6 Predictions for 2026 That Could Reshape the Economy & Housing Market

Ashley:
Welcome again to the Actual Property Rookie podcast the place we provide help to get began in actual property investing the proper method with out the pricey rookie errors.

Tony:
That’s proper. Each week we break down actual questions from actual traders within the BiggerPockets group, and these are the identical issues that you just’re most likely questioning as you search for your first or your subsequent deal,

Ashley:
And immediately’s lineup is stacked. We’re speaking about three subjects each investor ought to take into consideration early on, even when you don’t assume they apply to you but.

Tony:
First up, do you have to get umbrella insurance coverage? Is it a sensible security internet or simply one other invoice that you just don’t want?

Ashley:
Then we’ll cowl the downsides of an FHA mortgage. Sure, it helps you purchase your first home with much less cash down, however there’s just a few catches you need to know earlier than signing.

Tony:
And at last, the age outdated debate neighborhood versus numbers when the deal appears to be like nice on paper, however the block’s a bit of sketchy, which one really wins

Ashley:
Should you’re model new and attempting to make smarter selections along with your first few properties. This episode goes to avoid wasting you from numerous complications down the highway. That is the Actual Property Rookie podcast. I’m Ashley Kehr.

Tony:
And I’m Tony j Robinson. And with that, let’s get into immediately’s first query, which comes from Taylor within the BiggerPockets boards. Alright, Taylor says, ought to I get umbrella insurance coverage? I wish to clarify my scenario and I’m curious what you all assume if I ought to get umbrella insurance coverage or not. I’ve common insurance coverage on all of my properties and I’ve two separate LLCs. I’ve one LLC that I take advantage of for properties that I personal 100% by me and one other LLC that I’m utilizing for properties owned 50% by me and the opposite 50% by another person. So he’s obtained two leases owned 100% by him behind one LLC, one rental owned 50% by him behind a second LLC, after which two leases owned 50% by him that aren’t behind any LLCs. These are ones that the lenders wouldn’t let me transfer into an LLC, nonetheless, I plan to refi in the way forward for charges, go down and put them behind an LLC, the opposite property I’m seeking to promote.
Alright, so questions on umbrella insurance coverage and LLCs and legal responsibility safety. I assume first let’s simply put out an enormous fats disclaimer that Ashley and I, neither of us move the bar. We’re not attorneys or insurance coverage brokers for that matter, so undoubtedly go speak to a certified skilled, however I believe we’ll simply type of give our take and you may take it for what it’s value. I believe there’s, and Ashley, you defined this earlier than and I assumed it was like an ideal rationalization, however the LLCs and insurance coverage each shield from legal responsibility, however they do it in numerous methods. The LLC or asset safety, whether or not it’s an LLCA belief or no matter different NC you place your property into, the asset safety’s purpose is to hopefully forestall a lawsuit from taking place within the first place. We’ve interviewed asset safety attorneys, and you may get tremendous difficult with this, however when you set your entities up in a method, typically it simply discourages folks from even attempting to sue you within the first place, proper? In order that’s the purpose of your LLCs and your belief and all of the completely different authorized entities you should use to carry possession and shield your properties, proper? The purpose is to stop lawsuits from taking place.

Ashley:
Tony, I believe to make clear, it doesn’t forestall lawsuits from taking place. It prevents them from suing you personally or prevents lawsuits towards your different belongings that aren’t within the LLC.

Tony:
So sure, however we had a dialog with Brian Bradley who’s an asset safety legal professional, and I had an off the report dialog with him and he was really saying that there are particular entity constructions that you could arrange the place after they go to attempt to sue you, they understand that there’s really nothing for them to sue due to how difficult the authorized construction is. Now that’s most likely just like the Ferrari of asset safety that numerous Ricks aren’t going to wish, however simply know when you’re an excellent excessive value particular person and also you’ve obtained numerous belongings earlier than you begin investing in actual property that you just wish to shield, there are methods to actually simply discourage folks as a result of it’s such a sophisticated construction to sue you in any respect as a result of they realized that possibly it’s not even well worth the problem.

Ashley:
That’s actually fascinating. I didn’t know that there was the problems. I knew in case you have no fairness and also you’re fully leveraged, and even when they sue you, they get nothing that might deter folks, however that’s actually fascinating. I didn’t know that concerning the complicating the precise setup can,

Tony:
And once more, don’t ask me to repeat how that was arrange as a result of I couldn’t inform you as a result of there was one thing with a international belief or one thing like that or method past my scope, however he did educate me on the truth that that’s an choice. After which the opposite piece apart from the asset safety is the insurance coverage itself, and that’s extra so when one thing occurs and also you’re type of within the thick of it, and insurance coverage will normally cowl damages as much as a certain quantity, proper? Possibly it’s 500 Okay, possibly it’s one million bucks, possibly it’s 2 million bucks. So the umbrella coverage is there as an extra layer above and past no matter legal responsibility safety comes along with your landlord insurance coverage. So let’s say that your landlord insurance coverage covers you as much as possibly 500 Okay and also you get sued as a result of somebody slips and falls they usually wish to sue you for $1 million. Properly, now you’re on the hook for that distinction of 500 Okay. The umbrella coverage is what could be that backdrop to offer you further legal responsibility safety to cowl no matter that shortfall is out of your landlord insurance coverage. So doesn’t make sense probably, however I believe it goes again to what you mentioned ash, of how a lot do you even have to guard.

Ashley:
Yeah, I not too long ago did a name with a unique asset safety legal professional simply to see what my choices are and issues like that, and there’s normally this huge debate of placing one property into an LLC, so there’s just one property in every LLC. So in case you have 10 properties, you could have 10 LLCs, which I’ve not performed that. I’ve performed it extra as partnerships and that’s type of appears what this individual has performed on this instance. So the concept behind that’s in case you are placing one property that if one thing occurs with that property, they will’t take any of your different properties as a result of it’s solely in that one LLC. So there’s completely different ways in which you are able to do that. What I like to recommend is the umbrella insurance policies on your partnerships. I’ve LLCs with my partnerships, however I even have umbrella insurance policies on high of that as a result of I do know what I’m doing, however I don’t at all times know what sort of legal responsibility publicity I’ve from my companions.
So I’m not the one going out and finishing upkeep or doing issues like that. So I need to have the ability to be certain that there’s an additional layer of safety in case and nonetheless, it may even be me that does one thing fallacious, however I do nonetheless do the umbrella coverage as a result of it helps me sleep at night time, initially, and it’s simply giving me extra money to have the ability to defend myself. The LLC defend itself from shedding my belongings. So most individuals I’d say they put it within the LLC, they don’t get the umbrella coverage on high of that, however I extremely, extremely advocate that you just get an umbrella coverage on your private belongings. Even when you don’t have a rental property, you could have your main residence, you and your important different drive automobiles have an umbrella coverage on that, particularly in case you are beginning to construct a pleasant internet value and construct some type of wealth for your self too, is having that extra cash to spend on your legal professional charges for a settlement, issues like that if one thing does occur. So I’m an enormous proponent of umbrella insurance policies for positive. I believe one factor so as to add in to actual fast, with an umbrella insurance policies, you could have your base insurance coverage, so that may pay out first after which the umbrella coverage can pay out after that. So that you won’t even have to faucet into that umbrella coverage, but it surely’s similar to an additional protection. So first could be your landlord coverage, after which that might kick in and pay out till that was spent, after which it could go to the umbrella coverage too.

Tony:
Last item I’ll say is that these will not be costly insurance policies, the umbrella insurance policies. I used to be looking for a current quote that I obtained. I discovered one from just a few years in the past and it was like $2 million of protection and clearly there’s some nuances, there are some carve outs, but it surely was like 500 bucks for the yr. I believe that’s like 60 bucks a month to get 2 million in protection. So it’s not a big expense. So when you’re on the fence about it and you’re feeling such as you’ve obtained sufficient belongings to guard, then yeah, I’d simply say spend the 60 bucks a month and get the umbrella coverage.

Ashley:
Plus you’ll be able to have your LLC pay the coverage too in case you have an LLC and the coverage is for the LLC. It’s a enterprise write off too for the premiums. Properly, we’ve to take a brief break, however once we come again we’re going to be speaking concerning the downsides of utilizing an FHA mortgage. We’ll be proper again. Okay, welcome again. Our subsequent query is from Erica, and this query comes from the BiggerPockets boards. Erica’s query is for anybody who has utilized an FHA mortgage, did you discover it onerous to search out sellers that wish to promote to patrons with an FHA mortgage as a result of FHA appraisal? Does the FHA mortgage make you much less aggressive when making gives? Thanks upfront for any perception. One little factor I do wish to make clear on this query is the place she says, patrons with an FHA mortgage as a result of FHA appraisal, it’s normally nothing to do with the appraisal as a result of just about each financial institution financing you’re going to get goes to make you get an appraisal.
It’s extra of the FHA inspection. So when you go and also you get an inspector to return out, do a house inspection, that is fully completely different. FHA is sending out their very own inspector they usually’re going to undergo the property and search for issues that they care about. I keep in mind my cousin purchased a property utilizing her FHA mortgage and the inspection occurred they usually made them put up railings and there was no railings within the stairwell or one thing like that, and the vendor refused to. So my uncle went over there and he’s like, can I simply put them up so we will get this home to shut? And my uncle put in the railings despite the fact that they didn’t personal the home but, simply to get it to move the FHA inspection and to maneuver on. So the identical with VA loans. They’ve some further hurdles and hoops it’s important to undergo too.
So if I’m a vendor and I’m reviewing my gives and one is FHA, one is VA and one is standard, sure, I’m going to be extra in the direction of eager to take the standard mortgage as a result of there’s not as many hoops to leap by way of for the funding to get accepted to buy the property. So sure, it might be a deterrent. One other nice choice just isn’t utilizing FHA and doing standard like FHA, you are able to do three and a half % down, however standard you are able to do 5% down. So in case you have that further little bit of cash, you’re including extra fairness into your own home upfront by placing a bit of bit larger down cost after which you’ll be able to simply get the standard mortgage and never even use the FHA mortgage.

Tony:
Yeah, nice factors. Ashley. I’ve by no means personally used an FHA mortgage or offered to somebody who has an FHA mortgage, however I believe your factors round in apples to apples comparability of gives, one with non FHA debt and the opposite with FHA, the FHA might be going to be a bit of bit getting the brief finish of the stick, however to that time, I believe there are methods that you could make your provide a bit of bit stronger as properly. Buy worth is one. Should you simply merely provide extra money, I believe that’s at all times technique to entice the vendor your earnest cash deposit. Should you say, Hey, I’m prepared to offer an even bigger EMD to possibly get this deal performed, it’ll present that despite the fact that you’re utilizing FHA, possibly you’re a bit of bit extra dedicated to getting the deal performed. Pace is at all times necessary, however with an FHA, it’s most likely a bit of bit out of your management Should you’re closing with another type of debt, I believe that’d be simpler, however these are most likely the 2 issues that I’d concentrate on and possibly even simply in your contract saying that possibly you’re prepared to fund a few of these repairs your self as much as a certain quantity.
So I believe it’s simply attempting to know what the vendor’s motivations are and doing all of your greatest to talk to these particular motivations even when the FHA inspection is a bit of little bit of a headache. Alright guys, we’re going to take our last break whereas we’re gone. Should you haven’t but subscribed to the Actual Property Rookie YouTube channel, be sure to do this. That method you’ll be able to see mine and Ashley’s stunning smiling faces each time you devour the content material from the podcast. However we’re at actual property rookie on YouTube, you guys and discover us there. We’ll see proper after the break. Alright, we’re again right here with our last query and this query comes from Anthony within the BiggerPockets discussion board. So Anthony says, I’ve began in search of properties for a long-term rental funding. I’m in Greenville, North Carolina, a smaller metropolis, about an hour east of Raleigh. Since I’ve began trying, I’ve come throughout just a few respectable choices.
I discovered one property that has a very good money on money return and a possible 10% cap fee, but it surely’s in a decrease revenue space and an space with increased crime. The property itself is in respectable form, the numbers line up and I’m interested by going to place in a proposal. Nevertheless, I’ve some reservations concerning the road, the emptiness fee of the neighborhood, and simply the general intestine feeling I get once I’m there. Is my concern concerning the neighborhood justified or is that this a standard rookie mistake? Any ideas from extra skilled traders, execs and cons for investing in decrease revenue areas would actually respect any suggestions? It’s an ideal query and I believe numerous rookie traders get googly-eyed when possibly they see the costs for a few of these properties in areas of city the place, yeah, possibly there may be possibly decrease revenue or increased crime.
They’re like, properly man, I could make a ton of cash when it comes to cashflow on paper from what this deal appears to be like like. And that’s to not say that each space that’s decrease revenue or with increased crime, it’s a nasty space to spend money on, however I believe you’ve actually obtained to know the situation to have the ability to discover that stability and strike that stability. As you mentioned fairly just a few occasions that a few of your offers that look nice on paper ended up being a number of the hardest to handle. What’s your expertise been with nice offers on paper, possibly not as nice of an space in actual life?

Ashley:
Yeah, I imply, I hit the three% rule at one in all these 20,000 duplexes. I used to be like, that is nice. Everybody’s complaining. They will’t even hit the 1% rule of getting one month’s hire, be at the least 1% of the acquisition worth of the property. It’s getting 3%. I’m like, that is nice. This can be a residence run deal. It was one in all my worst properties. So this property, I believe the principle level of taking a look at these properties is first, what are you going to be placing into the property? Are you bringing sufficient cash and does this deal nonetheless work when you’re fully renovating the property? Okay, I had two ache factors on this property and it was tenant turnover and it was repairs and upkeep. And the factor was that the property was $20,000. It was in respectable form, but it surely had bandaid after bandaid after bandaid placed on the property earlier than I even bought it.
And so for me to fully renovate these to make it good, they might’ve been full intestine rehabs and if I’d’ve put the cash into doing that, the numbers would’ve now not made sense. And I’m like, they’re already rented out. I can do a pair beauty issues. That is nice, let’s go. And that was not the case. There was continually repairs that wanted to be made, capital enhancements down the highway, after which simply the tenant turnover. So simply you get into a few of these neighborhoods, and this wasn’t within the metropolis, these have been small rural cities, however there was far more turnover. It was tougher to get a high quality tenant. Many of the renters within the space have been as a result of they couldn’t afford to buy a home, not as a result of they selected to hire. After which simply the low revenue the place folks have been stretching it to make ends meet.
So evictions, late funds, simply turnover to folks continually transferring increased crime. So it didn’t work out for me. So there was too many complications that it wasn’t well worth the cash. So I had about 5 of those duplexes and there was two cities the place I had these properties and I’ve offered all of them. I’ve obtained rid of all of them. Fortunately I used to be very lucky to purchase them in 2017, 2018, after which I offered them in 2021 and it was like 3 times what I purchased them for. That is nice. So it labored out, however timing the market just isn’t one thing you’ll be able to predict or depend on. However I’d say if I may do it otherwise, I’d’ve waited and I’d’ve, if it was both I wanted to avoid wasting an even bigger down cost or I wanted to barter a unique vendor financing deal, I’d’ve waited and constructed my portfolio slower as a substitute of simply attempting to build up models.
And that is how I’m going to get so many models as a result of I’m shopping for $20,000 duplexes. As an alternative, I’m going to purchase high quality properties and actually take my time and develop slowly and ensure these are properties that I do wish to maintain on. So if I may go and do it once more, I’d do this. But when that is the one method that you just’re going to get began, simply put together your self that you will have extra repairs and upkeep and vacancies than you anticipate and ensure these numbers are inflated if you do deal evaluation in comparison with possibly shopping for in a B class neighborhood.

Tony:
Truly our buddy Steve Rosenberg, he shared a narrative, I believe it was at an occasion that we have been at collectively as soon as the place he had a portfolio of numerous houses that have been in name it C or D class neighborhoods, decrease revenue, increased crime, precisely what Anthony described right here. And it was the bate of his existence and he ended up promoting that portfolio off to a different investor and he one way or the other got here throughout that investor just a few years down the highway and he was like, dude, how’s that portfolio doing that you just purchased from me? He was like, oh man, these are my greatest performing properties ever. Identical actual homes, identical actual tenant pool, however two completely completely different experiences. And what Steve shared was that the man who he offered to, he had the proper strategy, programs, processes, frameworks to take care of that sort of product and that sort of tenant pool.
So I believe that in case you are interested by going into that sort of product, then simply just be sure you are equipping your self with the proper instruments and sources to do it successfully. I’d encourage you to possibly speak to property managers in that space and possibly get their sense of like, Hey, what do you see? What’s working properly? What’s not working properly? However actually, actually be sure to’ve obtained a rock stable course of for vetting, for upkeep, for hire assortment as a result of I believe it may be profitable. We all know numerous of us who spend money on decrease revenue neighborhoods that do extremely properly, however I believe it does come all the way down to the operator and the way they work. I believe the very last thing I’ll say, Ashton, we don’t speak about this so much and I really feel like we should always do possibly an knowledgeable led episode on this, however going after Part eight tenants is perhaps a good way to mitigate a few of these challenges as properly.
Now, similar to each different tenant, not each part eight tenant’s going to be nice, however I believe there may be possibly a stronger motivation from of us who’re on a voucher program to remain of their models longer. And there’s additionally the federal government subsidies that enable them to make these hire funds. So possibly that’s an choice the place you go into that very same neighborhood, however versus simply opening as much as everybody, you actually concentrate on the part A program to attempt to at the least get a bit of little bit of help on ensuring these hire funds are available.

Ashley:
Yeah, I’ve had a number of Part eight tenants, I don’t have any proper now, however I discovered that very true that with them, they might make their funds, their portion as a result of they didn’t wish to lose that. Final time I checked, I believe it was like an eight yr wait checklist to get a voucher in my market. So the factor that I did discover was I had a number of tenants go on non permanent vouchers from a really native housing authority or issues like that, and that’s when it didn’t work out the place it wasn’t like this might be one thing they’re set on for a very long time. It was like, okay, they’re going to pay my hire for six months to assist me out, and people are the folks that ended up simply stopped paying. They obtained too comfy with having that. After which when the six months was up, they didn’t pay and we needed to undergo with eviction.
So I discovered if it’s a set program the place somebody’s on for long-term appears to work out higher than if it’s only a brief time period. So I really feel prefer it virtually enabled them they usually obtained type of used to having that the place possibly they weren’t budgeting and saving and anticipating when these six months finish to start out paying once more. However that was simply in my expertise in these markets of the part eight tenants have been nice. Part eight is available in, the housing authority is available in and does an inspection yearly. And never solely to be sure to as the owner are doing all the pieces accurately, but additionally they’ll make it possible for the tenant is retaining the property in good order too. There’s not holes within the wall, issues like that. I did sit right into a housing authority, had some type of assembly or no matter one time it was like a free class or one thing, and I went to it they usually had someone converse and it was like someone from a homeless group they usually talked about how one can checklist their models with them they usually’ll put homeless folks in these models after which they may pay for them.
And one of many issues they did was they did a month-to-month inspection of the property that was supplied to the owner each month. I by no means did something with that housing group, however I assume there’s different methods, different organizations that place folks and issues like that too, the place you may get on their listings similar to Part eight and have a housing specialist place somebody into your property that’s already accepted. In order that’s one other good factor about part eight is that you could checklist your rental with them and in case you are one in all their suppliers that work with them, they will simply place a tenant in your property and it may possibly actually reduce down on having to discover a tenant and issues like that too. One factor I do assume we’ve to deal with, and this episode isn’t airing till fairly some time from once we’re recording this, it’s October twenty ninth that we’re recording this, and that is when the federal government shutdown is occurring, and there’s at all times been this huge sig that Part eight hire is assured throughout COVID.
No offense that numerous you Part eight landlords are bragging like, oh, that is assured revenue part eight, I don’t have to fret about not being paid. However now there’s numerous speak about what occurs when the federal government runs out of their reserves to truly pay the Part eight vouchers. So normally we are going to probably, even when they cease funds, that you’ll obtain your again pay when the federal government opens up once more. However what do you do within the meantime? And through COVID, numerous landlords expertise that is like beef up your reserves, be sure to have some type of security internet if that’s to occur. And you’ll’t take motion on any of those tenants. If their vouchers aren’t paid, you can’t evict them as a result of the federal government just isn’t paying their portion. And I believe that is simply one other warning signal for landlords at all times have these reserves in place.
You by no means know what will occur. That shall be out of your management. We noticed that in COVID and we’re seeing that now presumably with the federal government shutdown. So hopefully by the point this airs, the federal government is again up and working. This isn’t a priority in any respect, however only a prime instance of creating positive to actually beef up your reserves and to not be over-leverage and to not put your self at a lot threat too as a rookie investor. Properly, thanks guys a lot for becoming a member of us immediately. I’m Ashley. He’s Tony, and we’ll see you guys on the subsequent episode of Actual Property Rookie.