2025’s Massively Overlooked Real Estate Investing Opportunities

Dave:
What big changes might we see in the real estate investing landscape this year? What are the best strategies for investors and am I already wrong about my predictions for 2025? Hey friends, it’s Dave. Welcome to On the Market. If you listen to our last episode, you know that I am pretty excited about investing in 2025. I even wrote a report about it. It’s called The State of Realestate Investing. If you want to download it, get my full thoughts about the upcoming year, you could do that. Go to biggerpockets.com/resources or just click. We’ll put a link in the show notes below. But basically I put all of my thoughts, all the research I’ve done over the last couple of weeks into this one report and now I have two friends of the show, James Dainard and Brian Burke joining me to tell me probably what I got wrong about everything. Hopefully a couple things that they think I got right, and we’re going to dig into all this, basically the outlook for the coming year in today’s episode. Brian, thanks for joining us.

Brian:
Thanks for having me here, Dave, it’s great to be back

Dave:
Again. Excellent. And James, you’re here all the time, but it’s always good to have you.

James:
I’m always excited to get a year kicked off New year, new purchasing, new deals.

Dave:
Yeah, so it’s a time of optimism, time to look forward. Well at least actually that’s how I see it because if you read my report, you’ll see that I think we’re sort of coming to the end of this previous end part of the market cycle where we were sort of in a real estate recession and things were slowing down and I think we’re starting to enter an expansion for residential that might be very slow, but we’re starting to sort of turn the corner. Brian, let me know. What do you think of that? Do you think I’m right wrong, something else about that?

Brian:
Well, the saying used to be survive till 25, but I came up with my own new saying, which is end the dive in 25. So yeah, I think you got it pretty close.

Dave:
Okay, so yeah, that’s a phrase we’ve heard a lot, especially in commercial real estate to survive to 25, but now you’re basically saying it’s, and the dive is like we got to bottom out in 25.

Brian:
That’s what I think. I think 25 we bottom out. I think it all gets fixed in 26.

Dave:
Well that’s a good rhyme too. Fixed in 26.

Brian:
I fixed in 26. Yeah, it’s investor heaven in 27 and if you wait until 28 you’ll be too late. Those are my predictions. Wow, you are a poet. He was locked and ready to go.

Dave:
What’s your initial reaction to that, James? I know you invest both commercial and residential. Do you think this is a year where we’re going to still see similar market conditions or is there a chance we’ll turn the corner?

James:
Well, it depends on the asset class, right? Because real estate is such a broad spectrum and it just depends on what’s going on. As far as residential goes, I think it’s going to be more flatter.
I think we’re going to just see steady growth, consistency. I mean the one thing I did see is residential didn’t break when rates shot up and I thought for sure we were going to see some breakage there and there’s still buyer demand, there’s still pent up demand and I think it is going to consistently still sell. Now I do think commercial real estate still hasn’t really seen what we thought was coming and so it’s either that shoe drops and there’ll be some opportunity or not. I think that commercial is going to see the pain more towards quarter three of the year and so there could be some opportunities there, but I think it’s going to be similar 2024, I just think it might be more competitive with investors now the fear is gone. They didn’t see the collapse in 2024.

Brian:
It’s interesting you say that. You said that you thought interest rate was going to break things and it kind of did break something, didn’t it? I mean it broke sellers. It took somebody who has a 3% mortgage and wants to sell who says I can’t put my house on the market and then go buy another house and pay 7%. So it’s constrained, resale supply to a good degree, which on the other hand kind of bolsters the case for increasing prices, but it certainly makes it hard to be a seller and then be a buyer again, doesn’t it?

James:
A lot. Yes. I think a lot of people are locked in that locked in effect is a real thing, but we are seeing a little bit more movement, especially towards the end of the year, people buying and selling things because just trading up and they’re taking their gains and I think one thing that people kind of got over the interest rate trap and they’re going, well, I do have all this equity here and I’m going to take that and move it into a different house and trade things around. I did think that we were going to see some deflation pretty rapidly when that rate shot up. I mean that was definitely how I was underwriting and now luckily it didn’t and it worked out even better. I mean for one, think 2024 was an amazing year to invest. I mean we had breaker breaking flip profits, our development did well. I mean things just hit well because we were underwriting so conservatively, but I’m thinking that 2024 might be a little flatter and that the margins could get a little bit more compressed, less fear.

Dave:
I think that’s a really good point, Brian. When we talk about the market breaking or bottoming, we have to be a little bit more specific because interest rates in a way did break the housing market. It didn’t break prices, which is what I think a lot of people immediately jumped to when they think about something breaking, but it definitely broke sales volume. We saw the number of homes that are bought and sold each year drop nearly 50% from 2022 to 2024, so something clearly went wrong there, but I think it’s just not prices, which is what a lot of people were thinking. And on the same point when I say that I think the market has bottomed in residential, I don’t necessarily mean pricing either. I think there is, James said, I think pricing could be relatively flat, especially in real terms when you’re adjusting for inflation. I think it’s probably going to be relatively flat this coming year. I just think we’ve bottomed in terms of the inventory problem and the transaction volume problem and we’ll probably start to see a little bit of an increase, even though it’s still unpalatable for most sellers. Time breaks the log jam slowly and surely I think, and so we’ll maybe see it might only be a 5% increase in transaction volume or 10% not something dramatic. I don’t think it’s going to get worse this year, but maybe I’m being optimistic.

Brian:
I’m with you. I think it gets a little bit better. You have a chart in your report that was really good that shows listing new listings in the market and new listings tend to go up during more peak sales seasons and they go down during non-peak sales seasons. But one thing that was interesting in that chart and I think bears out to what we see out on the street is that the number of new listings, the highs keep getting lower and the lows keep getting lower. It was falling off

Dave:
A

Brian:
Lot, especially in 22 and 23, but in 24 it actually started to pick back up a little bit and at the peak cycle in cell season, there were more new listings than there were in 2023. And I think 25 is, like I said, going to end the dive in 25. That means maybe more listings for the reasons you specified that people can only wait it out so long for lower interest rates and those lower interest rates haven’t come and I don’t know that they’re going to. And so eventually you just have to throw in the towel and say like, look, if we don’t buy now, then we’re just letting this pass us right by. So you got to make a move sooner or later, this might be the time to do it.

Dave:
I feel like I’m getting used to the higher rates. I would imagine other people are too. There was this dramatic shock, but at a certain point you just got to say this is the new reality and I think that’s okay. I still think there’s good opportunities. My expertise is more in residential and long-term rentals. I’m curious to talk to you both more about commercial and flipping, but I still think there’s good opportunities and I’ll share more in a little bit that there’s good fundamentals that still support buying long-term rental properties, at least in the residential market.

Brian:
When I bought my first house, my interest rate was eight and a half percent and I thought that was good. That was the early 1990s and that was good. And so to have rates in the sevens, I mean if you really dig back historically that’s not extraordinarily high. No, it is high compared to what we’re used to over the last decade or so. We got really spoiled with really low interest rates. And so now you think, well, they have to come back to normal, right? Well, this might be normal actually, if you really think about it,

Dave:
Normal over the last 50 years is a little under six

Brian:
And here we are,

Dave:
We’re still above it, but I think people saying normal is in the forest, that’s just not normal,

James:
Right? And you do get used to it. This duplex that I’m in right now, when I bought it, I was at 7.75%. I was at the high end. I closed at the wrong time actually it was the right time, we got the right price on it, but I just refied it for 6.35 and I was stoked with that number, right? 6 3 5. I’m like, yes, this is great and dropped my payment like 450 bucks a month. And so I think everyone is getting used to it. It’s just the cost of the money is the cost of money. You can’t overthink it and you can never time the market and I think people are learning that. They see this opportunity and then it goes away. See rates have been going up and down. It is training people to just pull the trigger.

Dave:
Alright, so as we adjust to the new normal of where rates are, how should we adjust our investing? Are long-term rentals still viable in a lower cashflow era and what are the upsides we’re seeing for investors in these conditions? We’ll get into all that right after the break. Investors welcome back to on the Market. I’m here with Brian Burke and James Dainard talking about the state of real estate investing. I want to sort shift to that sort of mindset thing that you just mentioned, James, which is to me a lot of this and the log jam in investing is about expectations. People are thinking or waiting for conditions to come back that probably aren’t going to come back. So how do you think people can adjust their expectations to the current reality and is it worth it? Is it still worth investing even though this is the new reality?

James:
The new reality is you have to come up with a plan that works in whatever market cycle you’re in. The era of 2019 to 2021 is over, we’re never going to see rates that low again, and that was a time in the market just like in 2009, we will never see pricing that low again. That was an opportunity. We bought a ton of property, 2000 8, 9, 10. I don’t look back today and go, oh, I’m going to wait until pricing comes down again. That would’ve just been a big mistake. You have to shift in phase to the next cycle and the next cycle might just be a little bit flatter or steadier growth and you have to buy differently or operate differently and depending on the returns you want, you got to adjust to how you’re operating and how much work you got to put into it.

Dave:
I totally agree. I think that we’re entering a new cycle and it’s going to be one with lower affordability and that’s tough for investors. BiggerPockets too sort of came around in this era where it was easy for people to get into the housing market because prices kept going up and debt was cheap, but that’s not going to be the case, at least I don’t think so I don’t see any immediate relief for affordability, but on the flip side of that, there are really good fundamentals for buying properties. First of all, the housing market outside of 2008 is remarkably stable, but I think the flip side of this affordability challenge is that there’s going to be huge demand for rentals going forward and that people aren’t going to be able to buy single family homes. And so that rents are probably going to go up and even though prices and appreciation might not be as strong in this cycle, rent growth could be strong during this cycle and that’s just one example. But I think to James’s point, you just sort of have to think about some things aren’t going to be as easy, some things are going to be easier. You kind of have to figure out the trade-offs and what advantage points that you’re going to have in this coming cycle

James:
And I think it’s bringing the strategy back to investing because for the last three to four years, if you bought anything, you were a genius, right? You owned an asset, rents were going up, values were going up, and now that’s not how investing works typically, it’s about doing your research, studying the market, putting the right people together, the right plan and then go in and buy that. And that’s how you can execute going forward 2000, 25, 26 up until 2028. Like Brian says, don’t wait until 2028 or you’ll be too late. You’re too late. I like it.

Dave:
Well that makes me curious, James, you are mostly a flipper, but you also buy rental properties. Do you think there’s a case for rental properties now, even though it is harder to find cashflow?

James:
We’re value add investors. So right now what we are doing is we’re buying rental properties where we can buy them substantially below what we were paying two years ago and we can increase the value as far as is the cashflow what we want it to be? No, but it’s good enough. We’re not hitting 10%, 11%. We may have hit the previous years, but we’re going off steady returns and we still have our buy box is really defined. What will we buy and what rate of return do we need? But our main focus isn’t the cashflow. The cashflow is for later, it is to create the wealth and the equity. And so I think anytime that you can buy a property and create a 20% equity margin, whether it’s a burr property, a multifamily property, it is a buy all day long and whether you have to weather the storm and deal with the cashflow issues, but if you can really create that equity and run good underwriting, I think it’s a phenomenal time to buy rental properties. We bought more rental properties in 2024 than we did in 2023 or 2022 really? And our buy prices were substantially less. I mean we bought one building like 120 KA door and they were trading for two 50 a door two years ago,

Dave:
One 20 a door. That’s what I buy in the Midwest old buildings for not in Seattle. That’s insane.

James:
It had some hair to it, it was a tough building, but the opportunities are there, so that’s what we’re focusing on now. It’s what does this look like in 2030 and the fundamentals are there. If you can really buy below replacement costs, you can create the equity margins and you can create it. This duplex I’m in right now when the rate shot up value’s plummeted on these things, but it was worth 1.8 million when rates were low, then it went down to 1.4. Now I’m back up to 1.65. So as long as you can buy, right, you can create the value.

Dave:
Definitely. I like that approach. I think this value add is one of the strategies that just seems to be working really well right now. It honestly just works in every kind of market, and so I think it’s just another way that people should consider investing and adapting their strategy to this new era where you’re not going to get the market appreciation tailwinds that you did and you’re going to have to force some of that equity creation and I don’t even like that term force. It’s earning it, right? You’re working, you’re earning that appreciation by putting an effort and being a master at what you do and that is still available and going to do well even in this sort of new era, this new market cycle that we’re probably entering. Brian, I’m curious how you feel multifamily to me. We’ve talked about this on a couple shows recently and on the market, but multifamily is such a X factor variable to me in the housing scene right now. Tell us, do you think it’s on the same market cycle as residential or is it a little bit different?

Brian:
The market cycle is different and in fact every real estate sector is on its own cycle. Every real estate sector is in large part disconnected from others, so single family homes have held up quite well throughout all the variety we’ve seen in the market here lately with interest rates and new listings and all that stuff that we’ve been talking about. Multifamily on the other hand, has been in a massive power slide. I think I’ve been on this show and have commented about how my best description for the multifamily market has been like a traffic collision in the middle of a four-way intersection where all the lights were green and cap rates, expenses, lack of rent, growth and interest rates all collided in the center and created this tangled mess in the middle of the street. And that’s my description of multifamily and that’s changing this year.
I think 25 is a transition year. I think we’re going to see that work its way out a little bit. Prices have fallen dramatically. To James point about the duplexes that he’s been buying, I’ve seen prices in really good solid markets slide as much as 40% peak to trough in quality multifamily, and it’s mostly because of cost of capital, lack of rent growth and higher interest rates. Those have been the big ones that have created that and it’s going to take a little bit to kind of pull out of that, but that doesn’t matter. I mean that’s the time to buy. The time to buy is when prices are down and then you want to ride that as they climb their way back up. But I just want to add onto something else James said earlier about buying at a discount and forced appreciation as you alluded to, and really investing today is different than it was say maybe three or four years ago or in 2010 and 11 when you buy anything and it was going to go up in value in a year, now you need to buy something at a really solid value.
There’s a needle in every haystack. You just have to work hard to find it and improve it. A lot of houses, duplexes, apartment units and everything were built many years ago and are in need of renovation. They don’t look that great and there’s things you can do to improve rents and improve prices, and I think that goes to both single family, small multifamily and large multifamily. The large multifamily space has taken a big hit. I think we’re going to see a recovery soon. I don’t know if we’re at bottom yet, but I think we’re close to it. I think in the small multi, there are all kinds of needles in haystacks in the small multi field, and if you can go out there and find value, add duplexes, triplexes, fourplexes, eight unit, 10 unit there I think is a lot of money to be made in that small sector if you’re willing to put the work in to make those properties worth more than they were when you bought.

Dave:
Yeah. I wanted to go back to something you said earlier. Is timing and this being maybe a good time to buy, do you think we’re at the buying opportunity in multifamily or is it still a few years out? Like James said earlier, he thought maybe it would be the second half of the year, but do you think it’s still worth looking at deals? Are you looking at deals?

Brian:
I actually am looking at deals, which is something I haven’t said in a few years.

Dave:
It’s been a while.

Brian:
Yeah, anybody that really listens to this show regularly may know I sold almost all of my portfolio right before the market collapsed in 21 and 22 and haven’t bought anything in the large multi space since, and we’re now actually looking at deals again. I don’t know how long it’s going to take for us to find one that actually will work, but if I can get the numbers to work, I probably would buy it. Do I think we’re at the bottom yet? I really don’t. I think that there’s a little bit more to come, there’s more distress. There’s some things that haven’t worked their way through the system yet. A lot of these maturing bridge loans that haven’t gotten forced sales by their lenders, there’s going to be a number of those
Coming out in the next year or so. The other flip side of it is construction and new inventory deliveries. There was a lot of construction in say 21, 22, 23, 24. Everybody thought that was going to be over with in 24, but what developers are finding is it’s taking longer to complete these projects than they had expected, and some of these completions are trailing off into 25. There’s not a lot of new product being started, but there’s still stuff that was started that hasn’t been finished. So I think we’ll see the first half of 25, we’re going to see those projects get finished, and then the second half of 25, we’re going to start seeing inventory constraints, which is when rents are going to be under pressure because there’s not going to be a lot of brand new apartments being delivered to choose from, and that’s going to be a big turnaround signal in the large multi space specifically small multi, again, there’s needles in haystacks all over the place out there from tire landlords and whatnot.

James:
And to kind of piggyback off that, I think a part of it was we just saw so much greed in the large multifamily space. There were so many deals getting done because they wanted to get a deal done, and that is obviously wore off because the money’s not there. They can’t go buy these deals anymore. And so that’s why I do agree that we’re not quite there yet because some of those operators are still burning through reserves, they’re still burning through and they’re hanging in there. And unless we see an aggressive rent increase debut representing their report, what the costs are up like 20% on lending, they’re up everywhere. And because the greed’s not there, everything’s compressing down and once it starts turning back on, then that’s where you don’t want to miss the opportunities though. Once it turns on, it’s going to turn on and then you’re going to go, shoot, I missed it.

Dave:
Yeah, once everyone’s talking about it, it’s probably too late. I do want to just talk about new opportunities or opportunities that either of you see in the market. I’ve been talking the needle in the haystack. I totally agree with Brian James. One of the other things that I put in the report that I think is just super interesting is that a lot of the markets that have really good long-term fundamentals are doing the worst. So you’re seeing things like Austin, places in Florida, the southeast, they’re getting crushed right now in terms of rent growth and prices, but the population growth is good, demand is good. GDP growth in those places are good. Brian, do you see those as opportunities or are they still risky?

Brian:
I see ’em as opportunities. You’ve got to think about the reason why those markets are getting crushed. They’re victims of their own success. What happened is the markets were on fire, you were getting 10, 20, 30% annual rent growth and who notices that the most? The developers and the developers say like, oh, look at all this rent growth. We need to build a bunch of apartments so that we can cash in on that. And they do, and they did, and that created all of this extra inventory. And so the problem isn’t a lack of people moving to those areas. The problem is the construction to absorption ratio, and this is looking at how many new units are delivered onto the market versus how many of ’em are getting rented. And the construction has been outpacing the absorption. That has been a big part of the problem in those markets. Now, if you look at a sleepy Midwest market, you could say, look, the Midwest is actually the rent growth leader nationally right now,
And that is true, but the Midwest is really just doing what the Midwest has always done, right? Two to 3%, maybe 4% annual rent growth, steady as it goes, no fluctuation. And so nobody’s really been developing there on any scale, and those markets are just carrying on. Nothing happened. The Sunbelt on the other hand, as you alluded to, got crushed. Well, when that construction pipeline shuts off and you still have people moving to those areas and you don’t have the new inventory to accommodate them, that’s when you see a shift and you see rent pressure, you’ll see decline in vacancy rates. So I think it’s a tortoise in the hare kind of situation, and I think ultimately the Sunbelt, if you look at a 10 year horizon is going to win out over Midwest markets that right now are outpacing the Sunbelt in rent growth.

Dave:
I totally agree with you. I invest in both. I like to get the combination. I like to get. I think Midwest gives you a bit better cashflow. I’m trying to buy properties now for 15 years from now that’ll pay off and will fund my retirement. But for the appreciation hits, I think there’s pretty good opportunity in these markets, especially the needle in the haystacks. I feel like this is a weird analogy, but the needles are better in these sunbelt markets because there’s just more upside, as James would say, there’s just more juice in these kinds of deals.

James:
Wait, well if you’re working for needles, there’s plenty of them in Seattle on the streets, different

Dave:
Kind.

James:
That’s a different kind though. But there’s great, but yeah, the overcorrection, right? Because people go, oh, that market’s toast. That is the one thing I’ve learned is a never stop buying because when the market dips, it dips harder than it should and you want to buy, they’re on the bottoms, but also the overcorrection markets, the Midwest is doing consistent, which it is. I mean, especially with your report, rents are up, growths up, everything’s consistently going, everyone starts going there, and then it just leaves these gaps in the market. And the best place you can play is no man’s land in real estate in I think areas like Austin, San Francisco, Seattle, Seattle, I don’t think get beat up as bad as them, but they’re great opportunities.

Brian:
I always say, people ask me, how did you know how to time the market? How did you know to sell in 22 before the market went down? How did you know to buy in 2009 before the market went up and it was right to what you pointed to James? It’s really, it’s not so much a quantifiable number or economic indicator. A lot of it is sentiment. And when everybody hates something, that’s a great time to be a buyer. And so if everybody’s like, oh, Austin’s terrible, everything is awful. Start looking around at property there until you find that needle in the haystack because that’s going to be a really good time to buy when everybody hates it. The more people that hate it, the better. The more people that love it, the more it’s time to sell.

Dave:
I couldn’t agree more. You have to have sort of a contrarian perspective if you’re going to be ahead of any trend because once it’s a trend, it’s already too late. We’ve said this a few times, but I think a lot of people chase the last thing, and I invest in the Midwest, but I expect that Midwest being the leader in appreciation and rent growth, that’s going to stop. That is definitely going to go down. There’s still deals to do there, but that trend has sort of played out. You sort of have to start thinking about what the next trend is. And I just want to get back to something we talked about with Brian was talking about supply, but I put this in the report, but I think if you are looking for what markets, what deals are going to do well in 2025, not even beyond that, looking at supply is more important than looking at demand.
At least that’s my theory. I don’t know if you guys agree with this, but I think for the next year it doesn’t even matter that people are moving to one market or the other. It really just depends on are those markets getting flooded with new apartments because some of them, Austin, 10% unit growth in a year, no amount of demand can keep up with that. That’s just too much. And I really recommend people start understanding supply a little bit better even though it’s a little bit less intuitive than some of the population growth or other metrics that we talk about on the show.

Brian:
You got to think about supply, but you also have to do this in a context of where the demand really ends up. Coming from back in 2000, I think it was eight or nine, there was something like 20 years worth of inventory in the Miami condo market.

Dave:
Oh my gosh,

Brian:
Because they were building every high rise. There were cranes everywhere in Miami, there were 20 years of inventory, but two years later, how much inventory was there? Almost nothing because there was a lot of demand that came in eventually and the supply got cut off. And that’s the thing, demographics move very slowly. So if there’s a market where populations are climbing, they’re probably going to continue to climb for a long period of time before they change direction and populations start to decline, but supply can be turned on and off pretty quickly. And so you really have to understand supply, but also think about looking at markets where people are moving to, maybe avoiding markets where people are moving from, but looking at what that supply is and what the likelihood is that that supply is going to continue at the elevated rates that they are.
Because Austin’s a great example. They’re building apartments like crazy in Austin. They can’t all be absorbed, but that’s going to get shut off as soon as those units are done and nobody can get anything out of the ground right now. Financing costs and all that stuff is preventing new stuff from starting up. The next thing to happen is what’s left gets absorbed in a relatively short period of time if you have the demand and the new people coming in and then it’s all bets are off and it switches direction completely. So watch it from both sides

Dave:
And supply. It’s just this pendulum that kind of swings back and forth. We’re seeing pretty big swings right now by historical standards, but one of the great things about supply is unlike demand, it’s actually quite easy to forecast because people submit permits or they have to get permits for buildings, and you can just Google that and see where things are being constructed. And the thing that is abundantly obvious right now is that the pendulum is going to swing back in the direction and the other direction probably in the next six to nine months. And you see in almost all these hot markets, whether it’s Phoenix or Las Vegas or Florida, there’s massive record levels of supply right now. And then it goes the complete opposite direction where we’re going well below the average. And as Brian said, with financing costs as high as they are, the potential for tariffs to increase construction costs even further. That’s why there might be a good opportunity to buy because things are relatively low priced because there’s too much supply. But when the pendulum swings in the other direction, values are going to start to go up and rents are going to start to go up, and that could be a good opportunity.

Brian:
So what you’re saying is you end the dive in 25 and it’s fixed in 26.

Dave:
I see what you did there. I think you’re saying that, but I’m getting on that train

James:
And then you’re in heaven in 2027. I actually agree with this because I think that’s where we’re going to see the huge gap in inventory because like Dave said, the permitting, you see, the permits not being issued, no one’s applying for ’em. They take too long to get the cost to take down that deal to hold it during that time period. The money is way too expensive to do that, and there’s going to be this massive gap density adds complexity to a deal and it adds timelines. And so what developers are doing right now is they’re going for simpler projects. What can we build quickly? What can we get permitted quickly? And they’re not looking at apartment buildings and townhome sites, which that’s the unit count, and there’s going to be a huge, huge gap at the end of 2026 of missing units because a lot of these permits were still issued and people were still building them, and they still take a year or two to build, and that stuff’s still going to come out in 25 and 26, but 27, I think there’s going to be a huge gap in units,

Brian:
And if they can’t build it quickly, the interest will lead ’em alive. So they have to build it quickly.

Dave:
All right, time for one last quick break. I know you’re tempted to run and do your homework and go research supply as we just told you, but stick with us. We’ll break down the biggest questions looming on our minds for 2025 and what we’re personally planning to invest in this year when we get back. Welcome back to On the Market. Let’s jump back in my report. I give my opinions. Everyone wants predictions. It’s hard to predict, but I think given trends, I think what we’ve been talking about is relatively likely, but at least to me, the opportunity or the risk I would say of a Black Swan event, which is kind of like these things that no one sees coming just seems higher. Of course, if no one sees it coming, we obviously can’t forecast it, but something about the geopolitical global economic situation right now feels volatile to me at least. And I’m curious if there’s anything James or Brian that you’re keeping an eye on that you think could sort of throw a wrench into the investing climate in the coming year.

Brian:
Well, the whole premise of a black swan is that you don’t see it coming. So if we saw it coming,
It wouldn’t be a black swan event. We would just prepare for it. I don’t really see anything. I think we’ve seen the worst of it already. We had covid, which disrupted everything. We had inflation which made a mess. We had interest rates, which were the kind of the wrong response or square peg in a round hole to try to fix inflation and things got pretty messed up for quite a while. And that’s put us in this position now where I think we are going to start to see things trough out and get better in the real estate space over the next few years. So now could we end up in some kind of a war or a massive terrorist attack? Certainly those things are possible, and as always as investors, we need to remain disciplined in how we structure our acquisitions and be careful about short-term debt, be careful about high leverage points and just be responsible and build a portfolio that’s resilient to temporary setbacks because real estate’s a long-term game, and if you’re going to own something for one year, a black swan is fairly unlikely statistically. But if you’re going to own something for 10 years as you may with real estate, or in the case of some properties I’ve owned for 20 or longer, the chances of some kind of black swan somewhere along that continuum increase certainly. So just make your portfolio resistant to those kinds of temporary setbacks, and I think you’ll be fine.

James:
I’m feeling a little better about the Black Swan events going forward. I don’t know, I just felt like there was so much world conflict going on and hopefully president elect wants to make, supposedly he wants to make changes, wants to end the worst. And so in my opinion, those are good things because I do think that those, like Brian said, wars, terrorism, all these things that can really have a huge impact. They’re at a height right now and hopefully they get reduced down. But like what Brian said, you stick to fundamentals, fundamental buy-in works, and you can weather the storm in any type of business as long as you keep the right fundamentals. I mean, hard money. When we were lending hard money when the market was crashing down, we lost no money because we kept with our fundamentals, we lend at a certain LTV, the Black Swan event happened, the world melted down, but our loan values were good enough to weather that storm. And so as long as you don’t get greedy and stick it in your underwriting, that’s how you can avoid those issues.

Dave:
Yeah, I think that’s very good advice. I am personally very curious about the potential for tariffs and what that does to the real estate market. We don’t know what it’s going to be, but I’m very curious if that’s going to jack up construction costs even more and potentially constrain supply more in the longterm, or at least in the next few years, but while those price shocks work through the system. So that’s something I’m definitely going to be keeping an eye on and could sort of change my forecast for some things about the real estate market in this year.

James:
Do you think those are going to actually come, or do you think this is massive bluffing, just like, Hey, I’m mean are we going to buy Greenland too?

Dave:
I think it’s a negotiating position. I don’t, but if it did a 20% across the board tariff would be, I don’t even know. No one’s ever seen that. We haven’t seen that in our lifetimes, any of us. So no one knows what would happen. There could work, could not, but I think that would be a big swing.

Brian:
I’d be surprised if we see that such a swing though. I agree with you guys. I think it’s a posturing and negotiating position and there may be some tariffs and that may increase some costs and some it might not increase. So it’s really tough to say, but I don’t think I’m watching it, but I’m not putting on a tinfoil hat or anything.

James:
Yeah, I actually think it might do the opposite effect. I think he’s being so aggressive with the tariffs, he’s doing that to negotiate better terms on other things that could reduce our costs in other spots and actually could help out. And I am excited about energy costs maybe going down because that has been a huge cost driver for construction guys having to drive to work and commute. They have been packing that into the bills, and I’m hoping that it comes down because the commute and the drive and the cost of energy has really also crushed the construction

Brian:
And the cost to move those materials. I mean, you take a whole house framing package of lumber and how much energy does it cost to move that from where it was milled to where the house is being constructed. That’s a big piece of it. So if you can bring down energy costs, maybe you can offset the effect totally of some of those tariffs if there are

Dave:
Any. Yeah, and I think even if there are tariffs, it probably won’t necessarily be in 2025. If you just look at what happened in the previous Trump term. He came in campaigning on tariffs and then I think it was two years into his term that he put in the first tariffs, a lot of periods of negotiations and figuring out the right way to implement them. And so even if they do come, it’s probably not going to be immediate. It’s not going to be like a first a hundred day kind of thing, but it is something I’m just, as someone who studies the economy a lot, I’m curious to see what would happen if it happens and what it would look like. Something I’ll definitely be keeping an eye on. Alright, before we get out of here, Brian, James, I’ll start with you, James. Is there anything else that you’re sort of looking at or thinking about the state of real estate investing right now that you think the audience should know

James:
This the year I want to pick up a lot more rental property.

Dave:
I love that contrarian.

James:
That’s great. I really am aggressively, personally, we buy as a company, we buy a little bit bigger units where we’re buying 20, 40, 50 units. I’m going to go for small things just personally. So I’m looking at, like Brian said, that’s the sweet spot right now, one to 10 units. I’m hoping to pick up at least 50 more doors because I’m also expanding into Arizona to pick up some rentals, just to be in a little bit different type of landlord friendly state. But that is the goal. I’m so confident in rentals this year. Me and my wife, we opted to, we’re not putting up money for school, whether it’s private and call it, we’re going to take the money and invest it into a rental property one per year for our kids.

Dave:
Wow, that’s cool.

James:
That’s awesome.

Dave:
Well, I am with you on the bullish on rentals. What about you, Brian?

Brian:
Well, I think James has a great strategy of buying smaller properties and I think that’s really a place for a lot of people right now. I think it’s where a lot of opportunity lies for me. I’ve been doing this for 35 years. I’m just too tired to go chasing all that stuff. I want to leave that to the younger cats to go chase those smaller properties. The stuff that we’re buying is more class A properties, 150, 200 units, that sort of stuff. That’s why that market’s been terrible. I’ve been completely out of the market for the last three years just because there’s no reason to catch that falling knife. So what’s on my mind now is that in that space, if this is the space I’m staying in, which it is, it’s a fine line between the first mover and the last sucker. And so I’m just trying to make sure that I’m on the right side of that line and I don’t want to be the last sucker to end up with another loser deal kind of thing. A lot of people are seeing out there. I want to be the first mover and get in right before it starts to break upwards. So I’m trying to time that as best I can based upon observing the market, observing psychology, just all the things that you need to look at. And I think this might be the year, it may be later this year, I don’t know, but this might be the year when I actually write a contract again. So I guess we’ll just have to

Dave:
See. Well, Brian, you have famously said there’s a time to sell. There’s a time to buy, and there’s a time to sit on the beach. I love that quote. And you’ve been sitting on the beach, so it’s time. It’s time to fold up your sand chair, whatever, sand chair, lounge chair. I don’t know what those things are called.

Brian:
And I’m good at that too, by the way. And normally I spend the entire month of January and February in Maui. This year I’m not. This year I’m actually writing slide decks for my next fund and that kind of stuff, which is something I haven’t had to do in a while. So this might be coming up to the time to buy. At least I’m getting ready for it. Whether or not I strike on it, I’ll be ready when the timing is right.

Dave:
Alright, well thank you both so much for your sharing your opinions on the state of real estate investing as we enter 2025. We’d love to hear from you. If you’re watching this on YouTube, let us know in the comments below what you think the state of real estate is today and what you’re doing to move yourself closer to financial independence in the coming year. For BiggerPockets, I’m Dave Meyer. Thank you James. Thank you Brian for being here, and we’ll see you again soon for another episode of On The Market.