to be like, oh, I wish it was only five hundred grand to buy a house, you know, and it's going to be you know, eight hundred grand on average, right, so you know you're going to have that. It doesn't just stop. Everyone thinks like looking back in time. You know, we had the two thousand and eight financial crisis, then we had COVID, and now prices are just going to dip back down, and that's what I'm going to buy. It's like, no, prices are going to keep going up, and you're going to be well off if you bought right now, but then if you wait ten years, you're going to miss out again. Yeah. So I went through a wit and what offset pricing was supply was people walked away from their houses and there was a whole bunch of listings and went back to banks. And I think a one time we were in a. Like three million listing range or something like that, so it was like two or three times what it is now. So that's what happened, and so again the consumer has more choices but I think there's there's two things happening at once. If you isolate the rent piece, rents are going to be flat for the next couple of years. I was telling you, So if you're. Trying to buy real estate and cash flow it, you're not going to have significant rent growth. The other thing is on the single family side, it's it. Rates I think aren't going to change that much. And I don't see you rent or home prices coming down under four hundred, right, So. You know, and and so. What what offsets that could be A lot of listings. A lot of listings would certainly help bring pricing down. That's that's essentially if you take a look at where there has been some reduct and single family homes, it's been precisely because the days on market have gotten long. And so also don't forget as a seller, they're looking in that review mirror. They're saying, oh, my house was worth this it's gone up by this much. And so I know personally there's a lot of listing ages that have been frustrated because the sellers want to obviously maximize the price of their home, and so just because something goes down on the MLS doesn't necessarily mean that it's a pricing problem. I mean, well, it is a price of problem, but it doesn't necessarily mean that it wasn't mispriced in the beginning. Sometimes they do that just to get a listing, right, Yeah. Sometimes they overprice, right, So when you see something drop, you can't just say everything's dropping. Was it price reasonably to this sort right? Right? Right? So, but it's going to be an interesting thing to watch because the the industry that's actually doing quite well right now is the single family homebuilder because of this buydown yeah, right, And even though it just might be a year or something, that's getting people into homes and you're starting to see some sales there. Yeah, and Darry, if you can pull a clip four. Part of the reason that you know, we're not seeing home sales is because it's so expensive. Right. So we're just going to say the average price is around five hundred grand. You have to come up with your down payment, which in the US is on average thirteen percent, So we'll say sixty five thousand. And you have an interest rate of seven. Your monthly payment is almost three thousand dollars, and that's before tax, insurance and HOI and repairs and everything else. So that's super expensive. So and if you really look throughout the years. Right now, average you know, income versus average house price seven point two five percent, Yeah, the amount we're in two thousand and six. It was six point eight twenty sixteen, and went down to five point five you know, during the recession. But seven point twenty five that's a lot the average income. It's over seven times the amount to buy a house. And let's forget you kind of touched on it. There's a really good study by bank Rate. Just type in bank rate and look for the cost to own a home study And I'm going off a memory, but I think it was eighteen thousand dollars was the average cost to own a home? Now, that's everything, right, This is non mortgage, so it's about fifteen hundred dollars a month to own a home. Now, of course, it's all sliced differently, so if you have a seven hundred square foot condo, it's. Not going to apply, you know. But the reality is. You've got your taxes, you've got your insurance, you've got your maintenance, you've got your cap back so or your capital expenses for things like the roof or the paint or you know whatever. It might be just little repairs that come up here and there, and sometimes it's a little so you have all of those things and it's a really interesting study. So when you take the you know, almost three thousand. Dollars a month for the mortgage at thirteen percent down plus the fifteen hundred, you're actually looking at well into the four thousand dollars a month range to live in. A five hundred thousand dollars house, Right, So I think that's important, yeah, right, yep. So uh, and so then you take a look at what will that rent for? What will that five hundred thousand dollars house rent for? And that's how you actually have to back into stuff because it's just math. Yeah, and the big thing really like median income versus median house price. That's an important metric to look at because that really defines affordability. Yep. Yle has a question here. He said, I hope rents aren't flat for two years. I need to increase mine to keep up with utilities, tax insurance, et cetera. Wouldn't rents be more localized based on supply and migration? You're right, they definitely are localized, you know, So it just depends on where you are. But if you're you know, there's pockets in Austin, pockets in Houston, pockets and dolls. These are markets that I'm in Parketson, San Antonio pockets and Tucson pockets and Phoenix. That are soft period. There are also areas that are really, really, really good. So we just bought or at ready to buy a property in Scottsdale. It's three hundred units that we got awarded last week. And Scottsdale is really difficult to build in and there's definitely some supply coming in Scottsdale, but it's not that much. Same thing in Tucson. You know, our Mason Rash project, you know where we're going to build. There's not a lot of construction over there, and there's not going to be in Tucson. So now on the other side, and you know there's there there are doubly areas that are like in Frisco and Carrollton and Plano and Texas, let's say, or on the West Valley in in Phoenix and you're gonna see over areas that are overbuilt, and same thing in Austin, So those are going to be markets that are going to have to work their their their way through it, and the market is somewhat inefficient where you know, when all these units get dumped onto it. The only thing that's that cures it is people. People move into the area, and what what messes with it is when they move out. So so you know, yes, to answer your question, it's possible, uh that your market could see rent growth if it's undersupplied and there's a lot of people moving there, then you're more than like going to see a little bit of rent growth. Yeah, I mean I just listed one of my units, and I'm definitely seeing the challenges because normally my unit's rent really really quickly. This one has not, right, so I'm having to you know, look at alternative options and do shorter term leases and kind of try to work with some tenants in order to well let's talking about that. Yeah, you're a great example. You know, Daniil has always had a very good success of getting another tenant in there right away, like. I don't have no vacancies. Like it's unbelievable what she's been able to do. She's actually stressing out a little bit about one of her unit. Yeah, I have a unit and it's a condo. So it's similar to like a lot of the apartments that were built, except older in SCOTTSDA in Scott's Stale. Great location, but you know, I've had some issues filling it right, Like I'm not even getting the showings because people are looking at the concessions, They're looking at the rental prices. I've already lowered the rent ten percent from my last tenant. Might have to lower it more, you know, And so you're kind of getting in as a small landlord, You're like, well, do you just wait it out so you get somebody? But then every month is costing you so much money, right, so you know you're kind of looking at that. So I'm I'm looking at different options, shorter term leases, people that are remodeling their houses, stuff that you know, a year ago, I would have been like, no, it's like twelve months or eighteen months and that's it. Right now I'm looking at four months leases. I'm you know, what I'm not doing and landlord's out there. What I'm not doing is I'm not conceding on the type of tenant that I want. I'm not conceding on credit and background checks, but I am conceding on you know, the terms and maybe you know even the amount that I'm charging. Yeah, yeah, and that's all. So hopefully you're in a market that doesn't have any of that any of that softness. The weird thing is, it's because we live in Scottsdale or actually Paradise Valley. There's not a lot of development in Scottsdale, right, It's not like this is a market that's you know, because Scottsdale does not particularly love new housing, like you know, which is part of the reason why it's expensive here. And so this could be the case in your market. And her unit is in Scottsdale and she's having challenges. So now if you go out to another area like let's say Chandler or Gilbert or Peoria or Glendale, let's say, you're. Gonna have a very different scenario. Yeah, and you know, and of course if there's been lots of construction out there, like there has been on the West Side, then you're gonna see that softness for a longer period of time. Essentially, you only have so many people trying to figure stuff out. They're trying to rent somewhere, and as the listings grow, their choices grow. This is precisely what's actually good for the market. The Neils had it really easy over the last few years, but this is actually more normal. Yeah. Absolutely, And you know, I'm having to do things and post things places and physically put signs up and things. I've not had to do ever before. But Travis is asking how much should we be thinking about tax write offs when considering whether to be or keep renting. Does higher cost of living areas matter more the lower cost of living areas? Yeah, So for me, it always boils down to the same thing, and that's math. And so one of the there's two real wild cards that were well. One is most of the markets that were underwriting you have to be careful that you don't underwrite significant rent growth or significant value AD. So you know, as you guys know, a couple of years ago, we stopped doing value AD because there's an affordability problem. Let's don't forget about that. Rents have gone up a lot. And so what was what we'd call a classic or something that had maybe twenty years or thirty years, we've just changed out some carpet, you know, and painted it. Let's say we. Kept them as classics because that's now the new affordable. So so you got to really be careful on how you budget your your revenue on the expense side. To your point, the wild cards are insurance. You know, we all know we did a podcast on the California fires. You know, we we've been. Hammered personally, uh in this company, uh with insurance costs and those insurance costs prior to that show, Prior to the California fires, people were blaming the hurricanes in Florida, they were blaming the fires in Hawaii, they were blaming the fires of the previous fires in the Malibu area, let's say, in California, and some other things. So so a. Loss in whatever capacity in a in a company like you know, big national company, it doesn't matter which one, you know, they they take on that loss. It doesn't matter what state it is. So you know, so I guess another way to. Say it is you're paying for everyone's loss, and that's how they spread it around. And so this is gonna be a big hot topic. It's not just because the loss was in California doesn't mean that that that that insurance company, whoever they are, is going to isolate you know, all that stuff to California. They're gonna spread it amongst them. They're not going to you know, I know, we're gonna get comments well it's stay by state, well of course, but they're going to come up with reasons to up it in other states. You just watch, yeah, and and then you're you're also starting to see property taxes go up a lot. So at this conference I was at, I was talking to some folks. That are doing some bill to rent out in the East Coast and they're their property taxes have doubled. So property taxes are going up, and insurance is going up. We're also seeing energy costs going up. We all know that labor who knows, but it's probably gonna go up a little bit. It has gone up a little bit. And so things are going up, and so you again, it's math. It is just math. But you always have to remember, you know, on a thirty year mortgage, you're at a set rate. You know, as inflation hits, and inflation is going to hit again. Everything Trump wants to do is inflationary because it boosts the economy. And it's like if you're in a set mortgage payment that you can afford and then people's wages start going up and expenses start going up. If you look at countries that have high inflation, wages go up too. Like wages go up, expenses go up, everything goes up. But then even though your wages are going up, it doesn't necessarily cover the cost of the new expense of all the different things. But if you're locked into a thirty year mortgage, you're saving yourself, you're protecting yourself, you're a set inflation. You're hedging in you are. In most countries, you can't do a thirty year mortgage like that's That's something people don't realize is most countries don't offer that. They offer like five year and then it resets the rate. So you may be able to get a thirty year mortgage, but the rate resets every five or ten years. In the US, we've been really fortunate to have this thirty year mortgage option, and you know, not everybody understands that or takes advantage of it, right. Yeah, So that's precisely what's happening to a lot of these commercial properties. As you guys know, is the loan matures, so and as the loan matures, it matures to whatever the rate is prevailing rate now, and I think that I just looked at the ten year before we got on here, it was like four point six. It's come down a little bit, which is good, but you know, rates are actually up a little bit right now. Well, and we're going into this high rate time and you know, all the predictions we've seen on rates is that they're not really going to go down very much, if at all, the next year. Even if the FED is cutting because of the tenure, it's still not going down. So the FED can only do what they can do. You know. You look at that, like at the the tenure is a problem for rates to go down even if the FED decides to keep cutting. Right, keep this up for a minute, Jerry, I think it's important for people to see that back in September and October on the tenure was you know, at gosh, three point six, three point seven, let's just say between three and now it's up at four point sixty three. It looks like, and so what does that mean. There's a spread on top of that, and of course that can be an adjustment, you know, but at the end of the day, you can see where rates are and it's really really really interesting because, by the way, this is not the federal funds rate, which is what a lot of people focus on. That this is different, but this, this tenure is what a lot of loans are based on. So the tenure is up. So as let's just look at the multifamily market. But if I was buying something in December, you can see how much different it is today. Right, So even though the property value might be down, the the loan is up. You mean December twenty twenty four. Yeah, December twenty twenty four, which is, by the way, forty five days ago, so right, so shoots difference. And so the tenure is important, and you know, it makes us significant difference on whatever it is you're whatever it is you're you're buying. And so that also. Gets you further and further and further away from cash flowing, right, because your rents are the rents. It's like the rents are not movie like that. The loan prices are moving like that. Yeah, absolutely, and it's just gonna be you know, even though you know it is cheaper, you do have to look it's more than just the number, the month to month number. But I do think it's interesting because a lot of people can't afford to even buy because of that downpayment, because of qualifying and JT from YouTube said buying should always be the default approach for an eligible, regular person with a simple income, anyone with access to substantial amounts of money. There's wigg over room to go either way. Yep, and I and I agree with that because if you make. A lot of money and you have a lot of money, and you want. To do alternative investments, and you know, paying a few grand a month in rent, it doesn't really affect your your not worth either way. That's a total fine way to look at it. But most people. Are paycheck to paycheck to paycheck scrapping by trying to make it work. And you know, when you go to retire and after thirty years your house is paid off, that's going to go a lot longer of a way. Then you know, you took a little bit of money every month and try to invest in the stock market like that could be great for you or it could be not. You really don't know. And one thing you do know is if you don't want a house, you're going to keep paying rent into retirement. Right. I don't see a lot of relief through twenty twenty five with this, I mean, maybe you'll get a little bit of relief on the interest rates, but you're also going to have rising house prices in my opinion, and rents are going to be flat in most markets. That I'm looking at at least. And so you know, with that being said, we could be sitting here one year from now with higher house prices, maybe a little bit lower on the interest rates, but rents are not going to move that much, right So you know, we could look at this month by month, but the end of the day, at the end of the year, my expectation will be home prices will be up, interest rates might be down a little bit, but rents are going to be down near the same yep. But you do think in the next couple of years, once the supply is absorbed, rents are going to go back up. Oh for sure. Yeah. It's just again, I've seen this over and over and over. Low interest rates spur development and construction. That's precisely what's hitting right now. There's a big lag with the construction, right so it could take a year and a half to open a clubhouse for a new apartment complex. As an example, and then another year to lease it up, so you're looking at two to three years before you're even stable. And so that's what's hitting right now. So anything that's hitting let's. Say in twenty twenty at late twenty four or early twenty five started in twenty one twenty two, and so that's all this is. And the same thing with a home. Single family homes can obviously get built quite a bit faster, but once the infrastructure is in, once the utilities and the roads and all that stuff is in the. Can, they can knock those out pretty fast. But with with a lot of rentals, there's especially on a big scale, like these big condo projects are multi family, it's the lags a little bit longer. Yeah, and it is good time. You know, if you have a good real estate agent that you're working with, you know it is a buyer's market right now. I mean it really is. I mean it's not a great buyer's market. It's kind of like even in a little more of a buyer's market than sellers. So if you're looking for a home right now, it is the time to make those lower offers, try to negotiate his people that are selling some of them have to sell because divorce, relocation, lost their job, et cetera. So now is the. Time to try to get a home for you know, a better deal than it's listed for. The three d's. Don't forget about the three d's, divorce, death, and debt. Yeah, those are the three and they're going to happen regardless. Yeah, and so it's a good time. It hasn't been a great time to buy the last few years because it's been such a hot market, but now it's kind of turning that way. Rocky is asking cash flow seems to be a thing of the past for US investors. What's your thought of breaking even on a rental? No? I mean, Danielle and I argue about this. I mean, we don't really are over a glass of wine. Well, no, and I don't think you should break even on a rental either, because expenses keep going up and rents keep going down. I mean, even on my properties that I'm not break even on, I'm now having to lower rent two or three hundred dollars a month. I'm still not break even because I had a nice cash flow, but now my cash flow is two or three hundred dollars. So if it was breaking even, I would be negative. And if I was only cash flowing a couple hundred, I would be negative. So under the bus, you go all right, no, no, no, let's talk about the last deal. You just spot. Oh my last deal. Yeah it's negative. Now I told her, did I not tell you? Yeah? You did. I said, don't do it. Well, I don't know if you said that a thousands. I don't know if you said that. I think you said she got it to net I go listen, don't do it. Don't do it. The whole point of investing in real estate is to cash flow. So now, by the way, you had to go through the lesson, and I know you were just squeaking by. But now what's happened is the market change. The market change. So I'm a couple hundred negative, right. So you know we're talking about the question was would you buy something that doesn't cash flow even if it breaks even? And the answer is no, I mean, what is the point. I'd rather have money and a one month tea bill. It's less fun because now when you're fixing stuff, it's coming out of your pocket versus you know, the savings account that the rental is providing. You know, to fix the things so and it just becomes a burden. And then especially if you're tight just financially anyways, So now you know you would be feeding that and it would be affecting your. Day to day life. This is where the lessons start. They start when you're writing checks and I've just been through it before. The things happen, People move out, vacancy goes up, expenses go up. You know your loan matures, you've got a capital expense, you. Got it, you need a new roof, whatever it is. There's things that happen that take from the cash flow, and you just you don't want to be you know, you don't want to just be above the water line because just to get in the game, you'd be better off doing a one month treasury at what is it in the force, I think, and just. Getting four percent on your money. Well, then the other thing too is that you know your need to plan. You know, there's no planning when you're not cash flowing, right, You're just coming out of pocket. And you know a lot of landlords are going to be squeezed from this in the next few months, so you might be able to get some of these deals that are break even, you might be able to offer lower and get a deal on it. You might be able to wait and those go down because what I can tell you is a lot of people that bought in the last few years, especially airbnbs, and they're negative, right, like every month, they're super negative, and so they need to get these properties off their books, and they might take a very low deal. If it's been sitting for a while, especially it's been sitting over sixty days. I would make a low offer because why not, right, Maybe maybe you can do your cash flow to where you're cash flowing a few hundred dollars a month and whatever that is, that's the number and they need they need to sell it for that in order for you to buy it. Yeah, if you owe stuff, you're gonna have a little bit of pain this year, I'm telling you, because a higher operating costs and it's going to be tough for to keep your tenants. You do have them, covet them, you know, be nice to them, renew them, do whatever you can to keep them. You want to stable cash flow. But the last thing I would do is go into the market today anticipating that things are going to change. Operationally in the next couple of years. Well. And a lot of people keep too asking about house hacking too, and that's something we didn't really touch on, but I would like to. So, you know, if you buy a house and say that it is double, you know, we have people on here saying it would be double for me on the payment. Is there things you can do to offset the payment? Can you rent out rooms in the house? What can you do for you to be able to buy a home and get in on this great investment without having to come out double the cost. I still love the house hacking strategy, yeah, because really the what you what you what you're doing is you're eliminating your the renter is covering your expense, and you're living with ideally on one side for free. Right, that's the traditional house hack. Yeah, if you have you know, three bedrooms and you run out to ideally, it's covering your home mortgage with prices so high now I don't know if it will actually cover your whole mortgage, but even if it covered two thirds of your mortgage, and now it would be the same prices to rent as to buy, or it would be a little cheaper. Now it's making sense. Right. The other thing is, I will tell you affordability is a big, big thing. Moving forward, even with the softness of the rental market. So anything that you can do to help somebody. Your friend just went through this at Austin, right, Or she. Rented a room and rented it for a really reasonable price, significantly less than a one bedroom. Right, it's a win win. Well, it is win win because they rented you know, two rooms in the house that way, so it really offset their mortgage. And you know, I think the owner of the home is disabled, so it just really helps you know, So it's a win win for the tenants and it's a win win for. The person's home. Just make sure you're still doing all of the correct credit and background checks just like you would on a normal renter in a house. Hack yep, Because they are living in your home. Yeah, they have the same tenant rights as if they were living in a condo. Yeah. So so Lyle is asking where would you guys draw the line on a bad tenant. Would that be as always laid on rent or they can't pay for you know, runt every month or a drug issue, or like what's the line. That we look at. Yeah, so it's pretty black and white. When we run a criminal credit background check. We also run a sex feder check on every single tenant that we ever let in. Now that's not to say that there can't be issues once they move in, but we have a really really crystal clear lease that says that when they're they're late, and then there's a fairly significant late fee and you have to decide on whether or not how much you want to ac commodate that. So for us, we don't. In other words, if they're late, we serve them and then they pay and then that goes away. So we don't take partial payments. We don't let that go thirty days. You know, all those things. Now, you have to do it within the laws. But the laws are if they're late, you can serve them, and that starts the clock and you've got to start moving down the road. So the tenant needs to know that you're just going to treat them the same as you would anyone else. You don't want to make side deals with people. Just make sure you treat everyone exactly the same way. Yeah. Absolutely, And you know, we run all the credit and background checks, and I think you might have been asking on once they're already there. Right. So for me as a smaller landlord, if somebody is a late it depends how late. If somebody's always a day or two or three late and they always pay the late fee and there's no drama involved, I would still renew them because to me, it's like, Okay, you're paying the late fee whatever. Right. If and I've had tenants that there's drama involved, right, I don't know when I can pay you. I just lost my job, I just did this, and it's always something, right, It's not like a one time in the course of the year, it's all the time. I don't want to deal with that drama. So that's when I draw the line and I say, I don't know if I want to re rent to you, because I would rather find someone that just pays and there's no drama around paying, you know. You know. And then for me too. Is sometimes you get high maintenance tenants, right, And with the high maintenance tenants, I deal with that a lot too, where everything's in an emergency, everything's not right, everything's this. So it's just up to you on like do you want to deal with. Them or not? You know what I mean? Do you want to go through another year of dealing with Yeah, that is a small landlord, or would you rather find somebody else, maybe make a little less money depending on what we're doing in your area, and not renew them. So you have a ninety day notice period, right, sixty sixty? Yeah, so we have sixties and nineties. So you do have the right as a landlord not to renew somebody. Yeah, and just like they have the right to not renew. So you could. If you are having all kinds of problems obviously say listen, we're not going to renew your lease and we're going to move a different direction. And I wouldn't go into why you don't need to go into why you don't have to renew it. I would just decide if you want to or you don't want to renew it. I've always renewed people's leases because I've never had such an issue that I did I wanted to not renew, but you know, and also if you know we're getting a lot of complaints from neighbors. I had that one time where they were partying a lot, and luckily they didn't want to renew. But I probably want to renew them because I was just causing me. When whatever causes me problems, I don't want to deal with it. You know, if they're being bad neighbors. And so I'm getting complaints from the h away, I might I'm probably not gonna want to renew them either. You I'm telling you, you guys, make sure you just all documented, right, So if there's calls from the from the let's say the local authorities, the police, or or stuff from the h A A or or whatever it might be, maybe there's damage, there could be all kinds of things. I've had situations where there's. I had drug, uh a drug dealer, We've had prostitution. Like you'd be super surprised at what goes on. Maybe maybe you wouldn't. And so you know, you have to make sure that that's all documented and and there's there's nothing wrong with confronting the tenant after that stuff is discovered at all, you know, and and you know, I I personally, I think it within your rights to say, listen, we've had a bunch of calls from the local authorities here, and so we're just choosing not to renew the lease. That's that's something that you can do. It needs to be in your lease. Yeah, and daw is asking, can you let us know what a significant late seat is. I have two tenants that are late every month. Yeah, so they should be in the hundreds in my opinion, So you can make it whatever you want. Now. Statutorily, I think there are some restrictions, so you have to check with your state. But you know, a thousand dollars rent should be at least one hundred period, right, And then we also used to have it. I don't know if we do it anymore. We used to have like a five or ten dollars a day as well. So but again it has to you have to follow whatever the state says. It's so first looked there. So one thing I learned the hard way is that you want to charge a daily rate. So whatever you do, it needs to be a daily rate. I do thirty dollars a day. The problem is is initially I did thirty dollars. You know. Well, then if somebody's. Late on rent, they're like, okay, well, like i'll pay you on you know, the fifteenth, because they're not in any hurry because there's no consequence to them if they're one day late or five days late. So when you do a daily rate, they're at least motivated to get you paid. And so I definitely made that mistake and I definitely have corrected it since. But it was frustrating with my tenants that were always late because you know, it was thirty bucks, right, so they just paid late every month and pay me thirty bucks. You know. Yeah, we don't have a lot of late tenants, believe it or not, even with ten thousand of them. Trust me, well, money's a good you know, paying they don't. Want to pay height. You gotta have a fairly significant hammer for late payment and make sure you don't wave it. Yeah, period, do not wave it. So when if somebody, I'll give you an example, if the rents one thousand dollars and the one hundred dollars in late fee and they're like, I'm not paying it, and they give you a thousand and you deposit the check, then if you have two options. Option one is you waive it, which is a huge mistake. Option two you apply the check toward the eleven hundred dollars balance and the balance is rent. I want to say this again, the balance is rent. And then what you do is you immediately turn around and you file based on that one hundred dollars of rent still owed. That's how you do it. So you can't collect on a late fee. So if you apply the thousand dollars against rent and then say you sold for the late fee. They're going to win. So you apply the one thousand dollars toward the late fee plus the nine hundred rent and then you and then you file based on one hundred dollars of rent because you can't evict on non rent, so it has to be rent the rent. It has to be the balance, and so that's how you do it, and you just follow the system. Doesn't matter who they are. It has to be the same across the board for everyone. Absolutely can't wave for some and not for others. You have to do it all by the book, which is why you shouldn't wave, because it should be all just you know. All right, guys, thank you for listening. I'll see you next week.