3 Ways to Buy in 2023 and Making the Most of a Multifamily Crash

Dave:
Hello, everyone. Welcome to On the Market. I’m your host, Dave Meyer, joined by three panelists today. We have Kathy Fettke. How are you, Kathy?

Kathy:
I’m good. I’m alive. That’s helpful.

Dave:
Are you referring to your heliskiing experience?

Kathy:
I am. My anniversary gift from my husband to take me up on the peak of some random mountain for our 25th anniversary. I survived it, even though the pilot didn’t want to go and the guide told us it was the most dangerous day they’d ever seen. And then the helicopter sunk into the powder and he said, “I don’t want to spend the night out here.” And I said, “I don’t either. This is not the anniversary gift I had in mind.” Anyway, we made it back.

Dave:
I feel like that’s one of those times when your spouse gets you a gift, but it’s really a gift for the person giving it. Knowing Rich a little bit, it sounds like he just wanted to do this and bought it for you for your anniversary.

Kathy:
Yeah, a little bit of that.

Dave:
Oh, well we’re glad you’re survived. We also have Henry Washington. Henry, how are you?

Henry:
I’m well, bud. I’m well. Glad to be here.

Dave:
Good to have. You and James Dainard as well. What’s up, man?

James:
Oh, just freezing away in Seattle today. It’s a cold, rainy day.

Henry:
We’re snowed in here.

Dave:
In Arkansas?

Henry:
Yeah, man.

Dave:
Really?

Henry:
So I would like to give the caveat that Arkansas, it gets cold enough to get snow, but not consistent enough that we have any infrastructure or are prepared to handle said snow. So if it snows at all, it’s everything is closed. No one’s going anywhere. Chaos.

Dave:
So that’s why you’re recording from home. I love that that’s your home studio. It’s so professional that that’s like your second best option.

Henry:
It’s curated. Trust me, if I move the camera in any one other direction, you will see you that I have two kids.

Dave:
There’s toys everywhere. All right, well, we have a good show for you today. So first we are going to start by playing a game. We haven’t done this in six months. I don’t know how. I think Kailyn and I just forgot. It’s probably my fault, but I’m glad to be getting back into it. And then we are going to do a repeat of one of our formats that I love doing and our audience seems to really enjoy.
Each of our three panelists are going to bring a deal that they’re actively working on or thinking about, and we’re going to talk through some of the benefits, some of the situations that they’re encountering to help you all understand how to navigate today’s market. So for today’s game, which we’re going to do first, we are going to put you on the spot and I’m going to ask you… I guess I’m going to guess, too, because I don’t know the answers, how the price of certain things. So basically we’re going to guess how much inflation has impacted the price of certain items in the U.S. And we are going to start, Henry, I’m going to put you on the spot.

Henry:
Let’s do it.

Dave:
What is the national average of gas prices right now?

Henry:
Man, I feel like these are not fair questions for me. We’re so cheap here in Arkansas compared to everywhere else, I would think. I think the last I saw here in Arkansas, we’re at, what is it, $2 a gallon?

Dave:
What?

Henry:
No, three. Three. $3 a gallon.

James:
I’m moving to Arkansas.

Dave:
Drilling your own oil?

Henry:
Yeah. $3 a gallon. Right. So, gosh, national? So I would guess, what, $4.25?

Dave:
Okay. James?

James:
I’m kind of in line with Henry. I’m going to go right underneath him at four bucks. I feel like that’s kind of floating. I mean, good news is gas came down recently. I know I’m paying a lot less at the pump, so I’m going with four.

Dave:
All right. Kathy, what do you got? I feel like you always are in tune with this stuff, Kathy.

Kathy:
I’m only in tune because I filled up my tank yesterday because I’m in Utah and I feel like Utah’s kind of an average place.

Dave:
Okay. Yeah.

Kathy:
If I were in California, I’d say it would be, no, it’s at least a dollar or two more than anywhere else. But it was $3.50, I think is what it was at the pump yesterday. So I’m going to say $3.75.

Dave:
Okay, yeah, I think that sounds about right. Kailyn just slacked me the answer. So I’m going to guess $3.90, but the answer is, okay, it’s $3.40.

Henry:
Oh wow.

Dave:
Did anyone guess that low?

Henry:
No.

James:
No. That’s a surprise.

Dave:
It is, and I actually saw something about this that gasoline prices, surprisingly, are back where they were a year ago before the Russian invasion of Ukraine, which is one of the reasons gas prices went up so much. So that is a good sign, in terms of inflation.

James:
If we need to hit up all our labor guy. I keep getting charged because that’s all my guys are saying. “Oh, no, no, gas is expensive, gas is expensive.” I’m pulling that stat out on them next time. The travel cost.

Dave:
I’m asking for receipts.

Kathy:
I’ve been doing that, too.

Dave:
Okay, next we have, this one’s going to be really hard because I have no basis. I don’t even have any idea. The cost of lumber per thousand board feet. James, I feel like you’re going to nail this, but Henry is already shaking his head. You have no idea, do you?

Henry:
Zero clue.

James:
I know-

Dave:
Is it in the tens? Is it in the thousands?

James:
No, it’s definitely in the hundreds. So lumber actually fell for a while, then it kind of came back up for a minute in the fall. So I’m going to guess about $500 roughly.

Dave:
Okay. Kathy, what do you got?

Kathy:
I’m going to nail this because I just got a bid and I’ve been watching super carefully because, as you know, we have a development project here in Park City, which is why I’m here for this write off. But I am. I’m here at the project and last year or early this year it was $1,400, so the bids we were getting from our builder were astronomic. And this is why one of the deals I’m looking at is so much better right now because I locked in the bid when it was about 350. And now I think it’s gone up. I don’t know how much, but it’s gone up just in the last few weeks and I don’t know why and I don’t know if it’s going to continue. But I locked in my construction bid, so I’m stoked.

Dave:
All right. Well, you’re both pretty close. Henry. I’m not even going to guess, but I just looked it up because I have no idea, but it is $463 as of this minute on Wednesday, January 25. So you’re both pretty close. It is down 55% from last year, so that is remarkable. But it’s actually starting to trend back upwards. It’s up 8% just this week alone and 16% this month, which is kind of interesting and something probably anyone who’s in development or flipping will probably pay attention to. Obviously a major cost center there. Now let’s get to the important stuff. James, how much is a dozen eggs in the United States right now?

James:
You know what? I don’t even eat eggs that often. So you know what? I’m going to throw out eight bucks.

Dave:
Eight bucks. Okay. Kathy.

Kathy:
Because he buys organic, that’s why.

James:
Eight bucks. All I know is I saw Henry Washington’s omelet. I was dying, so I’m going with eight bucks.

Dave:
Henry, what’d you pay for those? And for anyone who didn’t see, Henry put out a great reel where his flex, him showing off his real estate success was making a two egg omelet instead of a one egg omelet.

Henry:
Two eggs, buddy.

Dave:
He’s just flexing hard. So how much did that cost you?

Henry:
Dude, I couldn’t tell you the last time I was in a grocery store buying eggs. We Instacart everything, but I know I’ve seen on coastal places eggs have been as much as $9, but I think here we’re substantially less. So I’m guessing what, six bucks?

Dave:
Okay. Kathy?

Kathy:
Well, I do go to grocery stores,, I do buy eggs and I also buy organic eggs and I haven’t seen a difference. They’re between $6 and $8. I overpay anyway. But I did send my daughter’s boyfriend to the store and he bought the cheap eggs. And I’m guessing they were around, I don’t know, three or four bucks. I have no idea. I’m in Utah. It’s different prices than California.

Dave:
All right, Kathy. I think you were the closest. The U.S. dozen eggs right now is to $3.28 cents, which seems reasonable to me, but it is up 173% year over year, which is remarkable, so it’s almost doubled. But the good news is it’s down 15% this week and down 35% this month, so eggs are heading in the right direction.
I have been tracking this one a little bit because I, to poke fun a little bit at what’s going on, obviously don’t want anyone to get hurt, but for a little while, two weeks ago, eggs were outpacing returns on Bitcoin for the last three year period. Eggs were beating Bitcoin. So I think it’s about even now, but, man, should have just invested in eggs.
All right, well, thank you for playing this game. This has been fun. Hopefully, if you guys want to check out this stuff, these types of prices, especially commodities that actually do with real estate, there’s a website called tradingeconomics.com. You can check this out. It’s entirely for free. Has weekly, monthly data on just about commodities prices if you are interested, if you’re in flipping, renovations, anything from eggs to lumber to metals. Anything like that. So you can check that out. Next, we are going to get into the deals that Kathy, Henry, and James are doing, but first, we’re going to take a quick break.
All right. Who wants to go first? All right, Kathy, you were the first to make eye contact with me.

Kathy:
Oh, okay. Well, I am here at our project in Discovery Ridge in Park City, and I just love this project because it overlooks Woodward. We went night skiing last night. It’s all jumps and stuff, and I think it’s one of those unique opportunities where just the values just aren’t going to go down over time. Right now, they are down. So, to me, that’s just a great opportunity to get into an area where it’s really hard to build, to bring on new supply.
And it’s kind of a world class place. You can’t generally have a house right next to a bunch of ski jumps all the time. It’s unique. So I see it as opportunity. It’s our own project, but I still have to pay retail because, of course, we have investors in it. And the deal I’m looking at is just a lot that overlooks Woodward, the ski jumps and stuff. We can buy the lot for about 400,000. And the bid I got was for 1.5 million, so brings us to around 1.9 and a house next door just sold for 2.5 to an HGTV star, actually, who’s going to put in a few hundred thousand of upgrades in it and do a HGTV show on it. I can’t give the details yet, but-

Dave:
So you just got to sell it to Jamil. It’s perfect.

Kathy:
Yeah, yeah, there you go.

Dave:
You can have a little HGTV or is he A&E?

Henry:
He’s A&E, yeah. Look at you.

Dave:
Oh, sorry. There’s competition.

Kathy:
Yeah, so to me, a lot of people can’t see something that’s not there and a lot of times I can’t either. My husband can actually see a finished product. I can’t, but I get a feeling of things and I know what is going to be valuable over the long run. And it’s unique. And so I stood on the land and I think a lot of people just look at the lot and they just saw dirt.
But I went up onto the top of the lot and looked at what you would be seeing from the master bedroom, from the living room, and it’s phenomenal. And nobody else can see this. So I’m really excited. I feel like I could double our money in a year and, like I said, I locked in the bid when now the commodity prices are so much lower than they were just seven months ago, yet the prices haven’t fallen in line with the commodity prices. So anyway, I love unique opportunities in world class areas, and I see this area as never going down in value over the long term.

Dave:
I feel like, Kathy, you have this love hate relationship with new construction, and I’m curious what about… Obviously, it sounds like a great lot, but what about the timing makes this a good use of your money and effort?

Kathy:
That’s a great question. I would say being… Yeah, that’s a really good question. There’s enough cushion here in this one and it’s risky. It is for sure risky. This isn’t something I would recommend to just about… You have to have a love for skiing, I think, and understanding places like Park City to do a deal like this and be like, “Hey, if I was stuck with this property, could I handle it?”
It won’t cash flow. It might cash flow on a short-term rental, but I would never want to put all my eggs in that basket because the short-term rental market is really uncertain right now. So it would have to be one of those things. If I don’t sell it and make that profit, I’m going to have to hold it and it will probably be negative cash flow, but I have enough confidence in this area and I really do believe that interest rates are going to go down this year and I think there’s going to be another buying frenzy coming, and that will be right around the time when the house is finished and I don’t have to do the work. I just get to do the fun stuff of picking out the finishings and so forth.
So I don’t know. To me, it just makes sense. But I agree with you. And I love new homes. I just think if I love them, other people love them too. And the comps around here are double that. So two and a half million sounds like a lot, but the average price around here is around four and a half million. So I still feel like we’re under market and people just can’t see it because it’s dirt. But once these houses are finished, that’s when the value, I think, will really be there.

Dave:
Yeah, if you got stuck with this beautiful house at Park City, I feel like that wouldn’t be the worst thing in the world.

Kathy:
And it’s a construction of perm loans, so I hate balloon loans. I’ve been stuck in those before and that’s really stressful because you’ve got to get out of it so that the loan we would be getting, it’s a construction loan, so they give you the money as you go, but you don’t pay the interest on it and you don’t pay the interest on the whole amount.
It’s just as much as you use until it’s done, which would be next year. And then it converts into, I think we’re looking at the seven year fixed, so then we’re not stressed out in terms of having to sell it right away in one year. If the market’s maybe not recovered yet, we can hold it for a bit. And I know the rental market is strong. We just won’t cash flow on it for sure. We have to hold it.

James:
You might get good short… Me and my wife are just looking at to book a trip to Park City and, man, those hotels are expensive.

Kathy:
Oh, it’s $500 a night for a Best Western. It’s nuts. And if you want to be in a nice place, you’re paying a thousand bucks a night. So, again, to me, because they don’t want new construction, usually in areas like this. These are sensitive habitat areas. So the Summit County and Utah, they do not want more construction, and they make it really difficult, but we’re past all that. We have the permits on this. Everything’s been approved, so there’s intrinsic value right there.

James:
Some of the hotel rates we’re looking at we’re $2,500 a night. I was like, “What is going on?” I was like, “I thought skiing was supposed to be like this, you grab your skis and you save some money and you go have a good day.” I was like, “No, thanks.”

Dave:
Oh no.

Kathy:
Oh, it’s insane.

Dave:
No, no, no. Skiing, it’s $250 or $300 just for a lift ticket for a day. It’s crazy.

Kathy:
And it’s Sundance Film Festival. You were probably looking at Sundance film festivals where you’ve just got lots of people coming in and lots of rich people coming in, which is why this area kind of got on the map to begin with. It was just a poor mining town until someone from Hollywood thought this would be a great place to have a film festival, so a lot of billionaires came here and there’s just a lot of money here, a lot of really nice restaurants.
But, yeah, prices keep going up because I think, in this case, Park City made number three of the best places to live in U.S. News and World Report or Best Place to Vacation or something like that, so it just keeps getting notoriety, and prices aren’t as high as Vail or Aspen. They’re still 60% of that, so I see an upside here.

Dave:
And how is it finding contractors? I know you have relationships here, but are you noticing a difference in the market in availability of general contractors, trades, ability to get some of the finishes that you were talking about. Have you noticed that shift?

Kathy:
We have a builder at Discovery Ridge who we love and he’s here for us and we trust him, and he really thinks ahead. He’s the one that we brought in when our original contractor came to us a year ago and was like, “I can’t find any lumber, so I can’t do the job.” I was like, “Well, you have to do the job.”
So we ended up getting out of that contract and hiring the builder that we have now because he had lumber, and he had lumber only because another project he was working on got stalled because of the county. They don’t want new construction here. So if you’ve got land that’s already approved and permitted, it’s really worth a lot.

Dave:
Awesome.

Kathy:
And we love the contractor. And the other thing is his prices are down now. There’s a lot of subs that just don’t have work now, so all the costs to build are coming down. At least the bid is hundreds of thousands dollars less than it would’ve been just six months ago.

Dave:
Wow. That’s awesome. James, Henry, any other questions for Kathy before we move on here?

James:
Can I stay in your condo?

Kathy:
Yes, yes. Anytime. Oh my gosh. Tell me the day and you’re in. Absolutely.

James:
Done.

Dave:
It’s 2,400.

Kathy:
That’s it. Top price.

Dave:
Enough to stick to the rope tow tickets.

Henry:
It sounds like what you’re saying, Kathy, is that you understand there’s risk in this deal, but you have enough expert knowledge about that market and a leg up when it comes to being able to do new construction in a place that’s not typically allowing it for anybody else, that you’re willing to take that risk because the upside is so good and because you understand those risks are limited because of the information you have. Is that what I’m hearing?

Kathy:
Absolutely. New construction is… People love new places and in an older town like Park City, for example, a lot of the buildings are old, and the floor plans aren’t as nice. They don’t have the high ceilings, they don’t have the amenities that a new home would have, so there’s always going to be demand for that.
And especially if you’re in an area where there’s so much money, so much money where people, I had friends who said, “Hey, come stay with us in Park City. Like James said, it’s only going to be $1200 a night.” I can’t pay that. I don’t feel good about that. I can’t do that. But if I am able to buy a place that the townhome that we have, it pays for itself because when we’re not using it, we just short-term rental and it’s stayed pretty steady. It’s stayed rented, which is amazing. So we get to basically be here for free. I guess you could look at it that way.

Dave:
Do you have a professional property management company for that short-term rental?

Kathy:
I still manage my short-term rentals myself.

Dave:
Really?

Kathy:
I only have our two little guest house and our primary, and then this is our first property that isn’t near me. It’s out of state, so it was kind of scary. And I had a property manager, but they were not responsive and so I just started doing it myself. And then I found a house cleaner that I totally trust, and she’s been amazing.
And then our next door neighbor said, “We’ll kind of watch over it for you too”, so we’re going to pay them a little bit of money for that. We became friends with literally the neighbor next door, who’s fine with it. And so we’re just doing it ourselves and saving that money because sometimes the property management fees in resort towns are, it totally kills the cash flow. It’s ridiculous.

Dave:
Oh, yeah. I’m asking for personal reference. It’s very expensive.

Kathy:
It’s expensive and-

Dave:
Not very good.

Kathy:
And not good. And not good. And so now I have a house cleaner who really understands what I want and is really committed to it. So, so far so good.

Dave:
Nice. Nice. Last time I walked into my short term rental, it’s in a resort town, all the doors were just unlocked and open. I was just, “Okay.”

Kathy:
Oh my gosh.

Dave:
It was just letting people in. All the cords from all the electronics were missing. They didn’t steal the electronics, just the cords. I was like, “What the hell is going on here? Gosh, someone’s just trying to annoy me.” It’s just like, “That’s more annoying than taking the TV.” Anyway, let’s move on. Henry, what do you got from us in, I assume, it’s in Arkansas. What do you got?

Henry:
Yeah, yeah, you know me. I’m just hitting base hits over here consistently. Not going to the moon, just trying to do solid deals. So we’ve got a single family house that we are buying. It’s a three two ranch style house here in Lowell, Arkansas. And so the goal with this one is we’re paying 165. I think it’s about 1700, 1800 square feet. Probably a little bigger. We’re paying 165, and what I try to do with my deals, especially with the way the market is set up right now, is I don’t want to get into anything that I only have one exit.
And a year ago, two years ago, if you did that, chances are if you only had one exit, by the time you got to finish whatever you were doing to that property, the value was even higher than you anticipated it. And that’s just not what we’re seeing now. And so we’ve got this, what, like I said, 165. And so there’s a few options.
And so option number one is to take the max amount of money we can make by flipping this property. So we can spend 25 to 35,000 and then I can sell this property at 265, and that’s a conservative ARV for the property. And it’s mostly cosmetics. Paint, floors, countertops, back splash, maybe updating the master bathroom shower a little bit. That’s probably the most invasive thing we would do is tear out an old shower insert and do a whole new tile shower. Again, six months ago, a year ago, we didn’t even have to do that. You just had to clean those things. But now, more competition on the market, less buyers, you want to make sure you set yourself apart. So we would spend a little more than we have been, but 25, 35, and I can sell it for 265.
Option two is we would put zero into it, maybe a grand, call it a grand into it because we’d clean it out and fix any holes in the wall or something like that, and then just sell it for 200. So sell it under market value, do a wholetail. So sell it under market value. Somebody that wants to get a home with some equity in it can come in there and make any updates that they want, but then I can get to my profits quicker.
There just won’t be as much profit as if I sell it for 265. And option three is always assigning it to another investor where I could assign it maybe for 175, so I’ve got three exits for this property. And so that’s what made me feel confident in doing the deal because I can make money now, I can make a little bit of money now, I can make a little more money in about 60 to 90 days, or I can make a much larger profit probably.
It’s probably going to take about four to five months just with the average days on market right now. So we could finish the rehab quickly, but we don’t know how long it’s going to sit. So that’s why I like these base hits. I can get them funded fairly easily. We’re going to use private money to take this one down, so it’s going to be private money, probably $5000 out of my pocket max, maybe nothing. And so I’m able to take other people’s money and then buy these base hits, still, even in this economy, in this market, and turn a profit. So I like these little base hits, man.

Dave:
So, Henry, that sounds like a great deal. Can you tell us a little bit about your process? It sounds like you have three good options. How do you decide?

Henry:
That’s a phenomenal question. I focus more on acquisition than I do on disposition. So I am more concerned with what am I getting into the deal for, and then I let my financial situation and my business situation determine what I’m going to do to make the money. So if I have contractors ready to go and I’m cash flush, then I go ahead and I do the long term and make the most money because I know I can get a contractor in there. Even though it’s going to take a little longer to get to the money, I don’t need the cash right away, and I’ve got contractors ready to go that I want to keep busy so that I don’t lose them. And so I put them on that project.
If I’m in a situation where I’m cash poor at the moment and I don’t have contractors ready to go, then I go ahead and either do an assignment or a wholetail because I get there quicker. Plus, I don’t have to take a contractor off of another job, which may be higher priority or netting a larger return. And so it’s more just about what does my business bank account say that I need to do, and what does my contractor situation look like?

James:
I think what Henry said is, I think, really, really important for all investors is a lot of times, even if you have liquid, you got to look at what you both have. What’s your resources? Resources come down to liquidity and then how can you stabilize and execute that plan? But those are two separate things. And a lot of times, I can get myself into trouble because I’ll go chase that good deal and then I don’t have a contractor and then it sits stale and you’re just trying to get to it.
And that all worked for the last 24 months when the market’s going up like this, but right now I think it’s really important to buy… It’s all about mitigating risk and that is another reason I love Henry’s deal right now is he can buy this deal and do three different things with it and maybe even a fourth thing and keep as a rental if you want to. In a market that gets flat, you want either two things.
You want multiple exit strategies where you can mitigate risk by doing four different things and you can still build wealth or a return, but in addition to, it’s either you mitigate risk with multiple exit strategies or you have to buy extra deep. You get more margins in your deals. And right now, inventory’s still really low, so getting extra deep is hard. And so these deals that you can cover on all different angles, that’s how you mitigate risk in this market. I hear a lot of people like, “Oh, the market’s going to crash, the market’s going to crash.” And maybe it will, maybe it won’t. Who knows? But that means you can still buy in a market because it doesn’t really matter if the values drop or go down. If you can keep as a rental, you can wholesale it, you can fix and flip it, you can wholetail it.
That’s an all encompassing good deal right now. And if you’re nervous about the market, that’s what you want to buy. And both deals, actually, Kathy and Henry, have really good upside in them, but it depends on what you’re trying to do as an investor. And sometimes it’s good to buy both of those type of deals because it balances out your portfolio. You get Kathy’s with the huge equity gain and then you got Henry’s. You’re not going to get hit on as long as you have your systems in prepped. But what Henry said’s really important. Don’t buy unless you’re ready to execute that plan right away. That’s how all businesses work too. If I’m selling pens and trinkets, I’m not going to go buy a bunch of inventory that I don’t think I can sell later just to buy it. And so it’s look at what your skillset is, what you have, and then buy off that.

Henry:
Yeah, yeah. No, I appreciate that sentiment because I think especially new investors, they get pigeonholed into these ideas of the exit strategy is first. You hear it all the time. “I want to wholesale, I want to be a fix and flipper, I want to be a landlord.” And I get why that thought process makes sense to them, but at the end of the day, what’s most important isn’t the exit. It’s always the entry. You make your money on the buy and you insulate yourself from risk on the buy.
And then if you think so one-sided about what you’re looking for, then you’ll only see those options. And what I like about our strategy is we think deal. Get the deal. If we get the deal, I know I can get multiple exits so I’m not leaving money on the table by passing on something. If I was just looking from a buy and hold perspective, then I probably would overlook this deal because at 165 in this area, 165 plus 25, so 25 or 30, so call it 200, I could probably get $1,500 to $1,700 a month rent out of it, which isn’t going to cash flow after expenses.
And so, if I’m looking at this from only a landlord’s perspective because I say I want to be a landlord, then I pass up on this deal. But then if you don’t think of it as, “Is it a good deal and can I monetize it a different way?” then you leave all that profit on the table. We could make as much as 50 to 60 grand doing the long term flip. And so you’re leaving that money on the table thinking so one-sided. Think about, “What is a good deal and how can you monetize those deals?” And then especially if you can have more than one exit, even if it’s not your main strategy, you can still make money in this market today, right now.

Dave:
That’s a great point, Henry, I think for people like you who can pull off different strategies, but what do you say to people who are new right now, who considering one strategy might be daunting if you’ve never done a deal. They’re thinking like, “Oh, yeah.” Sometimes I just feel like it’s easier for people to focus and just say, “Don’t worry about all these different things.” So how would someone who’s not comfortable with all these different strategies that you are approach a deal or finding a deal like this?

Henry:
Yeah, no, that’s a great question. I’m not saying, “Don’t focus.” I’m saying, “Don’t focus on the disposition.” So the common denominator amongst every real estate disposition strategy, in order to make money anyway, is you need to buy a good deal. And so shift your focus from the exit strategy of saying, “I want to find a house to flip” and your focus should be on, “I want to find a good deal.” And if that’s your focus, then the things you’ll be focusing on are the strategies that you need to bring those good deals into your plate.
If you are generating leads for deals, evaluating those deals and making offers consistently, you’ll find good deals. And then once you have that good deal on the hook, then you can think about, “All right, now how do I go monetize this? I know it’s a great deal because I know what good deals look like in my market. I know it’s under market value.” And so, trust me, if it’s a good deal, somebody in your network will want to buy that from you or outside of your network. Call James. He’ll probably buy it.

Kathy:
For a first time investor, I just want to say you might not get the best deal on your first investment. And that’s okay because what’s important is that you’re doing a deal, and there’s so much to learn just in that first deal, just even the terminology of the lending side of it and understanding all the details of getting a loan, whether it’s a conventional loan or a hard money loan. It’s a completely different language. So I just want to let people know you don’t have to wait for the kind of deals that Henry’s getting or that James is getting because they’ve been doing this a long time and they’re going to probably beat you to that deal, all the experts out there.
You might get the second best deal. You might get what they didn’t take, but it still would be a good deal for you because it’s your first. So I just don’t want a new investor thinking that they’ve got to be as good as Henry or they’ve got to be as good as James on their first deal because you’re just going to learn so much. If it cash flows enough, if it just covers your expenses, that might be a good first deal. If you’re able to flip it and make a little bit of money on your first deal, that is better than losing money on your first deal. But the amount of things that you learn, that’s what matters is getting out there and doing it.

Dave:
I love this, Kathy. I’ve been on this sort of risk kick because I think people talk about reward and they’re like, “I want the best deal.” And I’m like, “These things go hand in hand. Risk and reward are counterbalance to each other.” So in order to get an incredible return, often you have to take on more risk. And when you’re new, the risk the you would be taking on to do Henry’s deal is way higher for you because you don’t have the experience and the team that Henry has.
And I think that for new people getting their first deal, it’s like just don’t lose money. It’s like just do something that’s going to improve your financial position, even if it’s just modestly because, frankly, people like the three of you can afford to lose every once in a while, and you can take on the additional risk in pursuit of that higher reward because you’re not putting all of your money into this one deal.
For new investors, sometimes they are putting all of your money into that one deal. And if you put all of your money in expecting the highest return or chasing the highest return, you’re putting all your money in on something that might be overly risky and it’s not that good of a decision. So I really like that advice because it really just pays to be patient, to learn, and to just have appropriate expectations, especially in this kind of market because there is more risk right now than there has been over the last few years.

Henry:
Yeah. I just sold a flip that we had for 90 days that I made a whopping, drum roll, $1,300.

James:
Anything in the green’s a win though. Green is a win. I just sold a flip where we were not in the green, so it’s just the way it goes. But I think what Dave said is really important. Chasing the best deal, the best deal for me is different than the best deal for Henry. The best deal for me is the different deal for Kathy. We have different definitions of it, and the higher the return, the higher the risk.
This is a risky business and that’s why we’ve seen short-term rentals, flips, and developments kind of get beat up the last six to nine months. They were high returns, they have downside and the downside stings. And so just when you’re looking at that deal, find out what you’re trying to accomplish. Maybe you’re trying to grow rapidly and you want to get into that really risky deal. Maybe that’s your objective.
If you want to steadily grow, you don’t need to buy the best return because the best return comes with a lot of hair typically, and you got to cut through, you got to make it look good. And so just don’t bite off more than you can chew because I’ve bought plenty of deals where there was a big learning curve on them. They would’ve been a really good deal for a lot of other people, and it turned into a bad one for me because I just wasn’t on it. I just was figuring things out. But at least, like Kathy said, I learned some valuable lessons on those properties.

Kathy:
Yeah, I think we just looked at our stats this year and we helped 165 people buy their first deal this year.

Dave:
Nice.

Kathy:
So we were super… We handheld those people. These were not extraordinary deals. I don’t think James will buy it, I don’t think Henry would, but they are already finished homes that cash flow 6 to 8%. Again, nothing astronomical, but it’s great for a first investment, especially for people that don’t have the experience in growth markets. So, again, depending on what you’re trying to do and what your parameters are, everybody’s different. If you are going to get your hands dirty, if you are going to find the property, fix it up, work with wholesalers, do it all yourself, you should be getting a better deal.
If you’re having someone else do it for you, then you have to give some of that profit away, and not everyone has the time to do it all themselves. It’s kind of the difference between buying an older car that you fix up and make nice or a new car. Do you want something with less issues, but that serves your purpose? Then you’re going to probably just spend a little more money and get a new car. And I’m not saying buying a new home, but if you’re going to buy an older home and try to fix it up, there are going to be more expenses and more issues there, and not everybody has the time or expertise to do that.

Dave:
I love this conversation because I’m writing a book. I don’t know if I told you guys. I’m writing another book. It’s sort of about this topic and you’re giving me a lot to think about. But we have to move on. So, James, you mentioned that what’s a good deal for you? You just took a haircut on one, it sounds like. So what are you moving on to next?

James:
We’re still looking in all different categories. We always are buying, so we’re still looking fix and flip, looking for our smaller single family buying holds with some development upside. But the one thing I’ve… There’s pros and cons to market transitions. The con is I just lost money on a flip property. That’s just the way it went. The pros is different opportunities start coming into the market that we weren’t able to get the last couple years, and we’re able to buy different things.
And so over the last six months, it’s not because we pivoted our plan, we’re just going where the returns are and the opportunities are. And for the last 24 months, we bought a lot of fix and flip, a lot of short development sites. We sold a lot of rental properties, two to four units. And what we couldn’t get were these larger apartment deals or anything above 20 units.
The cap rate just got so bad, the returns got so bad because there was so much liquidity in the market consuming this. And there’s a lot of 1031 exchange going on too where people were just overpaying because they had to place money. And we’re excited about this deal because we got a deal that’s closed in at about four weeks. It’s a 32-unit apartment building, built in 1980, in Federal Way, Washington, which is just a south King County submarket. It’s a very stable rental market in general. It’s just your steady return market.
Seattle, it’s all different tide. Seattle gets you higher appreciation, a little bit more hair on your rentals and typically a lower cap rate. But we’re buying this 32-unit building. The purchase price on this is 6.225 million. We’re putting in $1.7 million in the renovation. It’s roughly about 40k a unit. And then after it’s stabilized, it’s going to stabilize out at a 7.26 cap rate, which we have not been able to get 12 months ago. We were trying to get into a five and a half cap at that point. And the estimated market value, based on a 5.6 cap, which is actually a little bit above what, or it’s very conservative for how things have been trading, the market eval is going to be 10.54 million. So we’re getting a huge equity pipe on this.
The anticipated IRR is at 16.5 to 17% IRR. And then one thing that the deal just got better for us is we thought we had locked our rate at 6% and it actually just came down to 5.75. So we’re actually getting a better deal walking in just because our rates are falling right before closing. So we really like this deal for numerous reasons.
A, it’s built in 1980s. It’s an easy construction plan for us. A lot of the stuff in Seattle is old. 1920s, 1950s, it comes with a lot of hair, a lot of permitting, and also it has a lot of dead time on our money because we have to vacate the buildings, we have to replumb them, and so the systems are gone on the building. We like the overall location of it because it’s in a market that’s very stable. Federal Way, Auburn, south King County or south King County in Washington state alone, in the 2008 crash, the rents just kind of stayed. And as incomes have gone up, costs have gone up and the cost of housing has gone up so much in this area that the rents, they did their jump and they’re just leveling out and they still have steady growth going on right now because the cost of rent is still so much cheaper than the cost to buy with the current rates.
And then we also like the mixture count. It’s a mixture of one, twos and three bedrooms. And so we have different types of mixers that attract different types of tenants, different types of incomes. And so we just feel like this is an overall really good buy. We’re getting a solid equity position. It’s an easy cosmetic turn, and the IRR is right around 17%, which is about two to two and a half points higher than we were seeing even 12 months ago.
So as the market transitions, different opportunities are getting put in front of us and we’re just having to look at things differently. It’s not that I’m not looking for more fix and flip and development sites. I’m just seeing this is the best opportunities that we’re seeing right now. And so we’re buying on what the opportunities are. And the really cool thing is this is now our third deal we’re wrapping up in the last 180 days and we have not been able to buy this product. It was very, very hard to find it or we had to find ones that needed a lot more construction work to get these same kind of numbers. But that’s a lot more headache, you need a lot more staff, a lot more management, you get a lot more variables in there. So we’re able to reduce risk and get a better return than we were seeing 12 months ago.

Kathy:
That’s incredible. Are you syndicating that?

James:
We are. Yeah. So typically, we usually syndicate, unless we’re doing some trading around, a lot of times if we’re above 20 units, we’re syndicating those. We did just buy a 24 unit where we bought it ourselves because we were doing a 1031 exchange. But, typically, yeah, we’re syndicating these ones.

Dave:
So, James, we’ve had some conversations with people recently. You talked to Ben Miller. Recently, Kathy and I had a conversation with Brian Burke about just the state of multi-family. Are you afraid at all or what makes you feel good about this deal given there is some, just to be frank, overall pessimism about the state of multi-family right now.

James:
And I get why there’s there. There should be pessimism in multi-family and especially specific markets. And what it always comes down for me is knowing we only buy in our backyard for a reason. I’m a one-dimensional investor where I stay in Washington state because we know it like the back of our hand and we know… We’re not reading graphs and trends to backtrack and see what’s going on. We lived through those trends during those times.
And so the risk in multi-family is the stepped on performas or where they’re matching the growth that they’ve had historically over the last 12 to 24 months, which is unreasonable. Flipping also would be very risky if you’re putting appreciation in your deals like a lot of people were doing the last 12 to 24 months. And so it comes down to your core underwriting, knowing your product, and knowing where the rents are.
And even this right here, our perform on rents. We have a three bed, one bath at $2450 a month. These also have vaulted ceilings. They’re big sized units, and our rent comp that we’re using was a two bed, one bath that had same site vaulted ceilings and that rented out for 2300. So we’re not pushing our rents very hard. And so as long as you’re keeping your performa realistic, I’m not as worried about the risk. In addition to, I always like to look into that cost of rent. What’s common sense?
If cost of housing to own this unit is going to cost 30% more on a monthly payment, then I feel pretty good about my rent staying stable. Now if the cost to own was right about par, yes, I think it’s going to come down a little bit. But it really comes down to what, just like anything, I’m watching where the trends and the hockey sticks were. On fix and flip right now, the neighborhoods that hockey sticked up really high, I’m still being cautious and running my values a little bit lower because there could be a little bit further drop. Same with rents.
If we’re seeing rents that hockey sticked up, were being very, very conservative. In the city of Seattle, they climbed very quickly and in the luxury, higher end market, those compressed backwards, but they also jumped 30% last year, which is huge increase. So on those ones, we’re actually bringing those down. But in this market, it was more of a stable growth where we didn’t see that hockey stick. Yes, it was good growth. We were seeing 10 to 15%, but a lot of that was also backed up from COVID. We couldn’t raise rents for two years. So it was a more normalized rent growth, and so we’re just looking for the normalities. And at the end of the day, we’re still buying this at a cap rate that’s two points better than what we were seeing 12 months ago. And our IRR is still two to three points better as well. So we have the padding inner performa to where, yes, they could go down a little bit, but we’re still going to be really happy with the return.

Dave:
Nice. So how representative of what you’re seeing as this deal, are you seeing a lot of these or is this still relatively… You’re seeing more opportunities. So are these becoming abundant or is it just like if you search, you can find these good quality multi-family deals still?

James:
You have to dig and search still. There’s deals in every space right now, but you have to go looking for them. Even this one, it was one of those deals where we’re constantly building our network of multi-family brokers. We’re digging for deals ourselves. And we probably wrote 30, 35 offers before this one stuck. And so, it’s not that we’re not swinging and missing on deals… Or actually I don’t call it swinging and missing because we didn’t want it. It didn’t hit our buy box.
But the stuff in the multi-family space is still priced pretty heavy right now, I’ve noticed. It’s just sitting there. There isn’t a ton of movement going on, but there is opportunity. when people have made the decision to sell, they’re moving their product. And the one thing about this is this seller had really low rents. He had owned this for property for over 40 years.
I’m actually very familiar with this property. So randomly, back when I used to door knock, when I was 22, 23 years old and that was part of my territory, there was a condo complex in between two apartments, and we’re actually trying to buy the other apartment building right now, but there was a lot of foreclosures in there. And I used to sit in this parking lot all the time on my computer with my hotspot looking for deals and going in. And so I just kind of know this area fairly well. But this guy’s rents are so low and when the rents are that low, it’s hard for people to get financing and people, they’re looking on the surface like, “Well, I don’t want to get the financing, the rents aren’t covering.”
Whereas if you set your loans and your leverage is set up right, you can still get into these opportunities. And so people are taking the really low rents and they’re like, “Well, it’s just too hard to get it close” and they move on to next deal. So we’re chasing those, but they are kind of a needle in a haystack. We’ve probably written at least a hundred offers in the last 180 days and we’ve gotten three deals. But the three deals are really good ones and we’re happy with them. So I wouldn’t say there’s an abundance of them. You have to go digging, you got to be consistent, you got to stick to your numbers and then move on to the next deal.

Kathy:
For those of us not so familiar with the Seattle market, we just hear what the news is saying and there’s so many layoffs. Are you concerned about that or do you think that the jobs are going to be coming back?

James:
And this is why I like this product. The layoffs won’t affect this demographic that rents here. Where we’re seeing the compression in the tech markets, at least in Seattle, is in that higher median home price because again, the layoffs and their incomes and their stocks are going down. So it’s really that tech market. The average tech renter is going to be spending probably at least 25% more than this on the rent. And they’re going to be in a different area. More infill, more central locations.
Those markets have compressed back because, A, there’s been a substantial more units built in those markets, whereas in the submarkets, they’re not building a lot of units here. They’re still the renovated units. So there’s less inventory in this market. And then the average tech, those have came down, but these ones, we’re talking more this is your blue collar.
The average rental median income for this area is $56,000. So it fits inside the wheelhouse. So it’s not going to be affected by where the mass layoffs is. That labor market’s actually still doing very strong. I’m still paying my property managers, my accountants, my entry level positions, we’re still paying them 35% higher than we were two years ago. So they’ve got that income growth and those jobs are still in high demand. If I want to go hire a property manager right now locally, it takes a while to fill this job. And so in that demographic, there’s still a lot of demand for the labor, and so that workforce is very stable.

Kathy:
So there’s work in Seattle outside of the tech industry.

James:
And I swear, a lot of that’s still hype though. You see the big number in the news. I know a ton of people work at Amazon, Microsoft, all these, not one of them has been laid off, nor are they worried about getting laid off. And so they are big numbers in the newspapers, but these are big companies with a lot of employees.

Dave:
Totally.

James:
And so the overall percentage of it isn’t that big. And I have not heard of anybody getting laid off personally, and I know a lot of people in the tech industry here.

Dave:
Yeah, I saw some stat that Amazon, I think the big layoffs was less than 1% of its corporate workforce.

Kathy:
Yeah, that’s probably just all the jobs that were created over the last couple of years to deal with all the people that were staying at home and ordering stuff on Amazon, and now maybe it’s just coming back to normal.

Dave:
And they’re still way bigger than they were before the pandemic. Way bigger. A lot of these companies doubled in… I don’t know Amazon off the top of my head, but you see all of these companies that just exploded and they probably got out over their skis, but now it’s not super big. All right, well, this is a great episode. Time flies. We do have to get out of here. But thank you all for sharing these deals. This has been a lot of fun. If any of you have questions about these specific deals or want to learn how these three experts are doing these deals, you can reach out to them either on social media or on their website. So, Kathy, where can people ask you about your work and your deals?

Kathy:
Realwealth.com is our company, and then my Instagram is @kathyfettke.

Dave:
All right. James, what about you?

James:
You can check us out on Instagram @jainflips or on jamesdainard.com.

Dave:
Henry?

Henry:
Same, same, man. Henrywashington.com or check me on Instagram. I’m @thehenrywashington.

Dave:
All right. And if you want to know about the price of eggs or the other useless stuff I know, I am @thedatadeli on Instagram. Thank you, guys, so much for listening. We’ll see you next time for On The Market.
On The Market is created by me, Dave Meyer and Kailyn Bennett. Produced by Kailyn Bennett, editing by Joel Esparza and Onyx Media, researched by Puja Gendal, and a big thanks to the entire BiggerPockets team. The content on the show On the Market are opinions only. All listeners should independently verify data points, opinions, and investment strategies.