David:
This is the Bigger Pockets Podcast show, 805.

Peter:
I’m based in Indianapolis, Indiana right now, what’s popular? Burrs for sure. We have a lot of areas in transition, so that gives a wide margins. You’ve got these neighborhoods that are kind of old and you’re getting the investors coming in, so you got a lot of spread there. So that allows the burrs to work out pretty well.

Brandon:
If you want to do flips, the unique thing about Philadelphia is that it’s one of the oldest cities in the country, so there’s tons of distressed properties that you could acquire and flip.

David:
I’m getting excited just hearing you say this, man, that’s so hard to find right now. What’s going on everyone? It’s David Green. Your host of the Bigger Pockets Real Estate podcast, here with Rob Abba Solo, the co-host. Rob, how are you today?

Rob:
Very good, very good. It is warm in Houston. I don’t know if you know this, but it’s like basically I live in a swimming pool.

David:
Yeah, I did know that.

Rob:
Yeah. Walking from my back door to my studio, which is only about 10 feet, I’m able to shed two pounds of water weight, which is always a great benefit, but then I find myself getting dehydrated in the middle of the Bigger Pockets podcast. So one of these days I may pass out.

David:
It’s part of the price you pay to be an NPC bikini competitor, man. So just deal with it.

Rob:
I guess so. I guess so.

David:
Yep. Now in today’s show, we are going to get into two agents who are crushing it in their markets, Peter Stewart and Brandon Ribero in Indianapolis and Philadelphia, respectively. They share information about what’s going on in their market, what strategies are working, what kind of growth is happening, as well as how they put deals together for their clients. So if you want to learn how to find deals in your market or find a new market to get into, you should love today’s episode. Rob, what do you think people should keep an eye out for to help them in their investing journey?

Rob:
This was actually packed with so much more gold because we’re not just going to talk about their market, but we’re actually going to talk about all the metrics that sort of define what makes a healthy market, days on market, all that type of stuff. And the reason I think that it’s really important is it really just sort of opens your eyes to what types of metrics you should be considering when picking a new city to invest in.
Personally, I think, we’re going to talk about all those stats, but it was for me, I was like, man, why don’t I ever look at days on market or list to sell ratio? That to me was one of the most… I mean, it is something that I’ve heard before, but Brandon talks about the price to sell ratio, and for me, I was like, ding, ding. That’s where I need to be investing. I need to be looking at that metric first and foremost when analyzing my next investment.

David:
So if you can take your eyes off of the next Chipotle development, you might see some things that can help you in your own investing journey. Before we bring in Peter and Brandon, today’s quick tip. It’s important to find a real estate agent who can help you to calculate cashflow and find the best neighborhoods for your strategy, instead of just talking about granite countertops and cute backyards, go to biggerpockets.com/agentfinder to match with an investor friendly agent now. It’s fast, it’s free, and it’s easy. That’s biggerpockets.com/agentfinder, and you can connect with one of the guests from today’s show or an agent in your market.
Let’s get to it, Peter Stewart and Brandon Ribero. Welcome to the Bigger Pockets podcast. A little background on two clever, creative and awesome real estate agents. Peter Stewart started investing in 2011. He’s got properties in four states, including Indianapolis, California and Tennessee and Florida. Occasionally he flips when the right deal crosses his path, mostly long-term and a few short-term rentals. And he’s done 54 deals so far this year. Peter, I’m assuming those are real estate agent deals?

Peter:
Correct. Yeah, both buyer and seller side.

Rob:
Wow, that’s awesome.

David:
So for those that are unfamiliar, that is a lot. That would put him into the [inaudible] category, so well done.

Peter:
Appreciate that.

David:
And then Brandon, Roberto has spent four years investing, has a killer haircut as well as beard that makes him look very handsome, high quality man here. He’s got four properties, which are a mix of short-term rental and long-term rentals. He’s done four flips. He is on pace to do 30 to 40 deals this year, and he recently partnered up to expand the level of service that his company can provide. If you guys want to see what I’m talking about with Brandon, check us out on Bigger Pockets YouTube channel. Brandon, welcome to the show. First off, do you feel like your hair and beard combination are responsible for your success in real estate?

Brandon:
Absolutely. Yeah. I just wanted to match you, so I did this before I hopped on the call.

David:
You took it serious, literally following the mentor, right?

Brandon:
Yeah.

David:
That’s commitment. There’s probably some psychology behind that. We’re more likely to help people that we relate to, and I cannot help but relate to, oh, this is exactly what my face looks like.

Brandon:
Yeah, I think it just looks more professional this way.

David:
Yeah, that’s a great point. Now, I understand that you reached out to me on Instagram several years ago, and that I was indirectly responsible for all of your real estate success. Can you share with our audience how that works so that they can skip the hard work and the grind and just take the elevator?

Brandon:
Yeah. Long story short, I was just looking for some guidance around the brokerage side of real estate, which obviously if everybody’s listened to Bigger Pockets, you know that David’s a broker and has been an agent and a broker for years. Naturally, I gravitated towards David’s Instagram account, and I reached out to him just for some general advice on how to seek out brokers, how to really kind of vet them out and figure out what’s the best fit. David gave me a couple of pieces of advice, so I kind of took it and ran with it and yeah, that’s kind where I’m at today.

David:
Well, congratulations on that. I’m glad to meet you in person and have both of you on the show because as each of you know, and probably Rob too, there is a large need for good real estate agents in our industry. Probably 98% of them are not very good. So when you get a good one, that helps a lot. Before we move on, Rob, I just want to ask you, remember when we were buying the Scottsdale House? What was your overall perspective on how hard it is to find a good agent? And maybe how knowing what agents should do can give you an advantage when you’re the buyer working in the deal?

Rob:
I think always sourcing an agent is tough if you don’t have any contacts in the market, and it was really the first time, I think for both of us getting into that market. Luckily, I was able to skip all the in-between kind of hard work of finding realtors by taking your advice. You told me to go find the biggest, baddest brokerage and then just ask them who their best agent was, and that’s what I did.
And they actually set me up with somebody who was not the best agent, but he was like, “Hey, my guy over here actually is the best agent for this specific thing. Let me set you up.” And I feel like it was like luck meets opportunity. We knew what we were looking for, we found somebody, he was super versed in that specific niche and helped us get the deal to the finish line.

David:
And then when we were negotiating with him, there was some coaching that I was doing because I’m an agent, so I was like, “Hey, let’s stay this.” And then you saw that that worked. I was just curious if you had this, man, it’s a big difference between an agent who’s good and an agent who’s not? And if that might’ve been different than what you thought before about the house?

Rob:
Yeah, for sure. Yeah, it’s always an interesting, everyone’s different. Everyone kind of does things a little bit different. For me, it’s always like if someone is responsive, we’ll do the direction in the coaching and we’ll find the deal, usually. And that’s pretty much how it usually shakes out.

David:
And speaking of deals, we’re going to talk about some deals today, but before we get into them, let’s get to know the markets that these two are in. So I’m going to start with you Peter. What are some of the long-term benefits to your market and what is your market?

Peter:
So great question. So I’m based in Indianapolis, Indiana, so I’ll say some of the long-term benefits here. So number one, our market is a very stable market, not volatile at all. So when you see all these market shifts, we don’t really feel them. We’re one of the last markets to feel them. So you have stability there, we’re a very diverse set of large employers. So we’re not really relying on one industry. Indie’s a capital city, it’s the 16th largest in the country. So we’ve got those large city amenities, but it still has that kind of small town feel.
We’ve got a strong rental market. In fact, last year the rental occupied households accounted for about 44% of all households in the indie metro area, which is about 1.9 million people. Not the percentage but the total in Indie Metro. Very low barriers to entry to our market. And also, more importantly though, there’s a lot of growth and development that’s happening in Indianapolis. I mean, I’m born and raised here and pretty much my entire life the city has been growing and expanding.
There’s a ton of huge projects in the works, multi-billion dollar projects all over the city, lot’s a large company’s base here. So again, that adds to that stability and the diversity. Obviously lots of large companies mean high paying jobs, meaning renters and people to buy as well. So it just provides a lot of opportunity compared to some other markets that may be either declining or stagnant.

David:
So Peter, what are you seeing as far as population shifts? Are people moving into your area or leaving?

Peter:
Great question. So in Indianapolis itself, we have been experiencing a slight population decline over the last few years, but that decline is slowing down. And the Indianapolis metro area, which is Indianapolis in the surrounding ring of cities, has been experiencing growth, not tremendous growth, but it’s been averaging about 1.25% per year.

David:
All right, and then what’s the economic engine that’s driving the area? That’s always one of the first quizzes I ask an agent when I’m looking to move into a new area, do some long distance real estate investing. I want to know, well, what do people do for work here and what causes wages to rise?

Peter:
One of the big things, one of the big drivers in Indianapolis is the development investment happening downtown. So when I was a kid, the downtown was, it was kind of a scary place. You went there if you worked, and that was about it. Today it’s a destination. I mean, we’ve got two major sports teams down there, Colts and the Pacers with Gains Bridge, Fieldhouse, Lucas Oil Stadium. We’ve got a huge convention center that’s about to undergo, I think it’s a $3 billion expansion… Or no, sorry, $800 million expansion.
Lots of big companies are based in Indianapolis, many Fortune 500 companies, and Salesforce occupies our largest tower. Eli Lilly is downtown. We’ve got Simon Property Group, Cummins, Allison Transmission, Rolls Royce, Roche Diagnostics, and many, many others. So a lot of big businesses, again, over a diverse set of industries are based in Indie, and there’s a lot of huge projects moving things along too.
One example in an area called Fishers, which is one of the cities in the Indianapolis metro area, outside of Indianapolis itself, Andretti, Mario, whatever. One of the Andrettis, their global company is building headquarters. There’s like $200 million development. We’ve got our Indie 11 sports team, excuse me, soccer team. They are our a minor league soccer team. They’re building a billion dollar stadium downtown. So those are just a couple examples, but a ton of things like that are happening all over the city, which again, driving people coming to the city and lots of high paying jobs as well as keeping that engine running. And of course, we’ve got the Indianapolis 500 too. Can’t forget about that.

David:
Yeah, it’s a big one.

Peter:
Yeah, might’ve heard of it.

David:
Well, I haven’t heard of the other 499, for whatever reason I only hear about the 500th one, like the David Green 23s that came before David Green, 24.

Rob:
Never hear of them. They’re just urban legends.

David:
So Peter, why should people consider Indianapolis?

Peter:
So number one, like I mentioned before, not sound like beating a dead horse here, but a very stable market. So we’ve got a lot of stability here. It’s not a volatile market at all. Again, diverse set of employers. It’s a large city. We have a large population. Indianapolis itself is about 900,000. And the metro areas about 1.9 million or so. Again, strong rental market. It’s very easy to get around town. We’re a grid city, so most streets run north, south, east and west, and we’ve got a great freeway system. So it makes the entire city very accessible and easy to get to at any time of day.
We’ve got very low barriers to entry in Indianapolis. I mean, our prices are very affordable compared to a lot of the rest of the country. And for a couple of hundred thousand dollars, you can buy a nice cash flowing duplex, and if you’re on the west coast, you can’t get a garage for $200,000.
So it just opens it up to a lot of people. And because of the diversity, because of the low barriers to entry, it allows for many different strategies from the investment perspective. You can do flips, you can do burrs, long-term, buy and holds, short-term, medium-term rentals, new construction, land development. Pretty much every strategy that exists here in this investing world can be done in Indie. So it’s not restrictive at all, and allows for people even who may not have a lot of money to get into real estate investing. So a lot of options from the very beginner newbie to the very advanced investor who’s been doing it for many years, many options all across the board for people.

David:
Well, you need garages to park all those cars that are out there for the Indy 500.

Peter:
That is true.

David:
All 500 of them. All right. Do you have any data on the current shifts in your market? What’s going on as far as days on market prices? They moving up, they moving down? Are they stable? What’s happening?

Peter:
Days on market for Marion County, which is Indianapolis across all property types, year over year data, days on the market is seven. That’s up 40% from a year ago. So while days on market are extending, it’s still historically speaking, very, very low. Well below our average, I mean a week on the market is incredibly fast.

Rob:
Yeah, it’s not bad.

Peter:
Not bad at all.

Rob:
So it’s up 40%. So does that mean that days on market last year was like four days?

Peter:
Four, yep.

Rob:
Nice.

Peter:
Exactly. In terms of inventory, definitely seeing that increase. Now the number of units sold is down 16% year to date, or from a year ago. We’ve got 1.4 months of inventory, that is up 45% from a year ago. So do the math there. And yeah, we had about 0.7 months of inventory last year at the peak of the bubble or whatever you want to call it. And our active inventory is up 22% from a year ago as well. Also, one more stat, the number of new listings is down 23%, so our inventory is lower, but it’s up 13% from the prior month. So we’re starting to see a little bit of a shift up there.

Rob:
Can you go back to that stat that you said after days on market? You said the inventory went up to over a year. Yeah. Can you clarify that a little bit?

Peter:
So currently we have 1.4 months of inventory.

Rob:
Okay, so what does that mean?

Peter:
So basically when you look at the inventory levels, when you see that statistic, what that means is how many properties sell in a given market and then… Or excuse me, how many are active divided by how many sell. So as an example, if I’m in a neighborhood that sells one property, or excuse me, 12 properties per year. So 12 homes in a neighborhood sell per year, that averages out to one per month. So we look at what’s called the absorption rate. So that market absorbs approximately one home per month.
So if one home comes on the market, you divide one by one. Essentially you have one month of inventory, because at least on paper it should sell within a month. So what that 1.4 month of inventory statistics says that, again, on paper it doesn’t necessarily translate to the real world, but on paper, if nothing else came on the market in Indianapolis in 1.4 months, everything would be sold.

Rob:
Oh, okay.

Peter:
So we use the level of inventory to determine, well, one of the metrics to determine what kind of market you’re in. So zero to four months of inventory, the lower amount is a seller’s market. So that’s what that tells us. Four to six months is typically considered a balanced market. Six and above would be considered a buyer’s market. So at 1.4, we’re still a pretty strong sellers market.

David:
Which is the case in most of the popular markets around the country right now. We typically have the issue of not enough supply, but steady or even rising sometimes, demand. So that’s the indication that the market is healthy. When you see that there’s a low amount of inventory. If it took a long time to sell all the inventory that’s out there, that usually leads to prices dropping because it shows that there’s more supply than demand. So thanks for breaking that down. And so you would definitely consider it a seller’s market currently. What strategies are working in your market today? Is this something you can just go in there and write an offer and get a house, or do people need to think about this a little deeper?

Peter:
Sure. Great question. So yeah, you are correct. We’re absolutely in the seller’s market. I mean the low days on market, we have a 99.7% list of sales price ratio on average, and again, low inventory.

David:
So what that means is that if it’s listed at a 100,000, it’s typically on average selling for about 97,000. So it’s selling a little bit below asking price, right?

Peter:
0.3% below, but yeah.

David:
A little bit less, right?

Peter:
Very, very… Yeah. So yeah, strong sellers market. So in regards to the strategies that work here, again, as I mentioned before, you can do everything here for the most part. Right now what’s popular, burrs for sure, because again, we have a lot of areas in transition, especially around our downtown. So that gives wide margins. You’ve got these neighborhoods that are kind of old, run down and you’re getting the investors coming in, building new or doing to the studs remodel. So you have the very high value. So you’ve got a lot of spread there. So that allows the burrs to work out pretty well.

David:
Do you see that creating sort of an environment where overall prices are steadily creeping up because people are coming in and they’re getting higher appraisals on the existing inventory after they fix it up?

Peter:
Yeah, a little bit. I mean, our median sales price has gone up a 1.6% since last June, so not a ton, but yes, it is still creeping up a little bit. We have had a few appraisal problems here and there, but for the most part, yeah, because we get a lot of new construction in these areas, and again, those high ARV flips and there’s a lot of that activity going on. So we have enough data to help support these numbers. But every once in a while, yeah, you’ll get that person who tries to out price everyone else and sometimes you can run into appraisal problems, but pretty rare in most of those areas.

David:
All right. Now Peter, I don’t mean to put you on the spot before we move into Brandon, but everyone listening to this right now is sitting at the edge of their seat saying, why hasn’t David asked it? I am notorious for throwing Indiana under the bus when it comes to bad markets to invest in, and you’re actually giving me a chance to clarify my position here. I will say things like the Midwest or Indiana has stereotypically bad markets to go in.
Now here’s what I mean when I say that. Very cheap homes, 40,000, $50,000 homes in D class areas that should never be considered, other than the fact they’re cheap. So what happens is new investors who don’t know anything, assume cheap equals low risk. They have high price to rent ratios that appear to make them strong investments. They talk about it will cashflow really strong, because on the spreadsheet that doesn’t account for vacancies and turns and disasters that account, they look really strong.
And then the new investors who don’t know any better follow that little mermaid out into the ocean where they are grabbed and drowned, and then they can’t get out of it and then they got to sell it to some other sucker who comes along. If you’re talking about $200,000 homes right off the bat, we’re not in the category of homes that I’m warning people to avoid. So can you give a little bit of a defense for why you think Indianapolis could be a high growth market? And then maybe what properties to avoid, and what properties you would be leading your clients into if they wanted to invest there?

Peter:
Excellent question. So first, right off the bat, you are absolutely correct. The properties you’re talking about are junk. I avoid those. I tell everyone in my initial consultation, number one, I don’t service D class areas, I don’t service anything under about $100,000. That just sort of by default eliminates most of the D class because there are those 40, 50, $60,000 houses out there and they’re junk. You’re right, they are in rough neighborhoods. The houses themselves, the construction is poor at best. So I don’t even sell those. I don’t mess with them at all.
But yes, you’re right. On the surface they do sound very attractive and I get those calls every once in a while. “Hey, I see that $50,000 house that rents for 800, well over the 1% rule.” But yeah, they don’t see all the negatives on the backend. So typically in our initial consult that I have with new clients, I will discuss all that and go over that with them and steer them away from that. Most of my clients are usually, again from the investment perspective, of course, it depends on what you’re doing, but most land in the 100 to $300,000 range C-class type areas. Again, the C-class is where most of the investor action happens to be.

David:
Can people expect rent appreciation or price appreciation, or is this something where you really want to go in and get a good deal when you buy because you’re probably not going to see equity growth over time?

Peter:
It depends on what area you’re in. And I say that because if you’re in the suburbs and the more established areas, you’re not going to get that rapid appreciation. It’s again, that slow and steady rising with the market in general. But there is still appreciation here. However, you see the more rapid appreciation in those areas in transition, the ones that are all the buzzwords, the gentrification, the revitalization, the path of progress. We have a lot of those neighborhoods and they’re all surrounding downtown for the most part.
So there’s tremendous growth in some of those areas. I’ll give you a quick example. On the near west side of town, which historically was very rough. There’s a company called Elanco, they announced they’re building their global headquarters there. It’s about $180 million or so development, and that was announced maybe three years ago. They broke ground about a year ago. I’ve seen prices triple in that neighborhood in the past two years. Homes were 50,000, $60,000 then, and now they’re 150 starting.
That is an extreme example, but one of many, because again, 10 years ago in a lot of these neighborhoods, $100,000 was probably the highest sale. When today you go into some of these neighborhoods that have really taken off and there’s five, six, seven, eight, sometimes even million dollar homes in those neighborhoods.

David:
So that is quite a bit of appreciation within Indianapolis.

Rob:
Yeah, that’s a lot.

David:
I’m assuming that some of the surrounding areas outside of indie, maybe some of those suburbs or satellite cities, you’re not getting the same type of growth?

Peter:
It depends. So if you’re familiar with Indianapolis at all, it looks like a big circle and then you’ve got a ring of cities around that circle. Once you get beyond that ring of cities, you’re basically in the cornfields. And those are the areas I would avoid.

David:
There we go. Great.

Peter:
You’re not seeing the growth. Now until you get to some other markets like the college towns like Bloomington, Indiana University or Lafayette with Purdue, but those ring of cities have actually been, number one, the population growth is happening there, but there’s been tremendous development in those areas too. As an example, Westfield, which is kind of north-ish, northwest-ish of Indianapolis, is the sixth fastest growing city in the country right now. When I was a kid it was cornfields and a Walmart, and today it’s one of the best places to live. It’s amazing homes, amazing parks, trails, schools, amenities, everything’s there.
Fishers, same thing. It’s on the northeast ish side of town. It wasn’t even its own city until 2010, and today it’s population is about to surpass Carmel, which is where I live. I say Indianapolis, but most people don’t know where Carmel is, just north of Indy. Tremendous growth, tons of huge companies moving in there. So no, it is absolutely happening. On the west side you’ve got areas like Avon and Brownsburg. Again, when I was a kid, I didn’t even know those cities existed. Today people are moving out of the city to those areas because of all the growth and development happening. They’ve got great schools, very safe, clean, et cetera. So yeah, as long as you stay close to Indy as a lifeline almost, you’re good. But you do need to be careful once you get outside of that into the more rural areas.

David:
There you go. That’s really good advice right there. So now people know when I say don’t buy an Indianapolis or don’t buy in Indiana, I should say, or don’t buy the Midwest. It doesn’t mean don’t buy anywhere there. It means don’t be fooled into $45,000, 3% rule property that you’re going to wander into, and like a Venus flytrap you can never get out of it. It’s sort of like you Mufasa, and you’ve got your arm around Rob right now, and you’re like, “Do you see that shadowy place over there outside the ring of Indianapolis? You must never go there. That is the realm of the enemy.” Yes.

Peter:
And if it’s any town that has one stop sign in it, probably avoid that too.

David:
The stop sign ratio, that could be a new message that we could start talking about, right?

Rob:
The stop sign rule. Well, there’s a Chick-fil-A rule like invest within a mile of a Chick-fil-A, and then there’s like you have the stop sign rule. I like it.

David:
All right, thank you for that Peter. Brandon, turning to you, what are the long-term benefits of your market?

Brandon:
So Philadelphia is uniquely situated just about two hours south of New York, just west of New Jersey and north of the DC metro area. And so all three of those markets are incredibly expensive. So a majority of my clients actually come from those markets, specifically New York. So the barriers to entry in those markets are obviously high, taxes are high, not as landlord friendly. So naturally the next stop is going to be Philadelphia. So that’s kind of where most of my clients end up coming from.

David:
All right.

David:
And then talking population shifts, are people moving into that area? Are they moving out? What’s going on with the growth?

Brandon:
So a lot of our developer clients are seeing some great success in occupying their multifamily development projects. We have a few several hundred unit developments currently in progress. A lot of them completely leased out in the pre-leasing stage. So I’m seeing a pretty steady population growth on our end in the Philadelphia market. There’s some push towards the suburbs, north of Philadelphia as well and West, and the market demand in those markets is two times what it was just a few years ago.
So a lot of people are pushing to be in the better school districts, the main lines of market just outside of Philly, probably 20 a minute drive into the city, that has a very strong demand for housing. I have a couple of higher end flip clients that love that area, they could put their higher end finishes and they’ll always see the return on it.
The demand for the housing has been steady. During COVID, obviously there was a mass exodus, everybody wanted to get out of the cities. So what I’m seeing in what I read, the research, the blogs and all that stuff is actually holding true. So what they’re saying is that the COVID market, you saw a surge in Airbnbs, you saw a surge in the rural markets, and pre-COVID those markets are taking a hit. So Philadelphia is like the opposite. So everybody wanted to leave the city and now that COVID is over, everybody’s coming back. So it’s very strong rental demand, very strong housing demand too.

David:
Isn’t that funny? That’s the same thing that we saw in some of the big cities in California. I guess before, I know I’m going a bit of a tangent here. It’s just a pattern I’ve noticed in real estate that people can take advantage of if they pay attention to this. Before COVID, all of the development was happening in big cities, in downtown areas, huge cranes in Seattle, Austin and San Francisco. You couldn’t avoid seeing tons of these properties being built in the inside of the city, near all of the amenities.
Millennials didn’t want to have cars, they didn’t want to have to cook, and there was no stoves in properties because they just ate out every day and they were all… Tech companies were moving into these areas and paying high rents because that’s where people wanted to live. And it led to the increase in Uber. You saw all of the technology centered around this and then COVID came and all the restaurants shut down and all the fun things to do shut down and you were cooped up in your 400 square foot condo with two other people, and it’s no longer fun to live there because you’re sleeping on a couch, but you’re outside of your house, you’re stuck in the house.
So we saw a flood of people going out to the suburbs like you just said, I want a bigger house, I want more space. It went from very tough to sell stuff in San Francisco to the East Bay where the bigger houses were. Oh man, it was impossible to put anyone in contract there.

Brandon:
Right.

David:
Because there was such a movement. Then after things changed, when COVID opened up, San Francisco itself hasn’t bounced back because of what you guys see in the news, but your typical big city that’s run a little better, they’ve got all the people getting sucked right back in there. If you can notice these patterns, you can buy in the area where nobody else was.
That’s kind of how I got my two KeHE condos in Maui. I got really good prices. I bought them when COVID hit and no one was traveling to Maui. So these short-term rental operators were bleeding for months because they had zero revenue when they couldn’t sell. And I went there and bought when nobody else was, and then when COVID turned around and they would let people come in with a test, they gained like $400,000 in equity in six months. It was crazy how fast that came. So studying these patterns can help you buy in the emerging market. I appreciate you sharing that, Brandon. It sounds like you kind of understand what’s going on in your market. Why should people consider Philly?

Brandon:
So kind of alluding to what I just talked about, it’s actually pretty similar to Peter’s market, which is kind of interesting, but there’s a little bit of differences. So Philadelphia is a very block by block city. I think it’s super critical to, if you want to invest in Philly and you’re not familiar with the Philadelphia market, I think it’s very critical to find somebody that thoroughly understands the market in the most in-depth way possible.
So it’s very easy to get attracted to a property because of its purchase price or its sales price, but that could be at a neighborhood that you probably don’t want to be in for many reasons, safety one of them. So there’s lots of strategies that can be applied to Philadelphia market. The one that I’m seeing work best right now, just because it’s the most prevalent one is house hacking. But Philadelphia, you can apply all the different strategies depending on where you go. So if you want to do flips, the unique thing about Philadelphia is that it’s one of the oldest cities in the country. So there’s tons of distressed properties, tons of dilapidated properties that you can obviously acquire.

David:
Oh boy.

Brandon:
And flip.

David:
I’m getting excited just hearing you say this, man.

Brandon:
Yeah.

David:
It’s so hard to find right now. Rob, would you agree, it’s so hard to find a market that still has properties that can be fixed up and value added to them?

Rob:
100%, especially when there’s a lot of them. It feels like I’m always searching for that here in Houston, and it’s a giant city, I think probably pretty close to the size of Philadelphia. But yeah man, I feel like that inventory gets slimmer and slimmer, so you really have to go hunting these days.

David:
I just realized how rare it is to hear it. When you said that, I’m like, what? This used to be like I’m a dog, like its ears perk up or you smell food.

Rob:
Yeah, exactly. I didn’t hear you give the Scooby sound just a second ago.

David:
Frankly, I ruined my own market for myself when I started doing the podcast and I started saying, “I invest in Jacksonville.” It was like one month after that thing aired that I started to notice like, damn, there’s no inventory, what happened here? And then three months later I couldn’t get a contractor to call me back. Real estate investors sort of act like locusts that just swarm into a market and eat up all the inventory, and then they move on to the next one.
We’ve seen this in Atlanta, we saw this in Memphis, we saw it in Jacksonville, we saw it in Birmingham, Alabama, Austin, Texas before that. There’s clearly, this is the hot thing and everyone goes there and then it gets super hard to find anything, and then they move on to the next. So if you’re listening to this, it sounds like Philly still has some opportunities to go in there, and would you say that there’s some possibility to Burr?

Brandon:
Absolutely. Yeah. So Philly’s rapidly gentrifying, so slowly the more distressed neighborhoods are turning over, and as that happens a lot of our developer clients have several opportunities that are currently in progress in these neighborhoods specifically. And some of these neighborhoods that you would 10 years ago never think that anybody would ever want to own a property in, now there’s $700,000 row homes in. So that’s really helping the people looking to do the Burr strategy, because it’s giving you some comps to support what you’re about to do. So yeah, absolutely. I think that’s a great strategy as well.

David:
What about any data on current shifts in your market? Are days on market going up? Are they going down? How have things been changing?

Brandon:
So I was actually pretty impressed by Peter’s stats. Great job on that. But yeah, what impressed me the most was your days on market. Our average is around 40.

Peter:
Wow.

Brandon:
40 days on market.

Rob:
That’s huge. Yeah.

Brandon:
So the interest rates are really hurting a lot of buyers and it’s one of the reasons why… I mean you could look at it in a negative way. To me, I see it as an opportunity. If everybody’s kind of taking a step back, this is a perfect time for you to jump in and scoop up a property under what will be the new market value, once the rates drop. Yeah, days on market are definitely high. Sales price, statistically it’s down 5.9% since last year. I’m seeing property sell at roughly 80 to 85% of ask price.

Rob:
Wow. For Peter, for you, did you say 98%?

David:
99.7% list of sales price ratio.

Rob:
Oh, 99.7? Okay. Wow.

Brandon:
Yeah, when I heard that my ears, I was like, wow, that’d great if I could get a listing to sell for 99% of list price. But yeah, I mean I think that the market’s in an interesting spot right now, which leaves kind of a void for opportunity for new investors. If you can have the mindset that you’re buying something right now for the price, not necessarily for the cashflow, the cashflow will come in six, 12 months when you refi. So yeah, it’s definitely an interesting market right now overall,

David:
Would you consider it a seller’s market because of that high days on market? Let me phrase it another way. Oftentimes we will look at the market as a whole, we’ll say the DOM is 40 days, so that’s a tough market, but there’s a large degree of crap that nobody wants it sitting there that skews it. And so people go in thinking, oh, I’m going to write it way below asking, and I’m going to crush it because every seller’s desperate. But there’s a certain type of inventory that everybody wants and it still sells really quick. Do you see that bell curve where you’ve got a bunch of junk and a bunch of good stuff? Or is it all just sort of too much of everything, and so you can get great under asking price deals?

Brandon:
No, I think it’s a pretty strong bell curve. So one of the things kind of skewing the curve is new construction. So a lot of new construction started when the rates weren’t the way they are today. So the projections of the developers, where they had to price the property wasn’t really adequate to today’s market in my opinion. And that’s the reason why we’re going in there. And I just had one that we got 200,000 under ask on a new construction triplex. So those are the kinds of wins that I’m seeing in our market because of the situation of it. Yeah, I mean if you have your stereotypical colonial house in a picture perfect neighborhood, in a great school district, that’s gone within three days.

Rob:
So the good stuff is flying, basically?

Brandon:
Absolutely.

Rob:
The really, really good stuff. Got it. Okay.

David:
Yeah, and you got to know that you go into the market thinking, oh man, and then you see houses listed at 400,000, you tell your agent write it for 280, and then you say, “No, don’t do that.” And they go, “Oh, you just want to hire commission.” You’re like, no, this isn’t one of those type of houses. Right?

Brandon:
Yeah.

Rob:
So let me ask you this, Brandon, because you’re saying that I guess the list price to selling ratio or whatever is 85%. Does that typically mean, and I guess this is probably going to be relatively situational, but does that mean that whenever people are out there making offers, are a lot of people coming in pretty quickly with less than asking offers because of the market the way it is? Or are people even aware that the market is… Would most people be privy to that, that it’s 85% of the actual listing price?

Brandon:
So I don’t think that a lot of the sellers are, which is why they still are pricing the properties the way they are. A lot of people still haven’t gotten with the times, and I think that’s part of the problem. So the interest rates today aren’t obviously what they were a year ago. So I think the biggest issue that we’re having right now is just getting cashflow in general. Every deal that we send over look at, to get underwritten by some of our lenders, they look at and they’re like, “Yeah, I can’t do this, it doesn’t work.”

David:
Is that because they’re using DSCR ratios to approve the loans?

Brandon:
A large majority of what I do is commercial, so they’ll kind of look at that and immediately they’ll just kick it back and say, “I can’t lend on this.”

David:
Which means yes, they are using DSCR ratios.

Brandon:
Exactly.

Rob:
And what is that, David, just for everyone at home?

David:
It’s a debt service coverage ratio, so that’s a good question. Typically when you’re getting approved to buy residential real estate, the lender says, “Can you Brandon, can you Peter, can you Rob afford to make this payment?” So they use your debt to income ratio, how much do you make, how much debt do you have? How much is left over? That means you can afford a payment of this much. So we are what’s being underwritten.
But, with the DSCR ratio, they’re looking at can this property pay back the money that I’m going to lend you to go buy it? So they typically want to see that it will cashflow about 20% more than your expenses, which means it has a DSCR ratio of 1.2. If you hear a ratio of 1.1, that means it’s going to provide 10% more rent than what it would cost to own it. And if it’s a DSCR ratio of one, that means it’s breaking even. That make sense?

Rob:
Yeah. Okay.

David:
So in the commercial space, in order for someone to get financing to buy it has to, for lack of a better phrase, cashflow, right? It has to hit these DSCR ratios, and when rates go up they have, but the sellers are like, “I don’t want to sell it for less than somebody else did.” You find yourself in a bit of a stalemate. Is that what you’re seeing out there?

Brandon:
Yeah. And I think part of the reason is there’s obviously talks of interest rates dropping. So the sellers realize that, and if the seller’s not with their backs to a corner and they absolutely have to get rid of the property for whatever reason, what I’m seeing some of our clients do is withdraw the listing and they’re going to hold it off until they’re projecting that Q4 of this year, things are going to kind of improve from a lending standpoint. So that’s exactly what they’re doing. They’re holding off until the market does allow them to get the number they need.

David:
And this isn’t what we’re talking about on today’s podcast, but as a side note, I’ll ask you, if you look at this stalemate that we’re in, I look at it like it siege warfare. I can’t help but make everything some form of war or battle reference, right? You’ve got the people inside the city that are like, “We’re not giving in, we’re not going to let you into our city to take us over.” And you’ve got the conquering people. These are like the buyers saying, “Break down that door, I want to buy your property. Here’s my offer.” And the people inside the city are the sellers, “No, we’re not going to take it. You need to come up.”
And they’re in a standoff. Well, in siege warfare, it’s all about attrition. Are you going to run out of food on the inside before we run out of food on the outside? Because we can go get more food, we can wait. And in the commercial space, the buyers are in the stronger position, they’re sitting outside of the city walls saying, “Hey, you’re going to run out of your loan. You have a balloon payment that’s going to come due at a certain point and if you have to sell because of that, we’re going to be waiting to buy.” Is that a thing that you think in the future is going to present some opportunities in Philly?

Brandon:
Well, it’s happening right now mean, so the one example I brought up of the new construction, 200 K under ask. The reason for that is because they bought it and they developed it obviously with a construction loan, which is higher interest in shorter term, well that term’s getting to the end. So they didn’t really have a choice. So either you refi and you keep it, or you just make a sacrifice and sell the property. A lot of developers, they don’t want to hold onto their end product. That’s not their goal. So they’re going to have to refi at this current interest rate, or just make a compromise and sell it for a number that makes sense in the market we’re in today.

David:
All right, there we go. It is time to get into the specific deals in your markets. Thank you both for providing such a solid assessment and analysis of both Indianapolis and Philly. I saw Rob perk up when you started talking about all of the opportunities that are out there. Brandon, if I was you, I would probably get his email and start sending him a couple of deals, because when he does that, it means like…

Rob:
Ooh, don’t do this to me. I have shiny object syndrome.

David:
The real SOS, right?

Rob:
Yeah.

David:
All right. So let’s start with you Peter. We’ll give Brandon’s vocal chords a chance to rest. I just grilled him right there. All right, Peter, tell me about the name of your deal.

Peter:
All right, so we’ll call this one the dumpy duplex. So this one’s based in Indianapolis, located in the Mapleton Fall Creek area, and this deal was in the last six months that just happened. So Maplewood Fall Creek’s a nice area on the north side experiencing a lot of revitalization, historically a C class area, but it’s been turning over and I’d classify it more than that B class now.
So I represented the client, happened to meet them through the Bigger Pockets agent finder, so great tool to find an agent if you don’t have one in any local market here. She was from out of state, never been in Indy, didn’t know anything about the area, was looking for a burr or potential flip. This one happened to be a burr, it was a duplex, purchased it with hard money, included money for renovation and refi and a 30 year fix once the work was done.
So the numbers on this thing, my client bought it for 135,000. It was listed at 175, I’ll tell you how we got there in just a moment. It was 330 K ARV, with 115,000 in renovation. They did have it appraised on the refi for the 330 just as we had hoped. And after finalizing that refinance, she left about $9,000 on the deal.

David:
Not bad.

Peter:
Yeah, not bad. Wait till you hear the numbers though. So it rents for 1600 aside. So you got 3,200 gross, tenants paying all utilities. Our total monthly payment’s about 1900, so after you take the 10% off for your property management company, she’s netting about $1000 a month on this thing.

Rob:
Rock and roll.

Peter:
Roughly it’s about a 30% cash on cash annually. Not bad. Right?

Rob:
Cool.

Peter:
One really cool thing about this one is that my client rented it to a business that helps battered women and children. So they signed a two year lease with them and they get guaranteed checks from the state. So it makes the investment really stable with very minimal turnover.

Rob:
Okay. So walk us through some of the mechanics of this really fast. So you said that she bought the house for 100?

Peter:
135.

Rob:
135. And then what was the 175 number?

Peter:
That was the list price, so we were able to get it down 40,000.

Rob:
Oh, I see. Yeah. Okay. Okay, great, great. And then how much work was put into that?

Peter:
115,000.

Rob:
115,000. So total. And that was also all the carrying costs and everything for the hard money?

Peter:
No, no, it happened pretty quickly, so my guess is about 10,000 in carrying costs because it did take a couple of months to do the renovation.

Rob:
Got it, got it. Okay. Cool, cool.

Peter:
So yeah, so she’s into it roughly for 270 or so.

Rob:
270, and then she was able to basically go get a high appraisal from the bank because it checked all the boxes. Didn’t appraise completely, but not completely to the level she needed to get all of her money back, but pretty close to the point where she got all of it back except for 9,000 bucks, which isn’t lost money. It’s just equity that’s in the house now.

Peter:
Exactly. Yeah, it was about as close to a perfect burr as you can get these days. I mean obviously I know when David, you wrote your awesome book about this back in, I believe 2017. Yeah, the numbers worked out a little differently. I think it was a lot easier to get that perfect burr where you get the infinite return essentially and have no money left or even get some money back. A little tougher to hit those numbers these days. But yeah, this was very, very close to that.

David:
The burrfect.

Rob:
Yeah. Dang it. I was waiting for him to stop, so I could say that. But…

David:
Yeah, I did kind of step on Rob’s toes. But I’m glad that came up because a lot of people think don’t do a burr unless you can get all of your money out of it.

Rob:
Yeah.

Rob:
That’s silly, right?

David:
It’s silly. Yeah. Stop comparing yourself to perfection. Girl, you’re wonderful. You don’t have to look like the girl in the magazines, right? You just got to look better than me, and it’s going to be a win. The burr, as long as you leave less money in it, then the whole rehab and the 25% down, you won. Be happy with that. So thank you for bringing this up.

Rob:
Well, one quick note on that. Yeah, the way I always think about that is, especially with, I mean really anything, but the way I think about it is, if I were going to go and buy a $330,000 house, I would need to put down 20% probably, which would be 66,000 bucks. That’s way more than the 9,000 bucks, right? So sweat equity, equals equity.

David:
Yes. That’s the idea. Yes. Plus the rehab you’d have to spend after you bought it to fix it up.

Peter:
And that’s cash out of pocket typically too. She did purchase with a hard money loan and they included the money for renovation. So I forget the exact total of what she spent out of pocket, probably in that 30% range or so. So this was a duplex, so actually you go buy this just on market for 330, you’re doing 25% down, so you’re looking more in the $75,000 range once this all said and done.

Rob:
Pretty good.

David:
Okay. And how did you demonstrate value to your client in this deal?

Peter:
Excellent question. So a couple of things. So number one, this client had never been in Indianapolis, never stepped foot in here, didn’t know anything about it. So as with all my remote clients, I was their eyes and ears, their boots on the ground. I helped them find property managers, lender contacts. She’d actually come to me with a property manager… Excuse me, with a contractor already in place, found on the BP forum, by the way, great resource there.
And so the local area, information, all that stuff I helped provide. So in our initial conversation, got to know her, got to know what her strategy was, what she was looking for, and then honed in on specific neighborhoods where I thought those strategies could work. Again, specifically, she was looking for a burr. We want to look in transitionary neighborhoods where you’ve got a lot of dilapidated homes, but high ARV properties so you get that big spread, because a lot of these properties are 100 plus years old and oftentimes need six figures of renovation to get them rent ready.
So you need that widespread for the numbers to work. So of course, you’re going to be your eyes and ears the whole time. I do an interior and exterior video walkthrough during the inspection so she can see it kind of firsthand up close, more than what you’ll see in the pictures. Help coordinate access for the inspection, get a contractor in to get the estimates, help provide comps to determine ARV on both the sale, the rent, et cetera, all the numbers. But more importantly on this specific one, I used knowledge I had about the property and the seller to really negotiate a good price for her. So this was listed at 175, as I mentioned.
So we got it for 10 K under asking originally, so we’re under contract at 165. However, when I talked with the seller’s agent, I discovered that the seller bought this or acquired the property at a tax auction or something like that. And what they didn’t know is that there’s actually two properties on the parcel. So they thought they were just buying one. So they found out they had a second property, they went to the city, parceled it off and decided to sell it. And looked at the tax records saw that they paid 100 for that parcel. So anything over… It is basically a bonus property that was just going to be profit for them.
So I figured they may not care too much about that final sales price. Again, it is all profit. So I used the knowledge I had about the property, and then of course we did the inspection, got a contractor bid and it was in really rough shape. So we used that as leverage too. So we used all those things to really hammer the seller on the price and get that down. So again, we’re under contract for 165 and we negotiated an additional $30,000 discount after the inspection to get it down to 135 and really make the numbers work for the client.

Rob:
Man. Yeah, that’s awesome. David, I think you’ve done a bur before. How common is it to get a full on contracting bid before you close on the property? Because the thing that I always find is, sometimes when a deal is there, you need to make the offer move quickly, but a contractor bid could take a week or two or three, depending on how fast that contractor is. So are you always basing the home sale on that contingency that you can get a contractor bid?

David:
Yeah, I never got it before I put it in contract, which I think is a mistake people make. They wait to put it in contract until they have every single piece of intel, and then someone else buys it. I did have it before I closed every time. So the way I set it up, which is in the Burr book, apparently it just puts Rob to sleep when he reads it at night. So he doesn’t remember this part.

Rob:
But it’s because it’s therapeutic. That’s why. Yeah.

David:
There you go. Thank you, man. It’s actually like I got frustrated by constantly having my home inspector go to the house, the property manager go to the house, then the contractor go to the house, and then they all have to communicate with each other. And of course, they go, the shortest answer is just to bug me with it. And now I’ve got three different people that I’m trying to shoot stuff to.
So I would schedule my agent to get there with my property manager and the home inspector and the contractor, and they’re all at the same time, go through the house. And the home inspector talks to the contractor and says, “Hey, this electrical outlet’s not working. This cabinet hinge is breaking. This light switch isn’t flipping on.” Whatever the thing is. And now the contractor knows to throw that in his bid, because he is already going to be there.
It’s a lot of money if you want someone to go to your house just to fix an electrical outlet, because they’re charging you for the time to go. But if they’re already there doing everything, they usually just charge you for the materials and 25 bucks or something to have one of their guys switch it out. So I would get the contractor bid at the same time that the home inspection was done, and I’d have the major stuff from the inspection put into the contractor bid. So it was all there. And then I would have those total numbers before I closed, and ideally before my inspection contingency was up, then I would go back and renegotiate or say, “Nope, it works, and I can close on the deal.”

Rob:
Nice. Wow. That is my Blinkist right there. That’s like the Blinkist version of the Bur.

David:
That’s a great way to put it. We call it green kissed.

Rob:
Yeah, green kiss. That’s right. We do call it that. Well, that’s an amazing deal, Peter. That’s awesome. I mean, it sounds like you provided a ton of things that some realtors do, but not necessarily