Brian Gubernick breaks down today's real estate market: mortgage rates above 7%, home prices growing just 1-3% yearly, and a supply glut. He outlines three shifts for investors: chase cash flow with 8-10% rent-to-price ratios instead of appreciation, use creative financing like seller-carrybacks and subject-to deals, and move away from saturated short-term rentals toward mid-term or long-term leases.
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Thank you for joining me today. It's Brian Gubernick, and welcome to the No Days Off podcast. We believe that every single day brings a new opportunity to get better. I am a big believer in real estate, specifically in real estate investment as it pertains to our wealth plan, to wealth building. I think that real estate should absolutely be a significant portion of your investment portfolio. That being said, we're in a pretty weird market. I mean, every market you're in is always weird for different reasons, but I'd say right now is exceptionally weird with interest rates where they're at and falling affordability. Many would ask, is real estate still the best wealth-building tool? I think today we ought to break down what's changed and where I think the opportunities still live. Whether you're just starting out or you're expanding your portfolio, I think there's really 3 big shifts happening right now, and I think the smart investors are adapting. First, let's discuss kind of the market in, in some context there. As of, uh, just the other day here, the 30-year fixed mortgage rate sat at 7%, just over 7%. That's the highest level since I think late February. And as we all know, it's certainly been an uptick over the past couple years. National home prices, however, have risen depending on who, you know, whose data you're looking at. It's 1%, 2%, maybe 3% nationally year over year from March of '24 to March of '25. But no matter whose data you're looking at, we could all agree that's a decelerated rate compared to previous years. At least in, in '23, it was somewhere around 5 or 6%. Historically, it's going to be in that 4 to 6%. but I think it's, it's, it's, you know, some percentage points less over the past year. Despite a 32% increase in new home listings in last month, pending home sales are actually pretty flat. And so there's now this mismatch between, between supply and demand, buyer demand, more affordability challenges. So that's some of the context, some of the foundation for what we're about to talk about. Shift number 1. If your head wasn't already where I'm about to describe it should be, it needs to get there. It needs to get there ASAP. Shift number 1: cash flow. Cash flow is king again. Now, I've always been a firm believer that cash flow is king, and anybody that buys purely off of appreciation is not investing, they're just speculating. But that's been a difficult argument to make, particularly in 2020 to 2022 when appreciation was insane. However, in today's world, I would especially say that cash flow is king at, at the very least. Again, I think we've got to understand rent-to-price ratios. We've always had to understand it, but maybe more so now. This ratio helps us assess potential cash flow, and it's calculated by dividing the annual rent by the property's purchase price. So let's say, for example, a property's priced at $200,000. If it has an annual rent of $20,000, so you sum up all the months and that's $20,000, that means you have a rent-to-price ratio of 10%. We need to understand this math because the higher the price-to-rent ratio the less likely that property is going to cash flow. So in this particular example, we have a, you know, $200,000, $20,000. That's a 10-to-1 ratio, or I said it was a calculation of 10%, but a 10-to-1, 10 ratio. You take like a Detroit, which I'm not necessarily saying everybody should go invest in Detroit, but a price-to-rent ratio there is 8. Odds are there's better cash flow opportunities in that particular city compared to, say, New York, where the ratio is usually over 13. So the property's price is significantly greater than what it can get in annual rent. Again, I use it— Detroit at an 8. There's plenty of markets that are in that 8 to 10 ratio, but the New Yorks are almost double that. So we've got to understand rent-to-price ratio. That's shift number 1, and in cash flow being king. Number 2, shift number 2, I think we should all be paying attention, if we are not already, to looking at creative financing. Creative financing is strong right now. When traditional financing becomes more challenging, as it's been, as investors, we've got to explore seller financing, We've got to explore subject-to type of deals. We've got to explore lease options. These methods can help all sorts of investors acquire properties with less capital up front and potentially better terms. If these are things you don't know about, we do not have time to get into them today, but I want to encourage you to do a little bit more research over, over these respective things. Fewer buyers mean fewer— I'm sorry, fewer buyers mean more flexible sellers. So subject tos, seller carrybacks, lease options, they're on the table. I just was talking to a person I work alongside today who acquired a property, took over a 3% mortgage through a subject to. So he took it subject to the mortgage on the property. The mortgage rate's at 3%, zero down, 3% rate he inherited. The person just needed to get out and move on. And he had immediate rental income. Now, that's a unicorn type of deal, but we're seeing more and more of these things coming up. So get educated on creative financing. I think that's how the pros are expanding in today's markets. I think shift number 3— I mentioned there's 3 shifts. Shift number 1 is cash flow is king. Shift number 2, creative financing. And shift number 3, I think short-term rentals are getting squeezed at, at an extraordinary level. Now, I have never been one to play in the short-term rental game. I know there's plenty of people that have won at a high level in that space. I, I just haven't liked it myself. Bottom line though, short-term rentals are becoming saturated in most cities. Many cities, regulations have tightened, profit margins have, have really shrunk. And so I think we've got to pivot away from these short-term rentals if that's the game and start to explore more of the midterm rentals, which would be things like corporate stays or or travel nurses if those are the things you're interested in. But of course, no surprise, I think you should really be focusing cash flow on, on long-term rentals. So in wrapping up today, I think the fundamentals at the end of the day haven't changed. Real estate is still about buying right, managing that property well, and playing long-term. I just think that every market calls for a slightly different mindset. And in today's environment, hyperfocus on cash flow, recognizing there's creative ways to do deals, and making certain you're aware of those things like short-term rentals that are getting squeezed and may not be working out. I think these are 3 things we could pay attention to. There's obviously a lot more going on, but that's where my head is at today. So my call to action for you, I think if you're thinking about getting in or scaling up in the real estate game, now's the time to study the numbers harder than you've ever studied before. You should be asking questions, you should be reading books, you should be doing research. It is really, really easy to do a bad deal at this very moment. I think a bad deal is especially one that banks on appreciation for it to be a good deal at all. I'm not down on the market. I'm not down on the market. As a matter of fact, what does Warren Buffett always say? The best time to buy is when others are fearful. So, I'm certainly anxious to find some great properties, but I'm not going to make a bad decision because I'm unwilling to do the research, and nor— I don't think you should either. That's all I have for you today in the No Days Off podcast. Thank you so much for listening, and remember, every single day brings a new opportunity to get better. So let's get after it.
