10 “Hidden” Signs of a High-Upside Rental Property (Buy These in 2026)

0:00The difference between a good deal and a great deal often comes down to one thing, upside. You can buy a property with solid cash flow and call it a win. Or you can buy a property with solid cash flow and hit an upside like rent growth, value add opportunities, being in the path of progress. And these can turn it into an equity monster over the next few years. So today, we're breaking down the upsides that separate average properties from deal-of-a-lifetime opportunities. Some of these are obvious, but the best ones often require a little bit of digging. I've been calling this the upside era for a year and a half now, but the market has shifted.

0:45So today, we're going to share which upsides are working best for us and a few new ones we're looking for. By the end of this episode, you'll know exactly what to hunt for when you're analyzing deals for almost any strategy and in any market.

1:05Hey, what's up, everyone? I'm Dave Meyer, Chief Investment Officer at BiggerPockets, and I'm here with my co-host, Henry Washington. Henry, what's going on, man?

1:14Brandon Turner:What's up, buddy? Good to be here. Love talking about deals, so this is right up my alley. but I have a question for you. You've been talking a lot about this upside era in real estate. Why don't you define that for the people listening? I came up with this concept a year and a half ago because we basically, from 2015 to 2022, we're in this era where deals were really, really obvious. You could go out and find something on the market or maybe off market, and it would either cash flow right away or you could do a burr and get 100 % of your money out. And we're not in that era anymore. And the big difference for me right now is that you have to buy deals that the obvious huge gains that you might get might not be in day one or week one or month one.

2:04It might be a little bit down the road. And so the framework I've been using at least is like, how do you buy a deal today that is good? and then you have two or three upside potentials that could play out over the next, it could be three months, it could be three years, but you give yourself a shot to take this deal and turn it from a good one to an amazing one. And frankly, even though we're talking this upside era, this has kind of always been the way real estate works, except for these like magical years from 2015 to 2022. So I think we're just getting back to this idea where you need to look for the long-term benefits of your deals, not just like what's working in the first day of ownership.

2:48And so I actually originally, when I came up with this framework, came up with 10 upsides, but I think they need updating because like this was already a year and a half ago and things have changed. So maybe we could just talk through like what has changed and then, you know, what upsides you think make the most sense for you right now. And I'll share what's working for me.

3:07Brandon Turner:Let's do it. So here are the 10 upsides. And again, at least my framework for buying a rental right now is buy something at cash flows today. It's a good deal today. Target two to three of these 10 upsides. You don't need all of them. You're never going to be able to get all of them. The idea is to get two or three on every deal. So here's the ones that we had. One is rent growth. That's a great way to take a deal. If rents are going to grow, amazing. Two, obvious value add. You're buying a property. Maybe it's good today. You fix it up. it's even better. That's an obvious one. Three, owner-occupied strategies work very well right now.

3:40And it's a huge upside because it gives you so much flexibility. Four is rent by the room, trying to do the co-living model. It's a great way to maximize cash flow. Five, lower LTV or catch purchases. I actually think this is a really interesting one. I'm going to talk about that, but maybe putting more than 25 % down if you can to secure an... I know. To secure an asset that will cash flow in the future or that you really like. Six is path of progress, which is just being in a great neighborhood where things outside of your control can help bring up the value of your property. Seven, one of my personal favorites is zoning upside, being able to add capacity to an existing lot or unit.

4:21Number eight, I'm going to ping you on this one, Henry, is buying deep. Just a great way to really earn equity over the long run. Number nine is create a finance and seller finance. And number 10, this one is controversial, but I think is learning. I think if you buy a deal that's good today and you learn a lot, that makes it a great deal. So those are the 10 I got.

4:41Brandon Turner:I think these are great. I actually have at least one more that I'd add, but also that one may fit into one of these kind of sorter, but we'll talk about that as we go down the list. But looking at this list, I have a question for you on the very first one. I think rent growth is obviously something that happens. Neighborhoods increase in value. People want to live in certain areas. And so when there's more demand to live somewhere, rent can go up. There's tons of things that influence rent growth. But how does a beginner investor, maybe that's done zero to five deals, how do they look for what could be rent growth in the future without being speculative or overpaying for something in a neighborhood where they end up maybe not getting rent growth?

5:25Yeah, this is a great question. And I sort of teased it being a little bit negative about things. But this is the one I think of the upsides I was bullish on a year and a half ago. Now I'm the least bullish on just from like a macro perspective. But the quick answer is look at affordability and supply issues. Those are the main things. Like if there's a lot of oversupply, overbuilt, if you're a place like Phoenix or Nashville or Orlando, like you're probably not going to see a lot of rent growth. The other thing is affordability. Affordability limits how much you can raise rent. And that should be there.

6:00People shouldn't be stretched. That's not good for you. It's not good for them. It's just bad for business. So those are the two constraints. But I would almost say for most people, the only way you should add rent growth as an upside right now, if it's around value add. If you are going to take a property that rents for 1 ,200 right now, and you're going to make that unit better, and then you're going to be able to rent it for$1 ,600, that's totally fine. That is an upside. But this idea that the market's going to give you rent growth right now, I think I would remove that. I like 10 as a round number though.

6:35So maybe your 10th that you're hinting at will replace it.

6:38Brandon Turner:I mean, I think rent growth is something you can look for. It's just not guaranteed. So for me, when I think if I'm looking for a property where I think we might get rent growth. What I would be looking for is an area of town where there's more demand than supply. And it kind of fits in with number six. So something in the path of progress. Because if it's in the path of progress, there may not be tons of people living there yet, but people are probably either living there or going to be living there in the near future. And that can help you get in now and then get rent growth in the future. But I've always found the best way to get like real rent growth is to force it through a value add.

7:20So maybe that's the amendment here to our upside is that you look for rent growth, but it has to be tied to one of the other upsides, which is either value add or the path of progress.

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11:17Brandon Turner:All right, we are back on the BiggerPockets podcast and we're talking about the era of upside and how to locate upside within a real estate deal. Dave has given us his 10 upsides that you can look for on almost any deal. I've quizzed them on number one, and now I've got a question on number two, which is value add. What are some of your favorite ways to add value or things that you look for when you're trying to identify a deal that breaks even or does a little bit of cashflow now, but has value add potential? I love a deal that cash flows today. And then I know that there's room to grow rent or room to push equity when it's convenient.

11:59And a lot of times the convenient time is when the current tenants move out. Or there's opportunities to put an ADU in the back. Or there's a basement that's unfinished. And that sometime in the future, I can add that value if it makes sense. You don't have to do all your value add up front. Sometimes you buy a deal. It makes sense today. And you just kind of wait and see if value add makes sense in the future, a year or two or five years down the line. And so I just like looking for things like big lots, large square footage, extra bedrooms that you can convert or sort of like utility spaces that you can convert.

12:37Those are the things personally I like because those are what drive up rents and equity.

12:42Brandon Turner:The short-term value add things that I'm looking for are easy ways to convert non-bedroom space to bedroom space. Yep. Bedrooms equal more rent. In some markets, you can get a higher ARV. For the most part, it's still heated and cooled square footage. So you're not going to get a ton of bump that way, but you will get rent bump. Yeah. So I'm looking for those on the short term. I'm looking for things like homes with no true primary suite where there is a big bathroom somewhere close. So maybe I can just split that bathroom into two and create an access point from the primary bedroom or homes that need an additional bathroom and they're on crawl space.

13:19Brandon Turner:so like I know I can inexpensively create a bathroom space because there's a crawl space so these are all things that I'm like I look for this that I can do in the short term when I buy this house I can renovate it I can add the value for those things and then I can capitalize on that by renting it for more or selling it for more as a flip and then I have a bucket of what are some of the more longer term value add things and for me those are lots that allow you to have like an ADU or potential for bringing in modular homes and putting them on the land, like if it's zoned appropriately, properties that are in opportunity zones where you can do a little bit of extra building and potentially get some benefits for that.

14:03Brandon Turner:But I think where people get in trouble is they try to buy a property where they have to do that tier two value add in order for the deal to make any sense at all. In other words, they have to buy the property. They've got to renovate the main house, fully renovate that, get that rented out and build an ADU and get that rented out for it to actually cashflow. And I think that that's where people get in trouble. So that's why I kind of bucket it in two tiers. There's stuff I want, I need to do now that I can do quickly and inexpensively to add value. And then there's stuff that's like, that could be cool in the future and it could make me a ton of money later, but I don't want to have to do it.

14:41Brandon Turner:I want it to be icing on the cake for me like the combination of like value add zoning upside plus path of progress is like the sweet spot because then you buy something that's like cash flowing today and like maybe the rents are it's not worth updating the kitchen and the bathroom right now because you're not going to get better rents but if the path of progress upside hits then you do the value You add, then you do the ADU. Like then it turns into this whole thing where you can make it like massive. Like this can go from a good deal to an amazing deal. That's kind of the whole idea behind this framework is like, don't go buy something bad today.

15:20Like it has to make sense today. But like when you're buying a deal, you should be thinking about like, if things go well, what are options two, three, four, five for me to make this go incredibly well and to turn this into a once in a lifetime kind of thing? All right.

15:36Brandon Turner:That's really cool. I totally agree with you on that. Another one I have a question on is owner occupied. How do you see owner occupied as a upside? Oh, this one I love. Doing an owner occupied strategy. So honestly, it works either way. You're either doing a house hack where you're living in one part, renting out the others, or even doing a live in flip. I think it's perfect for the upside era because it buys you time. Like in this kind of area, If you want to figure out how to make the most money out of this property, you're living in the property. There's no urgency to it, right? Which is my favorite part of this.

16:13Like I'm living in a house that I'm living in flip. I decided to take a year off and not do the renovation. It's no problem. I still know this is a great property. I still bought it at a good price. It still has a great ARV, but it's just allowing me more time to figure out exactly how I want to optimize this property. Same thing goes with a rental property. You can move into a house hack and opportunistically renovate properties for it. What one you have time, you're going to be living there, right? Like, so someone moves out, you could do the turns yourself. You could do the value add. You could DIY some improvements to the property.

16:50It just makes it so easy to optimize an investing strategy for your property over two or three years. And I know people want a house hack every year. If you can do that, great. But like, you don't have to. And if you want to just take your time and make one property excellent, which works, by the way, buying the right deal and just focusing on that and making it an excellent performer, owner-occupied is such a good way to go about that.

17:16Brandon Turner:Yeah. The pressure is kind of off with an owner-occupied deal because of the loan that you get to use to get into the property. You're getting 30-year fixed rate debt, typically. It's a more affordable, lower-down payment. And if you're at a place where you feel like, hey, if I move out now, I probably can't get the rent that makes sense for me. Well, guess what? You just don't have to move. You could just stay there. Exactly. Yes. Wait it out for sure. That makes total sense. Another one on the list I did want to ask you about, mostly because I'm jealous because it doesn't work in my market. But a lot of people are doing it and making great money doing it, which is the rent by the room upside.

17:59Brandon Turner:This I mean, people are bringing in, you know, tons of cash flow, 700, 800, 900 dollars per bedroom in certain markets, in certain areas, in certain kinds of houses. But it doesn't work everywhere. So when does it make sense for you to think about this as like a value add opportunity? Because yeah, anybody can add bedrooms and try to rent a house by the room, but that doesn't mean it's going to work. Totally. In this framework of upside, it's an option for how to manage a great asset. And I think this is the same thing. I see it the same way as short-term rentals and mid-term rentals. Those are all options for how you manage an asset.

18:42You have to buy a good asset that works, I think, ideally, in the most basic highest demand thing, which is long term rental. If you are in an area that this works, it can take what is a good long term rental into an amazing like cash flow monster. Like that's why I see it as an upside, not as its own strategy. I've never done rent by the room. So just to be clear, but like even if I did one or two of these, I would never say like I'm a rent by the room investor. I'd say I'm a long-term real estate investor. I buy great assets. And then I figure out the right way to manage them given current market conditions.

19:19And rent by the room is a tool that you can do to manage it.

19:23Brandon Turner:Yeah. I think what people should be focused on, and I think it's kind of what you've been saying the entire episode, is you want the deal to break even or cash flow as is, as a long-term rental right now. And then you can take advantage of the upside if this house is in a neighborhood in a market where rent by the room works. So instead of you just making your two, three hundred bucks a month cash flow, you go ahead and do the rent by the room strategy and you bump that up to two thousand dollars a month cash flow. Yeah, because you've got the upside. But if something out of your control changes, like they change the rules or the zoning laws or something backfires and you can't do it, then you're just back to making your two or three hundred bucks a month cash flow.

20:06Brandon Turner:It's still a good deal. I think it's the same thing for short term rentals these days, too. Like this is just the way to do it. All right. We're on the same page there. But I think I have one strategy to add to your upside list. Yes. I want to hear about this. All right. Here it is. I'll tell you about it right after the break.

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