Rate Cut Chances Increase as New “Affordable” Markets Emerge

Dave:
We spend a lot of time on this show keeping up with the big forces that shape the housing market and ultimately your investing returns. And as always, we try to break that information down into a way that everyday investors and listeners like you can put into action. But sometimes it’s hard to know what to do with all of the crazy and sometimes conflicting information out there. So today we’re starting with the practical and answering your housing market questions.
Hey investors, this is Dave Meyer and this show, this format you’re listening to is Bigger News. And today I’m joined by Kathy Fettke. If you don’t know her, Kathy is a co-host of our sister podcast on the market. She’s also a data-driven investor who extensively studies and understands the economy and housing market as well as anyone I know. And we have Kathy here today because we’re bringing in some community questions and I could use her help. And we are going to get into some really good topics like what’s happening with rents and will soft rents continue. What does the latest jobs report mean for expected fed rate cuts? We’ll talk about affordable housing and a whole lot more in today’s episode. Before we jump in, I just wanna mention that we do pull these questions from the BiggerPockets forums at biggerpockets.com/forums. And if you want one of your questions answers, go check it out.
You might get your question featured on the show, but in a more immediate way, you’ll get advice from thousands of real estate investors who are participating in the forums every single day and can give you advice on whatever challenge you’re having in your investing journey. And it’s completely free. So make sure to check that out. All right, let’s bring on Kathy and get into our user questions. Okay, Kathy, our first question is of course about the Fed because people are always wondering, I’m sure they’re asking you about the Fed all the time as they do. To me the question is quote, do we expect the latest job report to accelerate the eventual rate cuts we’re expecting from the Fed? And before I get your opinion, Kathy, let me just explain to everyone what we’re talking about here. We have a jobs report that came out on July 5th that has data from June of 2024. And what it showed was that the US added a pretty solid 206,000 jobs last month, which is a little bit better than what most economists and people who spend their time predicting this stuff were expecting. But unemployment did tick up to 4.1%, which is a sign that the labor market is slowing down a little bit. But obviously with 200,000 jobs added, it’s not at a standstill or anything like that, but it is showing a downward trend. So that’s the context for this conversation. Kathy, what do you make of it?

Kathy:
Well, I think it is really a sign that we’re coming back to normal and normal is gonna feel slow and like confusing because we’re coming from abnormal. We’re coming from a time when, uh, of course there was COVID and and millions of people weren’t working. And then as we recovered from Covid, I, people started to go back to work. So it looked like huge numbers, right? You know, because you’ve got the normal job growth on top of people coming back to their jobs and that all counts in the numbers. So now we’re at where we would have been had there been no COD at about 159 million people working. And, and so we’ve caught up. So the numbers from here on out are gonna look like we’re slowing down, but it’s really just coming back to normal and there shouldn’t be panic. But will the Fed see it that way? I think so. Eventually they keep saying they want more data, they wanna make sure that inflation is under control. So eventually the Fed will cut rates. But the question is when will it be September? Will it be November? It’ll be this fall. There’ll be at least one rate cut <laugh>, I think. So it we’re moving in the right direction.

Dave:
I agree. I think we’re starting to see what the Fed has been very obvious and candid about what they’re trying to do, which is to create Slack in the labor market. And I guess I should probably just explain why that is because some people might be thinking like, why would they be waiting for a higher unemployment rate? Why would they be rooting for a higher unemployment rate? Well, it goes back to this sort of confusing and contradictory dual mandate that the Fed has, basically, Congress has assigned the Federal Reserve two different jobs. One is to quote unquote maximize employment. So that is basically stimulate the economy as much as you can. The other thing though is they are responsible for quote unquote price stability, which is just another word for controlling inflation. And these two things are sort of opposite each other because inflation comes when you have an overheated economy.
And so the Fed is always playing this balancing game. And during the pandemic, after the fallout of a lot of the economic challenges that came from the pandemic, the Fed basically was really focused on maximizing employment. That’s why they kept interest rates so low. We had stimulus from the government, you know, from, not from the Fed, but from other parts of the government. Uh, and so what we saw was it overheated. They, you know, clearly in retrospect we could say they made a mistake and they overheated the economy and then we’ve had inflation. And so the way that they are trying to get inflation under control is to try and create some slack in the labor market to cool down the economy. And that’s why Kathy, I think correctly, and I agree with her, is saying that, you know, with this slower labor market, um, that we’re going to start to see fed rate cuts. Now I am of the opinion, Kathy, that the Fed is going to raise lower rates pretty slowly. Do you agree with that? Or what are you expecting in the next, let’s say six months?

Kathy:
They’re just gonna keep their eye on the labor market. And that’s why these numbers matter so much. If it really slows down, if there’s, you know, a month where it’s below normal, then they might, uh, cut rates quicker because like you said, that’s their mandate. It’s the inflation and um, full employment. But I don’t know if they’ve explained to us or if they even know what full employment means. It’s not zero per, it does not everybody working. ’cause the problem is if everybody’s working, then you’ve got new jobs that come online and there’s nobody for them. So then employers have to increase wages to try to attract employees and that creates inflation. So I think maximum employment or what they want is in that 4% range. And we’ve been in 3% territory in terms of, of the labor market and unemployment. And that’s, that’s, they don’t like that because that’s kind of down to the people who maybe don’t wanna work, um, or don’t have the skills for the jobs that are available.
So they want to see a larger pool of people to, of employers to pick from. So I wouldn’t wanna be a beneficial and have to make that decision of what, you know, how many people should be working or not working. But they have been trying to move into this 4% unemployment rate from 3% for years. And we’re, we’re finally closer to where they wanna be. So this is good. This is not recession that everybody was talking about. This is back to normal. So hopefully, hopefully this means the Fed is landing the plane, which, uh, has been the terminology for can they, can they increase unemployment, have more people lose jobs without creating a recession, which would be lots of people losing jobs and it’s looking like maybe they can, but next year we’ll know for sure

Dave:
<laugh>, it’s definitely looking more possible than I thought it was like two years ago when they, you know, inflation was at 9% and they were like, yeah, we can get this, this inflation under control without creating recession. I admit I was very skeptical of that. Uh, but it is looking more likely. We don’t know yet. But I do wanna just also provide some context here. Like Kathy was saying, even a 4.1% unemployment rate right now is a pretty low historically, for reference, when we had a huge recession in 2008, 2009, unemployment went up to 10% in October of 2009. And right before the pandemic, it was in the high three. So it was, uh, uh, 3.6, 3.7 I think was about where we were before the pandemic. So we’re still pretty in range with what has been a relatively good economy. But obviously, I guess the thing that sort of worries me is like, is there a slippery slope where it’s like it’s going up 4%, 4.1%, which is happening now, which is good, but then does it, you know, we create some condition where it create gets critical mass and all of a sudden we’re at 5%, 5.5%.
’cause that’s where things might start to get messy. There’s no indication that that’s going to happen just yet. But that’s obviously what the Fed is going to try and be doing. It’s like push this up maybe to 4.5%, but they probably don’t, I would imagine want it to go much beyond

Kathy:
That. That’s what’s confusing. Like what’s that number, what are they trying to hit? I, I have heard that, you know, it’s the, in the 4% range. So we’re there and it seems like they just wanna hold things steady and make sure that inflation really is under control. The latest reports look, look good. Inflation has been getting closer to the 2% level. They, they’re very clear about what they want with inflation, it’s 2%, but they haven’t been super clear about what they want with unemployment, but I believe it’s around 4%, 4.2%. So maybe a couple more, uh, months of seeing those numbers come in line. And I think a lot of people obviously Wall Street saying, come on, cut ’em already, like September’s a good time to cut rates. But it will all depend on, on, uh, on the next job. Uh, jobs reports and inflation reports. It’ll be this year though, most likely, unless we see runaway inflation, which I keep telling people, just, here’s a simple solution, you want rate cuts, stop shopping, <laugh>, it’s like, stop spending money.

Dave:
Yes, it’s definitely true, but it’s not happening. We’ll, we’ll see. You know, people are stretched, but consumer spending has remained relatively strong. So, um, you, you’re definitely right about that. I do wanna say before we move on to our next user question, that if the Fed does cut rates, it doesn’t mean mortgage rates are gonna come down and it doesn’t mean they’re gonna come down quickly, even if there’s a quarter point reduction. Uh, that doesn’t mean mortgage rates will come down that much. Mortgage rates might come down more than a quarter point. There are a lot of other variables, uh, that we’re not gonna get into today. Uh, we talk a lot about this on our sister podcast on the market about what goes into mortgage rates. But just know that it’s not like a direct one-to-one correlation fed cuts rates, mortgage rates go down.
There is more to it, but there is, you know, a relationship there. And I do think if the Fed starts to cut rates, that will be a positive indicator for mortgage rates going into 2025. But we’ve got more great questions on big topics coming up. Like, will rents continue to soften? Is the affordability crisis creating new opportunities? And what’s more important timing the market or having sufficient cash reserves? We’ll get into all of that after this. Welcome back to bigger news. I’m here with Kathy Feki and we’re answering your economics questions. Let’s move on to our second question, which reads, rents are starting to soften in some areas. Do you expect this trend to expand, which investors will be most impacted? And how can owners mitigate risk? There are actually a couple questions embedded in this one. So let’s just start with the first one, which is, do you expect softer rents to continue? And I’ll just provide some context here that rents are down, I think less than 1% on a national basis. It’s like half a percent or something depending on who you ask. That is obviously a big change from what we saw during the pandemic where rents were going up double digits for many years. Uh, and so they are softer. And so Kathy, let’s start with the first question. Do you think they’ll stay in this quote unquote softer stage? Do you think they’ll actually start going down in any meaningful way or what, what are your expectations?

Kathy:
Well, oftentimes when we see headlines about rents, uh, or, or you know, people talking about rents, oftentimes it’s about multifamily rents. And that’s, that behaves differently than single family rents. So right off the bat, we need to define what, what rents are we talking about? And also that comes down to supply and demand. So there are some cities where there was a lot of new supply of multifamily, you know, new apartments coming online and they are definitely seeing their rent soften because in some areas it’s just too much supply and it’s too much supply of higher end generally because it was hard to build affordable housing. It just, the numbers just didn’t pencil. So most of the new supply coming on is a, is a little bit higher end, which it normally would be because it’s new, right? Um, so in any of those areas where a lot of new supply came in rent, we’re seeing rent softening.
But from everything I’ve read and seen with demographics and migration that will be overcome in a few years, it’s just this moment in time. Uh, we personally haven’t seen rents go down in the areas where we’re investing. ’cause these are areas where there’s really strong migration and we’re, we’re personally not in those big ticket cities where the multifamily builders came in. Um, I don’t know if you know specifically the markets where there was oversupply and multifamily, but I’m gonna throw out a few. It’s probably Dallas, Denver, Atlanta, the big, the cities everyone wants to invest in, right?

Dave:
<laugh>? Yes. Yeah, I invest in Denver and it’s, it’s so overbuilt there. I mean, it, you could just tell there’s so much multifamily supply and I feel like everyone says that about their city because they see like a lot of cranes. But when you look at the data, Denver, Dallas, Austin, Reno, a lot of places in Florida, you know, that’s just the thing about multifamily is it gets concentrated in certain markets and they’re often in these large markets. So when you look at averages of what’s going on in the country, they disproportionately, uh, you know, like if, if you have huge change in apartment rents in Houston, it’s the fourth biggest city in the country. So like of course that’s going to impact the national average. But if you’re trying to say what number, like total, absolute number of markets are seeing rents declined, it’s actually pretty small. I I would think it’s a few dozen at most.

Kathy:
Yeah. And, and that’s why my personal strategy is I stay out of those headline cities, those banner cities. Like if I went to Europe or to I don’t know any other country, and said, what, what American city have you heard of? Those are the cities I don’t invest in because the whole world’s investing in those areas. I like to be in the little sub-markets and, and the, I guess third tier, the tertiary markets where, uh, a multifamily builder is just not gonna go there and there’s not gonna be those supply demand issues if you, if you invest in a larger city that’s growing quickly and lots of investors coming in, you just have to be aware that this is always a risk of, uh, potential overbuilding in those areas. But Cincinnati <laugh> not so much.

Dave:
Probably not. Yeah. Well, I, I, I agree with you. I, I do think that, uh, this trend of softening rent is probably around for a little while longer in those cities because when you look at multifamily, you know, forecasting home prices, all these things is difficult. Forecasting multifamily rents is actually a bit easier because you know how much supply is coming online years in advance. Like we know what, how many units are gonna be online and new apartments are gonna be entered into Orlando this year. That stuff is public information, it’s pretty easy to understand. And what the data shows is that we’re still gonna have a lot of new supply for the rest of this year and like maybe a, a little bit into 2025, and then it’s gonna start to slow down. And so do I think the trend will continue yes, probably for the next couple of months in those specific markets Again, but I do think this is generally a temporary thing because as you’ve probably heard, there is a lack of housing in the United States.
And in my mind, the reason that we’re just seeing an oversupply is, is more of a timing thing, a short-term timing thing than it is this big macro, uh, issue. Because demographics show us that there is gonna be demand for housing, and we do need these units. The problem is like, everyone’s not moving at the same time. And so if you have a market like Denver, I’m just gonna make up the numbers, but like, let’s just say there’s 4,000 people who need a new apartment every month in Denver, and we just so happen because the way building works, getting 10,000 units that particular month, those 10,000 units are gonna have to fight and compete for the 4,000 renters. And they compete by lowering prices. And so we’re sort of in this prolonged, you know, that’s just a small example, but we’re in a period where we’re having that happen over a prolonged period of time. But eventually, in my opinion, these units are going to be absorbed because we just need more housing in the United States.

Kathy:
Yeah, and again, just depending on which side of the table you sit on, uh, this is great news because the, also the issue is affordable housing. And in a lot of these cities, it’s just gotten so out of control because the, the rent growth was so massive over the past few years. It’s really priced people out. And the the way you solve that, and here is an example, is bringing on new supply always comes down to supply and demand. You can kind of try to control th things through rent controls and so forth, but that is not natural. What’s, what’s more natural is, you know, looking at supply and demand. You want to see affordable housing, there needs to be more supply. So in those cities where you’re seeing rents decline, this is a wonderful thing for the people trying to rent. This is what’s needed in those cities where rents have gone up so dramatically as, as landlords on the other side of that table, you just have to know, like it already happened.
There was ridiculous amounts of rent growth in some cities, over 20% in one year, um, you know, during the covid years. So that’s not sustainable, that’s not healthy for families. So I see this as a positive thing, but when you’re underwriting, you just need to be aware of that, that, you know, always pay attention to supply and demand. And you might be, um, you know, at, at one or 2% levels or like in San Francisco, negative a couple percent, it’s still okay over the long, over the long run. But single family housing in general, at least the last reports I saw, it was pretty strong. Like rent growth was around what, 6%?

Dave:
Yeah. Yeah. I, it depends who you ask, but yeah, it’s like mid single digits for sure.

Kathy:
Yeah. So again, two different markets.

Dave:
Yeah, total, totally agree. Yeah, it, it really depends on what you’re looking at. Multifamily tends to get impacted more in general. It’s just a more volatile asset class than residential real estate in pretty much every way. Um, but your, your point earlier about underwriting, Kathy sort of brings us to the last part of this question, which is how can owners mitigate risk? And for me, for the last year and a half, I’ve been underwriting deals with zero rent growth for two or three years. I’ve been wrong, not, I, I didn’t actually necessarily think that was going to happen, actually, I just did do that because it mitigates risk to this person’s, uh, uh, point. Um, and then if you’re wrong and rent goes up, that’s great, but, uh, you should not plan on it. Uh, so I think that’s, I mean, it’s pretty straightforward advice, but like, that’s what I would say for mitigating risk is just assume very little rent growth for the next two or three years. Um, and I wouldn’t personally like be underwriting negative rent growth in the markets I invest in at least. But, um, I think assuming some flat rent growth or rent growth that is close to the level of appreciate or, uh, inflation is, is a good way to mitigate risk.

Kathy:
Yeah, the business plans for multifamily tend to be very different for a single family. And a lot of times I would see these, uh, proformas, um, multifamily where they’re like, okay, we’re gonna buy this. We’re gonna fix it up and, and increase rents. It’s like, yeah, except that now you, if you’re in the wrong market, you, you’re competing against new supply, brand new, you may have renovated your place, but if I were a renter, I’m gonna take the brand new one. So just be, again, it’s all about supply and demand. And if you are in a multi-family, if you’re in the multi-family business, it’s a different business with single family, you’re locked into a fixed rate. Uh, it’s just a little bit easier to to, to project, right? Because in multifamily you’re generally on adjustable rate mortgages, so you’ve gotta be able to look out 3, 4, 5 years in the future, uh, because that’s gonna matter to you a lot when your rate adjusts. Whereas with single family, ah, you’re just, you’re just fixed for 30 years. I’d love, that’s why I love it.

Dave:
<laugh>. Well, actually, that made me think of one other tip for mitigating risk, which is just try and retain your tenants, especially for single family, because, you know, if you have single family or small rent, just don’t raise rent or just like make sure that your tenants are super happy because the only way rent’s going down is if you get a new tenant, because I’ve, I’ve never heard of someone lowering rent for an existing tenant. So I think if you can keep great tenants, like that’s another way to mitigate risk from falling rents, uh, in this type of market.

Kathy:
Oh, a hundred percent. All right,

Dave:
Let’s move on to our third question from the BiggerPockets forums, which asks is the need for affordable housing creating new markets. Thank you to a co a j Thor in for starting this conversation. And I’ll just read one other part of this forum post for some context, but Cory says, over the last few years, and even now, I’m seeing investors put their capital to work in areas that locals have previously ignored in order to afford rent and or an investment property or a primary home. We’ll, prices start pushing people to forget the first three rules of real estate, which are location, location, and location. What do you think, Kathy? I

Kathy:
Love this question because it’s assuming that some of these new markets are not a location <laugh>, right? But this, this has been my strategy forever is, is like finding out where people are migrating to, and affordability is one of the reasons people migrate. So it’s incredibly important to pay attention where people are going and to find those affordable areas. One of the trends we’re seeing is that these downtown areas have gotten so expensive. People are moving out into the suburbs, and that’s super normal. That’s nothing new. But because of that, it does create new markets where there’s tons of opportunity If you find out, oh, this, this area 30 to 45 minutes out of this major metro has a new employer coming in. So it’s not just a trend. Like, I’ll, I’ll give an example. In California, there’s a town called Stockton where people always move to when prices get too expensive in San Francisco and San Jose, uh, but there’s not necessarily the job center that is, so people have to commute an hour.
And that, again, it goes crazy when things get too, too expensive. But then when, if there’s a pause in the market, everybody leaves and they go back into the, the city. I’m not talking about that. I’m not talking about just a temporary fix where people are gonna do that hour commute because they can’t live within a city. But if you’re seeing employers also say, wow, this city’s too expensive, I’m gonna move my operations out into this more affordable area, now you have jobs created there, and now that’s a new new center, it’s a new metro. There’s, there’s reasons people why people would stay there regardless of what happens with markets in the coming years. So that’s what I look for is like, where are the employers trying to find more affordable places and, and go with them.

Dave:
Ab absolutely. I think you, you hit it spot on at the beginning with this question, which is a great question, Corey. I agree. But the idea that people are forgetting the first three rules of, of real estate by saying location, I think is a false premise because it sort of implies that location and what is quote unquote a good location is static, but it’s not, it changes with people’s preferences. And as Kathy just said, with businesses’ preferences. So what was a great location, let’s call it downtown San Francisco, like I would say that by moving outside of downtown San Francisco right now, you’re not ignoring location, location, you’re adapting and starting to change your opinion about how trends have changed. Because obviously businesses are moving out of downtown San Francisco, and while it may recover right now, it’s not a strong market compared to a lot of other places in the United States.
And so the key I think, as Kathy said, is really trying to figure out what is coming next, not what is considered a good location now, because in a lot of these markets, they’re what you would call efficient markets. And as soon as everyone knows that it’s quote unquote a good location <laugh>, then it’s super expensive and it’s no longer a very good place to invest because words already out. And that’s just how investing markets work. The places that are well known and low risk are gonna be the most expensive. And so as an investor, you really need to sort of figure out where you think the, the, the trend is going to be. But what I agree with, with Cory is that affordability is going to drive those trends. And it sounds like, you know, Kathy, I know you’ve been talking about this for years, that affordability, uh, drives migration. It drives business behavior. And I think in since the pandemic, that’s only accelerated.

Kathy:
Well, and another huge thing to look at, like you said, it, it’s never static. Like the, the United States is never static. And one of the things we have to pay attention to, and I know you do, is demographics. We have a massive population, uh, ages 60 to 80. Senior housing is going to be the theme for the next 10 to 20 years. Where are these people moving? They’re going to be on fixed incomes because they’re retiring. So affordability again, becomes more and more important. Where are they going to retire? When you, if you can get your finger on that pulse, you will benefit over the next 10 to 20 years, the next huge generation, actually the largest. Now of course, the millennials are age 30 to, uh, oh gosh, 50. That can’t be

Dave:
No God, I’m just saying. No, I don’t know if it’s, no, I’m just a millennial. That made me, I did not like the sound of that. Okay.

Kathy:
Yeah. Well, y’all are getting older. All right, so <laugh>,

Dave:
All right, so our producer just told us that the, uh, millennial generation is technically between 28 and 43. So, uh, yeah, but we’re, we’re getting up there, you know, at least in prime family formation, you know, prime need for like, you know, the traditional sort of American dream style house.

Kathy:
Yeah, yeah. It’s just, it’s super important to pay attention to the millennials that are, are not the babies anymore. You know, the babies are the Gen Zs, um, millennials are getting older, forming families. They are the biggest, biggest generation out there, and we’ve gotta pay attention to them too. And if you’re starting a family, you need affordability too. You want more space, you need a yard for your dogs and your kids. And you know, so looking at the drivers here, where are you gonna be? It’s gonna be the burbs, right? You’re, you’re gonna get out of those really groovy downtown apartments and you’re gonna need more space. So these are two, two demographics we’ve got to be pay attention to. And over the next 10 to 20 years, you will profit following where these people are going.

Dave:
Very well said. Well, just in summary, uh, Corey, great question. Good conversation starter. Uh, I think that your premise about affordability creating new markets is dead on, but I would just say that that is still in line with location, location, location. Just think, just think about it a little bit differently. All right, we’re gonna take one more quick break, but stick around. We’ll be back with one more question about how important cash reserves are in today’s market right after this. Hey there, investors, welcome back to the show. Okay, so let’s get into our fourth and last question here today, which is just a gut check question from a newer investor who asks, I’m getting ready to buy my first property, but I wanna save up more reserves. I’m concerned home prices will rise so much by the time I’ve saved up enough in a year that I’ll have to downgrade the assets I’m considering buying. Should I risk it and buy? Now I know what I think, but Kathy, what do you say?

Kathy:
This is such a good question. And I know that feeling of just like eagerness, I wanna get in, you know, at all costs. And I understand because asset values will continue rise, and both in the stock market and in housing, of course we don’t have a crystal ball, but based on the, the fact that the US is dependent on printing more money just to pay our debt, um, that tends to create inflation. The, the Fed wants to create inflation at least at 2%. Uh, so this things will continue to inflate, and I get the fear, however, a bigger fear is not having enough reserves. Nothing is worse than that, and I have been there. It’s terrible when you don’t know how to make your payments. You could have a tenant who also can’t make their payments, and you are gonna have to cover all the costs.
I would say absolutely. Wait, let’s say prices go up five, 10% in the next year. It’s not gonna make a huge difference in your down payment. Um, you know that that difference, but what will make a difference is if you can’t make your payments <laugh>. So gotta have reserves. This is my number one rule. If you can’t, if you don’t find a partner, you know, get someone else into the deal, doesn’t mean you have to wait. Uh, there, I know plenty of people who have, again, if, I dunno if this is your first home or if it’s your first home, you can house hack and rent out rooms and then you’ve got some stability there. You’ve gotta, you’ve gotta have some place to live. There’s still ways to get in now, but reserves are the most important thing.

Dave:
Yeah, I, I a hundred percent agree with you. Cash reserves are, as a new investor may be the most important thing. Like real estate time is your friend. You need to be able to hold onto your properties. And not having sufficient cash reserves is the single biggest risk you have in not being able to hold on where you might be forced to sell. But I do think Kathy made a really good point that I want to reiterate here, which is just that even if prices go up, it shouldn’t really impact things that much. Just consider the fact that the average price home in the US right now is a little bit above 400,000, but I’m just gonna use 400,000 as an example. If you put 10% down on 400,000, uh, then your payment, your down payment would be $40,000. If prices go up 3% in the next year, which is actually higher than a lot of people are expecting, but let’s just say 3%, then that home would be worth 412,000.
And so your down payment would go up to 41.2%. So, or 41, sorry, your down payment would go up to $41,200. So yes, the price of the asset went up 12,000, but since you’re putting 10% down, your down payment would only change by $1,200. Now, whether or not you can afford that, I don’t know, but because real estate is leveraged, even if prices are going up, the, the proportionate change to how much money you need to put down is not the same. And so I wouldn’t worry too much about that. I would make sure that you’re just investing from as strong a financial position as possible. I, I really believe that you need to like, have your in order before you start buying real estate and not hope, you know, buy real estate, hoping that it’s gonna fix some challenges that you have in your existing financial life. And having cash reserves to me is like 1 0 1. You gotta have it.

Kathy:
Yeah. And if I, again, if it’s you, it’s if it’s your primary, you’re talking about, listen, when we bought our primary, it was <laugh>. We had no reserves. We just went for it. And my, it is my story. I’ve told many times, I wrote it in my book. We rented out every nook and cranny of that house that we, I turned the basement into a rental. You know, we, we totally house hacked it and we made it work and we got extra side jobs and all. And we still ran into times where it was really hard to make those payments. And that’s why I tell you today, boy, reserves are the best thing in the world, but when you’re starting out, you might not have them. That’s why it might make sense to have a partner or you know, your first properties a flip so that you’ve got a partner in there to, to help you and you make a chunk of money and are able to go do it again. Uh, but for buy and hold, you know, that six to 12 months reserves is super important. You need it.

Dave:
Totally agree. Well, Kathy, thank you so much for helping us answer these questions today. This was a lot of fun. If you all have questions that you want me, Kathy, anyone else to answer, go on the BiggerPockets forums. You’ll get really good advice on the forum themselves. But we also might just pick them for a user question show like the one you’re listening to today. If you do wanna connect more with Kathy, we will of course put all of her contact information below in the show notes or the description. And you can also see her on the on the Market podcast that we are on together, if you like, more economics, news, data-driven types of topics. Thanks again for listening and we will see you next episode of the BiggerPockets Real Estate podcast very soon.