Which investing trends could make you wealthy in 2024? First, we had long-term rentals, then the BRRRR strategy, short-term rentals, medium-term rentals, syndications…the list goes on and on. And while trends come and go, acting on them at the right time could be your ticket to financial freedom. So, which trends are worth investing in this year, and which are dying out and should be avoided? We’re giving our takes on this episode.

Some of the trends in this episode are brand new—only with advanced technology have these investments even been made possible, but some are trends you may already be part of. From room rentals to very flexible commercial investments, Elon Musk’s new affordable housing, and a way to “build” your own one percent rule properties, these trends have gone mostly unnoticed but are sure to catch fire in the coming years.

But, some trends that exploded over the pandemic should be put to rest. These once cash-flowing investments reached their heyday in 2022 and 2023 and are slowly becoming lackluster (and often dangerous) investments for new investors. Which tactics are we talking about? Stick around to find out!

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Dave:
Hey, everyone. Welcome to On the Market. I’m your host, Dave Meyer, and today we are going to try to predict the future hot, exciting trends of real estate investing. To help me do that, I have Kathy Fettke, Henry Washington, and James Dainard joining me. Kathy, have you ever jumped on a hot new trend that worked out for you in your career?

Kathy:
Oh, that worked out? I like that key question.

Dave:
You can tell us what didn’t work out too.

Kathy:
I could tell you many that didn’t work out. I was a dream chaser when I first started and things looked so exciting. I will throughout the show tell you about some of those. But yes, I am someone who really… I’m from California. I was born and raised in the Silicon Valley. It’s in my DNA. I have to always be on top of what the new trends are and what the future’s bringing us.

Dave:
All right. Well, I’m eager to hear what you’re going to share with us over the course of the show. James, has there ever been something you heard about and feel like you were on the cutting edge of in terms of a real estate investing strategy or tactic?

James:
On the cutting edge, I think one thing we have done well is when housing was really cheap in 2010, we just saw replacement cost was low. And we actually invested in a lot of student housing during that time, and our basis for those properties are probably 30% cheaper than they would be if we started doing it a little bit too late. So actually, shared housing was a good one. And we’ve also made plenty of bad mistakes too, just like Kathy making the wrong bets.

Dave:
Well, that’s super important to take note of because today, what we’re going to be doing is talking about ideas or concepts, trends that we’re excited about, but that doesn’t necessarily mean they’re going to be winners. That doesn’t necessarily mean that everyone should be pursuing these strategies. Our goal here is just to introduce you to some new ideas and you can decide for yourself if you want to be an early adopter. All right, so we’re going to just jump right into this. And Henry, let’s start with you. What is one trend you’re seeing evolve in the real estate investing space that you’re excited about?

Henry:
One thing I’ve been watching and seeing grow is investing in warehouses. With office space now becoming… I don’t want to call it completely obsolete because there’s still a use case for office space but it’s typically more around a coworking type of environment. But with the traditional office building going obsolete, you’ll finding now that the more empty warehouse space is becoming more trendy, and that has a lot to do with the pandemic and people and technology. You put the pandemic and technology together and you really have people who are looking for ways to generate extra income and now have the tools that they can actually do that. You can have a person start an online shopping business and have this now e-commerce company that they can essentially run with a small team or on their own.
But if you’re still selling physical goods, you got to have a place to store them and you’ve got to have a way to get them from said place to your customer. And that typically is going to mean you need some sort of warehouse storage facility to house these products or services. And then when you also think about the rise of DoorDash and Uber Eats and all of these different food delivery services, what you’re starting to see is people starting restaurants that have no physical locations. They can start these essentially restaurants that are only available on these food delivery apps.
And where do you think they’re preparing this food? Some people are… You’ve got to have a place to do that. And so ghost kitchens are now popping up and people are taking warehouse spaces and converting them into kitchens where they’re producing this food and then it can get delivered. But when you think about that as an investment strategy, you can think of it singularly where I can now convert a warehouse for a kitchen for me to use. But if you think about it from an investor standpoint, what if I go buy a warehouse and I convert it to a bunch of commercial kitchen spaces that I can rent out individually to all these different ghost kitchens? Then now, you’ve got almost like a rent by the room scenario, but with the commercial kitchen space, warehouse provides you the flexibility to be able to do that.
And then another use case, and then I’ll let you guys jump in here, is with the cost of groceries on the rise and scarcity among natural resources and just people being smarter about understanding what’s in their food, people are wanting to grow their own food. And so you can take these warehouse spaces and turn them into urban gardens and you can garden natural foods that you can supply to people. And so I think a lot of these things are creating these opportunities for people to invest in warehouses. What do you guys think you’re seeing in the space?

Dave:
I love the idea of it. I think that there’s a lot of good applications. As you said, Henry, the obvious one is e-commerce. That’s what everyone talks about. But I think e-commerce from the… I did look at one deal for a warehouse space and they’re pretty expensive right now. I think the word is out on e-commerce. But to your point, there are other really interesting industrial warehouse types of applications, like you said, ghost kitchens. I was talking to a friend who has worked in this space and they help hotels outsource all of their room service. So there’s no actual restaurant in the hotel. It’s just a local place where all the hotels cook their room service and delivery. So I think there’s some really interesting applications there.
And I also, depending on your strategy, just like the idea that warehouses are what’s known as triple net leases, which are opportunities where you as the investor buy the physical property and you lease it out, but the tenant is really responsible for all of the expenses that go into maintaining and running the property. So if you find a really high quality reputable tenant that you believe will be around for a long time, that could be very consistent, safe cashflow.

Kathy:
Yeah. When we were talking about those new trendy things that maybe we shouldn’t have done, I’ve talked about before, the wine village in Shasta right outside of Redding, California, and I’m now looking at how to repurpose that land into storage and what kind of storage. One of the things that’s nearby is Lake Shasta. So there is need for RV storage and boat storage. And then there’s this thing now where a lot of, I’m going to just say dudes, maybe women do it too but guys like to have their man room or whatever you call it. So they’re a lot of times taking these storages where they’re storing their planes or their boats or whatever and making it a hangout for the guys. So we’re looking at that, and then also possibly putting a gas station on that property because they would need to fuel, right? But because this is new to me and because I messed up the first time around, I’m actually hiring an expert-

James:
Nice.

Kathy:
… to help me. And that’s how you can scale on something you don’t know, is bringing someone who does know.

James:
And I think one of the main benefits of warehouse spacing right now is just like Henry touched on, you can reduce your costs in an environment. Right now, everything’s more expensive and business owners, they want to be more remote. They want to reduce their cost in addition to the building cost. And investing is substantially different which will bring your basis down. To build a warehouse is going to cost you 75% less than building a single-family house.

Dave:
Per square foot, just so everyone knows.

James:
Per square foot, yeah.

Dave:
Per square foot.

James:
The average cost to build a warehouse is 30 bucks a square foot. For a single-family house, it’s 150. And I’m guessing commercials even substantially higher than that. And as Americans and as we’re trying to find affordability, producing warehouse space, the land’s cheaper typically. The bill costs are cheaper, which is going to naturally allow people to have more affordable options for running their business, especially if it’s remote with less employees. And so I do think there’s massive runway in this because Americans are going to want cheaper, more affordable ways to recognize things as costs are rapidly increasing, insurance, cost of goods, and you got to figure out how to beat the squeeze. And cheaper places to run your business out of are going to make a big difference, and the best way to build it is to buy land, build it for a fraction of the cost, and then operate inside that model.

Henry:
But I think one of the coolest things about this niche is that you can get into it, I don’t want to say cheaply, but fairly inexpensively because you’re right. You can go buy land and you can buy less expensive land because you don’t have to go find a plot of land in the middle of town where the demand for that land is. You actually need to find land that’s on the outskirts, but not too far away if you’re going to do food delivery and things like that. But you can go buy cheaper land and then build a cheaper product and then get a tenant base who’s going to be able to help you cashflow. So it’s a pretty cool thought about a niche. Obviously you need to do a lot of research or take Kathy’s advice and hire an expert, somebody who’s already investing in this space. But I think there’s absolute potential here.

Dave:
Yeah, this seems exactly like what we’re talking about on the show and the whole purpose of this show, which is trying to identify trends. And yeah, certain parts of warehouse, well established, but there are so many new different types of applications here that could be really interesting areas for you to consider. Now that we’ve talked about our first trend, which is warehouse investing, we have three more right after this quick break.
Welcome back to On the Market. We have three more trends we’re going to cover right now about the real estate industry. So let’s move on to our second new trend that we’re excited about. James, what are you looking at?

James:
To piggyback on what Henry talked about, it has to go into affordability again. And where one trend I see really taking off over the next 12 to 24 months is that co-living, shared housing spaces. I was listening to an interview from the Fed chair last night and he was talking about how inflation is cooling and is gone and their target’s to get down to 2 and it’s making progress, but also that many people think that that’s going to actually reduce the cost of where we are today. And he’s saying that no, everything’s going to be stuck where it is now. And the cost for goods, housing, everything has substantially grown throughout the US, with the rents going up 20, 30% over a couple year period, appreciation being up 20, 30%. Everything’s costing more, cars.
And as everyone is getting squeezed by these expenses, they’re going to look for alternative ways to reduce cost. And shared living is a great way to do that, especially in the era of the Gen Z where they’re just roaming. The pandemic, people are just jumping in RVs and living in the RVs for six, nine months. This kind of transient mindset has taken fire and people are open to roommates, they’re open to moving around. So the average cost to rent a room according to roommates.com is 775 to 995 per room. Your average one bedroom cost is around 1,300 to 1,400 a month. So people can reduce their living expenses by 30 to 40% by having numerous roommates. And with people being in this kind of transient mindset, remote work, they float. They live where they live now, that hippie vibe like, “I’m just going to go where it makes me happy.”
It’s a great way to reduce your costs, and that’s why I think it could be a massive asset class with some big growth. People want to reduce their expenses, and you can buy these properties. The benefit to buying shared housing is you can buy properties, maximize it with the price per square foot. When you’re running a room for $1,000 a month, if it’s a 10 by 10 room, you’re getting a lot higher price per square foot. There’s one other major benefit for shared housing, is those rates are right now in the high 5s, low 6s instead of the 7, 7.5s. So you can buy a property, maximize the per square foot rent, and get cheaper financing, which is a great asset to be in if you’re trying to look at other type of platforms.

Kathy:
Oh, I know a lot about this. I want to jump in. Remember, I’m the shiny object girl and 10 years ago I had some former CTOs of a large dating, matching site, and I won’t say the names, and a large real estate finding site. And these guys wanted to start a company on exactly this, shared housing. And I think it’s brilliant. And my non-compete is over so I’m giving this idea for free. If anybody’s creating technology, create this app. I think it’s brilliant. The guys behind it weren’t. Okay, we’ll just leave it at that. But they were brilliant but they also started trying to pocket some of the money. So was able to get an attorney and get the money back.
But with that said, the idea I thought was so brilliant with this app was that it was the guy from the matching service was creating matching roommates. So let’s say you have certain… They’re vegan and you don’t want to smell meat. You just want somebody else who’s vegan. You could match who your ideal roommate would be. Maybe you’re a single mom and you have certain bedtime rules or whatever, and you could match with another mom with those similar things. So I loved the idea. I loved the idea of investing in it. And with the right team, I just think this could be a huge trend.

Dave:
I’m always curious about this because I think it’s a great and very needed part of the housing stock right now, and I’ve actually looked into it myself. But I do understand that there is one initial build out cost a lot of the time, especially if you’re going to create multiple kitchens or depending on how you set things up. And the second is there has to be some property management complexity added to this when you have multiple people from different households living in a single building or single unit. So James, I don’t know if you’ve looked into this or Kathy, you know how that gets handled?

Kathy:
Yeah. With this app, it was included. There were very, very clear house rules. And that should be the case in any household, super clear house rules. But if you signed up for a certain household, you signed up for those rules, and anyone in the household could call the company and that person would be evicted because they didn’t follow the rules. So it can be stringent, but I think if you have roommates, you’d need that.

James:
Yeah. And it depends on how you set your leases up. There’s so many different ways you can cut these deals up. We have numerous different types of shared co-living in Seattle. We have one that’s a 60-unit rooming house or close to 60 doors. And we actually do one master lease. It’s a nonprofit through the city that actually works with people that need affordable housing, battered women shelters, providing good housing for people that need it. And so one master lease makes it super simple. Then there’s the rent by the room, and you can do that two different ways too. We have rooming houses next to the university, and those are individual leases and those do require a little bit more work.
But then there’s also, in our shared housing, in our student housing, many times one student will come in and take the lease and then they actually subsidize their costs but they’re still responsible for that whole cost. And so they’re the ones wrangling it up. And it depends on how much you really want to make. I have another one that I rent out rooms and I could rent, it’s a five-bedroom house, I could rent it for about $1,200 a room. Instead, I rent it for 950 a room and there’s one person that I have the lease with and she’s managing the whole thing. And no matter what, they have to make that payment. And if a roommate moves out, the other roommates chip in. So they’re getting a cheaper rent by the room but they have to manage it more. So you can set it up the way you want as long as you find the right tenant.

Dave:
Man, those students you’re leasing to must have much more responsible friends than I did in college because there is absolutely no way I would take on that risk.

James:
I want to touch on that though. It depends on what product you’re bringing to market. There’s the rent by the room where you’re just trying to get it down and dirty. They’re not as updated, and there’s nothing wrong with that model. The typical room costs like in Seattle is going to be about 900 to 1,000 bucks. We rent ours for about 1,200 to 1,300 per room, but we do take them down to studs, rebuild the whole thing, and they have a very nice place to live. And depending on what product you want to put out, we actually have almost no issues with them. A lot of times, it’s foreign exchange students coming across. They’re doing their work, no one’s fighting, no one’s arguing, we don’t hear a peep out of it, and they keep it very clean. If you want to go the little bit cheaper route, you’re going to have beer pong going on. And so it’s a matter of what you want to deal with and how much upfront capital you want to put into the building.

Kathy:
There’s actually students who do go to school to study. It’s amazing.

James:
Not my friends.

Henry:
That’s a lie. That’s a lie. There’s a few schools where that happens. The rest are, it’s not the thing. What I like about this strategy is there are multiple use cases for this co-living situation because you’re exactly right, affordable housing is a problem. This creates a way where people can afford housing. The second use case is what James talked about, which is colleges and universities. So providing an alternative to student housing in and around universities. And the third use case is for people who want to be able to afford to live in nicer places and can’t. So not quite affordable housing, but this would be a great way to be able to afford a cool trendy place to live in New York City or Downtown LA or in these places where you want to live right where all the action is but can’t afford to go and have a two-bedroom flat and a high rise to yourself. This could provide you a way to be able to live that lifestyle that people are looking for when they’re young but they can’t quite afford yet.

Dave:
Awesome. Great. Well, this is really interesting. And I do see a lot of new companies. I’ve seen even property management companies in Denver that specialize in this type of housing. So there’s a lot more resources to pull this off, I think, than there were in the past, and that makes it an exciting new opportunity for people to pursue. So now we’ve talked about Henry’s trend, which was warehousing and James’s trend of co-living. Kathy, what trend are you watching?

Kathy:
Well, I have been watching this for a while, but sometimes change takes a while to set in. And so this is modular housing. And it’s been around. It’s not new. It’s just new to planning departments and neighbors who maybe think that it’s manufactured housing and don’t really understand the difference. But I think what could possibly make it happen now is that Elon Musk, he has a reputation for getting new things to market and sometimes not getting those things to market. But he has come out with his Tesla Smart Home, which from what I can tell, and I don’t have evidence of this, but it looks to be the Boxabl which is the tiny home that he lived in Austin. And I actually got to interview the founder of Boxabl, and it’s just a really cool thing that’s factory built but you bring it to site and it folds open and you have a house.
But what’s so amazing about these modular homes is that they tend to be fireproof, which is really great In California. They tend to be really cheap to heat because of the insulation that they’re made of. They are just energy efficient and they can be really beautiful. But just the problem is either they were too expensive to… You might as well just do stick-built if it was going to be the same price or more to have one. We’ve talked about that in past shows, but now the Tesla Smart Home, they’re saying starts at 15,000. I really, I can’t imagine what that is. Maybe it’s a shoe house.

Dave:
Delivery for 15,000.

Kathy:
Maybe for your dog or your mouse or something. I don’t know. But it’s possible that it could be on the verge of changing. As I said, I’m hiring this new project manager, construction project manager. One of our first calls, he said, “Oh yeah, I’ve been building lots of multifamily in the Los Angeles area through modular, and it’s so much cheaper and cheaper for the tenant too because the energy costs are lower.” So it does seem to be happening more. I bought a piece of land just down the street that was pretty cheap. It was $200,000 for a piece of land here in California, and I haven’t built on it because it was going to cost a million bucks to build. And now we’re looking at these modular companies and it’s 300,000 or something. It’s really cheap. So we’re going through the process now to test it.
Oh, and another thing. San Jose, California is creating 1,500 of them or I think 150 for homeless, little tiny, tiny homes, and giving those homeless people six to nine months to get a job and be able to go and find permanent housing. So now, to see cities incorporating this at a much hopefully cheaper cost than they’ve been able to do in the past, I think we talked about it was like $750,000 to provide one space for a homeless person, this could be a solution that would be much more affordable. So keeping my eye on it.

Dave:
I love this idea. When we were making this show, I wanted to do modular housing because I’m totally in agreement, Kathy. This idea has been around for a long time, but more attention is being given to it. The technology is improving. And as they say, necessity is the mother of all invention. And right now, affordable housing is necessary. And so I think we’re going to see increasing numbers of tech firms, entrepreneurs, existing builders, start to look for real scalable ways to reduce construction costs. And modular homes is a very, in my opinion, obvious way to pursue that.

Kathy:
Absolutely, yeah. Hopefully within a few years will be, it’ll just be normal.

James:
Yeah. And there’s some really cool ones out there, and they do like that Boeing production on them in plants where they’re just assembling them trying to reduce the cost. But that has been the major issue is it’s going to cost you about 50 to $75 more square foot to bring in one of those cool modular homes. But I think Kathy is really on the right trend because what we’ve seen in construction labor cost, the materials in the assembly is what kept that pricing up and the cost for labor kept the pricing down in the new construction. And that’s why most builders still want to build stick-built.
But the biggest issue is we’re seeing construction wages from 2021 to 2023 jump over 20%. That is a much higher labor cost demand than we’ve seen in any other industry as far as I know. And these labor costs are continuing to rise in a lot of these sections because there’s less skilled trade workers actually going. People want to be influencers now rather than a plumber, and the labor market is shrinking in a lot of those spots. And that’s going to continue to increase those labor costs, which that’s where offsite production can start to really make sense. And I do think that the cost for modular in the next five years will be substantially cheaper than building onsite.

Henry:
Yeah. I also think with the rise of cities and municipalities being much more open to providing the necessary permitting for additional units to be placed in people’s backyards or to be built, communities built like this, I think that that’s really going to play into this trend potentially getting some wings finally because it was a lot of the not in my backyard before that stopped some of this. And I think more people are aware that this is needed and it needs to be able to be done affordable and provide a safe, comfortable place. And these modular, almost like prefab homes, can now provide these things as the technology’s increased. And I think you’ve got this perfect storm of the technology is there, people are aware that we need it, and the people who can make the decisions are ready to green light it. So it could really blow up.

Dave:
Let’s hope. I think this is a really exciting one and is one that you should look into if you’re considering building something new. And I will say that I’ve been looking into this and I think one tip is make sure to look on a state level because I’ve noticed that because different states have different building codes, it can be hard to order modular housing across state lines. And so you need to make sure you find ones within your state and that are up to code in your particular area.

Henry:
And I think one thing people forget about when they’re thinking about bringing in a modular home is the doo-doo has to go somewhere and they often…

Dave:
You can’t just stick it on the ground.

Henry:
You can’t just plop it on the ground and walk away.

Dave:
Let that sucker in and boom, house.

Henry:
But even though cities and municipalities are green lighting these things, there are requirements for being able to hook up to city sewer or having to put in septic or having to expand the septic that’s already there to cover this. And those costs can be extremely high and people don’t always factor those in to these decisions.

James:
Yeah. You got to watch out for those utility costs, water, sewer, power, those are real costs. The cheapest land is not always something you should be buying. Sometimes land can be free and you still don’t want it.

Kathy:
Yeah.

Dave:
We’ve now hit three of the trends we’re going to be talking about today, but stick around because we have one more for you. And we’re also going to talk about trends that we think are going out of style, so stay tuned.
All right, great. Well, we’ve talked about three exciting trends, warehousing, co-living, and now modular homes. And I will go last and bring my trend, which is build for rent. And this concept has been around for a couple of years. It’s been gaining steam over the last… Really since the pandemic, I think, since housing prices have been getting so much more expensive. But it is actually not all that popular when you look at how many units are in construction over the United States. Right now, according to RealPage, there are 73,000 units, which is a lot, but not really anything that big considering that there’s 140 million housing units in the United States. And I previously thought of it as this interesting concept that major developers were looking at, but I’ve since learned that this can be done pretty affordably and pretty effectively even for individual units and in infill situations, even in urban centers.
So I was looking or was talking to someone who did this recently in a market I was looking at and they were able to build the 1% rule and then some. So everyone talks about how hard it is to find cashflow. You can build cashflow right now. This guy gave me an example. He built a duplex for $520,000 all in and it rents out for $6,400 a month. And so if you can build something like that, you’re going to be getting excellent cashflow and there are financing options that can help you build these things. And it opened my eyes recently that this is something that I as a relatively small to medium-sized investor could actually pull off. It’s not just for huge developers. Is this something any of you have done?

Henry:
Doing it right now.

Dave:
Really? How’s it going?

Henry:
It’s going great. I’ve got two brand new construction build to rent properties that we are working on. I think the opportunity here is for the developer. If these developers have all the plans ready, so they just specialize in building three or four maybe different floor plans for different situations and they’ve got their labor force and materials streamlined where they know they can build, if they can get under that national average of build per square foot, I think you will find that there will be a lot of people that would want to leverage those contractors to start cranking out these new construction build to rent homes. And it’s a win for the investor and a win for the developer because you’re sold before you start.

Kathy:
Yeah, we’ve been doing build to rent for a long time. As an investor, it’s really important to not get confused by that term because the build to rent today, when you’re talking about it institutionally, is basically big time-

Dave:
Called communities, right? Yeah.

Kathy:
Yeah. They’re buying land. They’re basically doing a multifamily property, but it’s homes. And that’s all managed by one company. It’s very professional. What investors might get in trouble with is something somebody brought to me once and they bought the plot of land. They were going to build 450 rental homes and sell each of those off to individual investors. And we said, “Absolutely not.” Now, you’re going to have 450 investors in this project, all of them. What if just 10% had to put their property on the rental market? Now, you’re competing against each other. What if you need to sell and everybody else does. So just be really careful when hearing the word build to rent. We’ve been helping investors buy new homes that are built so people call it build to rent, but they’re scattered lots. Or if they’re in one area, we bought this whole street. The lot’s there, but everything next to it is all primary residence. So just be careful in an all-investor neighborhood. If you’re one of many other investors, you could really get yourself in trouble there.

Dave:
Yeah. And I think this one in particular I think combines really well with yours, Kathy, actually, because I was looking at build for rent modular homes recently.

Kathy:
Totally.

Dave:
And there’s really cool multifamily projects. And what I love about it is that the modular piece of it is designed, yes, for a great experience for renters, but it’s also designed for low maintenance for landlords, which is awesome because all the rental properties I currently own are relatively older homes and they were cut up, bigger homes that were cut up. Some of them are purpose-built, but having a modern building that’s designed with low maintenance and low cost of operations in mind is really attractive.

Kathy:
Yeah, for sure. So much opportunity.

James:
And that’s where I think the benefit to build for rent is right now. Cost of insurance is a real pain on your balance sheet right now. These insurance companies, if you have an older building, even if it’s been retrofitted, they’re charging you a lot higher premium. I think our insurance have doubled and tripled in a couple spots, but on the newer built to code, if we’re above 1990, the insurance drops substantially just because they were built differently. And so there’s definitely some operational benefits, but I think it really depends on whether you’re a long-term investor and how you want to invest, or more of a shorter term trying to get higher growth. I think build to for rent is good and it’s consistent as long as you’re in the right market.
Build for rent in the West Coast, in my opinion, I can’t figure out how it pencils. It’s just the cost to build is 300 to 400 a foot when you’re building those smaller units. And when I referenced that, that’s plans, permits all the way out the door because that is something investors have to pay attention to. They’ll hear, “Hey, you can build for 150 a foot,” but that’s from foundation up, so you really need to know your core costs, what is your all in dev cost on that, and then run the math. But if I’m going to build a property for $300 a square foot and then rent it out for three bucks a square foot, I can buy something around $120 a square foot as a renovation, remodel it for 100 bucks a square foot and take it to a newer level, and I’m into that property for 220 a foot. So my basis and my overall balance on that property is just a lot less.
And so that’s why I have a hard time for build for rent on that approach because if I can buy it, fix it, and be into it 35% cheaper on a price per square foot basis, I’m always going to lean that way. But there is some definite upside if you can find it in the right market. I do like the efficiencies. I like the costs. But I think you just got to really look at your all in dev cost, what market you’re in, and then it’s going to work in some spots. We have found it to work right now. We’re building one right now. As I say, I don’t really like it. We had a rooming house, density got up zoned, and now we’re building a four bedroom ADU behind it. And that’s been very cost-efficient.
So depending on the plan and what you’re trying to build, it can really work. I don’t really like the whole just build a single-family house model, not unless you’re picking up a little bit of equity. I’d rather buy something, renovate, and get it be in there a lot cheaper.

Dave:
All right, great. Well, thank you all for sharing your trends. Just to remind everyone, Henry’s trend that he’s excited about is warehouse investing. James talked about co-living. Kathy talked about modular homes and I talked about build for rent. Before we get out of here though, I want to know if you guys think any trends are over. This doesn’t mean that they can’t work, but the early adopter curve is done and now it’s just back to being a regular type of business. Do any of you have one of those quickly that you think is no longer as sexy or as exciting as it used to be?

James:
Like a fad?

Dave:
Not necessarily a fad. I’ll just give you an example of mine. I think midterm rentals are now just a regular type of investment. For a while, there was an inefficiency in that market where if you were an early adopter, you could have huge outsized returns. Now, it’s efficient market. People know about it. That doesn’t mean you can’t do deals, but it’s just like long-term rentals. It’s an efficient market where you have to be really good at the investing in it and it’s no longer this shiny new object. It’s just another tool in the toolkit. So that’s mine, but I’m curious if you guys have other ones.

Kathy:
Well, I don’t know if this counts, but it’s not the best time to try to be in the foreclosure business, meaning REO like the bank repossessing property. You’d want to be more in pre-foreclosure at this time. I know a lot of people have been sitting around waiting for that, and we just haven’t really seen an uptick in foreclosures. Maybe a little bit, but…

Dave:
But that’s a great one. No, I think that’s an excellent one because people are definitely waiting around for that. And as you said, it’s not really happening.

James:
I’m trying to think of the fads. There’s so many little fads that where the juices slowed down. Syndications are one of them. I really do believe it because people are rushing to put money to work. A lot of people are syndicating properties. And I think there’s some really good operators that know the business over a 10-year period and know it’s a very consistent return. But the pitch has been you’re making these massive IRRs last two years, which is not normal. The point of syndicating is to get a steady return with some tax benefit, and I think people didn’t realize that because what was happening is the operators would get this, they got in the right market, the right deal, it popped, they were selling it off, the investors got massive IRRs, and then they went and bought another one. Then they had the same expectations, and those expectations are just, they’re a little too pumped. I do think it’s a great business. I just think it’s a more going back to it’s consistent, steady, get your mailbox money and move on.

Henry:
I’m probably going to get booed off the stage.

Dave:
Yeah, let’s boo him.

Henry:
Boo. I think pretty soon, storage facilities are going to be in that realm-

Dave:
I’m with you.

Henry:
… because it has gained so much popularity amongst the traditional investor. It was always popular amongst people with a whole lot of money, but now the traditional investor is really savvy to it. They’re out there. They’re looking for them. And so you’ve got traditional investors buying the existing facilities and lots of funds building brand new. Every five miles out here, there is a brand new shiny storage facility being built. And they are not all going to be 100% full, which means they’re going to have to cut costs and they’re probably not going to see a return on the investment they put in until what year? 3, 4, 5? And so there may be some opportunity to get some good deals down the road, but I don’t know that they’re going to get the returns they’re thinking they were planning on getting with so much competition.

Dave:
Totally. And the only way you compete in self storage is by lowering your price. You can’t have a cooler, corrugated steel box than the other steel box. It’s just it is what is.

James:
And you know what? The consumer’s calling the bluff on those people, because I got a notice that they jacked up my rate and I go, “I’m moving.” And then they gave me an offer that was lower than the rate that I was paying for the last 12 months. They’re like, “Well, if you actually don’t leave,” I was like, “Whoa, this is instant.” And I’m like, “Well, no. I bought a property anyways. I’m moving the stuff out regardless.” But it was pretty crazy. They said, “Well, if you don’t leave, we’ll actually give you a break for the next six months.” And I was like, “.”uh,

Dave:
That’s interesting.

Henry:
I’m about to call my storage facility and see if I can negotiate me a better rate.

Dave:
They’re going to try and sell you the whole facility, Henry, when you ask for it. All right. Well, thank you all so much for listening. And Kathy, James, Henry, thank you for sharing your thoughts on future trends and some that might be losing their juice. As James said, we appreciate you all listening and we’ll see you for the next episode of On The Market.
On The Market was created by me, Dave Meyer and Kailyn Bennett. The show is produced by Kailyn Bennett with editing by Exodus Media. Copywriting is by Calico Content. And we want to extend a big thank you to everyone at BiggerPockets for making this show possible.

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In This Episode We Cover:

  • Future real estate investing trends that could offer BIG cash flow in 2024 and 2025
  • The flexible commercial real estate investment that online businesses rely on to survive
  • Kathy’s billion-dollar idea for a match-making app using this specific strategy
  • How to maximize your dollar per square foot by renting out PARTS of your property
  • The new smart homes that could finally solve the affordable housing problem
  • How to create the one percent rule (EVEN in 2024) by building your own rentals
  • Dying trends that are seeing low cash flow, high vacancies, and tough turnover
  • And So Much More!

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