When Does It Make Sense to Refi with High Interest Rates?

David:
This is the BiggerPockets Podcast show 675. One of my like David’s philosophies for building wealth is that you don’t look for home runs. You’re just trying to get a good pitch to get a hit. And every once in a while, the pitcher leaves one out there, they make a mistake and that becomes the home run. I look at real estate very similar. You can’t go force a home run deal. You can’t go make a seller sell you a house at a super good price. What you can do is look for a lot of base hits in the same deal. And that’s how I put my portfolio together.
Hey everybody, this is David Greene, you’re host of the BiggerPockets Real Estate podcast here today with a Seeing Greene episode. If you couldn’t tell from the green light shining from behind my head, does it look like I have a halo? Do you think Beyonce would include me in one of her songs? I hope so. In today’s episode, we take questions from people just like you that are BiggerPockets fans that want to know what they should do in their situation, get some clarity on the next best step moving forward, or try to figure out how to maximize the opportunity that they have in front of them. And we have some great questions and answers to share with you today.
Just a bit of what you’re going to get as you listen to today’s show. Which house hacking strategies work in different markets, we go into some pretty good detail with different strengths of different markets and what you should be looking for specifically in a house hack, depending which market that you’re in. We talk about when you have equity, what to do with it, when a cash out refinance makes sense, when a rate and term refinance makes sense, and how you should be spending the equity that you pull out of previous good decisions. And one of my favorite things to talk about, we talked about how to get multiple wins in the same deal.
Personally, when I’m showering and I’m trying to figure out, “Oh, how do I help the BiggerPockets community to get more houses? What is stopping people from getting houses?” I think about people are always trying to hit a home run in one pitch. They’re waiting for this unicorn of a deal that they heard someone talk about on the show that very rarely ever comes around and they spend six years hoping that the perfect deal comes around and that nothing does. And they’ve lost six years of loan pay down, six years of rent growth, six years of equity. It’s terrible. So I get a chance to answer this question by helping the person asking the question to look at properties and say, “How can I get several smaller wins in one deal that stack up to more than one big win? So you can be buying more real estate, you have more options, and you’re not waiting for the unicorn that very rarely ever comes?” All that and more in today’s episode.
Today’s Batman voiced Quick Tip is, I am a huge proponent for pursuing excellence in your life, specifically your vocation. I think so many more people would be so much happier if they woke up every day and lived it like it was the last day of tryouts and they were trying to not get cut. Part of being excellent is giving your best every single day, and it’s looking to always improve, which is something that we at the David Greene team and The One Brokerage who are always harping on. I harp on myself, and us at BiggerPockets feel the same way about. For instance, we are taking the pro membership and making it even better every single time we talk. I’m not joking. Whenever I talk to anybody within BP, the question’s always, how do we make pro better?
So my question to you, what are you doing to make your own life better? What are you doing to be more useful or helpful to other people around you? What are you doing to improve your own future? Are you on cruise control hoping something happens to change in your life, or are you proactively looking to get better every day like we are? Hopefully you’re getting better every day, but if not, that’s the question to ask yourself every day when you’re showering.
All right, enough of that. Let’s get to the questions. Before we jump completely into the show, I just wanted to give you a little bit of a heads up. We had Jonathan Greene on the podcast and asked him a couple questions to air specifically on Seeing Greene. So you’re going to hear from Jonathan and my co-host, Rob Abasolo, and then a couple questions in, I’ll be jumping in to provide my commentary. Hope you enjoy.

Rob:
We have a special treat today because typically with the Seeing Greene we are getting a masterclass from David Greene, but today we are getting a masterclass from not just David Greene, but his long lost cousin, Jonathan Greene. So we got a question here for you all today if you guys can give us your most insightful answer. And I, depending on how prolific I’m feeling, I might even give a little POV too.
All right, first question from Misha Parker, asks, “Buy now or wait a few months for more of a market correction?” What do y’all think?

Jonathan:
For me, it’s always buy now within reason. I’m always looking, there’s nothing that I even identify about a market that throws me off hot cold. I still think I can find deals because I look every single day and I know the data. So it’s always a buy now cautiously. As long as the numbers look good, the market conditions don’t bother me at all.

Rob:
David?

David:
Yeah, that’s sort of the way that question’s pose as do I buy or do I wait, it’s not the best way to look at it. It’s more like when the market is in the seller’s favor, you’re just going to spend more time and buy less. And when the market is in the buyer’s favor, you’re going to spend less time, you’re going to be able to buy more. So it kind of comes down to the expectations of what you think you can get for the time you put in.
I would say in general, there’s overall two different kinds of markets throughout the country. We’ve got markets where prices are softening as either the sellers were very ambitious and priced their homes way ahead of the curve of where things were trending and they’re returning back to normal. Or there was not a great discrepancy in supply and demand, and now that demand has gone down, you’re seeing an imbalance and prices are actually coming down based on fundamentals. So in that market, you’re okay to wait a little bit longer because that will probably continue to happen. So if you can only buy one house, you got $20,000 saved up and you got to make a move, it’s okay to wait in a market like that.
But many markets across the country, independent of these interest rate hike, are still red hot stuff, is selling very fast, the supply and demand is just so off. That waiting is going to make prices go up. So know the market you’re in. Some of the markets where I’m seeing the prices sort of turning back down would be Sacramento, that’s a big one. Seattle. I’m seeing that happen in pretty big degrees, especially in the higher price points. You’ve got some of South Florida that’s slowing down a little bit because it just got out of control, but don’t expect to crash. There just is not enough inventory and there’s still enough demand. But understand, like what we were saying, it’s not just wait or buy now. It’s not that simple. This is not stocks where the price goes down or the price goes up and those are the only variables. Like Jonathan said, you might find a deal that just at the surface looks mediocre, but you poke and probe and you realize, “Oh, I could get them down to another 100 grand” and that becomes a great opportunity. Rob, what about you?

Rob:
I don’t know. It’s hard to say. I always liken this to stock or crypto where everybody, when it is at the top, everyone says, “Oh man, as soon as it falls, I’m just going to buy a bunch of it.” And then now stuff is falling and everyone’s like, “Ooh. Hmm, I don’t know. I mean, my dream came true with the price, but I don’t think I want to buy it right now.” But real estate’s kind of the same way. Six months ago we were all paying all time highs. And now there is a little bit of a correction, now everybody’s like, “Ooh, I don’t know. I don’t know if I should do it.”
I’m kind of the person that I really believe that you got to take action. And so like Jonathan said, take cautious action, right? Don’t just get into a deal just to do it. Analyze it. If it fits your criteria, you should do it. Because at the end of the day when you say, “Oh, I’m going to wait six months,” 99% of people will never actually take action in those six months because they will have talked themselves out of it. So I think if there’s a deal that fits your criteria, you should go for it.

David:
And if you want to know more information about which markets are trending up and which ones are trending down, I would suggest following Dave Meyer and the BiggerPockets’ State of the Market Podcast where they cover this exact topic in detail.
All right. Our next question comes from Janelle Kuche. And Janelle says, “What would you suggest to an investor who is currently battling a negative mindset and struggling to find deals?” What say you, Jonathan?

Jonathan:
Well, a negative mindset is always a product of who you’re around. I mean, if you surround yourself with negative people or don’t know any investors, you’re probably going to have a negative mindset. People are going to be telling you, “You shouldn’t invest. You don’t know what you’re doing.” You just need to get to more meetups, meet more people who are newer investors like yourself, and that will change your outlook. But also negative mindset comes from confidence, same as an analysis paralysis. So the more you know, again, this can all be achieved through meetups, listening to podcasts and making sure you find people you can trust, but I found that building relationships with other true investors, new and seasoned, as long as you have some value to add, will help you in both of those. A negative mindset’s always about who you’re around because you’re not just doing it to yourself.

David:
Yep. I would say for someone in that position, the most important thing you could do is build momentum. Once you get one deal, two, three, they don’t have to be home runs. You just get on base, you start to realize, “Okay, this isn’t as scary as I thought.” The analysis paralysis goes away. You get excited about it, now you want to look at more deals. As you’re looking at more deals, you get a better feel for what a deal actually is and then the fear just sort of evaporates on its own.
If you’re trying to get a deal like what Jonathan gets or what you see Rob getting as your very, very first deal, you are setting yourself up for frustration. You don’t have the skills they have, the resources they have the network, the experience, none of the things that make someone really good at what we’re doing. So set the bar lower, start with house hacking. Buy a house in a great neighborhood, in a really good location where there’s a lot of demand, good school scores, low crime.
It doesn’t have to be the deal of the century, but it’s a couple different units where you can live in one unit, run out the other two, reduce your risk profile as much as possible. Give it a year or two and see how much equity you’ve created. That could be the down payment for your next two properties. And you’ve got a little bit of the experience of the training wheels of managing a property, what goes wrong in a house, how you fix it. You’re just going to get exposed to this and it’s not going to feel as scary as jumping out of an airplane into the ocean. It’s more of kind of getting into the shallow end of the pool and letting you feel what that water’s like when it hits your body.

Rob:
You know, I think you should open a sugar free Red Bull, slam it and hit the MLS and look for deals, man. I mean, honestly, just find a way to get inspired. Jonathan, I think you’re totally right. It’s all about who you surround yourself with. Typically, negativity comes from being around negative people. I mean I have always found that. But when you surround yourself around people who are absolutely freaking crushing it, what are you going to want to do? You’re going to want to crush it. You’re not going to be bummed about it. You’re going to be like, “Wow, I want to do what they’re doing.”
I remember about a year ago I was invited to speak at a conference. It was a Codie Sanchez’s conference. I was in the green room, and the green, the G-R-E-E-N room, but I was in a room with basically about 20 other millionaires and I think maybe even a billionaire or two, and just talking to them and understanding how they’ve gained wealth and how they’ve gained real estate and how they’ve figured out how to master this business. I was just like, “Wow, I have never been more inspired than I am now.” I didn’t feel bad about myself, I just told myself, “Okay, if 20 other people in this room could have done it, I can do it too.” So go find people that inspire you. Like Jonathan said, go to a meetup and really try to get as close as you can to them because that will, I think, unlock a motivation that will make you attack it very positively.

Duane:
Hi David. Duane, Long Island, New York. My wife and I recently bought a duplex, but because we did a double closing, we kind of got screwed because our buyer of our old property switched to a note 203(k), which pushed everything back. And so when we bought the new property, we were one of those people that fell victim to the interest rate hike. And so instead of us getting a three point something or a four, we ended up with 5.6%. Now my question has to do with strategic refinancing. What are some of the industry markers, market markers or strategies that you use to kind of refinance? Because as this interest rate fluctuates and changes, I’m just trying to figure out a good way to understand what a good marker is to say, “Okay, now’s a good time to refinance.” I mean aside from the obvious equity and things like that involved, like say if the interest rate drops, like I believe a couple weeks ago it went down to 4.9 or something like that. So just trying to figure out what strategies do you use when you’re refinancing commercially or in multi-door units.

David:
All right, thank you Duane. I think this is a great question and I think this is the kind of questions I’d like to see more of on the show. So thank you very much for asking it.
Okay, there’s two ways that I think we can approach this question. The first is, Duane, exactly what you asked. “David, how do you choose when to refinance?” And I’m going to answer that question. The other way is what I think you might have been getting after, which is how do you play the market when it comes to refinancing? So I will answer that as well.
Now let’s talk about when it comes to my specific portfolio. I don’t try to time the market nearly as much as people would think. Now that will surprise you when I give you my answer about how to time the market because I actually think about it quite a bit. And I have a lot of advice and input for if you’re trying to time the market, getting in and out of buying, when to buy, when to sell, when to refi. I do have a lot to consider. But when it comes down to my own portfolio, I don’t try to outsmart the market as much as you would think. I refinance when it makes sense to refinance.
So I recently refinanced four California properties. I went from a 3.75 to I think of 5.625. I wasn’t super thrilled about that, but I pulled out over seven figures of equity. The cash flow from those properties is still more than what it used to be when I first bought them at the low interest rate. It’s one of the cool things about inflation. When you buy real estate and you wait, your cash flow appreciates. You can now refinance and still make more money than you made when you first bought the properties when you had the lower rate but before your rents had gone up. So I’m going to take that seven figures and I’m going to go buy more real estate.
Now let’s say the difference in my interest rate was 2%. As long as the real estate that I go buy is more than 2%, I’m going to win. So even though I lost on the rate, I won in so many other areas buying below market value, getting into appreciating markets, increasing my cash flow, taking on more debt that my tenants are going to pay down for me. All of that leads to being much bigger wealth than I lost because my rate went up. So that’s the first thing I just want to say is, I refinance when I want to go buy more real estate and when I have equity in the portfolio, not necessarily when rates are low. Now that same portfolio I did refinance a couple years earlier into a lower rate than what it was when I got them.
So you can do that too. We call that a rate and term refinance. When interest rates have dropped and you want to get a lower payment but you don’t take any money out of the property, that’s called a rate and term. When you pull money out the property, that’s called a cash out refi and the rates are typically a smidge higher on a cash out refi.
Okay, now let’s talk about how to play the market when it comes to refinancing. The question would be easier to answer if we saw increases in rates and drops in rates if it was kind of bouncing around. Unfortunately, the market we’re seeing right now is the Fed has more or less come out and said, “We are going to continue raising rates until we see inflation stopped.”
Now I’m going to interject in my opinion here, I’m not speaking for BiggerPockets. I don’t know this as a fact. I don’t have a crystal ball. The way I look at economics is that increasing interest rates does not necessarily stop inflation. It slows the velocity of money, which can have an effect on GDP and it can have a short term effect on inflation, but not a long term effect. If you want to actually stop inflation, you got to take money out of the economy that we put into it. We don’t see the Fed doing as much of that.
Why do I interject this? Because I don’t think that raising rates is actually going to stop inflation, which is one of the reasons that I’m still buying real estate. But raising rates will slow down how quickly properties change hands. And that can make it look like the price of the asset isn’t going up as much because there’s not as many buyers that are buying them which mimics the effects of lowering inflation. And that’s what we’re seeing, is, “Oh, they’re raising rates, so housing prices are starting to come down.” They won’t be a long term effect in my opinion, but it is creating a little temporary window right now where you can get deals that you couldn’t get before.
Why do I say all this? I don’t think that you’re going to see rates come down, my man. That’s what I’m getting at. If you’re waiting to refinance and you’re hoping rates drop and you’re like, “What’s the milestone marker where I know jump in now and refinance?” It would just be if the rate is less than what you got. I don’t think they’re going to go down. In fact, I think that they’re going to keep climbing up. We just saw a three quarter rate hike a couple days ago. We’re going to see another one most likely coming soon. I think rates are going to continue increasing, which is good in some sense because it allows investors an opportunity to buy a home. It’s bad in other senses in that it takes away the ability to refi, it makes cash out refis less desirable and it makes homes less affordable in general.
So if you got a chance to get a good rate, Duane, I think you should take it. I think you should plan on holding it for a while. Don’t be discouraged if the property that you said you kind of got screwed on because of your double close and it taking too long to get to the point where you could get into the rate you have right now. You might not cash flow what you want, you might not even cash flow positive for the near future as rates continue to increase, but what goes up must come down. And they always do come down because there’s some politician out there that wants to take credit for lowering rates and stimulating the economy, the same economy that we artificially slowed. Somebody will take credit for artificially speeding up by dropping rates.
What we really need is to increase the productivity of the country. That’s what you really want to do. That’s how wealth gets built. But it’s easier to just tinker with rates, tinker with inflation, tinker with quantitative easing and make it look like we made some progress. Not to get too deep into macro economics there, but there will come a time, Duane, where rates will come down and that’s when you should refi and don’t get discouraged. The property might not be cashing like you hope for. You might even have to wait a couple years possibly before it happens, but when it does happen, it’s going to be awesome because you’re going to see that rents have been ticking up that whole time. And then you’re going to get this big rate drop, and boom, you’re going to have a solid spread and now you’re going to be telling everybody at your local meetup about your amazing deal that cash flow is great. Maybe just don’t have to tell them that you bought it five years ago.
Hey, hey, we’ve had some great questions so far. I hope you guys have been joining the commentary by my BiggerPockets cousin, Jonathan Green, my co-host Rob Abasolo and that question from Duane we just had where we got to talk about the big picture economics as well as smaller picture tactical changes that you can make to increase the spread on your properties and bump up that cash flow. I want to remind everybody, if you would like to submit a video, please go to biggerpockets.com/david and submit a video. Duane’s is a perfect example. He asked everything he needed to ask. He put in all the details I needed and it was nice, short and sweet. There was even an airplane flying above while he was filming it that made it cameo into his video. Submit something like that. We’d love to get you on the show.
Also, be sure to like, comment and subscribe. BiggerPockets loves you. Please love us back. Just hit that like button or smash it if you prefer. Hey, you can even just tickle it a little bit. Whatever it is that you’re fancy, make sure that you press that like button so that other people can see this and then share it with other people. And leave me a comment. In this next segment of the show, we read comments from other listeners, people that tell us what they liked, what they didn’t like, something funny. I want to read your comment on a future show. So please comment on our YouTube channel for us to go through and read.
First comment comes from Matthew Cook. “I love to see deal deep dives.” Well Matthew, we have seen your comment and we have responded. Rob and I recently released an episode where we dove deep into the hotel that he is buying and got into every single aspect of that particular deal. Tons of information there. Thank you for telling us what you want.
Next comes from Cooking with BB Laster. “I really appreciate this podcast. The information is priceless. Even if you have not started yet, you gain so much knowledge. Thanks David.” BB, that’s exactly what we want to hear. Even if you’re not at the point where you are able to buy real estate, we want you to not waste that time. Start learning about real estate so when the time comes, you are prepared.
Next comment comes from Viraje Dans. “Portfolio architecture phrasing. Google search results from the building architecture and infotech fields with one hit on wealth management. Similar mixed results show for investment ‘portfolio architecture’ trying to be helpful as I love your playlist channel.” Thank you for that Viraje Dans. I can garner from your comment that you went searching for the phrase portfolio architecture because you heard me talk about it and it peaked your interest. Well, the good news is that I do talk about this. The bad news is that no one else does. You’re probably not going to find hardly any information on this out there on the innerwebs anywhere because this information is typically only shared in the inner circles of very wealthy people.
So you get around a bunch of Mark Cubans or people with huge portfolios and they’re actually talking about how this business protects that business, how this property makes up for weaknesses and other ones and how to construct an entire portfolio. But typically, the people who are listening to a podcast that’s free, they don’t get to hear about this. So here’s my advice. Listen to the stuff that I make because I try to take the information from those inner circles and bring it to you guys, the masses. Also, check out the new BiggerPockets book Real Estate by the Numbers. They get into this concept there written by Dave Meyer and J. Scott. If you want to learn more about it, I would go to biggerpockets.com/store, buy Real Estate by the Numbers and see if you like what they put in that book.
Our last comment comes from Lisa Morrison, “In its entirety, this broadcast was FANTASTIC with all caps.” Lisa went full Kanye there. “I appreciate your work and commitment to help beginners grow our knowledge and courage because of this new knowledge. Thank you to everyone involved in making this show and the golden nuggets. Freaking rock stars.” Well, Lisa, you just made my day, so thank you for saying that. I never really wanted to be a rock star, but I suppose now that I am, I’m going to have to live up to the hype. Just kidding, no one’s ever going to complain about being called that. So thank you. That was very sweet of you. I really appreciate it. I’m glad you liked the show. Do us a favor, tell your friends about it. If we could get more people listening to it, we can make more episodes. So thank you, Lisa. Please share this podcast with anyone else in your life that you love so they can benefit too. And hey, maybe you’ll make a friend out of it.
All right, we love and we really appreciate your engagement, so please continue to do so. Like, comment, subscribe on YouTube. And also if you’re listening on a podcast app, take some time to give us a rating and honest review. We want to get better and we want to stay relevant so drop us a line wherever you listen to your podcasts. All right, let’s get back to more questions.

Parker:
Hey David, my question is regarding house hacking. Essentially, I’m wondering if I should find a unit or a deal that is good enough to just get into the market now and just start that timer of house hacking so that I can get it now and start letting time work for me. Or should I wait until I find a better deal that is seeming to be more difficult to find where I’m cash flowing from the very beginning. I’m having a hard time finding properties where I’m living in one unit, renting out the others, and also cash flowing. Most of the properties I’m looking at, I can live in one unit, rent out the others for negative 200 to $300 cash flow a month, which is better rent than we’re paying right now. But I’m having a hard time balancing. Should I just get in now to at least start and have something, start building equity for me? Or should I continue to wait to find not the perfect deal, but a better one? I don’t know exactly what is a good deal and what’s not if I’m not cash flowing.

David:
Oh, Parker, my man, there are so many parts of this question that I love. That last question that you made, “I don’t know how to tell if it’s a good deal if it’s not cash flowing” is so, so good because I think so many people listening are thinking the same thing. Cash-on-cash return becomes the only metric investors look at. So that becomes the way that they make their decision. “Is it a high cash-on-cash return or a low cash-on-cash return? I want to go for the highest one.” And there’s so much more to real estate that we can help y’all with.
And then you’ve got the whole, “Should I get in now on a standard deal or should I get in later on a great deal? Should I wait?” I think that’s another question a lot of people are struggling with right now. “Should I get in now or should I wait for a better deal later?” And then the better deal never comes. And four years later you’re at BP Con again, you’re like, “I still haven’t bought a property. I’m such a failure.” And so you go look at houses and go, “Ugh, I don’t know if I should buy. Should I wait? Is there a better one?” And you never get out of that cycle.
So here’s what I want to offer to you. First off, my producer Eric is going to reach out to you. He is going to bring you in for a coaching episode if you’d be willing to do it. Please do it. There may even be a chance that we could bring you in for half an episode or a full episode where we just go through looking at different properties online and me showing you what people have started calling the David Greene goggles. It’s the way, the goggles, the lens that I look at real estate through. I will, with my experience, see things in a property that makes it tells you “Runaway, don’t even touch it” that you might miss. Then there’s other stuff where I’ll say, “Oh man, this is an amazing opportunity” that you wouldn’t have seen if I wasn’t showing you my perspective. And that’s the whole idea of Seeing Greene. So I’d like to get you on another show where we can look at houses together and help you figure out which of the options that are available would be a great deal that maybe you’re not seeing.
Another thing I want to point out that you highlighted, you were saying, “Well, I could get a deal. It doesn’t cash flow. I’m still going to spend 200 to $300 a month, which is less than my rent. Is that good?” The short answer is yes, that’s very good. There is no rule that says a house hack has to cash flow positive. And I just want to bring a new perspective into this question. If you’re living in an area with very low rents, say that you could rent a place for $600 a month. In a situation like that, your house hack can and should cash flow positive. You can find a triplex or a fourplex that will pay you to live there if your rent was only $600 a month.
But what if you’re living in Miami, Florida, New York, New York, San Francisco, California, somewhere that rents are really high? San Jose, Southern California, San Diego. Maybe your rent’s there $5,000 a month. What if you can find a house hack that you only have to come out of pocket 1,500 a month instead of 5,000? Even though it’s cash flowing negative, you are saving $3,500 a month. Compare that to making $200 a month and saving $600 a month on rent in that cheaper market. One of them is $800 net to you, the other is a $3,500 net to you. Which one of those deals is actually better? Which one sounds like it’s going to build your wealth faster? This is why cash-on-cash return can be misleading because the San Diego deal would be much better than the cheaper deal in Louisville, Kentucky or something like that.
So there’s a little more nuance that goes into, “Should I buy a house? Is it half the cash flow all the way?” We got to look at your whole picture and figure out what’s going to build your wealth the fastest. So I’d love to have you on another episode and break down different options and kind of show you and the audience, “This is what I see when I look at these deals, this is what I see when I look at these ones.” I hope that that question gave you a little bit of insight and clarity into the decision that’s best for you. And please keep an eye out for Eric reaching out so we can bring you back on another show.
All right, our next question comes from Davian Medina in Florida. “I’ve lived in my primary residence for over four years. I would like to run it and buy a new property. My question is, would it make sense for me to create an LLC for the property since it is under my name, meaning the title and the deed? Or keep it as it is and rent it with it still being under my name? I don’t know the correct way from a liability perspective. Thank you for all you do.”
All right, Davian, thank you for asking this question. I knew this was about liability protection from the minute that I started to read it. So on one hand, let’s talk about your options. Option one is putting it in an LLC. Option two is making sure that you have enough homeowner’s insurance to protect you in case you’re sued. I’ve said it before, I’ll say it again. LLCs are not iron clad protection against ever having other people touch your assets outside of that rental property. They can be pierced and they are often pierced. Now, it doesn’t hurt to have an LLC. I just don’t want you thinking that it’s like a guarantee. It’s kind of like wearing a bulletproof vest. It’s not a guarantee it’s going to stop every bullet or every kind of bullet. You’re still taking a risk if you go out there even having it. So you don’t want to act like Superman just because you got this LLC thinking that nothing can touch you.
But a better question, one that probably wasn’t asked here but that I think it’d be good for you to be thinking about, is at what point in your investing journey does putting a focus on asset protection actually make sense? Do you need to be super worried about this? Let’s say you don’t have a big net worth. This house has almost all of your net worth in it and you don’t really have a whole lot of assets outside of it. Maybe you got some cash, but that’s going to go into your next home. Well, do you need an LLC if you are sued and the judge rewards the tenant and they take the wealth that’s inside of that one home if you don’t have wealth anywhere else for them to get into, it doesn’t really matter. They can’t take what you don’t have. So that’s one thing that I would think about.
Another one is I would say people don’t realize that homeowner’s insurance often will cover you in many of these cases and you want their lawyers fighting against if you’re sued, not you yourself. That’s just something else to keep in mind, is these insurance companies pay professional lawyers that know how to do this very, very well that are better suited to take this on than you. There’s also a headache to opening a whole bunch of LLCs. I mean, when you get a really big portfolio, like when I talk about portfolio architecture like I did earlier, yeah, there’s a lot of wealth that has to be protected. And so it does make sense to do this, not because it stops people from getting at the wealth but it more deters them from suing you in the first place if they can see there’s not a whole lot of equity inside of this LLC.
So that’s what it comes down to. When you have a ton of equity, you need to spread it out over different LLCs. If you don’t have a ton of equity, there’s really no need to do that. So I hope if you’re a new investor, this is the last person that’s likely to be targeted for anything. The people that are going to go after you are looking for a bigger target, right? So I wouldn’t worry about it too much when you’re new, but as you grow and build a big portfolio, that’s where these questions start to be more relevant. So please, Davian, don’t let this stop you from scaling right now.
Next question comes from Nate and Santa Barbara. “First off, thank you for providing all of this amazing content. This inspired me to really look at options that can move my family towards financial freedom through real estate. I just purchased my first home investment in 2021 for 875K. The current value of my home is 1.25 with a jumbo loan amount of 600,000 at 4%.” Well first off, congrats on your equity going up. And second, I can kind of see where this is going because you’re showing me that you’ve got a little under 500,000, maybe $400,000 of equity here. Oh no, even more than that, you’ve got about $625,000 of equity here and you’re at this 4% interest rate that you’re not going to want to let go of.
“I’m looking for help with making the right decisions. This is a two part question on financing my next investment and what my next investment should be. I’m looking to either refinance or use a HELOC to finance my next investment. Maybe there are other options I’m missing, but these were the two I was looking at. My investment was going to be a house hack or convert my garage into a short term rental, which would pay off financing the conversion and eventually lead us to buy a new property and repeat the house hack strategy. Or should I buy a new property right now, move into this property and rent out my current property as is and slowly upgrade? Thank you.”
All right, Nate. I heard a person make a comment one time. They actually heard me make a statement and then they said this and it stuck with me. It might have been Brandon Turner, I don’t remember who it was. But they said, “Millionaires don’t ask, ‘Should I do this or that?’ Millionaires ask, ‘How can I do this and that?’.” And I think that applies. So you’re saying you have two options. You could either turn your garage into a short term rental, which would pay for the money that you spent to do it and pay off the HELOC funds that you used to do it. Or buy a new property right now, move into that property and rent out your current property as is and slowly upgrade. Why can’t you do both?
In South Florida right now, the strategy I’ve been using is to buy properties that have big garages. There’s not a lot of them. Turn the garages into ADUs that were either one bedroom or a studio. Rent those out as a budget option and then rent out the main house as a different short term rental. No reason that you couldn’t do the same with the house that you’re in. So you could either do a cash out refi on this home or you could get a HELOC on it, convert the garage, you’ve got two different units. Now you’ve got two different units that can be rented out as short term rentals or long term rentals if you don’t want to do the hassle of managing vacation properties, then move into another house and house hack and make sure the house that you move into has these same options.
See, one of my like David’s philosophies for building wealth is that you don’t look for home runs, right? I played baseball when I was younger. It wasn’t my favorite, but I did play it. I noticed that the pitches you hit a home run off of, they’re usually a mistake somebody else made. You can’t go find that pitch. You’re just trying to get a good pitch to get a hit. And every once in a while, the pitcher leaves one out there, they make a mistake and that becomes the home run. Maybe a better analogy would be basketball. I noticed this. If I tried to force a steal, I would be off balance and the guy that I’m trying to guard would be able to get past me, and now I’m actually in a bad position.
Steals would come with the offensive player made a mistake. Steels just happened. I had to be in the right place and wait for the opportunity. I look at real estate very similar. You can’t go force a home run deal. You can’t go make a seller sell you a house at a super good price. What you can do is look for a lot of base hits in the same deal. And that’s how I put my portfolio together. “Okay, I’m getting this one a little bit less than market value. Okay, this one’s in an area that’s better than other areas around it. All right, this one has a pretty significant value add. I can add an ADU, I can add a garage. Oh, this one actually has rents that I can increase right away. Hey, this one has an opportunity to do something I couldn’t do somewhere else, or it’s in a better neighborhood in the better area,” right?
And if I can get four or five or six of these small wins in one deal, it ends up being bigger than the home run that somebody got on just one thing, an amazing BRRRR, an amazing purchase price, an amazing location. If I can put a little bit of that together in every deal, the deals are easier to find and my wealth builds faster. That’s what I want to recommend to you. Do both. You could go buy a new property, move into that property. But when you’re picking the one you’re going to buy, I want you to choose a property that has multiple ways you could win. Two ADUs, an ADU in a basement, a multifamily property in a grade A location where normally it’s only single family homes. And before you move into it, I want you to convert that garage by putting a HELOC on the house doing all the work and then letting the income that comes in from both of the units being used as short term rentals on your previous house, paying down your HELOC. Then go move into a house you can repeat this again.
Just keep it that simple. Do this one thing once a year and in 10 years you’re going to be a multimillionaire from just executing with these principles. So thank you for asking this question. Don’t ask, “Should I do A or B?” Ask, “How can I do A and B?” And then send us another video or write us another question letting us know how this worked out. Thank you very much, Nate.
All right, we have time for one more question and this one comes from Daniel Picasso.

Daniel:
Hey David, huge fan of the show. I love your insight. You’ve guided me so much in my real estate investing career. Now, onto my question, I’m trying to be as quick as possible. I am wondering whether I should give up property management on my properties at this point. I’m very frugal. I think about things in terms of, “Oh, if I could give up…” I make about gross rental income $9,000 a month in rent. So when I think of giving up 10% of that to a property manager, I’m like, “Oh man, that’s nine dates that I could take my girlfriend on. That’s a round trip to Europe.” And I am always thinking, “Man, it doesn’t feel too heavy to me.” The only heavy part feels is placing tenants. And so is that the portion that I should give up? Because that’s what feels the most heavy.
For context, I make between 200,000 and $300,000 a year as a traveling nurse. And so should that play into it, my dollar per hour cost for myself. Am I just being too frugal in my mindset? Is it limiting me? Should I give up property management on my properties? Should I do a middle ground by just having somebody place the tenants since that’s what feels heavy? Thank you so much. I appreciate everything you do and I love the BiggerPockets Podcast.

David:
Hey Daniel, first off, love the look of a dark car. It looks like you just climbed into the Batmobile to make this video. And I’m a fan. I also love the questions you’re asking here. So let’s see if I can answer them succinctly.
First, yes, only give up the stuff that’s heavy at first. If you enjoy managing the properties, you don’t mind that, you don’t have to let that go. But you should definitely be looking into someone that can supplement the work you’re doing by placing a tenant. You might have a property manager company that says, “Hey, we’ll take half the first most rent to place your tenant and we won’t manage the property.” And you can get rid of it that way.
But the next question you’re saying, “Hey, I don’t want to give up 10% of this nine grand a month, that’s $900. That’s a round trip to Europe. That’s dates with my girlfriend.” That’s true. Don’t give up if you don’t have to. However, my guess would be as a traveling nurse making 200,000 to $300,000 a year, you could make more money working an extra hour or two, especially at time and a half or double time than you would be with the hours you’re putting into managing your properties. So I want you to think of it instead of I’m giving up money as I’m giving back time to use for a better purpose. So if you’re spending 10 hours a month managing these properties, that’s about $90 an hour. Can you make $90 an hour or more as a traveling nurse at time and a half? If not, just yeah, keep managing your own properties. But what if you realize, “Well, I’m actually spending 20 hours a month” that’s more like $45 an hour, I’m sure you’re making more money than that.
So if you can give up the management side and pick up more hours working, and we’re talking about after tax dollars, you actually came out on top. And this helps you in a second way, because not only does it immediately make you more money, but it allows you to scale when you’ve already got a property manager that’s doing things the way that you want them to be done. When you get to 15, 20, 30 properties, there’s no way you can be managing these and you’re going to have to give it up anyways. So why not give it up earlier and start making more money with that time rather than waiting until you get to the point where you’re at 20 properties and then being forced to give it up and you’ve lost money for that whole time that you could have been making more, working more hours, getting more deals doing something better.
I also love that you’re evaluating the heavy light thing though. I think that that’s huge. So short answer, get rid of the part that’s heavy, the placing of tenants. And then longer answer is find a property management company that you can transition into paying so that you can work more hours. And then what I always said was, “Hey, I’m happy to pay your 10%. How many houses do I need before we can drop this to eight? When I get four houses with you or five houses with you, can we drop this to 8%?” Most of the time they said, “Yep, when you scale bigger, we can go down.” So my goal was to get to five in that market as quick as I could, get it to the better rate, and then I could kind of hit cruise control and go from there. Thank you for your question. Thank you for your hard work. Keep on that grind. Tell your girlfriend that she’s got an ambitious boyfriend and we’ll see you on a future episode.
All right everybody, that is our show for today. I hope you enjoyed this. And more importantly, thank you for being here. Thank you for the comments that you leave on YouTube. Thank you for the videos that you submit. Thank you for trusting me with answering your questions. Thank you for all the kind words. And even more importantly, thank you for doing smart good things with your money. I’m a big fan of people that invest it wisely so that they can have a better future rather than spend it frivolously and then complain all the time. So if you’re listening to this, you just spent a good chunk of your time doing something that will help your future. I appreciate you. I appreciate your trust and your attention as I know that you could be getting this information from many other places, but hopefully you see none are better than us. I will catch you on a future episode. Follow me @davidgreene24 or on YouTube at David Greene Real Estate and make sure you share the BiggerPockets YouTube channel with anyone you know who is interested in financial freedom.