How to Capture the “Upside” in the 2025 Housing Market

Dave:
Welcome back to the BiggerPockets podcast. I’m Dave Meyer, head of real estate investing here at bp. Today we’re talking more about designing your deals because the reality is you’re probably not going on Zillow and finding some perfect deal ready to go. You have to spend time figuring out what are good assets and how to maximize the performance of those assets over the long run. And I actually talked about a framework last week on BPRE, episode 10 at 75, and to underscore this and help everyone really understand this, I’m bringing on two expert investors, James Dainard and Ashley Kehr to talk more about it so they can share examples of how they use these strategies in their own investing. James and Ashley, welcome back to the show. Good to see you both.

Ashley:
Thank you for having us.

Dave:
I’m so

James:
Excited. I love talking about deals.

Dave:
So let me just recap a little bit that I have these four big picture principles that personally I look for when I review deals right now, and I see them as sort like playing defense. They limit my risk. They ensure that I can hold onto assets and then I sort of look for long-term upside over the course of my hold period. That can be a short hold or a long hold. These are the four, and James and Ashley, just tell me if you think these are terrible ideas, but this is sort of how I’m thinking about my investing and I want to get your feedback on it. Number one, I’m looking at this situation in the market and seeing that a lot of good assets are sitting on the market a little longer. Right now, there’s been a little bit of a slowdown and I’m trying to use that to my advantage to find things that normally were being snapped up super quickly.
Number two, I want to buy in good markets with strong fundamentals, nothing different there. Number three, my focus is on breaking even in year one and making sure that’s sort of the defensive piece where I don’t need to break even day one. But for me as an investor who’s somewhat conservative, I want to make sure that I’m not coming out of pocket every single month by the end of the year, and then I need to find ways to really accelerate my performance after that first year in the second, third, fourth or fifth years. So those are sort of the big picture principles. I’m just curious, James, I’ll start with you. What do you think of this framework that I’m using here?

James:
Those are all really good core principles and I think they’re principles that you’re going to have to use in today’s market. I think location, location, location right now, because cashflow isn’t really there across the nation. There’s some markets that do cashflow better, but where you get the most upside in real estate really isn’t from the flow. It’s from the appreciation or creating value. And when you’re buying in locations that are growing and populations increasing and the fundamentals of the economy are growing, that’s where you’re going to get that in equity. And I speak from that from firsthand experience, right? When I started investing in Seattle back in 2005, it wasn’t really the powerhouse of tech it is today. And so by buying in the right location of Seattle, it’s grown dramatically and I think resetting people’s expectations of breaking even not paying for an asset is always a better call because you don’t want to have this cash suck when you’re buying a rental property totally, but you have to have the upside because buying and breaking even also sounds really boring. And so there has to be that third upside of, okay, how do I create value? And eventually your cashflow will improve. When rates fall, you’re going to naturally create cashflow, but then there’s the kicker in where you’re buying based on location zoning and path to progress that can really change your whole career as a real estate investor and where you’re going to be in five and 10 years.

Dave:
So actually how do you look at your own high level strategy in trying to find deals now, but creating value for the long term?

Ashley:
When I first started, my whole goal was to maximize cashflow. I wanted to pay off my student loans, I wanted to be financially free, all of that. But if you have a great W2 job, you are comfortable where you’re at and you can leave some money in the deal. You can maybe not get any cashflow or just very little. And you plan this out where, okay, every year I’m going to buy another property. That is my investment I’m going to buy and then I’m going to buy. But then after 10 years, you have a plan that you’re going to sell one, then sell one, then sell one. And after that 10 year period, you’ve got all those tax benefits from those properties. You’ve had appreciation, you now have equity and these deals, you’ve had mortgage pay down, and then you start and plan out like, okay, I’m going to sell one now. I’ve just gave myself a hundred thousand dollars payout this year. Then the next year sell another one and $125,000 payout this year to live off of. So if you have the opportunity to be a long-term play investor, you’re going to have a huge advantage.

Dave:
I’m curious about this first principle I named James because you look at a ton of deals, I am seeing better assets sit on the market longer. Right now, I am curious if you’re seeing something similar in Seattle,

James:
Your traditional class A assets where people are looking, Hey, I want to buy this property. I’m in a great location. It’s a good building, it’s got all the amenities you want, the stuff everyone wants, that stuff is sitting longer because it’s still priced high. They haven’t made any adjustments because the seller’s not in a rush. But you have to define I guess what a good asset is. My definition of good asset is something that’s falling apart that I can fix and create value in.

Dave:
You’re insane is the answer.

James:
I like it because we can create margin, right? And that’s the only principle that I think is missing off the list is you have to earn your income. You can’t just buy wait on it and go, if I’m going to break even, that’s okay. Even if I have to pay a little bit for that property and I have the reserves to do it, that’s okay, but there has to be an upside and create the value add. I’m all about value add right now. Create the value add, put it in the portfolio

Dave:
Totally. My point is just I want to be able to hold onto that asset and within a year not have money bleeding
At the same time. You have to have these upsides value add one of them. You need to be able to do rent growth path to progress. I would not be in this business if I was just breaking even of cashflow, but I think it’s just a good basis to create something that’s low risk so that I can get in the game. I sort of put my auntie in and then I can hopefully hit a couple of these bets I make on upsides over the next several years of my portfolio. Ashley, I want to ask you, because your market just got named hottest market by Zillow second year in a row, you’re now even a bigger celebrity now. I’m curious, is this possible or harder for you? Can you even find good assets in a market that is still as competitive as the one you’re in?

Ashley:
Well, I spend a lot of time looking at comparables like James has taught me. You have to look at a wider radius so you’re spread out with your data as far as you’re looking. In Seattle, you can look in a block in a little neighborhood and you can get a bunch of comps, but for us, you are spread out probably through five different towns if not more in some of these rural areas. So you really have to start comparing property tax rates. You have to start comparing school districts, things like that. For the property I’m sitting in right now, a comparable was like 15 miles away from here, not even somewhat close because there’s not a lot of sales that happen out here and not comparable acreage, things like that. So that’s really one thing that if you are going to invest outside of the city, you really have to understand what the appraiser is going to look at for comps. And so I think when you’re looking at the market and you’re really trying to decide if you can get a copy of appraisals from in that market and look and see what kind of comparables, how far appraiser is going out to find comparables, things like that, that can be super helpful in finding this house is actually going to perform well because I know what comparables appraisers look for in this area.

Dave:
All right, so we’ve talked a little bit about the high level strategy that I’m at least personally using to find deals, but one of the big principles of this is that you need to find upside to really supercharge your deal over the hold period. And I have 10 different upsides that I’m going to share with you right after this quick break. Before we go to the break, I do want to remind everyone that we are doing something really cool at BiggerPockets called Momentum. It’s our eight week virtual investing summit starting February 11th, and anyone who wants to sign up get tickets to this, you’re going to get access to investing experts like Ashley, James and myself as well as mastermind and accountability groups. It’s going to be super cool. If you want to grab a spot, go to biggerpockets.com/summit two five. We’ll be right back.
We’re back on the BiggerPockets podcast with Ashley Care, James Danner talking about my upside framework where I am buying deals that work pretty good today, but are going to be excellent home run type deals over the course of my hold period. We’ve talked about the high level strategy, but I want to read to you the 10 different ways I think about adding upside to deals. So number one is rent growth. Two, we have value add owner occupied strategies, rent by the room, cash purchases, path of progress, zoning, upside learning, buying deep and creative finance. I want to go through each of these with you guys and just talk about which ones you think work for you. So it sounds like value add is something both of you are using, but first I just kind of want to talk about rent growth because one of my just underlying macro philosophies right now is that we’ve had two or three years of slow rent growth, but it’s going to pick back up with things being as unaffordable as they are in the housing market. I personally believe a lot of people who would be buying are going to be renting in the future. And so I just think finding properties that are going to be in high demand from renters and rents are going to go up are great things to target right now. Ashley, have you thought about this strategy at all, especially in a hot market like yours?

Ashley:
2017, I bought a duplex and it was the first property that I had purchased that was ready to go. It needed nothing done to it, so I rented it out and I cash flowed about 200 to $300 per a month. And now holding that property from 2017 until today, my rents have grown so much that I’m cashflowing a little over $900 now on that property just from renting it out, sitting on it, and I’ve done nothing luckily, haven’t even had to do a capital improvement on it yet. I’m sure something’s coming soon now that I say that, knock on wood, but yeah,

Dave:
Your toilet just broke when you

Ashley:
Said that. Well, those little maintenance things, those come up all the time. But yeah, so that was a really big mind shift for me the last couple of years is like, wow, these properties, these duplexes that I brought weren’t great home run deals when I bought them. They generated a little bit of cashflow that I actually used to pay off my student loans, but now that I’ve held them, I’ve seen that rent growth potential and now the cashflow is way better

Dave:
A hundred percent, and it’s not going to happen everywhere. Not every market, not every niche within a market is going to see that rent growth, but doing your analysis and understanding where there’s going to be rental demand can be really beneficial to you. I’ve had similar situations, Ashley in my portfolio in Denver, just doing very little to the properties and as James said, just being in a great location, you can see rent growth. And I really encourage people in this type of market condition where cashflow is hard to find, to think about the long term of the cashflow, sort of why I was saying if you could break even on cashflow in year one, it’s just going to get better in year two, year three, year four, and I know it sounds like a long time from now, but five, 10 years from now, every deal that you buy now is going to be offering good cashflow if you’re buying it, right? So that’s why I just think this is such a big upside,

Ashley:
Especially too if you’re locked in at a 30 year fixed rate mortgage, exactly what your principal and interest is going to be for the next 30 years. Insurance and property taxes may increase, but pretty much what your biggest expense is going to be going forward. And that’s really what has helped me is putting those types of mortgages on where I have that fixed rate. So my income is increasing, the rental income increasing more than the property taxes and the insurance and other bills that come along with the property. So that’s a big thing too, is how you’re able to finance the property and get into it.

Dave:
Okay, so that’s one upside is rent growth. The next one I had mentioned is value add, which James, this is basically your middle name. So tell us a little bit about why you think value add is so good, particularly in today’s market.

James:
Well, I do think rent growth is going very stable going forward. Rents have shot up a lot. I think it’s a steady growth even with job growth and it will always be steady, but how do I take my portfolio and put Rocket Fool in it? And it comes down to value add, and that is usually going to be buying deep, creating value with a construction plan and creating value the bur method or buying in the location where I can invent the return

Ashley:
Because

James:
When the market gets flat, you have to look at different ways to invent the return. So it’s all about buying value, added zoning upside because you can create high cash flowing properties with a little bit of work. And so that’s where the kicker is in this market and there’s so many opportunity because people just look at things the same, right? Can I buy this in cashflow? No, I can’t. I’m going to move on to the next thing. That’s why I love value add. You can manipulate the deal, it takes work, but sometimes it’s not as much work. It sounds like a lot of work, but I’m buying it. I’m doing paint carpet, cleaning up, selling it. I’m hiring a builder to build it in the back. I’m not building it. They’re taking it through the whole process, even though it looks scary on paper, it’s actually very systematic and easy and a lot of people can do it.

Dave:
Definitely. So we’ve now talked about rent growth as one of the upside strategies you can use. We’ve talked about value add, let’s just go, we’re skipping around here, but let’s go to the zoning upside because you mentioned this James, and I think this is one of the more exciting things that’s going on in real estate right now. You’ve probably heard there’s housing shortages throughout the United States. It’s super expensive and a lot of cities right now are looking for ways to increase density and to increase building, and they’re making it easier for real estate investors, for real estate developers to add units, whether that’s taking single family zoning and turning into multifamily zoning, allowing single family lots to put on ddus, which just means detached accessory dwelling units like putting a mother-in-law suite or a kind of tiny home in your backyard. And so these I think are some of the more exciting things right now because you are having the opportunity to ideally buy something that’s again, break even this year, but has this massive potential for the future, for redevelopment, for adding capacity. And I just think it’s something I’ve done successfully in the past, even before the market was kind of telling you to do this, but at least to me, this just seems like one of the things that’s going to have huge tailwinds over the next few years because cities and governments are really supporting it.

James:
On top of my buy list in Washington is looking for something they call RSL lots because they’re bigger lots. And this is where you can actually add a bunch of cottages to your

Dave:
Site

James:
And you can add a bunch of units. Zoning upside will change everything in a deal. So if I buy a house right now, I’m looking at one for 450 grand, it’s going to rent for 2,500, it needs a hundred grand in work. That’s not great cashflow, and I’m going to leave some cash in this deal because I can add four to five cottages on the backyard of this property and I wouldn’t want to do it today, but in five years I’m definitely going to want to look at doing it. And so by buying this property, leaving some cash, not making a great return, I can take a three, 4% return on this deal for the next four years because I have 600 grand in upside just in the backyard. And if I don’t develop it and I just sell the lots off, I then can take that, trade it out for something else, and that’s why that’s so impactful. And today the dirt’s not worth much, but you want to look at path to progress. What is running out of units and everything’s getting dense. This is more wide. This will be the next spot.

Ashley:
James, your strategy right now seems to be a lot around permitting and zoning. So for an investor who’s never looked at it this way, how did you even know this was a thing that this was a zoning for cottages? What’s the best resource to find this

James:
Information? The best resource is just talking to your city. They have zoning maps on almost every county city, and they’ll explain what the zoning is, but the real key to this is to not buy it when it changes because now everybody’s looking at it. There’s right now a bill in Washington right now that hasn’t been approved yet, but coming that you can now be able to take a single family house, knock it down, put four cottages on, and you don’t even have to condo ’em, they’re going to allow you to short plat ’em out. If that bill passes a single family house, Burr property is going to go up substantially in value 20%. And so I pay attention to what’s the housing bills that are going through, reading through it, and it’s actually very simple. Even right before I was checking on the bill, you just Google your city zoning proposed changing housing plans changes, and you can see the R cws and bills that are coming through. Now it takes nine months to get there, but if you can buy before it gets there, that’s where you find a gold mine. It’s about getting there before everyone else does. You don’t want to go when everyone else is rushing in because then you pay way too much for it. And so really pay attention what’s going on in your legislation, what’s going on in your backyard, what’s going on in the city that you’re investing in? Don’t listen to what everyone else is doing in other cities unless you want to go there,
Focus on where you are.

Dave:
That’s great advice. And in a lot of cities, it depends on your city. You can actually subscribe to newsletters for these types of things where they’ll just email out changes for you and you can just stay on top of these things or subscribe to even newsletters that are, if you live in a big enough metro, sometimes there are newspapers that have real estate sections. These are just easy things that you can do to stay on top of zoning and infrastructure changes, that kind of stuff. I do want to mention, because we’re really honing in on zoning path to progress, rent growth, value adds upsides. But you mentioned one that I just want to mention quickly, which is that you said you were leaving more cash into a deal, and I totally understand that not everyone can do this right now if you’re maybe a little bit further along in your investing career, but I think that putting more cash down in today’s day and age is a really good way to hold on for some of these upsides, right? Because James was just saying you could buy a great asset and maybe just get it to break even by putting 30% down by putting 40% down by putting 50% down, but that upside that he was talking about is so valuable that it’s worth putting more money down. And so that’s just another one that I wanted to call out to people as a potential upside for making your deals really perform over the long run.

James:
And for those who don’t have the cash, that’s okay. I don’t like leaving money in deals. I really don’t. I will only do it if I see this huge upside down the road, then I’m looking at what’s my annualized return on five years. It’s really good. That’s where for your friends that are more passive that aren’t buying real estate, have them bring the money in on your deal and partner with them and then you guys get a share in that upside. I mean, Dave, if I came to you and said, Hey, look, do you want to leave a hundred grand in here and five years I feel competent, here’s my performer, here’s my data. We’re going to make 600 grand on this over five years, and you’re going to make 300 of the 100 that’s a three x on your money. And so just talk to people if you really do see the value. That’s the thing about zoning. It can give you the kicker that can really pop the deal and then having a partner in, you’d both do well.

Ashley:
And then also think about it too. What if that bill doesn’t pass, that doesn’t go through that proposed plan or whatever is you still have a saleable asset, you still have a property that you’ve held on for three years or whatever it is that hopefully still had some appreciation into it that you can sell it and recoup some kind of profit off it, hopefully after holding it for several years.

Dave:
Yeah, that’s a great point. You definitely need to consider the risk, and I just think this is sort of the mindset, right? Because James, you’re saying five years, look back, look at the risk, look at the potential reward and think about this, not just about this first year over your ownership, but think about over three years, five years and how you’re going to extract that upside and figure out the right place to place that money. All right, so we’ve already talked about rent growth, we’ve talked about value add, we’ve talked about lower LTV or cash purchases and zoning upside as four different ways that you can supercharge your deal over the longterm. We do have to take a quick break, but we’ll go over the remainder of our upsides when we come back.
Welcome back to the BiggerPockets podcast here with James Dard and Ashley Care talking about how to add upside to your deals. Alright, we’ve touched on this a few times, but I want to come back to this idea of path of progress. If you’ve ever heard of this term, it’s basically the idea of finding an area within your market, within your city that is going to see some tailwinds, some benefit that you didn’t necessarily create. We talked about value add, which is value that you are generating, you are doing the work to improve the value of that property, but if you are to buy in the right area within your market and people really want to live there or there’s investment going in that area, the property value or your rents might go up sort of because of things outside of your control. But because you bought in the right area, and I love this idea, I think it’s probably one of the most powerful forces in real estate investing. James, I know that this is something you focus on quite a lot.

James:
I think sometimes people overthink path of progress too. Right now they’re putting a big chip plant in Ohio, so people are like, oh, it’s going to grow. It’s going to grow. Which is probably true, but you can get some really good accelerators just by amenities and improvements in your area and paying attention to what’s going on in the planning division of your local city will tell you a huge story. Adding a grocery store, improving your walk score,

Dave:
The

James:
Livability of somewhere will naturally increase value, increase rents. I personally bought a 12 unit building in an area I don’t typically buy-in, and it was honestly a complete nightmare building I had to buy.

Dave:
If you’re calling it a nightmare in a lot of work,

James:
It would be terrifying. It was all the bad things could have happened on this property, including the pandemic hit. It all happened at one time, but when I bought it on paper, everyone’s like, you kind of overpaid for that. But what I did know is the light rail was coming in three years in that area, and that’s going to improve the livability because now people in this area of Tacoma can now get to Seattle commute and they can live in a much more affordable place, but still get to their job in an easy way. So when I bought that building, I thought the improved value was going to be like 2.4 when I was done. Now I’m about ready to list this building for 3.3 million because the values and then I’m going to 10 31 into another building. And so path of progress isn’t just about zoning increases. You can kind of overthink that. It’s like what is coming in? If you have a grocery store, a Starbucks, if you see any of those major corporations planting a flag in that neighborhood, that means there’s growth coming in. And the people that researched that spend a lot more time researching that market than we did,
And they’re spending big money and just really looking at where is the infrastructure coming. I love watching that, especially in Seattle as path to progress. Cities are getting crowded. There’s all of a sudden big grocery centers going in the schools, the libraries are those things getting massive uplifts, improving the overall experience for the community. Those things are path of progress that can really jump your rent and jump your values because now people want to live there rather than go, I might want to be in a better location.

Dave:
Absolutely. When you’re living in a city just paying attention, same thing. Looking at the newspaper, understanding where the government is spending money is so important. I did something actually for primary residence just like you, James, where they were building a light rail in Denver and I found out they were actually removing a full street from the city and turning it into a park, and I was able to buy a property right next to that. I didn’t know that part of building a light rail means that for six months that they have to test the horns every 15 minutes for six straight months, all hours of the day. And my wife and I lived next to that for six months. So that part was not as fun, but I think literally tripled inequity over the course of the holding it. So it was definitely worth it.

Ashley:
So there was upside,

Dave:
There was upside downside to my sleeping pattern, but we were trying to buy those acoustic soundproof curtains. They did nothing. It’s not the best, but obviously as you’re saying, there’s a lot of opportunity in doing those types of things.

James:
And you know what, Ashley? The new Buffalo stadiums coming in,

Ashley:
Yeah.

James:
Oh are in there,

Ashley:
But it’s right next to the old one.

James:
Oh, so the properties are already too valuable. But if the bills win the Super Bowl, the fans are going to go crazy. The new a DM values, they’re shooting up bills. Win the Super Bowl. I’m buying Buffalo. Yeah.

Ashley:
Alright.

James:
Wow.

Ashley:
Okay, we’re going to hold you to that.

Dave:
Okay. We should absolutely see this. Alright, so we’ve talked about some of the biggest upsides I see, rent, growth, value add, path to progress. We talked about zoning upside. There are a couple that we won’t have time to get to today, but I’ll just mention them. I still think owner occupied great strategy upside if people want to do house hacking. James is actually helping me do a live-in flip. Another really good upside that’s going to have huge tax advantages and just advantages all over the place. If you’re looking for cashflow, co-living or rent by the room, if you have the right property management infrastructure, that’s some good upside. The last one I wanted to mention though, this is an upside that I don’t think many people think about, but I think is learning. I think in this type of market, if you are able to find a deal that is solid, I’m not saying buy a bad deal, but if you can find a deal that is solid and use it as an experience to learn to get better, I think that’s as valuable and upside as some of these other financial ones. I don’t know how you guys think about it, but I’m looking at this live and flip that I’m doing with James as just like, even if I broke even on, I’d be happy about it. Learning a skill as an investor that I don’t currently have. Do you guys ever do that? Buy a deal? Just knowing that it’s probably going to be just okay, but hoping that it’s going to sort of catapult you into future deals.

James:
Yes, you have to push yourself. The only way I can do what I do today is all the mistakes and the hard lessons I’ve learned in the past. And every hard lesson, if you pivot your business, you’ll accelerate through. You always got to push yourself, but you want to take good steps. Don’t just go from A to Z. Go. What’s A to B? What’s next? What works for you today? If Ashley’s doing flips and burrs really well right now that’s buying property, owner market creating value, well maybe the next step is bigger apartment buildings with value add, right? Because the same concept, a little bit bigger dollars. And so just take logical steps with what you’re doing now and that’s how you prevent a hard lesson. Just steps at a time.

Ashley:
Yeah, and I think too, just doing that one deal makes you learn a lot about yourself as to what you like to do and what you don’t want to do. So when I first started, I was like, let’s accumulate as many units as possible. And now I realize I really don’t like to work. I want to maximize every investment. I don’t want to be James Dayner chugging 30 rock stars in the morning because I’m a hustler. I’m okay with doing one to two flips a year. That actually is perfect for me. But it took me a while to get to that because I was an acquisition mode. So I think you learn along the way too what you really like and what you don’t like to do too. And that really helps you develop what skills you actually should be working on and what things you should be outsourcing or completely avoiding.

Dave:
Well, thank you guys so much. I think this has been a really fun and interesting conversation. And just as a reminder, the general idea, and you don’t have to agree with this, but my general idea these days is find this deal. Find great assets in good neighborhoods. Try and make them work. Don’t expose yourself to too much risk, but find two, three, ideally four of these potential upsides for every deal. Find a deal that is going to cashflow within the first year and break even, but you have good potential for rent growth. You’re able to add value. Maybe there’s a zoning upside two or three years in the future and not every one of those upsides may hit, but if you buy deals that have all of these little potentials, one or two of them are going to hit and you’re going to have a really good deal. And so I’ve found this framework really helpful for myself in pursuing deals right now in 2025. And hopefully it works for all of you. Ashley, thanks so much for joining us.

Ashley:
Thank you for having me,

Dave:
James. Thanks for being here, man,

James:
This is great. Ashley’s like my original BP host that got me in, so

Dave:
I thought this would be fun. I don’t think the three of us have done a show together before, so this was great.

James:
No, and we’ve all done deals together.

Dave:
I know we got through this whole episode without mentioning how James made Ashley and I money.

Ashley:
Amazing deal.

Dave:
Yeah. But maybe next time we’ll have to do this one again and we’ll talk about that deal. But thank you both again for being here. And thank you all so much for listening to this episode of the BiggerPockets Podcast. We’ll see you next time.