Christian Osgood and Cody explain how to pick a real estate market by checking population growth and rental rates first. They split markets into old-money areas with few financing options and new-money markets with creative deals. Match your choice to your goal: Midwest markets for cash flow, or LA and Seattle for appreciation.
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Hey YouTube, Cody and Christian here talking about real estate principles that we do not violate. And if you recall back to last week, we spoke about going out and actually bringing in fish before you prioritize building the boat, meaning go get the opportunity before you build the systems. This week we're talking about, okay, actually quantifying bringing in the metaphorical fish because what you're looking for may not be in the pond. We're going with the fish jokes. It may not be in the pond that you're at, meaning that the opportunity you're looking for may not be where you're at. So when you're going out and building out your business, you need to make sure that you're actually looking for the opportunity in the right area. Now, how do we actually do that? Because there's a lot of shiny object syndrome. There's a lot of cool ideas out there that are distracting. We want to prioritize actually going after the stuff that benefits our long-term gain.
Yeah, well, before any of the rules go into play when you're purchasing a property, location's the first thing that matters. So when we're finding the right location, we keep this ridiculously simple. Um, about 95% of our criteria that we're looking for is population going up. Turns out if you are providing housing for humans and that is the market that you have, you want to be investing in a place where humans actually want to live. So there's a simple graph. We usually go to worldpopulationreview.com, though there are 100 websites if you just type in your area and population. If people are moving away, it's likely not somewhere we're going to invest. That is the first and foremost rule. Put that like way on top. Other things you're going to look at for that last 5%— are there stable jobs? Are you in a community that is truly just a summertown? You're going to need to account for that. People aren't going to do a lot of long-term rentals there. What percentage of the population— also on worldpopulation.com— but what percentage of the population rents versus owns? There are actually cities in the US where it's just culturally appropriate to buy the house and the dog and the 2.5 kids and the white picket fence, and no one actually rents. There's some markets that are like 85%+ homeownership. Even if the population's going up, you may not have a great rental opportunity. So just look at the little things, but the most important is that you're investing in an area where people want to live, that you would be willing to live, and that the population is going up, increasing demand.
Now, in this analogy, the fish represents the opportunity and the pond represents the market that you're in. We actually just interviewed Matt the Lumberjack Landlord. We put his video and we talked a lot offline, but something that we learned from him is that where he's at, there's a lot of old money, and where we're at, there's a lot of new money, meaning that the opportunities are different. Is seller financing a thing where he's at? Yes. Has he done it? No. However, there's still an opportunity there. There's a lot more opportunities in markets with new money to go do the seller finance game. It's just a different mindset when you're working with the person who built it than the person who inherited it. And that creates new opportunities. Now back to our saying, you know, you got to make sure the fish you're looking for is in the pond you're at. It may be a little more difficult to do the seller finance game when there's a whole bunch of old money, meaning it's been passed on generation after generation after generation because those people don't typically fully understand all the work that had to go into build it. Meaning that if I wanted to go replicate what I did over there, it might be a little more difficult than doing it in a market where I'm at because that fish is less likely to be in that pond. Mm-hmm.
You have a little bit less points of relatability with old money when you're a new player. Um, and relatability is the first thing that we're looking at when we're forming relationships.
It's in the circle drill. It's the first and foremost. It's one of the most important pieces because it gets you to the table. It's hard to relate to someone who didn't do what you've done because there's nothing to connect on. So just keep that in mind when you're going out. What you're trying to do may not be feasible in the market you're in.
Now, outside of just location as far as what is a good market, what are you actually looking for? You need to define your goal. And I mean, say you're in an area that's abundant in water, using this fish metaphor. I'm not going to fish in Lake Sammamish, which is right where I grew up outside of Seattle. I'm probably not going to catch a sailfish or a halibut in a lake. Depends on what you're trying to do. There's different markets that are going to be better for different things. If you are investing heavily for appreciation, you're banking everything on that, which by the way is not what we recommend, but if you're only after appreciation Markets like core markets like LA are going to be fantastic, but likely it's going to be much, much harder to find something that cash flows day one. A lot of competition, really high pricing. When the price to rent ratio is out of whack, it's going to be really hard to find a high cash flow deal. Conversely, if you're out in the Midwest, great place to find cash flow. You can find deals that cash flow like crazy, but appreciation is going to be a lot lower. So one thing that you have to focus on is, am I trying to build a lot of cash flow today? How fast am I trying to multiply my money? And what markets for us can I have a healthy balance of both? I have a healthy chance of upside in a growing market but still have the ability to cash flow. There's a lot of different ways to play this game. I know a few people who invest in the Midwest to build their cash flow base, and then they're going to take that cash flow and they're going to invest in core markets like San Diego, LA, Seattle. Uh, not the game we're playing, but that's another way to play it where I build my cash flow and cash flowing assets, I build my appreciation over here. So you can do it different ways, but you need to know what you're after and make sure that you're fishing in the right area for the type of deal you want.
And this rule is more of just an acknowledgement. It's not like, oh, you have to do it this way, but this is something that we acknowledge because yeah, there's a lot of distractions and there's a lot of opportunities elsewhere, but that doesn't mean that's what we're looking to go accomplish. It's not the fish we're going after, right? If you want to get a halibut, you're not going to get it in Lake Sammamish. Not going to happen. And so just acknowledge this as you're going out and building your business. Yes, you could probably catch a ton of fish in certain areas, but it may not, and it probably is not what you actually set out to do in the first place, meaning that you should probably move yourself to that other metaphorical lake and start looking for what you actually set out to do. Because as you start growing, you're going to find new opportunities that, yeah, you could pursue them, you could get them. But if it doesn't actually accomplish the original stated goal, it doesn't get you what you wanted most, then it's just a distraction. And so this is just set out to, hey, let's focus on what we set out to accomplish. And after we've gotten that trophy fish, after we've hit our original target, then we can shift. But only then can we shift. And that's what Christian and I did with 100-unit goal. We said 2 years or less, we're gonna have 100 units. We did it in 10 months. Now we're going after some more fun properties, and we're going to be sharing more about that really soon, as soon as we close that out in the next 50 days or so. But hit your first stated goal, go get that target fish And then from there you can move on to the more fun stuff.
Yeah, practical application here is you need to set your goal and know what you're going after. Last, last use of the fishing analogy we're going to use today, but you also have to have the right bait, the right strategy for the fish you're going after. You can't just go to any location, just throw a line in the water and hope that you catch something. You need to know what you are fishing for, which means before you start, you need to set your goals. If your goal is, hey, I want $20,000 a month in passive income. You need to set up a strategy that gets you there. And there's multiple strategies, and we share them on this channel. The point of this video is not to share every strategy. It's just know there is a way to get to your goal. But if you're just wandering towards, hey, I want to own real estate, that's not specific enough. So set your goal, set your targets, then choose locations and strategies that are going to match that goal and get you there in the most efficient way.
Yeah, and just keep it that simple. But that's it for today's rules of real estate. If you're still watching this and you're in the top 27% of our favorite people, then smash the like button and put your comments down below for this week's Whiteboard Wednesday.
